As filed with the Securities and Exchange Commission on September 10, 2001
Registration No. 333-45508
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 3
TO
FORM SB-2
REGISTRATION STATEMENT
Under
The Securities Act of 1933
UNITED STATES ANTIMONY CORPORATION
(Name of small business issuer in its charter)
Montana 3339 81-0305822
(State of jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or Classification Code Number) Identification
organization) Number)
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COPY TO
Approximate date of proposed sale to the public: From time to time after the
effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box: [x]
If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. [ ]
(1) This Registration Statement relates to the registration of 6,268,065 shares of common stock, $.01 par value, which we are obligated to register on behalf of Selling Shareholders. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Financial Condition and Liquidity" and "Selling Shareholders."
(2) This Registration Statement covers (i) 2,317,597 shares of common stock issuable upon conversion of debentures at $0.29125 per share, and 1,682,403 additional shares issuable upon conversion if the market price is less than $.29125 per share which we are required to register pursuant to a financing agreement with purchasers of our convertible debentures; (ii) 1,394,050 shares issuable upon exercise of related warrants at $0.39 per share; (iii) 150,000 shares of common stock held by a Selling Shareholder; (iv) 240,343 shares issuable to the holders of debentures as penalties; and (v) 483,672 shares held by former holders of Series C preferred stock. Pursuant to Rule 457(c) under the Securities Act of 1933, the aggregate offering price of the common shares underlying the debentures and the warrants is computed on the basis of the average of the bid and asked price for our common stock in the over-the-counter market on September 10, 2001.
The registrant hereby amends this registration statement on the date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on the date the Commission, acting pursuant to said Section 8(a), may determine.
PRELIMINARY PROSPECTUS Subject To Completion, Dated SEPTEMBER ___, 2001
The information in this prospectus is not complete and may be changed.
UNITED STATES ANTIMONY CORPORATION
6,268,065 Shares
Common Stock
We are registering the following shares for resale by Selling Shareholders. See "Selling Shareholders":
o 4,000,000 shares of common stock issuable at a price per share equal to the lower of $.29125 or 75% of the market price upon conversion of our 10% convertible debentures issued and issuable to 5 of the selling shareholders;
o 240,343 liquidated damage shares of common stock issuable ratably to the holders of our 10% convertible debentures. o 432,692 shares of common stock issuable at $.39 per share upon exercise of warrants held by 5 of the selling shareholders; o 961,358 shares of common stock issuable at $.39 per share upon exercise of agent's warrants held by 3 of the selling shareholders;
o 150,000 shares of common stock held by 1 of the selling shareholders; and
o 483,672 shares of common stock held by 13 of the selling shareholders who converted their shares of our Series C Preferred Stock.
We will pay the expenses of registering these shares.
We will receive no part of the proceeds from any sale of the shares by the selling shareholders. See "Selling Shareholders."
The selling shareholders will receive the price per share available in the Over-The-Counter market. See "Determination of Offering Price."
Investing in these shares involves significant risks.
See "Risk Factors" section of this Prospectus beginning on page 2.
Our common stock is registered under Section 12(b) of the Securities Exchange Act of 1934 and trades are reported on the Over-The-Counter Electronic Bulletin Board (OTCBB) under the symbol "UAMY." The last reported sale price per share of our common stock by the OTCBB on September 10, 2001 was $0.14 per share.
The Securities and Exchange Commission and state securities regulators have not approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The date of this prospectus is ________, 2001
TABLE OF CONTENTS
Page
PROSPECTUS SUMMARY................................... .........................1
RISK FACTORS...................................................................2
USE OF PROCEEDS................................................................8
DETERMINATION OF OFFERING PRICE................................................8
DILUTION.......................................................................9
SELLING SHAREHOLDERS...........................................................9
PLAN OF DISTRIBUTION..........................................................12
DESCRIPTION OF SECURITIES.....................................................14
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS......................16
DESCRIPTION OF BUSINESS.......................................................17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS....................................................................28
DESCRIPTION OF PROPERTY.......................................................30
DIRECTORS AND EXECUTIVE OFFICERS..............................................31
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT................32
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................................34
EXECUTIVE COMPENSATION........................................................37
LEGAL PROCEEDINGS.............................................................37
LEGAL MATTERS.................................................................37
EXPERTS.......................................................................37
WHERE YOU CAN FIND MORE INFORMATION...........................................37
INDEX TO FINANCIAL STATEMENTS..............................................F - 1
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PROSPECTUS SUMMARY
The following summary highlights material information contained in this prospectus. This summary does not contain all the information you should consider before investing in the securities. Before making an investment decision, you should read the entire prospectus carefully, including the "Risk Factors" section, the financial statements and the notes to the financial statements. Some of the statements made in this prospectus discuss future events and developments, including our future business strategy and our ability to generate revenue, income and cash flow. These forward-looking statements involve risks and uncertainties which could cause results to differ materially from those contemplated in these forward-looking statements.
The Company
Our principal business is the production of antimony products including antimony metal, antimony oxides and sodium antimonate. In the year ended December 31, 1999 and December 31, 2000, antimony product sales generated revenues of approximately $4.7 million and $5 million, respectively.
Our antimony mining properties, mill and metallurgical plant are located in Montana. Mining of antimony was suspended in 1983 because antimony can be purchased more economically from foreign sources. We acquired a 50% interest in United States Antimony, Mexico S.A. de C.V. ("USAMSA"), upon its incorporation in Mexico in April 1998. USAMSA intends to produce antimony metal and other products to be delivered to our Montana mill for processing. This Mexican company has not commenced operations and is expected to remain in developmental stages in the foreseeable future.
We have entered into a joint venture to mine, process and sell zeolite. This venture is in the developmental stage but is not expected to contribute materially to our operating revenue in the near future.
Our mailing address is P.O. Box 643 and our physical address is 1250
Prospect Creek Road, Thompson Falls, Montana 59873. Our telephone number is
(406) 827-3523.
The Offering
Common Stock Offered
For Resale:....... 6,268,065 shares, issuable to Selling Shareholders
upon conversion of our 10% convertible debentures,
exercise of related warrants; and, common stock held
by 14 selling shareholders
Shares Outstanding
Before the Offering(1) 19,134,564
Shares Outstanding
After the Offering(2) 25,402,629
Use of Proceeds:.. Working capital and general corporate purposes.(3)
Over-The-Counter
Electronic Bulletin
Board Symbol:..... UAMY
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(1) As of June 30, 2001.
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(2) Assumes all shares registered in this prospectus are sold.
(3) We will receive no proceeds from the issuance of shares of common stock upon
the conversion of the 10% convertible debentures. If exercised, we will receive
proceeds from the sale of shares issuable upon the exercise of warrants by the
Selling Shareholders. We will not received proceeds from resale of our common
stock by the Selling Shareholders.
RISK FACTORS
You should carefully consider the following risks and all of the other information set forth in this prospectus. Some of the following risks relate principally to our business. Other risks relate to our financial condition, the securities markets and ownership of our stock. The risks and uncertainties described below are not the only ones facing our company. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also adversely affect our business.
If any of the following risks and uncertainties develop into actual events, our business, financial condition or results of operations could be harmed and the price of our stock could go down. This means you could lose all or part of your investment.
There are risks associated with forward-looking statements made by us and actual results may differ.
Some of the information in this Form SB-2 contains forward-looking statements that involve substantial risks and uncertainties. You can identify these statements by forward-looking words as "may," "will," "expect," "anticipate," "believe," "estimate" and "continue," or similar words. You should read statements that contain these words carefully because they: o discuss our future expectations; o contain projections of our future results of operations or of our financial condition; and o state other "forward-looking" information.
We believe it is important to communicate our expectations. However, there may be events in the future that we are not able to accurately predict or over which we have no control. The risk factors listed in this section, as well as any cautionary language in this prospectus, provide examples of risks, uncertainties and events that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements. You should be aware that the occurrence of the events described in these risk factors could have an adverse effect on our business, results of operations and financial condition.
Risks Related to This Offering
Our share price may decline because of the ability of the Selling Shareholders to sell shares of our common stock, resulting in a loss of value to our other shareholders.
This prospectus covers 6,268,065 shares for sale by the Selling Shareholders. Sales of substantial amounts of our common stock by the Selling Shareholders, or the possibility of sales of up to one-third of the presently outstanding shares, could adversely affect the prevailing market price of our common stock and impede our ability to raise capital through the issuance of equity securities. Subject to applicable federal and state securities laws and contractual limitations, after converting their debentures and/or exercising their warrants to purchase shares of our common stock, the Selling Shareholders may sell any and all of the Shares. Trading volume in our stock on the OTC Bulletin Board has historically been light; and sale of blocks of common stock could depress the market price of our stock.
By short-selling our stock, the Selling Shareholders could depress the market price of our shares, enabling the Selling Shareholders to acquire more shares upon exercise of debenture conversion rights and thereby increasing the dilution of the other shareholders' equity in the company and resulting in a loss of value to our other shareholders.
A short-sale is the sale of a security that the seller does not own or that the seller owns but does not deliver. In order to deliver the security to the purchaser, the short-seller will borrow the security, typically from a broker-dealer or an institutional investor. The short-seller later closes out the position by returning the security to the lender, typically by purchasing equivalent securities on the open market. In general, short-selling is utilized to profit from an expected downward price movement, or to hedge the risk of a long position in the same security or in a related security.
Although short-selling serves useful market purposes, it also may be used as a tool for manipulation. One example is the "bear raid" where an equity security is sold short in an effort to drive down the price of the security by creating an imbalance of sell-side interest. Short-selling at successively lower prices may drive the market down and may accelerate a declining market by exhausting all remaining bids at one price level, causing successively lower prices to be established by long sellers. Further, short-selling can increase stock price volatility.
The Securities and Exchange Commission has adopted rules which regulate short-selling of securities listed on national securities exchanges. The National Association of Securities Dealers similarly regulates Nasdaq National Market Systems (NMS) securities. These rules do not apply to short sales of securities, like our common stock, which are traded in the over-the-counter market and quoted on the Electronic Bulletin Board.
Our debenture conversion price formula has no floor. Twenty percent (20%) of our presently outstanding shares and two-thirds of the shares registered by this prospectus are available to the Selling Shareholders at 75% of the market price. The lower the market price for our common stock, the greater the number of shares the Selling Shareholders can acquire upon conversion of the debentures into common stock. The Selling Shareholders could use a short-selling strategy to drive down the market price of our common stock and then exercise conversion rights to acquire more shares and dilute the other shareholders' interests in us.
Our Common Stock Is A "Penny Stock," And Compliance With Requirements For Dealing In Penny Stocks May Make It Difficult For Holders Of Our Common Stock To Resell Their Shares.
The limited public market for our common stock, is in what is known as the over-the-counter market and, trading of our stock is quoted under the symbol "UAMY" on the Electronic Bulletin Board operated for the NASD. At least for the foreseeable future, our common stock will be deemed to be a "penny stock" as that term is defined in Rule 3a51-1 under the Securities Exchange Act of 1934. Rule 15g-2 under the Exchange Act requires broker/dealers dealing in penny stocks to provide potential investors with a document disclosing the risks of penny stocks and to obtain from these inventors a manually signed and dated written acknowledgement of receipt of the document before effecting a transaction in a penny stock for the investor's account. Compliance with these requirements may make it more difficult for holders of our common stock to resell their shares to third parties or otherwise, which could have a material adverse effect on the liquidity and market price of our common stock (see "Description of Securities - Penny Stock Rules").
Penny stocks are stocks:
o with a price of less than $5.00 per share unless traded on NASDAQ or a national securities exchange;
Penny stock are also stocks which are issued by companies with:
o net tangible assets of less than:
>> $2.0 million (if the issuer has been in continuous operation for at least three years); or
>> $5.0 million (if in continuous operation for less than three years); or
o average revenue of less than $6.0 million for the last three years.
It is more difficult for our shareholders to sell their shares because we are not, and may never be, eligible for NASDAQ or any National Stock Exchange.
We are not presently, and it is likely that for the foreseeable future we will not be, eligible for inclusion in NASDAQ or for listing on any United States national stock exchange. To be eligible to be included in NASDAQ, a company is required to have not less than $4,000,000 in net tangible assets, a public float with a market value of not less than $5,000,000, and a minimum bid of price of $4.00 per share. At the present time, we are unable to state when, if ever, we will meet the Nasdaq application standards. Unless we are able to increase our net worth and market valuation substantially, either through the accumulation of surplus out of earned income or successful capital raising financing activities, we will never be able to meet the eligibility requirements of NASDAQ. As a result, it will more difficult for holders of our common stock to resell their shares to third parties or otherwise, which could have a material adverse effect on the liquidity and market price of our common stock
The terms of the 10% Convertible Debenture financing transaction may result in substantial dilution of our stock upon the conversion of the debentures and warrants which have been issued and which may be issued in the future under the terms of the financing agreement.
We entered into a financing agreement with Thomson Kernaghan and Co. Limited, as agent for some of the Selling Shareholders. As part of the agreement we issued and could issue additional 10% convertible debentures and warrants.
* Substantial dilution. Substantial dilution of our stock will occur upon the conversion of the debentures and warrants which have been issued and which may be issued in the future under the terms of the agreement.
* No floor on the conversion price. The conversion price of our outstanding debentures is the lower of the initial conversion price of $.29125 per share or 75% of the average of the three lowest closing bid prices of our common stock during the twenty trading days preceding the conversion date; and there is no maximum number of shares issuable upon conversion of the debentures.
* Selling shareholder may depress the trading price of our stock. A debenture holder could partially convert to common stock, sell that stock in a manner which depresses the trading price, and then further convert a portion or all of the debenture at the lowered stock price, thereby increasing the number of common shares issuable upon conversion of each dollar of debenture and increasing the dilution of the outstanding shares of our common stock.
* We may be required to issue more shares than we have authorized. If the price of our common stock declines below approximately $0.075, we will have insufficient shares of authorized common stock available to enable conversion of all outstanding debentures. In that event, we would be in breach of our obligations to one or more debenture holders, who would then have the right to require immediate repayment of the unpaid principal balance of the debenture and accrued interest and could subject us to exposure to a claim for damages.
* Limitation on future transactions. The potential and/or actual dilution and agreement terms which prevent the following future transactions may harm our stock price and our ability to obtain additional financing, if needed.
The debenture agreement requires that so long as any of the principal of or interest on the debentures remain unpaid or unconverted, the Company shall not:
* merge or consolidate with any other entity;
* sell or otherwise dispose of a material portion of its assets (other than in the ordinary course of business);
* pay any dividend on its shares (including any dividend payable in common stock or other property);
* subdivide, split or otherwise increase the number of shares of common stock; or
* issue any common stock or other equity securities, or any other stock, option, warrant, right or other instrument that is convertible into or exercisable or exchangeable for common stock or other equity securities, except for (a) securities of a subsidiary that are issued to the Company; and (b) securities sold and options granted to directors, officers and employees of the Company pursuant to bona fide employee benefit plans.
Rights to acquire shares of common stock will result in dilution and possible loss of value to other holders of common stock.
Outstanding warrants could adversely affect the terms on which we can obtain additional financing, and the holders of these warrants can be expected to exercise these securities at a time when, in all likelihood, we would be able to obtain additional capital by offering shares of common stock on terms more favorable to us than those provided by the exercise of these warrants. Holders of the warrants will have the opportunity to profit from an increase in the market price of our common stock, with resulting dilution in the interests of the holders of our common stock. As of June 30, 2001, there were issued and outstanding the following warrants:
--warrants held by our directors, officers, employees and affiliates to purchase an aggregate of 582,463 shares of common stock with an exercise price ranging from $.25 to $.41 per share.
--warrants held by unaffiliated third parties to purchase an aggregate of 2,201,531 shares of common stock with an exercise price ranging from $.25 to $.55 per share.
Our Board of Directors Can Issue Additional Shares Of Our Common Stock Without The Consent Of Any Of Our Shareholders; Substantial Future Stock Issuances Could Result In The Dilution Of Your Voting Power And Of Earnings Per Share Which Could Decrease The Value Of Your Shares
Our Certificate of Incorporation authorizes the issuance of 30,000,000 shares of common stock. Upon the sale of all of the shares of common stock offered hereby approximately 5,120,813 of our authorized common shares will remain unissued. Our board of directors has the power to issue any or all of the remaining 5,120,813 authorized common shares for general corporate purposes, without shareholder approval. Potential investors should be aware that any stock issuances may result in a reduction of the book value or market price of the outstanding common shares. If we issue any additional common shares, any issuance will reduce the proportionate ownership and voting power of each other common shareholder. See "Description of Securities."
In the event of a liquidation of our business, any return of your investment in our shares will be reduced because it is junior and subordinate to our present and future debt financing.
Our corporate charter and bylaws do not contain any limitation on the amount of indebtedness, funded or otherwise, we might incur. Accordingly, we could become more highly leveraged, resulting in an increase in debt service that will harm our ability to pay dividends to our stockholders and result in an increased risk of default on our obligations. We expect to use indebtedness and leveraging to finance operations and future development of our business which increases the risk of any distribution to our stockholders.
Unexpected fluctuations in our quarterly operating results may cause our stock price to decline and resulting a loss in the value of your investment.
A large proportion of our costs, including our selling, general and administrative expenses, environmental reclamation costs, research and development costs, and production costs, do not vary directly in relation to sales. Thus, declines in revenue, even if small, could disproportionately affect our quarterly operating results, could cause the results to differ materially from expectations and could cause our stock price to decline.
Because we do not anticipate paying dividends on our common stock in the foreseeable future the only way you can realize a return on an investment in our stock is for the stock price to increase.
Rather, we plan to retain earnings, if any, for the operation and expansion of business. Investment in our common stock is unsuitable for an investor seeking income.
Our liabilities substantially exceed our assets. If we were liquidated before our stockholders' deficit is eliminated, our common shareholders would lose part or all of their investment.
In the event of our dissolution, the proceeds (if any) realized from the liquidation of our assets will be distributed to our shareholders only after satisfaction of claims of our creditors and preferred shareholders. The ability of a purchaser of shares to recover all or any portion of the purchase price for the shares in that event will depend on the amount of funds realized and the claims to be satisfied those funds.
We may be subject to civil liabilities, including fines and other penalties imposed by federal and state security agencies, for issuing shares of stock without a restrictive legend or for selling unregistered securities without an available exemption.
During the first quarter of 2000, the Company issued 150,000 shares of common stock to Bluewater Partners, Inc. as compensation for fiscal advisory and consulting services. The stock certificate was issued without a restrictive legend. Management was subsequently informed by legal counsel that the certificate should have born a restrictive legend. We undertook to retrieve the share certificate from Bluewater Partners, Inc.; however, we have been unsuccessful. In addition, we have sold small amounts of stock in transactions which may not qualify for exemption from the Securities Act registration requirements. As a result, we may be subject to civil liabilities, including fines and penalties imposed by federal and state securities agencies. The likelihood of a claim and the ultimate outcome if a claim is asserted cannot be determined at this time.
Risks Related to Our Financial Condition
We Have a Negative Net Worth, Have Incurred Significant Losses, and Expect to Incur Losses in the Future. This Could Drive Down The Price of Our Stock.
We have not generated an operating profit for several years. Instead we have been able to continue operations by gross profit from our antimony operations, sales of common stock and borrowings from banks and others. As of June 30, 2001, we had an accumulated deficit of $2,059,674 and we anticipate that we will continue to incur net losses for the foreseeable future unless and until we are able to establish profitable business operations. As of June 30, 2001, we had total current assets of $312,172 and total current liabilities of $1,543,568 or negative working capital of approximately $1,231,396. If we fail to establish profitable operations and continue to incur losses, the price of our common stock could be expected to fall.
We Received An Opinion From Our Auditors As of March 22, 2001 Which Raises Doubt About Our Ability to Continue After that Date as a Going Concern.
Our audited financial statements for the year ended December 31, 2000, which are included in this prospectus, indicate that there was substantial doubt as of March 22, 2001 about our ability to continue as a going concern due to our need to generate cash from operations and obtain additional financing. In addition to the very real risk to our ability to successfully operate our business profitably, which our auditors have thus expressed, this type of "going concern" qualification in our auditor's report can have a negative effect on the price of our stock. If we fail to manage our growth in a manner that minimizes these strains on our resources it could disrupt our operations and ultimately prevent us from generating the revenues we expect.
We are delinquent or in arrears on significant current liabilities; and collection efforts by creditors could jeopardize our viability as a going concern and close down our operations.
As of June 30, 2001, we are delinquent on the payment of several current liabilities including payroll and property taxes in the amount of $146,632, accounts payable in the amount of $367,359, judgments payable in the amount of $45,001 and accrued interest payable in the amount of $14,640. While we have made payment arrangements with many of our creditors, there exists the risk that these creditors individually or collectively could demand immediate payment and jeopardize our ability to fund operations. The creditors who are owed taxes have the power to seize our assets for payment of amounts past due and close down our operations.
A major portion of our bank debt consists of variable-rate short-term obligations, which subjects us to interest rate and refinancing risks.
We currently obtain working capital through a factoring arrangement secured by accounts receivable and other collateral and through a line-of-credit and other short-term loans secured by plant, property and equipment.
Our working capital line-of-credit and short-term loans are variable-rate, short-term obligations, which expose us to interest rate and refinancing risks. Changes in interest rates could adversely affect our results of operations by increasing our borrowing costs and decreasing cash available to fund operations; and there is no assurance that we will be able to refinance our debt when it matures.
Capital to meet our future needs may be unavailable on acceptable terms, which would impair our plans to reduce dependence on foreign sources of antimony by developing additional metal supplies, develope and expand our present operations) and to expand our product lines to include industrial minerals.
To fund future needs, we may seek to obtain additional capital from public or private financing transactions, as well as borrowing and other resources. The issuance of equity or equity-related securities to raise additional cash could result in dilution to our stockholders. Further, additional funding may not be available on favorable terms, if at all.
Our existing debt is secured by pledge of substantially all of our assets. Therefore, a default in the payment of the secured debt could result in a loss of the related asset and our ability to continue operations.
As of June 30, 2001, our bank debt in the amount of $424,772 is secured by a collateral pledge of substantially all of our mining equipment as well as our patented and unpatented mining claims in Sanders County, Montana. In the event we are unable to pay the bank debt as it matures, there is a risk the bank may foreclose its security interest and we would lose all or a portion of our equipment as well as our patented and unpatented mining claims.
Terms of our outstanding 10% Convertible Debentures impose restrictions on our future activities that may require us to decline an advantageous financing or business opportunity.
The debenture agreement requires that so long as any of the principal of or interest on the debentures remain unpaid or unconverted, the Company shall not (i) merge or consolidate with any other entity; (ii) sell or otherwise dispose of a material portion of its assets (other than in the ordinary course of business); (iii) pay any dividend on its shares (including any dividend payable in common stock or other property); (iv) subdivide, split or otherwise increase the number of shares of common stock; or (v) issue any common stock or other equity securities, or any other stock, option, warrant, right or other instrument that is convertible into or exercisable or exchangeable for common stock or other equity securities, except for (a) securities of a subsidiary that are issued to the Company; and (b) securities sold and options granted to directors, officers and employees of the Company pursuant to bona fide employee benefit plans; provided, however, that the Company may issue such securities enumerated in (v) above, with the prior written consent of the holders, which consent the holder agrees not to unreasonably withhold.
Risks Related to Our Business
Death or disability of John C. Lawrence could adversely affect the management of our business and could result in acceleration of guaranteed indebtedness.
Mr. Lawrence is our principal executive officer and is directly involved, on a day-to-day basis, in our marketing, production, research and development, and environmental reclamation activities. His death or incapacity could adversely affect our operations and future prospects. In addition, Mr. Lawrence personally guarantees our long-term bank debt and short-term lines-of-credit; and the death, incapacity or insolvency of Mr. Lawrence constitutes an event of default, which would entitle the lender to accelerate maturity of the debt.
We are dependent on foreign sources for raw materials; and there are risks of interruption in procurement from these sources, volatile changes in world market prices for these materials as well as currency fluctuations that are not controllable by us. Unavailability of adequate raw material or increase in material prices could impair our production, sales or margins.
We obtain antimony metal, the raw material for our antimony products, primarily from China. Changes in antimony metal export policy by the Chinese government could impair availability of antimony metal and/or could increase antimony metal prices, which could result in curtailed production, decreased profits, operating result fluctuations or breach of contractual obligations to provide antimony products to our customers. In mid-2000, our principal supplier of Chinese antimony metal was unwilling to supply antimony metal at contract prices which were lower than rapidly rising world prices; and the supplier has indicated it may be unable to meet contractual volume commitments to supply antimony at any price. We have agreed to pay higher prices to assure a continued supply of metal which, absent agreement of our principal customers to accept corresponding price increases for our antimony products, could adversely affect sales and gross margins.
Any product recall or product return could harm our customer relations, sales and profitability.
Our antimony products are typically manufactured to meet individual customer specifications, including maximum tolerance levels for impurities, whiteness, color index, packaging requirements and bar coding. Failure to meet those specifications may result in product returns or recalls. Product recalls or returns may occur due to disputed labeling claims, manufacturing issues, quality defects or other reasons.
Uninsured loss, acts of God could impair our plant, property and equipment, and our ability to produce and sell our principal products.
Our Thompson Falls, Montana processing facility is not insured against fire or catastrophic loss. In the event of a major earthquake, for example, our production plant could be rendered inoperable for protracted periods of time, which would adversely affect our earning and financial condition. Should an uninsured loss occur, we could lose significant revenues and financial opportunities in amounts which would not be compensated by insurance proceeds.
If we are unable to compete effectively with the larger producers we will not be able to generate profits.
Some of our competitors in the antimony industry have substantially more financial resources, marketing and development capabilities than we do. Unlike our larger competitors, we lack the capital to stock substantial amounts of raw material inventory and may be unable to supply product to our customers if raw material availability declines or prices increase substantially.
Compliance with government regulations is costly and will depress our earnings.
We are subject to many and varied forms of government regulations, including environmental, occupational health and safety, and mine safety laws and regulations. For the year ended December 31, 2000, we have expended approximately $113,000 to comply with environmental reclamation requirements imposed by federal and state regulators. Our cash flow and profitability will be reduced by the cost of complying with current and future laws, rules, regulations, and policies, and by liabilities arising out of any of our past and future conduct. See "Description of Business - Environmental Matters."
Our current and former operations expose us to risks of environmental liabilities.
Our research, development, manufacturing and production processes may involve the controlled use of hazardous materials, and we may be subject to various environmental and occupational safety laws and regulations governing the use, manufacture, storage, handling, and disposal of hazardous materials and some waste products. The risk of accidental contamination or injury from hazardous materials cannot be completely eliminated. In the event of an accident, we could be held liable for any damages that result and any liability could exceed our financial resources. We also have three ongoing environmental reclamation and remediation projects, one at our current production facility in Montana and two at discontinued mining operations in Idaho. Adequate financial resources may not be available to ultimately finish the reclamation activities if changes in environmental laws and regulations occur; and these changes could adversely affect our cash flow and profitability. We do not have environmental liability insurance now; and we do not expect to be able to obtain insurance at a reasonable cost. If we incur liability for environmental damages while we are uninsured, it could have a harmful effect on us and our financial condition.
USE OF PROCEEDS
We will not receive any of the proceeds from the sale of the shares of our common stock offered by the Selling Shareholders. The proceeds of sale of the debentures were used to discharge indebtedness in the approximate amount of $1,500,000 and to purchase raw materials. The debt was owed to the Estate of Bobby C. Hamilton, and required minimum annual payments of principal and interest which totaled $200,000 and consumed 4% of our gross revenues from sales. See "Management Discussion and Analysis - Financial Condition and Liquidity." The Series C preferred stock was issued in 1997 in payment of defaulted debentures previously issued from time to time for working capital purposes.
DETERMINATION OF OFFERING PRICE
The shares issued upon conversion of debentures will be issued at the conversion price which is the lower of $0.29125 per share or 75% of the average of the three lowest closing bid prices per share of the common stock as reported by Bloomburg L.P. in the 20 trading days preceding the conversion date. Shares will also be issued upon exercise of related warrants at $0.39 per share. The conversion price and warrant exercise price were determined in arms-length negotiations between us and the purchaser of our debentures.
Upon resale of the shares by the Selling Shareholders, the price per share will be the market price available in the over-the-counter market.
DILUTION
At the close of business on June 30, 2001, there were 19,134,564 outstanding shares of our $0.01 par value common stock. The number of outstanding shares of common stock:
(i) includes 35,124 shares which holders of Series C preferred stock were entitled to receive upon conversion of their preferred stock into common stock. These shares were not issued at the time of conversion because our calculation of the number of conversion shares inadvertently omitted to account for the impact of anti-dilution provisions of the Series C preferred stock, which were triggered by our issuance of common stock for less than the Series C conversion price. These 35,132 shares are being issued to the pertinent stockholders retroactively to the date of conversion of their Series C preferred stock.
(ii) excludes approximately 67,000 shares of common stock representing an unreconciled discrepancy between our stock ledger and the transfer agent's records.
The Registration Rights Agreement with the purchasers of our outstanding convertible debentures and related warrants requires us to register 5,784,393 shares of our common stock that, depending on the market price at the time of conversion, we could be required to issue upon conversion of the debentures and/or exercise of related warrants which are currently issued and outstanding and held by Selling Shareholders. The minimum number of conversion and warrant shares we are required to issue, if all debentures are converted at the maximum conversion price of $.29125 per share and all related warrants are exercised, is 3,711,647. We are also registering 483,672 shares held by the Series C Holders.
The following table sets forth the net tangible book value per share at June 30, 2001, and the net tangible book value per share assuming that all 2,317,597 shares were issued at June 30, 2001 upon conversion of debentures at $0.29125 per share and 1,394,050 shares were issued upon exercise of the related warrants at $0.39 per Share. Net tangible book value per share as of June 30, 2001 is calculated by dividing total tangible assets less total liabilities, or ($2,059,674), by the number of shares outstanding, 19,134,564.
After giving effect to the issuance of 2,317,597 shares upon conversion of debentures and 1,394,050 shares upon exercise of the related warrants, our pro forma net tangible book value will increase to $(840,924), or $(0.071) per share, representing an immediate increase in pro forma net tangible book value of $0.037 per share for existing shareholders.
Net tangible book value at June 30, 2001 $(.108) per share Net tangible book value after giving effect to issuance of 2,317,597 shares at $0.29125 per share and 1,394,050 shares at $0.39 per Share $(.037) per share Per share dilution to Selling Shareholders $(.071) per share Percent dilution to Selling Shareholders 65.74% |
Selling Shareholders
The following table sets forth information with respect to the Selling Shareholders as of July 31, 2001. John C. Lawrence is our Chairman of the Board of Directors and Robert A. Rice is one of our directors. The other Selling Shareholders are not currently our affiliates, and have not had a material relationship with us during the past three years, other than as a holder of our securities and the negotiation of the financing agreement. The Selling Shareholders are not and have not been affiliated with a registered broker-dealer. However, Thomson Kernaghan and Co. Limited is licensed by the Province of Ontario, Canada as an investment dealer and broker. CALP II LP and Striker Capital, Ltd. are affiliates of Thomson Kernaghan and Co. Limited. Ian McKinnon is the father of Michelle McKinnon, both of whom were employees of Thomson Kernaghan and Co. Limited.
The table assumes:
o all debentures are converted at $0.29125 per share and all warrants are exercised at $0.39 per share.
o all of the shares that may be offered by the Selling Shareholders actually are sold;
o the Selling Shareholders do not acquire beneficial ownership of any other shares or dispose of any shares other than in this offering; and
o we do not issue or cancel any other shares.
----------------------------------- ------------------- ----------------- ------------- ----------------------- ----------------
NUMBER OF SHARES NUMBER OF
BENEFICIALLY Percent of SHARES THAT NUMBER OF SHARES PERCENT OF
OWNED BEFORE THE Class Before MAY BE BENEFICIALLY OWNED CLASS after
Name of Beneficial Owner(1) OFFERING offering(1) OFFERED after the offering offering(1)
----------------------------------- ------------------- ----------------- ------------- ----------------------- ----------------
----------------------------------- ------------------- ----------------- ------------- ----------------------- ----------------
Abuck Investments Ltd. (2)(7) 1,308,206 6.79 1,308,206 0 0
Archer Foundation 32,684 .17 6,536 26,148 0.10
Caliber Resources Ltd. (3) (7) 1,360,458 6.94 1,360,458 0 0
Claude H.C. Archer 163,423 .51 32,684 130,739 0.51
CALP II LP and Striker Capital 141,025 0.73 141,025 0 0
Ltd. (4) (8)
Delta Funds(11) 81,712 .43 16,342 65,370 0.26
H.R. Gurtsmith 49,026 .26 9,805 39,221 0.15
Barbara Howley 284,153 1.49 56,830 227,323 0.89
George W. Moffitt Jr. 49,027 .26 9,805 39,222 0.15
Ian McKinnon (5) 384,543 1.97 384,543 0 0
Ian McKinnon Family Trust 44,302 0.23 44,302 0 0
Michelle McKinnon (6) 192,272 0.99 192,272 0 0
Nancy Ann Moffitt 98,053 0.51 19,610 78,443 0.13
Nancy J. Moffitt 65,369 0.34 13,073 52,296 0.21
Sanders County Ledger 28,510 0.15 5,702 22,808 0.09
John C. Lawrence 3,537,827 17.4 266,354 3,271,473 12.30
JCL/Ham Pass Thru 138,398 0.72 27,679 110,719 0.44
Robert A. Rice 217,762 1.14 12,715 205,047 0.81
Sulico 32,684 0.17 6,536 26,148 0.10
Rebecca McKinnon(10) 88,604 0.46 88,604 0 0
Thomson Kernaghan and Co. Limited 150,000 0.78 150,000 0 0
(4) (7) (8)
Ursa Capital/Holdings Ltd. (7)(9) 432,581 2.26 432,581 0 0
Total 8,880,618 4,585,662 4,294,957
----------------------------------- ------------------- ----------------- ------------- ----------------------- ----------------
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1. Shares of common stock subject to options or warrants currently exercisable or convertible, or exercisable or convertible within 60 days of June 30, 2001 are deemed outstanding for computing the percentage of the person holding such option or warrant but are not deemed outstanding for computing the percentage of any other person. Percentages are based on a total of 19,134,564 shares of common stock outstanding before the offering and 25,402,629 shares outstanding after the offering.
2. Rebecca McKinnon has authority to vote and dispose of the shares beneficially owned by Abuck Investments, Ltd. Mrs. McKinnon is the wife of Ian McKinnon and mother of Michelle McKinnon, each of whom disclaim any beneficial interest. Under the financing agreement, Abuck Investments Ltd. agreed not to have the right to convert any debenture or exercise any warrant if, after having given effect to the conversion or exercise, it would be deemed to beneficially own more than 9.9% of the then outstanding common stock. Includes 1,057,511 shares of common stock issuable upon conversion of debentures, 141,026 shares of common stock issuable upon exercise of warrants, and 109,669 shares of common stock issued as liquidated damages for failure to have registration statement declared effective.
3. Philip W. Johnston has authority to vote and dispose of the shares beneficially owned by Caliber Resources Ltd. Under the financing agreement, Caliber Resources Ltd. agreed not to have the right to convert any debenture or exercise any warrant if, after giving effect to the conversion or exercise, it would be deemed to beneficially own more than 9.9% of the then outstanding common stock. Includes 233,000 shares of common stock issuable upon exercise of debentures, 92,949 shares of common stock issuable upon exercise of warrants, and 82,966 shares of common stock issued as liquidated damages for failure to have registration statement declared effective.
4. CALP II LP, Striker Capital Ltd. and Thomson Kernaghan and Co. Limited are under the common control of Mark Valentine, the Chief Executive Officer of Thomson Kernaghan and Co. Limited, who has authority to vote and dispose of the shares beneficially owned by any of them. Accordingly, Thomson Kernaghan, CALP II and Striker Capital Ltd. may be considered a group which beneficially owns all of the shares beneficially owned by any of them. Under the financing agreement, CALP II and Striker Capital Ltd. agreed not to have the right to convert any debenture or exercise any warrant if, after having given effect the conversion or exercise, both of them considered as a group would be deemed to beneficially own more than 9.9% of the then outstanding common stock. Includes 141,025 shares of common stock issuable upon exercise of warrants.
5. Includes 384,543 shares of common stock issuable upon exercise of warrants. Selling Shareholder is a former officer and director of Thomson Kernaghan and disclaims being an affiliate.
6. Includes 192,272 shares of common stock issuable upon conversion of warrants. Selling Shareholder was a non-management employee and disclaims being an affiliate of Thomson Kernaghan.
7. By Agreement effective July 11, 2000 ("financing agreement"), Thomson Kernaghan and Co., Limited purchased, as agent for other investors, $675,000 principal amount of convertible debentures, an agent's warrant to purchase 961,358 shares of Company's common stock at $.39 per share and a purchaser's warrant to purchase 432,692 shares of Company's common stock at $.39 per share. The debentures are convertible into common stock at the lower of $0.29125 per share or 75% of the average of the lowest closing bid prices during the 20 trading days preceding the conversion date. Thomson Kernaghan and Co., Limited is the beneficial owner of 150,000 shares of Company's common stock and disclaims beneficial ownership of the debentures, warrants and shares issuable upon conversion or exercise. Further, Thomson Kernaghan has advised the Company that, except as indicated in note (5), it is not a member of a group, as defined inss. 13(d) of the Securities and Exchange Act of 1934, which owns 5% or more of Company's common stock.
8. Thomson Kernaghan and Co. Limited is the record holder, as agent for non-US persons under the Escrow Agreement, of a certificate for 1,000,000 contingently issued shares issued in escrow to facilitate issuance of common stock to the debenture holders and warrant holders upon exercise of their conversion or purchase rights. Thomson Kernaghan and Co. Limited disclaims beneficial ownership of these shares.
9. Michelle McKinnon has authority to vote and dispose of the shares beneficially owned by Ursa Capital/Holdings Ltd. Ms. McKinnon was a non-management employee and disclaims being an affiliate of Thomson Kernaghan. Under the financing agreement, Ursa Capital/Holdings Ltd. agreed not to have the right to convert any debenture or exercise any warrant if, after giving effect to the conversion or exercise, it would be deemed to beneficially own more than 9.9% of the then outstanding common stock. Includes 104,000 shares of common stock issuable upon conversion of debentures, 38,462 shares of common stock issuable upon exercise of warrants, and 37,037 shares of common stock issued as liquidated damages for failure to have registration statement declared effective.
10. Includes 20,000 shares of common stock issuable upon conversion of debentures, 12,820 shares of common stock issuable upon exercise of warrants, and 7,114 shares of common stock issued as liquidated damages for failure to have registration statement declared effective.
11. George Moffitt has authority to vote and dispose of the shares beneficially owned by Delta Funds.
Securities Purchase Agreement
The following is a summary description of the debenture purchase agreement and does not contain all of the provisions of the agreement and other supporting documents that are filed as exhibits to our registration statement of which this prospectus is a part.
Effective July 11, 2000, we entered into a financing agreement to issue up to $1,500,000 of 10% convertible debentures. The first tranche of $600,000 principal amount of debentures was issued effective July 11, 2000. Proceeds of that debenture were applied to the settlement of an approximately $1.5 million debt owed to a creditor, resulting in an approximately $839,000 reduction of our stockholders' deficit and an improvement in our cash flow. We agreed to issue a second tranche of $75,000 principal amount of debentures on August 31, 2000. Proceeds of this debenture were used to purchase raw materials.
The debentures are convertible into our common stock at a price per share equal to 75% of the average of the three lowest closing bid prices per share of our common stock as reported by Bloomburg L.P. in the 20 trading days immediately preceding the closing date of the debenture sale or the conversion date, whichever is lower, but in any event not greater than $0.90 per share. For the first two debentures totaling $675,000, the conversion price is the lower of $0.29125 per share or 75% of the average of the three lowest closing bid prices per share of our common stock as reported by Bloomburg L.P. in the 20 trading days immediately preceding the conversion date. The exercise price of the related warrants is the closing bid price as reported by Bloomburg L.P. on the trading day immediately preceding the July 11, 2000 effective date of the financing agreement, or $0.39 per share.
The $675,000 debentures issued to date are convertible into 2,317,597 shares of our common stock at the initial conversion price of $0.29125 per share. If our stock price declines below $0.29125 per share and the debentures are converted, the conversion price formula will result in a lower conversion price and we will be required to issue a greater number of shares. There is no floor on the conversion price; and the lower our stock price, the greater the dilution of the outstanding shares upon conversion of the debentures. In addition, we issued warrants to or on behalf of the debenture purchasers for an aggregate of 1,394,050 shares of our common stock exercisable for $0.39 per share. The closing bid price of our common stock reported on the Over-the-Counter Bulletin Board on September 10, 2001 was $0.14 per share.
Registration Rights. In the registration rights agreement with the debenture purchasers, we agreed to register the Selling Shareholders' resale of the shares of common stock to be issued upon conversion of the debentures and upon exercise of the related warrants. For the $675,000 debentures issued to date, the registration rights agreement requires that we register 150% of the conversion shares and 100% of the warrant shares, or a total of 4,870,626 shares of our common stock. With the concurrence of the holders of the $675,000 of debentures we are registering the resale of a total of 4,000,000 shares of common stock issuable upon conversion of the debentures. If we issue the remaining $825,000 principal amount of debentures, we will be required by the registration rights agreement to register an additional 4,777,773 shares of common stock (representing 150% of the shares issuable upon conversion of the additional debentures assuming a conversion price of $0.29125 per share plus 100% of the shares issuable upon exercise of related warrants). In addition, we are liable for late filing liquidated damages which during April 2001 was agreed to be $70,000 payable by issuing 240,343 shares of common stock, and have agreed to register 150,000 shares issued to Thomson Kernaghan and Co. Limited for payment of consulting fees.
If all outstanding debentures were converted to common stock at the initial conversion price of $0.29125 per share and all of the outstanding related warrants were exercised as of June 30, 2001, the debenture and warrant holders would own, and would be able to sell pursuant to this prospectus, 3,711,647 shares of common stock representing 16.2% of the then outstanding shares of our common stock.
We are also obligated to register the resale of 483,672 shares of our common stock held by former holders of Series C Preferred Stock who converted that preferred stock into common stock.
PLAN OF DISTRIBUTION
The Selling Shareholders, and any of their pledges, assignees and successors-in-interest, may, from time to time, sell any or all of their shares of common stock on any stock exchange, market or trading facility on which the shares are traded or in private transactions. These sales may be at fixed or negotiated prices. The Selling Shareholders may use any one or more of the following methods when selling shares:
o ordinary brokerage transactions and transactions in which the broker-
dealer solicits the purchaser;
o block trades in which the broker-dealer will attempt to sell
the shares as agent but may position and resell a portion of
the block as principal to facilitate the transaction;
o purchases by a broker-dealer as principal and resale by the broker-
dealer for its account;
o an exchange distribution in accordance with the rules of the
applicable exchange;
o privately-negotiated transactions;
o broker-dealers may agree with the Selling Shareholders to sell a
specified number of shares at a stipulated price per share;
o a combination of any of the methods of sale; and o any other method
permitted pursuant to applicable law.
The Selling Shareholders may also sell shares under Rule 144 under the Securities Act, if available, rather than under this prospectus.
The Selling Shareholders may also engage in short sales against the box, puts and calls and other transactions in our securities or derivatives of our securities and may sell or deliver shares in connection with these trades. The Selling Shareholders may pledge their shares of common stock to their brokers under the margin provisions of customer agreements. If a Selling Shareholder defaults on a margin loan, the broker may, from time to time, off and sell the pledged shares.
Broker-dealers engaged by the Selling Shareholders may arrange for other broker-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the Selling Shareholders (or, if any broker-dealer acts as agent for the purchase of shares, from the purchaser) in amounts to be negotiated. The Selling Shareholders do not expect these commissions and discounts to exceed what is customary in the types of transactions involved.
We are required to pay all fees and expenses incident to the registration of the shares, including fees and disbursements of counsel to the Selling Shareholders, but excluding brokerage commissions or underwriter discounts. We and the Selling Shareholders have agreed to indemnify each other against named losses, claims, damages and liabilities, including liabilities under the Securities Act.
Thomson Kernaghan is, and any other Selling Shareholders participating in the distributions of our common stock may be, deemed to be an "underwriter" within the meaning of Section 2(11) of the Securities Act of 1933; and any profit on the sale of our common stock by Thomson Kernaghan or other Selling Shareholder, and any commissions or discounts given to any broker dealer, may be deemed to be underwriting commissions or discounts pursuant to the Securities Act of 1933.
Pursuant to the Securities Exchange Act of 1934, any person engaged in a distribution of the common stock offered by this prospectus may not simultaneously engage in market making activities for our common stock during the applicable "cooling off" periods prior to the commencement of the distribution. In addition, the Selling Shareholders will be required to comply with all the requirements of the Securities Exchange Act of 1934.
We have advised Thomson Kernaghan for itself and as agent for the Selling Shareholders that, during the time as they may be engaged in a distribution of any of the shares we are registering by the Registration Statement, they are required to comply with Regulation M promulgated under the Securities Exchange Act of 1934. In general, Regulation M precludes any Selling Shareholder, any affiliated purchasers and any broker-dealer or other person who participates in the distribution from bidding for or purchasing, or attempting to induce any person to bid for or purchase, any security which is the subject of the distribution until the entire distribution is complete. Regulation M defines a "distribution" as an offering of securities that is distinguished from ordinary trading activities by the magnitude of the offering and the presence of special selling efforts and selling methods. Regulation M also defines a "distribution participant" as an underwriter, prospective underwriter, broker, dealer, or other person who has agreed to participate or who is participating in a distribution.
Regulation M prohibits any bids or purchases made in order to stabilize the price of a security in connection with the distribution of that security, except as specifically permitted by Rule 104 of Regulation M. These stabilizing transactions may cause the price of the common stock to be higher than it would otherwise be in the absence of these transactions. We have advised the Selling Shareholders that stabilizing transactions permitted by Regulation M allow bids to purchase our common stock so long as the stabilizing bids do not exceed a specified maximum, and that Regulation M specifically prohibits stabilizing that is the result of fraudulent, manipulative, or deceptive practices. The Selling Shareholders and distribution participants will be required to consult with their own legal counsel to ensure compliance with Regulation M.
DESCRIPTION OF SECURITIES
Common Stock
We are authorized to issue 30,000,000 shares of common stock, $0.01 par value, each share of common stock having equal rights and preferences, including voting privileges. There were 19,134,564 shares of common stock outstanding at the close of business on June 30, 2001. In addition, 1,394,050 shares of common stock were reserved for issuance upon exercise of outstanding warrants to purchase our common stock; and 4,240,343 shares were reserved for issuance upon conversion of debentures and payment of liquidated damages to the debenture holders.
The shares of our common stock constitute equity interests in us entitling each shareholder to a pro rata share of cash distributions made to common shareholders, including dividend payments. We had significant losses in our last fiscal year. Therefore, it is unlikely that we will pay dividends on our common stock in the next year. We currently intend to retain our future earnings, if any, for use in our business. Any dividends declared in the future will be at the discretion of our Board of Directors and subject to any restrictions that may be imposed by our lenders.
The holders of our common stock are entitled to one vote for each share of record. Shareholders are entitled to vote cumulatively with respect to the election of our directors. Directors are elected by a plurality of the votes cast by the voting stock entitled to vote at a meeting if a quorum is present. With respect to matters other than the election of directors, a matter is approved by the affirmative vote of the majority of the votes cast at a meeting at which a quorum is present. In the event of our liquidation, dissolution or winding up, the holders of common stock are entitled to share ratably in all assets remaining available for distribution to them after payment of our liabilities and after provision has been made for each class of stock having preference in relation to our common stock. Holders of our common stock have no conversion, preemptive or other subscription rights; and there are no redemption provisions applicable to our common stock. All of the outstanding shares of our common stock are duly authorized, validly issued, fully paid and non-assessable.
Preferred Stock
Our Articles of Incorporation authorize 10,000,000 shares of $.01 par value preferred stock. Subject to amounts of outstanding preferred stock, additional shares of preferred stock can be issued with rights and preferences, including voting rights, as the Board of Directors shall determine.
During 1986, Series A preferred stock, consisting of 4,500 shares, was established by the Board of Directors. These shares are nonconvertible, non-redeemable and are entitled to a $1.00 per share per year cumulative dividend. Series A preferred stockholders have voting rights for directors only and a total liquidation preference equal to $45,000 plus dividends in arrears. At June 30, 2001, 4,500 shares of Series A preferred stock were outstanding; and cumulative dividends in arrears amounted to $67,500, or $15.00 per share.
During 1993, Series B preferred stock consisting of 1,666,667 shares, was established by the Board of Directors and 1,666,667 shares were issued in connection with the final settlement of litigation. The Series B preferred stock has preference over the Company's common stock and Series A preferred stock, has no voting rights (absent default in payment of declared dividends) and is entitled to cumulative dividends of $.01 per share per year payable if and when declared by the Board of Directors. In the event of dissolution or liquidation of the Company, the preferential amount payable to Series B restricted preferred stockholders is $1.00 per share plus dividends in arrears. No dividends have been declared or paid with respect to the Series B preferred stock. In 1995, 916,667 shares of Series B preferred stock were surrendered to the Company and cancelled in connection with the settlement of litigation against Bobby C. Hamilton. At June 30, 2001, cumulative dividends in arrears on the 750,000 outstanding Series B shares were $56,250, or $0.075 per share.
During 1997, we issued 2,560,762 shares of Series C preferred stock in connection with the conversion of debts we owed. The rights, preferences, privileges and limitations of the Series C preferred shares issued upon conversion of debt are set forth below:
Designation. The class of Convertible Preferred Stock, Series C, $0.01 par value per share, consists of up to 3.8 million of our shares.
Optional Conversion. A holder of Series C preferred shares had the right to convert the Series C shares, at the option of the holder, at any time within 18 months following issuance, into shares of common stock at the ratio of 1:1, subject to adjustment as provided below. During 1999, holders of 2,354,766 shares of Series C stock converted their shares into our common stock.
Voting Rights. The holders of Series C preferred shares shall have the right to that number of votes equal to the number of shares of common stock issuable upon conversion of such Series C preferred shares.
Liquidation Preference. In the event of our liquidation or winding up, the holders of Series C preferred shares shall be entitled to receive as a preference over the holders of common stock an amount per share equal to $0.55, subject to the preferences of the holders of our outstanding Series A and Series B preferred stock.
Registration Rights. Twenty percent (20%) of the underlying common stock issued on conversion of the Series C preferred shares is entitled to "piggyback" registration rights when, and if, we file a registration statement for our securities or the securities of any other stockholder. These shares are included in this prospectus.
Redemption. The Series C preferred shares are not redeemable by us.
Anti-dilution Provisions. The conversion price of the Series C shares was subject to adjustment to prevent dilution in the event we issued additional shares at a purchase price less than the applicable conversion price (other than shares issued to employees, consultants and directors pursuant to plans and arrangements approved by the Board of Directors, and securities issued to lending or leasing institutions approved by the Board of Directors). Accordingly, the conversion price was adjusted according to a weighted-average formula, resulting in the issuance, during the year 2000, of an additional 35,542 shares of common stock to Series C holders who exercised their conversion rights in 1999. The initial conversion price for the Series C shares was $0.55 and was adjusted to $0.54 per share based on the anti-dilution formula.
Protective Provisions. The consent of a majority interest of the
holders of Series C preferred shares is required for any action which
(i) alters or changes the rights, preferences or privileges of the
Series C shares materially and adversely; or (ii) creates any new class
of shares having preference over or being on a parity with the Series C
shares.
During the year 2000, we converted 28,092 of shares of Series C preferred stock into an equal number of common shares for a Series C preferred stockholder that had timely noticed us of its desire to convert its Series C shares during 1999. At June 30, 2001, 177,904 shares of Series C preferred stock remained outstanding and unconverted.
Debentures
We have issued $675,000 of 10% convertible debentures due June 30, 2002 and related warrants to purchase our common stock. The debentures are due June 30, 2002 and accrue interest at 10% to be paid annually on each anniversary date of the issue. The debentures are convertible into shares of our common stock at a conversion price equal to the lower of (i) $0.29125 per share or (ii) 75% of the average three lowest closing bid prices for our common stock as quoted by Bloomburg L.P. in the 20 trading days immediately preceding the conversion date of the debentures. The related warrants are exercisable for five years for $0.39 per share.
We have also issued 10% convertible debentures to John C. Lawrence, our director and president, in the principal amount of $147,992 (due December 31, 2003) and $100,000 (due December 12, 2003) and to A.W. Dugan, a shareholder of the company, in the principal amounts of $50,000 (due November 22, 2003) and $50,000 (due December 2003). These debentures accrue interest at 10% to be paid annually on each anniversary date of the issue. The debentures are convertible into shares of our common stock at a conversion price equal to the lower of (i) $0.31 per share or (ii) 75% of the average of the three lowest closing bid prices for our common stock as quoted by Bloomburg LP in the 20 trading days immediately preceding the conversion date. The exercise price for the related warrants (aggregating 151,213 shares for Mr. Lawrence and 60,974 shares for Mr. Dugan) is $0.41 per share. The holders of these debentures do not have registration rights in connection with the common stock issuable upon conversion of the debentures or exercise of the related warrants.
Penny Stock Rules
At the present time our common stock is traded in the over-the-counter market and that trading activity is reported on the OTC Electronic Bulletin Board.
The United States Securities and Exchange Commission "Securities Enforcement and Penny Stock Reform Act of 1990" requires special disclosure relating to the trading of any stock defined as a "penny stock." Commission regulations generally define a penny stock to be an equity security that has a market price of less than $5.00 per share and is not listed on The Nasdaq Small Cap Stock Market or a major stock exchange. These regulations subject all broker-dealer transactions involving our securities to special "Penny Stock Rules." Following the completion of this offering the commencement of trading of our common stock, and the foreseeable future thereafter, the market price of our common stock is expected to be substantially less than $5 per share. Accordingly, should anyone wish to sell any of our shares through a broker-dealer, the sale will be subject to the Penny Stock Rules. These Rules will affect the ability of broker-dealers to sell our shares (and will therefore also affect the ability of purchasers in this offering to re-sell their shares in the secondary market, if a market should ever develop.)
The Penny Stock Rules impose special sales practice requirements on broker-dealers who sell shares defined as a "penny stock" to persons other than their established customers or "Accredited Investors." Among other things, the Penny Stock Rules require that a broker-dealer make a special suitability determination respecting the purchaser and receive the purchaser's written agreement to the transaction prior to the sale. In addition, the Penny Stock Rules require that a broker-dealer deliver, prior to any transaction, a disclosure schedule prepared in accordance with the requirements of the Commission relating to the penny stock market. Disclosure also has to be made about commissions payable to both the broker-dealer and the registered representative and the current quotations for the securities. Finally, monthly statements have to be sent to any holder of penny stocks disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks. Consequently, the rule may affect the ability of broker-dealers to sell our shares and may affect the ability of holders to sell our shares in the secondary market. Accordingly, for so long as the Penny Stock Rules are applicable to our common stock, it may be difficult to trade our stock because compliance with the Penny Stock Rules can delay or preclude some trading transactions. This could have an adverse effect on the liquidity and price of our common stock.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The following table sets forth the range of high and low bid prices as reported by the National Association of Securities Dealer's Over-the-Counter Bulletin Board ("OTCBB") for the periods indicated. The quotations reflect inter-dealer prices without retail mark-up, mark-down or commission, and may not necessarily represent actual transactions. Currently, the stock is traded on the OTCBB under the symbol "UAMY."
2001 High Low First Quarter $0.41 $0.17 Second Quarter 0.53 0.24 2000 High Low First Quarter $0.95 $0.22 Second Quarter 0.88 0.20 Third Quarter 0.78 0.32 Fourth Quarter 0.41 0.13 1999 High Low First Quarter $0.16 $0.20 Second Quarter 0.17 0.17 Third Quarter 0.31 0.38 Fourth Quarter 0.16 0.16 1998 High Low First Quarter $0.20 $0.16 Second Quarter 0.28 0.16 Third Quarter 0.37 0.16 Fourth Quarter 0.28 0.13 |
The approximate number of record holders of our common stock at June 30, 2001 is 3,750.
No dividends have been paid or declared by us during the last five years; and we do not anticipate paying dividends on our common stock in the foreseeable future. Instead, we expect to retain our earnings for the operation and expansion of our business.
DESCRIPTION OF BUSINESS
Overview
AGAU Mines, Inc., our corporate predecessor, was incorporated in June 1968 as a Delaware corporation to explore, develop and mine gold and silver properties. United States Antimony Corporation was incorporated in Montana in January 1970 to mine and produce antimony products. In June 1973, AGAU Mines, Inc. was merged with and into us, with us being the surviving corporation in the merger. In December 1983, we suspended antimony mining operations when it became possible to purchase antimony raw materials more economically from foreign sources. Our principal business has been the production of antimony products and the mining and milling of gold.
We have been able to sustain our operations through gross profit produced from our antimony operations, common stock sales, and financing from banks and other sources. There can be no assurance, however, that we will be able to continue to meet our obligations and continue in existence as a going concern (see Note 1 to the Financial Statements).
Antimony Division
Our antimony mining properties, mill and metallurgical plant are located in the Burns Mining District of Sanders County, Montana, approximately 15 miles west of Thompson Falls. We hold 12 patented lode claims, some of which are contiguous, and 2 patented mill sites. We have no "proven reserves" or "probable reserves" of antimony, as these terms are defined by the Securities and Exchange Commission.
Prior to 1984, we mined antimony ore underground by driving drifts and using slushers in room and pillar type stopes. Mining was suspended in December 1983, because antimony could be purchased more economically from foreign sources. Our underground antimony mining operations may be reopened in the future should raw material prices warrant doing so. We now purchase the majority of our raw antimony from China (approximately 70%) and, to a lesser degree, Canada (approximately 15%). Antimony metal from Chinese sources has been obtained primarily through a broker. Significant increases in world antimony metal prices have necessitated renegotiation of our supply contract with the broker in order to assure continued availability of metal, resulting in higher raw material costs. However, the increase in world prices has enabled us to increase the prices of our antimony products and to increase our gross profits. In addition, we are covering our customer supply contract requirements by obtaining antimony metal from other foreign and domestic sources.
We are dependent on foreign sources for raw materials; and there are risks of interruption in procurement from these sources and/or volatile changes in world market prices for these materials that are not controllable by us. We obtain antimony metal, the raw material for our antimony products, primarily (70%) from China. Changes in antimony metal export policy by the Chinese government could impair availability of antimony metal and/or could increase antimony metal prices, which could result in curtailed production, decreased profits, operating result fluctuations or breach of contractual obligations to provide antimony products to our customers. During mid 2000, our principal supplier of Chinese antimony metal was unwilling to supply antimony metal at contract prices which are lower than rapidly rising world prices; and the supplier indicated it might be unable to meet contractual volume commitments to supply antimony at any price. We have agreed to pay higher prices to assure a continued supply of metal which, absent agreement of our principal customers to accept corresponding price increases for our antimony products, could adversely affect sales and gross margins.
We currently own 50% of the common stock of United States Antimony, Mexico S.A. de C.V. ("USAMSA"), which was formed in April 1998. During 1998 and 1999, we invested capital and surplus equipment from our Thompson Falls antimony operation in USAMSA, which is being used for the construction of an antimony processing plant in Mexico. To date, two antimony processing furnaces and a warehouse building have been built and limited antimony processing has taken place. USAMSA is pursuing the assignment of mining concessions in the Mexican states of Zacatecas, Coahuila, Sonora, Queretaro and Oaxaca. USAMSA is expected in future years to produce antimony metal and other products, utilizing our processing facilities as processing opportunities become available and as antimony prices dictate. These products would then be sent to our plant near Thompson Falls, Montana for further processing.
From refined antimony metal, we produce four antimony oxide products of different particle size using proprietary furnace technology, several grades of sodium antimonate using hydro metallurgical techniques, and specialty antimony compounds. Antimony oxide is a fine, white powder that is used primarily in conjunction with a halogen to form a synergistic flame retardant system for plastics, rubber, fiberglass, textile goods, paints, coatings and paper. Antimony oxide is also used as a color fastener in paint, as a catalyst for production of polyester resins for fibers and film, as a phosphorescent agent in fluorescent light bulbs and as a stabilizer for fluid lubricants. Sodium antimonate is primarily used as a fining agent (degasser) for glass in cathode ray tubes used in computer monitors and color television bulbs and as a flame retardant. We also sell antimony metal for use in bearings, storage batteries and ordnance.
We estimate (but have not independently confirmed) that our present share of the domestic market for antimony oxide products is approximately 10% to 12%. We have had three principal domestic competitors. The other two domestic competitors have collectively accounted for about 25% of domestic sales. The balance of domestic sales are foreign imports (primarily from Chinese and Belgian suppliers).
We employed two full time sales managers in 1999 and implemented administrative systems needed to manage sales accounting and shipping logistics. In connection with these efforts, we negotiated various commission-based sales agreements with other chemical distribution companies, developed our own web-site ("usantimony.com") and made substantial improvements to our analytical and chemical research capabilities. Since March 1998, we have employed a Chief Chemist who has devoted approximately 30% of his working time to research and development activities. Accordingly, approximately $15,000 in salary and benefits have been related to research and development activities during the past two fiscal years. Additionally, during the past two fiscal years, we have invested approximately $20,000 per year in lab equipment and facilities used in research and development of new antimony products and applications. (None of our research and development costs have been borne by customers of us.) These efforts have resulted in advances in our preparation, packaging and quality of our antimony products. We believe that our ability to meet customer product specifications gives us a competitive advantage. We believe that we will be able to stay competitive in the antimony business and generate increasing profits because of these advances.
For the year ended December 31, 2000, we sold 5,039,327 pounds of antimony products generating approximately $5 million in revenues. During 1999, we sold 5,517,443 pounds of antimony products generating approximately $4.7 million in revenues. During 1998, through our relationships with HoltraChem, Inc. and BCS, we sold 2,834,186 pounds of antimony products, which generated approximately $3.1 million in revenues. During 1998, 1999 and 2000, approximately 20% of our antimony sales were made to one customer. However, we have a stable and expanding customer base. Loss of any one customer could have short-term impact on our revenues but would not materially adversely affect our long-term prospects.
Gold Division
Yankee Fork Mining District. Until 1989, we mined and milled gold and silver in the Yankee Fork Mining District in Custer County, Idaho. The metals were recovered by gravity and flotation mill, and the concentrates were leached with cyanide to produce a bullion product at the Preachers Cove mill, which is located on the Yankee Fork of the Salmon River. The Preachers Cove mill has been dismantled and the site is undergoing environmental remediation pursuant to an Idaho Department of Environmental Quality consent decree. See "Environmental Matters." We own two patented lode mining claims in the Yankee Fork District, which are now idle.
Yellow Jacket Mining District. In 1990, we entered into a mining venture agreement to mine and mill gold and silver ores at the Yellow Jacket Mine located in the Yellow Jacket Mining District of Lemhi County, Idaho, approximately 70 miles southwest of Salmon, Idaho. During the years from 1991 to 1996 we mined, milled and sold gold bullion produced from the mine. In 1996, production at the Yellow Jacket was suspended due to recurring operating losses and declines in precious metal prices. The Yellow Jacket property was put on a care and maintenance status. In 1999, we abandoned our leasehold interests and began environmental remediation activity at the Yellow Jacket (see "Environmental Matters") and began reclamation of the Yellow Jacket tailings ponds and pit area.
We have no "proven reserves" or "probable reserves" of gold, as these terms are defined by the Securities and Exchange Commission.
Zeolite Division
We own 75% of Bear River Zeolite Company ("BRZ"), an Idaho corporation incorporated on June 1, 2000. BRZ has entered into a ten-year mining lease with Webster Farm, L.L.C. The lease entitles BRZ to surface mine and process zeolites on property located in Preston, Idaho in exchange for a royalty payment. The royalty is a percentage of the unprocessed ore sale price which varies between 5%-7%. The minimum annual royalty during the first five years is $1,000. The royalty is also payable on zeolites mined on adjacent BLM ground on which BRZ has located additional claims, if BRZ accesses those claims across the leased property. BRZ is currently constructing a processing plant on the property. Mining and processing equipment will be leased to BRZ by us; and we will advance development and start-up costs. Production and sale of zeolites is not expected to contribute materially to our operating revenues in the near future.
We have no "proven reserves" or "probable reserves" of zeolite, as these terms are defined by the Securities and Exchange Commission.
"Zeolite" refers to a group of minerals that consist of hydrated aluminosilicates that loosely hold cations such as calcium, sodium, ammonium and potassium. Water is held in cavities in the lattice. The ability of zeolites to exchange one cation for another is known as their "cation-exchange capacity." Zeolites are used for separating cations and are often referred to as "molecular sieves." BRZ's zeolite deposits have characteristics which make the mineral useful for a variety of purposes including:
o Soil Amendment and Fertilizer. We plan to produce a fertilizer called
"Zeo-Phos," which will combine ammoniumated zeolite with phosphate
mill shale available from the nearby Fort Hall Indian
Reservation. (Ammonium contains nitrogen, a plant nutrient.) Zeolites
have been successfully used to fertilize golf courses, sports fields,
parks and common areas, and high value crops, including corn, potatoes,
soybeans, red beets, acorn squash, green beans, sorghum sudangrass,
Brussels sprouts, cabbage, carrots, tomatoes, cauliflower, radishes,
strawberries, wheat, lettuce and broccoli.
o Water Filtration. Zeolite is used for particulate removal in swimming
pools and municipal water systems, and for the removal of ammonium in
fisheries, fish farms, and aquariums.
o Sewage Treatment. Zeolite is used in sewage treatment plants to
remove nitrogen from waste streams and to deodorize methane
gas.
o Nuclear Waste and Other Environmental Cleanup. Zeolites have shown a
strong ability to selectively remove strontium, cesium and various
other radioactive isotopes from solution. Zeolites can also be used for
the cleanup of soluble metals such as mercury, chromium, lead, zinc,
arsenic, molybdenum, nickel, cobalt, antimony, calcium, silver and
uranium.
o Odor Control. A major cause of odor around cattle, hog, and poultry
feed lots is the generation of the ammonium in urea and fecal material.
The ability of zeolites to absorb ammonium prevents the formation of
ammonia gas which generates the odor.
o Gas Separation. Zeolites have been used for some time in the separation
of some gases, as re-oxygenation of downstream water from sewage
plants, smelters, pulp and paper plants, and fish ponds and tanks, and
removal of carbon dioxide, sulfur dioxide, and hydrogen sulfide from
methane generators as organic waste, sanitary landfills, municipal
sewage systems and animal waste treatment facilities.
o Miscellaneous Uses. Other uses include catalysts and petroleum
refining, building applications, solar energy and heat exchange,
carriers for insecticides, pesticides and herbicides, and desiccants.
Environmental Matters
The exploration, development and production programs conducted in the United States are subject to local, state and federal regulations regarding environmental protection. Some of our production and mining activities are conducted on public lands. We believe that our current discharge of waste materials from our processing facilities is in material compliance with environmental regulations and health and safety standards. The USDA Forest Service extensively regulates mining operations conducted in National Forests. Department of Interior regulations cover mining operations carried out on most other public lands. All operations by us involving the exploration for or the production of minerals are subject to existing laws and regulations relating to exploration procedures, safety precautions, employee health and safety, air quality standards, pollution of water sources, waste materials, odor, noise, dust and other environmental protection requirements adopted by federal, state and local governmental authorities. We may be required to prepare and present to the authorities data pertaining to the effect or impact that any proposed exploration for or production of minerals may have upon the environment. Any changes to our reclamation and remediation plans which may be required due to changes in state or federal regulations could have an adverse effect on our operations, the range of reasonably possible loss in excess of the amounts accrued, by site, cannot be reasonably estimated at this time.
We account for our accrual of environmental liabilities when the costs of such are probable and reasonably estimable. The initial accruals for all our sites are based on comprehensive remediation plans approved by the various regulatory agencies in connection with permitting or bonding requirements. Our accruals are further based on presently enacted regulatory requirements and adjusted only when changes in requirements occur or when management revises its estimate of costs required to comply with existing requirements. As remediation activity has physically commenced, management has been able to refine and revise its estimates of costs required to fulfill future environmental tasks based on contemporaneous cost information, operating experience, and changes in regulatory requirements. In instances where costs required to complete our remaining environmental obligations are clearly determined to be in excess of the existing accrual, we have adjusted the accrual accordingly. When regulatory agencies require additional tasks to be performed in connection with our environmental responsibilities we evaluate the costs required to perform those tasks and adjust our accrual accordingly, as the information becomes available. In all cases, however, our accrual at year end is based on the best information available at that time to develop estimates of environmental liabilities.
In 1994, the U.S. Forest Service, under the provisions of the Comprehensive Environmental Response Liability Act of 1980, designated our cyanide leach plant at the Preachers Cove mill, which is located six miles north of Sunbeam, Idaho on the Yankee Fork of the Salmon River, as a contaminated site requiring cleanup of cyanide solution. In 1996, we signed a consent decree related to the reclamation and remediation at the Preachers Cove mill in Idaho as required by the Idaho Department of Environmental Quality, and continued substantial reclamation activities as required by the decree. During 1999, we updated and presented a Phase II reclamation plan to the U.S. Forest Service detailing plans for the final reclamation of the Yankee Fork Mill site. Based upon our analysis of costs required to implement the specific tasks in the Phase II plan, we reduced the Yankee Fork reclamation accrual by $70,000, to reflect our current estimate of costs required to complete reclamation tasks.
As of June 30, 2001, the cyanide solution discharge was complete, the mill removed, and most of the cyanide leach residue disposed of. Only earth moving, monitoring activities and containment of the remaining leach residue remain to complete the activities prescribed by the consent decree. Upon completion of reclamation activities at the Preachers Cove mill site pursuant to the consent decree, the site will be closed and the U.S. Forest Service will terminate the consent decree.
Reclamation activities are currently at a standstill due to weather conditions at the site and the completion of a biological assessment to be submitted to the National Marine Fisheries Service and the U.S. Fish and Wildlife Service. Upon receiving clearance from the U.S. Forest Service to comment the Phase II reclamation work we anticipate substantial completion of reclamation in a six to twelve month period.
We have environmental remediation obligations at our antimony processing site near Thompson Falls, Montana ("the Stibnite Hill Mine Site"). Under the regulatory jurisdiction of the U.S. Forest Service and subject to the operating permit requirements of the Montana Department of Environmental Quality, we have performed substantial environmental reclamation activities during 1999 and 2000. These activities included installation of a PVC liner and a geotextile layer on two of the tailings ponds and the removal of approximately 25,000 yards of tailings material from a third pond. We made adjustments increasing our reclamation accruals by $51,150 and $25,615 in fiscal years 1999 and 2000, respectively, based upon management's revised estimates of costs to comply with regulatory requirements in effect during the respective years. We plan to line a storm water pond and construct a water treatment facility, thus fulfilling the majority of our environmental responsibilities at the Stibnite Hill Mine site.
During the second quarter of 1999, we began final reclamation and closure at the Yellow Jacket property. Upon Yellow Jacket's closure, we estimated the required costs and time to perform closure activities, and adjusted the Yellow Jacket reclamation liability on a quarterly basis, re-instating the accrual as costs were incurred (a total of $73,893), to reflect our estimate reclamation and closure costs left to incur.
During the third and fourth quarters of 1999 we began disassembly of the mill and mill buildings and removed tailings waste from the tailings ponds. In 2000, we evaluated progress on Yellow Jacket's closure and reclamation and continued to adjust the reclamation liability for costs as incurred (a total of $86,960) based upon labor and equipment cost experience in 1999 and our estimate of costs related to specific tasks yet-to-complete at year end.
The reclamation activity is being overseen by the U.S. Forest Service and the Idaho Department of Environmental Quality. Reclamation work is commencing on the clean-up of non-cyanide tailings material at the property; and we believe this project will be substantially completed by the end of 2001. In 2000, the U.S. Forest Service began releasing environmental bonding funds to us that had been deposited for remediation of the Yellow Jacket Mine.
During 2001, we recorded a reclamation accrual for our Bear River Zeolite subsidiary based on an analysis performed by management, and as reviewed and approved by regulatory authorities for environmental bonding purposes. The accrual of $7,500, represents the Company's estimated costs of reclaiming the acreage disturbed by our zeolite operations in accordance with regulatory requirements.
Reclamation activities at the Yellow Jacket Mine and the Stibnite Hill Mine Site have proceeded informally under supervision of the U.S. Forest Service and state departments of environmental quality. We have complied with regulators' requirements and do not expect the imposition of substantial additional requirements.
We have posted cash performance bonds with a bank and the U.S. Forest Service in connection with our reclamation activities. Upon completion of reclamation activities, the bonds will be terminated and the applicable regulatory authorities may release up to $123,250.
We believe we have accrued adequate reserves to fulfill our environmental remediation responsibilities as of June 30, 2001. We have made significant reclamation and remediation progress on all our properties over the past three years and have complied with regulatory agencies in our environmental remediation efforts. The change in amounts accrued for environmental remediation activities in 1998, 1999 and as of June 30, 2001 is as follows:
============================== ================ ================ =============== =============== ===================
Bear River
Yankee Fork Thompson Falls Yellow Jacket Zeolite
Mill Site Antimony Plant Mine Totals
------------------------------ ---------------- ---------------- --------------- --------------- -------------------
Balance December 31, 1997 $171,500 $ 270,000 $115,044 $ 556,544
------------------------------ ---------------- ---------------- --------------- --------------- -------------------
Less: Reclamation work (55,472) (55,472)
------------------------------ ---------------- ---------------- --------------- --------------- -------------------
Adjustment of Accrued 2,200
Remediation Costs 2,200
------------------------------ ---------------- ---------------- --------------- --------------- -------------------
Balance December 31, 1998 $116,028 $ 272,200 $115,044 $503,272
------------------------------ ---------------- ---------------- --------------- --------------- -------------------
(73,893)
Less: Reclamation work (169,736) (243,629)
------------------------------ ---------------- ---------------- --------------- --------------- -------------------
Adjustment of Accrued
Remediation Costs (70,000) 51,150 73,893 55,043
------------------------------ ---------------- ---------------- --------------- --------------- -------------------
Balance December 31, 1999 $ 46,028 $ 153,614 $115,044 $ 314,686
------------------------------ ---------------- ---------------- --------------- --------------- -------------------
Less: Reclamation work 0 (60,913) (86,960) (147,873)
------------------------------ ---------------- ---------------- --------------- --------------- -------------------
Adjustment of Accrued 0 25,615 86,960 112,575
Remediation Costs
------------------------------ ---------------- ---------------- --------------- --------------- -------------------
Balance December 31, 2000 $ 46,028 $ 118,316 $115,044 $ 279,388
------------------------------ ---------------- ---------------- --------------- --------------- -------------------
------------------------------ ---------------- ---------------- --------------- --------------- -------------------
Less: Reclamation work (1,766) (10,666) (12,432)
------------------------------ ---------------- ---------------- --------------- --------------- -------------------
------------------------------ ---------------- ---------------- --------------- --------------- -------------------
Adjustment of Accrued
Remediation Costs $7,500 7,500
------------------------------ ---------------- ---------------- --------------- --------------- -------------------
------------------------------ ---------------- ---------------- --------------- --------------- -------------------
Balance June 30, 2001
$46,028 $116,550 $104,318 $7,500 $274,456
============================== ================ ================ =============== =============== ===================
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Marketing. During the first quarter of 1999, and in prior years dating back to 1991, we marketed our antimony products with HoltraChem, Inc. and later our successor, BCS, in a 50/50 profit sharing arrangement. In March 1999, we notified BCS that we were terminating the agreements that HoltraChem had assigned BCS, and that we were going to market and distribute antimony products independently. As a result we took steps to market our products to existing and prospective customers, and have been able to do so successfully. We employ full time marketing personnel and have negotiated various commission based sales agreements with other chemical distribution companies.
Antimony Price Fluctuations. The operating results of us have been and will continue to be directly related to the market prices of antimony metal, which have fluctuated widely in recent years. The volatility of prices is illustrated by the following table which sets forth the average prices of antimony metal per pound as reported by sources deemed reliable by us.
Year Average Price
2000 $0.67
1999 0.58
1998 0.63
1997 0.93
1996 1.60
1995 2.28
The range of sales prices for antimony oxide per pound was as follows
for the periods indicated:
Year High Low Average Price
2000 $5.88 $0.65 $0.99
1999 5.52 0.65 0.85
1998 5.57 0.83 1.13
1997 5.75 0.98 1.41
1996 4.50 1.53 1.86
1995 3.12 0.89 2.56
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Antimony metal prices are determined by a number of variables over which we have no control. These include the availability and price of imported metals, the quantity of new metal supply, and industrial and commercial demand. If metal prices decline and remain depressed, our revenues and profitability may be adversely affected.
We use antimony metal as a raw material for our products. We obtain antimony metal from sources in China (70%), Canada (15%) and the U.S. (15%). Purchases from Canadian and U.S. sources have been made at world market prices, as established by the London Metals Bulletin from time to time. Antimony metal from Chinese sources has been supplied by Fortune America Trading Ltd., a New Jersey-based dealer, pursuant to a long-term supply contract to supply antimony metal at a fixed price.
Until recently, antimony prices have been at a 35 year low. Beginning in late June 2000, prices have risen dramatically, primarily as a result of restrictions by the Chinese government on exports of antimony metal from China, one of the principal suppliers of antimony. The fixed price set by the supply contract with the dealer in Chinese-sourced metal was below current market price. The dealer has refused to supply metal at the contracted price, forcing us to purchase antimony metal from this dealer and other sources at current world market prices. However, we have been able to raise our antimony product prices to our customers and to increase our gross profits. Our USAMSA venture is intended eventually to reduce our dependence on foreign sources but is not expected to provide sufficient raw material for several years.
Other. We hold no material patents, licenses, franchises or concessions, but we consider our antimony processing plant proprietary in nature. We use the trade name "Montana Brand Antimony Oxide" for the marketing of our antimony products.
We are subject to the requirements of the Federal Mining Safety and Health Act of 1977, requirements of the state of Montana and the state of Idaho, Federal and State Health and Safety statutes and Sanders County, Lemhi County and Custer County health ordinances.
Employees. As of June 30, 2001, we employed 28 full-time employees. The number of full-time employees may vary seasonally. None of our employees is covered by any collective bargaining agreement.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This prospectus includes forward-looking statements that involve risks and uncertainties.
"Forward looking statements" can be identified by the use of forward-looking terminology such as "believes," "could," "possibly," "anticipates," "estimates," "projects," "expects," "may," "will," or "should." The statements are subject to some risks, uncertainties and assumptions. No assurances can be given that the future results anticipated by forward-looking statements will be achieved. Our actual results may differ materially from these forward-looking statements. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this prospectus.
Some of the matters discussed are forward-looking statements that involve risks and uncertainties, including the impact of antimony prices and production volatility, changing market conditions and the regulatory environment and other risks. Actual results may differ materially from those projected. These forward-looking statements represent our judgment as of the date of this filing. We disclaim, however, any intent or obligation to update these forward-looking statements.
Results of Operations
We reported a net loss of $67,699 during 2000 compared to net income of $304,015 in 1999. The net loss in 2000 is primarily attributable to a $985,425 loss from operating activities in 2000, offset by an extraordinary gain recognized on the conversion of debts to common stock of $917,726. The net income in 1999 is primarily due to an extraordinary gain of $611,693 recognized on the conversion of debts to common stock. Without the effect of the extraordinary gain, we would have experienced a net loss from our operating activities of $307,677 during 1999.
Total revenues from antimony product sales during 2000 were $5,016,661 compared to $4,710,278 in 1999. The increase in sales during 2000 was partially due to our sharing of 50% of antimony product sales with an affiliated sales company during the first quarter of 1999 compared to selling all of our antimony products independently during 2000. Sales of antimony products during 2000 were 5,039,327 pounds at an average sale price of $1.00 per pound; during 1999 5,517,443 pounds of antimony products were sold at an average sales price of $0.85 per pound. Gross profit from antimony product sales was $472,890 in 2000, or 9% of sales, compared to $876,178 in 1999, or 18.6% of sales. The decrease in gross profit during 2000 was due to rapidly escalating antimony metal prices during the year that were quickly reflected in higher production costs and, correspondingly, higher cost of sales. Antimony product sale prices in the market reacted slower to the increase in metal prices however, as competitors with greater quantities of finished goods inventory on hand were able to continue selling products at prices that were in effect prior to the increase in metal prices. During the last quarter of 2000 and the first quarter of 2001, antimony product sales prices increased; and as a result, we anticipate the return to a higher level of gross profit.
Combined care, maintenance and reclamation costs and exploration and evaluation costs at the Yellow Jacket property totaled $241,244 during 2000 compared to $200,867 in 1999. The increase during 2000 was due to our increased reclamation activities during 2000 compared to 1999.
During 2000 and 1999 we recorded $25,615 and $51,150, respectively, of reclamation costs on our antimony properties that were not charged against our accrued reclamation liability based on our revised estimates of reclamation costs required to fulfill our antimony reclamation obligations.
During 1999, we made adjustments to accrued reclamation costs of $70,000 to reflect management's estimate of costs remaining to reclaim our Preacher's Cove property. During 2000, no adjustments were made to reclamation liabilities at the Preacher's Cove property.
General and administrative expenses increased from $400,432 in 1999, to $631,869, an increase of $231,437 or approximately 58%. The increase in 2000 compared to 1999 was principally due to consulting expenses compensated with shares of our common stock totaling approximately $150,000 and legal and accounting costs of approximately $64,000, associated with the filing of a registration statement with the Securities and Exchange Commission.
Antimony sales expenses were $339,267 during 2000 and comparable to sales expenses of $337,309 during 1999. Management expects sales expenses to decrease in future periods based on restructuring efforts made to our sales staff during 2000.
Interest expense of $157,145 in 2000 decreased compared to interest expense of $185,985 in 1999 primarily due to the conversion of debts to common stock in 2000. Interest and other income was $8,459 in 2000 and $12,190 in 1999. The decrease in interest and other income during 2000 was primarily due to decreased interest earnings on reclamation bonds, when bonds were released to us during 2000 as the Yellow Jacket property reclamation progressed.
In 2000, we settled and extinguished a debt owed the Estate of Bobby C. Hamilton of approximately $1.5 million (see "Financial Condition and Liquidity") through payment of $500,000 cash and issuance of 250,000 shares of our restricted common stock. In connection with the settlement, we recorded an extraordinary gain of $917,726. In 1999, we converted $682,397 of defaulted debenture principal and interest and $144,339 of principal and interest related to mining lease royalties (Judgments payable) into our common stock. In connection with these conversions we recorded an extraordinary gain of $611,692.
Financial Condition and Liquidity
At December 31, 2000, our assets totaled $843,920, and there was a stockholders' deficit of $1,708,085. The stockholders' deficit decreased $475,110 from the prior year, primarily due to the conversion of debts to common stock. In order to continue as a going concern, we are dependent upon (1) profitable operations from the antimony division, (2) additional equity financing, and (3) continued availability of bank financing. Without financing and profitable operations, we may not be able to meet our obligations, fund operations and continue in existence. There can be no assurance that management will be successful in our plans to improve the financial condition of us.
Cash used by operations during 2000 was $791,089 compared to net cash provided by operations during 1999 of $59,986, a change of approximately $851,000. The change in cash used by operations in 2000 compared to cash provided by operations in 1999 was primarily due to the operating loss (before extraordinary item) of $985,425 in 2000 compared to the similar operating loss of $307,677 during 1999.
Investing activities used $38,499 during 2000 compared to $76,417 used in 1999. Cash used in investing activities during both years related exclusively to purchases and construction of antimony plant and equipment.
Financing activities provided $892,588 during 2000 compared to $16,431 of cash in 1999. Cash from financing activities in 2000 related principally to cash received from the sale of convertible debentures (and related warrants) and common stock sales. Cash provided during 1999 related primarily to cash received from bank financing.
Other significant financial commitments for future periods will include:
--Servicing notes payable to bank.
--Servicing convertible debenture interest and principal payments.
--Completion and maintenance of an evergreen registration statement for common shares held by some of our shareholders.
--Keeping current on property, payroll, and income tax liabilities and accounts payable.
--Fulfilling responsibilities with environmental, labor safety and securities regulatory agencies.
In an effort to improve our financial condition, our management, during the second quarter of 2000, negotiated the settlement of a debt of approximately $1.5 million owed the Estate of Bobby C. Hamilton (the "Estate"). We entered into a Settlement and Release of All Claims Agreement (the "Settlement Agreement") with the Estate on June 23, 2000. The Settlement Agreement extinguished the note payable to the Estate in exchange for a cash payment of $500,000 and the issuance of 250,000 shares of our common stock.
The cash payment to the Estate was financed by the issuance of $600,000 of debentures pursuant to a financing agreement with Thomson Kernaghan and Co., Ltd., a Canadian investment banker. The financing agreement with Thomson Kernaghan provided, among other things, for the sale of up to $1,500,000 of our convertible debentures to the investment banker and our affiliates. The debentures are convertible into common stock at a price per share equal to 75% of the average of the three lowest closing bid prices per share of our common stock as reported by Bloomburg L.P. in the 20 trading days immediately preceding the closing date of the debenture sale or the conversion date, whichever is lower, but in any event not greater than $0.90 per share. The debentures are due two years from their issue date and accrue interest at 10% to be paid annually on each anniversary date of the issue. During 2000, we issued $675,000 of convertible debentures pursuant to the financing agreement. The maximum conversion price is $0.29125 per share. In connection with the debenture sale, we issued warrants to purchase 1,394,050 shares of common stock at $0.39 per share.
The financing agreement required that we execute a registration rights agreement, binding us to prepare and file a registration statement with the Securities and Exchange Commission registering the resale of shares of common stock issuable upon conversion of the debentures and upon exercise of the related warrants, and to increase the number of our authorized but outstanding shares of common stock to accommodate the exercise of the warrants and conversion of the debentures. During 2000, we expended substantial resources in preparation of the registration statement; but as of the date of this report, the registration statement has not yet become effective. The registration rights agreement that we executed provides for liquidated damages to be payable to the debenture holders for the delay of the effectiveness of the registration statement. The liquidated damages are calculated as two percent (2%) per month of the aggregate value of the principal amount of the debentures outstanding combined with the aggregate exercise prices of the outstanding purchasers' and agent's warrants issued in connection with the convertible debentures, accrued on a daily basis subsequent to the registration deadline. In April 2001, the debenture holders agreed to quantify the liquidated damages at $70,000 payable in the form of 240,343 shares of our common stock.
During 2000, we issued $247,922 of 10% convertible debentures (due December 2003) to John C. Lawrence, our president and a director. The debentures were issued in exchange for various cash advances we had received for working capital purposes from Mr. Lawrence during the year. Also in December 2000, we issued two $50,000 10% convertible debentures (one $50,000 debenture being due November 22, 2003 and the second debenture being due December 12, 2003) to A.W. Dugan, a shareholder of the company and accredited investor, in exchange for $100,000 cash paid by Mr. Dugan and used for working capital purposes. The debentures issued to Mr. Lawrence and Mr. Dugan are convertible into our common stock at a conversion price which is the lower of $0.31 per share or 75% of the average of the three lowest closing bid prices for our common stock as quoted by Bloomberg L.P. in the 20 trading days immediately preceding the conversion date. In connection with the issuance of these debentures we issued warrants to Mr. Lawrence and Mr. Dugan to purchase 151,213 and 60,974 shares of common stock, respectively, at $0.41 per share.
In 2000, we sold 782,511 shares of our common stock for $255,000, with 100,000 shares sold pursuant to the exercise of stock purchase warrants. Proceeds from stock sales were used to fund our operations.
We anticipate funding our operations through additional sales of common stock and debt financing in 2001. We believe that it will have additional financial resources from increasing gross profits from our antimony business and sales of zeolite from our newly formed Bear River Zeolite Company subsidiary.
DESCRIPTION OF PROPERTY
Antimony Division
Our principal plant and mine are located in the Burns Mining District, Sanders County, Montana, approximately 15 miles west of Thompson Falls, Montana. We hold 2 patented mill sites and 12 patented lode mining claims covering 192 acres. The lode claims are contiguous within two groups.
Antimony mining and milling operations were curtailed during 1983 due to continued declines in the price of antimony. We are currently purchasing foreign raw antimony materials and continues to produce antimony metal, oxide and sodium antimonate from our antimony processing facility near Thompson Falls, Montana.
Gold Division
Yankee Fork Mining District.
Estes Mountain. The Estes Mountain properties consist of 2 patented lode mining claims in the Yankee Fork Mining District of Custer County, Idaho. These claims are located approximately 12 miles from our former Preachers Cove Mill.
Preachers Cove Millsite. We had a 150-ton per day gravity and flotation mill located approximately 50 miles west of Challis, Idaho and 19 miles northeast of Stanley, Idaho on the Yankee Fork of the Salmon River at Preachers Cove. The mill also had a cyanide leach plant for the processing of concentrates into dore bullion. The plant has been dismantled and the property is nearing final reclamation.
Yellow Jacket Mining District
The Yellow Jacket property consisted of 12 patented and various unpatented lode mining claims located in the Yellow Jacket Mining District of Lemhi County, Idaho, approximately 70 miles southwest of Salmon, Idaho. In 1996, our personnel determined that the existing mineral resource was not economical to mine without additional operating capital and an increase in current metals prices. Accordingly, production operations at the Yellow Jacket property were suspended and the mine placed on a care-and-maintenance status. Subsequent to 1996, we engaged in underground exploration activities at the property. During the second quarter of 1999, due to depressed precious metal prices and the absence of a discovery of mineralized material that could be economically mined, we abandoned our leasehold interests in the Yellow Jacket property and began final reclamation and closure activities. (See "Description of Business-Environmental Matters.")
Zeolite Division
We own 75% of Bear River Zeolite Company ("BRZ"), an Idaho corporation incorporated on June 1, 2000. BRZ has entered into a ten-year mining lease with Webster Farm, L.L.C. The lease entitles BRZ to surface mine and process zeolite on property located in Preston, Idaho in exchange for a royalty payment. The royalty is a percentage of the unprocessed ore sale price which varies between 5%-7%. The minimum annual royalty during the first five years is $1,000. The royalty is also payable on zeolite mined on adjacent Bureau of Land Management ("BLM"), ground on which BRZ has located five additional BLM claims, if BRZ accesses those claims across the leased property. BRZ is currently constructing a processing plant on the property. Mining and processing equipment will be leased to BRZ by us; and we will advance development and start-up costs. Production and sale of zeolite is not expected to contribute materially to our operating revenues in the near future.
DIRECTORS AND EXECUTIVE OFFICERS
Affiliation
Name Age with us Expiration of Term
John C. Lawrence 62 Chairman, President, Secretary, Annual meeting
and Treasurer; Director
Robert A. Rice 76 Director Annual meeting
Leo Jackson 59 Director Annual meeting
Gary D. Babbitt 54 Director Annual Meeting
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Business Experience of Directors and Executive Officers
John C. Lawrence. Mr. Lawrence has been the President and a Director since our inception. Mr. Lawrence was the President and a Director of AGAU Mines, Inc., our corporate predecessor, since the inception of AGAU Mines, Inc., in 1968. He is a member of the Society of Mining Engineers and a recipient of the Uuno Sahinen Silver Medallion Award presented by Butte Tech, University of Montana.
Robert A. Rice. Mr. Rice is a metallurgist, having been employed by the Bunker Hill Company, a wholly owned subsidiary of Gulf Resources and Chemical Corporation at Kellogg, Idaho, as Senior Metallurgist and Mill Superintendent until his retirement in 1965. Mr. Rice has been a Director since 1975.
Leo Jackson. Mr. Jackson is a resident of El Paso, Texas. For the past 15 years, he has been a principal owner and the President of Production Minerals, Inc., a company which has an indirect 25% interest in the stock of USAMSA. Mr. Jackson is the principal owner of Minera de Roja, S.A. de C.V., and has been involved in the production and marketing of industrial minerals such as fluorspar and celestite in the United States and Mexico for 25 years. Mr. Jackson speaks fluent Spanish and has a BBA degree from the Sul Ross State University in Texas. Mr. Jackson has been a Director since February 1999.
Gary D. Babbitt. Mr. Babbitt is a partner in the Boise, Idaho law firm of Hawley Troxell Ennis and Hawley LLP, and has served as our legal counsel for several years. Mr. Babbitt concentrates his law practice in commercial litigation, environmental matters and mining law. He is a member of the Society of Mining Engineers, a director of the Idaho Mining Association, and a trustee of the Rocky Mountain Mineral Law Foundation. Mr. Babbitt was appointed as a director when the Board expanded to four members in November 2000.
We are not aware of any involvement by our directors or executive officers during the past five years in legal proceedings that are material to an evaluation of the ability or integrity of any director or executive officer.
Board Meetings and Committees. Our Board of Directors held twelve (12) regular meetings during the 2000 calendar year. Each incumbent director attended at least 75% of the meetings held during the 2000 calendar year, in the aggregate, by the Board and each committee of the Board of which he was a member. Our Board of Directors does not have a Compensation Committee, or a Nominating Committee.
In June of 2001, our Board of Directors established an Audit Committee.
Board Member Compensation. We pay directors' fees in the form of 6,000 shares of our common stock per year per director. Directors are also reimbursed reasonable out-of-pocket expenses in connection with attending meetings.
Section 16(a) Beneficial Ownership Reporting Compliance. Section 16(a) of the Securities Exchange Act of 1934 requires that our directors and executive officers and the holders of 10% or more of our common stock, to file reports of ownership and changes in ownership with the Securities and Exchange Commission. Officers, directors and stockholders holding more than 10% of our common stock are required by the regulation to furnish us with copies of all Section 16(a) forms they have filed.
Based solely on our review of copies of Forms 3, 4, and 5 furnished to us, Mr. Lawrence timely filed Form 4 reports during 2000 and timely filed a Form 5 annual report with covering the 2000 fiscal year. Mr. Babbitt is late filing a Form 5 report for the 2000 fiscal year. We do not know if Mr. Rice and Mr. Jackson timely filed, during 2000, Form 4 reports reporting receipt of annual stock compensation or Form 5 annual reports for the 2000 fiscal year. We do not know if A.W. Dugan, a shareholder who became a 10% beneficial owner during 2000, timely filed Form 3 or Form 4 reports during 2000, or timely filed a Form 5 report for the 2000 fiscal year.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding beneficial ownership of our common stock as of June 30, 2001 (i) by each person who is known by us to beneficially own more than 5% of our common stock; (ii) by each of our officers and directors; and (iii) by all of our officers and directors as a group. Unless otherwise stated, each person's address is c/o United States Antimony Corporation, P.O. Box 643, 1250 Prospect Creek Road, Thompson Falls, Montana 59873.
Name and Address of Amount and Nature of Percent of
Title of Class Beneficial Owner(1) Beneficial Ownership Class
Common stock The Maguire Family and 1,501,898(2) 7.78 (1)
related entities as a group
c/o Walter L. Maguire, Sr.
P.O. Box 129
Keller, VA 23401
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Common stock The Dugan Family 2,863,072(4) 13.67 (1)
c/o A. W. Dugan
1415 Louisiana Street, Suite 3100
Houston, TX 77002
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Common stock Thomson Kernaghan and Co Limited(6) 291,025 (5) 1.51 (1)
365 Bay Street
Toronto, Ontario M5H 2V2
CANADA
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Preferred Series A A. Gordon Clark, Jr. 4,500(7) 100.0
stock 2 Musket Trail
Simsbury, CT 06070
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Preferred Series C Walter L. Maguire, Sr. 49,091(7) 27.6
stock P.O. Box 129
Keller, VA 23401
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Preferred Series C Richard A. Woods 48,305(7) 27.2
stock 59 Penn Circle West
Penn Plaza Apts.
Pittsburgh, PA 15206
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Preferred Series C Dr. Warren A. Evans 48,305(7) 27.2
stock 69 Ponfret Landing Road
Brooklyn, CT 06234
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Preferred Series C Edward Robinson 32,203(7) 18.1
stock 1007 Spruce Street 1st Floor
Philadelphia, PA 19107
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Common stock John C. Lawrence 3,537,827(3) 17.9
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Common stock Robert A. Rice 217,762 1.17
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Common stock Leo Jackson 60,700 Nil
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Common stock Gary D. Babbitt 5,967 Nil
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Common stock All Directors and executive
officers as a group
(4 persons) 3,822,256 19.07
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(1) Beneficial Ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Shares of common stock subject to options or warrants currently exercisable or convertible, or exercisable or convertible within 60 days of June 30, 2001 are deemed outstanding for computing the percentage of the person holding options or warrants but are not deemed outstanding for computing the percentage of any other person. Percentages are based on a total of 19,134,564 shares of common stock, 4,500 shares of Series A Preferred Stock and 177,904 shares of Series C Preferred Stock outstanding on June 30, 2001, and the shares issuable upon the exercise of options and warrants exercisable on or within 60 days of June 30, 2001, as described below.
(2) Includes 1,007,843 shares owned by the Maguire Foundation; 129,000 shares owned by Walter L. Maguire, Sr.; 45,500 shares owned by Walter L. Maguire, Trustee; 219,555 shares owned by Walter L. Maguire, Jr.; and warrants issued to donees of Walter L. Maguire, Sr. to purchase 100,000 shares of common stock. Excludes 1,003,409 shares owned by the 1934 Maguire Trust.
(3) Includes 2,336,640 shares of common stock, warrants to purchase 401,213 shares of common stock, and 799,974 shares issuable upon the conversion of the principal balance of convertible debentures into common stock at $0.31 per share. Excludes 75,000 shares owned by Mr. Lawrence's sister, as to which Mr. Lawrence disclaims beneficial ownership.
(4) Includes 316,667 shares owned by A.W. Dugan; 183,333 shares owned by Lydia Dugan; 1,631,440 shares, in the aggregate, owned by companies owned and controlled by A.W. Dugan; warrants issued to Mr. Dugan to purchase 409,051 shares of common stock; and 322,581 shares issuable upon the conversion of the principal balance of convertible debentures into common stock at $0.31 per share. The debenture conversion price is the lower of $.31 per share or 75% of the average of the three lowest closing bid prices during the 20 trading days prior to the conversion date. If the actual conversion price is less than $.31 per share, the debenture holder will be entitled to a greater number of common shares upon conversion.
(5) Includes 141,025 warrants each to purchase one share of common stock at $.39 per share beneficially owned by CALP II LP and Striker Capital, Ltd. and 150,000 shares owned beneficially, and of record, by Thomson Kernaghan and Co. Limited. CALP II LP,Striker Capital, Ltd. and Thomson Kernaghan and Co.Limited are under the common control of MarkValentine, Chief Executive Officer of Thomson Kernaghan and Co., Limited, who has authority to vote and dispose of the shares beneficially owned by each of them. Does not include 384,543 shares issuable upon exercise of warrants at $.39 per share and 192,272 shares issuable upon exercise of warrants at $.39 per share owned by Ian McKinnon and Michelle McKinnon respectively. Ian McKinnon is the father of Michelle McKinnon both of whom were employees of Thomson Kernaghan and Co. Limited and have represented that they are not controlled by, controlling, or under common control of Thomson Kernaghan and Co. Limited.
(6) By Agreement effective July 11, 2000,Thomson Kernaghan and Co., Limited purchased, as agent for other investors, $675,000 principal amount of convertible debentures, an agent's warrant to purchase 961,358 shares of Company's common stock at $.39 per share and a purchaser's warrant to purchase 432,692 shares of Company's common stock at $.39 per share. The debentures are convertible into common stock at the lower of $0.29125 per share or 75% of the average of the lowest closing bid prices during the 20 trading days preceding the conversion date. Thomson Kernaghan and Co., Limited is the beneficial owner of 150,000 shares of Company's common stock and disclaims beneficial ownership of the debentures, warrants and shares issuable upon conversion or exercise. Further, Thomson Kernaghan has advised the Company that, except as indicated in note (5), it is not a member of a group, as defined in ss. 13(d) of the Securities and Exchange Act of 1934, which owns 5% or more of Company's common stock.
(7) The outstanding Series A and Series C preferred shares carry voting rights.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Described below are transactions during the last two years to which we
are a party and in which any of our directors or executive officer or any
beneficial owner of five percent (5%) or more of any class of our voting
securities or relatives of our directors, executive officers or five percent
(5%) beneficial owners has a direct or indirect material interest. See also
transactions described in notes 4, 7, 9, 12, 14 and 17 to our Financial
Statements as of December 31, 2000. o Leo Jackson, a director, is a principal
owner and president of Production Minerals, Inc., a company which indirectly
owns
25% of the stock of USAMSA. We own 50% of the stock of USAMSA.
o We reimburse John C. Lawrence, a director and Chief Executive Officer,
for operational and maintenance expenses incurred in connection with
our use of equipment owned by Mr. Lawrence, including welding trucks,
backhoes, and an aircraft. Amounts for 2000 totaled $29,709. See note 9
to our 2000 Financial Statements. During the six months ended June 30,
2001, we reimbursed Mr. Lawrence $26,489 for these expenses.
o Effective December 12, 2000, we issued our 10% convertible debenture
in the principal amount of $100,000 due December 12,
2003 to John C. Lawrence, a director, president and shareholder.
During the fourth quarter of 2000, we issued our 10%
convertible debenture in the principal amount of $50,000 due December
2003 to A.W. Dugan, a shareholder of the company and
an accredited investor. On December 5, 2000 we issued our 10%
convertible debenture due December 31, 2003 to John C.
Lawrence, a director, president and shareholder of the company, in
the principal amount of $147,992. The conversion price
of these debentures is based on market prices at the time of
conversion, but not greater than $0.31 per shares. We also
issued related warrants to Mr. Lawrence and Mr. Dugan for 151,213
shares and 60,974 shares, respectively, of our common
stock exercisable for five years at $0.41 per share.
o At June 30, 2001, we owed a legal fee in the amount of $121,582 to our
outside firm in which Gary Babbit, a director, is a partner.
o On August 28, 2000, we authorized the issuance of 21,611 shares of
common stock to John C. Lawrence, a director and Chief Executive
Officer, and 934 shares of common stock to Robert A. Rice, a director.
Mr. Lawrence and Mr. Rice were entitled to receive these shares upon
conversion of Series C Preferred Stock in 1999. These shares were not
issued at the time of conversion because our calculation of the number
of conversion shares inadvertently failed to account for the impact of
the anti-dilution provisions of the Series C preferred stock, which
were triggered by our issuance of common stock for less than the Series
C conversion price. These shares are being issued retroactively to the
date of conversion of the Series C Preferred Stock, August 5, 1999. The
adjusted conversion price was $0.5419 per share.
o On August 25, 2000, we sold 257,511 shares of our common stock to A.W.
Dugan, a stockholder and accredited investor, for $0.29125 per share or
$75,000 and issued to Mr. Dugan warrants exercisable at $0.39 per share
to purchase 48,077 shares of common stock. The warrants expire August
25, 2002.
o On July 12, 2000, we sold 100,000 shares of our common stock to Nortex
Corporation, a company controlled by A.W. Dugan, a stockholder and
accredited investor, for cash totaling $25,000, or $0.25 per share.
o On July 11, 2000, we issued our 10% Convertible debentures due June 30,
2002 to Thomson Kernaghan and Co. Limited in the principal amount of
600,000, together with a Purchaser's Warrant for 384,615 shares and an
Agent's Warrant for 961,358 shares of our common stock exercisable for
five years at $0.39 per share. We subsequently agreed to issue an
additional $75,000 principal amount of these 10% convertible
debentures, together with an additional Purchaser's Warrant for 48,077
shares of our common stock. The debenture conversion price is based on
market prices at the time of conversion but not greater than $0.29125
per share.
o John C. Lawrence, a director and Chief Executive Officer, advanced us
$141,243, in the aggregate, for working capital in April and July 2000.
In December 2000, the principal and accrued interest on this obligation
were exchanged for a 10% convertible debenture in the principal amount
of $147,992. During the first six months of 2001, Mr. Lawrence advanced
the Company $50,000 for working capital purposes. At June 30, 2001
$40,000 of these advances were still owing.
o On March 17, 2000, we issued to Thomson Kernaghan and Co.Limited, which
subsequently and for a period of time became the beneficial owner of
more than five percent of our common stock, 150,000 shares of common
stock pursuant to our 2000 Stock Plan, in consideration of financial
consulting services including the preparation and analysis of our
financial condition and financing options.
o On March 16, 2000, we issued 100,000 shares of our common stock to A.W.
Dugan, a stockholder and accredited investor, for cash totaling
$25,000, upon exercise of previously granted warrants to purchase
common stock for $0.25 per share.
o On February 2, 2000, we sold 125,000 shares of our common stock to
Delaware Royalty Company, Inc., a company controlled by A.W. Dugan, a
stockholder and accredited investor, for cash totaling $50,000 or $0.40
per share.
o On January 3, 2000, we agreed to issue to A.W. Dugan, a principal
shareholder, warrants to purchase 300,000 shares of our common stock in
consideration of financial consulting services rendered by Mr. Dugan
and valued at $10,000. The warrants are exercisable at $0.25 per share
and expire January 25, 2003.
o On April 30, 2001, we sold Stephen Holman, 24,000 shares of our common
stock and issued warrants to purchase 12,000 shares of common stock,
for $0.20 per share or $4,800. The warrants are exercisable at $0.35
per share and expire April 30, 2004.
o On April 30, 2001, we sold Stephen Nelson, 25,000 shares of our common
stock and issued warrants to purchase 12,500 shares of common stock,
for $0.20 per share or $5,000. The warrants are exercisable at $0.35
per share and expire April 30, 2004.
o On May 24, 2001, we sold Lee Fransdal, 50,000 shares of our common
stock and issued warrants to purchase 25,000 shares of common stock,
for $0.20 per share or $10,000. The warrants are exercisable at $0.35
per share and expire May 24, 2004.
o On May 25, 2001, we sold Delaware Royalty, a stockholder 200,000 shares
of our common stock and issued warrants to purchase 100,000 shares of
common stock, for $0.20 per share or $40,000. The warrants are
exercisable at $0.35 per share and expire May 25, 2004.
o On May 31, 2001, we sold Noel Keane Van Tol, a relative of an employee
10,000 shares of our common stock and issued warrants to purchase 5,000
shares of common stock, for $0.20 per share or $2,000. The warrants are
exercisable at $0.35 per share and expire May 31, 2004.
o On June 20, 2001, we sold Harlen Ockler, a vendor, 30,000 shares of our
common stock and issued warrants to purchase 15,000 shares of common
stock, for $0.20 per share or $6,000. The warrants are exercisable at
$0.35 per share and expire June 20, 2004.
o On June 20, 2001, we sold H Bar N, a vendor, 20,000 shares of our
common stock and issued warrants to purchase 10,000 shares of common
stock, for $0.20 per share or $4,000. The warrants are exercisable at
$0.35 per share and expire June 20, 2004.
o On June 26, 2001, we sold Delaware Royalty, a stockholder, 100,000
shares of our common stock and issued warrants to purchase 50,000
shares of common stock, for $0.20 per share or $20,000. The warrants
are exercisable at $0.35 per share and expire June 26, 2004.
o On June 26, 2001, we sold Charles Baxter, 10,000 shares of our common
stock and issued warrants to purchase 5,000 shares of common stock, for
$0.20 per share or $2,000. The warrants are exercisable at $0.35 per
share and expire June 26, 2004.
o On June 27, 2001, we issued 12,500 shares of our common stock an issued
warrants to purchase 6,250 shares of common stock exercisable at $0.35
per share and expire June 27, 2004, as compensation for consulting
services with an estimated value of $2,500.
o On June 28, 2001, we sold an employee, 15,000 shares of our common
stock and issued warrants to purchase 7,500 shares of common stock, for
$0.20 per share or $3,000. The warrants are exercisable at $0.35 per
share and expire June 28, 2004.
o On June 28, 2001, we sold Thomas Stewart, 25,000 shares of our common
stock and issued warrants to purchase 12,500 shares of common stock,
for $0.20 per share or $5,000. The warrants are exercisable at $0.35
per share and expire June 28, 2004.
o On June 28, 2001, we sold Frank Chema, 15,000 shares of our common
stock and issued warrants to purchase 7,500 shares of common stock, for
$0.20 per share or $3,000. The warrants are exercisable at $0.35 per
share and expire June 28, 2004.
o On July 11, 2001, we sold Gary Babbitt, a director, 45,000 shares of
our common stock and issued warrants to purchase 22,500 shares of
common stock, for $0.20 per share or $9,000. The warrants are
exercisable at $0.35 per share and expire July 11, 2004.
EXECUTIVE COMPENSATION
Summary Compensation Table
The Securities and Exchange Commission requires the following table setting forth for fiscal years ending December 31, 2000, 1999 and 1998, the compensation paid by us to our principal executive officer.
-------------------------- ------ ----------------------------------- ---------------------------------------------
Annual Compensation Long-Term Compensation
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-------------------------- ------ ----------- ------- --------------- --------------------- -----------------------
Awards Payouts
-------------------------- ------ ----------- ------- --------------- --------------------- -----------------------
-------------------------- ------ ----------- ------- --------------- ---------- ---------- ---------- ------------
------------------------- Restricted Securities
Other Annual Options/ Underlying All All Other
Name and Principal Year Salary Bonus Compensation(1) Awards(3) LTIP SARs Other Compensation
Position Payouts
-------------------------- ------ ----------- ------- --------------- ---------- ---------- ---------- ------------
-------------------------- ------ ----------- ------- --------------- ---------- ---------- ---------- ------------
John C. Lawrence, 2000 $81,000 N/A $4,154 $3,250 None None None
President
-------------------------- ------ ----------- ------- --------------- ---------- ---------- ---------- ------------
-------------------------- ------ ----------- ------- --------------- ---------- ---------- ---------- ------------
John C. Lawrence, 1999 $72,000 N/A $4,154 $720 None None None
President
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-------------------------- ------ ----------- ------- --------------- ---------- ---------- ---------- ------------
John C. Lawrence, 1998 $72,000 N/A $4,154 $844 None None None
President
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(1) Represents earned but unused vacation.
(2) Increased to $96,000 beginning August 1, 2000.
(3) These figures represent the fair values, as of the date of issuance, of
the annual Director's fee payable to Mr. Lawrence in the form of shares
of our restricted common stock.
LEGAL PROCEEDINGS
There are no material legal proceedings to which we are currently a party or to which our property is subject.
LEGAL MATTERS
The validity of the issuance of our securities offered by this prospectus has been passed upon for us by Sonfield and Sonfield, Houston, Texas.
EXPERTS
The consolidated balance sheets of United States Antimony Corporation as of December 31, 1999 and December 31, 2000 and the related consolidated statements of operations for the years then ended included in this prospectus s have been audited by Decoria, Maichel and Teague P.S., independent auditors, as stated in their report, which is included in this prospectus in reliance upon the report of the firm given upon their authority as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We file annual reports, quarterly reports and current reports, proxy statements and other information with the U.S. Securities and Exchange Commission (SEC). In addition, we have filed with the SEC a Registration Statement on Form SB-2 under the Securities Act of 1933 with respect to our common stock offered in this prospectus. This prospectus does not contain all of the information set forth in the registration statement and the exhibits and schedules to that registration statement. For further information with respect to us and our common stock, we refer you to the registration statement and its exhibits and schedules. With respect to statements contained in this prospectus as to the contents of any contract or other document, reference is made to the copy of that contract or document filed as an exhibit to the registration statement .
You may read and copy materials that we have filed with the SEC, including the registration statement, at the following SEC Public Reference Room:
450 Fifth Street, N.W.
Room 1024
Washington, D.C. 20549
You can call the SEC at 1-800-SEC-0330 for more information about the operation of the Public Reference Room. Copies of our filings with the SEC are also available to the public through the SEC's Internet website at http:\\www.sec.gov.
INDEX TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS AS OF December 31, 2000 and 1999 (AUDITED) Independent Auditor's Report...................................................2 Consolidated Balance Sheets....................................................3 Consolidated Statements of Operations..........................................4 Consolidated Statements of Changes in Stockholders' Deficit....................5 Consolidated Statements of Cash Flows..........................................6 Notes to Consolidated Financial Statements..................................8-22 |
FINANCIAL STATEMENTS AS OF JUNE 30, 2001 (UNAUDITED)
Consolidated Balance Sheets...................................................23 Consolidated Statements of Operations.........................................24 Consolidated Statements of Cash Flows.........................................25 Notes to Consolidated Financial Statements.................................26-27 |
INDEPENDENT AUDITOR'S REPORT
The Board of Directors and Stockholders of United States Antimony Corporation
We have audited the accompanying consolidated balance sheets of United States Antimony Corporation and its subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of operations, changes in stockholders' deficit and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of United States Antimony Corporation and its subsidiaries as of December 31, 2000 and 1999, and the consolidated results of their operations and their cash flows for the years then ended, in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has negative working capital, an accumulated deficit and total stockholders' deficit that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/Decoria, Maichel and Teague P.S. Spokane, Washington March 22, 2001 |
United States Antimony Corporation and Subsidiaries
Consolidated Balance Sheets
December 31, 2000 and 1999
2000 1999
ASSETS
Current assets:
Restricted cash $ 8,518 $ 227
Inventories 221,457 276,599
Accounts receivable, less allowance
for doubtful accounts of $30,000 and $50,000 119,568 60,205
--------------- ------------------
Total current assets 349,543 337,031
Investment in USAMSA 111,088 111,088
Properties, plants and equipment, net 246,250 341,417
Restricted cash for reclamation bonds 123,250 178,986
Deferred financing charges, net 63,789
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Total assets $ 893,920 $ 968,522
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LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Checks issued and payable $ 107,133 $ 45,544
Accounts payable 429,654 467,596
Accrued payroll and property taxes 241,588 263,667
Accrued payroll and other 89,680 132,464
Judgment payable 43,480 40,645
Accrued interest payable 47,324 14,640
Due to related parties 10,307 8,128
Notes payable to bank, current 150,625 160,395
Note payable to Bobby C. Hamilton, current 87,596
Accrued reclamation costs, current 80,000 256,000
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Total current liabilities 1,199,791 1,476,675
Debentures payable, net of discount 997,449
Notes payable to bank, noncurrent 205,377 165,570
Note payable to Bobby C. Hamilton, noncurrent 1,450,785
Accrued reclamations costs, noncurrent 199,388 58,687
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Total liabilities 2,602,005 3,151,717
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Commitments and contingencies (Notes 1 and 18)
Stockholders' deficit:
Preferred stock, $.01 par value, 10,000,000 shares authorized:
Series A: 4,500 shares issued and outstanding
(liquidation preference $110,250) 45 45
Series B: 750,000 shares issued and outstanding
(liquidation preference $802,500) 7,500 7,500
Series C: 177,904 and 205,996 shares issued and outstanding
(liquidation preference $97,847) 1,779 2,060
Common stock, $.01 par value, 30,000,000 and 20,000,000 shares
authorized; 18,375,564 and 16,900,252 shares issued and outstanding 183,755 169,003
Additional paid-in capital 14,818,285 14,289,947
Accumulated deficit (16,719,449) (16,651,750)
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Total stockholders' deficit (1,708,085) (2,183,195)
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Total liabilities and stockholders' deficit $ 893,920 $ 968,522
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United States Antimony Corporation and Subsidiaries
Consolidated Statements of Operations
For the years ended December 31, 2000 and 1999
2000 1999
Revenues:
Sales of antimony products and other $ 5,016,661 $ 4,710,278
Cost of antimony production 4,037,289 3,511,097
Freight and delivery 506,482 323,003
--------------- ------------------
Gross profit 472,890 876,178
--------------- ------------------
Other operating expenses:
Exploration and evaluations 53,985
Reclamation-antimony 25,615 51,150
Care, maintenance, and reclamation-Yellow Jacket 241,244 146,882
General and administrative 631,869 400,432
Sales expenses 339,267 337,309
--------------- ------------------
1,237,995 989,758
--------------- ------------------
Other (income) expense:
Gain from accrued reclamation costs adjustment (70,000)
Gain from accounts payable adjustment (29,322) (16,440)
Interest expense 157,145 185,985
Factoring expense 100,956 106,742
Interest income and other (8,459) (12,190)
--------------- ------------------
220,320 194,097
--------------- ------------------
Loss before extraordinary item (985,425) (307,677)
Extraordinary gain on conversion of debts to common
stock 917,726 611,692
--------------- ------------------
Net income (loss) $ (67,699) $ 304,015
================ ===================
Basic net income (loss) per share of common stock
Before extraordinary item $ (0.06) $ (0.02)
Extraordinary item 0.05 0.04
--------------- ----
Net income (loss) $ (0.01) $ 0.02
================ ==================
Basic weighted average shares outstanding 17,772,693 14,597,917
=============== ==================
Diluted net income (loss) per share of common stock
Before extraordinary item $ (0.06) $ (0.02)
Extraordinary item 0.05 0.04
--------------- ----
Net income (loss) $ 0.01 $0.02
=============== =====
Diluted weighted average shares outstanding 17,772,693 14,839,455
=============== ==================
|
United States Antimony Corporation and Subsidiaries Consolidated Statements of Changes in Stockholders' Deficit for the years ended December 31, 2000 and 1999
Preferred Stock
Series A Series B Series C Common Stock Additional
Paid Accumulated
Shares Amount Shares Amount Shares Amount Shares Amount In Capital Deficit Total
-------------------------------------------------------------------------------------------------------
Balances, December 31, 1998 4,500 $ 45 750,000 $ 7,500 2,560,762 $25,608 13,425,925$134,259 $14,079,260$(16,955,765)$(2,709,093)
Issuance of common stock for
cash purchased by employees 4,800 48 1,152 1,200
Issuance of common stock in
exchange for services 40,000 400 9,600 10,000
Issuance of common stock for
conversion of debts 1,036,761 10,368 195,555 205,923
Issuance of common stock to
employees for compensation 20,000 200 2,400 2,600
Issuance of common stock to
directors for compensation 18,000 180 1,980 2,160
Conversion of series C preferred
stock to common stock (2,354,766) (23,548) 2,354,766 23,548
Net income 304,015 304,015
------ ------ ------ --------- --------- --------- --------- ------- ----------- -------------
Balances December 31, 1999 4,500 $45 750,000 $7,500 205,996 $2,060 16,900,252 $169,003$14,289,947 $(16,651,750) $(2,183,195)
Issuance of common stock for cash 682,511 6,825 223,175 230,000
Exercise of stock warrants 100,000 1,000 24 25,000
Issuance of common stock for services 300,000 3,000 150,000 153,000
Issuance of common stock as
settlement of debt 250,000 2,500 78,125 80,625
Conversion of series C preferred
stock to common stock (28,092) (281) 28,092 281
Issuance of common stock to former
Series C preferred stockholders 35,542 355 3,910 4,265
Warrants issued for consulting services 10,000 10,000
Warrants issued in connection
with convertible debentures 29,628 29,628
Common stock issued to directors
for compensation 79,167 791 9,500 10,291
Net loss (67,699) (67,699)
------ ------ ------ --------- --------- --------- --------- -------- ---
Balances, December 31, 2000 4,500 $45 750,000 $7,500 177,904 $ 1,779 18,375,564 $183,755 $ 14,818,285 $(16,719,449) $(1,708,085)
====== ======= ======= ========= ========= ========== ========== ======== ====
|
United States Antimony Corporation and Subsidiaries
Consolidated Statements of Cash Flows
for the years ended December 31, 2000 and 1999
2000 1999
Cash flows from operating activities:
Net income (loss) $ (67,699) $ 304,015
Adjustments to reconcile net income (loss) to
net cash provided by operations:
Depreciation 133,666 130,714
Amortization of deferred financing charges 18,711
Write off of capitalized start-up costs 8,590
Extraordinary gain on conversion of debts to common stock (917,726) (611,692)
Gain from accrued reclamation costs adjustment (70,000)
Gain from accounts payable adjustment (29,322) (16,440)
Provision for doubtful accounts (20,000) 50,000
Issuance of common stock to directors as compensation 10,291 2,160
Issuance of common stock to employees as compensation 2,600
Issuance of common stock and warrants for services 163,000 10,000
Issuance of common stock to former Series C holders 4,265
Restricted cash (8,291) (6)
Accounts receivable (39,363) (110,205)
Inventories 55,142 88,799
Restricted cash for reclamation bond 55,736
Deferred financing charges (82,500)
Accounts payable (8,620) 228,863
Accrued payroll and property taxes (22,079) 95,185
Accrued payroll and other (42,784) 35,752
Judgments payable 2,835 11,780
Accrued debenture interest payable 36,769 13,250
Payable to related parties 2,179 5,206
Accrued reclamation costs (35,299) (118,585)
--------------- ------------------
Net cash provided by operating activities (791,089) 59,986
Cash flows from investing activities:
Purchase of properties, plants and equipment (38,499) (76,417)
--------------- ------------------
Net cash used in investing activities (38,499) (76,417)
--------------- ------------------
Cash flows from financing activities:
Proceeds from issuance of common stock and warrants 230,000
Exercise of warrants 25,000
Proceeds from bank term note payable 250,000 259,484
Payments on notes payable to bank (219,963) (200,330)
Change in checks issued and payable 61,589 14,455
Proceeds from issuance of convertible debentures 1,022,992
Payments on note payable to Bobby C. Hamilton (540,030) (57,178)
--------------- ------------------
Net cash provided by financing activities 892,588 16,431
--------------- ------------------
Net decrease in cash 0 0
Cash, beginning of year 0 0
--------------- ------------------
Cash, end of year $ 0 $ 0
=============== ==================
|
United States Antimony Corporation and Subsidiaries
Consolidated Statements of Cash Flows, Continued:
for the years ended December 31, 2000 and 1999
Supplemental disclosures:
Cash paid during the year for interest $ 119,866 $ 157,239
=============== ==================
Noncash financing activities:
Discount on debentures payable for detachable warrants 29,682
Judgment payable converted to common stock 144,339
Debentures payable converted to common stock 335,000
Accrued debenture interest payable converted to common stock 347,397
Series C preferred stock converted to common stock 281 23,548
Note payable to Bobby C. Hamilton converted to common stock 958,321
|
United States Antimony Corporation and Subsidiaries
Notes to Consolidated Financial Statements
1. Background of Company and Basis of Presentation:
AGAU Mines, Inc., predecessor of United States Antimony Corporation ("USAC" or "the Company"), was incorporated in June 1968 as a Delaware Corporation to mine gold and silver. USAC was incorporated in Montana in January 1970 to mine and produce antimony products. In June 1973, AGAU Mines, Inc. was merged into USAC. In December 1983, the Company suspended its antimony mining operations when it became possible to purchase antimony raw materials more economically from foreign sources.
The principal business of the Company has been the production and sale of antimony products. Up until the first quarter of 1999 the Company sold its products pursuant to a profit sharing agreement with affiliated chemical sales companies. On March 31, 1999, the company terminated the agreement and started selling its products independently.
In September of 2000, the Company finalized its purchase of a 50% interest in United States Antimony, Mexico S.A. de C.V. ("USAMSA") to mine, mill and produce antimony metal and other related products from certain states in Mexico. During 2000, the Company formed a 75% owned subsidiary, Bear River Zeolite Company, to mine and market zeolite and zeolite products from a mineral deposit in south-eastern Idaho.
The financial statements have been prepared on a going concern basis which assumes realization of assets and liquidation of liabilities in the normal course of business. At December 31, 2000, the Company had negative working capital of approximately $850,000, an accumulated deficit of approximately $16.7 million and a total stockholders' deficit of approximately $1.7 million. These factors, among others, indicate that there is substantial doubt that the Company will be able to meet its obligations and continue in existence as a going concern. The financial statements do not include any adjustments that may be necessary should the Company be unable to continue as a going concern.
To improve the Company's financial condition, the following actions have been initiated or taken by management:
o In 2000 and 1999, the Company devoted substantial efforts to the research and development of new antimony products and applications. These efforts have resulted in advances in the Company's preparation, packaging, and quality of the antimony products it delivers to customers. The Company believes that it will be able to stay competitive in the antimony business and generate increasing profits because of these advances.
o In 2000 and 1999, the Company converted debts totaling $958,321 and $826,736, respectively, of principal and accrued interest into common stock of the Company.
o During 2000, the Company negotiated a financing arrangement with a Canadian investment banking firm, that provides borrowings of up to $1.5 million in convertible debentures and related warrants. Pursuant to this arrangement, the Company borrowed $675,000 in 2000.
o In 2000, the Company generated $255,000 through sales of 682,511 shares of its unregistered common stock and warrants to existing shareholders and the exercise of 100,000 stock purchase warrants. The Company plans to raise equity funding through additional stock sales in 2001. However, there can be no assurance that the Company will be able to successfully raise additional capital through the sale of its stock.
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
2. Concentration of Risk:
The Company purchases the majority of its raw antimony used in the production of finished antimony products from Chinese producers through metal brokers. If the supply of antimony from China is reduced, it is possible that the Company's antimony product operations could be adversely affected. During the years ended December 31, 2000 and 1999, 25% and 20%, respectively, of the Company's revenues were generated by antimony product sales to one customer. In addition, during 2000, 11% of the Company's revenues were generated by antimony product sales to a second individual customer.
Many of the Company's competitors in the antimony industry have substantially more capital resources and market share than the Company. Therefore, the Company's ability to maintain its market share can be significantly affected by factors outside of the Company's control.
The Company's revenues from antimony sales are strongly influenced by world prices for such commodities, which fluctuate and are affected by numerous factors beyond the Company's control, including inflation and worldwide forces of supply and demand. The aggregate effect of these factors is not possible to accurately predict.
3. Summary of Significant Accounting Policies:
Principles of Consolidation
The Company's consolidated financial statements also include the accounts of Bear River Zeolite Company, a 75% owned subsidiary. Intercompany balances and transactions are eliminated in consolidation. The Company accounts for its investment interest in its 50% owned foreign entity, USAMSA, by the equity method.
Restricted Cash
Restricted cash consists of cash held for investment in USAMSA, payment of delinquent payroll taxes and reclamation performance bonds.
Inventories
Inventories at December 31, 2000 and 1999, consisted of ownership of antimony metal, metal in process and finished goods that are stated at the lower of first-in, first-out cost or estimated net realizable value. Since the Company's inventory is a commodity with a sales value that is subject to world prices for antimony that are beyond the Company's control, a significant change in the world market price of antimony could have a significant effect on the net realizable value of inventories.
Deferred Financing Charges
Deferred financing charges related to convertible debenture sales are amortized on a straight-line basis over the term of the debentures.
Properties, Plants and Equipment
Production facilities and equipment are stated at the lower of cost or estimated net realizable value and are depreciated using the straight-line method over their estimated useful lives (five to fifteen years). Vehicles and office equipment are stated at cost and are depreciated using the straight-line method over estimated useful lives of three to five years. Maintenance and repairs are charged to operations as incurred. Betterments of a major nature are capitalized. When assets are retired or sold, the costs and related accumulated depreciation are eliminated from the accounts and any resulting gain or loss is reflected in operations.
Management of the Company periodically reviews the net carrying value of all of its properties on a property-by-property basis. These reviews consider the net realizable value of each property to determine whether a permanent impairment in value has occurred and the need for any asset write-down. The Company considers current metal prices, cost of production, proven and probable reserves and salvage value of the property and equipment in its valuation.
Management's estimates of metal prices, operating capital requirements and reclamation costs are subject to risks and uncertainties of changes affecting the recoverability of the Company's investment in its properties, plants and equipment. Although management has made its best estimate of these factors based on current conditions, it is reasonably possible that changes could occur in the near term which could adversely affect management's estimate of net cash flows expected to be generated from its properties, and necessitate asset impairment write-downs.
The Company has adopted the provisions of Statement of Financial Accounting Standards No. 121 ("SFAS No. 121"), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of." SFAS No. 121 requires that an impairment loss be recognized when the estimated future cash flows (undiscounted and without interest) expected to result from the use of an asset are less than the carrying amount of the asset. Measurement of an impairment loss is based on the estimated fair value of the asset if the asset is expected to be held and used.
Reclamation and Remediation
All of the Company's mining operations are subject to reclamation and closure requirements. Minimum standards for mine reclamation have been established by various governmental agencies. Costs are estimated based primarily upon environmental and regulatory requirements and are accrued and charged to expense over the expected economic life of the operation using the units-of-production method. The liability for reclamation is classified as current or noncurrent based on the expected timing of expenditures.
The Company accrues costs associated with environmental remediation obligations when it is probable that such costs will be incurred and they are reasonably estimable. Costs of future expenditures for environmental remediation are not discounted to their present value. Such costs are based on management's current estimate of amounts that are expected to be incurred when the remediation work is performed within current laws and regulations. The Company has restricted cash balances that have been provided to ensure performance of its reclamation obligations.
It is reasonably possible that, due to uncertainties associated with defining the nature and extent of environmental contamination, application of laws and regulations by regulatory authorities, and changes in remediation technology, the ultimate cost of remediation and reclamation could change in the future. The Company continually reviews its accrued liabilities for such remediation and reclamation costs as evidence becomes available indicating that its remediation and reclamation liability has changed.
Income Taxes
The Company records deferred income tax liabilities and assets for the expected future income tax consequences of events that have been recognized in its financial statements. Deferred income tax liabilities and assets are determined based on the temporary differences between the financial statement carrying amounts and the tax bases of assets and liabilities using enacted tax rates in effect in the years in which the temporary differences are expected to reverse.
Revenue Recognition
Sales of antimony products are recorded upon shipment to the customer.
Income (Loss) Per Common Share
The Company accounts for its income (loss) per common share according to the Statement of Financial Accounting Standards No. 128 "Earnings Per Share" ("SFAS No. 128"). Under the provisions of SFAS No. 128, primary and fully diluted earnings per share are replaced with basic and diluted earnings per share. Basic earnings per share is arrived at by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding, and does not include the impact of any potentially dilutive common stock equivalents. Common stock equivalents, including warrants to purchase the Company's common stock and common stock issuable upon the conversion of debentures are excluded from the calculations when their effect is antidilutive.
Stock-Based Compensation
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"), requires companies to recognize stock-based expense based on the estimated fair value of employee stock options. Alternatively, SFAS No. 123 allows companies to retain the current approach set forth in APB Opinion 25, "Accounting for Stock Issued to Employees," provided that expanded footnote disclosure is presented. The Company has not adopted the fair value method of accounting for stock-based compensation under SFAS No. 123, but provides the pro forma disclosure required when appropriate.
Recent Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended, which defines derivatives, requires that all derivatives be carried at fair value, and provides for hedge accounting when certain conditions are met. This statement is effective for the first fiscal quarter of fiscal years beginning after June 15, 2000. Adoption of this statement will not have a material impact on the Company's consolidated financial position, results of operations or cash flows.
In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB 101"). SAB 101 provides guidance on the recognition, presentation and disclosure of revenue in financial statements. All registrants are expected to apply the accounting and disclosures described in SAB 101. The Company is required to adopt SAB 101 in the fourth quarter of fiscal 2001, retroactive to the beginning of the year. Adoption of SAB 101 will not have a material impact on the Company's consolidated financial position, results of operations or cash flows.
In March 2000, the Financial Accounting Standards Board issued FASB Interpretation No. 44, "Accounting for Certain Transactions Involving Stock Compensation an Interpretation of APB Opinion No. 25" ("FIN 44"). FIN 44 clarifies the application of APB Opinion No. 25 and, among other issues, clarifies the following: the definition of an employee for purposes of applying APB Opinion No. 25; the criteria for determining whether a plan qualifies as a noncompensatory plan; the accounting consequence of various modifications to the terms of the previously fixed stock options or awards; and the accounting for an exchange of stock compensation awards in a business combination. FIN 44 is effective July 1, 2000, and has been adopted by the Company.
In April 1998, Statement of Position 98-5, "Reporting on the Costs of Start-up Activities" ("SOP 98-5") was issued. SOP 98-5 provides guidance on the financial reporting of start-up costs and organizational costs. It requires costs of start-up activities and organizational costs to be expensed as incurred. During 1999, the Company expensed $8,590 of organizational costs that had previously been capitalized relating to its investment in USAMSA. No cumulative effect of a change in accounting principle was recognized, however, due to the immateriality of the amount. If a cumulative effect had been recognized, accumulated deficit at December 31, 1998 would have been increased by $8,590.
4. Sales of Accounts Receivable:
The Company sells the majority of its accounts receivable to a financing company pursuant to the terms of a factoring agreement entered into on March 30, 1999. According to the terms of the agreement, the receivables are sold with full recourse and the Company assumes all risks of collectibility. Accordingly, the Company maintains an allowance for doubtful accounts receivable based upon the expected collectibility of all trade receivables. The performance of all obligations and payments to the factoring company is personally guaranteed by John C. Lawrence, the Company's president and director. As consideration for Mr. Lawrence's guarantee, the Company granted a mortgaged security interest to Mr. Lawrence collateralized by the Company's real and personal property. In addition, Mr. Lawrence was granted 250,000 warrants to purchase common stock of the Company exercisable at $0.25 per share (see Note 14).
The factoring agreement requires that the Company pay 4% of the face amount of the receivables sold up to $1,200,000, and 2% of the face amount of receivables sold thereafter as a financing fee. Financing fees paid by the Company during the year ended December 31, 2000 and 1999 totaled $100,956 and $106,742, respectively. At December 31, 2000 and 1999, net accounts receivable of $4,867,093 and $3,909,774, respectively, had been sold under the agreement. Proceeds from the sales were used to fund inventory purchases and operating expenses. The agreement is for a term of one year with automatic renewal for additional one-year terms. The Company's sales of accounts receivable qualify as sales under the provisions of Statement of Financial Accounting Standards No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities."
5. Inventories:
The major components of the Company's inventories at December 31, 2000 and 1999, were as follows:
2000 1999
Antimony Metal $ 32,187 $ 58,365
Antimony Oxide 118,728 206,316
Sodium Antimonate 70,542 11,918
------------------ -----------------
$ 221,457 $ 276,599
================== =================
|
At December 31, 2000 and 1999, antimony metal consisted primarily of lots purchased from foreign suppliers; antimony oxide inventory consisted of finished product oxide held at the Company's plant or in outside warehouses throughout the United States; sodium antimonite inventory consisted of dry finished product and wet raw materials, the majority of which were stored at the Company's antimony plant near Thompson Falls, Montana.
6. Properties, Plants and Equipment:
The major components of the Company's properties, plants and equipment at December 31, 2000 and 1999 were as follows:
2000 1999
Gold mill and equipment(1) $ 37,890 $ 37,890
Gold mining equipment (1) 1,265,392 1,265,392
Antimony mining buildings and equipment (2) 168,746 168,746
Antimony mill and equipment(2) 518,190 518,190
Chemical processing and office buildings 256,067 255,447
Chemical processing equipment 887,467 852,811
Other 80,178 76,955
------------------ -----------------
3,213,930 3,175,431 Less
accumulated depreciation 2,967,680 2,834,014
------------------ -----------------
$ 246,250 $ 341,417
================== =================
|
(1) The Company has removed the mill at Yankee Fork and most of the mining and milling equipment as part of the reclamation process. Substantially all of the remaining assets are fully depreciated.
(2)At December 31, 2000 and 1999, substantially all of these assets are fully depreciated and the antimony milling buildings and equipment are idle.
7. Investment in USAMSA:
In September of 2000, the Company finalized its 50% investment is United States Antimony, Mexico S.A. de C.V. ("USAMSA").
The company translates the foreign currency financial statements of its Mexican subsidiary in accordance with the requirements of SFAS No. 52, "Foreign Currency Translation." Assets and liabilities are translated at current exchange rates, and related revenues and expenses are translated at average exchange rates in effect during the period. Unaudited condensed financial information for USAMSA during 2000 is as follows:
December 31, 2000
ASSETS
Current assets $ 48,908
Noncurrent assets 78,973
------------------
Total assets $ 127,881
==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities $ 69,359
Stockholders' equity 58,522
------------------
Total liabilities and stockholders' equity $ 127,881
==================
Income from antimony processing $ 16,145
Processing costs (42,995)
-------------------
Gross loss (26,850)
-------------------
Other income and (expense):
Administrative and other costs (1,051)
Other income 3,023
------------------
Net loss $ (28,878)
===================
|
8. Judgment Payable:
At December 31, 2000 and 1999, the Company owed $43,480 and $40,645, respectively, to the Internal Revenue Service, in connection with a default judgment in a bankruptcy proceeding.
The default judgment was originally entered against the Company by the United States Bankruptcy Court in 1992 in favor of the bankruptcy estate of a former legal counsel of the Company. In 1998, the Trustee of the estate assigned the interest in the judgment to the Internal Revenue Service. The judgment accrues interest at the Federal Judgment Interest Rate, which has approximated 6-7%, and is due in monthly installments of $3,000. During 1999 and 2000, the Company made no payments on this judgment payable.
9. Due to Related Parties:
Amounts due to (from) related parties at December 31, 2000 and 1999 were as follows (see also Note 17):
2000 1999
Entity owned by John C. Lawrence,
president and director $ (503) $ 788
John C. Lawrence, president and director 10,810 7,340
------------------ -----------------
$ 10,307 $ 8,128
================== =================
|
Transactions affecting the payable to Mr. Lawrence during 2000 and 1999 were as follows:
2000 1999
Balance, beginning of year $ 7,340 $ 2,485
Equipment rental charges 29,709 30,616 Payments
---------
(26,239) (25,761)
------------------- -----------------
Balance, end of year $ 10,810 $ 7,340
================== =================
|
10. Notes Payable to Bank:
Notes payable to First State Bank of Thompson Falls, Montana ("First State Bank") at December 31, 2000 were as follows:
Ten-year term note bearing interest at 10.5%; dated May 5, 2000 payable
in monthly installments of $3,384; collateralized by certain
equipment and patented and unpatented mining claims in Sanders
County, Montana;
personally guaranteed by John C. Lawrence (president and director). $ 223,385
Note payable under a $95,000 revolving line-of-credit agreement; dated
December 18, 2000; bearing interest at 11.5%; collateralized by
certain equipment and patented and unpatented mining claims in
Sanders County, Montana; principal and accrued interest due at
maturity on December 15,
2001; personally guaranteed by John C. Lawrence. 88,257
Note payable under a $60,000 revolving line-of-credit dated December 26,
2000; bearing interest at 11.5%; collateralized by certain equipment
and patented and unpatented mining claims in Sanders County,
Montana; principal and accrued interest due at maturity on March 26,
2001; personally
guaranteed by John C. Lawrence. 36,305
Note payable under a $50,000 revolving line-of-credit dated April 2,
2000; bearing interest at 10.5%; collateralized by certain equipment
and patented and unpatented mining claims in Sanders County,
Montana; principal and accrued interest due at maturity on April 2,
2001; personally guaranteed by John C. Lawrence. 8,055
-----------------
Total 356,002
Less current portion (150,625)
-----------------
Noncurrent portion $ 205,377
=================
|
At December 31, 2000, principal payments on the notes payable to bank are due as follows:
Year Ending
December 31,
2001 $ 150,625
2002 19,993
2003 22,197
2004 24,642
2005 27,358
Thereafter 111,187
------------------
$ 356,002
==================
|
11. Note Payable to Bobby C. Hamilton:
At December 31, 1999, the Company owed Bobby C. Hamilton ("Hamilton"), an unsecured note payable of $1,538,381, arising from the settlement of litigation brought against Hamilton by the Company in 1995. The terms for repayment of the note included the payment of principal and interest (at 7.5% per annum) equal to 4% of the gross sales of the Company's operations, with a minimum total annual payment of principal and interest of $200,000. During 1999, Mr. Hamilton died and the note went into his personal estate (the "Estate"). In an effort to improve the Company's financial condition, the Company's management began negotiations during the second quarter of 2000 to extinguish and settle the debt owed the Estate. As a result of management's negotiations, the Company entered into a Settlement and Release of All Claims Agreement (the "Settlement Agreement") with the Estate on June 23, 2000. The Settlement Agreement extinguished the note payable to the Estate in exchange for a cash payment of $500,000 and the issuance of 250,000 shares of the Company's unregistered common stock. The cash payment was financed by the issuance of $600,000 of convertible debentures (see Note 12) pursuant to a financing agreement with Thomson Kernaghan and Co., Ltd., a Canadian investment banker. The Settlement Agreement mutually released both parties from any and all obligations between them, and included the Company's indemnification of the Estate against any liabilities and claims that may result from environmental remediation responsibilities on the Company's Idaho gold properties.
12. Debentures Payable
Thomson Kernaghan and Co., Ltd.
In connection with the Settlement Agreement between the Company and the Estate of Bobby C. Hamilton (see Note 11), the Company entered into a financing agreement (the "Financing Agreement") with Thomson Kernaghan and Co., Ltd. ("TK") on July 11, 2000. The financing agreement provided, among other things, for the sale of up to $1,500,000 of the Company's convertible debentures. In July of 2000, the Company sold an initial tranche of $600,000 of convertible debentures and in August sold a second tranche of $75,000 pursuant to the agreement with TK. In connection with the debenture sales and terms of the Financing Agreement, the Company issued stock purchase warrants totaling 961,538 to the debenture purchasers' agent (TK) and 432,692 stock purchase warrants to the debenture purchasers. The exercise price of the agent and purchaser warrants is the closing bid price as reported by Bloomburg L.P. on the trading day immediately preceding the July 11, 2000 (The effective date of the Financing Agreement), or $0.39 per share. The warrants expire in July and August of 2005.
The Financing Agreement also contained a registration rights agreement in which Company agreed to register the debenture purchasers' resale of the shares of common stock issued upon conversion of the debentures and upon exercise of the related purchasers and agents warrants. For the $675,000 of debentures issued as of December 31, 2000, the registration rights agreement requires that the Company register 150% of the conversion shares and 100% of the underlying agent and purchaser warrant shares. The registration rights agreement also provides for liquidated damages to be due if the Company fails to have an effective registration statement filed by the registration deadline (see Note 18).
The debentures are convertible into common stock at $0.29125 per share or 75% of the average of the three lowest closing bid prices per share of the Company's common stock as reported by Bloomburg L.P. in the 20 trading days immediately preceding the conversion date, whichever is lower. The converting debenture holder may not, however, own more than 9.9% of the then outstanding common stock of the Company after the conversion.
The debentures are payable in full at their maturity date on June 30, 2002, with interest payable at 10% per annum and due annually.
The debentures are transferable, subject to the rules and regulation of the Securities Act of 1933, and exchangeable for an equal amount of aggregate principal in different denominations. The debenture agreement requires that so long as any of the principal of or interest on the debentures remain unpaid or unconverted, the Company shall not (i) merge or consolidate with any other entity; (ii) sell or otherwise dispose of a material portion of its assets (other than in the ordinary course of business); (iii) pay any dividend on its shares (including any dividend payable in common stock or other property); (iv) subdivide, split or otherwise increase the number of shares of common stock; or (v) issue any common stock or other equity securities, or any other stock, option, warrant, right or other instrument that is convertible into or exercisable or exchangeable for common stock or other equity securities, except for (a) securities of a subsidiary that are issued to the Company; and (b) securities sold and options granted to directors, officers and employees of the Company pursuant to bona fide employee benefit plans; provided, however, that the Company may issue such securities enumerated in (v) above, with the prior written consent of the holders, which consent the holder agrees not to unreasonably withhold.
Related Parties
During the fourth quarter of 2000, the Company sold $100,000 of convertible debentures to Al Dugan, a significant shareholder, and $247,992 of convertible debentures to John C. Lawrence, the Company's president and a director. The debentures mature three years from the date of issuance and accrue interest at 10%, payable upon each issuance anniversary date. The debentures are convertible into common stock at $0.31 per share or 75% of the average of the three lowest closing bid prices per share of the Company's common stock as reported by Bloomburg L.P. in the 20 trading days immediately preceding the conversion date, whichever is lower.
The debentures are transferable, exchangeable for an equal amount of aggregate principal in different denominations, and subject to the same covenants regarding mergers, dispositions, dividend payments, and stock sales as the convertible debentures sold pursuant to the financing agreement with Thomas Kernaghan and Co., Ltd. (above).
In connection with the issuance, Mr. Dugan and Mr. Lawrence, were issued 60,974 and 151,213, respectively, stock purchase warrants. The warrants expire five years from their date of issue and are exercisable for shares of the Company's unregistered common stock at $0.41 per share.
The Company accounted for the detachable warrants issued in connection with the debentures in accordance with Accounting Principles Board Opinion No. 14, and calculated the fair value attributable to the detachable warrants based upon the present value of the interest costs of the debentures as compared to interest costs of the Company's alternative financing sources. The resulting value was recorded as a discount against the carrying value of the debentures, and amortized by the straight-line method as interest expense over the terms of the debentures. During the year ended December 31, 2000, $4,085 of the debentures payable discount was amortized to interest expense.
At December 31, 2000, debentures payable are as follows:
Amount Maturing
$ 600,000 June, 2002
75,000 August, 2002
50,000 November, 2003
297,992 December, 2003
-------------
1,022,992
(25,543) Less amortized discount
$ 997,449
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13. 2000 Stock Plan
In January of 2000, the Company's Board of Directors resolved to create the United States Antimony Corporation 2000 Stock Plan ("the Plan"). The purpose of the Plan is to attract and retain the best available personnel for positions of substantial responsibility and to provide additional incentive to employees, directors and consultants of the Company to promote the success of the Company's business. The maximum number of shares of common stock or options to purchase common stock that may be issued pursuant to the Plan is 500,000. In connection with the Plan, the Company filed a Form S-8 registration statement with the Securities and Exchange Commission in March of 2000, registering the Plan's shares pursuant to Rule 416-c of the Securities Act of 1933. At December 31, 2000, 300,000 shares of the Company's common stock had been issued under the Plan (see Notes 14 and 18).
14. Stockholders' Deficit:
Increase in Authorized Capital
On August 28, 2000, the Company's board of directors resolved to seek shareholder approval of an amendment of the Company's Articles of Incorporation to increase the aggregate number of shares of common stock the Company shall have the authority to issue from 20,000,000 to 30,000,000. The increase in authorized shares was approved by the Company's shareholders at the annual meeting of the shareholders on October 31, 2000.
Stock Warrants
The Company's Board of Directors has the authority to issue incentive stock warrants for the purchase of common stock to directors and employees of the Company. The Company has also issued warrants in exchange for services rendered the Company, personal guarantees of financial obligations and the issuance of debentures.
Transactions in stock warrants are as follows:
Number of Exercise Expiration
Warrants Prices Date
Balance, December 31, 1998 1,094,356 $ 0.25-0.80
Warrants issued to John C.
Lawrence, president and director,
in connection with his personal guarantee
of a financing arrangement 250,000 $ 0.25 (A)
Warrants issued to a stockholder and
consultant as compensation for services 100,000 $ 0.55 (B)
Warrants expired (225,000) $ 0.50-0.70
------------
Balance, December 31, 1999 1,219,356 $ 0.25-0.80
------------
Warrants issued as compensation
for consulting services 300,000 $ 0.25 (C)
Warrants exercised (100,000) $ 0.25
Warrants issued in connection
with issuance of debentures 1,606,417 $ 0.39-0.41 (D)
Warrants issued in connection
with stock sale 48,077 $ 0.39 (E)
Warrants expired (669,356) $ 0.70-0.80
------------
Balance December 31, 2000 2,404,494
============
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(A) Warrants are exercisable for as long as Mr. Lawrence personally guarantees
certain company financing arrangements.
(B) Warrants are exercisable on or before August of 2002.
(C) Warrants are exercisable on or before January of 2003.
(D) 1,394,230 warrants are exercisable on or before July-August of 2005;
212,187 warrants are exercisable on or before November-December of 2005.
(E) Warrants are exercisable on or before August of 2005.
Issuance of Common Stock to Employees
During 1999, the Company issued 20,000 shares of its unregistered common stock to employees in recognition of their service to the Company. In connection with the issue the Company recognized compensation expense of $2,600 based upon the fair value of the unregistered shares issued.
Issuance of Common Stock in Connection with Conversion of Debts
In June of 2000, the Company issued 250,000 shares of its unregistered common stock to the Estate of Bobby C. Hamilton (see Note 11) in exchange for the settlement and extinguishment of the balance of a note payable due the Estate after the Company's payment of $500,000. In connection with the extinguishment of the remaining balance due of $958,321, the Company recorded an extraordinary gain of $917,726 based on the value of the restricted shares issued at the time.
In November 1999, the Company entered into a Settlement Agreement and Release of all Claims ("the Agreement") with Ronald Michael Meneo, Trustee of the Walter L. Maguire 1935-1 Trust ("the Trust") and Walter L. Maguire Sr., beneficiary of the Trust and stockholder and former director of the Company. The Agreement settled litigations brought by the Trust against the Company for default on certain debentures of the Company held by the Trust and the resulting counterclaim against the Trust and Mr. Maguire by the Company. The Agreement called for the issuance of 790,909 shares of the Company's unregistered common stock to the Trust in exchange for the extinguishment of all indebtedness claimed owing to the Trust or Mr. Maguire. In connection with the issuance, the Company extinguished $335,000 of debenture principal and $347,397 of related accrued interest thereon. The Company recorded an extraordinary gain of $534,101 on the extinguishment based upon the value of the restricted shares issued at the time.
In October 1999, the Company extinguished a debt due Geosearch, Inc., a former lessor of a mining interest to the Company, by issuing 245,852 shares of its unregistered common stock. The debt extinguished totaled $144,339 of principal and accrued interest. The Company recorded an extraordinary gain of $77,591 on the extinguishment based upon the value of the restricted shares issued at the time.
Issuance of Common Stock for Cash
During 2000, the Company sold an aggregate of 582,511 shares of its unregistered common stock and warrants to purchase 48,077 shares of common stock exercisable at $0.39 per share to Al Dugan and entities affiliated with him, for cash in the amount of $175,000. Of the shares issued to Mr. Dugan, 100,000 were issued pursuant to the exercise of stock purchase warrants previously granted him. Mr. Dugan is a significant shareholder of the Company.
In addition, during 2000, the Company sold 200,000 shares of its unregistered common stock to an existing shareholder for cash in the amount of $80,000.
Issuance of Common Stock in Exchange for Services
In March 2000, the Company issued an aggregate of 300,000 shares of its common stock pursuant to its 2000 Stock Plan (see Notes 13 and 18) to two companies in exchange for financial consulting services provided the Company. In connection with the issue, the Company recorded $153,000 of compensation expense based on the Company's estimate of the value of the stock issued and the services received.
During 1999, the Company issued 40,000 shares of its unregistered common stock and 100,000 warrants to purchase shares of common stock at $0.55 per share, exercisable until August 2002, to a consultant in exchange for professional services rendered to the Company. The shares and related warrants were recorded based on the value of services rendered.
Issuance of Common Stock Pursuant to Antidilution Provisions
During 2000, the Company issued 35,542 shares of its restricted common stock to the former holders of Series C preferred stock pursuant to the antidilution provisions of the Series C preferred shares. In connection with the issue, the Company recorded an expense of $4,265 based upon management's estimate of the fair value of the Company's restricted common stock shares when the Series C holders converted to common stock in 1999. The Company made no adjustments to its 1999 net loss or accumulated deficit as previously stated, based on the immateriality of the transaction.
Preferred Stock
The Company's Articles of Incorporation authorize 10,000,000 shares of $.01 par value preferred stock. Subject to amounts of outstanding preferred stock, additional shares of preferred stock can be issued with such rights and preferences, including voting rights, as the Board of Directors shall determine.
During 1986, Series A preferred stock, consisting of 4,500 shares, was established by the Board of Directors. These shares are nonconvertible, nonredeemable and are entitled to a $1.00 per share per year cumulative dividend. Series A preferred stockholders have voting rights for directors only and a total liquidation preference equal to $45,000 plus dividends in arrears. At December 31, 2000, 4,500 shares of Series A preferred stock were outstanding; and cumulative dividends in arrears amounted to $65,250, or $14.50 per share.
During 1993, Series B preferred stock consisting of 1,666,667 shares, was established by the Board of Directors and 1,666,667 shares were issued in connection with the final settlement of litigation. The Series B preferred stock has preference over the Company's common stock and Series A preferred stock, has no voting rights (absent default in payment of declared dividends) and is entitled to cumulative dividends of $.01 per share per year payable if and when declared by the Board of Directors. In the event of dissolution or liquidation of the Company, the preferential amount payable to Series B restricted preferred stockholders is $1.00 per share plus dividends in arrears. No dividends have been declared or paid with respect to the Series B preferred stock. In 1995, 916,667 shares of Series B preferred stock were surrendered to the Company and cancelled in connection with the settlement of litigation against Bobby C. Hamilton. At December 31, 2000, cumulative dividends in arrears on the 750,000 outstanding Series B shares were $52,500, or $0.07 per share.
Preferred Stock, Continued:
During 1997, the Company issued 2,560,762 shares of Series C preferred stock in connection with the conversion of certain debts owed by the Company. The rights, preferences, privileges and limitations of the Series C preferred shares issued upon conversion of debt are set forth below:
Designation. The class of Convertible Preferred Stock, Series C, $0.01 par value per share, consists of up to 3.8 million shares of the Company.
Optional Conversion. A holder of Series C preferred shares had the right to convert the Series C shares, at the option of the holder, at any time within 18 months following issuance, into shares of common stock at the ratio of 1:1, subject to adjustment as provided below. During 1999, holders of 2,354,766 shares of Series C stock converted their shares into common stock of the Company.
Voting Rights. The holders of Series C preferred shares shall have the right to that number of votes equal to the number of shares of common stock issuable upon conversion of such Series C preferred shares.
Liquidation Preference. In the event of any liquidation or winding up of the Company, the holders of Series C preferred shares shall be entitled to receive as a preference over the holders of common stock an amount per share equal to $0.55, subject to the preferences of the holders of the Company's outstanding Series A and Series B preferred stock.
Registration Rights. Twenty percent (20%) of the underlying common stock issued upon conversion of the Series C preferred shares shall be entitled to "piggyback" registration rights when, and if, the Company files a registration statement for its securities or the securities of any other stockholder. These shares are included in a registration statement currently being filed with the Securities and Exchange Commission.
Redemption. The Series C preferred shares are not redeemable by the Company.
Antidilution Provisions. The conversion price of the Series C shares was subject to adjustment to prevent dilution in the event that the Company issued additional shares at a purchase price less than the applicable conversion price (other than shares issued to employees, consultants and directors pursuant to plans and arrangements approved by the Board of Directors, and securities issued to lending or leasing institutions approved by the Board of Directors). Accordingly, the conversion price was adjusted according to a weighted-average formula, resulting in the issuance (in 2000) of an additional 35,542 shares of common stock to Series C holders who exercised their conversion rights in 1999. The initial conversion price for the Series C shares was $0.55 and was subsequently adjusted to $0.54 per share based on the antidilution formula.
Protective Provisions. The consent of a majority interest of the holders of Series C preferred shares shall be required for any action which (i) alters or changes the rights, preferences or privileges of the Series C shares materially and adversely; or (ii) creates any new class of shares having preference over or being on a parity with the Series C shares.
During 2000, the Company converted 28,092 of shares of Series C preferred stock into an equal number of common shares for a Series C preferred stockholder that had timely noticed the Company of its desire to convert its Series C shares during 1999. At December 31, 2000, 177,904 shares of Series C preferred stock remained outstanding and unconverted.
15. Income Taxes:
At December 31, 2000 and 1999, the Company had net deferred tax assets of approximately $1,900,000 and $2,700,000, respectively. The deferred tax assets principally arise from net operating loss carryforwards for income tax purposes. As management of the Company cannot determine if it is more likely than not that the Company will realize the benefit of its deferred tax assets, a valuation allowance equal to the net deferred tax assets at both December 31, 2000 and 1999 has been established.
At December 31, 2000, the Company had regular tax net operating loss carryforwards of approximately $5,300,000, which expire in the years 2001 through 2020, with the majority of the carryforwards expiring in 2001 through 2003. At December 31, 2000, the Company had net operating loss carryforwards for alternative minimum tax purposes of approximately $4,900,000.
16. Loss Per Common Share:
The following table presents a reconciliation of the numerators and denominators of the basic and diluted earnings per share ("EPS") computations for the year ended December 31, 1999:
Per Share
Loss Shares Amounts
Basic EPS:
Net loss before extraordinary item $ (307,677) 14,597,917 $(0.02)
Common stock warrants (1)
Series C preferred stock (2) 241,528 Nil
-------------- ------------- -------
Diluted EPS:
Net loss before extraordinary item $ (307,677) 14,839,455 $(0.02)
==============- ========== ======
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(1) Common stock warrants totaling 1,219,356 outstanding during 1999 were not included in the computation of diluted EPS at December 31, 1999, because the various exercise prices of the warrants were greater than the average market price of the Company's common stock.
(2) Series C preferred stock was convertible into common stock of the Company on a share-for-share basis. The effect on the computation of diluted weighted average shares outstanding is based upon the potential conversion of the shares into common stock for the period of time the preferred shares were outstanding and the effect of Series C preferred stock antidilution provisions.
17. Related-Party Transactions:
In addition to transactions described in Notes 4, 7, 9, 10, 12, and 14 during 2000 and 1999, the Company had the following transactions with related parties:
o During 2000 and 1999, the Company issued 79,167 and 18,000, respectively, shares of its unregistered common stock to members of the Board of Directors for their duties as directors. The issuances have been recorded in the consolidated financial statements as if they were issued in the year they were earned. The stock awards were recorded as compensation expense (director's fees) based upon the estimated value of the stock at the date of issuance.
o In February 1999, the Board of Directors nominated Leo Jackson to serve as a director. Mr. Jackson is a stockholder of the Company and owns 31.4% of Production Minerals Inc., which has an indirect interest of 25% in the stock of USAMSA (see Note 7).
18. Commitments and Contingencies:
Until 1989, the Company mined, milled and leached gold and silver in the Yankee Fork Mining District in Custer County, Idaho. In 1994, the U.S. Forest Service, under the provisions of the Comprehensive Environmental Response Liability Act of 1980 (CERCLA), designated the cyanide leach plant as a contaminated site requiring cleanup of the cyanide solution. The Company has been reclaiming the property; and, as of December 31, 2000, the cyanide solution cleanup was complete, the mill removed, and a majority of the cyanide leach residue disposed of. In 1996, the Idaho Department of Environmental Quality requested that the Company sign a consent decree related to completing the reclamation and remediation at the Preachers Cove mill, which the Company signed in December 1996. The Company also has environmental remediation obligations at its antimony production facility near Thompson Falls, Montana and its former gold mining property (Yellow Jacket) in Lemhi County, Idaho.
The Company's management believes that USAC is currently in substantial compliance with environmental regulatory agencies and that its accrued environmental reclamation costs are representative of management's estimate of costs required to fulfill its reclamation obligations. The Company recognizes, however, that in some cases future environmental expenditures cannot be reliably determined due to the uncertainty of specific remediation methods, conflicts between regulating agencies relating to remediation methods and environmental law interpretations, and changes in environmental laws and regulations. Such costs are accrued at the time the expenditure becomes probable and the costs can reasonably be estimated.
During the first quarter of 2000, the Company issued 150,000 shares of its common stock to Thomson Kernaghan and Co., Ltd.,and 150,000 shares of its common stock to Blue Water Partners, Inc. as compensation for fiscal advisory and consulting services to be provided the Company. The shares were issued pursuant to the Company's 2000 Stock Plan (see Note 13), and were believed by the Company to be registered under a Form S-8 registration statement filed in connection with the 2000 Stock Plan. The stock certificates issued to the two companies therefore did not bear a restrictive legend. Subsequent to the issuance of the shares, management was informed by its legal counsel that Form S-8 cannot be used to register stock issued to consultants whose services involve promotion of the Company's stock. In response to this information, management immediately contacted both companies and requested that the unlegended shares of common stock be returned to the Company in exchange for a certificate bearing a restrictive legend. In March of 2001, Thomson Kernaghan and Co., Ltd. returned 150,000 shares to the Company inexchange for 150,000 restricted shares. No response has been received from Blue Water Partners, Inc. As a result of the issuance, the Company may be subject to civil liabilities, including fines and other penalties imposed by federal and state securities agencies. At December 31, 2000, the Company had not recorded any liability associated with the issuance of these shares, as management believes the likelihood of a claim and the ultimate outcome if a claim is asserted cannot be ascertained at this time.
In July of 2000, the Company entered into a financing agreement with Thomson Kernaghan and Co., Ltd. (see Note 12). The financing agreement provided, among other things, for the sale of up to $1,500,000 of the Company's convertible debentures. The Financing Agreement also contained a registration rights agreement in which Company agreed to register the debenture purchasers' resale of the shares of common stock issued upon conversion of the debentures and upon exercise of the related purchasers and agents warrants. The registration rights agreement also provides for liquidated damages to be due if the Company fails to have an effective registration statement filed by the registration deadline. The liquidated damages are calculated as two percent (2%) per month of the aggregate value of the principal amount of the debentures outstanding combined with the aggregate exercise prices of the outstanding purchasers' and agent's warrants issued in connection with the convertible debentures, accrued on a daily basis subsequent to the registration deadline. At December 31, 2000, the Company did not have a registration statement yet effective, and the registration deadline had past. If the liquidated damages provision of the registration rights agreement is enforced or is enforceable, such damages would be approximately $38,000 as of December 31, 2000. However, the Company's management and its legal counsel believe that the Company is not responsible for any delay in effectiveness of its registration statement and that assertion of a claim for liquidated dames under the registration rights agreement is not probable. Accordingly, the Company's financial statements do not include any accrual for this contingency.
19. Fair Value of Financial Instruments:
The following disclosure of the estimated fair value of financial instruments is made in accordance with the requirements of Statement of Financial Accounting Standards No. 107, "Disclosures about Fair Value of Financial Instruments." The estimated fair value amounts have been determined using available market information and appropriate valuation methodologies. However, considerable judgment is required to interpret market data and to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize in a current market exchange.
The carrying amounts for cash, restricted cash, accounts receivable, accounts payable and accrued expenses are a reasonable estimate of their fair values. The fair value of amounts due to related parties approximate their carrying values of $10,307 and $8,128, respectively, at December 31, 2000 and December 31, 1999, based upon the contractual cash flow requirements.
Judgments payable of $43,480 and $40,645, at December 31, 2000 and 1999, respectively, approximate their carrying value based upon the judgment's repayment requirements. The fair value of the Company's convertible debentures and accrued interest of $997,449 and $47,324, respectively, at December 31, 2000, approximate their carrying value based on management's estimate the fair values of comparable debt instruments.
United States Antimony Corporation and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
June 30, December 31,
2001 2000
ASSETS
Current assets:
Restricted cash $ 5,966 $ 8,518
Inventories 153,688 221,457
Accounts receivable, less allowance
for doubtful accounts of $30,000 152,518 119,568
Total current assets 312,172 349,543
Investment in USAMSA, net 102,905 111,088
Properties, plants and equipment, net 293,439 246,250
Restricted cash for reclamation bonds 130,750 123,250
Deferred financing charges, net 43,163 63,789
Total assets $ 882,429 $ 893,920
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Checks issued and payable $ 80,454 $ 107,133
Accounts payable 609,152 429,654
Accrued payroll and property taxes 146,622 241,588
Accrued payroll and other liabilities 212,597 89,680
Judgment payable 45,002 43,480
Accrued debenture interest payable 98,474 47,324
Due to related parties 46,802 10,307
Notes payable to bank, current 236,896 150,625
Accrued reclamation costs, current 67,569 80,000
Total current liabilities 1,543,568 1,199,791
Debentures payable, net of discount 1,003,771 997,449
Notes payable to bank, noncurrent 187,876 205,377
Accrued reclamation costs, noncurrent 206,888 199,388
Total liabilities 2,942,103 2,602,005
Commitments and contingencies
Stockholders' deficit:
Preferred stock, $.01 par value, 10,000,000 shares authorized:
Series A: 4,500 shares issued and outstanding 45 45
Series B: 750,000 shares issued and outstanding 7,500 7,500
Series C: 177,904 shares issued and outstanding 1,779 1,779
Common stock, $.01 par value, 30,000,000 shares
authorized; 19,134,564 and 18,375,564 shares issued and outstanding 191,345 183,755
Additional paid-in capital 14,962,495 14,818,285
Accumulated deficit (17,222,838) (16,719,449)
Total stockholders' deficit (2,059,674) (1,708,085)
Total liabilities and stockholders' deficit $ 882,429 $ 893,920
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United States Antimony Corporation and Subsidiaries Consolidated Statements of Operations (Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2001 2000 2001 2000
Revenues:
Sales of antimony products and other $ 1,076,909 $ 1,190,413 $ 2,038,040 $ 2,363,463
Sales of zeolite products 2,655 2,655
1,079,564 1,190,413 2,040,695 2,363,463
Cost of antimony production 821,401 995,888 1,623,769 1,844,043
Freight and delivery 118,921 142,363 222,535 243,977
940,322 1,138,251 1,846,304 2,088,020
Gross profit 139,242 52,162 194,391 275,443
Other operating expenses:
Bear River Zeolite 119,425 165,668
Care, maintenance, and reclamation-Yellow Jacket 2,500 50,105 2,860 77,906
General and administrative 156,921 91,351 330,608 344,195
Sales expenses 34,342 84,286 72,838 194,351
313,188 225,742 571,974 616,452
Other (income) expense:
Interest expense 41,714 40,129 81,600 81,239
Factoring expense 23,911 24,827 47,175 49,288
Interest income and other (1,488) (2,507) (2,969) (4,647)
64,137 62,449 125,806 125,880
Net loss $ (238,083) $ (236,029) $ (503,389) $ (466,889)
Basic net loss per share of common stock $ (0.01) $ (0.01) $ (0.03) $ (0.03)
Basic weighted average shares outstanding 18,948,294 17,625,252 18,608,177 17,334,092
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The accompanying notes are an integral part of the financial statements.
United States Antimony Corporation and Subsidiaries Consolidated Statements of Cash Flows (Unaudited)
For the six months ended
June 30, June 30,
2001 2000
Cash flows from operating activities:
Net loss $ (503,389) $ (466,889)
Adjustments to reconcile net loss to
net cash used by operations:
Depreciation and amortization 83,131 66,000
Accrued reclamation costs 7,500
Provision for doubtful accounts (20,000)
Issuance of common stock for consulting services 153,000
Change in:
Restricted cash 2,552 (3)
Accounts receivable (32,950) 10,243
Inventories 67,769 56,410
Restricted cash for reclamation bonds (7,500) 7,170
Prepaid expenses (1,747)
Accounts payable 194,510 64,612
Accrued payroll and property taxes (94,966) (8,166)
Accrued payroll and other 73,214 (32,029)
Judgments payable 1,522 1,422
Accrued debenture interest payable 51,150
Payable to related parties (3,505) (11,209)
Accrued reclamation costs (12,431) (35,300)
Net cash used by operating activities (173,393) (216,486)
Cash flows from investing activities:
Purchase of properties, plants and equipment (92,689) (35,079)
Net cash used in investing activities (92,689) (35,079)
Cash flows from financing activities:
Proceeds from issuance of common stock and warrants 149,300 155,000
Proceeds from related party advances 40,000 70,000
Proceeds from notes payable to bank, net 68,770 53,846
Proceeds from factoring company, net 34,691
Change in checks issued and payable (26,679) 12,749
Payments on note payable to Bobby C. Hamilton (40,030)
Net cash provided by financing activities 266,082 251,565
Net change in cash 0 0
Cash, beginning of period 0 0
Cash, end of period $ 0 $ 0
Supplemental disclosures:
Cash paid during the period for interest $ 19,068 $ 79,159
Non-cash investing activities:
Common stock and warrants issued for plant construction $ 2,500
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United States Antimony Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
1. Basis of Presentation:
The unaudited consolidated financial statements have been prepared by the Company in accordance with generally accepted accounting principles for interim financial information, as well as the instructions to Form 10-QSB. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of the Company's management, all adjustments (consisting of only normal recurring accruals) considered necessary for a fair presentation of the interim financial statements have been included. Operating results for the six-month period ended June 30, 2001 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2001. Certain consolidated financial statement amounts for the six-month period ended June 30, 2000, have been reclassified to conform to the 2001 presentation. These reclassifications had no effect on the net loss or accumulated deficit as previously reported.
For further information refer to the financial statements and footnotes thereto in the Company's Annual Report on Form 10-KSB for the year ended December 31, 2000.
2. Loss Per Common Share
The Company accounts for its income (loss) per common share according to the Statement of Financial Accounting Standards No. 128 "Earnings Per Share" ("SFAS No. 128"). Under the provisions of SFAS No. 128, primary and fully diluted earnings per share are replaced with basic and diluted earnings per share. Basic earnings per share is arrived at by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding, and does not include the impact of any potentially dilutive common stock equivalents. Common stock equivalents, including warrants to purchase the Company's common stock and common stock issuable upon the conversion of debentures are excluded from the calculations when their effect is antidilutive.
3. Commitments and Contingencies:
Until 1989, the Company mined, milled and leached gold and silver in the Yankee Fork Mining District in Custer County, Idaho. The metals were recovered by a 150-ton per day gravity and flotation mill, and the concentrates were leached with cyanide to produce a bullion product at the Preachers Cove mill, which is located nine miles north of Sunbeam, Idaho on the Yankee Fork of the Salmon River. In 1994, the U.S. Forest Service, under the provisions of the Comprehensive Environmental Response Liability Act of 1980 (CERCLA), designated the cyanide leach plant as a contaminated site requiring cleanup of the cyanide solution. In 1996, the Company signed a consent decree with the Idaho Department of Environmental Quality relating to completing the reclamation and remediation at the Preachers Cove mill.
The Company's management believes that USAC is currently in substantial compliance with environmental regulatory agencies and that its accrued environmental reclamation costs are representative of management's estimate of costs required to fulfill its reclamation obligations. The Company recognizes, however, that in some cases future environmental expenditures cannot be reliably determined due to the uncertainty of specific remediation methods, conflicts between regulating agencies relating to remediation methods and environmental law interpretations, and changes in environmental laws and regulations. Such costs are accrued at the time the expenditure becomes probable and the costs can reasonably be estimated.
During 2000, the Company issued 150,000 shares of its common stock to Thomson Kernaghan and Co., Ltd., and 150,000 shares of its common stock to Blue Water Partners, Inc. as compensation for fiscal advisory and consulting services to be provided the Company. The shares were issued pursuant to the Company's 2000 Stock Plan, and were believed by the Company to be registered under a Form S-8 registration statement filed in connection with the 2000 Stock Plan. The stock certificates issued to the two companies therefore did not bear a restrictive legend. Subsequent to the issuance of the shares, management was informed by its legal counsel that Form S-8 cannot be used to register stock issued to consultants whose services involve promotion of the Company's stock. In response to this information, management immediately contacted both companies and requested that the unlegended shares of common stock be returned to the Company in exchange for a certificate bearing a restrictive legend. In March of 2001, Thomson Kernaghan andCo., Ltd.returned 150,000 shares to the Company in exchange for 150,000 restricted shares, that the Company agreed to register in conjunction with a Form SB-2 registration statement it is preparing. No response has been received from Blue Water Partners, Inc. As a result of the issuance, the Company may be subject to civil liabilities, including fines and other penalties imposed by federal and state securities agencies. At June 30, 2001, the Company had not recorded any liability associated with the issuance of these shares, as management believes the likelihood of a claim and the ultimate outcome if a claim is asserted cannot be ascertained at this time.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article X of our Bylaws ("Bylaws") essentially adopts and incorporates
the mandatory and permissive indemnification provisions of the Montana Business
Corporation Act, specifically Montana Code Annotated Sections 35-1-451 through
458. The following discussion of the Bylaws and Sections 35-1-451 through
35-1-458 is only a summary of the Bylaws and the Montana statutes.
We are required to provide mandatory indemnification of reasonable expenses of a director or officer who is "wholly successful" in the defense of any proceeding to which he was a party because he is or was a director or officer. In addition, we are authorized to indemnify, to the fullest extent permitted by law, and (subject to receipt of the undertaking described below) to advance expenses to any person who is or was a director or officer of the company, or was serving at the request of a director, officer, employee or fiduciary of the company, against liabilities which may be incurred by such person by reason of (or arising in part from) such capacity. In the case of third-party claims, we are authorized to indemnify directors and officers against liability incurred by reason of being a director or officer and (subject to receipt of the undertaking described below) against expenses reasonably incurred in connection with any action, suit or proceeding seeking to establish such liability, if the director or officer acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interest of the corporation. Similarly, in the case of actions by or in the right of the corporation, indemnification of reasonable expenses only is (subject to receipt of the undertaking described below) authorized if the director or officer acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interest of the corporation. Indemnification is authorized with respect to any criminal action or proceeding where, in addition to satisfying the foregoing good faith and reasonable belief standards, the director or officer has no reasonable cause to believe that his conduct was unlawful. A director or officer is entitled to apply for court-ordered indemnification in view of all the relevant circumstances even if the director or officer did not meet the statutory standards of conduct or has been adjudged liable to us or to have improperly received a personal benefit.
Our authorization to advance an officer's or director's litigation expenses is conditioned on the officer or director furnishing an undertaking to repay the advance in the event we determine that the acts of the officer or director were unauthorized or improper. We are permitted to procure liability insurance on behalf of an officer, director or employee.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
We will pay all expenses in connection with the registration of the Shares of our common stock which may be resold by the Selling Shareholders (including fees and disbursements of one legal counsel for the Selling Shareholders). We will not pay any selling commissions or discounts allocable to sales of those Shares by any Selling Shareholder or any fees and disbursements of counsel and other representatives of the Series C Holders. The estimated expenses of registration of the Shares are set forth below.
-------------------------------------- -------------------- Registration Fees $219.38 -------------------------------------- -------------------- Legal Fees (estimate) $100,000.00 -------------------------------------- -------------------- Accounting Fees (estimate) $15,000.00 ====================================== ==================== |
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
Below is a summary of sales of unregistered securities to our directors, investors, employees and consultants. We believe that with a few possible exceptions involving purchasers who do not meet the "accredited investor" standard of Rule 501(a), each transaction is exempt from registration pursuant to Sections 4(2), 4(6) and/or Rule 506 of the Securities Act of 1933 because (1) the transaction did not involve a public offering; (2) no commissions were paid; (3) no underwriters were involved; and (4) (except for the certificates issued on March 17, 2000 to Thomson Kernaghan and Co. Limited and Blue Water Partners, Inc.) a restrictive legend was placed on each certificate evidencing the security. In instances where warrants were issued, the underlying shares of common stock are restricted as stated in the warrant contract.
On July 11, 2001, we sold Gary Babbitt, a director, 45,000 shares of our common stock and issued warrants to purchase 22,500 shares of common stock, for $0.20 per share or $9,000. The warrants are exercisable at $0.35 per share and expire July 11, 2004.
On June 28, 2001, we sold Frank Chema, 15,000 shares of our common stock and issued warrants to purchase 7,500 shares of common stock, for $0.20 per share or $3,000. The warrants are exercisable at $0.35 per share and expire June 28, 2004.
On June 28, 2001, we sold Thomas Stewart, 25,000 shares of our common stock and issued warrants to purchase 12,500 shares of common stock, for $0.20 per share or $5,000. The warrants are exercisable at $0.35 per share and expire June 28, 2004.
On June 28, 2001, we sold an employee, 15,000 shares of our common stock and issued warrants to purchase 7,500 shares of common stock, for $0.20 per share or $3,000. The warrants are exercisable at $0.35 per share and expire June 28, 2004.
On June 27, 2001, we issued 12,500 shares of our common stock an issued warrants to purchase 6,250 shares of common stock exercisable at $0.35 per share and expire June 27, 2004, as compensation for consulting services with an estimated value of $2,500.
On June 26, 2001, we sold Charles Baxter, 10,000 shares of our common stock and issued warrants to purchase 5,000 shares of common stock, for $0.20 per share or $2,000. The warrants are exercisable at $0.35 per share and expire June 26, 2004.
On June 26, 2001, we sold Delaware Royalty, a stockholder, 100,000 shares of our common stock and issued warrants to purchase 50,000 shares of common stock, for $0.20 per share or $20,000. The warrants are exercisable at $0.35 per share and expire June 26, 2004.
On June 20, 2001, we sold H Bar N, a vendor, 20,000 shares of our common stock and issued warrants to purchase 10,000 shares of common stock, for $0.20 per share or $4,000. The warrants are exercisable at $0.35 per share and expire June 20, 2004.
On June 20, 2001, we sold Harlen Ockler, a vendor, 30,000 shares of our common stock and issued warrants to purchase 15,000 shares of common stock, for $0.20 per share or $6,000. The warrants are exercisable at $0.35 per share and expire June 20, 2004.
On May 31, 2001, we sold Noel Keane Van Tol, a relative of an employee 10,000 shares of our common stock and issued warrants to purchase 5,000 shares of common stock, for $0.20 per share or $2,000. The warrants are exercisable at $0.35 per share and expire May 31, 2004.
On May 25, 2001, we sold Delaware Royalty, a stockholder 200,000 shares of our common stock and issued warrants to purchase 100,000 shares of common stock, for $0.20 per share or $40,000. The warrants are exercisable at $0.35 per share and expire May 25, 2004.
On May 24, 2001, we sold Lee Fransdal, 50,000 shares of our common stock and issued warrants to purchase 25,000 shares of common stock, for $0.20 per share or $10,000. The warrants are exercisable at $0.35 per share and expire May 24, 2004.
On April 30, 2001, we sold Stephen Nelson, 25,000 shares of our common stock and issued warrants to purchase 12,500 shares of common stock, for $0.20 per share or $5,000. The warrants are exercisable at $0.35 per share and expire April 30, 2004.
On April 30, 2001, we sold Stephen Holman, 24,000 shares of our common stock and issued warrants to purchase 12,000 shares of common stock, for $0.20 per share or $4,800. The warrants are exercisable at $0.35 per share and expire April 30, 2004.
On April 11, 2001, we sold an employee 12,500 shares of our common stock and issued warrants to purchase 6,250 shares of common stock, for $0.20 per share or $2,500. The warrants are exercisable at $0.35 per share and expire in April of 2004.
On March 16, 2001, we sold Tom McInsh, an existing shareholder and an accredited investor, 25,000 shares of our common stock and issued warrants to purchase 12,500 shares of common stock, for $0.20 per share or $5,000. The warrants are exercisable at $0.35 per share and expire in March of 2004.
On February 26, 2001, we sold CDLM Investments, LP, a private company, 125,000 shares of our common stock and issued warrants to purchase 62,500 shares of common stock, for $0.20 per share or $25,000. The warrants are exercisable at $0.35 per share and expire in February of 2004.
On February 12, 2001, we sold Tom McInsh, an existing shareholder and an accredited investor, 25,000 shares of our common stock and issued warrants to purchase 12,500 shares of common stock, for $0.20 per share or $5,000. The warrants are exercisable at $0.35 per share and expire in February of 2004.
On January 22, 2001, we sold an employee 35,000 shares of our common stock and issued warrants to purchase 17,500 shares of common stock, for $0.20 per share or $7,000. The warrants are exercisable at $0.35 per share and expire in January of 2004.
Effective December 31, 2000, we issued 35,542 shares of our own common stock to former holders of Series C Preferred Stock pursuant to the anti-dilution provisions of the Series C Preferred Stock. The shares were valued at $4.265 based upon management's estimate of the value of our common stock at the time the Series C holders converted.
Effective December 31, 2000, we issued 79,167 shares of our common stock to four directors of the company for their services. The shares were valued at $10.291 based on management's estimate of the value of the company's common stock at the date of issue.
Effective December 31, 2000 we issued 28,092 shares of our common stock to a Series C Preferred Stock holder in exchange for an equal number of Series C Preferred shares. During 1999, we issued 2,354,766 shares of common stock in exchange for the same number of Series C Preferred shares.
Effective December 12, 2000, we issued our 10% convertible debenture due December 12, 2003 to John C. Lawrence, a director and President, in the principal amount of $100,000, together with warrants for 60,974 shares of our common stock exercisable for five years at $0.41 per share. This debenture and warrant were issued in consideration of cash advances in the amount of $96,591 to meet working capital needs plus accrued interest payable to Mr. Lawrence in the amount of $4,685. The debenture conversion price is based on market prices at the time of conversion but not greater than $0.31 per share.
On December 5, 2000, we issued our 10% convertible debentures due December 5, 2003 to A.W. Dugan, a shareholder and accredited investor, in the principal amount of $50,000, together with related warrants for 30,487 shares of our common stock exercisable for five years at $0.41 per share. The debenture conversion price is based on market prices at the time of conversion but not greater than $0.31 per share.
On December 5, 2000, we issued our 10% convertible debenture due November 22, 2003 to A.W. Dugan, a shareholder and accredited investor, in the principal amount of $50,000, together with related warrants for 30,487 shares of our common stock exercisable for five years at $0.41 per share. The debenture conversion price is based on market prices at the time of conversion but not greater than $0.31 per share.
On December 5, 2000, we issued our 10% convertible debenture due December 31, 2003 to John C. Lawrence, a director and President, in the principal amount of $147,992, together with related warrants for 90,239 shares of our common stock exercisable for five years at $0.41 per share. This debenture and the related covenants were issued in consideration of $141,243 previously advanced to us to meet working capital needs, together with interest accrued from the advance dates through December 31, 2000. The debenture conversion price is based on market prices at the time of conversion but not greater than $0.31 per share.
On August 25, 2000, we sold 257,511 shares of our common stock and issued warrants to purchase 48,077 shares of common stock to A.W. Dugan, a stockholder and accredited investor, for $0.29125 per share or $75,000. The warrants are exercisable at $0.39 per share and expire August 25, 2002.
On July 12, 2000, we sold 100,000 shares of our common stock to Nortex Corporation, a company controlled by A.W. Dugan, a stockholder and accredited investor, for cash totaling $25,000, or $0.25 per share.
On July 11, 2000, we issued our 10% convertible debenture due June 30, 2002 to Thomson Kernaghan and Co. Limited in the principal amount of 600,000, together with a Purchaser's Warrant for 384,615 shares and an Agent's Warrant for 961,358 shares of our common stock exercisable for five years at $0.39 per share. We subsequently agreed to issue an additional $75,000 principal amount of 10% convertible debenture, together with an additional Purchaser's Warrant for 48,077 shares of our common stock. The debenture conversion price is based on market prices at the time of conversion but not greater than $0.29125 per share. These debentures and warrants were issued in reliance on the exemption contained in Regulation S of the Securities Act of 1933 because Thomson Kernaghan and Co. Limited and each of the debenture purchasers warranted in the debenture purchase agreement that it is not a "U.S. Person," as such term is defined in Rule 902(o) of Regulation S, that the securities have not been offered to it in the United States and that offers of securities of the Company shall not be made to United States persons for a period of one year from the date of closing of all debentures offered pursuant to the agreement.
On June 23, 2000, we agreed to issue 250,000 shares of our common stock to the City of Moscow, Idaho (the sole beneficiary of the Estate of Bobby C. Hamilton) as partial consideration for discharge of a debt due the Estate in the approximate amount of $1,500,000. See "Management's Division and Analysis of Financial Condition and Results of Operations - Financial Condition and Liquidity."
On March 30, 2000, we sold 200,000 shares of our common stock to Thomas H. McInish, an accredited investor, for $80,000 cash, or $0.40 per share.
On March 17, 2000, we issued to Thomson Kernaghan and Co. Limited 150,000 shares of common stock pursuant to our 2000 Stock Plan, in consideration of financial consulting services including the preparation and analysis of our financial condition and financing options. The certificate for these shares was issued without a restrictive legend based on our erroneous belief that these shares were registered under its Form S-8 Registration Statement filed on March 10, 2000 (File No. 333-32216).
On March 17, 2000, we issued to Blue Water Partners, Inc., in payment of fees for financial consulting services, 150,000 shares of common stock pursuant to our 2000 Stock Plan. The certificate for these shares was issued without a restrictive legend based on our erroneous belief that these shares were registered under its Form S-8 Registration Statement filed March 10, 2000 (File No. 333-32216).
On March 16, 2000, we issued 100,000 shares of our common stock to A.W. Dugan, a stockholder and accredited investor, for cash totaling $25,000, upon exercise of previously granted warrants to purchase common stock for $0.25 per share.
On February 2, 2000, we sold 125,000 shares of our common stock to Delaware Royalty Company, Inc., a company controlled by A.W. Dugan, a stockholder and accredited investor, for cash totaling $50,000 or $0.40 per share.
On January 3, 2000, we agreed to issue warrants to purchase 300,000 shares of unregistered common stock at $0.25 per share to A.W. Dugan. The warrants expire January 25, 2003 and were issued in exchange for consulting services valued at $10,000 provided to us.
Effective December 31, 1999, we issued 6,000 shares of common stock to each of our three directors for services provided. These shares were valued at $2,160 or $.12 per share.
On November 9, 1999, we issued 790,909 shares of common stock to the Walter L. Maguire 1935-1 Trust, a trust related to a stockholder and our former director, in connection with the settlement of litigation brought by the Trust. The settlement resulted in discharge of our obligations to the Trust under subordinated convertible debentures and convertible debentures totaling $682,397, including principal and interest.
On October 4, 1999, we issued 245,852 shares of common stock in Geosearch Inc., our creditor, in satisfaction of a debt due Geosearch Inc. totaling $144,339, including principal and accrued interest.
On August 8, 1999, we issued 40,000 shares of common stock and warrants to purchase 100,000 shares at $0.55 per share to Carlos Tejada, our consultant, for services valued at $10,000.
On March 29, 1999, we issued stock bonuses aggregating 20,000 shares of common stock to our employees. The shares were valued at $2,600 or $0.13 per share.
On March 29, 1999, we sold 4,800 shares of common stock to an employee for cash of $1,200, or $0.25 per share.
Effective December 31, 1998, we issued 25,000 shares of common stock to Robert A. Rice, our director, in exchange for a $5,000 note receivable from Mr. Rice. The note was satisfied in 1999 when Mr. Rice transferred to us equipment having a fair market value equal to the amount of the note.
Effective December 31, 1998, we issued 6,000 shares of common stock to each of our two directors for services provided. The shares were valued at $1,687 or $0.14 per share.
Effective December 31, 1998, we sold 23,491 shares of our common stock to Mike Rice, a relative of a director, Robert L. Rice, for services provided to us with a fair value of $3,289.
On July 22, 1998, we sold 100,000 shares of our common stock and 100,000 warrants to purchase our common stock to A.W. Dugan, a stockholder and accredited investor, for cash totaling $25,000. The warrants are exercisable at $0.50 per share and expire July 28, 2001.
On February 17, 1998, we sold 40,000 shares of our common stock and 20,000 warrants to purchase our common stock to the Walter L. Maguire 1953 Trust, a trust related to Walter S. Maguire, Sr., who was a director until December 31, 1998, for cash of $10,000. The warrants are exercisable at $0.50 per share and expire February 17, 2001.
On February 17, 1998, we sold 160,000 shares of our common stock and 80,000 warrants to purchase our common stock to Walter L. Maguire, Sr., a former director, for cash of $40,000. The warrants are exercisable at $0.50 per share and expire February 17, 2001. Mr. Maguire was an accredited investor.
ITEM 27. EXHIBITS
The exhibits included as part of this Registration Statement are listed on the Exhibit Index of this Registration Statement.
ITEM 28. UNDERTAKINGS (pursuant to Regulation S-B Item 512(a), (e))
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made by the Selling Shareholder, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the Securities Act;
(ii) To reflect in the prospectus any facts or events which, individually or together, represent a fundamental change in the information set forth in this Registration Statement; and
(iii)To include any additional or changed material information on the plan of distribution.
(2) For determining liability under the Securities Act, to treat each post-effective amendment as a new registration statement of the securities offered, and the offering of the securities at that time shall be deemed to be the initial bona fide offering.
(3) To file a post-effective amendment to remove from registration any of the securities that remain unsold at the end of the offering.
(e) Insofar as indemnification for liabilities arising under the Securities Act of 1933 ("Act") may be permitted to directors, officers and controlling persons of the company pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment of expenses incurred or paid by a director, officer or controlling person of the company in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form SB-2 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, in Thompson Falls, State of Montana, on August 28, 2001.
UNITED STATES ANTIMONY CORPORATION
By /s/John C. Lawrence
--------------------------
John C. Lawrence, President and Chairman
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In accordance with the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
Signature Capacity Date
/s/John C. Lawrence President and Chairman of the Board August 28, 2001
John C. Lawrence (Principal Executive and Chief
Financial Officer and Director)
/s/Robert A. Rice Director September 5, 2001
Robert A. Rice
/s/Leo Jackson Director August 28, 2001
Leo Jackson
/s/Gary D. Babbitt Director September 4, 2001
Gary D. Babbitt
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EXHIBIT INDEX
to
REGISTRATION STATEMENT ON FORM SB-2
Exhibit Number Description
3.01 Articles of Incorporation of USAC, Filed as an exhibit to USAC's Form 10-KSB for the fiscal year ended
December 31, 1995 (File No. 1-8675) are incorporated herein by this reference.
3.02 Amended and Restated Bylaws of USAC.**
3.03 Articles of Correction of Restated Articles of Incorporation of USAC. **
4.01 Key Employees 2000 Stock Plan, filed as an exhibit to USAC's Form S-8 Registration Statement filed on
March 10, 2000 (File No. 333-32216) is incorporated herein by this reference.
5.01 Opinion of Sonfield and Sonfield*
10.0 Material Contracts**
Documents filed with USAC's Annual Report on Form 10-KSB for the year ended
December 31, 1995 (File No. 1-8675), are incorporated herein by this reference:
10.10 Yellow Jacket Venture Agreement
10.11 Agreement Between Excel-Mineral USAC and Bobby C. Hamilton
10.12 Letter Agreement
10.13 Columbia-Continental Lease Agreement Revision
10.14 Settlement Agreement with Excel Mineral Company
10.15 Memorandum Agreement
10.16 Termination Agreement
10.17 Amendment to Assignment of Lease (Geosearch)
10.18 Series B Stock Certificate to Excel-Mineral Company, Inc.
10.19 Division Order and Purchase and Sale Agreement
10.20 Inventory and Sales Agreement
10.21 Processing Agreement
10.22 Release and settlement agreement between Bobby C. Hamilton and United States Antimony Corporation
10.23 Columbia-Continental Lease Agreement
10.24 Release of Judgment
10.25 Covenant Not to Execute
10.26 Warrant Agreements filed as an exhibit to USAC's Annual Report on Form 10-KSB for the year ended
December 31, 1996 (File No. 1-8675), are incorporated herein by this reference
10.27 Letter from EPA, Region 10 filed as an exhibit to USAC's Quarterly Report on Form 10-QSB for the
quarter ended September 30, 1997 (File No. 001-08675) is incorporated herein by this reference
10.28 Warrant Agreements filed as an exhibit to USAC's Annual Report on Form 10-KSB for the year ended
December 31, 1997 (File No. 001-08675) are incorporated herein by this reference
10.30 Answer, Counterclaim and Third-Party Complaint filed as an exhibit to USAC's Quarterly Report on
Forms 10-QSB for the quarter ended September 30, 1998 (File No. 001-08675) is incorporated
herein by this reference
Documents filed with USAC's Annual Report on Form 10-KSB for the year ended
December 31, 1998 (File No. 001-08675), are incorporated herein by this
reference:
10.31 Warrant Issue-A.W. Dugan
10.32 Amendment Agreement
Documents filed with USAC's Quarterly Report on Form 10-QSB for the quarter
ended March 31, 1999 (File No. 001-08675) are incorporated herein by this
reference:
10.33 Warrant Issue-John C. Lawrence
10.34 PVS Termination Agreement
Documents filed as an exhibit to USAC's Form 10-KSB for the year ended December
31, 1999 (File No. 001-08675) are incorporated herein by this reference:
10.35 Maguire Settlement Agreement
10.36 Warrant Issue-Carols Tejada
10.37 Warrant Issue-Al W. Dugan
10.38 Memorandum of Understanding with Geosearch Inc.
10.39 Factoring Agreement-Systran Financial Services Company
10.40 Mortgage to John C. Lawrence
10.41 Warrant Issue-Al W. Dugan filed as an exhibit to USAC's Quarterly Report on Form 10-QSB for the
quarter ended March 31, 2000 (File No. 001-08675) is incorporated herein by this reference
10.42 Agreement between United States Antimony Corporation and Thomson Kernaghan and Co., Ltd. filed as an
exhibit to USAC form 10-QSB for the quarter ended June 30, 2000 (File No. 001-08675) are incorporated
herein by this reference.
10.43 Settlement agreement and release of all claims between the Estate of Bobby C. Hamilton and United States
Antimony Corporation filed as an exhibit to USAC form 10-QSB for the quarter ended June 30, 2000
(File No. 001-08675) are incorporated herein by this reference.
10.44 Supply Contracts with Fortune America Trading Ltd. filed as an exhibit to USAC form 10-QSB for the
quarter ended June 30, 2000 (File No. 001-08675) are incorporated herein by this reference.
10.45 Amended and Restated Agreements with Thomson Kernaghan and Co., Ltd. ***
21.01 Subsidiary of USAC**
23.01 Consent of Sonfield and Sonfield (included in Exhibit 5.01) *
23.02 Consent of DeCoria, Maichel and Teague P.S. *
44.1 CERCLA Letter from U.S. Forest Service filed as an exhibit to USAC form 10-QSB for the quarter ended
June 30, 2000 (File No. 001-08675) are incorporated herein by this reference and filed as an exhibit
USAC's Form 10-KSB for the year ended December 31, 1995 (File No. 1-8675) is
incorporated herein by this reference.
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AGENT'S WARRANT
Warrant No. TK2 (Amended and Restated)
THIS WARRANT, AND THE SECURITIES ISSUABLE UPON THE EXERCISE HEREOF (COLLECTIVELY, THE "SECURITIES"), HAVE NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), NOR HAVE THEY BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY U.S. STATE OR TERRITORY. THIS WARRANT IS BEING OFFERED AND SOLD PURSUANT TO REGULATION S OF THE U.S. SECURITIES AND EXCHANGE COMMISSION UNDER THE ACT. THE SECURITIES, ARE "RESTRICTED SECURITIES" AND MAY NOT BE OFFERED OR SOLD IN THE UNITED STATES OR TO A U.S. PERSON (AS DEFINED IN REGULATION S) UNLESS PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, OR PURSUANT TO REGULATION S, OR PURSUANT TO OTHER AVAILABLE EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THE ACT. A HOLDER OF ANY OF THE SECURITIES MAY NOT ENGAGE IN HEDGING TRANSACTION WITH REGARD TO SUCH SECURITIES UNLESS IN COMPLIANCE WITH THE ACT.
UNITED STATES ANTIMONY CORPORATION
Warrant for the Purchase
of Shares of Common Stock
July 11, 2000 961,358 Shares
FOR VALUE RECEIVED, United States Antimony Corporation, a Montana corporation (the "Company"), hereby certifies that Thomson Kernaghan and Co. Limited or other holder hereof (collectively, the "Holder"), is entitled, subject to the provisions of this Warrant, to purchase from the Company, at any time or from time to time beginning on the date hereof, and ending at 5:00 pm, Toronto time, on the fifth anniversary of the date hereof (the "Exercise Period") Nine Hundred Sixty-One Thousand Three Hundred Fifty-Eight (961,358) fully paid and nonassessable shares of common stock of the Company, par value $.01 per share (the "Common Stock") at the exercise price of Thirty-Nine Cents (US$.39) per share (the "Exercise Price"). This Warrant is the Agent's Warrant described in and is being issued pursuant to an Amended and Restated Agreement (the "Agreement") effective as of July 11, 2000, between the Company and Thomson Kernaghan and Co. Limited (the "Agent"). Capitalized terms not defined in this Warrant shall have the meanings ascribed to them in the Agreement.
For purposes of this Warrant, "Warrant Shares" means the shares of
Common Stock deliverable upon exercise of this Warrant, as adjusted from time to
time. Unless the context requires otherwise all references to Common Stock and
Warrant Shares in this Warrant shall, in the event of an adjustment pursuant to
Section 7 hereof, be deemed to refer also to any securities or property then
issuable upon exercise of this Warrant as a result of such adjustment.
Section 1. Exercise of Warrant.
(a) This Warrant may be exercised, as a whole or in part, at any time or from time to time during the Exercise Period or, if such day is not a Trading Day (as defined in the Agreement), then on the next succeeding Trading Day. The Holder may exercise this Warrant by telecopying an executed and completed Notice of Exercise in the form annexed hereto as Exhibit A (a "Notice of Exercise") to the Escrow Holder and the Company, and sending the original by mail or overnight delivery service to the Escrow Holder together with the Exercise Price. Each Trading Day on which a Notice of Exercise is telecopied to the Company in accordance with the provisions hereof shall be deemed an "Exercise Date." Notices given under this Warrant shall be delivered as required by the Escrow Agreement, and also delivered or telecopied as follows:
If to the Holder or Escrow Holder: If to the Company:
c/o Thomson Kernaghan and Co. Ltd. United States Antimony Corporation
365 Bay Street, Tenth Floor 1250 Prospect Creek, P.O. Box 643 Toronto, Ontario M5H 2V2 Thompson Falls, Montana 59873-0643 Attention: Ms. Michelle McKinnon Attention: John Lawrence, President and CEO Facsimile No. (416) 860-6355 Facsimile No. (406) 827-3523 |
or to such other address as the Holder may specify.
If the Company has not delivered the Warrant Shares to the Escrow Holder prior to the expiration of five Trading Days after the Holder send a Notice of Exercise, the, in addition to all other remedies the Holder may have, the Company shall pay to the Holder, on demand and in immediately available funds, as liquidated damages for such failure and not as a penalty, the amounts stated in the following schedule, which liquidated damages shall begin to accrue on the sixth Trading Day after the Conversion Date.
Late Payment For Each $10,000
No. Business Days Late of the Warrant Exercise Price
1 $100
2 $200
3 $300
4 $400
5 $500
>5 $500+$200 for each Business Day Late beyond 5 days
from the Delivery Date
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Nothing in this Warrant shall limit the holder's right to seek specific performance of the Company's obligations hereunder and other remedies and damages for the Company's actions or inactions resulting in the transfer agent's failure to issue and deliver the Warrant Shares to the Holder. The Company shall not be liable for any damages resulting from the Escrow Holder's failure to deliver Warrant Shares to the Holder.
(b) The Company shall pay any and all documentary stamp or similar issue or transfer taxes payable in respect of the issue or delivery of the Warrant Shares.
(c) Limitation on Right and Power to Exercise. Any provision in this Warrant, the Agreement or any other document to the contrary not withstanding, the Holder shall not have the right or power to exercise this warrant, either in whole or in part, if, and any attempt to do so shall be void, after having given effect to such exercise, the Holder shall be or shall be deemed to be the beneficial owner of 10% or more of the then outstanding Common Stock within the meaning or for the purposes of Section 13(d) or 13(g) of the U.S. Securities Exchange Act of 1934, as amended, or as the term "beneficial owner" is defined in Rule 13d-3 of the U.S. Securities and Exchange Commission or otherwise. Any attempt to exercise the Warrant shall also be ineffective to the extent that the Company does not have sufficient authorized, unissued and unreserved Common Stock to issue the Warrant Shares.
Section 2. Reservation of Shares. Subject to shareholder approval pursuant to
Section 10.2.1 of the Agreement, the Company hereby agrees that at all times
there shall be reserved for issuance and delivery upon exercise of this Warrant
all shares of its Common Stock or other shares of capital stock of the Company
or other property from time to time issuable upon exercise of this Warrant. All
such shares shall be duly authorized and, when issued upon such exercise in
accordance with the terms of this Warrant, shall be validly issued, fully paid
and nonassessable, free and clear of all liens, security interests, charges and
other encumbrances or restrictions on sale (other than any restrictions on sale
pursuant to applicable federal and state securities laws) and free and clear of
all preemptive rights.
Section 3. Fractional Shares. The Company shall not be required to issue
fractional shares of Common Stock on the exercise of this Warrant. If any
fraction of a share of Common Stock would, except for the provisions of this
Section 4, be issuable on the exercise of this Warrant (or specified portion
thereof), the Company shall pay an amount in cash calculated by it to be equal
to the then Current Market Value (as hereinafter defined) per share of Common
Stock multiplied by such fraction computed to the nearest whole cent. For the
purposes of any computation under this Warrant, the Current Market Value per
share of Common Stock or of any other equity security (herein collectively
referred to as a "security") at the date herein specified shall be:
(i) if the security is not registered under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the "Current Market Value" per share of the security shall be determined in good faith by the Board of Directors of the Company, or
(ii) if the security is registered under the Exchange Act, the "Current Market Value" per share of the security shall be deemed to be the average of the daily market prices of the security for the ten (10) consecutive trading Days immediately preceding the day as of which Current Market Value is being determined or, if the security has been registered under the Exchange Act for less than ten (10) consecutive Trading Days before such date, then the average of the daily market prices for all of the Trading Days before such date for which daily market prices are available. The market price for each such Trading Day shall be: (A) in the case of a security listed or admitted to trading on any securities exchange, the Closing Bid Price on the primary exchange on which the Common Stock is then listed, on such day, (B) in the case of a security not then listed or admitted to trading on any securities exchange, the Closing Bid Price reported by Bloomberg LP on such day, (C) in the case of a security not then listed or admitted to trading on any securities exchange and as to which no such reported sale price or bid and asked prices are available, the reported high bid on such day, as reported by a reputable quotation service, or a newspaper of general circulation in the Borough of Manhattan, City and State of New York, customarily published on each business day, designated by the Holder, or if there shall be no bid prices on such day, the high bid price, as so reported, on the most recent day (not more than 10 days prior to the date in question) for which prices have been so reported, and (D) if there are no bid prices reported during the 10 days prior to the date in question, the Current Market Value of the security shall be determined as if the security were not registered under the Exchange Act.
Section 4. Exchange, Transfer, Assignment or Loss of Warrant.
(a) This Warrant is exchangeable, without expense, at the option of the Holder, upon presentation and surrender hereof to the Company or at the office of its stock transfer agent or warrant agent, if any, for other warrants of different denomination, entitling the Holder thereof to purchase in the aggregate the same number of Warrant Shares and otherwise carrying the same rights as this Warrant.
(b) This Warrant may be divided or combined by the Holder with other warrants that carry the same rights upon presentation hereof at the office of the Company or at the office of its stock transfer agent or warrant agent, if any, together with a written notice specifying the names and denominations in which new warrants are to be issued and signed by the Holder hereof. The term "Warrant" as used herein includes any warrants into which this Warrant may be divided or for which it may be exchanged.
(c) Upon receipt by the Company of evidence satisfactory to it of the loss, theft, destruction or mutilation of this Warrant, and (in the case of loss, theft or destruction) of reasonably satisfactory indemnification, and upon surrender and cancellation of this Warrant, if mutilated, the Company shall execute and deliver a new Warrant of like tenor and date.
Section 5. Restrictions on Issuance of Securities. So long as this Warrant is outstanding, the Company will not issue, or permit any Subsidiary to issue, any common stock or other equity securities, or any other stock, option, warrant, right or other instrument that is convertible into or exercisable or exchangeable for common stock or other equity securities, except for (i) securities issued pursuant to the Securities Purchase Agreement (which includes Warrant Shares), (ii) securities of a Subsidiary that are issued to the Company; and (iii) securities sold and options granted to directors, officers and employees of the Company pursuant to bona fide employee benefit plans; provided, however, that the Company may issue such securities with the prior written consent of the Holder, which consent the Holder agrees not to unreasonably withhold.
Section 6. Reclassification, Reorganization, Consolidation or Merger. In the event of any reclassification, capital reorganization or other change of outstanding shares of Common Stock of the Company or in the event of any consolidation or merger of the Company with or into another corporation (other than a merger in which merger the Company is the continuing corporation and that does not result in any reclassification, capital reorganization or other change of outstanding shares of Common Stock of the class issuable upon exercise of this Warrant) or in the event of any sale, lease, transfer or conveyance to another corporation of the property and assets of the Company as an entirety or substantially as an entirety, the Company shall, as a condition precedent to such transaction, cause effective provisions to be made so that such other corporation shall assume all of the obligations of the Company hereunder and the Holder shall have the right thereafter, by exercising this Warrant, to purchase the kind and amount of shares of stock and other securities and property (including cash) receivable upon such reclassification, capital reorganization and other change, consolidation, merger, sale, lease, transfer or conveyance by a holder of the number of shares of Common Stock that might have been received upon exercise of this Warrant immediately prior to such reclassification, capital reorganization, change, consolidation, merger, sale, lease or conveyance. Any such provision shall include provision for adjustments in respect of such shares of stock and other securities and property that shall be as nearly equivalent as may be practicable to the adjustments provided for in this Warrant. The foregoing provisions of this Section 8 shall similarly apply to successive reclassification, capital reorganizations and changes of shares of Common Stock and to successive changes, consolidations, mergers, sales, leases, transfers or conveyances. In the event that in connection with any such capital reorganization, or reclassification, consolidation, merger, sale, lease, transfer or conveyance, additional shares of Common Stock shall be issued in exchange, conversion, substitution or payment, as a whole or in part, for, or of, a security of the Company other than Common Stock, any such issue shall be treated as an issue of Common Stock covered by the provisions of Section 5.
Section 7. Transfer to Comply with the Securities Act. Neither this Warrant nor any of the Warrant Shares may be offered or sold in the United States or to a U.S. Person (as defined in Regulation S) unless pursuant to an effective registration statement under the Act, or pursuant to Regulation S, or pursuant to other available exemptions from the registration requirements of the Act. The Holder of this Warrant or any of the Warrant Shares may not engage in hedging transaction with regard to such securities unless in compliance with the Act.
Section 8. Availability of Information. So long as any of this Warrant remains unexercised and this Warrant has not expired, the Company shall comply with the reporting requirements of Sections 13 and 15(d) of the Exchange Act to the extent it is required to do so under the Exchange Act, and shall likewise comply with all other applicable public information reporting requirements of the Securities and Exchange Commission (including those required to make available the benefits of Rule 144 under the Securities Act) to which it may from time to time be subject. The Company shall also cooperate with the Holder of this Warrant and the Holder of any Warrant Shares in supplying such information as may be necessary for such holder to complete and file any information reporting forms currently or hereafter required by the Commission as a condition to the availability of Rule 144 or any successor rule under the Securities Act for the sale of this Warrant or the Warrant Shares. The provisions of this Section 8 shall survive termination of this Warrant, whether upon exercise of this Warrant in full or otherwise. The Company shall also provide to holders of this Warrant the same information that it provides to holders of its Common Stock.
Section 9. Registration Rights. The Company is obligated to register the shares of Common Stock issuable upon exercise of this Warrant pursuant to a Registration Rights Agreement (the "Registration Rights Agreement") dated as of the Effective Date, among the Company, the Holder, other holders of Debentures and the Agent.
Section 10. Successors and Assigns. All the provisions of this Warrant by or for the benefit of the Company or the Holder shall bind and inure to the benefit of their respective successors, assigns, heirs and personal representatives.
Section 11. Headings. The headings of sections of this Warrant have been inserted for convenience of reference only, are not to be considered a part hereof and shall in no way modify or restrict any of the terms or provisions hereof.
Section 12. Amendments. This Warrant may not be amended except by the written consent of the Company and the Holder.
Section 13. Notices. All notices given under this Agreement and under the other
Transaction Documents shall be in writing, addressed to the parties as set
forth below, or to such other address as a party may specify by notice given
in accordance with this paragraph and shall be effective on the earliest of (i)
the date received, or (ii) if given by facsimile transmittal on the date given
if transmitted before 5:00 p.m. the recipient's time, otherwise it is effective
the next day, or (iii) on the second Trading Day after delivery to a major
international air delivery or air courier service (such as Federal Express or
Network Couriers):
If to the Holder or Escrow Holder: If to the Company: c/o Thomson Kernaghan and Co. Ltd. United States Antimony Corporation 365 Bay Street 1250 Prospect Creek, P.O. Box 643 Toronto, Ontario M5H 2V2 Thompson Falls, Montana 59873-0643 Attention: Mr. Gregg Badger, Sr. V.P. Attention: John Lawrence, President and CEO Facsimile No. (416) 860-6352 Facsimile No. (406) 827-3523 |
Section 14. Law Governing; Jurisdiction. This Warrant shall be governed by and construed in accordance with the laws of the Province of Ontario, Canada, provided however, that if any provision of this Warrant is unenforceable under the laws of Ontario but is enforceable under the laws of the U.S. State of Montana, then that provision shall be governed by and construed in accordance with the laws the State of Montana. The courts of the Province of Ontario, Canada, shall have jurisdiction and venue for the adjudication of any civil action between or among any of them arising out of relating to this Debenture. The Company and the Holder irrevocably consent to such jurisdiction and venue, and irrevocably waive any claim of forum non conveniens or right to change venue. The prevailing party in any action or proceeding to enforce or construe this Warrant is entitled to recover reasonable attorney's fees.
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed, as of the day and year first above written.
UNITED STATES ANTIMONY CORPORATION
NOTICE OF EXERCISE
To: United States Antimony Corporation:
The undersigned irrevocably exercises this Warrant for the purchase of ____________________ shares (subject to adjustment) of Common Stock of United States Antimony Corporation (the "Company"): for this Warrant and agrees to make payment of $____________________ (the "Exercise Price") through the following method:
such payment of the Exercise Price being in cash or by certified or official bank check payable to the order of the Company
all at the Exercise Price and on the terms and conditions specified in this Warrant, and directs that the shares of Common Stock deliverable upon the exercise of this Warrant be registered or placed in the name and at the address specified below and delivered thereto.
Date: ________________, _______
1 The signature must correspond with the name as written upon the face of the within Warrant in every particular, without alteration or enlargement or any change whatever.
Any unexercised part of the Warrant evidenced by the within Warrant to be issued to:
FORM OF ASSIGNMENT
FOR VALUE RECEIVED the undersigned registered holder of the within Warrant hereby sells, assigns, and transfers unto the Assignee(s) named below (including the undersigned with respect to any part of the Warrant not being assigned hereby) all of the right of the undersigned under the within Warrant, with respect to the number of shares of Common Stock set forth below:
-------------------------------- --------------------------------------- --------------------- ---------------------
Social Security or Number of Shares of
Other Identifying Common Stock
Name of Assignee Address of Assignee Number of Assignee Assigned to Assignee
-------------------------------- --------------------------------------- --------------------- ---------------------
-------------------------------- --------------------------------------- --------------------- ---------------------
-------------------------------- --------------------------------------- --------------------- ---------------------
-------------------------------- --------------------------------------- --------------------- ---------------------
-------------------------------- --------------------------------------- --------------------- ---------------------
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and does hereby irrevocably constitute and appoint ______________________ as the undersigned's attorney to make such transfer on the books of ______________________ United States Antimony Corporation maintained for that purpose, with full power of substitution in the premises.
Date: ________________, _______
AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
THIS AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT (this "Registration Rights Agreement") is made and entered into the _____ day of __________, 2001 but is retroactively effective as of July 11, 2000 (the "Effective Date"), by and among United States Antimony Corporation, a Montana corporation (the "Company") and Thomson Kernaghan and Co. Limited (the "Agent"), pursuant to that certain Amended and Restated Agreement (the "Agreement") of even date herewith between the Company and the Agent.
Preliminary Statements
In connection with the consummation of the transactions contemplated by the Agreement, the Company has agreed, upon the terms and subject to the conditions of the Agreement, to issue and sell to the Agent for the benefit of certain Purchasers, which may include the Agent, up to $1,500,000 in principal amount of the Company's 10% convertible Debentures Due June 30, 2002 (the "Debentures"). At any time beginning 30 days after the Closing Date and prior to their respective payment in full, all or any part of the principal and interest of each Debenture may, at the option of the Holder, be converted into shares (the "Conversion Shares') of the Company's Common Stock, $.01 par value per share, at a price per share equal to (i) the lower of $0.29125 or (ii) seventy five percent (75%) of the average of the three (3) lowest Closing Bid Prices in the twenty (20) Trading Days immediately preceding the Conversion Date.
The Company has also agreed, upon the terms and subject to the conditions of the Agreement, to issue to the Agent, for the pro rata benefit of the Purchasers, a Warrant (the "Purchaser's Warrant") to purchase the number of shares of Common Stock (the Purchaser's Warrant Shares") determined by multiplying .25 by the face amount of Debentures being sold at such Closing Date and dividing the resulting figure by $0.39 per share and (ii) to issue to the Agent a Warrant (the "Agent's Warrant") to purchase the number of shares of Common Stock (the "Agent's Warrant Shares") determined by dividing $375,000 by $0.39 per share.
To induce the Agent to execute and deliver the Purchase Agreement, the Company has agreed, pursuant to the terms and conditions of this Registration Rights Agreement, to provide certain registration rights with respect to the Common Shares, the Conversion Shares and the Warrant Shares.
Agreement
In consideration of the foregoing, the mutual covenants and conditions set forth in this Registration Rights Agreement and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties, intending to become legally bound, hereby agree as follows:
ARTICLE I
DEFINITIONS
As used in this Registration Rights Agreement, the following terms shall have the following respective meanings:
"Agent" shall mean Thomson Kernaghan and Co. Limited.
"Agent's Warrant" shall have the meaning ascribed to such term in the Preliminary Statements to this Registration Rights Agreement.
"Agent's Warrant Shares" shall have the meaning ascribed to such term in the Preliminary Statements to this Registration Rights Agreement.
"Agreement" shall have the meaning ascribed to such term in the introductory paragraph of this Registration Rights Agreement.
"Commission" shall mean the Securities and Exchange Commission or any other federal agency at the time administering the Securities Act.
"Common Shares" shall have the meaning ascribed to such term in the Preliminary Statements to this Registration Rights Agreement.
"Company" shall mean United States Antimony Corporation.
"Conversion Shares" shall have the meaning ascribed to such term in the Preliminary Statements to this Registration Rights Agreement.
"Debentures" shall have the meaning ascribed to such term in the Preliminary Statements to this Registration Rights Agreement.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, or any successor federal statute, and the rules and regulations of the Commission thereunder, all as in effect from time to time.
"Effective Date" shall have the meaning ascribed to such term in the Preliminary Statements to this Registration Rights Agreement.
"Filing Deadline" shall have the meaning ascribed to such term in
Section 2.1 of this Registration Rights Agreement.
"Holder" or "Holders" shall mean (a) each Purchaser, to the extent that the Purchaser holds Registrable Securities, (b) the Agent, to the extent that the Agent holds Registrable Securities, and (c) any Person holding Registrable Securities as a transferee of a Purchaser or the Agent (directly or indirectly, including subsequent transfers).
"Person" shall mean any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof.
The terms "register," "registered" and "registration" shall refer to a registration effected by preparing and filing with the Commission one or more registration statements covering Registrable Securities in compliance with the Securities Act that is declared or ordered effective by the Commission.
"Registrable Securities" shall mean the Conversion Shares, the Purchaser's Warrant Shares and the Agent's Warrant Shares, and any shares of capital stock issued or issuable with respect to the Securities, the Purchaser's Warrant Shares or the Agent's Warrant Shares as a result of any stock split, stock dividend, recapitalization, exchange or similar event; provided, however, that such securities shall cease to be Registrable Securities when (a) a registration statement with respect to such securities shall have been declared effective under the Securities Act and such securities shall have been disposed of pursuant to the registration statement, (b) such securities are distributed to the public pursuant to Rule 144(k) (or any successor provisions) promulgated under the Securities Act or (c) such securities shall have ceased to be outstanding.
"Registration Deadline" shall have the meaning ascribed to such term in
Section 2.1 of this Registration Rights Agreement.
"Registration Expenses" shall mean all expenses incurred in order to comply with Article II hereof, including, without limitation, all registration and filing fees, printing expenses, fees and disbursements of counsel for the Company, reasonable fees and disbursements of one (1) counsel for the Holders, blue sky fees and expenses, and the expense of any special audits incident to or required by any such registration, but excluding the compensation of regular employees of the Company (which shall be paid in any event by the Company) and excluding Selling Expenses.
"Registration Rights Agreement" shall mean this Amended and Restated Registration Rights Agreement, made and entered into as of July 11, 2000, by and between the Company and the Agent.
"Restricted Securities" shall mean Registrable Securities that are "restricted securities" as defined in Rule 144 under the Securities Act.
"Securities" shall mean the Debentures, the Warrants, the Conversion Shares and the Warrant Shares.
"Securities Act" shall mean the Securities Act of 1933, as amended, or any successor federal statute, and the rules and regulations of the Commission thereunder, all as in effect from time to time.
"Selling Expenses" shall mean all underwriting discounts and selling commissions incurred in connection with the sale of securities pursuant to a registration effected hereunder.
"Warrant Shares" shall mean the Purchaser's Warrant Shares and the Agent's Warrant Shares.
Capitalized terms used in this Registration Rights Agreement and not otherwise defined herein shall have the respective meanings ascribed to such terms in the Purchase Agreement.
ARTICLE II
REGISTRATION RIGHTS
(b) If the Company has not filed a Registration Statement with respect to the number of then authorized, unissued and unreserved Registrable Securities by the Filing Deadline, the Company shall pay the Agent liquidated damages per day equal to two percent (2%) per month of the unpaid principal amount of all issued Debentures outstanding on the date of such Filing Deadline plus two percent (2%) per month of the aggregate exercise price of all issued Purchaser's Warrants and Agent's Warrants, for each day after the Filing Deadline until the Company files a Registration Statement.
(c) If a Registration Statement with respect to the Registrable Securities is
not effective on any day after the Registration Deadline, the Company shall pay
the Agent liquidated damages per day equal to two percent (2%) per month of the
unpaid principal amount of all issued Debentures outstanding on the date of such
Registration Deadline, plus two percent (2%) per month of the aggregate exercise
price of all issued Purchasers' Warrants and Agent's Warrants, for each day
after the Registration Deadline that the Registration Statement is not
effective. Company and Agent acknowledge that the Registration Statement was not
effective on or before the Registration Deadline but disagree on which party is
at fault for the delay. In full compromise and settlement of this dispute,
Company hired special securities counsel recommended by Agent to assist Company
in completing the registration process and Agent agreed on behalf of the
Purchasers to accept, in full satisfaction of any and all penalty due under this
Section 2.1(c), $70,000 in the form of 240,343 shares of Company's common stock
at $0.29125 per share.
2.2 Expenses of Registration. All Registration Expenses incurred in connection with any registration, qualification or compliance pursuant to Section 2.1 shall be borne by the Company; and all Selling Expenses in connection with such registration, qualification or compliance shall be borne by the holders of the securities so registered pro rata on the basis of the number of shares so registered.
2.3 Registration Procedures. In the case of each registration, qualification or compliance effected by the Company pursuant to this Article II, the Company will keep the Agent advised in writing as to the initiation of each registration, qualification and compliance and as to the completion thereof. At its expense, the Company will:
(a) prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement;
(b) furnish to the Agent such numbers of copies of a prospectus, including a preliminary prospectus, in conformity with the requirement of the Securities Act, and such other documents as the Agent may reasonably request (including a conformed copy of the registration statement filed with the Commission and any amendments thereto and an original executed underwriting agreement entered into in connection with such registration) in order to facilitate the disposition of Registrable Securities owned by the Holders;
(c) use reasonable efforts to register and qualify the securities covered by such registration statement under such other securities or blue sky laws of one jurisdiction as shall be reasonably requested by the Agent, provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions;
(d) in the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement with the managing underwriter(s) of such offering; each Holder participating in such underwriting shall also enter into and perform its obligations under such underwriting agreement;
(e) notify the Agent at any time when a prospectus relating thereto is required to be delivered under the Securities Act, of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing; and
(f)furnish, at the request of any Holder requesting registration of Registrable Securities pursuant to this Article II, on the date that such Registrable Securities are delivered to the underwriters for sale in connection with registration pursuant to this Article II, if such securities are being sold through underwriters, or on the date that the registration statement with respect to such securities becomes effective, if such securities are not being sold through underwriters, (i) a copy of any opinion, dated such date, of the counsel representing the Company for the purposes of such registration, addressed to the underwriters of the Company, and (ii) a copy of any letter, dated such date, from the independent accountants of the Company, addressed to the underwriters of the Company.
Each Holder of Registrable Securities agrees that upon receipt of any notice from the Company of the happening of any event of the kind described in clause (f) of this Section 2.3, such Holder will forthwith discontinue disposition of Registrable Securities pursuant to the registration statement covering such Registrable Securities until such Holder's receipt of the copies of a supplemented or amended prospectus and, if so directed by the Company, such Holder will deliver to the Company (at the Company's expense), all copies, other than permanent file copies then in such Holder's possession, of the prospectus covering such Registrable Securities that was in effect prior to such amendment or supplement. In the event the Company shall give any such notice, the period set forth in clause (a) of this Section 2.3 shall be extended by the number of days during the period from and including the date of the giving of such notice pursuant to clause (e) of this Section 2.3 to and including the date when each seller of Registrable Securities covered by such registration statement shall have received the copies of a supplemented or amended prospectus.
2.4 Indemnification.
(a) The Company will indemnify each Holder, each Holder's officers, directors
and partners, and each Person controlling such Holder (collectively, "Holder's
Parties"), participating in any registration, qualification, or compliance
effected pursuant to this Article II with respect to Registrable Securities held
by such Holder and each underwriter, if any, and each Person who controls any
underwriter, against all claims, losses, damages and liabilities (or actions in
respect thereof), including any of the foregoing incurred in settlement of any
litigation, commenced or threatened, to which they may become subject under the
Securities Act, the Exchange Act or other federal or state law, arising out of
or based on (i) any untrue statement (or alleged untrue statement) of a material
fact contained in any prospectus, offering circular or other similar document
(including any related registration statement, notification or the like)
incident to any such registration, qualification or compliance, or based on any
omission (or alleged omission) to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, or
(ii) any violation by the Company of any federal, state or common law rule or
regulation applicable to the Company in connection with any such registration,
qualification or compliance, and will reimburse each such Holder's Parties each
such underwriter, and each Person who controls any such underwriter, for any
legal and any other expenses reasonably incurred in connection with
investigating or defending any such claim, loss, damage, liability or action, as
incurred, provided that the Company will not be liable in any such case to the
extent that any such claim, loss, damage, liability or expense arises out of or
is based on any untrue statement or omission, made in reliance on and in
conformity with written information furnished to the Company by such Holder's
Parties or underwriter or Person controlling such underwriter specifically for
use in the preparation thereof.
(b) Each Holder will, if Registrable Securities held by such Holder are included in the securities as to which such registration, qualification or compliance is being effected, severally and not jointly, indemnify the Company, each of its directors and officers, each underwriter, if any, of the Company securities covered by such a registration statement, and each Person who controls the Company or such underwriter within the meaning of the Securities Act, against all claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based on (i) any untrue statement (or alleged untrue statement) of a material fact contained in any such registration statement, prospectus, offering circular or other similar document, or any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse the Company, such directors, officers, Persons, underwriters or control Persons for any legal or any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability or action, as incurred, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such registration statement, prospectus, offering circular or other document in reliance upon and in conformity with the written information furnished to the Company by such Holder specifically for use in the preparation thereof, or (ii) any violation by any such Holder of any federal, state or common law rule or regulation applicable to such Holder in connection with the distribution of securities pursuant to a registration statement, and will reimburse the Company, such directors, officers, Persons, underwriters or control Persons for any legal any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability, or action, as incurred; provided, however, that the obligations of each such Holder hereunder shall be limited to an amount equal to the aggregate proceeds received by such Holder in such offering.
(c) Each party entitled to indemnification under this Section 2.4 (the "Indemnified Party") shall give notice to the party required to provide indemnification (the "Indemnifying Party") promptly after such Indemnified Party has received written notice of any claim as to which indemnity may be sought, and shall permit the Indemnifying Party to assume the defense of any such claim or any litigation resulting therefrom, provided that counsel for the Indemnifying Party, who shall conduct the defense of such claim or litigation, shall be approved by the Indemnified Party (whose approval shall not unreasonably be withheld). The Indemnified Party may participate in such defense at such party's expense; provided, however, that the Indemnifying Party shall bear the expense of such defense of one counsel representing the Indemnified Party if representation of both parties by the same counsel would be inappropriate due to actual or potential conflicts of interest. The failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Section 2.4, except to the extent such failure to give notice shall materially and adversely prejudice the Indemnifying Party in the defense of any such claim or any such litigation. No Indemnifying Party, in the defense of any such claim or litigation, shall, except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement that does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect to such claim or litigation.
(d) (i) If the indemnification provided for in this Section 2.4 is held by a court of competent jurisdiction to be unavailable to an Indemnified Party with respect to any loss, liability, claim, damage or expense referred to herein, then the Indemnifying Party hereunder shall contribute to the amount paid or payable by such Indemnified Party as a result of such loss, liability, claim, damage or expense, in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party on the one hand and the Indemnified Party on the other hand in connection with the statements or omissions which resulted in such loss, liability, claim, damage or expense as well as any other relevant equitable considerations. The relative fault of the Indemnifying Party and of the Indemnified Party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the Indemnifying Party or by the Indemnified Party and the parties' relevant intent, knowledge, access to information and opportunities to correct or prevent such statement or omission.
(ii) The parties agree that it would not be just and equitable if contribution pursuant to this Section 2.4 were determined by pro rata allocation or by any other method of allocation that does not take account of the equitable considerations referred to above. The amount paid or payable by an Indemnified Party as a result of the claims, losses, damages and liabilities referred to above shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such Indemnified Party in connection with investigating or defending any such action or claim.
(iii) No Holder that is a seller of Registrable Securities covered by such registration statement or Person controlling such seller other than the Company shall be obligated to make contribution hereunder that in the aggregate exceeds the total public offering price of the Registrable Securities sold by such Holder, less the aggregate amount of any damages that such Holder and its controlling Persons have otherwise been required to pay pursuant to this Section 2.4. The obligations of such Holders to contribute are several in proportion to their respective ownership of the securities covered by such registration statement and not joint.
(iv) The indemnity and contribution provided herein shall be in addition to, and not in lieu of, any other liability that one party may have to another.
2.5 Information by Holder. Each Holder of Registrable Securities included in any registration shall furnish to the Company such information regarding such Holder and the distribution proposed by such Holder as the Company may request in writing and as shall be required in connection with any registration, qualification or compliance referred to in this Article II.
2.6 Rule 144 Reporting. With a view to making available the benefits of certain rules and regulations of the Commission that may at any time permit the sale of the Restricted Securities to the public without registration, the Company agrees to:
(a) use its best efforts to facilitate the sale of the Restricted Securities to the public without registration under the Securities Act, pursuant to Rule 144 under the Securities Act;
(b) make and keep public information available, as those terms are understood and defined in Rule 144 under the Securities Act, at all times after the effective date of the first registration statement filed by the Company for an offering of its securities to the general public;
(c) file with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act (at any time after it has become subject to such reporting requirements); and
(d) so long as a Holder owns any Restricted Securities to furnish to the Holder forthwith upon request a written statement by the Company as to its compliance with the public information requirements of said Rule 144, and the reporting requirements of the Securities Act and the Exchange Act, a copy of the most recent annual or quarterly report of the Company, and such other reports and documents so filed by the Company as a Holder may reasonably request in availing itself of any rule or regulation of the Commission allowing a Holder to sell any such securities without registration.
2.7 Transfer of Registration Rights. The rights granted under this Article II may be assigned or otherwise conveyed by any Holder of Registrable Securities to any transferee, subject to compliance with all applicable securities laws and regulations.
2.8 Certain Limitations in Connection with Future Grants of Registration Rights. From and after the date of this Registration Rights Agreement, without the prior written consent of the Holders of a majority of the Registrable Securities, the Company shall not enter into any agreement with any holder or prospective holder of any securities of the Company providing for the granting to such holder of registration rights that would be superior to those granted to Holders pursuant to Section 2.1.
2.9 Restrictions on Market Manipulation. In the event any shares of Common Stock are offered or sold by any Holder in a registration, each such Holder will:
(a) advise the Company in writing of any offer, sale or other disposition by it of any Common Stock in any manner other than as set forth in the registration statement or any prospectus included therein on or for the 30-day period prior to the filing of such registration statement until the distribution under the registration statement has been completed;
(b) not effect any stabilization activity in connection with the Company's Common Stock;
(c) not bid or purchase, for any account in which it has a beneficial interest, any Common Stock except as may be permitted pursuant to Rule 10b-6 under the Exchange Act (if applicable);
(d) not until it has sold all of such shares of Common Stock, attempt to induce any Person to purchase any Common Stock except as may be permitted pursuant to Rule 10b-6; and
(e) not until it has sold all such shares of Common Stock, pay any compensation for soliciting another to purchase any securities of the Company, except as may be permitted pursuant to Rule 10b-6.
ARTICLE III
MISCELLANEOUS
3.1 Governing Law; Jurisdiction and Venue. This Registration Rights Agreement shall be governed by and interpreted in accordance with the laws of the Province of Ontario, Canada; provided, however, that if any provision of this Registration Rights Agreement is unenforceable under the laws of the Province of Ontario , but is enforceable under the laws of the State of Montana, then such provision shall be governed by and interpreted in accordance with the laws of the State of Montana. The parties agree that the courts of the Province of Ontario, Canada, shall have jurisdiction and venue for the adjudication of any civil action between or among any of them arising out of relating to this Registration Rights Agreement or any other Transaction Document. The parties hereby irrevocably consent to such jurisdiction and venue, and hereby irrevocably waive any claim of forum non conveniens or right to change venue.
3.2 Successors and Assignees. Except as otherwise provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assignees, heirs, executors and administrators (as the case may be) of the parties hereto.
3.3 Entire Agreement. This Registration Rights Agreement constitutes the full and entire understanding and agreement between the parties with regard to the subject matter hereof and supercedes all oral statements and prior writings with respect thereto, including (without limitation) the registration rights agreement executed and delivered on July 25, 2000.
3.4 Notices, etc. All notices given under this Registration Rights Agreement and under the other Transaction Documents shall be in writing, addressed to the parties as set forth below, and shall be effective on the earliest of (i) the date received, or (ii) if given by facsimile transmittal on the date given if transmitted before 5:00 p.m. the recipient's time, otherwise it is effective the next day, or (iii) on the second Trading Day after delivery to a major international air delivery or air courier service (such as Federal Express or Network Couriers):
If to the Agent or the Escrow Holder: If to the Company:
Thomson Kernaghan and Co. Ltd. United States Antimony Corporation
365 Bay Street 1250 Prospect Creek, P.O. Box 643
Toronto, Ontario M5H 2V2 Thompson Falls, Montana 59873-0643
Attention: Ms. Michelle McKinnon Attention: John Lawrence, President and CEO
Facsimile No. (416) 860-6355 Facsimile No. (406) 827-3523
If to the Purchasers With a copy (that does not constitute
c/o Thomson Kernaghan and Co. Ltd. notice) to:
as Agent Hawley Troxell Ennis and Hawley LLP
365 Bay Street Attn: Gary D. Babbitt
Toronto, Ontario M5H 2V2 P.O. Box 1617
Attention: Ms. Michelle McKinnon Boise, Idaho 83701
Facsimile No. (416) 860-6355 Facsimile No. (203) 342-3829
In either case, with a copy (that does not constitute notice) to:
John M. Mann
Attorney at Law
1330 Post Oak Boulevard, Suite 2800
Houston, Texas 77056-3060
Facsimile No. (713) 622-7185
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3.5 Delays or Omissions. No delay or omission to exercise any right, power or remedy accruing to any Holder of any Registrable Securities, upon any breach or default of the Company under this Registration Rights Agreement, shall impair any such right, power or remedy of such Holder nor shall it be construed to be a waiver of any such breach or default or an acquiescence therein or of or in any similar breach or default thereunder occurring nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any Holder of any breach or default under this Registration Rights Agreement or any waiver on the part of any Holder of any provisions or conditions of this Registration Rights Agreement must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Registration Rights Agreement or by law or otherwise afforded to any Holder shall be cumulative and not alternative.
3.6 Counterparts. This Registration Rights Agreement may be executed in any number of counterparts, each of which may be executed by less than all of the parties hereto, each of which shall be enforceable against the parties actually executing such counterparts and all of which together shall constitute one instrument.
3.7 Severability. In the event any provision of this Registration Rights Agreement shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.
3.8 Amendments. The provisions of this Registration Rights Agreement may be amended at any time and from time to time, and particular provisions of this Registration Rights Agreement may be waived, with and only with, an agreement or consent in writing signed by the Company and by the Holders of a majority of the Registrable Securities voting as a single class.
The parties have executed this Registration Rights Agreement as of the date first written above.
The Agent: The Company:
THOMSON KERNAGHAN and CO. LTD. UNITED STATES ANTIMONY CORPORATION
By By
-------------------------------------------------- -----------------------------------
Name Name
------------------------------------------------ -----------------------------------
Title Title
----------------------------------------------- -----------------------------------
Date signed Date signed
----------------------------------------- -----------------------------------
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AMENDED AND RESTATED
Escrow Agreement
Section 1. Parties
1.1 This Amended and Restated Escrow Agreement ("Escrow Agreement") is made and entered into the _____ day of __________, 2001 but is retroactively effective as of July 11, 2000 (the "Effective Date"), by and between United States Antimony Corporation (the "Company") and Thomson Kernaghan and Co.Limited as escrow holder (the "Escrow Holder").
Section 2. Recitals
2.1 This Escrow Agreement is made with reference to the following facts and circumstances:
(a) The Company and Thomson Jernigan and Co.Limited, as Agent, are entering into an Amended and Restated Agreement effective as of July 11, 2000 (the "Agreement"), pursuant to which the Company will issue to the Agent up to an aggregate of US$1,500,000 of debentures (the "Debentures"). The Debentures are convertible, at the option of the holder or holders thereof, into shares of the Company's common stock, $0.01 par value ("Common Stock"). Under the terms of the Agreement, the Company has agreed to issue and deliver to the Agent a Purchaser's Warrant and an Agent's Warrant (collectively, the "Warrants"). The shares of Common Stock into which the Debentures are convertible are referred to as the "Conversion Shares." The shares of Common Stock underlying the Warrants are referred to as the "Warrant Shares." The Conversion Shares and the Warrant Shares are issuable in such amounts and upon the terms set forth in the Agreement. Capitalized terms used but not defined in this Escrow Agreement shall have the meanings ascribed to them in the Agreement.
(b) Under the terms of an Amended and Restated Registration Rights Agreement effective as of July 11, 2000 between the Company and the Agent, the Company has agreed to file a registration statement (the "Registration Statement") under the United States Securities Act of 1933 as amended (the "Securities Act"), for the purpose of registering the resale of the Conversion Shares and the Warrant Shares.
(c) Under the terms of the Agreement, the Company has agreed to execute this Escrow Agreement with the Escrow Holder, to issue certificates for the Conversion Shares (the "Conversion Shares Certificates") and the Warrant Shares (the "Warrant Shares Certificates"), registered in the name of the Escrow Holder, and to deliver those certificates to the Escrow Holder pursuant to the terms of this Escrow Agreement.
2.2 In consideration of the premises, and in order to establish the escrow for the Conversion Shares and the Warrant Shares required by the Agreement, the Company is entering into this Escrow Agreement with the Escrow Holder.
Section 3. Escrow
3.1 Contemporaneously with the execution of this Escrow Agreement, the Company shall issue and deliver to the Escrow Holder, to the extent that the Company has authorized shares available, a certificate for the Conversion Shares and Warrant Shares underlying the Initial Debentures and the Warrants. Prior to any additional sale of Debentures, the Company shall have obtained its shareholders' consent to authorize, and shall have delivered to the Escrow Holder, all of the Conversion Shares and Warrant Shares required by the Agreement. Prior to each additional sale of Debentures, the Company shall, if necessary, issue and deliver to the Escrow Holder a certificate for such additional Conversion Shares as may be necessary to ensure that the appropriate number of Conversion Shares underlying the Debentures have been issued and delivered to the Escrow Holder.
3.2 All certificates for Conversion Shares and Warrant Shares delivered to the Escrow Holder shall be registered in the name of Thomson Kernaghan and Co. Ltd.. Until such time as the registration statement covering the Conversion Shares and the Warrant shares is effective, the certificates shall bear a legend indicating that they have been issued in a transaction that is exempt from the registration requirements of the Securities Act, and may not be transferred except pursuant to registration under the Securities Act or an exemption from such registration. Except for such legend, the Common Stock underlying the Purchasers' Warrants and the Agent's Warrant shall be free and clear of any legends, liens, claims, stop orders or other restrictions.
3.3 Not later than the third Business Day following the effective date of the Registration Statement, the Company shall cause the Common Stock underlying the Purchasers' Warrants and the Agent's Warrant to be registered in Agent's street name, in DTC form, free and clear of any legends, liens, claims, stop orders or other restrictions.
3.4 All Conversion Shares and Warrant Shares deposited by the Company after the effective date of the Registration Statement shall be registered in the street name of Thomson Kernaghan and Co. Ltd., in DTC form, free and clear of any legends, liens, claims, stop orders or other restrictions.
Section 4. Release of Conversion Shares and Warrant Shares
4.1 Upon receipt of a Conversion Notice, the Escrow Holder shall promptly (and in any event within three business days) release the number of Conversion Shares specified in the Conversion Notice to the person specified therein. If all of the unpaid principal of and interest on the Debenture is being converted; then the Escrow Holder shall endorse the Debenture as paid in full, and transmit the Debenture, so endorsed, and the Conversion Notice, to the Company. If the conversion is for less than all of the unpaid principal of and interest on the Debenture, the Escrow Holder shall endorse upon the Debenture the amount of principal thereof and interest thereon that is being converted, and transmit a copy of the Debenture, so endorsed, and the Conversion Notice, to the Company.
4.2 Upon receipt of a Warrant, together with an executed Purchase Form and the Exercise Price for the number of Warrant Shares specified therein, the Escrow Holder shall promptly (and in any event within three business days (i) release the number of Warrant Shares specified in the Purchase Form to the person specified therein; (ii) transmit a copy of the Warrant and Purchase Form to the Company; and (ii) disburse the Exercise Price for such Warrant Shares to the Company, either by check or wire transfer as the Company shall specify by written instructions to the Escrow Holder. Promptly upon the written request of the Escrow Holder, the Company shall issue replacement Warrants and deliver them to the Escrow Holder, upon any partial exercise of a Warrant ,or upon the transfer of a Warrant or any interest therein.
Section 5. Termination and Resignation
5.1 This Escrow Agreement, unless sooner terminated, shall terminate on the date on which all of the Debentures have been redeemed or converted, and all of the Warrants have been exercised or expired.
5.2 The Escrow Holder may resign as such at any time, without liability therefor, by giving the Company and the Agent not less than 10 days prior written notice of its election to do so. In the event of the Escrow Holder's resignation, the Company shall promptly appoint a successor Escrow Holder acceptable to the Agent.
Section 6. Limitation on the Escrow Holder's Liability; Indemnification
6.1 The Escrow Holder shall not be liable to the Company, to any Debenture holder, to any Warrant holder, or to any other person or entity for any action taken or omitted by it, except for the Escrow Holder's own gross negligence or willful misconduct. Without limiting the generality of the foregoing:
(a) The Escrow Holder may rely upon, and shall be protected in acting or refraining from acting in reliance upon, any notice, certificate, instrument, request, paper or other document believed by it to be genuine and made, sent, signed or presented by the Company, any Debenture holder, any Warrant holder, or any other person or entity.
(b) The Escrow Holder shall not be responsible or liable for the genuineness, validity or sufficiency of any Debenture, Warrant, stock certificate, notice or other instrument delivered to it, including without limitation the genuineness of any signature thereon, or of the identity or authority of any person executing or delivering the same.
6.2 The Escrow Holder shall not be obligated to take any action to defend or enforce this Escrow Agreement, or to appear in, prosecute or defend any action or legal proceeding, or to file any income or other tax return that, in the Escrow Holder's opinion, would or might involve any cost, expense, loss or liability, unless, and as often as required by it, the Company shall furnish it with security and indemnity satisfactory to it against all such cost, expense, loss and liability.
6.3 The Escrow Holder shall not be responsible for the validity or enforceability of any provision of this Escrow Agreement, or for the execution thereof by the Company, or for the truth or accuracy of any recitals or other statements of fact contained in this Escrow Agreement.
6.4 The Escrow Holder is not, and shall not be deemed for any purpose to be, a fiduciary under this Escrow Agreement or otherwise, for the Company, for any Debenture holder, for any Warrant holder, or for any other person or entity.
6.5 Except for matters for which the Escrow Holder is liable to the Company under paragraph 6.1 of this Escrow Agreement, the Company hereby agrees to defend and indemnify the Escrow Holder and its shareholders, directors, officers, employees and agents, and to hold each of them harmless from and against any and all judgments, awards, orders, damages, claims, demands, liability, penalties, costs, and expenses (including attorney fees and court or arbitration costs) of any nature whatsoever, directly or indirectly arising out of or relating to this Escrow Agreement, or any act or omission of the Escrow Holder hereunder. This indemnity shall survive termination of this Escrow Agreement.
Section 7. Miscellaneous Provisions
7.1 No amendment, modification, termination, or waiver of any provision of this Escrow Agreement, nor consent to any departure by the Company from any of its provisions, shall in any event be effective unless the same shall be in writing and signed by the Escrow Holder, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given.
7.2 All notices given under this Escrow Agreement shall be in writing, addressed to the parties as set forth below, and shall be effective on the earliest of (i) the date received, or (ii) if given by facsimile transmittal on the date given if transmitted before 5:00 p.m. the recipient's time, otherwise it is effective the next day, or (iii) on the second business day after delivery to a major international air delivery or air courier service (such as Federal Express or Network Couriers):
If to the Agent or Escrow Holder: If to the Company:
Thomson Kernaghan and Co. Ltd. United States Antimony Corporation
365 Bay Street 1250 Prospect Creek, P.O. Box 643
Toronto, Ontario M5H 2V2 Thompson Falls, Montana 59873-0643
Attention: Mark E. Valentine, Chairman Attention: John Lawrence, President and CEO
Facsimile No. (416) 860-6140 Facsimile No. (406) 827-3523
With a copy (that does not constitute notice) to: With a copy (that does not constitute notice) to:
John M. Mann Hawley Troxell Ennis and Hawley LLP
Attorney at Law Attorneys and Counselors
1330 Post Oak Boulevard, Suite 2800 877 Main Street, Suite 1000
Houston, Texas 77056-3060 Boise, Idaho 83 702
Facsimile No. (713) 622-7185 Attention: Gary D. Babbitt
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7.3 No failure or delay on the part of the Escrow Holder in exercising any right, power, or remedy hereunder 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. The rights and remedies provided herein are cumulative, and are not exclusive of any other rights, powers, privileges, or remedies, now or hereafter existing, at law or in equity or otherwise.
7.4 This Escrow Agreement shall be binding upon and inure to the benefit of the Company and the Escrow Holder, and their respective successors and assigns, except that the Company may not assign or transfer any of its r rights under this Escrow Agreement without the prior written consent of the Escrow Holder.
7.5 The Company agrees to pay on demand all costs and expenses incurred by the Escrow Holder in connection with the preparation, execution, delivery, filing, and administration of this Escrow Agreement, and of any amendment, modification, or supplement hereto, including, without limitation, the fees and out-of-pocket expenses of counsel for the Escrow Holder incurred in connection with advising the Escrow Holder as to its rights and responsibilities hereunder. The Company also agrees to pay all such costs and expenses, including court costs, incurred in connection with enforcement of this Escrow Agreement, or any amendment, modification, or supplement thereto, whether by negotiation, legal proceedings, or otherwise. In addition, the Company shall pay any and all stamp and other taxes and fees payable or determined to be payable in connection with the issuance, transfer and deliver of any Warrant or Warrant Shares, and agrees to hold the Escrow Holder harmless from and against any and all liabilities with respect to or resulting from any delay in paying or omission to pay such taxes and fees. This provision shall survive termination of this Escrow Agreement.
7.6This Escrow Agreement shall be governed by, and construed in accordance with, the laws of the Province of Ontario, Canada; provided, however, if any provision of this Escrow Agreement is unenforceable under Ontario law, but is enforceable under the laws of the U.S. State of Montana, then Montana law shall govern the construction and enforcement of that provision.
7.7 The parties agree that the courts of the Province of Ontario, Canada, shall have jurisdiction and venue for the adjudication of any civil action between or among any of them arising out of relating to this Agreement or any other Transaction Document. The parties hereby irrevocably consent to such jurisdiction and venue, and hereby irrevocably waive any claim of forum non conveniens or right to change such venue.
7.8 This Escrow Agreement constitutes the full and entire understanding and agreement between the parties with regard to the subject matter hereof and supercedes all oral statements and prior writings with respect thereto, including (without limitation) the escrow agreement executed and delivered on July 25, 2000.
IN WITNESS WHEREOF, the Company and the Escrow Holder have executed this Escrow Agreement as of the Effective Date.
The Escrow Holder: The Company: THOMSON KERNAGHAN and CO. LIMITED UNITED STATES ANTIMONY CORPORATION By _________________________________ By _________________________________ Name ______________________________ Name ______________________________ Title _______________________________ Title _______________________________ Date signed _________________________ Date signed _________________________ |
This Debenture, and the securities issuable upon the conversion hereof (collectively, the "Securities"), have not been registered under the U.S. Securities Act of 1933, as amended (the "Act"), nor have they been registered or qualified under the securities laws of any U.S. state or territory. This Debenture is being offered and sold pursuant to Regulation S of the U.S. Securities and Exchange Commission under the Act. The Securities, are "restricted securities" and may not be offered or sold in the United States or to a U.S. Person (as defined in Regulation S) unless pursuant to an effective registration statement under the Act, or pursuant to Regulation S, or pursuant to other available exemptions from the registration requirements of the Act. A Holder of any of the Securities may not engage in hedging transaction with regard to such securities unless in compliance with the Act.
US $600,000.00 Debenture No. TK1
(Amended and Restated)
UNITED STATES ANTIMONY CORPORATION
10% Convertible Debenture Due June 30, 2002
THIS DEBENTURE is one of a duly authorized issue of up to US$1,500,000 of 10% Convertible Debentures due June 30, 2002 (the "Debentures"), of United States Antimony Corporation (the "Company"), a corporation duly organized and existing under the laws of the State of Montana, designated as its 10% Convertible Debentures due June 30, 2002. This Debenture is issued pursuant to the Amended and Restated Agreement (the "Agreement") entered into effective as of July 11, 2000, among the Company, the Purchasers named therein, and Thomson Kernaghan and Co. Limited, individually and as Agent (the" Agent"). Capitalized terms not defined in this Debenture shall have the meanings ascribed to them in the Agreement.
FOR VALUE RECEIVED, the Company promises to pay to the order of Thomson Kernaghan and Co., Limited, as Nominee, or other registered holder hereof (collectively, the "Holder"), the principal sum of Six Hundred Thousand Dollars and No Cents in lawful currency of the United States of America (US $600,000.00) on June 30, 2002 (the "Maturity Date"), and to pay interest on the principal sum outstanding from time to time on the Maturity Date at the rate of Ten Percent (10%) per year accruing from the date of initial issuance. Subject to the provisions of paragraph 4 below, the principal of and interest on this Debenture are payable at the option of the Holder, in shares of the Company's Common Stock ("Common Stock"). The Company will pay the principal of and interest upon this Debenture to the Holder in immediately available funds, in care of the Agent, at the Agent's address, 365 Bay Street, Tenth Floor, Toronto, Ontario M5H 2V2, Canada, or at such other address as the Agent shall designate by written notice to the Company. The delivery of such funds to the Agent shall constitute a payment and shall satisfy and discharge the liability for principal and interest on this Debenture to the extent of the sum represented by such payment.
This Debenture is subject to the following additional provisions:
1. This Debenture is exchangeable for an equal aggregate principal amount of Debentures of different denominations, as requested by the Holders surrendering the same. No service charge will be made for such registration or transfer or exchange.
2. This Debenture may be transferred only in compliance with the Securities Act of 1933, as amended (the "Securities Act"), and other applicable state and foreign securities laws, pursuant to registration thereunder or exemption therefrom. In the event of any proposed transfer of this Debenture, the Company may require, prior to issuance of a new Debenture in the name of such other person, that it receive reasonable transfer documentation including opinions that the issuance of the Debenture in such other name does not and will not cause a violation of the Securities Act or any applicable state or foreign securities laws. Prior to due presentment for transfer of this Debenture, the Company and any agent of the Company may treat the person in whose name this Debenture is duly registered on the Company's Debenture Register as the owner hereof for the purpose of receiving payment as herein provided and for all other purposes, whether or not this Debenture be overdue, and neither the Company nor any such agent shall be affected by notice to the contrary.
3. The Company is obligated to register the shares of Common Stock into which the principal and interest of this Debenture are convertible pursuant to an Amended and Restated Registration Rights Agreement (the "Registration Rights Agreement") entered into as of the Effective Date, among the Company, the Holder, other holders of Debentures and the Agent.
4. The Holder is entitled, at its option, to convert at any time and from time
to time beginning on the thirty-first (31st) day after the date hereof, all or
any part of the principal amount of the Debenture, plus accrued interest, into
shares of Common Stock ("Conversion Shares"). No fraction of shares or scrip
representing fractions of shares will be issued on conversion, but the number
of Conversion Shares issuable shall be rounded to the nearest whole share. The
price per share of Common Stock into which the principal of and interest on
this Debenture is convertible (the "Conversion Price") shall be the lower of
(i) $0.29125 or (ii)
seventy-five percent (75%) of the average of the 3 lowest Closing Bid Prices of
the Common Stock quoted by Bloomburg L.P. in the twenty (20) Trading Days
immediately preceding the Conversion Date. The Holder may exercise its right to
convert this Debenture by telecopying an executed and completed Notice of
Conversion in the form annexed hereto as Exhibit A (a "Notice of Conversion") to
the Company and sending the original by mail or overnight delivery service. Each
Trading Day on which a Notice of Conversion is telecopied to the Company in
accordance with the provisions hereof shall be deemed a "Conversion Date."
Within three Trading Days after a Conversion Date, the Company will transmit, or
instruct its transfer agent to transmit, the certificates representing the
Conversion Shares issuable upon conversion of this Debenture to the Holder by
express overnight courier or by electronic transfer. If the Company fails to
deliver the Conversion Shares within such three Trading Day period, the Holder
shall be entitled to revoke the Notice of Conversion by delivering a notice to
such effect to the Company whereupon the Company and the Holder shall each be
restored to their respective positions immediately prior to delivery of such
Notice of Conversion. Notices of Conversion and any other notices given under
this Debenture shall be delivered as follows:
If to the Holder: If to the Company:
c/o Thomson Kernaghan and Co. Ltd. United States Antimony Corporation
365 Bay Street, Tenth Floor 1250 Prospect Creek, P.O. Box 643
Toronto, Ontario M5H 2V2 Thompson Falls, Montana 59873-0643
Attention: Ms. Michelle McKinnon Attention: John Lawrence, President and CEO
Facsimile No. (416) 860-6355 Facsimile No. (406) 827-3523
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or to such other address as the Holder may specify.
If the Company does not deliver the Conversion Shares to the Escrow Holder prior to the expiration of five Trading Days after the Holder sends a Notice of Conversion, the, in addition to all other remedies the Holder may have, the Company shall pay to the Holder, on demand and in immediately available funds, as liquidated damages for such failure and not as a penalty, the amounts stated in the following schedule, which liquidated damages shall begin to accrue on the sixth Trading Day after the Conversion Date.
Late Payment For Each $10,000
No. Business Days Late of the Debenture Being Converted
1 $100
2 $200
3 $300
4 $400
5 $500
>5 $500 + $200 for each Business Day
Late beyond 5 days from the
Delivery Date
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Nothing in this Debenture shall limit the holder's right to seek specific performance of the Company's obligations hereunder and other remedies and damages for the Company's actions or inactions resulting in the transfer agent's failure to issue and deliver the Common Stock to the holder. The Company shall not be liable for any damages resulting from the Escrow Holder's failure to deliver Warrant Shares to the Holder.
5. Any provision in this Debenture or any other document to the contrary not withstanding, the Holder shall not have the right or power to convert this Debenture into Common Stock, either in whole or in part, and any attempt to do so shall be void, if, after having given effect to such conversion, the Holder shall be or shall be deemed to be the beneficial owner of more than 9.9% of the then outstanding Common Stock within the meaning or for the purposes of Section 13(d) or 13(g) of the U.S. Securities Exchange Act of 1934, as amended, or as the term "beneficial owner" is defined in Rule 13d-3 of the U.S. Securities and Exchange Commission or otherwise. Any attempt to convert this Debenture into Common Stock shall also be ineffective to the extent that the Company does not have sufficient authorized, unissued and unreserved shares of Common Stock to effectuate the conversion.
6. No provision of this Debenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of and interest on, this Debenture at the time, place and rate, and in the coin or currency herein prescribed. This Debenture and all other Debentures now or hereafter issued of similar terms are direct obligations of the Company.
7. So long as any of the principal of or interest on this Debenture
remains unpaid or unconverted, the Company shall not (i) merge or consolidate
with any other entity; (ii) sell or otherwise dispose of a material portion of
its assets (other than in the ordinary course of business); (iii) pay any
dividend on its shares (including any dividend payable in Common Stock or other
property); (iv) subdivide, split or otherwise increase the number of shares of
Common Stock; or (v) issue any Common Stock or other equity securities, or any
other stock, option, warrant, right or other instrument that is convertible into
or exercisable or exchangeable for Common Stock or other equity securities,
except for (a) securities of a Subsidiary that are issued to the Company; and
(b) securities sold and options granted to directors, officers and employees of
the Company pursuant to bona fide employee benefit plans; provided, however,
that the Company may issue such securities enumerated in this clause (v) with
the prior written consent of the Holder, which consent the Holder agrees not to
unreasonably withhold.
8. The following constitute an "Event of Default":
(a) The Company shall default in the payment of principal or interest on this Debenture; or
(b) Any of the representations or warranties made by the Company herein or in any certificate or financial or other written statements heretofore or hereafter furnished by the Company in connection with the execution and delivery of this Debenture or any other Transaction Document shall be false or misleading in any material respect at the time made; or
(c) The Company shall fail to timely perform or observe, in any material respect, any other covenant, term, provision, condition, agreement or obligation of the Company under this Debenture or any other Transaction Document; or
(d) The Company shall fail to deliver conversion Shares to the Escrow Holder as provided for in this Debenture or in the Escrow Agreement.
Then, or at any time thereafter, and in each and every case, unless such Event of Default shall have been waived in writing by the Holder (which waiver shall not be deemed to be a waiver of any subsequent default) at the option of the Holder and in the Holder's sole discretion, the Holder may consider this Debenture immediately due and payable, without presentment, demand, protest or notice of any kind, all of which are hereby expressly waived, anything herein or in any note or other instruments contained to the contrary notwithstanding, and the Holder may immediately enforce any and all of the Holder's rights and remedies provided herein or any other rights or remedies afforded by law.
9. This Debenture shall be governed by and construed in accordance with the laws of the Province of Ontario, Canada, provided however, that if any provision of this Debenture is unenforceable under the laws of Ontario but is enforceable under the laws of the U.S. State of Montana, then that provision shall be governed by and construed in accordance with the laws the State of Montana. The courts of the Province of Ontario, Canada, shall have jurisdiction and venue for the adjudication of any civil action between or among any of them arising out of relating to this Debenture. The Company and the Holder irrevocably consent to such jurisdiction and venue, and irrevocably waive any claim of forum non conveniens or right to change venue. The prevailing party in any action or proceeding to enforce or construe this Debenture is entitled to recover reasonable attorney's fees.
10. This Debenture is issued in substitution for that certain Debenture signed by Company on July 20, 2000 (the "Superceded Debenture") and replaces the Superceded Debenture in its entirety. Holder's acceptance of delivery of this Debenture shall automatically effectuate the cancellation of the Superceded Debenture, which shall thereafter have no further force or effect, without the necessity of further action by either Holder or Company. Nevertheless, Holder shall return the Superceded Debenture to Company.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed by an officer thereunto duly authorized.
UNITED STATES ANTIMONY CORPORATION
By-------------------------------
Name-----------------------------
Title----------------------------
Dated:------------------------------
EXHIBIT "A"
NOTICE OF CONVERSION
(To be executed by the Registered Holder in order to Convert the Debenture)
TO: UNITED STATES ANTIMONY CORPORATION
The undersigned hereby irrevocably elects to convert $________________ of the principal amount of the above Debenture No. ______ into Shares of Common Stock of United States Antimony Corporation. according to the conditions hereof, as of the date written above.
This Debenture, and the securities issuable upon the conversion hereof (collectively, the "Securities"), have not been registered under the U.S. Securities Act of 1933, as amended (the "Act"), nor have they been registered or qualified under the securities laws of any U.S. state or territory. This Debenture is being offered and sold pursuant to Regulation S of the U.S. Securities and Exchange Commission under the Act. The Securities, are "restricted securities" and may not be offered or sold in the United States or to a U.S. Person (as defined in Regulation S) unless pursuant to an effective registration statement under the Act, or pursuant to Regulation S, or pursuant to other available exemptions from the registration requirements of the Act. A Holder of any of the Securities may not engage in hedging transaction with regard to such securities unless in compliance with the Act.
US $75,000.00 Debenture No. TK2
UNITED STATES ANTIMONY CORPORATION
10% Convertible Debenture Due June 30, 2002
THIS DEBENTURE is one of a duly authorized issue of up to US$1,500,000 of 10% Convertible Debentures due June 30, 2002 (the "Debentures"), of United States Antimony Corporation (the "Company"), a corporation duly organized and existing under the laws of the State of Montana, designated as its 10% Convertible Debentures due June 30, 2002. This Debenture is issued pursuant to the Amended and Restated Agreement (the "Agreement") entered into effective as of July 11, 2000, among the Company, the Purchasers named therein, and Thomson Kernaghan and Co. Limited, individually and as Agent (the" Agent"). Capitalized terms not defined in this Debenture shall have the meanings ascribed to them in the Agreement.
FOR VALUE RECEIVED, the Company promises to pay to the order of Thomson Kernaghan and Co., Limited, as Nominee, or other registered holder hereof (collectively, the "Holder"), the principal sum of Seventy-Five Thousand Dollars and No Cents in lawful currency of the United States of America (US $75,000.00) on June 30, 2002 (the "Maturity Date"), and to pay interest on the principal sum outstanding from time to time on the Maturity Date at the rate of Ten Percent (10%) per year accruing from the date of initial issuance. Subject to the provisions of paragraph 4 below, the principal of and interest on this Debenture are payable at the option of the Holder, in shares of the Company's Common Stock ("Common Stock"). The Company will pay the principal of and interest upon this Debenture to the Holder in immediately available funds, in care of the Agent, at the Agent's address, 365 Bay Street, Tenth Floor, Toronto, Ontario M5H 2V2, Canada, or at such other address as the Agent shall designate by written notice to the Company. The delivery of such funds to the Agent shall constitute a payment and shall satisfy and discharge the liability for principal and interest on this Debenture to the extent of the sum represented by such payment.
This Debenture is subject to the following additional provisions:
1. This Debenture is exchangeable for an equal aggregate principal amount of Debentures of different denominations, as requested by the Holders surrendering the same. No service charge will be made for such registration or transfer or exchange.
2. This Debenture may be transferred only in compliance with the Securities Act of 1933, as amended (the "Securities Act"), and other applicable state and foreign securities laws, pursuant to registration thereunder or exemption therefrom. In the event of any proposed transfer of this Debenture, the Company may require, prior to issuance of a new Debenture in the name of such other person, that it receive reasonable transfer documentation including opinions that the issuance of the Debenture in such other name does not and will not cause a violation of the Securities Act or any applicable state or foreign securities laws. Prior to due presentment for transfer of this Debenture, the Company and any agent of the Company may treat the person in whose name this Debenture is duly registered on the Company's Debenture Register as the owner hereof for the purpose of receiving payment as herein provided and for all other purposes, whether or not this Debenture be overdue, and neither the Company nor any such agent shall be affected by notice to the contrary.
3. The Company is obligated to register the shares of Common Stock into which the principal and interest of this Debenture are convertible pursuant to an Amended and Restated Registration Rights Agreement (the "Registration Rights Agreement") entered into as of the Effective Date, among the Company, the Holder, other holders of Debentures and the Agent.
4. The Holder is entitled, at its option, to convert at any time and from time to time beginning on the thirty-first (31st) day after the date hereof, all or any part of the principal amount of the Debenture, plus accrued interest, into shares of Common Stock ("Conversion Shares"). No fraction of shares or scrip representing fractions of shares will be issued on conversion, but the number of Conversion Shares issuable shall be rounded to the nearest whole share. The price per share of Common Stock into which the principal of and interest on this Debenture is convertible (the "Conversion Price") shall be the lower of (i) $0.29125 or (ii) seventy-five percent (75%) of the average of the 3 lowest Closing Bid Prices of the Common Stock quoted by Bloomburg L.P. in the twenty (20) Trading Days immediately preceding the Conversion Date. The Holder may exercise its right to convert this Debenture by telecopying an executed and completed Notice of Conversion in the form annexed hereto as Exhibit A (a "Notice of Conversion") to the Company and sending the original by mail or overnight delivery service. Each Trading Day on which a Notice of Conversion is telecopied to the Company in accordance with the provisions hereof shall be deemed a "Conversion Date." Within three Trading Days after a Conversion Date, the Company will transmit, or instruct its transfer agent to transmit, the certificates representing the Conversion Shares issuable upon conversion of this Debenture to the Holder by express overnight courier or by electronic transfer. If the Company fails to deliver the Conversion Shares within such three Trading Day period, the Holder shall be entitled to revoke the Notice of Conversion by delivering a notice to such effect to the Company whereupon the Company and the Holder shall each be restored to their respective positions immediately prior to delivery of such Notice of Conversion. Notices of Conversion and any other notices given under this Debenture shall be delivered as follows:
If to the Holder: If to the Company:
c/o Thomson Kernaghan and Co. Ltd. United States Antimony Corporation
365 Bay Street, Tenth Floor 1250 Prospect Creek, P.O. Box 643
Toronto, Ontario M5H 2V2 Thompson Falls, Montana 59873-0643
Attention: Ms. Michelle McKinnon Attention: John Lawrence, President and CEO
Facsimile No. (416) 860-6355 Facsimile No. (406) 827-3523
|
or to such other address as the Holder may specify.
If the Company does not deliver the Conversion Shares to the Escrow Holder prior to the expiration of five Trading Days after the Holder sends a Notice of Conversion, the, in addition to all other remedies the Holder may have, the Company shall pay to the Holder, on demand and in immediately available funds, as liquidated damages for such failure and not as a penalty, the amounts stated in the following schedule, which liquidated damages shall begin to accrue on the sixth Trading Day after the Conversion Date.
Late Payment For Each $10,000
No. Business Days Late of the Debenture Being Converted
1 $100
2 $200
3 $300
4 $400
5 $500
>5 $500 + $200 for each Business Day
Late beyond 5 days from the
Delivery Date
|
Nothing in this Debenture shall limit the holder's right to seek specific performance of the Company's obligations hereunder and other remedies and damages for the Company's actions or inactions resulting in the transfer agent's failure to issue and deliver the Common Stock to the holder. The Company shall not be liable for any damages resulting from the Escrow Holder's failure to deliver Warrant Shares to the Holder.
5. Any provision in this Debenture or any other document to the contrary not withstanding, the Holder shall not have the right or power to convert this Debenture into Common Stock, either in whole or in part, and any attempt to do so shall be void, if, after having given effect to such conversion, the Holder shall be or shall be deemed to be the beneficial owner of more than 9.9% of the then outstanding Common Stock within the meaning or for the purposes of Section 13(d) or 13(g) of the U.S. Securities Exchange Act of 1934, as amended, or as the term "beneficial owner" is defined in Rule 13d-3 of the U.S. Securities and Exchange Commission or otherwise. Any attempt to convert this Debenture into Common Stock shall also be ineffective to the extent that the Company does not have sufficient authorized, unissued and unreserved shares of Common Stock to effectuate the conversion.
6. No provision of this Debenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of and interest on, this Debenture at the time, place and rate, and in the coin or currency herein prescribed. This Debenture and all other Debentures now or hereafter issued of similar terms are direct obligations of the Company.
7. So long as any of the principal of or interest on this Debenture
remains unpaid or unconverted, the Company shall not (i) merge or consolidate
with any other entity; (ii) sell or otherwise dispose of a material portion of
its assets (other than in the ordinary course of business); (iii) pay any
dividend on its shares (including any dividend payable in Common Stock or other
property); (iv) subdivide, split or otherwise increase the number of shares of
Common Stock; or (v) issue any Common Stock or other equity securities, or any
other stock, option, warrant, right or other instrument that is convertible into
or exercisable or exchangeable for Common Stock or other equity securities,
except for (a) securities of a Subsidiary that are issued to the Company; and
(b) securities sold and options granted to directors, officers and employees of
the Company pursuant to bona fide employee benefit plans; provided, however,
that the Company may issue such securities enumerated in this clause (v) with
the prior written consent of the Holder, which consent the Holder agrees not to
unreasonably withhold.
8. The following constitute an "Event of Default":
(a) The Company shall default in the payment of principal or interest on this Debenture; or
(b) Any of the representations or warranties made by the Company herein or in any certificate or financial or other written statements heretofore or hereafter furnished by the Company in connection with the execution and delivery of this Debenture or any other Transaction Document shall be false or misleading in any material respect at the time made; or
(c) The Company shall fail to timely perform or observe, in any material respect, any other covenant, term, provision, condition, agreement or obligation of the Company under this Debenture or any other Transaction Document; or
(d) The Company shall fail to deliver conversion Shares to the Escrow Holder as provided for in this Debenture or in the Escrow Agreement.
Then, or at any time thereafter, and in each and every case, unless such Event of Default shall have been waived in writing by the Holder (which waiver shall not be deemed to be a waiver of any subsequent default) at the option of the Holder and in the Holder's sole discretion, the Holder may consider this Debenture immediately due and payable, without presentment, demand, protest or notice of any kind, all of which are hereby expressly waived, anything herein or in any note or other instruments contained to the contrary notwithstanding, and the Holder may immediately enforce any and all of the Holder's rights and remedies provided herein or any other rights or remedies afforded by law.
9. This Debenture shall be governed by and construed in accordance with the laws of the Province of Ontario, Canada, provided however, that if any provision of this Debenture is unenforceable under the laws of Ontario but is enforceable under the laws of the U.S. State of Montana, then that provision shall be governed by and construed in accordance with the laws the State of Montana. The courts of the Province of Ontario, Canada, shall have jurisdiction and venue for the adjudication of any civil action between or among any of them arising out of relating to this Debenture. The Company and the Holder irrevocably consent to such jurisdiction and venue, and irrevocably waive any claim of forum non conveniens or right to change venue. The prevailing party in any action or proceeding to enforce or construe this Debenture is entitled to recover reasonable attorney's fees.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed by an officer thereunto duly authorized.
UNITED STATES ANTIMONY CORPORATION
By-------------------------------
Name-----------------------------
Title----------------------------
Date of Issuance: August 31, 2000
EXHIBIT "A"
NOTICE OF CONVERSION
(To be executed by the Registered Holder in order to Convert the Debenture)
TO: UNITED STATES ANTIMONY CORPORATION
The undersigned hereby irrevocably elects to convert $________________ of the principal amount of the above Debenture No. ______ into Shares of Common Stock of United States Antimony Corporation. according to the conditions hereof, as of the date written above.
PURCHASER'S WARRANT
Warrant No. TK1 (Amended and Restated)
THIS WARRANT, AND THE SECURITIES ISSUABLE UPON THE EXERCISE HEREOF (COLLECTIVELY, THE "SECURITIES"), HAVE NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), NOR HAVE THEY BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY U.S. STATE OR TERRITORY. THIS WARRANT IS BEING OFFERED AND SOLD PURSUANT TO REGULATION S OF THE U.S. SECURITIES AND EXCHANGE COMMISSION UNDER THE ACT. THE SECURITIES, ARE "RESTRICTED SECURITIES" AND MAY NOT BE OFFERED OR SOLD IN THE UNITED STATES OR TO A U.S. PERSON (AS DEFINED IN REGULATION S) UNLESS PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, OR PURSUANT TO REGULATION S, OR PURSUANT TO OTHER AVAILABLE EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THE ACT. A HOLDER OF ANY OF THE SECURITIES MAY NOT ENGAGE IN HEDGING TRANSACTION WITH REGARD TO SUCH SECURITIES UNLESS IN COMPLIANCE WITH THE ACT.
UNITED STATES ANTIMONY CORPORATION
Warrant for the Purchase
of Shares of Common Stock
July 11, 2000 384,615 Shares
FOR VALUE RECEIVED, United States Antimony Corporation, a Montana corporation (the "Company"), hereby certifies that Thornson Kernaghan and Co. Limited, as Nominee, or other holder hereof (collectively, the "Holder"), is entitled, subject to the provisions of this Warrant, to purchase from the Company, at any time or from time to time beginning on the date hereof, and ending at 5:00 pm, Toronto time, on the fifth anniversary of the date hereof (the "Exercise Period") Three Hundred Eighty-Four Thousand Six Hundred Fifteen (384,615) fully paid and nonassessable shares of common stock of the Company, par value $.01 per share (the "Common Stock") at the exercise price of Thirty-Nine Cents (US$.39) per share (the "Exercise Price"). This Warrant is a Purchaser's Warrant described in and is being issued pursuant to an Amended and Restated Agreement (the "Agreement") effective as of July 11, 2000, between the Company and Thomson Kernaghan and Co. Limited (the "Agent"). Capitalized terms not defined in this Warrant shall have the meanings ascribed to them in the Agreement.
For purposes of this Warrant, "Warrant Shares" means the shares of
Common Stock deliverable upon exercise of this Warrant, as adjusted from time to
time. Unless the context requires otherwise all references to Common Stock and
Warrant Shares in this Warrant shall, in the event of an adjustment pursuant to
Section 7 hereof, be deemed to refer also to any securities or property then
issuable upon exercise of this Warrant as a result of such adjustment.
Section 1. Exercise of Warrant.
(a) This Warrant may be exercised, as a whole or in part, at any time or from time to time during the Exercise Period or, if such day is not a Trading Day (as defined in the Agreement), then on the next succeeding Trading Day. The Holder may exercise this Warrant by telecopying an executed and completed Notice of Exercise in the form annexed hereto as Exhibit A (a "Notice of Exercise") to the Escrow Holder and the Company, and sending the original by mail or overnight delivery service to the Escrow Holder together with the Exercise Price. Each Trading Day on which a Notice of Exercise is telecopied to the Company in accordance with the provisions hereof shall be deemed an "Exercise Date." Notices given under this Warrant shall be delivered as required by the Escrow Agreement, and also delivered or telecopied as follows:
If to the Holder or Escrow Holder: If to the Company: c/o Thomson Kernaghan and Co. Ltd. United States Antimony Corporation 365 Bay Street, Tenth Floor 1250 Prospect Creek, P.O. Box 643 Toronto, Ontario M5H 2V2 Thompson Falls, Montana 59873-0643 Attention: Ms. Michelle McKinnon Attention: John Lawrence, President and CEO Facsimile No. (416) 860-6355 Facsimile No. (406) 827-3523 |
or to such other address as the Holder may specify.
If the Company has not delivered the Warrant Shares to the Escrow Holder prior to the expiration of five Trading Days after the Holder send a Notice of Exercise, the, in addition to all other remedies the Holder may have, the Company shall pay to the Holder, on demand and in immediately available funds, as liquidated damages for such failure and not as a penalty, the amounts stated in the following schedule, which liquidated damages shall begin to accrue on the sixth Trading Day after the Conversion Date.
Late Payment For Each $10,000
No. Business Days Late of the Warrant Exercise Price
1 $100
2 $200
3 $300
4 $400
5 $500
>5 $500+$200 for each Business Day Late beyond 5 days
from The Delivery Date
|
Nothing in this Warrant shall limit the holder's right to seek specific performance of the Company's obligations hereunder and other remedies and damages for the Company's actions or inactions resulting in the transfer agent's failure to issue and deliver the Warrant Shares to the Holder. The Company shall not be liable for any damages resulting from the Escrow Holder's failure to deliver Warrant Shares to the Holder.
(b) The Company shall pay any and all documentary stamp or similar issue or transfer taxes payable in respect of the issue or delivery of the Warrant Shares.
(c) Limitation on Right and Power to Exercise. Any provision in this Warrant, the Agreement or any other document to the contrary not withstanding, the Holder shall not have the right or power to exercise this warrant, either in whole or in part, if, and any attempt to do so shall be void, after having given effect to such exercise, the Holder shall be or shall be deemed to be the beneficial owner of 10% or more of the then outstanding Common Stock within the meaning or for the purposes of Section 13(d) or 13(g) of the U.S. Securities Exchange Act of 1934, as amended, or as the term "beneficial owner" is defined in Rule 13d-3 of the U.S. Securities and Exchange Commission or otherwise. Any attempt to exercise the Warrant shall also be ineffective to the extent that the Company does not have sufficient authorized, unissued and unreserved Common Stock to issue the Warrant Shares.
Section 2. Reservation of Shares. Subject to shareholder approval pursuant to Section 10.2.1 of the Agreement, the Company hereby agrees that at all times there shall be reserved for issuance and delivery upon exercise of this Warrant all shares of its Common Stock or other shares of capital stock of the Company or other property from time to time issuable upon exercise of this Warrant. All such shares shall be duly authorized and, when issued upon such exercise in accordance with the terms of this Warrant, shall be validly issued, fully paid and nonassessable, free and clear of all liens, security interests, charges and other encumbrances or restrictions on sale (other than any restrictions on sale pursuant to applicable federal and state securities laws) and free and clear of all preemptive rights.
Section 3. Fractional Shares. The Company shall not be required to issue
fractional shares of Common Stock on the exercise of this Warrant. If any
fraction of a share of Common Stock would, except for the provisions of this
Section 3, be issuable on the exercise of this Warrant (or specified portion
thereof), the Company shall pay an amount in cash calculated by it to be equal
to the then Current Market Value (as hereinafter defined) per share of Common
Stock multiplied by such fraction computed to the nearest whole cent. For the
purposes of any computation under this Warrant, the Current Market Value per
share of Common Stock or of any other equity security (herein collectively
referred to as a "security") at the date herein specified shall be:
(i) if the security is not registered under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the "Current Market Value" per share of the security shall be determined in good faith by the Board of Directors of the Company, or
(ii) if the security is registered under the Exchange Act, the "Current Market Value" per share of the security shall be deemed to be the average of the daily market prices of the security for the ten (10) consecutive Trading Days immediately preceding the day as of which Current Market Value is being determined or, if the security has been registered under the Exchange Act for less than ten (10) consecutive Trading Days before such date, then the average of the daily market prices for all of the trading days before such date for which daily market prices are available. The market price for each such Trading Day shall be:
(A) in the case of a security listed or admitted to trading on any securities exchange, the Closing Bid Price on the primary exchange on which the Common Stock is then listed, on such day,
(B) in the case of a security not then listed or admitted to trading on any securities exchange, the Closing Bid Price reported by Bloomburg LP on such day,
(C) in the case of a security not then listed or admitted to trading on any securities exchange and as to which no such reported sale price or bid and asked prices are available, the reported high bid on such day, as reported by a reputable quotation service, or a newspaper of general circulation in the Borough of Manhattan, City and State of New York, customarily published on each business day, designated by the Holder, or if there shall be no bid prices on such day, the high bid price, as so reported, on the most recent day (not more than 10 days prior to the date in question) for which prices have been so reported, and
(D) if there are no bid prices reported
during the 10 days prior to the date in question, the Current Market Value of
the security shall be determined as if the security were not registered under
the Exchange Act.
Section 4. Exchange, Transfer, Assignment or Loss of Warrant.
(a) This Warrant is exchangeable, without expense, at the option of the Holder, upon presentation and surrender hereof to the Company or at the office of its stock transfer agent or warrant agent, if any, for other warrants of different denomination, entitling the Holder thereof to purchase in the aggregate the same number of Warrant Shares and otherwise carrying the same rights as this Warrant.
(b) This Warrant may be divided or combined by the Holder with other warrants that carry the same rights upon presentation hereof at the office of the Company or at the office of its stock transfer agent or warrant agent, if any, together with a written notice specifying the names and denominations in which new warrants are to be issued and signed by the Holder hereof. The term "Warrant" as used herein includes any warrants into which this Warrant may be divided or for which it may be exchanged.
(c) Upon receipt by the Company of evidence satisfactory to it of the loss, theft, destruction or mutilation of this Warrant, and (in the case of loss, theft or destruction) of reasonably satisfactory indemnification, and upon surrender and cancellation of this Warrant, if mutilated, the Company shall execute and deliver a new Warrant of like tenor and date.
Section 5. Restrictions on Issuance of Securities. So long as this Warrant is outstanding, the Company will not issue, or permit any Subsidiary to issue, any common stock or other equity securities, or any other stock, option, warrant, right or other instrument that is convertible into or exercisable or exchangeable for common stock or other equity securities, except for (i) securities issued pursuant to the Securities Purchase Agreement (which includes Warrant Shares), (ii) securities of a Subsidiary that are issued to the Company; and (iii) securities sold and options granted to directors, officers and employees of the Company pursuant to bona fide employee benefit plans; provided, however, that the Company may issue such securities with the prior written consent of the Holder, which consent the Holder agrees not to unreasonably withhold.
Section 6. Reclassification, Reorganization, Consolidation or Merger. In the event of any reclassification, capital reorganization or other change of outstanding shares of Common Stock of the Company or in the event of any consolidation or merger of the Company with or into another corporation (other than a merger in which merger the Company is the continuing corporation and that does not result in any reclassification, capital reorganization or other change of outstanding shares of Common Stock of the class issuable upon exercise of this Warrant) or in the event of any sale, lease, transfer or conveyance to another corporation of the property and assets of the Company as an entirety or substantially as an entirety, the Company shall, as a condition precedent to such transaction, cause effective provisions to be made so that such other corporation shall assume all of the obligations of the Company hereunder and the Holder shall have the right thereafter, by exercising this Warrant, to purchase the kind and amount of shares of stock and other securities and property (including cash) receivable upon such reclassification, capital reorganization and other change, consolidation, merger, sale, lease, transfer or conveyance by a holder of the number of shares of Common Stock that might have been received upon exercise of this Warrant immediately prior to such reclassification, capital reorganization, change, consolidation, merger, sale, lease or conveyance. Any such provision shall include provision for adjustments in respect of such shares of stock and other securities and property that shall be as nearly equivalent as may be practicable to the adjustments provided for in this Warrant. The foregoing provisions of this Section 6 shall similarly apply to successive reclassification, capital reorganizations and changes of shares of Common Stock and to successive changes, consolidations, mergers, sales, leases, transfers or conveyances. In the event that in connection with any such capital reorganization, or reclassification, consolidation, merger, sale, lease, transfer or conveyance, additional shares of Common Stock shall be issued in exchange, conversion, substitution or payment, as a whole or in part, for, or of, a security of the Company other than Common Stock, any such issue shall be treated as an issue of Common Stock covered by the provisions of Section 5.
Section 7. Transfer to Comply with the Securities Act. Neither this Warrant nor any of the Warrant Shares may be offered or sold in the United States or to a U.S. Person (as defined in Regulation S) unless pursuant to an effective registration statement under the Act, or pursuant to Regulation S, or pursuant to other available exemptions from the registration requirements of the Act. The Holder of this Warrant or any of the Warrant Shares may not engage in hedging transaction with regard to such securities unless in compliance with the Act.
Section 8. Availability of Information. So long as any of this Warrant remains unexercised and this Warrant has not expired, the Company shall comply with the reporting requirements of Sections 13 and 15(d) of the Exchange Act to the extent it is required to do so under the Exchange Act, and shall likewise comply with all other applicable public information reporting requirements of the Securities and Exchange Commission (including those required to make available the benefits of Rule 144 under the Securities Act) to which it may from time to time be subject. The Company shall also cooperate with the Holder of this Warrant and the Holder of any Warrant Shares in supplying such information as may be necessary for such holder to complete and file any information reporting forms currently or hereafter required by the Commission as a condition to the availability of Rule 144 or any successor rule under the Securities Act for the sale of this Warrant or the Warrant Shares. The provisions of this Section 8 shall survive termination of this Warrant, whether upon exercise of this Warrant in full or otherwise. The Company shall also provide to holders of this Warrant the same information that it provides to holders of its Common Stock.
Section 9. Registration Rights. The Company is obligated to register the shares of Common Stock issuable upon exercise of this Warrant pursuant to an Amended and Restated Registration Rights Agreement (the "Registration Rights Agreement") effective as of the Effective Date, among the Company, the Holder, other holders of Debentures and the Agent.
Section 10. Successors and Assigns. All the provisions of this Warrant by or for the benefit of the Company or the Holder shall bind and inure to the benefit of their respective successors, assigns, heirs and personal representatives.
Section 11. Headings. The headings of sections of this Warrant have been inserted for convenience of reference only, are not to be considered a part hereof and shall in no way modify or restrict any of the terms or provisions hereof.
Section 12. Amendments. This Warrant may not be amended except by the written consent of the Company and the Holder.
Section 13. Notices. All notices given under this Agreement and under the other
Transaction Documents shall be in writing, addressed to the parties as set
forth below, or to such other address as a party may specify by notice given in
accordance with this paragraph and shall be effective on the earliest of (i) the
date received, or (ii) if given by facsimile transmittal on the date given if
transmitted before 5:00 p.m. the recipient's time, otherwise it is effective
the next day, or (iii) on the second Trading Day after delivery to a major
international air delivery or air courier service (such as Federal Express or
Network Couriers):
If to the Holder or Escrow Holder: If to the Company:
c/o Thomson Kernaghan and Co. Ltd. United States Antimony Corporation
365 Bay Street 1250 Prospect Creek, P.O. Box 643
Toronto, Ontario M5H 2V2 Thompson Falls, Montana 59873-0643
Attention: Mr. Gregg Badger, Sr. V.P. Attention: John Lawrence, President and CEO
Facsimile No. (416) 860-6352 Facsimile No. (406) 827-3523
|
Section 14. Law Governing; Jurisdiction. This Warrant shall be governed by and construed in accordance with the laws of the Province of Ontario, Canada, provided however, that if any provision of this Warrant is unenforceable under the laws of Ontario but is enforceable under the laws of the U.S. State of Montana, then that provision shall be governed by and construed in accordance with the laws the State of Montana. The courts of the Province of Ontario, Canada, shall have jurisdiction and venue for the adjudication of any civil action between or among any of them arising out of relating to this Debenture. The Company and the Holder irrevocably consent to such jurisdiction and venue, and irrevocably waive any claim of forum non conveniens or right to change venue. The prevailing party in any action or proceeding to enforce or construe this Warrant is entitled to recover reasonable attorney's fees.
Section 15. Replacement of Superceded Warrant. This Warrant is issued in
substitution for that certain Warrant signed by Company on July 20, 2000
("Superceded Warrant")
and replaces the Superceded Warrant in its entirety. Holder's acceptance of
delivery of this Warrant shall automatically effectuate the cancellation of the
Superceded Warrant, which shall thereafter have no further force or effect,
without the necessity of further action by either Holder or Company.
Nevertheless, Holder shall return the Superceded Warrant to Company.
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed the _____ day of ___________, 2001.
UNITED STATES ANTIMONY CORPORATION
NOTICE OF EXERCISE
To: United States Antimony Corporation:
The undersigned irrevocably exercises this Warrant for the purchase of ____________________ shares (subject to adjustment) of Common Stock of United States Antimony Corporation (the "Company"): for this Warrant and agrees to make payment of $____________________ (the "Exercise Price") through the following method:
such payment of the Exercise Price being in cash or by certified or official bank check payable to the order of the Company
all at the Exercise Price and on the terms and conditions specified in this Warrant, and directs that the shares of Common Stock deliverable upon the exercise of this Warrant be registered or placed in the name and at the address specified below and delivered thereto.
The undersigned represents, warrants and certifies to the Company that the undersigned is not a U.S. Person (as defined in SEC Rule 902(k)), and that this Warrant is not being exercised on behalf of a U.S. Person.
Date: ________________, _______
FORM OF ASSIGNMENT
FOR VALUE RECEIVED the undersigned registered holder of the within Warrant hereby sells, assigns, and transfers unto the Assignee(s) named below (including the undersigned with respect to any part of the Warrant not being assigned hereby) all of the right of the undersigned under the within Warrant, with respect to the number of shares of Common Stock set forth below:
-------------------------------- --------------------------------------- --------------------- ---------------------
Social Security or Number of Shares of
Other Identifying Common Stock
Name of Assignee Address of Assignee Number of Assignee Assigned to Assignee
-------------------------------- --------------------------------------- --------------------- ---------------------
-------------------------------- --------------------------------------- --------------------- ---------------------
-------------------------------- --------------------------------------- --------------------- ---------------------
-------------------------------- --------------------------------------- --------------------- ---------------------
-------------------------------- --------------------------------------- --------------------- ---------------------
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and does hereby irrevocably constitute and appoint ______________________ as the undersigned's attorney to make such transfer on the books of ______________________ United States Antimony Corporation maintained for that purpose, with full power of substitution in the premises.
Date: ________________, _______
PURCHASER'S WARRANT
Warrant No. TK3
THIS WARRANT, AND THE SECURITIES ISSUABLE UPON THE EXERCISE HEREOF (COLLECTIVELY, THE "SECURITIES"), HAVE NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), NOR HAVE THEY BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY U.S. STATE OR TERRITORY. THIS WARRANT IS BEING OFFERED AND SOLD PURSUANT TO REGULATION S OF THE U.S. SECURITIES AND EXCHANGE COMMISSION UNDER THE ACT. THE SECURITIES, ARE "RESTRICTED SECURITIES" AND MAY NOT BE OFFERED OR SOLD IN THE UNITED STATES OR TO A U.S. PERSON (AS DEFINED IN REGULATION S) UNLESS PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, OR PURSUANT TO REGULATION S, OR PURSUANT TO OTHER AVAILABLE EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THE ACT. A HOLDER OF ANY OF THE SECURITIES MAY NOT ENGAGE IN HEDGING TRANSACTION WITH REGARD TO SUCH SECURITIES UNLESS IN COMPLIANCE WITH THE ACT.
UNITED STATES ANTIMONY CORPORATION
Warrant for the Purchase
of Shares of Common Stock
August 31, 2000 48,077 Shares
FOR VALUE RECEIVED, United States Antimony Corporation, a Montana corporation (the "Company"), hereby certifies that Thornson Kernaghan and Co. Limited, as Nominee, or other holder hereof (collectively, the "Holder"), is entitled, subject to the provisions of this Warrant, to purchase from the Company, at any time or from time to time beginning on the date hereof, and ending at 5:00 pm, Toronto time, on the fifth anniversary of the date hereof (the "Exercise Period") Forty-Eight Thousand Seventy-Seven (48,077) fully paid and nonassessable shares of common stock of the Company, par value $.01 per share (the "Common Stock") at the exercise price of Thirty-Nine Cents (US$.39) per share (the "Exercise Price"). This Warrant is a Purchaser's Warrant described in and is being issued pursuant to an Amended and Restated Agreement (the "Agreement") effective as of July 11, 2000, between the Company and Thomson Kernaghan and Co. Limited (the "Agent"). Capitalized terms not defined in this Warrant shall have the meanings ascribed to them in the Agreement.
For purposes of this Warrant, "Warrant Shares" means the shares of
Common Stock deliverable upon exercise of this Warrant, as adjusted from time to
time. Unless the context requires otherwise all references to Common Stock and
Warrant Shares in this Warrant shall, in the event of an adjustment pursuant to
Section 7 hereof, be deemed to refer also to any securities or property then
issuable upon exercise of this Warrant as a result of such adjustment.
Section 1. Exercise of Warrant.
(a) This Warrant may be exercised, as a whole or in part, at any time or from time to time during the Exercise Period or, if such day is not a Trading Day (as defined in the Agreement), then on the next succeeding Trading Day. The Holder may exercise this Warrant by telecopying an executed and completed Notice of Exercise in the form annexed hereto as Exhibit A (a "Notice of Exercise") to the Escrow Holder and the Company, and sending the original by mail or overnight delivery service to the Escrow Holder together with the Exercise Price. Each Trading Day on which a Notice of Exercise is telecopied to the Company in accordance with the provisions hereof shall be deemed an "Exercise Date." Notices given under this Warrant shall be delivered as required by the Escrow Agreement, and also delivered or telecopied as follows:
If to the Holder or Escrow Holder: If to the Company:
c/o Thomson Kernaghan and Co. Ltd. United States Antimony Corporation
365 Bay Street, Tenth Floor 1250 Prospect Creek, P.O. Box 643
Toronto, Ontario M5H 2V2 Thompson Falls, Montana 59873-0643
Attention: Ms. Michelle McKinnon Attention: John Lawrence, President and CEO
Facsimile No. (416) 860-6355 Facsimile No. (406) 827-3523
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or to such other address as the Holder may specify.
If the Company has not delivered the Warrant Shares to the Escrow Holder prior to the expiration of five Trading Days after the Holder send a Notice of Exercise, the, in addition to all other remedies the Holder may have, the Company shall pay to the Holder, on demand and in immediately available funds, as liquidated damages for such failure and not as a penalty, the amounts stated in the following schedule, which liquidated damages shall begin to accrue on the sixth Trading Day after the Conversion Date.
Late Payment For Each $10,000
No. Business Days Late of the Warrant Exercise Price
1 $100
2 $200
3 $300
4 $400
5 $500
>5 $500+$200 for each Business Day Late beyond 5 days
from The Delivery Date
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Nothing in this Warrant shall limit the holder's right to seek specific performance of the Company's obligations hereunder and other remedies and damages for the Company's actions or inactions resulting in the transfer agent's failure to issue and deliver the Warrant Shares to the Holder. The Company shall not be liable for any damages resulting from the Escrow Holder's failure to deliver Warrant Shares to the Holder.
(b) The Company shall pay any and all documentary stamp or similar issue or transfer taxes payable in respect of the issue or delivery of the Warrant Shares.
(c) Limitation on Right and Power to Exercise. Any provision in this Warrant, the Agreement or any other document to the contrary not withstanding, the Holder shall not have the right or power to exercise this warrant, either in whole or in part, if, and any attempt to do so shall be void, after having given effect to such exercise, the Holder shall be or shall be deemed to be the beneficial owner of 10% or more of the then outstanding Common Stock within the meaning or for the purposes of Section 13(d) or 13(g) of the U.S. Securities Exchange Act of 1934, as amended, or as the term "beneficial owner" is defined in Rule 13d-3 of the U.S. Securities and Exchange Commission or otherwise. Any attempt to exercise the Warrant shall also be ineffective to the extent that the Company does not have sufficient authorized, unissued and unreserved Common Stock to issue the Warrant Shares.
Section 2. Reservation of Shares. Subject to shareholder approval pursuant to Section 10.2.1 of the Agreement, the Company hereby agrees that at all times there shall be reserved for issuance and delivery upon exercise of this Warrant all shares of its Common Stock or other shares of capital stock of the Company or other property from time to time issuable upon exercise of this Warrant. All such shares shall be duly authorized and, when issued upon such exercise in accordance with the terms of this Warrant, shall be validly issued, fully paid and nonassessable, free and clear of all liens, security interests, charges and other encumbrances or restrictions on sale (other than any restrictions on sale pursuant to applicable federal and state securities laws) and free and clear of all preemptive rights.
Section 3. Fractional Shares. The Company shall not be required to issue
fractional shares of Common Stock on the exercise of this Warrant. If any
fraction of a share of Common Stock would, except for the provisions of this
Section 3, be issuable on the exercise of this Warrant (or specified portion
thereof), the Company shall pay an amount in cash calculated by it to be equal
to the then Current Market Value (as hereinafter defined) per share of Common
Stock multiplied by such fraction computed to the nearest whole cent. For the
purposes of any computation under this Warrant, the Current Market Value per
share of Common Stock or of any other equity security (herein collectively
referred to as a "security") at the date herein specified shall be:
(i) if the security is not registered under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the "Current Market Value" per share of the security shall be determined in good faith by the Board of Directors of the Company, or
(ii) if the security is registered under the Exchange Act, the "Current Market Value" per share of the security shall be deemed to be the average of the daily market prices of the security for the ten (10) consecutive Trading Days immediately preceding the day as of which Current Market Value is being determined or, if the security has been registered under the Exchange Act for less than ten (10) consecutive Trading Days before such date, then the average of the daily market prices for all of the trading days before such date for which daily market prices are available. The market price for each such Trading Day shall be: (A) in the case of a security listed or admitted to trading on any securities exchange, the Closing Bid Price on the primary exchange on which the Common Stock is then listed, on such day, (B) in the case of a security not then listed or admitted to trading on any securities exchange, the Closing Bid Price reported by Bloomburg LP on such day, (C) in the case of a security not then listed or admitted to trading on any securities exchange and as to which no such reported sale price or bid and asked prices are available, the reported high bid on such day, as reported by a reputable quotation service, or a newspaper of general circulation in the Borough of Manhattan, City and State of New York, customarily published on each business day, designated by the Holder, or if there shall be no bid prices on such day, the high bid price, as so reported, on the most recent day (not more than 10 days prior to the date in question) for which prices have been so reported, and (D) if there are no bid prices reported during the 10 days prior to the date in question, the Current Market Value of the security shall be determined as if the security were not registered under the Exchange Act.
Section 4. Exchange, Transfer, Assignment or Loss of Warrant.
(a) This Warrant is exchangeable, without expense, at the option of the Holder, upon presentation and surrender hereof to the Company or at the office of its stock transfer agent or warrant agent, if any, for other warrants of different denomination, entitling the Holder thereof to purchase in the aggregate the same number of Warrant Shares and otherwise carrying the same rights as this Warrant.
(b) This Warrant may be divided or combined by the Holder with other warrants that carry the same rights upon presentation hereof at the office of the Company or at the office of its stock transfer agent or warrant agent, if any, together with a written notice specifying the names and denominations in which new warrants are to be issued and signed by the Holder hereof. The term "Warrant" as used herein includes any warrants into which this Warrant may be divided or for which it may be exchanged.
(c) Upon receipt by the Company of evidence satisfactory to it of the loss, theft, destruction or mutilation of this Warrant, and (in the case of loss, theft or destruction) of reasonably satisfactory indemnification, and upon surrender and cancellation of this Warrant, if mutilated, the Company shall execute and deliver a new Warrant of like tenor and date.
Section 5. Restrictions on Issuance of Securities. So long as this Warrant is outstanding, the Company will not issue, or permit any Subsidiary to issue, any common stock or other equity securities, or any other stock, option, warrant, right or other instrument that is convertible into or exercisable or exchangeable for common stock or other equity securities, except for (i) securities issued pursuant to the Securities Purchase Agreement (which includes Warrant Shares), (ii) securities of a Subsidiary that are issued to the Company; and (iii) securities sold and options granted to directors, officers and employees of the Company pursuant to bona fide employee benefit plans; provided, however, that the Company may issue such securities with the prior written consent of the Holder, which consent the Holder agrees not to unreasonably withhold.
Section 6. Reclassification, Reorganization, Consolidation or Merger. In the event of any reclassification, capital reorganization or other change of outstanding shares of Common Stock of the Company or in the event of any consolidation or merger of the Company with or into another corporation (other than a merger in which merger the Company is the continuing corporation and that does not result in any reclassification, capital reorganization or other change of outstanding shares of Common Stock of the class issuable upon exercise of this Warrant) or in the event of any sale, lease, transfer or conveyance to another corporation of the property and assets of the Company as an entirety or substantially as an entirety, the Company shall, as a condition precedent to such transaction, cause effective provisions to be made so that such other corporation shall assume all of the obligations of the Company hereunder and the Holder shall have the right thereafter, by exercising this Warrant, to purchase the kind and amount of shares of stock and other securities and property (including cash) receivable upon such reclassification, capital reorganization and other change, consolidation, merger, sale, lease, transfer or conveyance by a holder of the number of shares of Common Stock that might have been received upon exercise of this Warrant immediately prior to such reclassification, capital reorganization, change, consolidation, merger, sale, lease or conveyance. Any such provision shall include provision for adjustments in respect of such shares of stock and other securities and property that shall be as nearly equivalent as may be practicable to the adjustments provided for in this Warrant. The foregoing provisions of this Section 6 shall similarly apply to successive reclassification, capital reorganizations and changes of shares of Common Stock and to successive changes, consolidations, mergers, sales, leases, transfers or conveyances. In the event that in connection with any such capital reorganization, or reclassification, consolidation, merger, sale, lease, transfer or conveyance, additional shares of Common Stock shall be issued in exchange, conversion, substitution or payment, as a whole or in part, for, or of, a security of the Company other than Common Stock, any such issue shall be treated as an issue of Common Stock covered by the provisions of Section 5.
Section 7. Transfer to Comply with the Securities Act. Neither this Warrant nor any of the Warrant Shares may be offered or sold in the United States or to a U.S. Person (as defined in Regulation S) unless pursuant to an effective registration statement under the Act, or pursuant to Regulation S, or pursuant to other available exemptions from the registration requirements of the Act. The Holder of this Warrant or any of the Warrant Shares may not engage in hedging transaction with regard to such securities unless in compliance with the Act.
Section 8. Availability of Information. So long as any of this Warrant remains unexercised and this Warrant has not expired, the Company shall comply with the reporting requirements of Sections 13 and 15(d) of the Exchange Act to the extent it is required to do so under the Exchange Act, and shall likewise comply with all other applicable public information reporting requirements of the Securities and Exchange Commission (including those required to make available the benefits of Rule 144 under the Securities Act) to which it may from time to time be subject. The Company shall also cooperate with the Holder of this Warrant and the Holder of any Warrant Shares in supplying such information as may be necessary for such holder to complete and file any information reporting forms currently or hereafter required by the Commission as a condition to the availability of Rule 144 or any successor rule under the Securities Act for the sale of this Warrant or the Warrant Shares. The provisions of this Section 8 shall survive termination of this Warrant, whether upon exercise of this Warrant in full or otherwise. The Company shall also provide to holders of this Warrant the same information that it provides to holders of its Common Stock.
Section 9. Registration Rights. The Company is obligated to register the shares of Common Stock issuable upon exercise of this Warrant pursuant to an Amended and Restated Registration Rights Agreement (the "Registration Rights Agreement") effective as of the Effective Date, among the Company, the Holder, other holders of Debentures and the Agent.
Section 10. Successors and Assigns. All the provisions of this Warrant by or for the benefit of the Company or the Holder shall bind and inure to the benefit of their respective successors, assigns, heirs and personal representatives.
Section 11. Headings. The headings of sections of this Warrant have been inserted for convenience of reference only, are not to be considered a part hereof and shall in no way modify or restrict any of the terms or provisions hereof.
Section 12. Amendments. This Warrant may not be amended except by the written consent of the Company and the Holder.
Section 13. Notices. All notices given under this Agreement and under the other
Transaction Documents shall be in writing, addressed to the parties as set
forth below, or to such other address as a party may specify by notice given in
accordance with this paragraph and shall be effective on the earliest of (i)
the date received, or (ii) if given by facsimile transmittal on the date given
if transmitted before 5:00 p.m. the recipient's time, otherwise it is effective
the next day, or (iii) on the second Trading Day after delivery to a major
international air delivery or air courier service (such as Federal Express or
Network Couriers):
If to the Holder or Escrow Holder: If to the Company: c/o Thomson Kernaghan and Co. Ltd. United States Antimony Corporation 365 Bay Street 1250 Prospect Creek, P.O. Box 643 Toronto, Ontario M5H 2V2 Thompson Falls, Montana 59873-0643 Attention: Mr. Gregg Badger, Sr. V.P. Attention: John Lawrence, President and CEO Facsimile No. (416) 860-6352 Facsimile No. (406) 827-3523 |
Section 14. Law Governing; Jurisdiction. This Warrant shall be governed by and construed in accordance with the laws of the Province of Ontario, Canada, provided however, that if any provision of this Warrant is unenforceable under the laws of Ontario but is enforceable under the laws of the U.S. State of Montana, then that provision shall be governed by and construed in accordance with the laws the State of Montana. The courts of the Province of Ontario, Canada, shall have jurisdiction and venue for the adjudication of any civil action between or among any of them arising out of relating to this Debenture. The Company and the Holder irrevocably consent to such jurisdiction and venue, and irrevocably waive any claim of forum non conveniens or right to change venue. The prevailing party in any action or proceeding to enforce or construe this Warrant is entitled to recover reasonable attorney's fees.
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed, as of August 31, 2000.
UNITED STATES ANTIMONY CORPORATION
NOTICE OF EXERCISE
To: United States Antimony Corporation:
The undersigned irrevocably exercises this Warrant for the purchase of ____________________ shares (subject to adjustment) of Common Stock of United States Antimony Corporation (the "Company"): for this Warrant and agrees to make payment of $____________________ (the "Exercise Price") through the following method:
such payment of the Exercise Price being in cash or by certified or official bank check payable to the order of the Company
all at the Exercise Price and on the terms and conditions specified in this Warrant, and directs that the shares of Common Stock deliverable upon the exercise of this Warrant be registered or placed in the name and at the address specified below and delivered thereto.
The undersigned represents, warrants and certifies to the Company that the undersigned is not a U.S. Person (as defined in SEC Rule 902(k)), and that this Warrant is not being exercised on behalf of a U.S. Person.
Date: ________________, _______
FORM OF ASSIGNMENT
FOR VALUE RECEIVED the undersigned registered holder of the within Warrant hereby sells, assigns, and transfers unto the Assignee(s) named below (including the undersigned with respect to any part of the Warrant not being assigned hereby) all of the right of the undersigned under the within Warrant, with respect to the number of shares of Common Stock set forth below:
-------------------------------- --------------------------------------- --------------------- ---------------------
Social Security or Number of Shares of
Other Identifying Common Stock
Name of Assignee Address of Assignee Number of Assignee Assigned to Assignee
-------------------------------- --------------------------------------- --------------------- ---------------------
-------------------------------- --------------------------------------- --------------------- ---------------------
-------------------------------- --------------------------------------- --------------------- ---------------------
-------------------------------- --------------------------------------- --------------------- ---------------------
-------------------------------- --------------------------------------- --------------------- ---------------------
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and does hereby irrevocably constitute and appoint ______________________ as the undersigned's attorney to make such transfer on the books of ______________________ United States Antimony Corporation maintained for that purpose, with full power of substitution in the premises.
Date: ________________, _______
AMENDED AND RESTATED SECURITIES PURCHASE AGREEMENT
This Amended and Restated Securities Purchase Agreement (as amended,
restated, supplemented or otherwise modified from time to time, this
"Agreement") is made and entered into as of the 19th day of June, 2001, by and
among United States Antimony Corporation, a corporation incorporated under the
laws of the State of Montana (the "Company"), the purchasers signatory hereto or
who become parties hereto as provided in Section 6.4 (collectively, the
"Purchasers" and individually, a "Purchaser"), Thomson Kernaghan and Co. Ltd., a
corporation incorporated under the laws of Ontario, as agent for the Purchasers
(in such capacity, the "Agent"), and Agent's Beneficial Owners (as defined in
Section 4.2).
W I T N E S S E T H:
WHEREAS, the Company and the Estate of Bobby C. Hamilton (the "Estate") are parties to that certain Settlement Agreement and Release of All Claims dated June 30, 2000 (the "Settlement Agreement"); and
WHEREAS, pursuant to the terms of the Settlement Agreement, the Company agreed to, among other things, (a) pay U.S.$500,000 in same day currency to the Estate, (b) arrange for the purchase of 614,000 unrestricted shares of the Company's authorized common stock, U.S.$.01 par value (the "Common Stock") (the "Unrestricted Settlement Shares"), and (c) issue and deliver 250,000 restricted shares of Common Stock to the Estate (the "Restricted Shares"); and
WHEREAS, the Agent and the Purchasers are parties to that certain Securities Purchase Agreement dated July 25, 2000 (the "Original Purchase Agreement"); and
WHEREAS, at the Company's request, the Agent, on the terms and subject
to the conditions set forth in the Original Purchase Agreement, (a) arranged for
the Purchasers to purchase U.S. $675,000 in aggregate principal amount of the
Debentures, (b) purchased the Unrestricted Settlement Shares from the Estate and
(c) agreed to arrange for the purchase of the remaining U.S.$825,000 in
aggregate principal amount of the Debentures; and
WHEREAS, concurrently with the consummation of the transactions contemplated by the Original Purchase Agreement, the Company, using proceeds from the sale of the Debentures, paid the U.S.$500,000 owed by the Company to the Estate under the Settlement Agreement; and
WHEREAS, concurrently with the consummation of the transactions contemplated by the Settlement Agreement, the Company, the Estate and the City concluded certain transactions described in the FSB Escrow Instructions; and
WHEREAS, the Company, the Agent and the Purchasers now wish to amend and restate the Original Purchase Agreement as provided herein; and
NOW, THEREFORE, in consideration of the mutual promises contained in this Agreement and in order to carry out the purpose and intent of the parties set forth above, the parties hereto agree that the Original Purchase Agreement is hereby amended and restated as follows:
1. Definition and Accounting Terms
1.1 Definitions. As used in this Agreement:
(a) "Affiliate" means any Person that directly or indirectly Controls, or is Controlled by, or is under
common Control with the Company and an "affiliate" of the Company within the meaning of Reg.ss.240.12b-2
of the Exchange Act.
(b) "Agent" shall have the meaning ascribed in the preamble.
(c) "Agent's Fee" shall have the meaning ascribed in Section 11.11 of this Agreement.
(d) "Agent's Principal Office" means the Agent's principal office at 365
Bay Street, Toronto, Ontario M5H 2V2 or such other office of the Agent
as the Agent may from time to time specify to the Company and the
Purchasers as the Agent's principal office.
(e) "Agent's Warrant" shall have the meaning ascribed in Section 6.2 of this Agreement.
(f) "Agreement" shall have the meaning ascribed in the preamble.
(g) "Capital Lease" means all leases or similar arrangements that have been or should be capitalized on the
books of the lessee in accordance with GAAP.
(h) "City" means the City of Moscow, Idaho.
(i) "Closing Bid Price" shall mean, on any Trading Day, the closing bid
price per share of the Common Stock on such day as reported by
Bloomburg L.P.
(j) "Closing Date" means, with respect to any Debenture, the date on which
all of the conditions precedent to the purchase and sale of such
Debentures are satisfied, or such other date, time and place as the
Agent and the Company may mutually agree in writing to be the Closing
Date.
(k) "Code" means the US Internal Revenue Code of 1986, as amended from time
to time, and the regulations and published interpretations thereof.
(l) "Common Stock" shall have the meaning ascribed in the second recital.
(m) "Commonly Controlled Entity" means an entity, whether or not
incorporated, that is under common control with the Company, within the
meaning of Section 414(b) or 414(c) of the Code.
(n) "Company" shall have the meaning ascribed in the preamble.
(o) "Control" means possessing, directly or indirectly, the power to (a)
vote five percent (5%) or more of the securities (on a fully diluted
basis) having ordinary voting power for the election of directors or
managing members or managing general partners or (b) direct or cause
the direction of management, policies or action through ownership of
voting securities, contract, voting trust or membership in management
or in the group appointing or electing management or otherwise through
formal or informal arrangements or business relationships.
(p) "Conversion Shares" means the aggregate number of shares of Common Stock into which the Debentures are
convertible.
(q) "Debentures" means the Company's 10% Convertible Debentures due June
30, 2002, in the aggregate principal amount of up to $1,500,000, issued
from time to time in accordance with this Agreement, in substantially
the form and substance of Exhibit A to this Agreement.
(r) "Debt" means, with respect to the Company, without duplication, (a) all indebtedness or liability for
borrowed money; (b) all obligations evidenced by bonds, debentures, Debentures or other similar
instruments; (c) all obligations for the deferred purchase price of property or services (including
trade obligations); (d) all obligations under Capital Leases; (e) all obligations under letters of
credit; (f) all obligations under acceptance facilities; (g) all guaranties, endorsements (other than
for collection or deposit in the ordinary course of business), and other contingent obligations to
purchase, to provide funds for payment, to supply funds to invest in any Person or entity, or otherwise
to assure a creditor against loss; and (h) all obligations secured by any Liens, whether or not the
obligations have been assumed.
(s) "Default" means any of the events specified in Section 12.1, whether or
not any requirement for the giving of notice, the lapse of time, or
both, or any other condition has been satisfied.
(t) "EDGAR" means the computer system maintained by the SEC for the
receipt, acceptance, review and dissemination of documents submitted to
it in electronic format.
(u) "Effective Date" means July 11, 2000.
(v) "Escrow Agreement" shall have the meaning ascribed in Section 8.2(c).
(w) "Escrow Shares" shall have the meaning ascribed in Section 8.2(c) of this Agreement.
(x) "Estate" shall have the meaning ascribed in the first recital.
(y) "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the
regulations and published interpretations thereof.
(z) "Event of Default" means any of the events specified in Section 12.1;
provided that any requirement for the giving of notice, the lapse of
time, or both, or any other condition, has been satisfied.
(aa) "Exchange Act" means the United States of America Securities Exchange Act of 1934, as amended.
(bb) "FSB" means the First State Bank of Thompson Falls, Montana.
(cc) "FSB Escrow Instructions" means the written Escrow Instructions for the First State Bank of Thompson
Falls, Montana, dated June __, 2000, to which Thomson Kernaghan, the
City, the Estate, the Company and FSB are parties.
(dd) "GAAP" means generally accepted accounting principles in the U.S.
(ee) "Holder" means, with respect to any Debenture, the holder of such Debenture.
(ff) "Initial Closing Date" means the date on which all of the conditions
precedent to the purchase and sale of the Initial Debentures shall have
been satisfied, which date shall be July 25, 2000.
(gg) "Initial Debentures" shall have the meaning ascribed in Section 3.5 of this Agreement.
(hh) "Initial Purchase" shall have the meaning ascribed in Section 3.1 of this Agreement.
(ii) "Known" or "Knowledge" means, with respect to any Person, the knowledge of such Person's executive
officers after reasonable inquiry.
(jj) "Lien" means any mortgage, deed of trust, pledge, security interest,
hypothecation, assignment, deposit arrangement, encumbrance, lien
(statutory or other), or preference, priority, or other security
agreement or preferential arrangement, charge or encumbrance of any
kind or nature whatsoever (including, without limitation, any
conditional sale or other title retention agreement, any financing
lease having substantially the same economic effect as any of the
foregoing, and the filing of any financing statement, charge or similar
notice under the law of any jurisdiction to evidence any of the
foregoing.
(kk) "Material Adverse Effect" means with respect to the Company, any event,
change, circumstance or effect which has or is reasonably likely to be
materially adverse on (a) the business, condition (financial or
otherwise), prospects, properties or results of operations of the
Company and its Subsidiaries taken as a whole, other than any event,
change, circumstance or effect relating (i) to the economy or financial
markets in general, or (ii) in general to the industries in which the
Company or its Subsidiaries operate and not specifically relating to
the Company or its Subsidiaries; or (b) the ability of the Company to
consummate the transactions contemplated by this Agreement.
(ll) "Multiemployer Plan" means a Plan described in Section 4001(a)(3) of ERISA.
(mm) "PBGC" means the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its
functions under ERISA.
(nn) "Person" means an individual, partnership, corporation, business trust,
joint stock company, trust, unincorporated association, joint venture,
governmental authority, or other entity of whatever nature.
(oo) "Plan" means any pension plan which is covered by Title IV of ERISA and
in respect of which the Company or a Commonly Controlled Entity is an
"employer" as defined in Section 3(5) of ERISA.
(pp) "Prohibited Transaction" means any transaction set forth in Section 406 of ERISA or Section 4975 of the
Code.
(qq) "Purchaser" shall have the meaning ascribed in the preamble.
(rr) "Purchaser's Warrant" shall have the meaning ascribed in Section 4.1 of this Agreement.
(ss) "Purchasers' Warrants" means, with respect to any day, the aggregate of all Purchaser's Warrants issued
and outstanding as of such day.
(tt) "Purchasers' Warrant Shares" means the aggregate of all Purchaser's Warrant Shares.
(uu) "Purchaser's Warrant Shares" shall have the meaning ascribed in Section 4.1 of this Agreement.
(vv) "Registration Rights Agreement" shall have the meaning ascribed in Section 5.1 of this Agreement.
(ww) "Reportable Event" means any of the events set forth in Section 4043 of ERISA.
(xx) "Restricted Settlement Shares" shall have the meaning ascribed in the second recital.
(yy) "SEC" means the Securities and Exchange Commission of the United States of America.
(zz) "SEC Documents" means all forms, statements, reports and other documents and information that the
Company has filed and in the future may file with the SEC.
(aaa) "Securities Act" means the U.S. Securities Act of 1933, as amended.
(bbb) "Settlement Agreement" shall have the meaning ascribed in the first recital.
(ccc) "Subsidiary" means a corporation of which shares of stock having
ordinary voting power (other than stock having such power only by
reason of the happening of a contingency) to elect a majority of the
board of directors or other managers of that corporation are at the
time owned, or the management of which is otherwise controlled,
directly or indirectly through one or more intermediaries, or both, by
the Company.
(ddd) "Trading Day" means any day, other than a Saturday or Sunday, on which
the New York Stock Exchange is open for business.
(eee) "Transaction Documents" means this Agreement, the Debentures, the
Warrants, the Amended and Restated Escrow Agreement, the Amended and
Restated Registration Rights Agreement.
(fff) "Unrestricted Settlement Shares" shall have the meaning ascribed in the second recital.
(ggg) "U.S." means the United States of America.
(hhh) "Warrant Shares" means the aggregate number of shares of Common Stock issuable upon exercise of the
Warrants.
(iii) "Warrants" means the Purchasers' Warrants issued hereunder and the Agent's Warrant.
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1.2 Singular and Plural Terms. As used in this Agreement, terms defined in the singular have the same meaning when used in the plural, and terms defined in the plural have the same meaning when used in the singular.
1.3 Accounting Terms. All accounting terms not specifically defined in this Agreement shall be construed in accordance with GAAP, consistently applied. All financial data submitted pursuant to this Agreement shall be prepared in accordance with GAAP, consistently applied.
1.4 Currency. All currency described or otherwise referred to in the Transaction Documents is the currency of the United States of America.
2. Settlement Agreement. On the Initial Closing Date, and subject to
the satisfaction of the conditions set forth in Section 6 of this Agreement,
(a) the Agent agrees to purchase, as the third party contemplated by the
Settlement Agreement, the Unrestricted Settlement Shares from the Estate
for the purchase price of $93,440; and (b) the Company shall pay the Estate
$500,000 and shall issue and deliver the Restricted Settlement Shares to
Estate.
3. Purchase and Sale of the Debentures.
3.1 Initial Purchase of Debentures. On the Initial Closing Date, and subject to the satisfaction of the conditions set forth in Section 6.1 of this Agreement, the Agent agrees to purchase, for the account of the Purchasers, $600,000 in aggregate principal amount of Debentures (the "Initial Purchase"), at a price equal to 100% of the face amount thereof.
3.2 Subsequent Purchase of Debentures. At the Company's request, and subject to
the satisfaction of the conditions set forth in Section 6.3 of this Agreement,
the Agent agrees to purchase, for the account of the Purchasers who will be
identified on a supplemental Exhibit G on the Closing Date of each subsequent
purchase of Debentures, up to an additional $900,000 in aggregate principal
amount of Debentures; provided, however, that the Agent shall not be obligated
to purchase more than $200,000 in principal amount of Debentures in any thirty
(30) day period. The Company shall give the Agent at least ten (10) Trading
Days' prior written notice of any request for the purchase of additional
Debentures, which notice shall specify, among other things, the date and amount
thereof.
3.3 Manner of Funding. The Company shall give the Agent written wiring instructions for the disbursement of the Debenture proceeds, which shall be either by check or wire transfer as the Company shall designate, and if by wire transfer, the notice shall specify the name, address and ABA routing number for the Company's bank, and the Company's account number to be credited with the proceeds.
3.4 Interest. The Company shall pay interest to Purchasers on the outstanding and unpaid principal amount of the Debentures at the rate of ten percent (10%) per year, calculated on the basis of a year of 360 days comprised of twelve 30-day months. Interest shall be payable upon any prepayment of principal and at maturity at the Agent's principal office.
3.5 The Debentures. The Debentures shall be duly executed by the Company on each Closing Date with all blanks appropriately filled in, payable to the order of the Agent, for the account of the Purchasers, or the Purchaser purchasing the same, as the Agent may specify. The Debentures evidencing the Initial Purchase shall be herein referred to as the "Initial Debentures." Each Debenture shall be dated the date on which the Agent, on behalf of the Purchasers, advances proceeds to the Company, and each Debenture shall be due and payable on the second (2nd) anniversary of the Closing Date of the purchase of such Debenture hereunder. At any time beginning thirty (30) days after the Closing Date of a purchase of a Debenture hereunder and prior to the payment in full of such Debenture, all or any part of the principal and interest of such Debenture may, at the option of the Holder, but subject to the limitation set forth in Section 8.4 and 8.5 of this Agreement, be converted into Common Stock (the "Conversion Shares") at a price per share equal to seventy-five percent (75%) of the average of the three (3) lowest Closing Bid Prices in the twenty (20) Trading Days immediately preceding (a) the Effective Date or (b) the Conversion Date, whichever is lower; provided, however, that the conversion price shall not exceed ninety cents ($.90) per share; and further provided that such conversion rights are exercisable only to the extent that there is sufficient authorized, unissued and unreserved Common Stock available for such conversion. Notwithstanding the foregoing conversion price formula, the parties agree that the maximum conversion price of the Initial Debentures is $0.29125 per share.
3.6 Prepayments. The Company may prepay any Debenture, in whole or in part, without the Holder's prior written consent. 3.7 Method of Payment. The Company shall make each payment under this Agreement and under the Debentures at the Agent's principal office not later than 2:00 P.M., Toronto time, on the date when due in lawful currency of the United States of America and in immediately available funds. Whenever any payment to be made under this Agreement or under any Debenture shall be stated to be due on a day other than a Trading Day, such payment shall be made on the next succeeding Trading Day, and such extension of time shall in such case be included in the computation of interest due under this Agreement or such Debenture, as the case may be. 3.8 Use of Proceeds.
(a) Proceeds from Initial Sale of the Debentures. The Company shall
use the proceeds from the sale of the
Initial Debentures solely for the following purposes and in the
following order and priority: (i) to pay
the Agent's Fee; (ii) to pay the fees and expenses of the
Agent's counsel in the negotiation,
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preparation and execution of this Agreement, which payment shall
not exceed $15,000; (iii) to pay the
Estate the sum of $500,000 pursuant to the Settlement Agreement;
(iv) to fund the Company's performance of all of its other obligations
under the Settlement Agreement and the FSB Escrow Instructions;
and (v) for the Company's working capital purposes. The Company
hereby authorizes the Agent to withhold from proceeds of the sale of
the Initial Debentures all amounts necessary to pay the Agent's Fee
and the fees and expenses of Agent's counsel.
(b) Proceeds from Subsequent Sales of Debentures. The Company shall use the proceeds from the sale of the Debenture subsequent to the sale of the Initial Debentures solely for the following purposes and in the following order and priority: (i) to pay the Agent's Fee; and (ii) for the Company's working capital purposes. The Company authorizes the Agent to withhold from proceeds of the sale of subsequent Debentures all amounts necessary to pay the Agent's Fee.
4. Warrants.
4.1 Purchasers' Warrant. On each Closing Date, the Company shall issue and deliver to the Agent, for the account of the Purchasers, pro rata, according to the percentage of the total principal amount of the Debentures that a Purchaser is purchasing on such date, a warrant in substantially the form and substance of Exhibit B hereto (the "Purchaser's Warrant") to purchase the number of shares of Common Stock (the "Purchaser's Warrant Shares") determined by multiplying .25 by the face amount of Debentures being sold at such Closing Date and by dividing the resulting figure by $0.39 per share.
4.2 Agent's Warrant. On each Closing Date, the Company shall issue and deliver to the Agent, for the Agent's own account, a warrant in substantially the form and substance of Exhibit C hereto (the "Agent's Warrant") to purchase the number of shares of Common Stock (the "Agent's Warrant Shares") determined by dividing $375,000 by the Closing Bid Price on the Trading Day immediately preceding the Effective Date, at a price per share equal to the Closing Bid Price on the Trading Day immediately preceding the Effective Date. Pursuant to [Name of agreement pursuant to which beneficial interest is being transferred], the Agent hereby assigns and transfers all of the beneficial ownership of each Agent's Warrant to the following Persons in the percentages set forth next to such Person's name (collectively, the "Agent's Beneficial Owners"):
Name of Assignee Percentage Assigned Michelle McKinnon 20% Ian McKinnon 40% Caliber Resources Ltd. 40% |
The Agent's Beneficial Owners hereby accept such assignment and transfer from the Agent.
4.3 Limitations on Exercise of Warrants. The Purchasers' Warrants and all Agent's Warrants are exercisable only to the extent that there is sufficient authorized, unissued and unreserved Common Stock available for such exercise. The rights of each Purchaser and each of the Agent's Beneficial Owners to exercise their respective Warrants are subject to the further limitation set forth in Section 8.4 hereof.
5. Registration Rights Agreement
5.1 Registration of Common Stock Underlying the Debentures and the Warrants. Contemporaneously with the execution of this Agreement, the Company shall execute and deliver to the Agent an Amended and Restated Registration Rights Agreement in the form of Exhibit D hereto (the "Registration Rights Agreement"). The Company shall register the resale of the Conversion Shares and the Warrant Shares in accordance with the provisions of the Registration Rights Agreement.
6. Conditions Precedent
6.1 Conditions Precedent to the Agent's and Purchasers' Obligations to Purchase the Unrestricted Settlement Shares and the Initial Debentures. The obligation of the Agent to purchase the Unrestricted Settlement Shares and to purchase the Initial Debentures for the account of the Purchasers is subject to the following conditions precedent:
(a) Each of the Company, the Estate, the City and FSB shall have confirmed their intent to complete the transactions contemplated by the Settlement Agreement and the FSB Escrow contemporaneously with the Company's sale of the Initial Debentures, and the Agent shall have received satisfactory evidence thereof.
(b) The Agent shall have received, on or before the Initial Closing Date, each of the following, in form and substance satisfactory to the Agent and its counsel:
(i) Initial Debentures. The Initial Debentures, duly executed by the Company;
(ii) Incumbency and signature certificate of the Company. A certificate (dated as of the Closing Date) of the Secretary of the Company certifying the names and true signatures of the officers of the Company authorized to sign the Transaction Documents and any other documents and instruments to be delivered by the Company under this Agreement;
(iii) Purchasers' Warrants. Purchasers' Warrants for the number of shares of Common Stock determined under Section 4.1 of this Agreement;
(iv) Agent's Warrant. The Agent's Warrant for the number of shares of Common Stock determined under Section 4.2 of this Agreement;
(v) Registration Rights Agreement. The Registration Rights Agreement duly executed by all of the parties thereto;
(vi) Escrow Agreement. The Escrow Agreement duly executed by all of the parties thereto;
(vii) Opinion of counsel for the Company. A favorable opinion of counsel for the Company, in substantially the form of Exhibit F hereto, and as to such other matters as the Agent may reasonably request.
(c) The Company shall have deposited with the Escrow Holder the lesser of
(i) the required amount of Escrow Shares pursuant to paragraph 10.2.3
of this Agreement and (ii) the number of Company's remaining authorized
unissued and previously unreserved shares of Common Stock. Solely for
purposes of this Section 6.1(c), the Agent and the Purchasers
acknowledge that Company will not have sufficient shares of authorized
and unissued and unreserved shares to fund the escrow on the Initial
Closing Date.
6.2 Conditions Precedent to the Company's Obligations. The Company's obligations under this Agreement are subject to the following conditions precedent:
(a) All of the conditions precedent to the effectiveness of the Settlement Agreement (other than those set forth in Section ___ thereof) and the FSB Escrow Instructions (other than those set forth in Section ___ thereof) shall have been satisfied and the Settlement Agreement and the FSB Escrow shall be in full force and effect.
(b) The Agent and each Purchaser shall have executed and delivered a counterpart of this Agreement.
6.3 Conditions Precedent to Purchase of Additional Debentures. The obligation of the Purchasers to purchase additional Debentures shall be subject to the further conditions precedent that on the Closing Date with respect to that purchase:
(a) The following statements shall be true, complete and correct on and as of such Closing Date and the Agent shall have received a certificate signed by a duly authorized officer of the Company, dated such Closing Date, certifying that (i) the representations and warranties contained in Section 7.1 of this Agreement are true, complete and correct on and as of the relevant Closing Date as though made on and as of such date; and (ii) no Default or Event of Default has occurred and is continuing, or would result from such purchase;
(b) The Agent shall have received a detailed statement of the anticipated use of proceeds from the additional Debentures, which use of proceeds shall be reasonably satisfactory to the Agent, certified by the Company's chief financial officer and chief executive officer;
(c) The Agent, for the account of the Purchasers purchasing the additional Debentures on such Closing Date, shall have received the Debentures and the Purchasers' Warrants with respect to the additional Debentures;
(d) The Agent shall have received such other approvals, opinions, or documents as the Agent may reasonably request;
(e) The Company shall have effected a 1 for 3 reverse split of the Common Stock, or shall have effected an increase in the number of authorized shares of Common Stock, so that the aggregate number of authorized and unissued shares of Common Stock authorized is, on a fully diluted basis, sufficient to enable the Company to contingently issue and deliver to the Escrow Holder all of the Conversion Shares and Warrant Shares required by Section 8.2(c) of the Agreement.
(f) The Company shall have deposited the required amount of Escrow Shares with the Escrow Holder pursuant to Section 8.2(c) of this Agreement.
(g) The Company shall have filed the Registration Statement required under the Registration Rights Agreement and such filing shall have been accepted by the SEC; and
(h) For each of the thirty (30) Trading Days immediately preceding such Closing Date, (i) the Closing Bid Price shall have been above $0.50 (adjusted for any stock splits or reverse splits, or any reduction in the number of shares of outstanding Common Stock), and (ii) the number of shares of Common Stock traded shall be more than 30,000 (adjusted for any stock splits or reverse stock splits, or any reduction in the number of shares of outstanding Common Stock).
6.4 Conditions Precedent to Company's Obligation to Sell Additional Indentures. The obligation of Company to sell additional Debentures shall be subject to the further conditions precedent that on the Closing Date with respect to that sale:
(a) Each of the Purchasers purchasing the additional Debentures on such Closing Date shall have been identified on a supplement Exhibit G and shall have executed and delivered a counterpart of this Agreement.
(b) The Company shall have effected a 1 for 3 reverse split of the Common Stock, or shall have effected an increase in the number of authorized shares of Common Stock, so that the aggregate number of authorized and unissued shares of Common Stock authorized is, on a fully diluted basis, sufficient to enable the Company to contingently issue and deliver to the Escrow Holder all of the Conversion Shares and Warrant Shares required by Section 8.2(c) of the Agreement.
(c) The SEC shall have accepted for filing the Registration Statement required under the Registration Right Agreement.
7. Representations and Warranties
7.1 The Company's Representations and Warranties. The Company represents and warrants to the Purchasers that, as of the Effective Date:
(a) Incorporation, Good Standing, and Due Qualification. The Company is a corporation duly incorporated, validly existing and in good standing under the laws of the jurisdiction of its incorporation; has the corporate power and authority to own its assets and to transact the business in which it is now engaged and proposes to be engaged in; and is duly qualified as a foreign corporation and in good standing under the laws of each other jurisdiction in which such qualification is required.
(b) Subsidiaries. The Company had no Subsidiaries at Effective Date but now has two Subsidiaries, USAMSA and Bear River Zeolite.
(c) Capitalization. As of the Effective Date, the capital stock of the Company consists of (1) 10,000,000 shares of preferred stock, $.01 par value, of which 4,500 shares have been designated Series A, all of which are issued and outstanding, 750,000 shares have been designated Series B, all of which are issued and outstanding, and 205,966 shares have been designated Series C, all of which are issued and outstanding; and (2) 20,000,000 shares of Common Stock of which 17,989,747 are issued and outstanding and 1,010,000 are subject to and reserved for issuance upon exercise of outstanding options, covenants and other rights to acquire Common Stock.
(d) Corporate Power and Authority. Except for the shareholder action
contemplated by Section 8.2 and the fact that, as of the Initial
Closing Date, the Company has insufficient authorized, unissued
and unreserved Common Stock to permit the issuance of all of the
Conversion Shares and Warrant Shares, the execution, delivery and
performance by the Company of the Transaction Documents have
been duly authorized by all necessary corporate action and do not
and will not (i) require any consent or approval of any Person or
governmental authority; (ii) contravene its charter or bylaws;
(iii) violate any provision of any law, rule, regulation, order,
writ, judgment, injunction, decree, determination or award in
effect as of the Effective Date or such Closing Date having
applicability to the Company; (iv) result in a breach of or
constitute a default under any indenture or loan or credit
agreement or any other agreement, lease or instrument to which the
Company is a party or by which it or its properties may be bound or
affected; (v) result in or require the creation or imposition of
any Lien upon or with respect to any to the properties now owned or
hereafter acquired by the Company; or (vi) cause the Company to
be in default under any such law, rule, regulation, order, writ,
judgment, injunction, decree, determination or award, or any such
indenture, agreement, lease or instrument.
(e) Legally Enforceable Agreement. This Agreement is, and each of the other Transaction Documents when executed and delivered will be, legal, valid and binding obligations of the Company, enforceable against the Company in accordance with their respective terms, except to the extent that such enforcement may be limited by applicable bankruptcy, insolvency and other similar laws affecting creditors' rights generally.
(f) Financial Statements. Each financial statement of the Company contained in the SEC Documents filed as of the Effective Date and as of each Closing Date (copies of which have been provided to the Agent) is true, complete and correct, and fairly presents the financial condition of the Company as at the dates set forth therein and the results of the operations of the Company for the periods covered by such statements, all in accordance with GAAP consistently applied (subject to year end adjustments in the case of the interim financial statements). Since March 31, 2000, there has been no material adverse change in the condition (financial or otherwise), business, operations, assets, business properties or prospects of the Company, except as disclosed in SEC Documents. There are no liabilities of the Company, fixed or contingent, which are material but are not reflected in the SEC Documents publicly available on EDGAR, other than liabilities arising in the ordinary course of business since March 31, 2000.
(g) Full Disclosure. The SEC Documents filed as of the Effective Date and all information, exhibits and reports furnished by the Company to the Agent or any Purchaser in connection with the negotiation, execution and delivery of this Agreement (including any schedule or exhibit attached hereto) are, and all other similar information hereafter furnished by and on behalf of the Company to the Agent or any Purchaser will be, true, complete, and correct in every material respect on the date on which such information is dated or certified and as of each Closing Date and such information does not, and shall not contain any material misstatement of fact or omit to state a material fact or any fact necessary to make the statement contained therein not misleading.
(h) Labor Disputes and Acts of God. Neither the business nor any of the properties of the Company has been or is affected by any fire, explosion, accident, strike, lockout or other labor dispute, drought, storm, hail, earthquake, embargo, act of God or of the public enemy, or other casualty (whether or not covered by insurance) materially and adversely affecting such business, properties or the operation of the Company.
(i) Other Agreements. Except as set forth in the SEC Documents publicly available on EDGAR or on Schedule 7.1(i), the Company is not a party to any indenture, loan, or credit agreement, or to any lease or other agreement or instrument, or subject to any charter or corporate restriction which could have a material adverse effect on the business, properties, assets, operations, or conditions, financial or otherwise, of the Company or such Subsidiary, or on the Company's ability to perform its obligations under the Transaction Documents. Except as disclosed in the SEC Documents, the Company is not in default in any respect in the performance, observance, or fulfillment of any of the obligations, covenants, or conditions contained in any agreement, document or instrument material to its business to which it is a party.
(j) Litigation. Except as set forth in the SEC Documents publicly available on EDGAR on the Effective Date and each Closing Date or on Schedule 7.1(j), there is no pending or threatened action or proceeding against or affecting the Company before any court, governmental agency, or arbitrator which may, in any one case or in the aggregate, materially adversely affect the condition (financial or otherwise), operations, properties, prospects or business of the Company, or the ability of the Company to perform its obligations under any of the Transaction Documents.
(k) No Defaults. Except as set forth in the SEC Documents publicly available on EDGAR on the Effective Date and each Closing Date or on Schedule 7.1(k), the Company is not in material default with respect to any judgment, writ, injunction or decree, or with respect to any rule or regulation of any court, arbitrator, or federal, state municipal, or other governmental authority, commission, board, bureau, agency or instrumentality, domestic or foreign.
(l) Ownership and Liens. Except as disclosed in the SEC Documents, the Company has valid and defensible title to, or valid leasehold interests in, free and clear of all Liens, all of its properties and assets, real and personal, including, without limitation, all patents, trademarks and other intellectual property, and including, without limitation, the properties and assets and leasehold interest reflected in the financial statements referred to in Section 7.1(e) of this Agreement (other than any properties or assets disposed of in the ordinary course of business).
(m) ERISA. Except as set forth in the SEC Documents publicly available on
Edgar on the Effective Date and each Closing Date or on Schedule
7.1(m), the Company is in material compliance with all applicable
provisions of ERISA, and neither a Reportable Event nor an Prohibited
Transaction has occurred and is continuing with respect to any Plan.
(n) Operation of Business. The Company possesses all licenses, permits,
franchises, patents, copyrights, trademarks, and trade names, or rights
thereto, to conduct its business substantially as now conducted and as
presently proposed to be conducted, and the Company is not in violation
of any valid rights of others with respect to any of the foregoing.
(o) Taxes. Except as set forth in the SEC Documents publicly available on
EDGAR on the Effective Date and each Closing Date or on Schedule
7.1(o), the Company has timely filed all tax returns (federal, state,
and local) required to be filed and timely paid all taxes due and
payable.
(p) Debt. Set forth in the SEC Documents publicly available on EDGAR on
the Effective Date and each Closing Date or on Schedule 7.1(p) is a
true, complete and correct list of all credit agreements, indentures,
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purchase agreements, guaranties, Capital Leases, and other investments, agreements, and arrangements presently in effect providing for or relating to extensions of credit (including, without limitation, agreements and arrangements for the issuance of letters of credit or for acceptance financing) in respect of which the Company is in any manner directly or contingently obligated; and the maximum principal or face amounts of the credit in question, which are outstanding and which can be outstanding, are correctly stated, and all Liens of any nature given or agreed to be given as security therefor are correctly described or indicated in the SEC Documents or on Schedule 7.1(p).
(q) Environment. Except as set forth in the SEC Documents publicly available on EDGAR on the Effective Date and on each Closing Date or as would not reasonably be expected to have a Material Adverse Effect on the Company, the Company has materially complied with, and their respective businesses, operations, assets, equipment, property, leaseholds and other facilities are in material compliance with, the applicable provisions of all federal, state, and local environmental, health and safety laws, codes and ordinances, and all rules and regulations promulgated thereunder.
(r) Registration and Listing of Common Stock. The Company is a reporting company and has continuously been a reporting company since 1995. The Common Stock is registered under the Exchange Act and listed on the OTC Bulletin Board. Since 1995, the Company has filed in an timely manner all SEC Documents required of it by the Exchange Act, the rules and regulations of the SEC, and the rules and regulations of the OTC Bulletin Board.
(s) No U.S. Offering. The Company has not offered any of the Debentures, the Conversion Shares, the Warrants or the Warrant Shares to, or solicited such an offer from, a U.S. Person (as defined in SEC Rule 902(k)) or to a Person in the United States.
(t) Offshore Transaction. The negotiations for and the issuance of the Debentures and the Warrants to the Agent has been made in an offshore transaction as defined in SEC Rule 902(h).
(u) No Directed Selling Efforts. The Company has not engaged in any directed selling efforts, as defined in SEC Rule 902(c), with respect to the Debentures and the Warrants.
(v) Category 3 Securities. The Company has complied with all of the conditions required of it under SEC Rules 903(a) and 903(b)(3) with respect to the issuance of the Debentures and Warrants.
(w) Exemption of Debentures and Warrants from Registration. The Company's issuance of the Debentures and the Warrants is exempt from the registration requirements of Section 5 of the Securities Act pursuant to the provisions of Section 4(2)of the Act and SEC Regulation S. In making this representation, Company has relied on the representations of the Agent and each Purchaser in Sections 7.2 and 7.3 of this Agreement.
7.2 The Agent's Representations and Warranties. The Agent represents and warrants to the Company as of the Effective Date and each Closing Date that:
(a) Accredited Investor. It is and each Purchaser is an accredited investor as that term is defined in Rule 501(a)(3) of Regulation D of the SEC.
(b) U. S. Persons. It is not and no Purchaser is a U.S. Person as defined in SEC Rule 902(k).
(c) SEC Rules 903(a) and 903(b)(3). It has complied and each Purchaser will comply with all of the conditions required of it by SEC Rules 903(a) and 903(b)(3) to be complied with by it and each Purchaser in connection with the transactions contemplated by this Agreement.
(d) SEC Rule 903. All offers and sales of the Debentures and related Warrants to Purchasers have been and will be made only in accordance with SEC Rule 903, or pursuant to registration under the Securities Act, or pursuant to an available exemption from the registration requirements of the Securities Act.
(e) Group. Except as disclosed in Exhibit H, it is not a member of any "group" (within the meaning of Regulation 13D under the Exchange Act) with respect to Company's Common Stock and which includes the Agent or any other Purchaser.
7.3 The Purchasers' Representations and Warranties. Each Purchaser severally and not jointly represents and warrants to the Company that as of the Effective Date and each Closing Date:
(a) Accredited Investor. It is an accredited investor as that term is defined in Rule 501(a)(3) ofRegulation D of the SEC.
(b) U. S. Persons. It is not a U.S. Person as defined in SEC Rule 902(k). SEC Rule 903(b)(3). It has complied with all of the conditions required of it by SEC Rule 903(b)(3) to be complied with by it in connection with the transactions contemplated by this Agreement.
(c) Group. Except as disclosed in Schedule 7.3, it is not a member of any "group" (within the meaning of Regulation 13D under the Exchange Act) with respect to Company's Common Stock and which includes the Agent or any other Purchaser.
(d) Group. Except as disclosed in Exhibit H, it is not a member of any "group" (within the meaning of Regulation 13D under the Exchange Act) with respect to Company's Common Stock and which includes the Agent or any other Purchaser.
8. Affirmative Covenants
8.1 Financial and Operational Covenants. So long as (a) any amounts shall be due and payable by the Company hereunder, (b) any of the Debentures shall remain outstanding or unconverted, or (c) not all of the Warrants have been fully exercised or expired, the Company will:
(a) Maintenance of Existence. Preserve and maintain its corporate existence and good standing in the jurisdiction of its incorporation, and qualify and remain qualified and in good standing as a foreign corporation in each jurisdiction in which such qualification is required.
(b) Maintenance of Records. Keep adequate records and books of account, in which complete entries will be made in accordance with GAAP consistently applied, reflecting all financial transactions of the Company and each Subsidiary.
(c) Maintenance of Properties. Maintain, keep and preserve all of its properties (tangible and intangible) necessary or useful in the proper conduct of its business in good working order and condition, ordinary wear and tear excepted.
(d) Conduct of Business. Continue to engage in an efficient and economical manner in a business of the same general type as conducted by it on the date of this Agreement.
(e) Maintenance of Insurance. Maintain insurance with financially sound and reputable insurance companies or associations in such amounts and covering such risks as are usually carried by companies engaged in the same or a similar business and similarly situated, which insurance may provide for reasonable deductibility from its coverage.
(f) Compliance With Laws. Materially comply, and cause each Subsidiary to materially comply, with all applicable laws, codes, regulations, rules, ordinances and orders, including without limitation paying before the same become delinquent all taxes, assessments and governmental charges imposed upon it or upon its property, if and to the extent noncompliance would reasonably be expected to have a Material Adverse Effect on the Company.
(g) Right of Inspection. At any reasonable time and from time to time but subject to the requirements of SEC Regulation FD or any restriction imposed by Company which, in the judgment of its management or legal counsel, may be required in order for the Company to comply with Regulation FD, permit the Agent or any Purchaser, or any of their agents or representatives to examine and make copies of and abstracts from the records and books of account of, and visit the properties of, the Company, and to discuss its affairs, finances and accounts with any of its officers, directors and independent accountants.
(h) Reporting Requirements. Furnish to the Agent:
(i) Quarterly Financial Statements. The Company's reports on Form 10-Q or 10-QSB contemporaneously with their filing with the SEC.
(ii) Annual Financial Statements. The Company's annual reports on Form 10-K or 10-KSB contemporaneously with their filing with the SEC.
(iii) Management Letters. Promptly upon receipt thereof, copies of any reports submitted to the Company by independent accountants in connection with their examination of the financial statements of the Company.
(iv) Certificate of No Default. Within twenty-five (25) days after the end of each month a certificate of the Company's chief financial officer certifying that to the best of his or her knowledge no Default or Event of Default has occurred and is continuing or, if a Default or Event of Default has occurred and is continuing, a statement as to the nature thereof and the action that has been taken and is proposed to be taken with respect thereto.
(v) Notice of Litigation. Promptly after the commencement thereof, notice of all actions, suits and proceedings before any court or governmental department, commission, board, bureau, agency, or instrumentality (domestic or foreign) or arbitrator, affecting the Company, which, if determined adversely to the Company, could have a Material Adverse Effect on the Company.
(vi) Notice of Defaults and Events of Default. As soon as possible and in any event within ten (10) days after the occurrence of each material Default or material Event of Default, a written notice setting forth the details of such Default or Event of Default and the action that has been taken and is proposed to be taken by the Company with respect thereto.
(vii) The Company's Reporting and Listing Status. The Company shall be and remain a reporting company under the Exchange Act, and shall file in a timely manner all SEC Documents required by the Exchange Act or SEC regulations to be filed by a reporting company; and the Company shall cause its Common Stock to continuously be quoted on the OTC Bulletin Board or listed on a Nasdaq market. The Company shall apply for listing on the Nasdaq Small Cap Market as soon as it is eligible therefor.
(viii) ERISA Reports. As soon as possible, and in any event within thirty
(30) days after the Company knows or has reason to know that any
circumstances exist that constitute grounds entitling the PBGC
to institute proceedings to terminate a Plan subject to
ERISA with respect to the Company or any Commonly Controlled Entity,
and promptly but in any event within two (2) Trading Days of
receipt by the Company or any Commonly Controlled Entity of notice
that the PBGC intends to terminate a Plan or appoint a trustee to
administer the same, and promptly but in any event
within five (5) Trading Days of the receipt of notice concerning the
imposition of withdrawal liability with respect to the Company or
any Commonly Controlled Entity, the Company will deliver to the
Agent a certificate of the chief financial officer of the Company
setting forth all relevant details and the action which the Company
proposes to take with respect thereto.
(ix) Reports to Other Creditors. Promptly after the furnishing thereof, copies of any statement or report furnished by the Company to any other party pursuant to the terms of any indenture, loan, credit or similar agreement and not otherwise required to be furnished to the Agent pursuant to any other clause of this Agreement.
(x) Other Regulatory Reports and Filings. Promptly after the sending or filing thereof, copies of all proxy statements, financial statements and reports that the Company sends to its shareholders, and copies of all regular, periodic and special reports, and all registration statements that the Company files with the securities regulatory authorities of any country, province or state, or with any securities exchange.
(xi) General Information. Subject to the requirements of SEC Regulation FD or any restriction imposed by Company which, in the judgment of its management or legal counsel, may be required in order for the Company to comply with Regulation FD, such other information respecting the properties, prospects, condition or operations, financial or otherwise, of the Company as the Agent or any Purchaser may from time to time reasonably request.
(i) Environment, Health and Safety. Be and remain in material compliance with all applicable environmental, health and safety laws, rules and regulations, if and to the extent that noncompliance would reasonably be expected to have a Material Adverse Effect on the Company.
8.2 Additional Covenants. So long as (a) any amounts shall be due and payable by the Company hereunder, (b) any of the Debentures shall remain outstanding or unconverted, or (c) not all of the Warrants have been fully exercised or expired, the Company hereby further covenants and agrees with the Agent and each Purchaser that:
(a) Shareholders Meeting. As soon as possible and in any event within 120 days of the Effective Date the Company shall hold a shareholders meeting for the purpose of reducing the number of outstanding shares of Common Stock or increasing the number of authorized shares of Common Stock available for issuance in order to satisfy the requirements of Section 8.2(b). The Company shall solicit proxies in favor of that action, and shall cause its directors and officers, who are holders of Common Stock to vote their shares in favor thereof.
(b) Adequate Available Shares of Common Stock. Subject to shareholder approval pursuant to Section 8.2(a), the Company shall at all times keep an adequate number duly authorized shares of Common Stock reserved and available for issuance upon the conversion of Debentures and the exercise of Warrants. If at any time the Company does not have such an adequate number of shares of Common Stock reserved and available for issuance, then the Company shall immediately call and within 120 days hold a special meeting of its shareholders for the purpose of increasing the number of the Company's authorized shares of Common Stock. The Company shall cause its directors, officers, and employees who are holders of Common Stock to vote their shares in favor of such increase in the Company's number of authorized shares of Common Stock.
(c) TK Escrow. Contemporaneously with the execution of this Agreement,
the Company shall execute an Amended and Restated Escrow Agreement
with the Agent as escrow holder (the "Escrow Agreement") in
substantially the form and substance of Exhibit E to this Agreement.
On the Initial Closing Date, the Borrower shall deliver to the
Escrow Holder a certificate for number of shares equal to (i) the
lesser of the number of authorized, unissued and unreserved shares
of Common Stock or (ii) the sum of 150% of the Conversion Shares for
the Initial Debentures, calculated as if the Initial Closing Date
were the Conversion Date, plus 100% of the related Warrant Shares.
To the extent that the Company has not deposited shares of Common
Stock in an amount equal to 150% of the Conversion Shares (as so
calculated) plus 100% of the related Warrant Shares in connection
with the Initial Purchase, within five (5) Trading Days after the
Company receives authorization from its shareholders pursuant to
Section 8.2(a), the Company shall deliver to the Escrow Holder a
certificate for additional Conversion Shares and Warrant Shares so
that the aggregate number of Conversion Shares and Warrant Shares
held by the Escrow Holder equals 150% of the Conversion Shares for
outstanding Debentures, calculated as if the Initial Closing Date
were the Conversion Date, plus 100% of the Warrant Shares. As a
condition precedent to the Agent's obligation to purchase any
additional Debenture, the Company shall deposit with the Escrow
Holder 150% of the Conversion Shares into which each such Debenture
is convertible, calculated as if the Conversion Date were the
Closing Date with respect to such Debenture plus 100% of the
Warrant Shares. All shares of Common Stock deposited with the
Escrow Holder pursuant to this Section 8.2(c) are referred to as the
"Escrow Shares." Until the Registration Statement is effective,
the certificates shall bear an appropriate restrictive legend.
Except for such legend, all Escrow Shares shall be free and clear of
any legends, liens, claims, stop orders or other restrictions.
Within five (5) Trading Days after the effective date of the
Registration Statement, the Company shall authorize its transfer
agent to register the Escrow Shares in the Agent's street name, in DTC
form, free and clear of any legends, liens, claims, stop orders or
other restrictions.
8.3 The Purchasers' Covenants. No Purchaser (a) shall offer, sell or otherwise dispose of any securities issued to it, except in compliance with the provisions of Regulation S, or pursuant to registration under the Securities Act, or pursuant to an available exemption from such registration; or (b) shall engage in hedging transactions with regard to such securities unless in compliance with the Securities Act. 8.4 Limitation on Common Stock Ownership. The Agent and each of the Purchasers covenants and agrees that at no time shall it, either individually or collectively with each other person deemed for purposes of Exchange Act Regulation 13D to be a member of a group which includes it, beneficially own in excess of 9.9% of the then issued and outstanding Common Stock (determined on an undiluted basis). Debentures may be converted into Common Stock and Warrants may be exercised for Common Stock only if and to the extent that, following such conversion or exercise, it (or the group of which it is deemed to be a member) beneficially owns less than ten percent (10%) of Company's then outstanding Common Stock. For the purpose of this Agreement, beneficial ownership of Common Stock shall be determined in accordance with Exchange Act Rule 13d-3 (as amended).
9. Negative Covenants. So long as (a) any amounts shall be due and payable hereunder, (b) any of the Debentures remains outstanding, or (c) the Agent shall be obligated to purchase Debentures under this Agreement, the Company will not:
9.1 Mergers, Etc. Wind up, liquidate or dissolve itself, reorganize, merge or consolidate with or into, or convey, sell, assign, transfer, lease, or otherwise dispose of (whether in one transaction or in a series of transactions) all or substantially all of its assets (whether now owned or hereafter acquired) to any Person, or acquire all or substantially all of the assets or the business of any Person.
9.2 Sale and Leaseback. Sell, transfer, or otherwise dispose of, or permit any Subsidiary to sell, transfer, or otherwise dispose of, any real or personal property to any Person and thereafter directly or indirectly lease back the same or similar property.
9.3 Dividends and other Distributions. Declare or pay any dividends; or purchase, redeem, retire, or otherwise acquire for value any of its capital stock now or hereafter outstanding; or make any distribution of assets to its stockholders as such whether in cash, assets, or obligations of the Company; or allocate or otherwise set apart any sum for the payment of any dividend or distribution on, or for the purchase, redemption, or retirement of any shares of its capital stock; or make any other distribution by reduction of capital or otherwise in respect of any shares of its capital stock; or permit any of its Subsidiaries to do any of the foregoing or to purchase or otherwise acquire for value any stock of the Company or another Subsidiary.
9.4 Sale of Assets. Sell, lease, assign, transfer, or otherwise dispose of any of its now owned or hereafter acquired assets (including, without limitation, shares of stock and indebtedness of Subsidiaries, receivables, and leasehold interests), except: (a) inventory disposed of in the ordinary course of business; and (b) the sale or other disposition of assets no longer used or useful in the conduct of its business.
9.5 Investments. (a) Make any loan or advance to any Person, or (b)
purchase or otherwise acquire any capital stock, assets, obligations, or other
securities of, make any capital contribution to, or otherwise invest in or
acquire any interest in any Person, or participate as a partner or joint
venturer with any other Person, except: (i) direct obligations of the U.S. or
any agency thereof with maturities of one year or less from the date of
acquisition; (ii) commercial paper of a domestic issuer rated at least "A-1" by
Standard and Poor's Corporation or "P-1" by Moody's Investors Service, Inc.;
(iii) certificates of deposit with maturities of one year or less from the
date of acquisition issued by any commercial bank having capital and surplus
in excess of One Hundred Million U.S. Dollars (US$100,000,000); and (iv) stock,
obligations, or securities received in settlement of debts (created in the
ordinary course of business) owing to the Company.
9.6 Guaranties, Etc. Assume, guaranty, endorse, or otherwise be or become directly or contingently responsible or liable (including, but not limited to, an agreement to purchase any obligation, stock, assets, goods, or services, or to supply or advance any funds, assets, goods, or services, or an agreement to maintain or cause such Person to maintain a minimum working capital or net worth, or otherwise to assure the creditors of any Person against loss), for obligations of any Person, except guaranties by endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business.
9.7 Transactions With Affiliates. Enter into any transaction, including, without limitation, the purchase, sale, or exchange of property or the rendering of any service, with any Affiliate, including, without limitation, the purchase, sale, or exchange of property or the rendering of any service, with any Affiliate, except in the ordinary course of and pursuant to the reasonable requirements of the Company's business and upon fair and reasonable terms no less favorable to the Company than would obtain in a comparable arm's length transaction with a Person not an Affiliate.
9.8 Issue Securities. Issue any common stock or other equity securities, or any other stock, option, warrant, right or other instrument that is convertible into or exercisable or exchangeable for common stock or other equity securities, except for (a) securities issued pursuant to this Agreement and (b) securities sold and options granted to directors, officers and employees of the Company pursuant to bona fide employee benefit plans; provided, however, that the Company may issue such securities with the prior written consent of the Agent on behalf of the Purchasers, which consent the Agent agrees not to unreasonably withhold. 10. Events of Default 10.1 Events of Default. If any of the following events shall occur, the Agent may, by notice to the Company, declare its obligation to purchase Debentures to be terminated, whereupon the same shall forthwith terminate, and declare the Debentures, all interest thereon, and all other amounts payable under this Agreement to be forthwith due and payable, whereupon the Debentures, all such interest, and all such amounts shall become and be forthwith due and payable, without presentment, demand, protest, or further notice of any kind, all of which are hereby expressly waived by the Company:
(a) The Company should fail to pay the principal of or interest on any Debenture as and when due and payable, or any amount of any other fee by or within 10 days after the date that such fee is due and payable;
(b) Any representation or warranty made or deemed made by the Company in this Agreement or any other Transaction Document, or which is contained in any certificate, document, opinion, or financial or other statement furnished at any time under or in connection with any Transaction Document, shall prove to have been incorrect, incomplete, or misleading in any material respect on or as of the date made or deemed made;
(c) The Company shall fail to perform or observe any term, covenant, or agreement contained in this Agreement or any other Transaction Document to be performed or observed by it;
(d) Except as disclosed in the SEC Documents, the Company or any subsidiary shall (i) fail to pay any material indebtedness for borrowed money (other than any Debenture) of the Company or any interest or premium thereon, when due (whether by scheduled maturity, required prepayment, acceleration, demand, or otherwise), or (ii) fail to perform or observe any material term, covenant, or condition on its part to be performed or observed under any agreement or instrument relating to any such indebtedness, when required to be performed or observed, if the effect of such failure to perform or observe is to accelerate, or to permit the acceleration of, after the giving of notice or passage of time, or both, the maturity of such indebtedness, whether or not such failure to perform or observe shall be waived by the holder of such indebtedness; or any such indebtedness shall be declared to be due and payable, or required to be prepaid (other than by a regularly scheduled required prepayment), prior to the stated maturity thereof;
(e) The Company (i) shall admit in writing its inability to pay its
debts as such debts become due; or (ii) shall make an assignment
for the benefit of creditors, or petition or apply to any tribunal
for the appointment of a custodian, receiver, or trustee for it or
a substantial part of its assets; or (iii) shall commence any
proceeding under any bankruptcy, reorganization, arrangement,
readjustment of debt, dissolution, or liquidation law or statute of
any jurisdiction, whether now or hereafter in effect; or (iv) shall
have had any such petition or application filed or any such
proceeding commenced against it in which an order for relief is
entered or an adjudication or appointment is made, and which
remains undismissed for a period of thirty (30) days or more; or (v)
shall take any corporate action indicating its consent to, approval
of, or acquiescence in any such petition, application, proceeding,
or order for relief or the appointment of a custodian, receiver,
or trustee for all or any substantial part of its properties; or
(vi) shall suffer any such custodianship, receivership, or
trusteeship to continue undischarged for a period of thirty (30)
days or more;
(f) One or more judgments, decrees, or orders for the payment of money in excess of $100,000 shall be rendered against the Company and such judgments, decrees, or orders shall continue unsatisfied and in effect for a period of thirty (30) consecutive days without being vacated, discharged, satisfied, or stayed or bonded pending appeal;
(g) Any of the following events shall occur or exist with respect to the Company or any Commonly Controlled Entity under ERISA: any Reportable Event shall occur; complete or partial withdrawal from any Multiemployer Plan shall take place; any Prohibited Transaction shall occur; a notice of intent to terminate a Plan shall be filed, or a Plan shall be terminated; or circumstances shall exist which constitute grounds entitling the PBGC to institute proceedings to terminate a Plan, or the PBGC shall institute such proceedings; and in each case above, such event or condition, together with all other events or conditions, if any, could subject the Company to any tax, penalty, or other liability which in the aggregate may exceed Ten Thousand Dollars ($10,000); or
(h) If the Agent receives its first notice of a hazardous discharge or an
environmental complaint regarding the Company from a source other
than the Company, and the Agent does not receive notice (which may be
given in oral form, provided same is followed with all due dispatch
by written notice given by Certified Mail, Return Receipt Requested)
of such hazardous discharge or environmental complaint from the Company
within twenty-four (24) hours of the time the Agent first receives
said notice from a source other than the Company; or if any federal,
state, or local agency asserts or creates a Lien upon any or all of the
assets, equipment, property, leaseholds, or other facilities of the
Company by reason of the occurrence of a hazardous discharge or an
environmental complaint; or if any federal, state, or local agency
asserts a claim against the Company or its assets, equipment,
property, leaseholds, or other facilities for damages or cleanup costs
relating to a hazardous discharge or an environmental complaint;
provided, however, that such claim shall not constitute a default
if, within five (5) Trading Days of the occurrence giving rise
to the claim, (a) the Company can prove to the Agent's satisfaction
that the Company has commenced and is diligently pursuing either:
(i) a cure or correction of the event which constitutes the basis for
the claim, and continues diligently to pursue such cure or
correction to completion or (ii) proceedings for an injunction, a
restraining order, or other appropriate emergent relief preventing
such agency or agencies from asserting such claim, which relief is
granted within ten (10) Trading Days of the occurrence giving rise
to the claim and the injunction, order, or emergent relief is not
thereafter resolved or reversed on appeal; and (b) in either of the
foregoing events, the Company has posted a bond, letter of credit,
or other security satisfactory in form, substance, and amount to
both the Agent and the agency or entity asserting the claim to
secure the proper and complete cure or correction of the event which
constitutes the basis for the claim;
(i) A change of Control of the Company.
10.2 Agent's Right to Setoff. Upon the occurrence and during the continuance of any Event of Default, the Agent is hereby authorized at any time and from time to time, without notice to the Company (any such notice being expressly waived by the Company), to set off and apply any and all funds, deposits and accounts at any time held and other indebtedness at any time owing by the Agent to or for the credit or the account of the Company against any and all of the obligations of the Company now or hereafter existing under this Agreement or the Debenture or any other Transaction Document, irrespective of whether or not the Agent shall have made any demand under this Agreement or the Debenture or such other Transaction Document and although such obligations may be unmatured. The Agent agrees promptly to notify the Company after any such setoff and application; provided that the failure to give such notice shall not affect the validity of such setoff and application. The rights of the Agent under this Section 12.2 are in addition to other rights and remedies (including, without limitation, other rights of setoff) which the Agent may have.
11. Miscellaneous
11.1 Amendments, Etc. No amendment, modification, termination, or waiver of any provision of any Transaction Document to which the Company is a party, nor consent to any departure by the Company from any Transaction Document to which it is a party, shall in any event be effective unless the same shall be in writing and signed by the Agent, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given.
11.2 Notices, Etc. All notices given under this Agreement and under the other Transaction Documents shall be in writing, addressed to the parties as set forth below, or to such other address as a party may specify by notice given in accordance with this paragraph, and shall be effective on the earliest of (a) the date received, or (b) if given by facsimile transmittal on the date given if transmitted before 5:00 p.m. the recipient's time, otherwise it is effective the next day, or (c) on the second Trading Day after delivery to a major international air delivery or air courier service (such as Federal Express or Network Couriers):
If to the Agent: If to the Company:
Thomson Kernaghan and Co. Ltd. United States Antimony Corporation
365 Bay Street 1250 Prospect Creek
Toronto, Ontario M5H 2V2 P.O. Box 643
Attention: Ms. Michelle McKinnon Thompson Falls, Montana 59873-0643
Facsimile No.: (416) 860-6355 Attention: John Lawrence
President and CEO
Facsimile No.: (406) 827-3543
If to the Purchasers: With a copy (that does not constitute notice) to:
c/o Thomson Kernaghan and Co. Ltd.
365 Bay Street
Toronto, Ontario M5H 2V2
Attention: Ms. Michelle McKinnon
Facsimile No.: (416) 860-6355
Hawley Troxell Ennis and Hawley LLP
P.O. Box 1617
Boise, Idaho 83701
Attention: Gary D. Babbitt
In either case, with a copy (that does not constitute
notice) to:
Mayer Brown and Platt
700 Louisiana Street, Suite 3600
Houston, Texas 77002-2730
Attention: John M. Mann
Facsimile No. (713) 224-6410
|
11.3 No Waiver. No failure or delay on the part of the Agent or any Purchaser in exercising any right, power, or remedy hereunder 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. The rights and remedies provided herein are cumulative, and are not exclusive of any other rights, powers, privileges, or remedies, now or hereafter existing, at law or in equity or otherwise.
11.4 Successors and Assigns.This Agreement shall be binding upon and inure to the benefit of the Company, the Agent, the Purchasers and their respective successors and assigns, except that the Company may not assign or transfer any of its rights under any Transaction Document to which the Company is a party without the prior written consent of the Agent and the Purchasers.
11.5 Costs, Expenses, and Taxes. If any legal action is necessary to enforce the obligation of a party hereto, the prevailing party shall be reimbursed for any expense in protecting or enforcing its rights under this Agreement including, without limitation, reasonable attorneys' fees and expenses and all expenses incurred by the prevailing party in exercising its rights and remedies under this Agreement. The Company shall pay any and all stamp and other taxes and fees payable or determined to be payable in connection with the execution, delivery, filing, and recording of any of the Transaction Documents and the other documents to be delivered under any such Transaction Documents, and agree to hold the Agent harmless from and against any and all liabilities with respect to or resulting from any delay in paying or omission to pay such taxes and fees. This provision shall survive termination of this Agreement.
11.6 Integration. This Agreement and the other Transaction Documents contain the entire agreement between the parties relating to the subject matter hereof and thereof and supersede all oral statements and prior writings with respect hereto and thereto, including (without limitation) the Original Agreement and each of the related Transaction Documents (as that term is defined in the Original Agreement) also executed and delivered on July 25, 2000.
11.7 Governing Law. This Agreement and the Debentures shall be governed by, and construed in accordance with, the laws of the Province of Ontario, Canada; provided, however, if any provision of this Agreement is unenforceable under Ontario law, but is enforceable under the laws of the U.S. State of Montana, then Montana law shall govern the construction and enforcement of that provision.
11.8 Severability of Provisions. Any provision of any Transaction Document which is prohibited or unenforceable in any jurisdiction (after applying the provisions of Section [11.7] of this Agreement to that provision) shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of such Transaction Document or affecting the validity or enforceability of such provision in any other jurisdiction.
11.9 Headings. Section and paragraph headings in the Transaction Documents are included for the convenience of reference only and shall not constitute a part of the applicable Transaction Documents for any other purpose. 11.10 Dispute Resolution. The parties agree that the courts of the Province of Ontario, Canada, shall have jurisdiction and venue for the adjudication of any civil action between or among any of them arising out of relating to this Agreement or any other Transaction Document. The parties hereby irrevocably consent to such jurisdiction and venue, and hereby irrevocably waive any claim of forum non conveniens or right to change such venue.
11.11 Agent's Fee. At each Closing Date, the Company shall pay the Agent a fee for its services as agent (the "Agent's Fee") in an amount equal to ten percent (10%) of the aggregate principal amount of the Debentures sold by the Company at such closing.
11.12 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original but all of which shall constitute one and the same agreement. 11.13 Indemnity. The Company shall defend, protect, indemnify, and hold harmless the Agent and each Purchaser, and all of their respective officers, directors, employees, and agents (including, without limitation, those retained in connection with the transactions contemplated by this Agreement) (collectively, the "Indemnitees") from and against any and all actions, causes of action, suits, claims, losses, costs, penalties, fees, liabilities, damages, and expenses in connection therewith (irrespective of whether any such Indemnitee is a party to the action for which indemnification hereunder is sought), and including, without limitation, reasonable attorneys' fees and disbursements (the "Indemnified Liabilities"), incurred by the Indemnitees or any of them as a result of, or arising out of, or relating to (a) any misrepresentation or breach of any representation or warranty made by the Company in this Agreement or any other Transaction Document, or any other certificate, instrument, or document contemplated hereby or thereby; or (b) any breach of any covenant, agreement, or obligation of the Company contained in this Agreement or any other Transaction Document; or (c) the activities of the Company, each of its predecessors in interest or third parties with whom it or any of them have or had a contractual relationship, or arising directly or indirectly from the violation of any environmental protection, health, or safety law, whether such claims are asserted by any governmental agency or any other person; or (d) any cause of action, suit, or claim brought or made against such Indemnitee and arising out of or resulting from the execution, delivery, performance or enforcement of this Agreement or any Transaction Document, or any other instrument, document, or agreement executed pursuant hereto or thereto by any of the Indemnitees, any transaction financed or to be financed in whole or in part, directly or indirectly, with the proceeds of the Debentures or from the exercise of the Warrants, or the status of the Agent or any Purchaser or holder of any of the Debentures, Warrants, Conversion Shares or Warrant Shares, or as a stockholder in the Company; provided, however, that the Company shall not be required to indemnify the Indemnitees to the extent that any Indemnified Liabilities are caused by or result from any material misrepresentation or breach of any material representation or warranty made by the Agent or any Purchaser in this Agreement, or by the breach of any covenant, agreement or obligation of the Agent in this Agreement or any of the other Transaction Documents or in any other certificate, instrument or document contemplated hereby or thereby. To the extent that the foregoing undertaking by the Company may be unenforceable for any reason, the Company shall make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities that is permissible under applicable law. This indemnity shall survive termination of this Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the Effective Date.
The Company:
UNITED STATES ANTIMONY CORPORATION
By______________________________
Name____________________________
Title___________________________
Date signed_____________________
The Agent:
THOMSON KERNAGHAN and CO., LTD.
By______________________________
Name____________________________
Title___________________________
Date signed_____________________
The Purchasers:
ABUCK INVESTMENTS LTD.
By______________________________
Name____________________________
Title___________________________
Date signed_____________________
B-MAC TRADING
By______________________________
Name____________________________
Title___________________________
Date signed_____________________
CALIBER RESOURCES LTD.
By______________________________
Name____________________________
Title___________________________
Date signed_____________________
CALP II LP
By______________________________
Name____________________________
Title___________________________
Date signed_____________________
STRIKER CAPITAL LTD.
By______________________________
Name____________________________
Title___________________________
Date signed_____________________
URSA CAPITAL/HOLDING LTD.
By______________________________
Name____________________________
Title___________________________
Date signed_____________________
For purposes of Section 4.2, each of the undersigned Agent's Beneficial Owners has executed, or cause a duly authorized officer to execute this Agreement as of the Effective Date:
CALIBER RESOURCES LTD.
By______________________________
Name____________________________
Title___________________________
Date signed_____________________
EXHIBITS
Exhibit A Debenture Exhibit B Purchaser's Warrant Exhibit C Agent's Warrant Exhibit D Registration Rights Agreement Exhibit E Escrow Agreement Exhibit F Opinion of Company's Counsel Exhibit G Purchasers Exhibit H Members of Section 13(d) Group |
EXHIBIT A
FORM OF DEBENTURE
Refer to Tab 2
EXHIBIT B
FORM OF PURCHASER'S WARRANT
Refer to Tab 4
EXHIBIT C
AGENT'S WARRANT
Refer to Tab 3
EXHIBIT D
REGISTRATION RIGHTS AGREEMENT
Refer to Tab 7
EXHIBIT E
ESCROW AGREEMENT
Refer to Tab 8
EXHIBIT F
FORM OF OPINION OF COMPANY'S COUNSEL
Refer to Hawley Troxell Ennis and Hawley LLP
Opinion of Company's Counsel Letter dated July 25, 2000
EXHIBIT G
PURCHASERS
Amount of Debentures Purchased
Name of Purchaser Initial Tranche Second Tranche
1. Abuck Investments Ltd. $125,000 $75,000
2. B-Mac Trading $100,000
3. Caliber Resources Ltd. $125,000
4. Calp II LP $100,000
5. Striker Capital Ltd. $100,000
6. Ursa Capital/Holdings Ltd. $ 50,000
$600,000 $75,000
|
EXHIBIT H
MEMBERS OF SECTION 13 (d) GROUP
CALP II LP, Striker Capital Ltd. and Thomson Kernaghan and Co., Ltd. are under the common control of Mark Valentine, the Chief Executive Officer of Thomson Kernaghan and Co., Ltd., who has authority to vote and dispose of the shares beneficially owned by any of them. Accordingly, Thomson Kernaghan, CALP II and Striker Capital Ltd. may be considered a group which beneficially owns all of the shares beneficially owned by any of them. Under the financing agreement, CALP II and Striker Capital Ltd. agreed not to have the right to convert any debenture or exercise any warrant if, after having given effect the conversion or exercise, both of them considered as a group would be deemed to beneficially own more than 9.9% of the then outstanding common stock.
LETTERHEAD OF SONFIELD AND SONFIELD
September 10, 2001
United States Antimony Corporation
P.O. Box 643
1250 Prospect Creek Road
Thompson Falls, Montana 59873
Re: Registration Statement on Form SB-2 United States Antimony Corporation Common Stock, Par Value $.01 Per Share
Ladies and Gentlemen:
We are counsel for United States Antimony Corporation, a Montana corporation (the "Company"), in connection with the preparation of the Registration Statement on Form SB-2 (the "Registration Statement") as to which this opinion is a part, filed with the Securities and Exchange Commission (the "Commission") on September 10, 2001.
The Registration Statement relates to the offering by the Selling Stockholders, as listed in the Registration Statement, of 6,268,065 of common stock, par value $0.01 per share, of the Company (the "Shares"), of which (i) 2,317,597 shares of common stock issuable upon conversion of debentures at $0.29125 per share, and 1,682,403 additional shares issuable upon conversion if the market price is less than $.29125 per share which we are required to register pursuant to a financing agreement with purchasers of our convertible debentures; (ii) 1,394,050 shares issuable upon exercise of related warrants at $0.39 per share; (iii) 150,000 shares of common stock held by a Selling Shareholder; (iv) 240,343 shares issuable to the holders of debentures as penalties; and (v) 483,672 shares held by former holders of Series C preferred stock.
In connection with rendering our opinion as set forth below, we have reviewed and examined originals or copies of such corporate records and other documents and have satisfied ourselves as to such other matters as we have deemed necessary to enable us to express our opinion hereinafter set forth.
Based upon the foregoing, it is our opinion that:
Based upon such examinations, it is our opinion that (i) the Shares (other than the Warrant Shares and the Debenture Shares) are validly issued, fully paid and nonassessable and (ii) when there has been compliance with the Securities Act of 1933 and the applicable state securities laws and when the Warrant Shares and the Debenture Shares have been issued, delivered and paid for upon exercise of the Warrants or the conversion of the Debentures, as the case may be, in accordance with their respective terms, the Warrant Shares and the Debenture Shares will be validly issued, fully paid and nonassessable.
The opinions herein are limited to the laws of the State of Texas, the Montana Business Corporation Act, including the applicable provisions of the Montana Constitution and reported judicial decisions interpreting these laws and the federal laws of the United States, and we express no opinion as to the effect of the matters covered by this opinion of the laws of any other jurisdiction.
We hereby consent to the filing of this opinion as an Exhibit to the Registration Statement and to the reference to this firm under the caption "Legal Matters" in the prospectus included in the Registration Statement.
Very truly yours,
/s/SONFIELD AND SONFIELD ------------------------ Sonfield and Sonfield |
CONSENT OF DECORIA, MAICHEL & TEAGUE P.S.
As independent public accountants, we hereby consent to the incorporation by reference in this registration statement of our report dated March 11, 2001, included in USAC's Form 10-KSB for the year ended December 31, 2000, and to all references to our Firm included in this registration statement.
/s/DECORIA, MAICHEL & TEAGUE P.S.
Decoria, Maichel & Teague P.S
Spokane, Washington
September 6, 2001
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