| COMMITMENTS AND CONTINGENCIES |
TransPacific Energy Litigation
On April 28, 2014, TransPacific Energy Inc.,
Karen Kahn, Alexander Goldberg, John Howard, Audrey Boston, Anne Howard (“Howard”), ACME Energy, Inc. (“Acme”),
and Samuel Sami (“Sami”) (collectively, the “Plaintiffs”) filed suit against ForceField Energy, Inc. in
the Superior Court of the State of California for the County of San Diego, in a case styled TransPacific Energy, Inc. et al. v.
ForceField Energy, Inc., Case No. 37-2014-00013110-CU-BC-CTL (Cal. Super. Ct. filed April 28, 2014) (the “Lawsuit”).
In the Lawsuit, Plaintiffs claimed various breaches by ForceField of the share exchange agreement dated May 10, 2012 between ForceField,
Acme, Apela Holdings, and ABH Holdings, and sought unspecified damages in excess of $25,000. ForceField filed a motion to compel
the Lawsuit to arbitration.
On July 14, 2014, ForceField commenced an arbitration
proceeding against TPE, Howard, Sami, and Acme (collectively, the “Respondents”) before the American Arbitration Association
in New York City styled ForceField Energy, Inc. v. TransPacific Energy, Inc., et al v. ForceField Energy, Inc., et al, AAA Case
No. 01-14-0000-9289 (the “Arbitration”). In the Arbitration, ForceField asserted various claims for breach
of the share exchange agreement, which materially harmed the value of ForceField’s investments in TPE. Respondents filed
counterclaims in the Arbitration similar in substance to the claims they asserted in the Lawsuit.
On March 5, 2015, the parties entered into a
written settlement agreement (“Agreement”) that resolved all claims and counterclaims asserted in both the Lawsuit
and the Arbitration. Pursuant to the Agreement, both the Lawsuit and the Arbitration have each been dismissed with prejudice.
Class Actions
On April 17, 2015, a class action lawsuit against
the Company and its officers, Messrs. David Natan and Jason Williams (collectively referred to as the “Individual Defendants”),
former chairman and officer Mr. Richard St-Julien, and certain other third parties, was filed in the United States District Court,
Southern District of New York. Additional class action complaints were also filed in the Southern District on behalf of all persons
who purchased the Company’s securities between September 16, 2013 and April 15, 2015 (together, the “Class Actions”).
The Class Actions alleged the Company and the other persons named therein violated Sections 10(b) and 20(a) of the Securities Exchange
Act of 1934, as amended, and Rule 10b-5 promulgated thereunder, and seek an unspecified amount of damages.
On July 22, 2015, the Class Actions were consolidated
before the Honorable Naomi Reice Buchwald in the United States District Court for the Southern District of New York (the “Class
Action”). On November 6, 2015, the Lead Plaintiff in the Class Action filed a second amended complaint. The Company and Individual
Defendants have permission to file a motion to dismiss on or before December 4, 2015.
On October 13, 2015, the Judicial Panel on Multidistrict
Litigation issued an Order declining to transfer the Class Action to the Eastern District of New York.
Derivative Actions
On May 13, 2015, a derivative lawsuit on behalf
of the Company was filed in the United States District Court for the Eastern District of New York against the Individual Defendants,
the Company’s directors Kebir Ratnani, Adrian Auman, and David Vanderhorst (collectively referred to as the “Director
Defendants” ) and Mr. St-Julien. This lawsuit seeks unspecified damages against these individuals for breaches of their fiduciary
duties and unjust enrichment.
On May 29, 2015, a second derivative lawsuit
(together with the prior derivative lawsuit, the “Federal Derivative Actions”) on behalf of the Company against the
same defendants in federal court. This lawsuit seeks unspecified damages against these individuals for breaches of their fiduciary
duties, abuse of control, violations of Section 14 of the Securities Exchange Act of 1934, as amended, and unjust enrichment. On
August 19, 2015, plaintiffs in the Federal Derivative Actions moved to consolidate these two actions and appoint co-lead counsel
for the plaintiffs. This motion is currently pending before judges in the Eastern District of New York.
On August 27, 2015, a third derivative lawsuit
on behalf of the Company was filed in state court in Clark County, Nevada against the same defendants. This lawsuit seeks unspecified
damages against these individuals for breaches of their fiduciary duties, waste of corporate assets, unjust enrichment, aiding
and abetting fiduciary violations and gross mismanagement. On November 6, 2015, the Individual Defendants and Director Defendants
moved to dismiss this action. This motion is currently pending.
Although the ultimate outcome of the Class Actions,
Federal Derivative Actions and state-court derivative action cannot be determined with certainty, the Company believes that the
allegations stated in the above-described lawsuits are without merit against the Company, Individual Defendants and Director Defendants,
and the Company, Individual Defendants and Director Defendants intend to defend themselves vigorously against all allegations set
forth therein.
SEC Investigation
On April 21, 2015, the Company received from
the staff of the Securities and Exchange Commission, a subpoena for the production of certain documents and information pursuant
to a formal order of investigation. The Company is cooperating fully with the SEC in its investigation. Although an SEC investigation
is not an indication that any violation of law has occurred, the Company cannot predict the outcome of this inquiry.
American Lighting Sellers Litigation
Pursuant to the terms of the ALD stock purchase
agreement dated as of April 25, 2014, by and among the Company and ALD and the then stockholders of the ALD (collectively, the
“Sellers”) and the Sellers’ representative, as amended to date (the “SPA”), the Company acquired
all of the issued and outstanding capital stock of ALD Sellers. On April 24, 2015, the Company failed to pay any portion
of the aggregate balance of $1,050,000 then due under the terms of Seller Notes, which resulted in the Sellers’ representative
declaring an event of default under each of the notes. On May 11, 2015 the Sellers’ representative pursuant to Article 9
of Uniform Commercial Code, as in effect in the State of Nevada pursuant to Nevada Revised Statutes Sections 104.9101 commenced
a process of foreclosing on certain portions of the collateral.
On June 24, 2015, the Sellers’ representative,
acting for and on behalf of the Sellers, filed a complaint in the Superior Court of the State of California for the County of San
Diego, captioned Jeffrey J. Brown, in his capacity as Seller Representative vs. ForceField Energy, Inc., et al., Case No.
37-2015-00021180-CU-BC-CTL, seeking, among other things, the full payment of all amounts due under the notes and the cost of collection
thereof.
On July 21, 2015, the Company entered into an
amendment to the SPA with the Sellers’ representative whereby payment, compliance and certain other terms were amended. On
August 3, 2015, the complaint was dismissed without prejudice.
Consulting Services
ForceField has entered into various engagement
agreements for advisory and consulting services on a non-exclusive basis to obtain equity capital. In the event that the Company
completes a financing from a funding source provided by one of the consultants, then such consultant will receive a finders or
referral fee at closing ranging from five percent (5%) to ten percent (10%) of the amount received by the Company. The terms and
condition of financing are subject to Company approval. The Company has not raised any new capital since April 15, 2015.
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