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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended September 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ___________ to ___________
Commission file number: 1-9083
POLYPHASE CORPORATION
(Exact name of registrant as specified in its charter)
Nevada 23-2708876
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
16885 Dallas Parkway, Suite 400
Dallas, Texas 75248
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (214) 732-0010
Securities Registered Pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
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Common Stock, $.01 par value per share American Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Exchange Act during
the past 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of voting stock held by non-affiliates of
the registrant, based on the closing price of such stock on December 15, 1995,
was approximately $32,393,599. For purposes of this computation, all executive
officers, directors and 10% beneficial owners of the registrant are deemed to be
affiliates. Such determination should not be deemed an admission that such
executive officers, directors and 10% beneficial owners are affiliates. As of
December 15, 1995, the registrant had issued and outstanding 13,121,966 shares
of the Company's common stock, $ .01 par value.
DOCUMENTS INCORPORATED BY REFERENCE
The Company's definitive proxy statement to be filed with the
Securities and Exchange Commission pursuant to Regulation 14A, not later than
120 days after the end of the fiscal year covered by this report, is
incorporated by reference into Part III of this report.
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POLYPHASE CORPORATION
1995 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
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Page
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Part I
Item 1 Description of Business 1
Item 2 Description of Property 10
Item 3 Legal Proceedings 11
Item 4 Submission of Matters to a Vote of Security Holders 12
Part II
Item 5 Market for Registrant's Common Equity and Related
Stockholder Matters 13
Item 6 Selected Financial Data 14
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations 15
Item 8 Financial Statements 18
Item 9 Changes In and Disagreements with Accountants
on Accounting and Financial Disclosure 19
Part III
Item 10 Directors and Executive Officers of the Registrant 20
Item 11 Executive Compensation 20
Item 12 Security Ownership of Certain Beneficial Owners and
Management 20
Item 13 Certain Relationships and Related Transactions 20
Part IV
Item 14 Exhibits, Financial Statement Schedules, and Reports
on Form 8-K 21
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PART I
ITEM 1. Description of Business.
------------------------
General
The Company is a diversified holding company that, through its subsidiaries,
currently operates primarily in four industry segments: the forestry segment,
which distributes, leases and provides financing for industrial and commercial
timber and logging equipment (the "Forestry Group"); the computer segment, which
markets, services and provides the networking of computers and related equipment
and electronic parts (the "Computer Group"); the transformer segment, which
manufactures and markets electronic transformers, inductors and filters (the
"Transformer Group"); and the food processing segment, which produces high
quality entrees, plated meals, soups, sauces and poultry, meat and fish
specialties (the "Food Group"). The Company was incorporated in New Jersey in
1963 under the name Kappa Networks, Inc. In June 1991, through a merger with a
wholly owned subsidiary, the Company reincorporated in Pennsylvania and formally
changed its name to Polyphase Corporation. In June 1994, the Company, through a
merger with a wholly owned subsidiary, reincorporated in Nevada.
During 1993, under the direction of a new management team, the Company
embarked on an aggressive long-term program to diversify its activities and
expand its operations. In connection therewith, the Company consummated the
following acquisitions during fiscal 1993, 1994 and 1995:
. Computer System Concepts ("CSC") Effective January 1, 1993, the Company
--------------------------------
acquired certain assets of CSC from Michael Panayiotis. CSC, located in Long
Island City, New York, represented the first of two strategic acquisitions by
the Company in the computer marketing, service and networking businesses. The
assets of CSC were acquired in exchange for 30,000 shares of the Company's
Series C Preferred Stock, which were subsequently converted into 150,000 shares
of the Company's common stock (the "Common Stock"). The Company currently
operates the assets acquired from CSC through its wholly owned subsidiary,
Letronix, Inc.
. Network America, Inc. ("NAI") Effective April 1, 1993, the Company
-----------------------------
acquired all of the outstanding capital stock of NAI from Steven T. Douglas.
NAI is a Tulsa, Oklahoma-based assembler and retailer of computer hardware. The
NAI acquisition represented the Company's second strategic acquisition in the
computer marketing, service and networking businesses. The capital stock of NAI
was acquired in exchange for 250,000 shares of Series A-5 Preferred Stock, which
were subsequently converted into 500,000 shares of Common Stock.
. Taylor-Built Industries, Inc. ("TBI") In October 1993, the Company
-------------------------------------
acquired all of the outstanding capital stock of TBI from James T. Taylor in
exchange for 5,000 shares of Series B Preferred Stock, which were subsequently
converted into 50,000 shares of Common Stock. TBI, located in Dallas, Texas, is
a manufacturer and distributor of automotive aftermarket products. On February
13, 1995, the Company exchanged 100% of the common stock of TBI for 200,000
restricted shares of a publicly-held Company. No significant gain or loss was
recorded on the transaction.
. Dallas Parkway Properties Inc. ("DPPI") The Company, during October 1993,
---------------------------------------
acquired from Weldon Hays all the outstanding stock of DPPI in exchange for
100,000 shares of Series D Preferred Stock, which were subsequently converted
into 250,000 shares of Common Stock. At the time of the acquisition, DPPI was a
single-asset Texas corporation that owned (subject to related indebtedness) a
40,000 square foot office building in Dallas, Texas, which is used as the
Company's corporate headquarters. Ownership of the property was subsequently
conveyed to the Company.
. Register-Mate, Inc. ("RMI") The Company, in March 1994, acquired the
---------------------------
rights to the point-of-sale software system marketed under the name "Register-
Mate" together with certain other assets from the system's developers. The
consideration for this purchase amounted to approximately $500,000, consisting
of debt forgiveness of approximately $215,000 together with stock options valued
at $285,000. Pursuant to an employment agreement entered into between the sole
stockholder of the seller and the
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Company, the sole stockholder was granted stock options to acquire 57,000 shares
of Common Stock at an exercise price of $.50 per share. Such options were
exercised in full during September 1994. The assets acquired were transferred to
a newly formed subsidiary of the Company operating as Register-Mate, Inc., a
Texas corporation. As of September 30, 1995 the operations of RMI have not been
material.
. PC Repair of Florida, Inc. ("PCR") In May 1994, the Company acquired all
----------------------------------
of the outstanding capital stock of PCR from Gene H. Thurston, Jr. for 7,500
shares of Series B Preferred Stock, which were subsequently converted into
75,000 shares of Common Stock. PCR is a Sarasota, Florida-based retailer of
computer hardware and networks. In addition, PCR provides service and
maintenance of computer systems for business in the Sarasota region. The PCR
acquisition was undertaken as a means of expanding the Company's computer sales
and service operations.
. Texas Timberjack, Inc. ("TTI") In June 1994, the Company acquired all of
------------------------------
the outstanding capital stock of TTI from Harold Estes. TTI, with locations in
Lufkin, Jasper, and Cleveland, Texas, is a distributor of industrial and
commercial timber and logging equipment in East Texas and Western Louisiana.
The capital stock of TTI was acquired from Mr. Estes in consideration of
approximately $4,000,000 in cash, a $10,000,000 promissory note payable to the
order of Mr. Estes, (as modified, renewed and extended) due February 29, 1996,
and 100,000 shares of Series A Preferred Stock, which were subsequently
converted into 2,000,000 shares of Common Stock.
. Micro Configurations, Inc. ("Micro") In August 1994, the Company acquired
------------------------------------
all of the outstanding capital stock of Micro from Brett Ashley, Michel Swornik
and Serge Bien-Aime in exchange for 120,000 shares of Series A-2 Preferred
Stock, which were subsequently converted into 240,000 shares of Common Stock.
Micro, located in Brooklyn, New York, is engaged in the assembly, sale and
service of computers and related electronic products and represents further
expansion of the Company's computer sales and service operations.
. Overhill Farms, Inc. ("Overhill") In May 1995, the Company acquired
---------------------------------
substantially all the assets and operations of IBM Foods, Inc. The purchase,
which was accomplished through Overhill, a newly-formed subsidiary of the
Company, provided for cash payment to the seller of $31.3 million, subject to
certain adjustments, plus the assumption of certain liabilities of the acquired
business. Overhill Farms, located in Culver City, California, is a food
processor that produces high quality entrees, meals, soup, sauces and poultry,
meat and fish specialities primarily for customers in the weight loss, airline
and restaurant chain industries.
Prior to fiscal 1993, the Company's sole operating entity was Polyphase
Instrument Co. ("PIC"), which conducts the Company's transformer-related
activities. PIC, active since 1956, manufactures and sells customized
transformers and communication filters primarily to defense contractors and
their suppliers. In April 1993, the Company announced its intention to sell PIC
to prior management and reported PIC's financial results as discontinued
operations. After reviewing PIC's current financial performance and the effect
of management's cost-reduction measures, the sale of PIC was cancelled by mutual
agreement of the parties. Accordingly, the operating results of PIC were
reconsolidated in the Company's financial statements for fiscal 1993.
In January 1993, the Company relocated its corporate headquarters, together
with its accounting, administrative and investor relations functions, to Dallas,
Texas. See "Properties--Corporate Headquarters."
Products and Services
Transformer Group
The Company's Transformer Group currently consists of PIC. Transformers are
electromagnetic mechanisms used in a wide variety of electronic and electro-
mechanical applications to convert electrical currents from one voltage level to
another. The Transformer Group's products include power transformers used in
direct current power supplies; audio transformers used in voice and audio signal
circuits for transferral of low level, precise signals; pulse transformers used
in radar, digital signaling and computer
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applications; telephone modem transformers used in telephone circuits; and
ferro-resonant transformers used in computers and stabilized power systems. PIC
manufactures a large line of transformers ranging from miniaturized versions to
oil-filled units, with power levels ranging from microwatts to over 20
kilowatts, voltage levels of up to 20 kilovolts and currents ranging from micro-
amperes to 700 amperes.
PIC's communications filters are electronic, frequency-selective devices that
isolate and permit the passage through electronic equipment of selected
information carried by electrical energy. Such filters include filter chokes
and low pass, bank pass and high pass filter-to-signal circuits that separate
frequencies from one another. Filter sales currently account for only a small
portion of the transformer group's total sales.
PIC supplies products to meet its customers' exact specification requirements.
Specifications include frequency response and temperature range; energy loss;
and voltage, current, and energy levels.
Computer Group
Through its subsidiaries NAI, PCR, Micro and Letronix, the Company sells,
installs and provides ongoing maintenance and repair for major brand computer
hardware including IBM, Compaq/(R)/, Apple/(R)/, Hewlett-Packard, Epson, Citizen
and Okidata products. The Computer Group integrates hardware with various
software packages and operating systems including DOS, Windows, Novell/(R)/,
Unix/(R)/, WordPerfect/(R)/, Lotus 123/(R)/, Great Plains/(R)/, Accpac/(R)/, and
DBase/(R)/.
A major emphasis of the Computer Group has been expansion of its role in
integrating personal computers into local and wide area networks (LAN and WAN)
for major corporate accounts. In addition to providing equipment and
installation, the Computer Group provides on-site training and ongoing technical
support to those accounts.
Forestry Group
The Forestry Group, through TTI, is a distributor of industrial and commercial
timber and logging equipment with locations in Lufkin, Jasper, and Cleveland,
Texas. TTI carries the Timberjack, Blount and Ford-New Holland lines of timber
and logging equipment. During fiscal 1995 TTI began carrying the Hyundai line
of equipment which is priced competitively to complement the existing lines.
TTI is involved in the sale, leasing, and financing of the equipment it
distributes as well as the servicing of all major brands of related equipment.
TTI's operations are primarily concentrated in the forested areas of East Texas
although its market extends to surrounding states. TTI operates in a fragmented
industry where its major competition is from distributors and dealers of
Caterpillar and John Deere equipment. TTI estimates that it currently holds 50%
of the skidder and 60% of the shear market and approximately 70% of the loader
market in East Texas.
Food Group
The Food Group, through Overhill, has a growing market among national accounts
as a proprietary packer of high quality entrees, plated meals, soups, sauces,
poultry, meat and fish specialties. Overhill focuses on three major segments of
the food industry: 1) mass feeding consisting primarily of airlines such as
American, Continental and United, and, to a lesser extent, hospitals, senior
citizens homes and prisons; 2) private label packaging for Jenny Craig Weight
Loss Centers, King Hawaiian brands and Price/Costco; and 3) food service
consisting of full service and fast food restaurants such as International House
of Pancakes, Carl Jr. and Jack in the Box.
Sales
Transformer Group
Approximately 90% of the transformers and filters sold by PIC are incorporated
into equipment and systems used by branches of the United States Armed Forces,
primarily as components in state-of-the-art defense equipment programs. The
remainder are used as components in industrial processing systems.
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Major design projects in which PIC's products are currently used include the
United States Navy's Aegis Nuclear Cruiser and Aircraft Signal Protection Jammer
programs. In these programs, PIC acts as a subcontractor to major defense
contractors. Approximately 11% of PIC's sales from these operations in fiscal
1995 were direct sales to branches of the United States Armed Forces.
PIC's products are sold to approximately 150 active accounts, principally
defense contractors and their suppliers. Nine customers accounted for
approximately 78%, 84% and 77% of PIC's sales for fiscal 1995, 1994 and 1993,
respectively, which percentages represented approximately 2%, 12% and 32% of the
Company's consolidated sales, respectively. Martin Marietta, its predecessor
company, and its affiliates accounted for approximately 27% of such sales in
fiscal 1995, 55% in fiscal 1994 and 41% in fiscal 1993, which percentages
represented approximately 1%, 8% and 17% of the Company's consolidated sales,
respectively. Other major customers of the Transformer Group currently include
SPD Technologies, Rockwell International, Hughes, Eaton and Raytheon.
Transformers' sales prices range from $.05 to $20,000 per unit, while
communication filters' sales prices range from $30 to $5,000. PIC provides a
limited one-year product warranty on all its products.
Computer Group
Approximately 60% of the Computer Group's products and services are sold to
corporate accounts ranging from Fortune 500 companies to smaller businesses such
as local accounting, architectural, and advertising firms; the balance of such
products and services are sold to retail consumers.
In fiscal 1995, hardware and software package sales represented
approximately 60% of the Computer Group's sales, while service, repairs and
system maintenance accounted for approximately 40% of the Computer Group's
sales. Service is provided on either an as needed basis or as part of service
and maintenance contracts offered by CSC, NAI, Micro and PCR. Currently, the
Computer Group services over 250 commercial accounts. For companies with service
contracts, agreements provide for on-site coverage for specified equipment,
normally for a 12-month period. Service and maintenance contracts are
established either on a fixed hourly rate plus materials or on an all-inclusive
fixed annual rate. CSC, NAI, Micro and PCR maintain adequate spare parts
inventory and a staff of service managers and trained technicians to service
accounts. All hardware and spare parts provided by CSC, NAI, Micro and PCR carry
the manufacturers' warranties.
The customer list for the Computer Group is diversified with no single
account representing more than 2% of the Computer Group's total sales.
Forestry Group.
Approximately 37% of TTI sales during fiscal 1995 are from new equipment
sold to companies involved in the forestry industries. Additionally, TTI derived
10%, 5%, 17% and 31% of its revenues from sales of used equipment, servicing of
equipment, sales of parts and financing equipment sales, respectively. No single
customer accounts for more than 10% of TTI's sales. Equipment sales are
typically financed by TTI for periods ranging from 12 to 24 months at interest
rates ranging from 12% to 18% per annum.
Food Group
Approximately 75% of Overhill's sales in fiscal 1995 were derived from five
customers, two of which accounted for approximately 51.3% of its total sales,
Jenny Craig, Inc. (37.6%) and American Airlines (13.7%). On a consolidated
basis Jenny Craig and American represented approximately 14.8% and 5.4% of total
sales, respectively. Although the Company considers its relationships with
these customers to be good, there can be no assurance that these relationships
will continue as presently in effect. A decline in the sales of the Food Group's
products to these five customers or the loss of, or a significant change in the
relationship between the Company and any of these key customers could have a
material adverse effect on the Company's business and operating results.
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Marketing
Transformer Group
The Company sells transformers and filters directly to customers and through
commissioned sales representatives principally in the Mid-Atlantic and Northeast
regions of the United States. As of September 30, 1995, PIC had an in-house
sales and marketing staff of two full-time employees. To obtain new business,
PIC relies on leads generated from its reputation and existing customer base.
In addition, PIC advertises in various trade journals.
Computer Group
Commercial business is generated by the sales executives of CSC, NAI, Micro
and PCR through customer and vendor referrals and through bid awards from local
and state agencies. The Computer Group's marketing efforts are presently
concentrated in New York, Oklahoma, Arkansas and Florida, where it maintains
offices. Retail sales are primarily generated through local advertising and
repeat business.
Forestry Group
TTI currently maintains sales and distribution offices in Lufkin, Jasper and
Cleveland, Texas primarily to serve Eastern Texas and Western Louisiana. Sales
are generated through repeat customers, advertisements in various trade
publications and direct marketing calls on timber companies located in the area.
TTI's sales staff consists of six salesmen. A general sales manager and branch
managers supply technical and operational support. TTI meets customers' orders
for new equipment and replacement parts out of existing inventory or through
purchase orders placed with the manufacturers TTI currently represents.
Food Group
Overhill markets its products through its own internal staff and, to a lesser
degree, outside food brokers. Sales efforts have been concentrated on
Overhill's (formerly IBM's) traditional customer base of fast food restaurant
chains, airlines and weight loss centers. Management has begun focusing on the
development of retail products to be sold through warehouse club stores and
grocery store chains using the Overhill brand name or private labels. These
products are aimed at consumers willing to buy larger than normal quantities or
food service operators who buy in smaller quantities. Among the products
currently marketed are a teryaki rice bowl and noodle pudding under a private
label and a complete line of 14 oz. frozen microwaveable dinners featuring a
variety of entrees using the Overhill brand name. The success of these products
has encouraged the development of other private label items including a variety
of gourmet sauces and a line of frozen entrees from respected chefs.
Manufacturing and Sourcing
Transformer Group
PIC operates a manufacturing facility in Fort Washington, Pennsylvania that
produces approximately 90% of the Transformer Group's transformers and all
filters. Transformers are also manufactured at a leased facility in Haiti. See
"Properties--Transformer Group."
Management does not anticipate that the recent political events in Haiti will
have a material adverse effect on the Transformer Group's operations. To date,
production and shipments have continued on schedule. Management continues to
monitor events in Haiti and, if necessary, management believes that production
from this facility can be promptly replaced by domestic sub-contractors with no
significant cost increase.
The manufacturing process for PIC's transformers and filters is labor
intensive, involving mostly low-technology, manually operated machinery. The
process is not highly automated since PIC's products are custom designed to
customer specifications. Wherever economically feasible, operations are
automated.
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To date, PIC has automated the following operations: testing, coil winding and
a portion of the assembly operation. Given the nature of PIC's products and
their end uses, PIC maintains extensive test equipment for its quality control
operation.
Raw materials used by PIC include ferrites, laminates, copper wire and
electronic components purchased in predesigned configurations. Substantially
all raw materials and components are purchased from domestic sources and are
widely available. PIC carries adequate inventories of raw materials and other
product components as required to meet open customer orders. To avoid the
impact of commodity price fluctuations on items such as copper wire, the Company
endeavors to quote prices to customers based upon the known costs of such
materials at the time of such quotation.
Computer Group
CSC, NAI, Micro and PCR assemble computers in various configurations based on
customer requirements. Components such as motherboards, memory chips, cases,
and processors are readily available from numerous sources nationwide as are
software packages and peripheral equipment such as printers, modems, monitors
and keyboards. As a result, it is not necessary to maintain large inventories
of equipment for sale.
The assembly of computers is a relatively low-technology process supervised by
service managers. All computers are tested with commercial diagnostic software
prior to customer delivery. The servicing and repair of equipment and systems
require various levels of skill depending on the nature of the equipment or the
operating environment. CSC, NAI, Micro and PCR employ technicians with the
various skill levels to meet each of such requirements.
Food Group
Overhill's manufacturing operations are located in three separate facilities
in Los Angeles, California, which account for 100% of its production. The
operations are labor intensive requiring semi-skilled employees. All
manufacturing employees are unionized with contracts covering each plant and due
to expire at various times over the next three to five years. Management
believes relations with the unions are excellent and does not anticipate any
problems which would affect future production. Each plant specializes in
different processing operations allowing efficiencies in production of the
product. In fiscal 1995, the plants each operated at approximately 70% of
capacity.
The Company's ability to produce economically a large quantity of product,
while at the same time maintaining a high degree of quality, depends in a large
part on its ability to procure raw materials on a reasonable basis. The Company
relies on a few large suppliers for its poultry products with the remaining raw
materials purchased from suppliers in the open market. The Company does not
anticipate any difficulty in acquiring these materials in the future. The
Company maintains three dry warehouses and one frozen warehouse to supply
ingredients, raw materials and packaging for production. Finished goods are
stored on site or in a public frozen food storage facility until shipment is
required.
Backlog
Transformer Group
At September 30, 1995, PIC had unfilled purchase orders aggregating
approximately $700,000 as compared to $1,600,000 at September 30, 1994. Orders
may be subject to cancellation at the customer's discretion subject to
substantial cancellation charges. Based on current delivery schedules and
shipments, management believes that the Transformer Group will ship
substantially all of its current backlog within the following 12 months. The
Transformer Group's backlog may not provide meaningful period-to-period
comparisons and such comparisons and the backlog may not be indicative of future
results.
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Computer Group
There is no significant backlog in the Computer Group. Most orders are
assembled from inventory and shipped within twenty-four hours of completion.
Equipment unavailable from inventory generally is ordered directly from a
variety of national manufacturers and distributors, received from such
manufacturers and/or distributors, assembled, and shipped within seventy-two
hours of the customer order.
Forestry Group
As a dealer, servicer and financier of forestry equipment, TTI does not
maintain a backlog of orders. Equipment ordered by a customer that is not in
inventory takes approximately one to six weeks to be shipped from the
manufacturer or another representative.
Food Group
At September 30, 1995, Overhill had unfilled purchase orders aggregating
approximately $2,222,000. Substantially all of the backlog is expected to be
delivered to customers within the following 12 month period. Overhill may
experience variations in the total amount of the backlog at any given date and,
accordingly, Overhill's backlog is not necessarily indicative of trends in the
Company's business. Orders are subject to changes in quantities or to
cancellation with thirty days notice without penalties to customers.
Product Development
Transformer Group
PIC does not maintain a formal research and development program, nor are
material amounts expended for research and development. However, PIC's
engineering, marketing and operations staff are regularly engaged in engineering
design and product development since most products are designed to customers'
specifications. The cost of such development is expensed as incurred. Accurate
figures with respect to prototype development, product and material
modifications, design changes and similar product development for customers are
not available; many of these costs are included in the assembly costs of
specific orders, which assembly costs include work other than product design and
development. Customers either supply PIC with design specifications or submit
proposed designs and require PIC to determine whether such designs will meet the
customers' performance specifications. PIC continuously modifies and enhances
its transformers and communication filters to accommodate its customers' systems
and equipment and, in this manner, attempts to increase its market penetration.
Computer Group
The Computer Group does not develop products or software for sale to the
public, and as such does not engage in any research and development. However,
the Computer Group, through seminars, publications, and vendor information,
keeps current information on new product and software enhancements as they
become available.
Forestry Group
TTI does not develop products for sale to the public.
Food Group
Overhill maintains a separate research and development department consisting
of three chefs who formulate recipes and upgrade specific products for current
customers. For weight loss and mass feeding, products are developed based upon
customers' specifications or suggestions from the marketing department. Overhill
is continuously modifying recipes as customers' tastes change. During fiscal
1995, the Company began developing private label products for warehouse club
stores and a branded line featuring the Overhill line of frozen entrees.
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Patents, Trademarks and Copyrights
The Company does not have patents or patent applications pending on any of its
products, although it may file such patent applications in the future. The
Company attempts to protect its proprietary interest in its products by entering
into non-disclosure agreements with customers.
The Company has registered the trademark "Polyphase" in the United States
Patent and Trademark Office.
Regulation
The Computer, Transformer, and Forestry Groups are required to comply with
various governmental regulations and requirements concerning the discharge of
materials into the environment or otherwise relating to the protection of the
environment. Compliance with the current applicable federal, state and local
environmental regulations has not had, and the Company does not believe that in
the future such compliance will have, a material effect on its financial
position, results of operations, expenditures or competitive position.
The Food Group is subject to significantly stricter government regulation
particularly in the health and environmental areas by the United States
Department of Agriculture ("USDA"), the Food and Drug Administration ("FDA"),
Occupational Safety and Health Organization ("OSHA") and the Environmental
Protection Agency ("EPA"). The Food Group anticipates increased regulation by
the USDA and FDA concerning food processing and storage. The Company's food
processing facilities are subject to on-site examination, inspection and
regulation by the USDA. Compliance with the current applicable federal, state
and local environmental regulations has not had, and the Company does not
believe that in the future such compliance will have, a material effect on its
financial position, results of operations, expenditures or competitive position.
The Company takes all reasonable precautions to ensure that its operations,
processing plants and facilities operate in a safe, sanitary and
environmentally-sound manner. However, events beyond the control of the
Company, such as the adoption by the government of more stringent environmental
regulations could adversely affect its operations. Management believes that the
Company is in substantial compliance with all applicable laws and regulations
relating to the operations of facilities.
Competition
General
Competition in the industries in which the Company operates generally is
intense. Many of the Company's competitors have greater market recognition and
greater, financial, technical, marketing and human resources than the Company.
There can be no assurance that the Company will compete successfully against
existing companies or new entrants to the marketplace. Furthermore, the
development by competitors of new or improved products, services and/or
technologies may render the Company's products or services (or proposed products
or services) obsolete or less competitive.
Transformer Group
The business in which PIC is engaged is highly competitive, characterized by
ease of entry and intense regionally-based competition. Competition is based on
such factors as price, performance, reliability and product quality. The
Company believes that the reputation of PIC's engineering department and the
relationships it has established with its customers (having been in business
over 30 years) are important to its ability to compete successfully.
PIC competes directly with a number of manufacturers, primarily in the United
States, certain of which have financial and other resources substantially
greater than PIC. In addition, such manufacturers generally have more extensive
facilities than those that are, or in the foreseeable future may become,
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available to PIC. In this market, changing governmental policies can rapidly
create or eliminate areas of competition.
PIC's business is heavily dependent on continued demand for its products for
use in equipment and systems employed by branches of the United States Armed
Forces in defense equipment programs. See "Description of Business--Sales--
Transformer Group." In recent times, the United States Government has reduced
its expenditures for defense equipment programs and is likely to continue to do
so in the future. Such cutbacks have reduced, and may be expected to continue to
reduce, the overall market for PIC's products. The Company believes, however,
that these cutbacks have also caused a reduction in the number of PIC's
competitors, enabling PIC to increase its market share. There is no assurance
that PIC will be able to maintain or further increase its market share.
Computer Group
The competition for computer sales at both the retail and commercial level is
extremely strong and is primarily price driven. Competition comes by direct
sales from large, well-financed manufacturers, strong mass marketers, and from
small independents.
Forestry Group
Competition in the Forestry Segment is highly fragmented in the Eastern Texas
and Western Louisiana area where TTI principally operates. In business for many
years, TTI believes it has established a strong local identity in its field with
a proven record of delivering equipment on a timely basis, providing
satisfactory financing and strong customer support and service. TTI is one of
only a few distributors of Timberjack and Blount forestry equipment in its
operating area. TTI has the added advantage of being a leading seller and
financier of various makes and models of used logging equipment. Principal
competitors include local John Deere and Caterpillar distributors.
Food Group
Overhill's food products, consisting primarily of poultry and to a lesser
extent pasta, beef and assorted related products, compete with those produced by
numerous regional and national firms. Many of these companies are divisions of
larger fully integrated companies including Tyson Foods, Hudson Foods and
ConAgra which have greater financial and marketing resources. Competition is
intense with most firms producing similar products for the fast food and retail
industries. Competitive factors include price, product quality, product
development, customer service and, on a retail basis, brand name recognition.
Employees
As of September 30, 1995, the Company had approximately 932 employees as
follows: 48 full-time employees at PIC in Pennsylvania, 77 full-time employees
in its Computer Group, 47 full-time employees in the Forestry Group,
approximately 750 employees in its Food Group and 10 full-time employees in the
corporate office. All subsidiaries presently provide group health plans for
their domestic employees and pay a portion of the costs associated with plans.
TTI also maintains profit sharing plans for their employees.
9
<PAGE>
ITEM 2. Description of Property.
------------------------
Corporate Headquarters
The Company's corporate headquarters are located at 16885 Dallas Parkway,
Dallas, Texas 75248 and contain approximately 40,000 square feet of office
space. This building, formerly owned by DPPI, now a wholly owned subsidiary of
the Company, is subject to a first priority lien mortgage held by Comerica Bank-
Texas. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."
Transformer Group
PIC's domestic transformer and filter manufacturing operations are housed in a
44,000 square foot, leased, single-story facility in Fort Washington,
Pennsylvania, about 30 miles from Philadelphia. The lease for this facility is
due to expire in May 1996 and the company is currently in the process of
renewing the lease. PIC's foreign manufacturing operations are based in an
8,400 square foot building in Port-au-Prince, Haiti, which is rented by PIC on a
month-to-month basis. Management believes that these facilities are in suitable
condition and are adequate for PIC's needs in the foreseeable future.
Computer Group
NAI is located in a 6,000 square foot facility in Tulsa, Oklahoma. The lease
for this facility expires in May 1996. CSC leases 6,000 square feet in
Manhattan, New York. PCR is located in an approximate 4,000 square foot leased
facility in Sarasota, Florida that management believes is adequate for its needs
in the foreseeable future. Micro is located in a 3,000 square foot leased
facility in Brooklyn, New York that management believes is in suitable condition
and is adequate for its needs in the foreseeable future. RMI operations are
located at the corporate headquarters.
Forestry Group
TTI owns two buildings in Lufkin, Texas, two buildings in Jasper, Texas and
leases a building in Cleveland, Texas. One building in Lufkin, Texas has 18,000
square feet, of which 11,000 square feet comprise the shop area. The other
building in Lufkin has 1,500 square feet and is used as a wash and paint room.
One building in Jasper, Texas has 10,000 square feet, of which 6,600 square feet
comprise the shop area. The other building in Jasper has 900 square feet and is
used as a wash and paint room. The Cleveland building has approximately 1800
square feet and is used for shop and parts. During fiscal 1995 Texas Timberjack
determined relocation of its existing Lufkin facilities was necessary to
facilitate the expanded growth of its operations. Consequently, the Company is
in the process of selling the Lufkin, Texas facilities of TTI and completing the
purchase of a larger facility outside of Lufkin, Texas.
Food Group
Overhill leases three manufacturing facilities in the Los Angeles, California
area. Plant No. 1 is located in Inglewood, California and has 39,000 square
feet of manufacturing area. Plants No. 2 and No. 3 are located in Vernon,
California and have 49,000 and 54,000 square feet of manufacturing area,
respectively. In addition to the manufacturing facilities, Overhill also leases
two dry goods warehouses of 13,500 and 11,500 square feet, a 7,700 square foot
frozen storage facility in Inglewood, California and 7,927 square feet of office
space in Culver City, California. Overhill believes the existing facilities are
adequate to meet its requirements in the foreseeable future.
10
<PAGE>
ITEM 3. Legal Proceedings.
------------------
On February 28, 1995, a class action suit was filed in New York federal
district court against the Company, Paul A. Tanner, James Rudis and William E.
Shatley, seeking at least $15 million in damages plus an unspecified amount for
plaintiffs' costs. The claims were brought pursuant to Section 10(b) of the
Securities Exchange Act of 1934 (the "Exchange Act"), and Rule 10b-5 promulgated
thereunder, and against Mr. Tanner, Mr. Rudis and Mr. Shatley pursuant to
Section 20 of the Exchange Act. The suit claims, among other things, that the
Company and Mr. Tanner, Mr. Rudis and Mr. Shatley were responsible for
artificially inflating the market price of the Common Stock during the period of
October 26, 1993 through January 15, 1995. The New York court has transferred
venue for the suit to the United States District Court for the Northern District
of Texas. The Company intends to vigorously defend these allegations on both
the factual and legal grounds and does not expect the outcome of this matter to
have a material impact on the Company's financial position or results of
operations.
The Company is not a party to any other material pending litigation.
11
<PAGE>
ITEM 4. Submission of Matters to a Vote of Security Holders.
----------------------------------------------------
No matters were submitted during the fourth quarter of the fiscal year covered
by this report to a vote of security holders, through the solicitation of
proxies or otherwise.
12
<PAGE>
PART II
ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters.
----------------------------------------------------------------------
The Common Stock is listed on the American Stock Exchange under the symbol
"PLY." The following table sets forth the range of high and low sales prices
for the Common Stock on the American Stock Exchange for the periods indicated:
<TABLE>
<CAPTION>
Fiscal 1996 High Low
----------- ---- ---
<S> <C> <C>
Quarter from October 1, 1995
December 31, 1995 $4.6875 $3.25
<CAPTION>
Fiscal 1995 High Low
----------- ---- ---
<S> <C> <C>
Quarter from October 1, 1994
to December 31, 1994 $5.750 $3.125
Quarter from January 1, 1995
to March 31, 1995 $3.750 $2.125
Quarter from April 1, 1995
to June 30, 1995 $3.625 $2.6875
Quarter from July 1, 1995
to September 30, 1995 $3.875 $3.065
<CAPTION>
Fiscal 1994 High Low
----------- ---- ---
<S> <C> <C>
Quarter from October 1, 1993 $6.375 $3.3125
to December 31, 1993
Quarter from January 1, 1994
to March 31, 1994 $7.375 $4.375
Quarter from April 1, 1994
to June 30, 1994 $6.250 $3.625
Quarter from July 1, 1994
to September 30, 1994 $6.375 $4.000
</TABLE>
The Company has never paid cash dividends on its Common Stock and does not
anticipate doing so in the foreseeable future. Rather, the Company has
determined to utilize any earnings in the expansion of its business. Such
policy is, within the limitations and restrictions described below, subject to
change based on current industry and market conditions, as well as other factors
beyond the control of the Company.
The Company is restricted from paying dividends on its Common Stock pursuant
to the indenture (the "1999 Indenture") executed in connection with the issuance
of $4,000,000 in principal amount of 12% Senior Convertible Debentures due July
1, 1999 (the "1999 Bonds"). See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources."
In general, the 1999 Indenture prohibits the Company from paying or making
within any 12-month period dividends or distributions on its Common Stock having
a value in excess of 50% of the consolidated net income of the Company, unless
each holder of the 1999 Bonds receives an amount equal to its pro rata portion
of the dividend or distribution (on an as-converted into Common Stock basis).
Subsequent to year end, the Company issued additional debentures to the holders
of the 1999 bonds and in connection therewith, entered into an additional
agreements which contain dividend restrictions similar to those previously
described.
13
<PAGE>
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations Liquidity and Capital Resources.
On December 29, 1995, the closing sales price for the Company's Common Stock
on the American Stock Exchange was $4.00 per share. However, there is no
assurance that a market in the Company's securities will continue.
As of December 29, 1995, the Company estimates that there were approximately
2,200 beneficial owners of the Company's Common Stock, represented by
approximately 168 holders of record.
ITEM 6. Selected Financial Data
-----------------------
The table set forth below is selected financial data for the Company for each
of the last five fiscal years. This information should be read in conjunction
with Management's Discussion and Analysis of Financial Condition and Results of
Operation, and the Consolidated Financial Statements and Notes included
elsewhere herein.
<TABLE>
<CAPTION>
Fiscal Year Ended September 30
- ----------------------------------------------------------------------------------------------------
(Thousands of Dollars Except Per Share Data)
Income Statement Data: 1995 1994 1993 1992 1991
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $ 102,035 $ 24,970 $ 7,326 $ 5,563 $ 7,614
Operating Income 6,752 355 390 (833) 967
Earnings (Loss) Before
Extraordinary Item and
Cumulative Effect of Change
in Accounting Principle 3,286 (1,384) 852 (883) 483
Net Income (Loss) 3,286 (1,017) 1,036 (883) 1,641
Income (Loss) per Common Share:
Before Cumulative Effect of
Extraordinary Item and Change
in Accounting Principle $.26 $(.28) $.24 $(.35) $.31
Extraordinary Items .01 .05 .75
Cumulative Effect of
Accounting Change .06
---- ----- ---- ----- -----
Net Income (Loss) $.26 $(.21) $.29 $(.35) $1.06
==== ===== ==== ===== =====
Weighted Average Common
and Common Equivalent
Shares Outstanding 12,745,701 4,881,454 3,616,795 2,505,785 1,549,526
</TABLE>
<TABLE>
<CAPTION>
Fiscal Year Ended September 30
- ----------------------------------------------------------------------------------------------------
(Thousands of Dollars)
Balance Sheet Data: 1995 1994 1993 1992 1991
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total Assets $ 88,159 $ 37,975 $ 9,034 $ 3,904 $ 5,379
Long-term Debt 27,230 5,259 169 620 688
Total Liabilities 66,335 23,618 1,740 1,926 3,465
Accumulated Deficit (1,095) (4,381) (3,365) (4,400) (3,517)
Stockholders' Equity 21,137 14,357 7,293 1,977 1,914
</TABLE>
14
<PAGE>
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operation.
-------------
Results of Operations
Fiscal Year Ended September 30, 1995 Compared to Fiscal Year Ended September 30,
1994
During fiscal 1995, the Company made its largest acquisition to date
purchasing substantially all of the assets of IBM Foods, Inc. of Los Angeles,
California through its Overhill subsidiary. Overhill is a leading provider of
portion entrees to the airline and weight loss industry and a processor of food
for the retail and wholesale industries. Consequently, the Company is on its
way to achieving internal growth goals it established when the management
changed during fiscal 1993. The Company over the past three years has changed
its makeup from a small supplier of transformers and filters to the defense
industry to a well rounded holding company with interests in frozen food
preparation, forestry equipment distribution and computer sales and service.
The Company has attempted to maximize shareholder value over the past four
fiscal years through strategic acquisitions of well-managed companies in select
industries. The acquisitions have enabled overall revenues to increase from
$5,563,000 in fiscal 1992 to $102,035,000 in fiscal 1995, an increase of 1734%
over the four year period, net income to increase from a loss of $883,000 in
fiscal 1992 to income of $ 3,286,000, in fiscal 1995, an increase of 472% over
the four year period, and stockholders' equity to increase from $1,977,000 in
fiscal 1992 to $21,137,000 to fiscal 1995, (an increase of 969% over the four
year period.)
Net sales for the Company increased $77,065,000 (308%) from $24,970,000 in
1994 to $102,035,00 in fiscal 1995. The increase in sales was primarily
attributable to the Overhill acquisition during the 1995 fiscal year. Operating
income increased $6,396,000 (1800%) from $355,000 in fiscal 1994 to $6,752,000
in fiscal 1995. Increased operating income was primarily the result of
economies of scale achieved through higher revenues and additional companies.
Sales in the Computer Group increased $4,960,000 (48%) from $10,300,000 in
fiscal 1994 to $15,260,000 in fiscal 1995, while operating income increased
$82,000 (18%) from $466,000 in fiscal 1994 to $549,000 in fiscal 1995. The
increase in revenue was largely attributable to a full year contribution by
Micro, PCR and RMI. The Computer Group also benefited from increased demand by
customers for hardware with increased processing power, networking upgrades, CD-
ROM kits, and Internet expertise. The significant interest initially shown by
the public over the Internet has compelled the Company to investigate potential
sales opportunities related to the Internet, which in the future may include the
sale and installation of hardware, and the development of, and programming
for, Internet sites.
Sales in the Transformer Group have remained relatively flat due to the
decreased spending in military contracts. In fiscal 1995 sales increased
$86,000 (2%) from $3,517,000 in 1994 to $3,603,000 in fiscal 1995. Operating
income improved $86,000 (38%) as management continued to reduce staff and other
selling general and administrative expenses. The Company expects that, during
the foreseeable future, revenues in the Transformer Group will remain at
approximately the same level as fiscal 1995 with a slight decrease in operating
profits.
The Forestry Group's sales increased $31,624,000 (283%) from $11,154,000 in
fiscal 1994 to $40,395,000 in fiscal 1995, while operating income increased
$3,815,000 (435%) from $ 876,000 in fiscal 1994 to $4,691,000 in fiscal 1995.
Most of the increase in sales was attributable to a full year's contribution of
TTI's results of operations in fiscal 1995 versus only three months in fiscal
1994. The remaining increase was due to a robust timber and logging market in
the East Texas region as wood prices remained firm through fiscal 1995. The
Forestry Group has attempted to increase its market share by aggressive sales
and marketing throughout the region and attractive financing packages.
The Food Group contributed sales of $40,395,000 and operating income of
$2,708,000 for the approximately five-month period during fiscal 1995 in which
the Company owned the Overhill operations.
15
<PAGE>
Fiscal Year Ended September 30, 1994 Compared to Fiscal Year Ended September 30,
1993.
During 1994, the Company continued to implement its expansion strategy
through five acquisitions. The Company acquired three operations in the computer
sales and service field during the fiscal year, as well as a company involved in
the manufacture of specialty parts for the automotive aftermarket. The
automotive aftermarket company acquired by the Company in fiscal 1994 was
subsequently sold during fiscal 1995 for no significant gain or loss.
Additionally, during fiscal 1994 the Company completed the acquisition of TTI, a
company involved in the sales, servicing and financing of logging equipment.
Net sales for the Company increased $17,644,055 (241%) from $7,326,349 in
fiscal 1993 to $24,970,404 in fiscal 1994. The total net sales for fiscal were
comprised as follows: $10,299,578 from the Computer Group, $11,154,096 from the
Forestry Group and $3,516,730 from Transformer Group. Operating income for the
Company decreased $34,184 (8%) from $389,566 in fiscal 1993 to $355,382 in
fiscal 1994.
Sales for the Computer Group rose 135% from $4,375,194 in 1993 to
$10,299,578 in 1994. Operating profit from this group remained virtually
unchanged from $466,876 in 1993 to $466,322, principally because margins at NAI
were lower in fiscal 1994 than fiscal 1993, partially due to the start-up of its
Arkansas operation. The increase in reported sales of this group was
attributable to the inclusion of operations acquired in fiscal 1993 for the full
fiscal year of 1994 and the addition of those operations acquired in 1994.
Sales in the Transformer Group increased 19% from $2,951,155 in 1993 to
$3,516,730 in fiscal 1994. This increase was attributable primarily to the
increased sales of replacement components under existing military contracts.
The number of new military contracts won during fiscal 1994 remained flat
despite the downturn in total defense spending by the United States government.
Operating profits decreased 60% from $547,630 in fiscal 1993 to $216,401 in
fiscal 1994, primarily due to lower gross margins on components sold to the
contractors in the defense program, which resulted from increased competitive
pressure within that sales area, and unchanged fixed manufacturing overhead
costs.
The Forestry Group contributed sales of $11,154,096 and operating income of
$876,257 for the approximate three-month period during fiscal 1994 in which the
Company owned TTI. Prior management's unaudited financial statements for the
comparative three-month period of the prior fiscal year reflect sales of
$7,555,301 and operating income of $591,746. The stronger sales and net income
were primarily attributable to increased demand for logging equipment in East
Texas and western Louisiana, expansion of the sales territory and efforts to
capture a greater share of the existing market.
Overall, the Company showed a substantial gain in gross profit which
increased from $1,836,308 in 1993 to $5,000,169 in 1994, an increase of 172%.
Operating income remained relatively consistent, decreasing from $389,566 in
1993 to $355,382 in 1994, primarily due to increased administrative expenses and
management overhead expense in connection with acquisitions and as the Company
built the infrastructure necessary to support its acquisition program. Earnings
for fiscal 1993 included other income totalling $678,006. Of this amount,
$527,500 represented the gain on sale of the purchase of certain installment
notes from TTI, and the resale, without recourse, of such installment notes in
a transaction with an unrelated party. The Company, in May 1994, also recorded
a non-recurring charge of $1,400,000 related to a grant of stock options, an
extraordinary gain of $62,000 on debt extinguishment and income of $305,000 from
the cumulative effect of a change in accounting for income taxes. As a result
of the non-recurring charge, the Company recorded a net loss for the year
totalling $1,016,755.
Liquidity and Capital Resources
The Company's primary sources of cash are from operations and external
credit facilities. During 1995 the Company entered into a financing arrangement
which provided a senior credit facility of $18,000,000 and a subordinated debt
placement of $13,000,000. These funds were used to provide financing for the
acquisition of the net assets of IBM Foods, Inc.
16
<PAGE>
The senior credit facility was provided by Finova Capital Corporation and
included a line of credit, of which approximately $9,700,000 was initially
drawn, and two term loans. Borrowings under the line of credit are limited to
the lesser of $12,000,000 or an amount determined by a defined borrowing base
which is based upon eligible receivables and inventory. At September 30, 1995
approximately $10,482,000 was outstanding under the revolving line of credit.
Term Loan A in the original amount of $2,000,000 is payable in monthly
installments of $33,333 plus interest at prime plus 2.5%. Term Loan B in the
original amount of $4,000,000 is payable in monthly installments of $83,333 plus
interest at prime plus 2.5%. The senior credit facility contains various
covenants which include, without limitation, a restriction on the permissible
capital expenditures of Overhill, specified current debt to net worth ratios,
specified levels of net worth and limit the ability of the Company to realize
monies, including dividends, and management and consulting fees, from Overhill
to $250,000 per annum. Furthermore, the capital stock and substantially all
assets of Overhill are pledged as collateral for the credit facility.
The subordinated debt placement in the amount of $13,000,000 bears interest
at 13% per annum, payable semiannually. Principal payments in the amount of
$6,500,000 each are due in April 2002 and 2003. The subordinated debt includes
warrants to purchase shares of Overhill (representing up to 22.5% of its
common stock) at any time over a ten year period which ends May 5, 2005 for a
nominal exercise price of $100. The warrant holders also have the option to
"put" the warrants to the Company at a "put" price based upon the higher of
fair market, book or appraised value of the subsidiary. The "put option"
becomes exercisable anytime after May 5, 2000 or at any time Overhill
experiences a change in control or merges with another unaffiliated company.
Additionally the Company has the option of calling the outstanding warrants for
cash at anytime after May, 5, 2001. The call price is determined using the
same formula as provided for determining the "put" price of the warrants. The
subordinated debt facility contains covenants similar to those described in the
senior credit facility.
In May 1994, the Company obtained a $1,000,000 term loan from Comerica Bank
- -- Texas, N.A. ("Comerica"), payable in equal monthly installments through
maturity in May 1999, at which time the unpaid balance of approximately $600,000
becomes due and payable. The term loan with Comerica bears interest at an
annual rate of 8.5% and is collateralized by the building in which the Company
maintains its headquarters. See "Properties--Corporate Headquarters." At
September 30, 1995, the term loan with Comerica had $930,825 outstanding.
In connection with the acquisition of TTI, the Company sold $4,000,000 in
principal amount of the 1999 Bonds to Merrill Lynch World Income Fund, Inc. and
Convertible Holdings, Inc. (collectively, the "Purchasers" or "Merrill Lynch").
The 1999 Bonds are convertible by a Bond holder at any time prior to June 30,
1999 into such number of shares of Common Stock as is equal to the principal
amount of such Bond (or in $1,000 increments thereof) divided by $5.65 (such
conversion price being subject to adjustment in certain instances). See "Market
for Common Equity and Related Stockholder Matters." The 1999 Indenture requires
the Company to maintain key-man life insurance policies on Paul A. Tanner and
James Rudis. The policies on each of Mr. Tanner and Mr. Rudis must name as loss
payee the trustee under the Indenture for the benefit of the 1999 Bond holders
and must be in an amount at least equal to the principal amount of the 1999
Bonds outstanding from time to time multiplied by the redemption price in effect
at such time. Subsequent to year end, the Company entered into additional
agreements with Merril Lynch, whereby the Company sold an additional $1,500,000
of debentures on generally the same terms and conditions as previously
described. The new debentures bear interest at 12%, are payable semiannually in
June and December, are convertible into Common Stock at the rate of $5.00 per
share and become due and payable on December 1, 1997.
In connection with the TTI acquisition, the Company also issued a non-
interest bearing note to Harold Estes for $10,000,000 due October 31, 1994, on
which the Company imputed interest at 8.0% per annum. As of the maturity date,
the Company and Estes entered into an agreement providing for the modification,
extension and renewal of the note, whereby the note with interest at 12% was to
mature on October 31, 1995. As of October 31, 1995 Estes further extended and
modified the note whereby the note currently having a principal balance of
$11,200,000, bears interest at 17.5% and matures on February 29, 1996. The
Company anticipates that it will be required to refinance this note payable on a
long-term basis and is presently in negotiations with potential lenders to
accomplish their goal. There is no certainty that
17
<PAGE>
Company will be able to refinance this note on acceptable terms or at all, by
February 29, 1996. The note holder has no recourse to any of the assets or
capital stock of Polyphase or any of its subsidiaries and no cross-default
provisions exist between this note and any other Polyphase debt.
On August 23, 1994, the Company obtained a $6,000,000 line of credit from
Comerica at prime plus 1/2% to replace an existing line of credit for TTI. The
agreement with Comerica relating to this line of credit contains various
restrictive covenants, including requiring TTI to maintain a tangible net worth
of at least $10,000,000 and a ratio of total liabilities to tangible net worth
of no more than 1.1 to 1. TTI's initial borrowings under the new credit line
occurred during September 1994, and were used to retire the outstanding
indebtedness under the prior line of credit. On September 1, 1995 the Company
amended the agreement, increasing the line of credit to $11,000,000 and amending
the covenants to restrict annual dividends the Company may collect from TTI to
$580,000. The balance at September 30, 1995 on the Comerica line of credit was
$6,199,999.
During the year ended September 30, 1995 the Company's operating activities
used approximately $3,407,000 of cash. The cash was primarily used to finance
increased inventories and sales contracts receivable at TTI which experienced a
large increase in sales for fiscal 1995.
The Company's investing activities during fiscal 1995 used approximately
$32,067,000 of cash, primarily for the Overhill acquisition and capital
expenditures.
The Company's financing activities during fiscal 1995 provided cash of
approximately $37,712,000 which were primarily derived from the senior credit
facility and the subordinated debt contracted for in connection with the
Overhill acquisition, additional borrowings on the Comerica line of credit, and
the exercise of stock options (which subsequently resulted in the collection of
$3,250,000 from the Pyrenees Group on the notes given to the Company as
consideration for option exercises). As noted above, the proceeds from these
financing sources were used primarily in the acquisition of Overhill.
The Company's working capital at September 30, 1995 amounted to
approximately $13,977,000, compared to $1,941,000 in the prior year. This
increase in working capital was primarily the result of the acquisition of
Overhill's inventory and accounts receivable and the increased inventories at
TTI.
Subsequent to fiscal year end, the Company sold to an unrelated corporation
250,000 shares of newly designated Series A-3 Preferred Stock for $2,500,000
cash. The Series A-3 Preferred Stock is entitled to a 12% cumulative dividend
payable quarterly and each share of Series A-3 Preferred Stock is convertible by
the holder thereof from time to time into two shares of common, subject to
certain adjustments.
The Company plans to continue its program of expansion and diversification
through the acquisition of additional operating companies. Funding for these
acquisitions is anticipated to come from a combination of internally generated
funds, proceeds from the exercise of options, the issuance of additional shares
of the Company's preferred stock and from additional borrowings. The Company's
management believes that cash generated from operations, together with existing
lines of credit and contemplated debt and/or equity placements, will be
sufficient to meet the Company's liquidity requirements for the next 12 months.
ITEM 8. Financial Statements.
---------------------
See Index to Consolidated Financial Statements included in Item 14.
18
<PAGE>
ITEM 9. Changes In and Disagreements with Accountants on Accounting and
---------------------------------------------------------------
Financial Disclosure.
- ---------------------
The Company's independent accountants for fiscal 1994 were Price Waterhouse
LLP ("Price Waterhouse"). Price Waterhouse resigned as the principal
accountants for the Company on May 8, 1995. None of the reports of Price
Waterhouse on the financial statements of the Company for either of fiscal 1993
or 1994 contained an adverse opinion or a disclaimer of opinion, or were
qualified as to uncertainty, audit scope, or accounting principles. During the
Company's two most recent fiscal years and the subsequent interim period
preceding such resignation, there were no disagreements with Price Waterhouse on
any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedures.
On May 31, 1995, Ernst & Young LLP ("Ernst & Young") was engaged as
principal accountants for the Company to, among other things, audit the
financial statements of the Company for fiscal 1995. The selection of Ernst &
Young was made by the Board of Directors upon recommendation of the Audit Review
Committee. Prior to its engagement, the Company did not consult with Ernst &
Young on either the application of accounting principles to a completed or
proposed specific transaction, or the type of audit opinion that might be
rendered on the Company's financial statements.
19
<PAGE>
PART III
ITEM 10. Directors and Executive Officers of the Registrant.
---------------------------------------------------
The information required in response to this Item is incorporated herein by
reference to the Company's proxy statement to be filed with the Securities and
Exchange Commission pursuant to Regulation 14A, not later than 120 days after
the end of the fiscal year covered by this report.
ITEM 11. Executive Compensation.
------------------------
The information required in response to this Item is incorporated herein by
reference to the Company's proxy statement to be filed with the Securities and
Exchange Commission pursuant to Regulation 14A, not later than 120 days after
the end of the fiscal year covered by this report.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management.
---------------------------------------------------------------
The information required in response to this Item is incorporated herein by
reference to the Company's proxy statement to be filed with the Securities and
Exchange Commission pursuant to Regulation 14A, not later than 120 days after
the end of the fiscal year covered by this report.
ITEM 13. Certain Relationships and Related Transactions.
-----------------------------------------------
The information required in response to this Item is incorporated herein by
reference to the Company's proxy statement to be filed with the Securities and
Exchange Commission pursuant to Regulation 14A, not later than 120 days after
the end of the fiscal year covered by this report.
20
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
---------------------------------------------------------------
(a) 1. and 2. Financial Statements and Financial Statement Schedules.
1. The following consolidated financial statements of Polyphase
Corporation and subsidiaries, included in the annual report of
the registrant to its shareholders for the year ended September 30,
1995, are included in Item 8:
Report of Independent Auditors - Ernst & Young LLP F-2
Report of Independent Accountants - Price Waterhouse LLP F-3
Consolidated Balance Sheets-September 30, 1995 and 1994 F-4
Consolidated Statements of Operations-Years ended September 30,
1995, 1994 and 1993 F-6
Consolidated Statements of Stockholders' Equity-Years ended
September 30, 1995, 1994 and 1993 F-8
Consolidated Statements of Cash Flows-Years ended September 30,
1995, 1994, and 1993 F-11
Notes to Consolidated Financial Statements-September 30, 1995 F-14
2. The following consolidated financial statement schedules of
Polyphase Corporation and subsidiaries are included in item 14(d):
Schedule I Condensed Financial Information of Registrant F-43
Schedule II Valuation and Qualifying Accounts F-47
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable and therefore have
been omitted.
3. Exhibits
3.1 Articles of Incorporation of Polyphase Corporation, as amended
(incorporated by reference from Exhibits 4.1 and Exhibits 4.3
through 4.8 to the Company's registration statement on Form S-8
(No.33-82008), filed with the Commission on July 27, 1994 (the
"1994 Form S-8"))
3.2 Bylaws of Polyphase Corporation (incorporated by reference from
Exhibit 4.2 to the 1994 Form S-8)
4.1* Certificate of Designation relating to the Series A-2 Preferred
Stock (Exhibit 4.9)
4.2** Certificate of Designation relating to the Series A-3 Preferred
Stock
10.1+ Stock Option Agreement for Paul A. Tanner (incorporated by
reference from Exhibit 4.12 to the 1994 Form S-8)
10.2+ Stock Option Agreement for Michael F. Buck (incorporated by
reference from Exhibit 4.13 to the 1994 Form S-8)
21
<PAGE>
10.3+ Stock Option Agreement for Don E. McMillen (incorporated by
reference from Exhibit 4.14 to the 1994 Form S-8)
10.4+ Stock Option Agreement for George R. Schrader (incorporated
by reference from Exhibit 4.15 to the 1994 Form S-8)
10.5+ Stock Option Agreement for James Rudis (incorporated by
reference from Exhibit 10.5 to the Company's Form 8-B, filed
with the Commission on August 27, 1994 (the "Form 8-B"))
10.6+ Stock Option Agreement for William E. Shatley (incorporated by
reference from Exhibit 10.6 to the Form 8-B)
10.7+ Employment Agreement, dated as of November 1, 1993, between
Harold Estes and Texas Timberjack, Inc. (incorporated by
reference from Exhibit 2 to the 1994 Form 8-K)
10.8 Pledge Agreement, dated as of June 24, 1994, between Polyphase
Corporation and Harold Estes (incorporated by reference from
Exhibit 10.10 to the Form 8-B)
10.9 Security Agreement, dated as of June 24, 1994, between Texas
Timberjack, Inc. and Harold Estes (incorporated by reference
from Exhibit 10.11 to the Form 8-B)
10.10 Stock Option Agreement, dated as of October 21, 1992, between
Polyphase Corporation and the Pyrenees Group (incorporated
by reference from Exhibit 10.12 to the Form 8-B)
10.11 Deed of Trust Note in the amount of $1,000,000, dated May 25,
1994, by Polyphase Corporation in favor of Comerica Bank-Texas
(incorporated by reference from Exhibit 10.4 to the Company's
Form 10-Q for the quarter ended June 30, 1994 (the "1994 Form
10-Q"))
10.12 Deed of Trust (With Security Agreement and Assignment of Rents),
dated May 25, 1994, covering real property in Dallas County,
Texas between Polyphase Corporation and Comerica Bank-Texas
(incorporated by reference from Exhibit 10.3 to the 1994
Form 10-Q)
10.13 Letter Agreement, dated May 25, 1994, between Polyphase
Corporation and Comerica Bank-Texas (incorporated by reference
from Exhibit 10.4 to the 1994 Form 10-Q)
10.14 Securities Purchase Agreement, dated as of July 5, 1994, by and
among Polyphase Corporation, Merrill Lynch World Income Fund,
Inc., and Convertible Holdings, Inc. (incorporated by reference
from Exhibit 10.16 to the Form 8-B)
10.15 Registration Rights Agreement, dated as of July 5, 1994, among
Polyphase Corporation, Merrill Lynch World Income Fund, Inc.,
and Convertible Holdings, Inc. (incorporated by reference from
Exhibit 10.17 to the Form 8-B)
10.16 Indenture, dated as of July 5, 1994, from Polyphase Corporation
to IBJ Schroder Bank & Trust Company (incorporated by reference
from Exhibit 10.18 to the Form 8-B)
10.17 Form of 12% Senior Convertible Debenture No. 1, payable to
Bridge Rope & Co. or registered assigns (incorporated by
reference from Exhibit 10.19 to the Form 8-B)
10.18 Form of 12% Senior Convertible Debenture No. 2, payable to
Vault & Co. or registered assigns (incorporated by reference
from Exhibit 10.20 to the Form 8-B)
10.19* Asset Purchase Agreement among Champ Computer Systems, Inc.,
Liberty United Trust and Polyphase Corporation, dated
March 23, 1994 (Exhibit 10.25)
10.20* Stock Purchase Agreement among PC Repair of Florida, Inc.,
Gene H. Thurston, Jr. and Polyphase Corporation, dated
February 15, 1994 (Exhibit 10.26)
22
<PAGE>
10.21* Agreement and Plan of Reorganization between the Shareholders
of Micro Configurations, Inc. and Polyphase Corporation, dated
July 1, 1994 (Exhibit 10.27)
10.22* Credit Agreement, dated August 29, 1994, between Texas
Timberjack, Inc. and Comerica Bank-Texas (Exhibit 10.28)
10.23* Guaranty, dated August 29, 1994, from Polyphase Corporation to
Comerica Bank-Texas (Exhibit 10.29)
10.24* Deed of Trust, dated as of August 30, 1994, from Texas
Timberjack, Inc. to J. Patrick Faubion, Trustee (Exhibit 10.30)
10.25* Security Agreement, dated as of August 29, 1994, between Texas
Timberjack, Inc. and Comerica Bank-Texas (Exhibit 10.31)
10.26* Fluctuating Rate Line of Credit Note from Texas Timberjack,
Inc., as maker, to Comerica Bank-Texas, dated August 29, 1994
(Exhibit 10.32)
10.27**First Amendment to Credit Agreement dated September 1, 1995,
between Texas Timberjack, Inc. and Comerica Bank-Texas
10.28**Fluctuating Rate Line of Credit Note from Texas Timberjack,
Inc., as maker, to Comerica Bank-Texas, dated September 1, 1995
10.29**Promissory Note in the amount of $2,000,000, from Pyrenees
Group, as maker, to Polyphase Corporation, dated November 1,
1995, related to the exercise of options on Series D Preferred
Stock
10.30**Security Agreement, dated as of November 1, 1995, between
Pyrenees Group and Polyphase Corporation
10.31**Promissory Note in the amount of $2,000,872, from Paul A.
Tanner, as maker, to Polyphase Corporation, dated December 8,
1995
10.32**Convertible Preferred Stock Purchase Agreement, dated as of
November 10, 1995, by and between Polyphase Corporation and
Infinity Investors, Ltd.
10.33**Securities Purchase Agreement, dated as of December 1, 1995,
by and among Polyphase Corporation, Merrill Lynch World Income
Fund, Inc., and Convertible Holdings, Inc.
10.34**Registration Rights Agreement, dated as of December 1, 1995,
among Polyphase Corporation, Merrill Lynch World Income Fund,
Inc. and Convertible Holdings, Inc.
10.35**Indenture, dated as of December 1, 1995, from Polyphase
Corporation to IBJ Schroder Bank & Trust Company
10.36**Form of 12% Senior Convertible Debenture No. 1, dated
December 1, 1995 payable to Bridge Rope & Co. or registered
assigns
10.37**Form of 12% Senior Convertible Debenture No. 2, dated
December 1, 1995 payable to Kane & Co. or registered assigns
10.38**Renewal Promissory Note in the amount of $11,200,000, dated
October 31, 1995, payable by Polyphase Corporation to Harold
Estes
23
<PAGE>
10.39**Amended Pledge Agreement, dated as of October 31, 1995, between
Polyphase Corporation and Harold Estes
10.40**Amended Security Agreement, dated as of October 31, 1995,
between Texas Timberjack, Inc. and Harold Estes
21.1** Subsidiaries of the Registrant
23.1** Consent of Ernst & Young LLP
23.2** Consent of Price Waterhouse LLP
27.1** Financial Data Schedule
------------------------------------
+ Management contract or compensatory plan or arrangement.
* Incorporated by reference to the exhibit shown in parenthesis
contained in the Company's Registration Statement on Form SB-2
(No. 33-85334) filed with the Commission on October 19, 1994 (the
"Form SB-2").
** Filed herewith.
(b). Reports on Form 8-K
-------------------
No reports on Form 8-K have been filed by the Registrant during the last
quarter of the Fiscal Year Ended September 30, 1995.
24
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Auditors F-2
Report of Independent Accountants F-3
Financial Statements:
- --------------------
Consolidated Balance Sheets F-4
Consolidated Statements of Operations F-6
Consolidated Statements of Stockholders' Equity F-8
Consolidated Statements of Cash Flows F-11
Notes to Consolidated Financial Statements F-14
Financial Statement Schedules:
- -----------------------------
Condensed Financial Information of Registrant F-43
Valuation and Qualifying Accounts F-47
</TABLE>
F-1
<PAGE>
Report of Independent Auditors
To the Board of Directors and Stockholders of
Polyphase Corporation
We have audited the accompanying consolidated balance sheet of Polyphase
Corporation and subsidiaries as of September 30, 1995, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the year then ended. Our audit also included the financial statement schedules
listed in the Index at Item 14 (a). These financial statements and schedules
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and schedules based on our
audit.
We conducted our audit 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 audit provides 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 Polyphase
Corporation and subsidiaries at September 30, 1995, and the consolidated results
of their operations and their cash flows for the year then ended in conformity
with generally accepted accounting principles. Also, in our opinion, the
related financial statement schedules, when considered in relation to the basic
financial statements taken as a whole, present fairly, in all material respects
the information set forth therein.
ERNST & YOUNG LLP
Dallas, Texas
December 8, 1995
F-2
<PAGE>
Report of Independent Accountants
To the Board of Directors and Stockholders of
Polyphase Corporation
In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of Polyphase Corporation and its subsidiaries at September 30, 1994,
and the results of their operations and their cash flows for the years then
ended in conformity with generally accepted accounting principles. 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 of these statements in accordance with
generally accepted auditing standards which 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above. We have not audited the
consolidated financial statements of Polyphase Corporation and its
subsidiaries for any period subsequent to September 30, 1994.
As discussed in Note 11 to the consolidated financial statements, effective
October 1, 1993, the Company changed its method of accounting for income
taxes.
PRICE WATERHOUSE LLP
Dallas, Texas
January 4, 1995
F-3
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
Assets
<TABLE>
<CAPTION>
September 30,
------------------------
1995 1994
----------- -----------
<S> <C> <C>
Current assets:
Cash $ 3,275,068 $ 1,036,839
Receivables, net of allowance for
doubtful accounts of $506,805 and $580,251:
Trade accounts 11,602,628 3,023,052
Current portion of sales contracts 6,973,101 3,827,052
Notes receivable 1,215,389 1,234,188
Receivables from related parties 737,992 860,048
Inventories 26,007,672 8,953,780
Prepaid expenses and other 1,836,150 362,462
----------- -----------
Total current assets 51,648,000 19,297,421
----------- -----------
Property and equipment:
Land 505,000 505,000
Buildings and improvements 3,641,470 2,310,261
Machinery, equipment and other 7,932,882 2,406,535
----------- -----------
12,079,352 5,221,796
Less-Accumulated depreciation 2,761,966 1,901,945
----------- -----------
9,317,386 3,319,851
----------- -----------
Other assets:
Noncurrent receivables:
Sales contracts 3,281,459 2,669,151
Notes receivable 368,106 379,344
Excess of cost over fair value of net assets
acquired, net of accumulated amortization
of $1,037,734 and $349,982 19,374,134 9,383,289
Other intangible assets 2,021,652 1,314,800
Restricted cash 916,275 639,589
Other 1,231,851 971,504
----------- -----------
27,193,477 15,357,677
----------- -----------
$88,158,863 $37,974,949
=========== ===========
</TABLE>
F-4
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (continued)
Liabilities and Stockholders' Equity
<TABLE>
<CAPTION>
September 30,
--------------------------
1995 1994
------------ ------------
<S> <C> <C>
Current liabilities:
Notes payable $11,130,056 $ 2,092,268
Note payable and accrued
interest to related party 11,100,000 9,933,775
Accounts payable 8,007,727 3,311,885
Accrued expenses and other 3,691,302 1,330,524
Advances from related party 1,153,000 -
Current maturities of long-term debt 2,589,077 687,954
----------- -----------
Total current liabilities 37,671,162 17,356,406
Long-term debt, less current maturities 27,229,665 5,258,772
Reserve for credit guarantees 916,275 639,589
Deferred income taxes 437,729 200,000
Other 80,413 163,357
----------- -----------
Total liabilities 66,335,244 23,618,124
----------- -----------
Warrants to purchase common stock
of subsidiary 686,276 -
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value, authorized
50,000,000 shares, issued and outstanding
none in 1995 and 477,000 shares in 1994 - 4,770
Common stock, $.01 par value, authorized
100,000,000 shares, issued and outstanding
12,621,966 shares in 1995 and
5,880,616 shares in 1994 126,220 58,806
Paid-in capital 22,106,606 20,924,331
Accumulated deficit (1,095,483) (4,381,082)
Notes receivable - (2,250,000)
----------- -----------
Total stockholders' equity 21,137,343 14,356,825
----------- -----------
$88,158,863 $37,974,949
=========== ===========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-5
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Years Ended
September 30,
----------------------------------------
1995 1994 1993
------------- ------------ -----------
<S> <C> <C> <C>
Net revenues $ 102,035,472 $ 24,970,404 $ 7,326,349
Cost of sales 82,055,637 19,970,235 5,490,041
------------- ------------ -----------
Gross profit 19,979,835 5,000,169 1,836,308
Selling, general and administrative
expenses 13,228,134 4,644,787 1,446,742
------------- ------------ -----------
Operating income 6,751,701 355,382 389,566
Other income (expenses):
Non-recurring charge related to
grant of stock options - (1,400,000) -
Gain on sale of installment notes - - 527,500
Gain on sale of assets - - 200,000
Interest expense (3,791,059) (447,987) (56,378)
Interest income and other 592,055 125,730 6,887
------------- ------------ -----------
Total other income (expenses) (3,199,004) (1,722,257) 678,009
------------- ------------ -----------
Income (loss) before income taxes,
warrant accretion, extraordinary
items and cumulative effect of
accounting change 3,552,697 (1,366,875) 1,067,575
Income taxes 76,227 17,000 215,000
------------- ------------ -----------
3,476,470 (1,383,875) 852,575
Accretion of warrants to purchase
common stock of subsidiary 190,871 - -
------------- ------------ -----------
Income (loss) before extraordinary
items and cumulative effect of
accounting change 3,285,599 (1,383,875) 852,575
Extraordinary items:
Early extinguishment of debt - 62,120 -
Benefit from utilization of
net operating loss carryforwards - - 183,000
Cumulative effect of change in method
of accounting for income taxes - 305,000 -
------------- ------------ -----------
Net income (loss) $ 3,285,599 $ (1,016,755) $ 1,035,575
============= ============ ===========
</TABLE>
F-6
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Years Ended
September 30,
-----------------------------------
1995 1994 1993
----------- ---------- ----------
<S> <C> <C> <C>
Per share data:
Weighted average common and common
equivalent shares 12,745,701 4,881,454 3,508,454
=========== ========== ==========
Income (loss) per common share:
Before extraordinary items and cumulative
effect of accounting change $ .26 $ (.28) $ .25
Extraordinary items - .01 .05
Cumulative effect of accounting change - .06 -
----------- ---------- ----------
Net income (loss) per common share $ .26 $ (.21) $ .30
=========== ========== ==========
Per share data assuming full dilution:
Weighted average common and common
equivalent shares 12,745,701 4,881,454 3,616,795
=========== ========== ==========
Income (loss) per common share
assuming full dilution:
Before extraordinary items and cumulative
effect of accounting change $ .26 $ (.28) $ .24
Extraordinary items - .01 .05
Cumulative effect of accounting change - .06 -
----------- ---------- ----------
Net income (loss) per common share $ .26 $ (.21) $ .29
=========== ========== ==========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-7
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE YEARS ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Preferred Stock Common Stock Paid-in
Shares Amount Shares Amount Capital
--------- -------- --------- -------- -----------
<S> <C> <C> <C> <C> <C>
Balance,
September 30, 1992 2,921,995 $ 29,220 $ 6,565,933
Issuance of shares for
interest on
convertible sub-
ordinated debentures 10,260 102 9,018
Conversion of sub-
ordinated debentures
into common stock 8,765 88 51,412
Issuance of shares for
settlement of obligations 250,000 2,500 176,945
Reissuance of treasury
stock
Subscription payable
Private placements of
Series A, B, and D
preferred shares 71,100 $ 711 710,289
Issuance of preferred
shares issued in
connection with
acquisitions--
NAI -Series A-5 and B 251,000 2,510 2,507,490
CSC-Series C 30,000 300 299,700
Redemption of Series
A preferred shares (4,400) (44) (43,956)
Net income for 1993
------- ------ --------- ------- ----------
Balance,
September 30, 1993 347,700 3,477 3,191,020 31,910 10,276,831
------- ------ --------- ------- ----------
<CAPTION>
Retained Notes/Stock
Common Stock Earnings Subscription
Held in Treasury (Accumlated (Receivable)
Shares Amount Deficit) Payable Total
------------ --------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance,
September 30, 1992 250,000 $ (187,859) $ (4,399,902) $ (30,000) $ 1,977,392
Issuance of shares for
interest on
convertible sub-
ordinated debentures 9,120
Conversion of sub-
ordinated debentures
into common stock 51,500
Issuance of shares for
settlement of obligations 179,445
Reissuance of treasury
stock (250,000) 187,859 187,859
Subscription payable 375,000 375,000
Private placements of
Series A, B, and D
preferred shares 711,000
Issuance of preferred
shares issued in
connection with
acquisitions--
NAI -Series A-5 and B 2,510,000
CSC-Series C 300,000
Redemption of Series
A preferred shares (44,000)
Net income for 1993 1,035 ,575 1,035,575
-------- -------- ----------- -------- ----------
Balance,
September 30, 1993 - - (3,364,327) 345,000 7,292,891
-------- -------- ----------- -------- ----------
</TABLE>
F-8
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE YEARS ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Preferred Stock Common Stock
Shares Amount Shares Amount
----------- -------------- ----------- ----------------
<S> <C> <C> <C> <C>
Issuance of common
stock subscribed 500,000 5,000
Issuance of shares for
interest on convertible
subordinated debentures 1,596 16
Private placements of
Series B and C preferred
shares 34,000 340 339,660
Exercise of common
stock options 689,000 6,890
Issuance of preferred
shares in connection
with acquisitions-
DPPI-Series D 100,000 1,000
TBI-Series A-5 and B 20,000 200
PCR-Series B 7,500 75
TTI-Series A 100,000 1,000
Micro-Series A-2 60,000 600
Issuance of Series A-5,
A and B preferred
shares for services 11,000 110
Dividends on Series
A-5 preferred shares
Conversions of
preferred shares to
common shares (428,200) (4,282) 1,499,000 14,990
Grant of Pyrenees
options (Note 10)
Options granted in
purchase of
Register- Mate assets
Cancellation of stock
subscription receivable
<CAPTION>
Retained Notes/Stock
Common Stock Earnings Subscription
Paid-in Held in Treasury (Accumlated (Receivable)
Capital Shares Amount Deficit) Payable Total
------------ ----------- ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Issuance of common
stock subscribed 370,000 (375,000)
Issuance of shares for
interest on convertible
subordinated debentures 9,104 9,120
Private placements of
Series B and C preferred
shares 339,660 340,000
Exercise of common
stock options 533,110 540,000
Issuance of preferred
shares in connection
with acquisitions-
DPPI-Series D 999,000 1,000,000
TBI-Series A-5 and B 210,823 211,023
PCR-Series B 159,925 160,000
TTI-Series A 3,499,000 3,500,000
Micro-Series A-2 615,000 615,600
Issuance of Series A-5,
A and B preferred
shares for services 110,640 110,750
Dividends on Series
A-5 preferred shares (62,500) (62,500)
Conversions of
preferred shares to
common shares (10,708)
Grant of Pyrenees
options (Note 10) 1,400,000 1,400,000
Options granted in
purchase of
Register- Mate assets 285,000 285,000
Cancellation of stock
subscription receivable 30,000 30,000
</TABLE>
F-9
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE YEARS ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Preferred Stock Common Stock Paid-in
Shares Amount Shares Amount Capital
---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Exercise of Series A
and B preferred
stock options by
Pyrenees (Note 10) 225,000 2,250 2,247,750
Stock issuance costs
Net loss for 1994 (58,304)
---------- ----------- ---------- -------- ------------
Balance,
September 30, 1994 477,000 4,770 5,880,616 58,806 20,924,331
---------- ----------- ---------- -------- ------------
Exercise of Series C
preferred stock options
by Pyrenees (Note 10) 100,000 1,000 999,000
Conversions of
preferred shares to
common shares (577,000) (5,770) 6,618,500 66,185 (60,415)
Issuance of Micro
escrow shares 120,000 1,200 366,600
Issuance of shares for
interest on
convertible sub-
ordinated debentures 2,850 29 9,091
Payment on Pyrenees Notes
Stock issuance costs (132,001)
Net income for 1995
Balance, ---------- ----------- ---------- --------- ------------
September 30, 1995 - $ - 12,621,966 $ 126,220 $ 22,106,606
========== =========== ========== ========= ============
<CAPTION>
Retained Notes/Stock
Common Stock Earnings Subscription
Held in Treasury (Accumlated (Receivable)
Shares Amount Deficit) Payable Total
----------- ---------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Exercise of Series A
and B preferred
stock options by
Pyrenees (Note 10) (2,250,000)
Stock issuance costs (58,304)
Net loss for 1994 (1,016,755) (1,016,755)
----------- ---------- ------------ ---------- -------------
Balance,
September 30, 1994 - - (4,381,082) (2,250,000) 14,356,825
----------- ---------- ------------ ---------- -------------
Exercise of Series C
preferred stock options
by Pyrenees (Note 10) (1,000,000)
Conversions of
preferred shares to
common shares
Issuance of Micro
escrow shares 367,800
Issuance of shares for
interest on
convertible sub-
ordinated debentures 9,120
Payment on Pyrenees Notes 3,250,000 3,250,000
Stock issuance costs (132,001)
Net income for 1995 3,285,599 3,285,599
----------- ---------- ------------ ---------- ------------
Balance,
September 30, 1995 - - $ (1,095,483) $ - $ 21,137,343
=========== ========== ============ ========== ============
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements.
F-10
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended
September 30,
--------------------------------------
1995 1994 1993
----------- ----------- ----------
<S> <C> <C> <C>
Cash flow provided by
operating activities:
Net income (loss) $ 3,285,599 $(1,016,755) $1,035,575
Adjustments to reconcile net
income (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 1,935,559 497,514 213,478
Provision for doubtful accounts (73,446) (110,822) (40,197)
Deferred income tax (449,651) - -
Gain on sale of assets - - (200,000)
Gain on sale of installment notes - - (527,500)
Extraordinary item-early
extinguishment of debt - (62,120) -
Non-recurring charge related to
grant of stock options - 1,400,000 -
Cumulative effect of change in method
of accounting for income taxes - (305,000) -
Issuance of common stock for accrued
interest payable on convertible
subordinated debentures 9,120 9,120 9,120
Imputed interest on TTI
acquisition note 66,225 196,056 -
Consulting contract and cancellation of
stock subscriptions of former
officer and director - 105,000 -
Accretion of warrants to
purchase common stock of subsidiary 190,871 - -
Issuance of preferred stock
for services - 35,750 -
Recognition of deferred
rent reductions (82,944) (94,944) -
(Increase) decrease in, net
of effects of acquisitions
Accounts and sales
contracts receivable (4,857,876) (2,876,615) 117,755
Inventories (5,677,039) 1,640,037 (851,492)
Prepaid expenses and other (1,099,427) 139,746 126,998
Increase (decrease) in, net
of effects of acquisitions:
Accounts payable 1,959,902 1,251,207 (332,564)
Accrued expenses and other 2,486,034 (194,388) 125,524
----------- ----------- ----------
Net cash provided by (used in)
operating activities (2,307,073) 613,786 (323,303)
----------- ----------- ----------
</TABLE>
F-11
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
September 30,
---------------------------------------
1995 1994 1993
------------ ----------- -----------
<S> <C> <C> <C>
Cash flows provided by (used in)
investing activities:
Acquisition of Texas Timberjack, Inc. $ - $(4,146,360) $ -
Acquisition of net assets of
Overhill Farms (31,292,910) - -
Net cash received from purchase and
sale of installment notes - - 527,500
Capital expenditures (975,883) (347,521) (34,544)
Notes and other receivables 202,247 (318,649) -
Cash of acquired businesses - 36,407 97,534
------------ ----------- ----------
Net cash provided by (used in)
investing activities (32,066,546) (4,776,123) 590,490
------------ ----------- ----------
Cash flows provided by financing
activities:
Net borrowings (repayments) under
line of credit agreements 9,177,364 5,162,000 (48,900)
Principal payments on other notes
payable and long-term debt (763,191) (1,741,948) (80,167)
Borrowings on notes payable
and long term debt 24,470,360 - -
Proceeds from private placements of
preferred stock - 340,000 711,000
Advances from related parties 1,153,000 - -
Redemption of Series A Preferred Stock - - (44,000)
Sale of treasury stock - - 125,000
Exercise of stock options - 540,000 -
Cash received from common stock
subscribed - - 250,000
Principal collections on Pyrenees
notes receivable 3,250,000 - -
Issuance of warrants to purchase
common stock of subsidiary 495,405 - -
Dividends paid on Series A-5
preferred stock - (62,500) -
Common stock issuance costs (132,001) (58,304) -
Loan acquisition costs and other (1,039,089) (214,907) 3,872
---------- ---------- ----------
Net cash provided by financing
activities 36,611,848 3,964,341 916,805
---------- ---------- ----------
Net increase (decrease) in cash 2,238,229 (197,996) 1,183,992
Cash at beginning of year 1,036,839 1,234,835 50,843
---------- ---------- ----------
Cash at end of year $3,275,068 $1,036,839 $1,234,835
========== ========== ==========
</TABLE>
F-12
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
<TABLE>
<CAPTION>
For the Years Ended
September 30,
----------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Supplemental schedules of noncash investing
and financing activities:
Issuances of preferred stock
in connection with acquisitions:
Dallas Parkway Properties Incorporated $ - $1,000,000 $ -
PC Repair of Florida, Inc. - 160,000 -
Taylor-Built Industries, Inc. - 211,023 -
Texas Timberjack, Inc. - 3,500,000 -
Micro Configurations, Inc. 367,800 615,600 -
Computer System Concepts - - 300,000
Network America, Inc. - - 2,510,000
Granting of stock options in connection with
purchase of Register-Mate - 285,000 -
Additional common stock issued for
conversion of subordinated debentures - - 51,500
Supplemental schedule of cash flow
information:
Cash paid during the year for:
Interest $2,249,778 $ 126,558 $ 42,396
Income taxes $ 377,442 $ 40,706 -
</TABLE>
See note 3 for disclosures of additional noncash financing and investing
activities.
The accompanying notes are an integral part
of these consolidated financial statements.
F-13
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
1. COMPANY AND ORGANIZATIONAL MATTERS
Nature of Business
The Company is a diversified holding company that, through its subsidiaries,
currently operates primarily in four industry segments: the forestry segment,
which distributes, leases and provides financing for industrial and commercial
timber and logging equipment (the "Forestry Group"); the computer segment, which
markets, services and provides the networking of computers and related equipment
and electronic parts (the "Computer Group"); the transformer segment, which
manufactures and markets electronic transformers, inductors and filters (the
"Transformer Group"); and the food processing segment, which produces high
quality entrees, plated meals, soups, sauces and poultry, meat and fish
specialties (the "Food Group").
Corporate History and Organization
The Company was incorporated in New Jersey in 1963 under the name Kappa
Networks, Inc. Through a merger with a wholly-owned subsidiary in June 1991, the
Company reincorporated in Pennsylvania and formally changed its name to
Polyphase Corporation. A subsequent merger with a wholly-owned subsidiary in
June 1994 effected a change in the state of incorporation from Pennsylvania to
Nevada, together with certain changes to the Company's charter and bylaws. These
changes resulted in the authorization of 100,000,000 shares of $.01 par value
common stock and 50,000,000 shares of $.01 par value preferred stock with rights
and preferences as designated by the Board of Directors. The financial
statements for 1993 have been retroactively restated to reflect the change in
the par value of the common stock.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All material intercompany accounts and
transactions are eliminated. Certain prior year amounts have been reclassified
to conform to the 1995 presentation.
Fiscal Year
The Company and its subsidiaries' fiscal year, except for the food group, ends
on September 30. The food group utilizes a 52 - 53 week accounting period which
ends on the Sunday closest to September 30.
Concentrations of Credit Risk
Financial instruments which potentially subject the Company to concentrations
of credit risk consist primarily of receivables and demand deposits. Demand
deposits sometimes exceed the amount of insurance provided by the Federal
Deposit Insurance Corporation. The Company
F-14
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
performs ongoing credit evaluations of its customers' financial condition and
generally requires no collateral from its customers except as discussed below.
The Company's subsidiary, TTI, is a retailer of timber and logging equipment.
TTI grants credit to customers, substantially all of whom are located in East
Texas or the western portion of Louisiana, and rely on the logging industry for
their ability to repay debt to TTI. Collateral is generally the equipment sold
for amounts due under installment sales contracts.
Financial Instruments
The fair value of financial instruments is determined by reference to market
data and by other valuation techniques as appropriate. Unless otherwise
disclosed, the fair value of financial instruments approximates their recorded
values.
Inventories
Inventories of raw materials, work-in-process and finished goods for
manufacturing operations, computer sales and service operations and food
processing are stated at the lower of cost or market as determined by the first-
in, first-out (FIFO) method. Inventories of major units purchased in the
forestry segment are valued at the lower of cost or market or, in the case of
repossessed and used units, net realizable value, based upon the specific
identification method.
Repossession and Warranty Work
The Company's forestry unit records repossessed equipment at the lower of the
balance of the receivable, net of any deferred profit or net realizable value.
In most cases repossessions are recorded at the balance of the note, net of
deferred profit. Repossessed equipment is generally resold at book value,
including refurbishment costs.
Warranty work performed by the Company to be reimbursed by the manufacturer is
recorded as a receivable and sale. The company periodically performs services
on equipment sold not warranted by the manufacturer, with the cost of such
service charged to expense as incurred.
The Company's Computer Segment sells configured personal computers and related
products. Virtually all products carry original manufacturers' warranties,
which are passed on to the customer.
The Transformer Segment warrants all items shipped for a period of 12 months.
Because the Transformer Group's products are made to order, returns are a small
percentage of sales and are typically due to cosmetic marking problems.
Returns, when they do occur, are recorded as a reduction to revenues, repaired
by manufacturing and rebilled upon shipment within 30 days.
F-15
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed primarily
using the straight-line method for financial reporting purposes over the
estimated useful lives of the assets. Useful lives generally range from five to
thirty years. Leasehold improvements are amortized over the lesser of the term
of the lease or the estimated useful life of the assets.
Repairs and maintenance costs are expensed, while additions and betterments are
capitalized. The cost and related accumulated depreciation of assets sold or
retired are eliminated from the accounts and any gains or losses are reflected
in earnings.
Excess of Cost Over Fair Value of Net Assets Acquired
The excess of cost over the fair value of net assets acquired (goodwill) at the
date of acquisition is amortized on a straight line basis over periods generally
ranging from 15-25 years. The Company determines the period to be benefited by
using qualitative measuring factors such as competition, demand and
obsolescence, as well as legal, regulatory and contractual provisions. In
addition, the Company evaluates the existence of goodwill impairment on the
basis of whether the goodwill is fully recoverable from projected, undiscounted
cash flows of the related business unit.
Revenue Recognition
The Company generally recognizes sales when products are shipped or services
are performed. The Company provides for estimated returns and allowances at the
time of sale.
A significant amount of business in the Company's forestry segment relates to
the sale of equipment through sales/finance contracts. Revenue is recognized on
these accounts using the installment method. (See Note 4.) Under the
installment method, the Company records at the point of sale both a sale and a
cost of sale for the total cost of the unit. Gross profit is initially recorded
in a deferred profit account to be recognized as proceeds are received. These
deferred profits are recorded as sales revenue as funds are received, based on
the relative percentage of transaction profit to the sales price. Interest on
the contract is recognized on a cash basis due to frequent late payments and
periodic repossessions.
Key sales and income information for the forestry segment for fiscal 1995 and
the period from acquisition (June 24, 1994) to September 30, 1994 are:
<TABLE>
<CAPTION>
1995 1994
----------- ----------
<S> <C> <C>
Equipment sales total $35,837,259 $9,815,444
Equipment sales financed 10,121,004 3,445,670
Income earned on installment basis 2,777,209 132,971
Interest income earned on installment notes 1,562,486 351,614
</TABLE>
F-16
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Income Taxes
Effective October 1, 1993 the Company prospectively adopted Statement of
Accounting Standards No. 109 (SFAS 109) "Accounting for Income Taxes." SFAS 109
requires the recognition of deferred tax liabilities and assets for the
anticipated future tax effects of temporary differences that arise as a result
of differences in the financial reporting and tax bases of assets and
liabilities. The standard also requires a valuation allowance for deferred tax
assets in certain circumstances. See Note 11 for the cumulative effect of the
adoption of SFAS 109. Prior to October 1, 1993, the Company calculated income
taxes using the deferred method in accordance with the provisions of Accounting
Principles Board Opinion No. 11,"Accounting for Income Taxes."
Income (Loss) per Share
Primary income (loss) per share is computed on the basis of the weighted average
number of common and common equivalent shares outstanding during each year. It
is assumed that all preferred stock is converted and that all dilutive stock
options and warrants are exercised at the beginning of each year or at the time
of issuance if later, and that the proceeds are used to purchase shares of the
Company's common stock at the average market price during the period. Fully
diluted income per share is computed on the basis of the weighted average number
of common and common equivalent shares outstanding and the assumed conversion of
outstanding convertible debentures into common shares. It is assumed that the
proceeds from all dilutive stock options and warrants are used to purchase
shares of the Company's common stock at the higher of the average or the year-
end market price.
Primary and fully diluted income (loss) per share do not give effect to any
common equivalent shares if their inclusion would have the effect of increasing
earnings per share or decreasing the loss per share.
See Note 10 for descriptions of common stock equivalents.
3. BUSINESS COMBINATIONS
Fiscal 1995 Acquisition
Effective May 5, 1995, the Company acquired the assets and operations of IBM
Foods, Inc., a food processing company located in Culver City, California, which
operated using the name Overhill Farms. The purchase, which was accomplished
through Overhill Farms, Inc. a newly-formed subsidiary of the Company
("Overhill"), provided for cash payment to the seller of $31.3 million, subject
to certain adjustments, plus the assumption of certain liabilities of the
acquired business. The transaction was financed by Overhill in part using (1) a
$12 million revolving line of credit, of which $9.7 million was initially drawn,
(2) term loans totalling $6 million, payable monthly over 4 and 5-year periods
and (3) the sale of $13 million of senior subordinated notes
F-17
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
and warrants, due in 2002 and 2003. The acquisition has been accounted for by
the purchase method of accounting. The operating results of Overhill are
included in the Company's results of operations from the date of acquisition.
Goodwill attributable to the acquisition totalled $10.3 million and is being
amortized on a straight-line basis over a 20-year period.
Fiscal Year 1994 Acquisitions
In October 1993, the Company acquired all of the outstanding capital stock of
Taylor-Built Industries, Inc. (TBI), a privately held Texas Corporation, in
exchange for 5,000 shares of Series B Preferred Stock, which were subsequently
converted into 50,000 shares of common stock. The Company valued the
acquisition at $50,000. TBI, located in Dallas, Texas, is a manufacturer and
distributor of automotive aftermarket products. During August 1994, the Company
purchased a note payable by TBI to its former owner in the amount of
approximately $161,000 (including accrued interest) in consideration for the
issuance of 15,000 shares of Series A-5 Preferred stock which were subsequently
converted into 30,000 shares of common stock.
The Company, during October 1993, acquired all the outstanding stock of Dallas
Parkway Properties Incorporated (DPPI) in exchange for 100,000 shares of Series
D Preferred Stock, which were subsequently converted into 250,000 shares of
common stock. The Company valued the acquisition at $1,000,000. At the time of
acquisition, DPPI was a single-asset Texas corporation which owned (subject to
related indebtedness) a 40,000 square foot office building in Dallas, Texas,
which is now used as the Company's corporate headquarters. Ownership of the
property was subsequently conveyed to the Company.
The Company, in March 1994, acquired the rights to the point-of-sale software
system marketed under the name "Register-Mate" together with certain other
assets from the system's developer. The consideration for this purchase
amounted to approximately $500,000, consisting of note forgiveness of
approximately $215,000 and stock options valued at $285,000. In addition, the
Company assumed certain liabilities. Such stock options, covering 57,000 shares
of common stock at an exercise price of $0.50 per share, were exercised in
September 1994. The assets acquired were transferred to a newly-formed
subsidiary of the Company operating as Register-Mate, Inc. (RMI), a Texas
corporation. See Note 7.
In May 1994, the Company acquired all of the outstanding capital stock of PC
Repair of Florida, Inc. (PCR) for 7,500 shares of Series B Preferred Stock,
which were subsequently converted into 75,000 shares of common stock. PCR is a
provider and servicer of computer systems located in Sarasota, Florida. The
transaction was accounted for as a purchase and valued at $210,000. The excess
of cost over fair value of the assets acquired approximated $195,000 and is
being amortized over 15 years.
In June 1994, the Company acquired all of the outstanding capital stock of
Texas Timberjack, Inc. (TTI), a distributor of commercial and industrial timber
and logging equipment, in Lufkin, Texas. The consideration for the purchase
consisted of (1) $4,026,000 cash; (2) 100,000 shares of the Company's Series A
Preferred Stock, which were converted into 2,000,000 shares of
F-18
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
common stock and valued by an independent valuation firm at approximately $3.5
million; and (3) a non-interest bearing promissory note payable to the seller in
the amount of $10,000,000. The transaction was recorded as a purchase and
valued at approximately $17.5 million. The excess of cost over fair value of the
assets acquired approximated $5.7 million and is being amortized over 20 years.
See Notes 7 and 8.
In August 1994, the Company acquired all of the outstanding capital stock of
Micro Configurations, Inc. (Micro) in exchange for 60,000 shares of Series A-2
Preferred Stock, which were subsequently converted into 120,000 shares of common
stock. Under the terms of the Micro acquisition the sellers were entitled to an
additional 60,000 shares of such preferred stock subject to certain operational
performance. The transaction was initially recorded as a purchase and valued at
approximately $616,000 with the excess of cost over fair value of the net assets
acquired approximating $746,000. In July 1995, the escrowed shares were issued
and converted into 120,000 shares of common stock which resulted in an
increase in goodwill of $367,800. Goodwill related to the Micro acquisition is
being amortized over 15 years. Micro is engaged in the assembly, sale and
service of computers and related electronic products.
The consolidated statement of operations for the year ended September 30, 1994
includes the results of operations of the businesses acquired in 1994 from the
respective acquisition dates.
Fiscal Year 1993 Acquisitions
Effective January 1, 1993, the Company acquired certain operating assets of
Computer System Concepts (CSC), an assembler and servicer of computer systems,
in exchange for 30,000 shares of the Company's Series C Preferred Stock. Such
shares were converted into 150,000 shares of common stock in March 1994. The
Company accounted for the transaction as a purchase and valued the acquisition
at $300,000. The excess of cost over the fair value of the assets acquired
approximated $129,000 and is being amortized over 15 years.
Effective April 1, 1993, the Company acquired all the outstanding stock of
Network America, Inc. (NAI), an assembler and servicer of computer systems, in
exchange for 250,000 shares of the Company's Series A-5 Preferred Stock, which
were converted into 500,000 shares of common stock in March 1994. The
transaction was accounted for as a purchase and valued at $2,650,000. The excess
of cost over fair value of the assets acquired approximated $2,325,000, and is
being amortized over 25 years.
The consolidated statement of operations for the year ended September 30, 1993
includes the results of operations of CSC and NAI from the respective dates of
their acquisition.
F-19
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Proforma Financial Information
The following unaudited proforma summary for fiscal year 1994 represents the
results of operations as if the acquisitions of Overhill and TTI had occurred at
October 1, 1993. The proforma effect of the other 1994 acquisitions would not
be material and are not presented herein. For fiscal year 1995, the unaudited
proforma summary represents the results of operations as if the acquisition of
Overhill had occurred at October 1, 1994. This summary does not purport to be
indicative of what would have occurred had the acquisitions been made as of
that date or of results that may occur in the future. This method of combining
the companies is for the presentation of unaudited proforma summary results of
operations.
<TABLE>
<CAPTION>
For the Year Ended
September 30,
---------------------------
1995 1994
------------ ------------
<S> <C> <C>
Net sales $164,138,000 $150,270,000
Income before extraordinary item
and cumulative effect of accounting
change $ 4,176,000 $ 340,000
Net income $ 4,176,000 $ 645,000
Income per share:
Before extraordinary items and
cumulative effect of accounting
change $ .33 $ .04
Extraordinary item - -
Cumulative effect of accounting change - .04
------------ ------------
Net income $ .33 $ .08
============ ============
</TABLE>
4. SALES CONTRACTS RECEIVABLE
The Company's forestry segment provides financing to customers on certain
equipment sales using installment sales contracts. Following is a summary of
the components of the Company's net investment in these contracts as of
September 30, 1995 and 1994 and the related deferred income based on the
installment method of income recognition.
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Contracts outstanding $15,252,646 $ 8,357,923
Less deferred income (4,820,047) (1,690,291)
----------- -----------
10,432,599 6,667,632
Less allowance for doubtful accounts (178,039) (171,429)
----------- -----------
Net investment in sales contracts receivable $10,254,560 $ 6,496,203
=========== ===========
</TABLE>
F-20
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The following is a summary of the maturities of the contracts receivable and
related deferred income for the next five years:
<TABLE>
<CAPTION>
Contracts Deferred
Due September 30, Outstanding Income Net
------------------- ----------- ---------- -----------
<S> <C> <C> <C>
1996 $10,348,801 $3,270,364 $ 7,078,437
1997 4,094,863 1,294,033 2,800,830
1998 768,421 242,832 525,589
1999 40,561 12,818 27,743
----------- ---------- -----------
$15,252,646 $4,820,047 $10,432,599
=========== ========== ===========
</TABLE>
5. NOTES RECEIVABLE
The Company periodically makes advances to certain unrelated individuals and
corporations. These notes have interest rates that range from 12% to 18%,
are due within one year and are secured by a variety of marketable
collateral. Allowances are established periodically if, at the date of
valuation, management feels it is probable that a loss exists in the
portfolio. The allowance is established based upon interest payment history,
evaluation of the portfolio and the related expected credit risk.
The Company had $1,215,389 and $1,234,188 of notes receivable as of
September 30, 1995 and 1994, respectively from unrelated corporations and
individuals net of allowances of $187,103 and $199,135. The loans are
secured primarily by land, timber and equipment. At September 30, 1995,
approximately $493,000 of such notes receivable were no longer accruing
interest. All notes receivable are due in less than one year.
6. INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
September 30,
----------------------
1995 1994
---------- ----------
<S> <C> <C>
Finished goods:
Forestry Group $ 9,640,664 $ 5,717,297
Computer Group 1,598,681 985,709
Transformer Group 885,492 822,082
Food Group 9,418,418 -
Work-in-process:
Transformer Group 603,929 479,133
Raw material:
Transformer Group 1,003,399 949,559
Food Group 2,857,089 -
------------ -----------
Total $ 26,007,672 $ 8,953,780
============ ===========
</TABLE>
F-21
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
7. OTHER INTANGIBLE ASSETS
Other intangible assets are summarized as follows:
<TABLE>
<CAPTION>
September 30,
-----------------------
1995 1994
---------- ----------
<S> <C> <C>
Register-Mate software $ 512,500 $ 512,500
Non-compete agreements 700,000 700,000
Deferred financing costs 1,039,089 -
Other 164,565 198,136
----------- -----------
2,416,154 1,410,636
Less accumulated amortization (394,502) (95,836)
----------- -----------
$ 2,021,652 $ 1,314,800
=========== ===========
</TABLE>
The Register-Mate software was acquired in March 1994 (See Note 3). The
software links retailers and credit card processors, interfacing with both
point-of-sale hardware and accounting systems. The software is being
amortized over its estimated useful life of 5 years.
The Company entered into noncompete agreements with the seller of TTI (See
Note 3) and an officer of TTI with such amount being amortized over the 7
year life of each agreement.
The Company incurred certain legal, brokerage and other costs associated
with the financing of the acquisition of Overhill Farms. These costs are
being amortized over a period of 5 years.
<TABLE>
<CAPTION>
8. NOTES PAYABLE
Notes payable consists of the following:
September 30,
------------------------
1995 1994
----------- ----------
<S> <C> <C>
Note payable to Ford Motor Credit Corporation (a) $ 252,692 $ 157,893
Note payable to Comerica (b) - 1,700,000
Note payable to Finova Capital Corporation (c) 10,482,364 -
Other notes payable (d) 395,000 234,375
------------ -----------
$ 11,130,056 $ 2,092,268
============ ===========
</TABLE>
(a) TTI has a floor plan note with Ford Motor Credit Corporation. The floor
plan note accrues no interest provided the equipment financed under the note
is sold within a predetermined period, typically nine to twelve months from
the time TTI takes delivery of the equipment.
F-22
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(b) TTI's revolving line of credit with Comerica Bank-Texas was converted to
long term debt (See Note 9).
(c) In connection with the acquisition of Overhill Farms, Inc. (See Note 3) the
Company's Overhill subsidiary obtained a $18,000,000 credit facility with Finova
Capital Corporation which consists of Term Loan A (See Note 9) in the original
amount of $2,000,000, Term Loan B (See Note 9) in the original amount of
$4,000,000 and a $12,000,000 revolving line of credit. Borrowings under the
revolving line of credit are limited to the lesser of $12,000,000 or an amount
determined by a defined borrowing base which is based on eligible receivables
and inventory. Borrowings under the line of credit facility bear interest at
the Citibank base rate plus 1.5% (10.25% at October 1, 1995). A total of
$10,482,364 was outstanding under the revolving line of credit at September 30,
1995. This amount is classified as a current liability in the accompanying
balance sheet due to a requirement for Overhill to maintain a blocked account in
favor of the lender for collections on all accounts receivable, which are
immediately applied to reduce borrowings under the line of credit. Overhill's
revolving line of credit requires the payment of an unused line fee of .25% per
annum and an annual facility fee of .50% per annum. The agreement with Finova
relating to this facility contains various covenants including without
limitation, Overhill's pledge to restrict capital expenditures to certain
agreed upon levels, maintain specified current and debt to net worth ratios and
specified levels of net worth. Additionally, the terms of the credit facility
prohibit loans, advances or dividends from Overhill to the Company and limit
management fees the Company can charge Overhill to $250,000 per annum.
Furthermore, the capital stock and substantially all assets of Overhill are
pledged as collateral for the credit facility. The credit facility expires on
May 5, 1998. The Company has guaranteed all obligations under Overhill's credit
facility.
(d) The Company's Computer and Transformer segments have entered into various
credit agreements with banks in their region that extend through July 1996.
These agreements bear interest from prime to prime plus 2.0% and are
collateralized by accounts receivable, inventories and fixed assets.
Note Payable and Accrued Interest to Related Party
In connection with the acquisition of TTI on June 24, 1994 (see Note 3), the
Company recorded a note to the seller (Harold Estes) in the amount of $9,737,719
with interest at 8% due October 31, 1994 and collateralized by all the capital
stock of TTI. As of the maturity date, the Company and the seller entered into
an agreement providing for the modification, extension and renewal of the note,
whereby the note in the amount of $10,000,000 was to bear interest at 12% and
mature on October 31, 1995. As of October 31, 1995 the seller further extended
and modified the note whereby the note currently having a principal balance of
$11,200,000 bears interest at 17.5% and matures on February 29, 1996. The
Company anticipates that it will be required to refinance this note payable into
a long-term facility and is presently in negotiations with potential lenders.
The note holder has no recourse to any of the assets or capital stock of
Polyphase or any of its other subsidiaries and no cross-default provisions exist
between this note agreement and any other Polyphase debt.
F-23
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The weighted average interest rate on short term borrowings for the year ended
September 30, 1995 was 8.9%.
Restricted Net Assets of Subsidiaries
At September 30, 1995, restricted net assets of subsidiaries totalled
$26,227,956. Such net assets consist of the net assets of Overhill and TTI
which were restricted by the terms of debt agreements as discussed above and in
Note 9.
F-24
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
9. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
September 30,
----------------------
1995 1994
-------- --------
<S> <C> <C>
Term loan payable to bank bearing interest
at 8.5%, due in monthly installments of
$12,465 through May 1999, collateralized by
real estate. A final payment of approximately
$602,000 is due in May 1999. $ 930,825 $ 980,158
Senior convertible debentures due July 1, 1999,
bearing interest at 12% with interest payable
semi-annually in January and July. 4,000,000 4,000,000
Revolving credit agreement of TTI with Comerica
Bank-Texas prime plus 1/2%, collateralized by
notes, trade accounts receivable and inventory,
due in February 1997. (See Note 8) 6,199,999 -
Term Loan A payable to financial institution
at prime rate plus 2.5%, due in monthly
installments of $33,333 plus accrued interest
through May 1, 2000 (See Note 8). 1,866,668 -
Term Loan B payable to financial institution
at prime rate plus 2.5%, due in monthly
installments of $83,333 plus accrued interest
through May 1, 1999 (See Note 8). 3,666,668 -
Senior subordinated notes payable to of Overhill
to a financial institution bearing interest 13%
payable quarterly, net of discount of
$470,134. Principal payments of $6,500,000
are due on April 29, 2002 and 2003. 12,529,866 -
Other 624,716 966,568
----------- ----------
29,818,742 5,946,726
Less current maturities (2,589,077) (687,954)
----------- ----------
Total long-term debt $27,229,665 $5,258,772
=========== ==========
</TABLE>
F-25
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
For the Years Ending
September 30,
------------------------
<S> <C>
1997 $ 7,858,829
1998 1,494,339
1999 4,496,695
2000 371,931
2001 12,893,322
Thereafter 13,065,296
------------
$ 27,229,665
============
</TABLE>
The senior convertible debentures issued July 1994 are convertible at the
option of the holder into shares of common stock equal to the principal amount
of each bond (or in $1,000 increments) divided by a $5.65 conversion price
subject to adjustment in certain circumstances. The indenture requires the
Company to maintain key man life insurance policies on two executives in an
amount equal to the redemption value of the bonds naming the trustee as
beneficiary on behalf of the bond holders. The senior convertible debentures
prohibit the Company from paying or making within any 12-month period dividends
or distributions on its Common Stock having a value in excess of 50% of the
consolidated net income of the Company, unless each holder of the senior
convertible debentures receives an amount equal to its pro rata portion of the
dividend or distribution (on an as-converted into Common Stock basis).
Effective December 1, 1995, the Company entered into additional agreements with
the holders of the 12% senior convertible debentures, whereby the Company sold
an additional $1,500,000 of debentures on generally the same terms and
conditions as those previously issued. The new debentures bear interest at 12%,
payable semiannually in June and December, are convertible into common stock at
the rate of $5.00 per share and become due and payable on December 1, 1997.
The terms of the revolving line of credit require TTI to restrict capital
expenditures to certain agreed upon levels, maintain specified debt to net worth
and fixed charge coverage ratios, limit the amount of its contingent liabilities
and maintain agreed upon levels of working capital and tangible net worth.
Furthermore, the terms of the revolving line of credit prohibit loans or
advances from TTI to the Company and limit dividends from TTI to the Company to
$580,000 per year. The Company has guaranteed all obligations under TTI's
revolving line of credit. Availability under the line of credit at September 30,
1995 amounted to $4,800,000.
10. STOCKHOLDERS' EQUITY
Preferred Stock
The Company has 50,000,000 authorized shares of $.01 par value preferred stock
with the rights and preferences as designated by the Board of Directors. Series
A, B, C, D, E, A-2 and A-5 of Preferred Stock are authorized for issuance of
375,000, 300,000, 300,000, 600,000, 1,425,000,
F-26
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
750,000 and 750,000 shares of preferred stock, respectively. All shares of
preferred stock designated above have a redemption value of $10 per share, are
noncumulative at the annual rate of 5% of the redemption value, are convertible
at the option of the holder into 20, 10, 5, 2-1/2, 1, 2 and 2 shares of
restricted common stock, respectively, have a liquidation preference of $10 per
share and are callable by the Company at 105% of the redemption value.
Series A-2 preferred shares are entitled to two votes per share on all matters
on which the holders of common stock have one vote per share. No other series
of preferred shares have voting rights.
During November 1995, the Company, in a transaction with an unrelated
corporation, sold 250,000 shares of newly-designated Series A-3 Preferred Stock
for $2,500,000 cash. The designations of the Series A-3 stock are similar to
those of other series of preferred stock, except that Series A-3 preferred stock
has voting rights, is entitled to cumulative annual dividends of 12% and is
convertible into 2 shares of common stock (subject to adjustment in certain
circumstances.) The Company also entered into an agreement with an associate of
the aforementioned corporation to provide consulting services to the Company
over a 36-month period. The consideration for such services was the grant of
options to purchase 357,143 shares of common stock at $3.50 per share (the fair
market value at the date of grant) plus hourly fees and expenses.
Stock Options to Officers, Directors and Employees
In April 1991, the Board of Directors granted to certain officers and directors
options covering 175,000 shares of the Company's common stock at an exercise
price of $.50 per share. Such options are exercisable in cumulative annual
increments of 33% following the first anniversary from the date of grant and
expire five years after the date of grant.
During July 1993 and March 1994, the Board of Directors granted to certain
officers and directors options to purchase 650,000 shares at option prices of
$.75 (600,000 shares) and $5.25 (50,000 shares) per share, respectively, which
were equal to the fair value at the date of grant. The options are exercisable
in whole or in part and expire five years from the date of grant.
Under the terms of the 1994 Employee Stock Option Plan adopted by the Board of
Directors in March 1994, the Company has reserved a total of 500,000 shares of
its common stock for issuance to eligible employees of, and consultants to, the
Company. The Plan provides for the grant of both incentive stock options (at
exercise prices no less than fair value at the date of grant) and nonqualified
stock options (at exercise prices as determined by the Compensation Committee of
the Board of Directors), that such options may be exercisable as determined by
such Committee and that the Plan will expire ten years following its adoption.
F-27
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Option transactions pursuant to the above plans during the three years ended
September 30, 1995 are summarized as follows:
<TABLE>
<CAPTION>
Number of Exercise Shares
Shares Price Exercisable
----------- ---------- -------------
<S> <C> <C> <C>
Outstanding, September 30, 1992 202,900 $.50-2.50 86,233
Granted 293,000 .75 -
Exercised - - -
Cancelled (127,900) - -
---------
Outstanding, September 30, 1993 368,000 .50-2.50 359,667
Granted 357,000 .75-5.25 -
Exercised (232,000) .75 -
Cancelled - - -
---------
Outstanding, September 30, 1994 493,000 .50-5.25 493,000
Granted - - -
Exercised - - -
Cancelled - - -
---------
Outstanding, September 30, 1995 493,000 $.50-5.25 493,000
========= ========= =========
</TABLE>
Stock Options-Others
During March 1993, the Company entered into an agreement with an unrelated
corporation to obtain, over a twelve-month period, consultation and assistance
relative to various corporate matters. As consideration for the services to be
obtained thereunder, the Company granted the consulting organization an option
to purchase 250,000 shares of the Company's common stock at an exercise price of
$.50 per share; such option was exercised in April 1993 by the reissuance of
250,000 shares of treasury stock for $125,000 cash.
In July 1993, the Company entered into a similar agreement with an unrelated
corporation to obtain, over a five-year period, services related to the finding
and evaluation of potential acquisition targets. In consideration thereof, the
Company granted the consulting organization an option to purchase 500,000 shares
of the Company's common stock at an exercise price of $.50 per share. The fair
value of the common stock at date of grant was $.75 per share; accordingly, the
Company valued the option at $125,000. The option was exercised in September
1993 and the Company received cash proceeds of $250,000.
In July 1993, the Company entered into an agreement with an unrelated individual
to obtain, over a five-year period, services related to the finding and
evaluation of potential acquisition targets. In consideration thereof the
Company granted the individual an option to purchase 400,000
F-28
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
shares of the Company's common stock at an exercise price of $.875 per share,
the fair value at the date of grant. The option was exercised during the year
ended September 30, 1994.
The Pyrenees Option
In October 1992, the Company's Board of Directors authorized the issuance to the
Pyrenees Group, or its assigns, options to purchase up to 1,000,000 shares of
convertible preferred stock for $10 per share. The options were issued subject
to approval by the Company's shareholders and were approved and ratified at the
Company's Annual Meeting held May 31, 1994. Pyrenees, a private investment
firm in which certain executive officers of the Company are affiliated and have
ownership positions, was granted these options as consideration for the sale to
the Company of its collected due diligence materials for acquisitions Pyrenees
was contemplating, which were to be used by the Company in its own previously
announced acquisition program. The options, covering Series A, B, C, D and E
Preferred Stock, are summarized as follows:
<TABLE>
<CAPTION>
Preferred Conversion Common
Series Shares Price Shares
--------- --------- ---------- --------
<S> <C> <C> <C>
A 125,000 $ .50 2,500,000
B 100,000 1.00 1,000,000
C 100,000 2.00 500,000
D 200,000 4.00 500,000
E 475,000 10.00 475,000
--------- ---------
1,000,000 4,975,000
========= =========
</TABLE>
In fiscal 1994, the Pyrenees Group exercised options with respect to the Series
A and Series B Preferred Stock through the issuance of two 7% demand notes in an
aggregate amount of $2,250,000, collateralized by the shares issued; such notes
were reflected as a reduction in the stockholders' equity accounts in the
accompanying consolidated balance sheet as of September 30, 1994. In fiscal
1995, the Pyrenees Group exercised the Series C option through an additional
demand note bearing interest at 7% and collateralized by the shares issued. On
May 5, 1995 in conjunction with the acquisition of Overhill Farms, Pyrenees paid
$4,000,000 to IBM on the Company's behalf. Of this amount, $2,992,000
represented repayment of the 7% notes with the excess, $1,008,000, representing
a temporary advance by Pyrenees to the Company. This amount plus other payments
made by Pyrenees resulted in a temporary advance of $1,153,000 at September 30,
1995. During fiscal 1995, Pyrenees converted Series A, B and C Preferred Stock
into common stock. Subsequent to September 30, 1995, Pyrenees exercised the
Series D option through an additional 7% note in the amount of $2,000,000; such
preferred shares were then converted into common stock.
The Company recognized a non-recurring, non-cash charge for the fair value of
the Pyrenees options as of the date of approval by the shareholders. The fair
value of the options, as determined by an independent valuation firm, amounted
to $1,400,000; such amount was recorded as a non-cash charge against income with
a corresponding credit to paid-in capital.
F-29
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Warrant to Purchase Common Stock of Subsidiary
The warrant to purchase common stock of subsidiary issued in connection with the
$13 million subordinated debt described in Note 9 provides that the warrant
holders may purchase shares of the Company's Overhill subsidiary (representing
22.5% of its common stock) at any time over a ten year period which ends May 5,
2005 for a nominal exercise price of $100. The warrant holders also have the
option to "put" the warrants to the Company any time after the warrant's fifth
anniversary at a "put" price based upon the higher of fair market, book or
appraised value of the subsidiary. The "put option" is exercisable anytime after
May 5, 2000 or immediately, if the subsidiary experiences a change in control or
merges with another unaffiliated company. Additionally the Company has the
option of "calling" the outstanding warrants for cash anytime after May 5, 2001.
The "call" price is determined using the same formula as provided for
determining the warrant's "put" price.
In order to account for the obligation associated with the warrant's "put"
feature, the Company estimated the fair value of the warrants to be $900,000 at
the date of issuance. This amount was discounted at 12% for a five-year period
which resulted in a $495,405 liability and related debt discount on the senior
subordinated note being recorded for the warrant's "put" feature at the date of
issuance. In order to account for changes in the estimated warrant liability,
the Company periodically estimates the fair value of the Overhill common stock
and accretes the warrant liability accordingly through a charge to earnings.
11. INCOME TAXES
Income tax expense (benefit) consists of the following:
<TABLE>
<CAPTION>
For the Years Ended
September 30,
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Current:
Federal $111,589 $ - $129,000
State 414,289 127,000 20,000
Deferred:
Federal (449,651) (94,000) 57,000
State - (16,000) 9,000
-------- -------- --------
Total income taxes $ 76,227 $ 17,000 $215,000
======== ======== ========
</TABLE>
The effective tax rate on earnings (loss) before income tax charges (benefits)
was different than the federal statutory tax rate. The following summary
reconciles the federal statutory tax rate with the actual effective rate:
F-30
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
For the Years Ended
September 30,
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Effective statutory tax expense (benefit) rate 34.0% (34.0%) 34.0%
Increase (decrease) in effective tax rate
resulting from:
State taxes, net of federal tax benefit 7.7 9.0 1.9
Officer life insurance premiums,
amortization of goodwill 6.7 6.5 1.9
Exercise of stock options - (10.2) (16.7)
Limitation on utilization of net
operating losses - 30.0 -
Utilization of net operating losses (31.9) - -
Change in valuation allowance (14.2) - -
Other (0.2) - -
------ ------ ------
Effective tax expense rate 2.1% 1.3% 21.1%
====== ====== ======
</TABLE>
F-31
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The Financial Accounting Standards Board (FASB) adopted Statement No. 109,
"Accounting for Income Taxes," which significantly changes prior practice by
requiring among other things, a liability approach to calculating deferred
income taxes. As stated in Note 2, the Company adopted FASB Statement No. 109
effective October 1, 1993. The implementation of FASB Statement No. 109
resulted in a credit of $305,000 from the cumulative effect of this accounting
change. The components of deferred tax balances as of September 30, 1995 and
1994 are summarized as follows:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts $ 209,628 $ 297,000
Inventory 459,231 32,000
Accrued expenses 192,812 -
Deferred sales 62,080 -
Net operating loss carryforwards 69,232 1,824,000
AMT credit carryforwards 69,945 -
---------- ----------
Deferred tax assets 1,062,928 2,153,000
Valuation allowance - (1,560,000)
---------- ----------
Net deferred tax assets 1,062,928 593,000
---------- ----------
Deferred tax liabilities:
Purchase accounting adjustments - (472,000)
Stock option exercises (27,572) (149,000)
Prepaid expenses (216,501) -
Intangibles (296,357) -
Other (43,178) -
Depreciation (112,668) (55,000)
---------- ----------
Deferred tax liabilities (696,276) (676,000)
---------- ----------
Net deferred tax asset (liability) $ 366,652 $ (83,000)
========== ==========
</TABLE>
The Company has unused net operating losses available for carryforward
approximating $173,000 expiring in 2009. Additionally, the Company has
alternative minimum tax credit carryforwards of $69,945.
Under section 382 of the Internal Revenue Code of 1986, as amended, the
utilization of net operating loss carryforwards may be delayed or permanently
lost if there has been a cumulative change in ownership during the past three
years of more than 50%. Based on Proposed Treasury Regulations, the Company
believes there was an ownership change during the fiscal year ended September
30, 1994; therefore there is an annual limitation on the amount of net
operating loss carryforwards that can be utilized.
F-32
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The decrease in the valuation allowance during fiscal year 1995 was due to the
utilization of net operating loss carryforwards and a change in judgement about
the realizability of the related deferred tax asset in future years.
12. COMMITMENTS AND CONTINGENCIES
Commitments
Future minimum lease payments for all operating leases at September 30, 1995 are
as follows:
<TABLE>
<CAPTION>
For the Years Ending
September 30,
--------------------
<S> <C>
1996 $1,138,858
1997 1,046,024
1998 941,401
1999 532,675
2000 68,830
Thereafter -
----------
$3,727,788
==========
</TABLE>
Certain of the leases provide for renewal options for periods from 1998 to 2005
at substantially the same terms as the current leases.
Rent expense, including monthly equipment rentals, was approximately $893,000,
$190,000 and $146,000 for the years ended September 30, 1995, 1994 and 1993,
respectively.
The Company's subsidiary, TTI relies on two suppliers for the majority of their
new units and parts. As of September 30, 1995, TTI had commitments to purchase
inventory amounting to $6,160,000.
TTI guarantees on behalf of various customers certain lines of credit with banks
and financial institutions. The portion of the credit lines guaranteed ranges
from zero to 100% on a customer-by-customer basis. At September 30, 1995 the
Company's guarantees totalled $8,034,178. The Company receives a fee, in the
form of interest participation on certain of the notes upon which it is
contingently liable. This fee is recognized as interest income by the Company
and is usually held by the institution to meet reserve requirements. Company
funds held in escrow by the lenders of $916,275 at September 30, 1995 are
included in the balance sheet as restricted cash and are fully offset by a
reserve for credit guarantees.
TTI has an interest in two partnerships. The total investment in these
partnerships at September 30, 1995 of $297,556 is included in other assets. TTI
guarantees the debt of these partnerships. The amount guaranteed at September
30, 1995 of $557,552 is collateralized by accounts
F-33
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
receivable, inventory, equipment, buildings and real estate.
Contingencies
On February 28, 1995 a class action lawsuit was filed in the United States
District Court for the Eastern District of New York against the Company and
certain officers seeking at least $15 million in damages plus an unspecified
amount for plaintiffs' costs. The suit claims, among other things, that the
Company and the officers were responsible for artificially inflating the market
price of the Company's common stock during the period of October 26, 1993
through January 15, 1995. The New York court has transferred venue of the suit
to the United States District Court for the Northern District of Texas. The
Company intends to defend these allegations vigorously and does not expect the
outcome of this matter to have a material impact on the Company's financial
position or results of operations.
The Company and its subsidiaries are involved in certain legal actions and
claims arising in the ordinary course of business. Management believes (based
on advice of legal counsel) that such litigation and claims will be resolved
without material effect on the Company's financial position or results of
operations.
13. RELATED PARTY TRANSACTIONS
Effective January 1, 1993, the Company was charged $12,500 per month by a
company controlled by Paul A. Tanner, an executive officer and director of the
Company, for its use of corporate facilities, office furniture, equipment and
supplies, and related office, clerical and management expenses. These monthly
charges were accrued by the Company from January 1993 to September 1993.
Following the Company's acquisition of DPPI (See Note 3) in October 1993, this
arrangement was terminated and $112,500 that had accrued as of September 1993
was paid in full.
During the year ended September 30, 1993, the Company had purchases of
inventories for resale amounting to $474,000 from the company controlled by Mr.
Tanner. During the fiscal year ended September 30, 1994, because the Company
elected not to fully develop the business for which these inventories were
originally purchased, Mr. Tanner agreed to repurchase the unsold balance of
inventories, at no gain or loss to the Company, in consideration of a 7%
promissory note in the amount of $369,350, which was payable on September 30,
1995. This note, together with accrued interest was refinanced in connection
with the issuance of the promissory note described below.
During fiscal 1994, the Company made aggregate non-interest bearing cash
advances to Mr. Tanner in the amount of approximately $282,000. At September
30, 1994, Mr. Tanner had repaid $150,000 of such advances. During fiscal 1995,
following the repayment of the unpaid 1994 advances, additional advances
amounting to approximately $63,000 were made to Mr. Tanner which were unpaid at
September 30, 1995. Subsequent to September 30, 1995, additional
F-34
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
amounts were advanced to or on behalf of Mr. Tanner which aggregated
approximately $1.5 million.
Effective December 8, 1995, the unpaid balance of the 7% promissory note (plus
interest) referred to above plus the unpaid advances referred to in the
preceding paragraph were refinanced by Mr. Tanner through the issuance of a 12%
demand note in the principal amount of $2,000,872.
Other assets include an insurance premium receivable of $432,006 representing
insurance premiums paid by TTI on behalf of Harold Estes, President and former
owner of TTI.
In February 1994, a company owned by Harold Estes, loaned DPPI $350,000 to pay a
previous mortgage on the Company's principal executive offices. The outstanding
principal and interest on this loan was $363,347 as of May 25, 1994, when such
loan was paid in full by the Company.
In connection with the purchase of TTI, the Company acquired a note receivable
from an officer. The note is secured by marketable securities, payable within
one year and bears interest at 3.96%. As of September 30, 1995 the balance
outstanding was $368,642.
Upon the resignation of Paul Stevens from the Board of Directors and as
President of PIC in October 1993, the Company and Mr. Stevens entered into an
agreement whereby Mr. Stevens was to provide consulting services to PIC in
consideration for (1) the issuance of 7,500 shares of Series A Preferred Stock,
valued at $75,000 and convertible into 150,000 shares of restricted common
stock, and (2) a monthly retainer of $12,500 cash for a 5-year period. This
agreement was terminated in September 1994, whereby Mr. Stevens agreed to waive
all remaining cash payment requirements and the Company agreed to register the
common stock underlying Mr. Stevens Series A Preferred Stock and to cancel stock
subscriptions receivable from Mr. Stevens in the amount of $30,000. The
Company's expense for the year ended September 30, 1994 amounted to
approximately $200,000 as a result of this consulting contract and its
subsequent termination.
During 1993, the Company sold certain finished goods inventories, which had a
carrying value of zero, and a note receivable to a company controlled by Mr.
Stevens in exchange for a promissory note of approximately $468,000. During
the year ended September 30, 1992, the Company recognized a loss of $100,000 on
the note receivable sold to Mr. Stevens. The promissory note is payable in
quarterly installments of $21,075 plus interest.
As discussed in Note 10, the Company, at September 30, 1995, was obligated to
the Pyrenees Group for $1,153,000. Subsequent to year end, the Company, after
repayment of this amount, made additional cash advances to Pyrenees amounting to
$1,514,500.
See Note 10 for discussion of options granted to the Pyrenees Group, a related
party.
See Notes 3 and 8 for discussion of note payable to Harold Estes.
F-35
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
14. GAIN ON SALE OF INSTALLMENT NOTES
In September 1993, the Company acquired from Texas Timberjack, Inc. prior to its
acquisition certain installment notes in exchange for $452,000 cash. The
Company subsequently sold the notes, without recourse, to another unrelated
party for $979,500, recognizing a gain of $527,500. This transaction was prior
and unrelated to the TTI transaction disclosed in Note 3.
15. PROFIT SHARING PLAN
In 1986, prior to acquisition by the Company, TTI adopted a profit sharing plan.
In order to participate in the plan, an employee must be at least 21 years of
age, have been employed by TTI at least one year and be a full time employee.
Vesting begins in the third year of employment and increases each year until
full vesting is achieved in the seventh year. The plan is administered by an
independent third party. Trustees for the plan are the president and
controller of TTI. The maximum contribution is the lesser of 15% of eligible
salaries or net income plus retained earnings. Profit sharing expense for the
year ended September 30, 1995 was $211,000 and for the period from acquisition
through September 30, 1994 was approximately $45,000.
16. SALE OF SUBSIDIARY
The Company, during February 1995, entered into a transaction whereby it
exchanged 100% of the common stock of Taylor-Built Industries, Inc., a wholly
owned subsidiary, for 200,000 shares of restricted common stock of Optimax,
Inc., a publicly held company. No gain or loss was recognized on this
transaction.
17. INFORMATION BY INDUSTRY SEGMENT
The Company's industry segments are outlined below.
Transformer Manufacturing
The transformer manufacturing segment manufactures and sells custom designed
transformer and communication filters. Customers are primarily defense
contractors or defense contractor suppliers in the Mid-Atlantic and Northeastern
regions of the United States.
Computer Sales and Service
The computer sales and service segment assembles and sells personal computers
and provides systems setup and hardware maintenance services. Customers
serviced range from individuals
F-36
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
to large corporations. Subsidiaries included in the segment are Network
America, Inc., in Tulsa, Oklahoma; Letronix and Computer System Concepts in
Queens, New York; PC Repair in Sarasota, Florida and Micro Configurations Inc.,
in Brooklyn, New York.
Forestry
The Forestry segment sells, finances, and repairs timber and logging equipment
in East Texas and Western Louisiana. Customers range from small logging
operations to large integrated paper mills.
Food
The food segment produces high quality entrees, plated meals, soups, sauces and
poultry, meat and fish specialties primarily for customers in the airline,
restaurant and weight loss industries.
F-37
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
September 30, 1995
------------------------------------------------------------------------
Computer
Transformer Sales and
Food Forestry Manufacturing Service Totals
------------ ------------ ------------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Net Sales:
Sales to unaffiliated customers $40,395,326 $42,778,102 $3,602,678 $15,259,366 $102,035,472
=========== =========== ========== =========== ============
Operating profit and earnings
before income taxes
extraordinary items and cumulative
effect of accounting changes:
Operating profit $ 2,707,773 $ 4,691,322 $ 302,512 $ 548,601 $ 8,250,208
=========== =========== ========== ===========
General corporate expenses (1,498,507)
Interest and other income 592,055
Interest expense (3,791,059)
------------
Income before income taxes $ 3,552,697
============
Identifiable assets:
Segment assets $38,991,764 $34,423,387 $2,988,017 $ 7,149,085 $ 83,552,253
=========== =========== ========== ===========
Corporate assets 4,606,610
------------
Total assets $ 88,158,863
============
Capital expenditures:
Segment $ 133,118 $ 590,052 $ 68,729 $ 157,408 $ 949,307
=========== =========== ========== ===========
Corporate 26,576
------------
Total capital expenditures $ 975,883
============
Depreciation and amortization:
Segment $ 857,813 $ 559,872 $ 69,321 $ 322,767 $ 1,809,773
=========== =========== ========== ===========
Corporate 125,786
------------
Total depreciation and amortization $ 1,935,559
============
</TABLE>
The Company's food group had sales to a single customer in fiscal 1995 which
comprised approximately 15% percent of consolidated sales. No other customer
accounted for more than 10% of the Company's sales in fiscal 1995.
F-38
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
September 30, 1994
------------------------------------------------------
Computer
Transformer Sales and
Forestry Manufacturing Service Total
---------- ------------- ----------- --------
<S> <C> <C> <C> <C>
Net Sales:
Sales to unaffiliated customers $11,154,096 $3,516,730 $10,299,578 $24,970,404
=========== ========== =========== ===========
Operating profit and earnings
before income taxes
extraordinary items and cumulative
effect of accounting changes:
Operating profit $ 876,257 $ 216,401 $ 466,322 $ 1,558,980
=========== ========== ===========
General corporate expenses (1,203,598)
Non-recurring charge related
to the grant of stock options (1,400,000)
Interest and other income 125,730
Interest expense (447,987)
-----------
Loss before income taxes, extraordinary
item and cumulative effect of accounting
change $(1,366,875)
===========
Identifiable assets:
Segment assets $24,868,598 $3,910,465 $ 6,311,229 $35,090,292
=========== ========== ===========
Corporate assets 2,884,657
-----------
Total assets $37,974,949
===========
Capital expenditures:
Segment $ 61,670 $ 20,749 $ 151,812 $ 234,231
=========== ========== ===========
Corporate 113,290
-----------
Total capital expenditures $ 347,521
===========
Depreciation and amortization:
Segment $ 128,470 $ 109,072 $ 182,979 $ 420,521
=========== ========== ===========
Corporate 76,993
-----------
Total depreciation and amortization $ 497,514
===========
</TABLE>
No customer accounted for more than 10% of the Company's consolidated sales in
fiscal 1994
F-39
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
September 30, 1993
-------------------------------------------
Computer
Transformer Sales and
Manufacturing Service Total
------------- ------------- ----------
<S> <C> <C> <C>
Net Sales:
Sales to unaffiliated customers $2,951,155 $4,375,194 $7,326,349
========== ========== ==========
Operating profit and earnings
before income taxes and
extraordinary items:
Operating profit $ 547,630 $ 466,876 $1,014,506
========== ==========
Gain on installment notes (Note 14) 527,500
General corporate expenses (418,053)
Interest expense (56,378)
----------
Earnings before income taxes and
extraordinary items $1,067,575
==========
Identifiable assets:
Segment assets $3,810,025 $4,049,357 $7,859,382
========== ==========
Corporate assets 1,174,313
----------
Total assets $9,033,695
==========
Capital expenditures: $ 11,229 $ 23,315 $ 34,544
========== ========== ==========
Depreciation and amortization:
Segment $ 200,604 $ 6,789 $ 207,393
========== ==========
Corporate 6,085
----------
Total depreciation and amortization $ 213,478
==========
</TABLE>
For the year ended September 30, 1993, approximately 17% of the Company's
sales were to a single customer, which is a supplier to various branches of
the U.S. Government, all of which were made through the transformer segment.
F-40
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
18. QUARTERLY FINANCIAL DATA (Unaudited)
<TABLE>
<CAPTION>
For the Year Ended September 30, 1995
--------------------------------------------------------
December 31 March 31 June 30 September 30
------------- ----------- ----------- --------------
<S> <C> <C> <C> <C>
Net revenues $12,611,165 $13,831,411 $33,633,241 $41,959,655
Gross profit 3,064,609 3,034,572 6,285,021 7,595,633
Operating income 877,489 1,005,637 2,151,530 2,717,045
Net income $ 574,354 $ 604,974 $ 917,461 $ 1,188,810
=========== =========== =========== ===========
Income per common
share:
Net income $ .05 $ .05 $ .07 $ .09
=========== =========== =========== ===========
</TABLE>
F-41
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
18. QUARTERLY FINANCIAL DATA (Unaudited)
<TABLE>
<CAPTION>
For the Year Ended September 30, 1994
------------------------------------------------------
December 31 March 31 June 30 September 30
----------- ---------- --------- ------------
<S> <C> <C> <C> <C>
Net sales $3,722,093 $3,482,599 $ 4,837,293 $12,928,419
Gross profit 1,070,197 971,372 1,015,160 1,943,440
Operating income (loss) 310,046 184,250 94,812 (233,726)
Income (loss) before
extraordinary item and
cumulative effect of
accounting change 282,643 158,832 (1,325,688) (499,662)
Extraordinary item-early
extinguishment of debt 62,120
Cumulative effect of
change in method of
accounting for taxes 305,000 - - -
---------- ---------- ----------- -----------
Net income (loss) $ 587,643 $ 158,832 $(1,325,688) $ (437,542)
========== ========== =========== ===========
Income (loss) per common
share:
Before extraordinary item
and cumulative effect of
accounting change $ .05 $ .03 $ (.24) $ (.09)
Extraordinary item .01
Cumulative effect of
change in method of
accounting for taxes .05 - - -
---------- ---------- ----------- -----------
Net income (loss) $ .10 $ .03 $ (.24) $ (.08)
========== ========== =========== ===========
</TABLE>
Quarterly per share data does not total to annual amounts reported due to the
weighting of common stock equivalents and the changes in the Company's capital
structure during the year. Amounts reported for the quarter ended June 30, 1994
have been restated from those included in Form 10-QSB for such quarter to
eliminate antidilutive common stock equivalents from the computation of loss per
share and to adjust the consideration in connection with the purchase of the
Register-Mate assets.
F-42
<PAGE>
POLYPHASE CORPORATION
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
Summary Balance Sheet
September 30, 1995
<TABLE>
<CAPTION>
<S> <C>
Cash $ 2,193
Receivables from related parties 369,350
Receivable from subsidiaries 2,259,115
Prepaid expenses and other 531,642
-----------
Total current assets 3,162,300
Property and equipment 1,742,275
Less-Accumulated depreciation (102,817)
-----------
1,639,458
Other assets (principally investment in
and amounts due from wholly-owned
subsidiaries) 34,876,272
-----------
$39,678,030
===========
Note payable and accrued interest
to related party $11,100,000
Accounts payable 858,476
Accrued expense 343,878
Due to affiliated party 1,153,000
Current maturities of long term debt 80,398
-----------
Total current liabilities 13,535,752
-----------
Deferred income taxes 154,508
Long term debt, net 4,850,427
-----------
Total liabilities 18,540,687
Stockholders' equity:
Common stock 126,220
Additional paid in capital 22,106,606
Retained earnings (1,095,483)
-----------
Total stockholders' equity 21,137,343
-----------
$39,678,030
===========
</TABLE>
See note to condensed financial
information of registrant.
F-43
<PAGE>
POLYPHASE CORPORATION
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
Summary Statement of Income
For the Year Ended September 30, 1995
<TABLE>
<S> <C>
Net revenues $ -
Cost of sales -
-----------
Gross Profit -
Selling general and administrative expenses 1,498,508
-----------
Operating income (loss) (1,498,508)
Other income (expense)
Interest income (127,145)
Interest expense 1,877,883
-----------
Total other income 1,750,738
Income (loss) before income taxes (3,249,247)
Income taxes (benefit) (2,133,986)
-----------
(1,115,261)
Equity in net income of subsidiaries 4,400,860
-----------
Net income $ 3,285,599
===========
</TABLE>
See note to condensed financial
information of registrant.
F-44
<PAGE>
POLYPHASE CORPORATION
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
Summary Statement of Cash Flows
<TABLE>
<S> <C>
Cash flow provided by operating activities:
Net income (loss) $ 3,285,599
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating activities:
Depreciation and amortization 125,786
Issuance of common stock for accrued interest
payable on convertible subordinated debentures 9,120
Imputed interest on TTI acquisition note 66,225
Deferred income tax 293,616
Increase (decrease) in, net of effects of acquisitions:
Receivables from subsidiaries (1,941,392)
Prepaid expenses and other (423,523)
Accounts payable and other 710,920
Accrued expenses and other 1,279,321
-----------
Net cash used in operating activities 3,405,672
Cash flows used in investing activities:
Notes receivable 132,000
Capital expenditures (26,576)
Investment in Overhill Farms, Inc. (4,000,000)
Other assets (3,770,824)
-----------
Net cash used in investing activities (7,665,400)
Cash flows provided by financing activities:
Payments on notes payable (160,104)
Due to affiliated party 1,153,000
Principal collections on Pyrenees
notes receivable 3,250,000
Common stock issuance costs (132,001)
-----------
Net cash provided by financing activities 4,110,895
-----------
Net decrease in cash (148,833)
Cash - beginning of year 151,026
-----------
Cash - end of year $ 2,193
===========
</TABLE>
See note to condensed financial
information of registrant.
F-45
<PAGE>
POLYPHASE CORPORATION
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
Note A - Basis of Presentation
In the parent company only financial statements, the company's investment in
subsidiaries is stated at cost plus equity in undistributed earnings of
subsidiaries since the date of acquisition. The company's share of net income
of its unconsolidated subsidiaries is included in consolidated income using the
equity method. The parent company only financial statements should be read in
conjunction with the Company's consolidated financial statements.
The Company filed under the SB regulations for fiscal 1994 and 1993 and was not
required to complete Schedule I. Accordingly, the condensed financial
statements for these years have been omitted.
F-46
<PAGE>
POLYPHASE CORPORATION
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
For the Three Years in the Period Ended September 30, 1995
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E Column F
- --------------------------------------------------------------------------------------------------
Balance at Charged to Balance at
beginning costs and end of
Classification of period expenses Deductions Other period
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended September 30, 1995 $ 580,251 $ 73,446 $ (146,892) $ -- $ 506,805
=========================================================
</TABLE>
Note: The Company filed under the SB regulations for fiscal 1994 and 1993 and
was not required to complete Schedule II. Accordingly, the Valuation and
Qualifying Accounts for these years have been omitted.
F-47
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
POLYPHASE CORPORATION
By: /s/ Paul A. Tanner January 11, 1996
-----------------------------
Paul A. Tanner, President
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
date indicated.
/s/ Paul A. Tanner January 11, 1996
- ------------------------------------
Paul A. Tanner
President and Chief Executive
Officer, Chairman of the
Board and Director
(Principal Executive Officer)
/s/ James Rudis January 11, 1996
- -------------------------------------
James Rudis
Executive Vice President
and Director
/s/ William E. Shatley January 11, 1996
- ---------------------------------
William E. Shatley
Senior Vice President, Treasurer
and Chief Financial Officer
(Principal Financial and
Accounting Officer)
/s/ Michael F. Buck January 11, 1996
- -----------------------------------
Michael F. Buck
Director
/s/ George R. Schrader January 11, 1996
- --------------------------------
George R. Schrader
Director
25
<PAGE>
EXHIBIT 4.2
CERTIFICATION OF DESIGNATION OF PREFERENCES
OF SERIES A-3 PREFERRED STOCK OF
POLYPHASE CORPORATION, A NEVADA CORPORATION
The undersigned, Paul A. Tanner and Don E. McMillen, do hereby certify:
1. They are the duly elected and acting President and Secretary,
respectively of Polyphase Corporation, a Nevada corporation (the "corporation").
2. That, pursuant to authority conferred upon the Board Of Directors by
the Articles of Incorporation as amended of the corporation, and pursuant to the
provisions of Nevada law, the Executive Committee of the Board of Directors
acting with the full authority of the Board of Directors at a meeting held
November 8, 1995, in accordance with the provisions of Nevada law, adopted the
following recitals and resolutions providing for the designation, preferences,
and relative, participating, optional or other rights, and the qualifications,
limitations and restrictions of 750,000 shares of series A-3 Preferred Stock as
follows:
WHEREAS, the Articles of Incorporation of the corporation provides for a
class of authorized shares known as preferred stock comprising fifty million
(50,000,000) shares issuable from time to time in one or more series; and
WHEREAS, the Board of Directors of the corporation is authorized to fix or
alter the dividend rights, dividend rate, conversion rights, voting rights,
rights and terms of redemption, and the liquidation preferences of the
authorized preferred shares, and the number of shares constituting any series of
such shares and the designation thereof, or any of them;
NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors does hereby
provide that 750,000 of the authorized but unissued preferred shares shall now
be designated as "Series A-3 Preferred Stock" with a Redemption Value of Ten
dollars ($10) per share ("Redemption Value"), and does hereby fix the rights,
preferences, restrictions and other matters relating to said Series A-3
Preferred Stock as follows:
SECTION 1. DESIGNATION; NUMBER OF SHARES. 750,000 shares shall be
designated as "Series A-3 Preferred Stock"
SECTION 2. DIVIDEND RIGHTS OF PREFERRED STOCK. The holders of the Series
A-3 Preferred Stock shall be entitled to receive dividends, cumulative, at the
annual rate of twelve percent (12%) of the Redemption Value thereof, and no
more, payable quarterly with respect to the preceding calendar quarter
("Dividend Payment Dates"); provided, however, no such dividend shall be earned
or payable except out of funds legally available therefor. All dividends as
aforesaid shall be cumulative and payable to the holders of Series A-3 Preferred
Stock of record on the respective dates not exceeding sixty days preceding such
Dividend Payment Dates as may be determined by the Board of Directors in advance
of the payment of each particular dividend.
<PAGE>
No dividends or any other distribution shall be declared or paid or set
apart for payment on the Common Stock or on any other Series of Preferred Stock
unless proportionate dividends for the period have been or contemporaneously are
declared and paid on the Series A-3 Preferred Stock, ratably in proportion to
the dividend rates fixed therefor. "Distribution" in this Section 2 means the
transfer of cash or property without consideration, whether by way of dividend
or otherwise (except a dividend in shares of the corporation) or the purchase or
redemption of shares of the corporation for cash or property. The time of any
distribution by way of dividend shall be the date of declaration thereof and the
time of any distribution by purchase or redemption of shares shall be the day on
which cash or property is transferred by the corporation, whether or not
pursuant to a contract of an earlier date; provided that where a negotiable debt
security is issued in exchange for shares, the time of the distribution is the
date when the corporation acquires the shares in such exchange.
SECTION 3. LIQUIDATION RIGHTS OF SERIES A-3 PREFERRED STOCK. In event of
any voluntary or involuntary liquidation, dissolution or winding up of the
corporation, the holders of the Series A-3 Preferred Stock, ratably with the
holders of preferred stock of any other Series of Preferred Stock, shall be
entitled to receive out of the assets of the corporation specified below and
before any distribution or payment to the holders of any shares of Common Stock,
liquidation distributions in the amount of $10.00 per share plus an amount equal
to all unpaid dividends thereon for the year in which the liquidation occurs up
to and including the date fixed for distribution or payment ("Liquidation
Amount"). The holders of Series A-3 Preferred Stock shall be entitled to look
solely to the assets of the corporation for liquidating proceeds.
SECTION 4. VOTING RIGHTS. Holders of Series A-3 Preferred Stock shall be
entitled to two (2) votes per share on all matters on which the holders of
Common Stock have one vote per share, except as otherwise provided by law.
SECTION 5. CONVERSION. The holders of the shares of Series A-3 Preferred
Stock shall have conversion rights as follows:
(a) Right to Convert. Each then outstanding share of Series A-3
-----------------
Preferred Stock shall be convertible, at the option of the holder thereof, at
any time, in whole or in part, at the office of the corporation or any transfer
agent for the Series A-3 Preferred Stock or Common Stock, into fully paid and
nonassessable shares of Common Stock ("Right to Convert") in accordance with
Section 5 (b) below.
(b) Mechanics of Conversion. Before any holder of Series A-3 Preferred
------------------------
Stock shall be entitled to convert the same into shares of Common Stock, he
shall surrender the certificate of certificates therefor, duly endorsed, at the
office of the corporation or of any transfer agent for the Series A-3 Preferred
Stock or Common Stock and shall give written notice to the corporation at such
office that he elects to convert the same into two (2) shares of Common Stock
for each share of Preferred Stock (i.e., $5.00 per share of Common Stock,
subject to adjustment as provided in Section 5 (e) below) and shall state
therein his name or the name or names of his nominees in which he wishes the
certificate or certificates for shares of Common Stock to be issued. The
corporation shall, as soon as practicable thereafter, issue and deliver at such
office to such holder of Series A-3 Preferred Stock or to his nominee or
nominees, a certificate or certificates for the number of shares of Common Stock
to which he shall be entitled as aforesaid. Such conversion shall be deemed to
have been made immediately prior to the close of business on the date of such
surrender of the shares of Series A-3
2
<PAGE>
Preferred Stock to be converted, and the person or persons entitled to receive
the shares of Common Stock issuable upon such conversion shall be treated for
all purposes as the record holder or holders of such shares of Common stock on
such date.
(c) Notices of Record Date. In the event of any taking by the
-----------------------
corporation of a record of the holders of any class who are entitled to receive
any dividend (other than a cash dividend) or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, the corporation
shall mail to each holder of Series A-3 Preferred Stock at least twenty (20)
days prior to the date specified therein, a notice specifying the date on which
any such record is to be taken for the purpose of such dividend, distribution or
right, and the amount and character of such dividend, distribution or right.
(d) Reservation of Stock Issuable Upon Conversion. The corporation
----------------------------------------------
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock solely for the purpose of effecting the conversion of the
Series A-3 Preferred Stock such number of its shares of Common Stock as shall
from time to time be sufficient to effect the conversion of all outstanding
shares of the Series A-3 Preferred Stock; and if at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to effect
the conversion of all the outstanding shares of the Series A-3 Preferred Stock
the corporation will take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient for such purpose.
(e) Adjustment to Conversion Price. In the event the outstanding
-------------------------------
shares of Common Stock shall be subdivided, combined or consolidated, by stock
split, stock dividend, combination or like event into a greater or lesser number
of shares of Common Stock, the conversion rate and conversion price in effect
immediately prior to such subdivision, combination, consolidation or stock
dividend shall, concurrently with the effectiveness of such subdivision,
combination or consolidation, be proportionately adjusted.
Beginning two years after the date hereof, if during any 30-day
calendar period (the "Trading Period") the closing sales price of the
corporation's Common Stock on a national securities exchange or the NASDAQ
National Market System averages less than $5.00 per share, then for a period of
30 days following such Trading Period, any holder of Series A-3 Preferred Stock
shall be entitled to convert the same into that number of whole shares of Common
Stock that is calculable by multiplying the number of shares of Series A-3
Preferred stock being converted by 10 and dividing such number by the closing
sales price of the Common Stock on the day immediately preceding the date that
written notice is given to the corporation that such holder elects to convert
such shares of Series A-3 Preferred Stock (the "Valuation Price"). In lieu of
any fractional shares to which the holder of Series A-3 Preferred Stock would
otherwise be entitled upon conversion, the corporation shall pay to such holder
cash equal to such fraction multiplied by the Valuation Price.
(f) Accrued Dividends. Upon the exercise of any Right to Convert,
-------------------
the corporation shall pay in cash any accrued and unpaid dividends associated
with the shares of Series A-3 Preferred Stock subject to the conversion.
SECTION 6. CALL AND REDEMPTION. All shares of Series A-3 Preferred Stock
may be called with 30 days notice at any time by the corporation after one year
and within ten (10) years after issuance and shall be surrendered by the holders
of such shares upon the payment of one hundred five percent (105%) of Redemption
3
<PAGE>
Value plus an amount equal to all unpaid dividends thereon for the year in which
the redemption occurs up to and including the date fixed for redemption. The
holders of Series A-3 Preferred Stock shall be entitled to look solely to the
assets of the corporation for redemption proceeds. Upon the receipt of any said
notice, the holders of the Series A-3 Preferred Stock shall retain their Right
to Convert until the date of consummation of such redemption.
SECTION 7. NOTICES. Any notice required to be given to the holders of shares
of Series A-3 Preferred Stock shall be deemed given if deposited in the United
States mail, postage prepaid, and addressed to each holder of record at his
appearing on the books of the corporation.
IN WITNESS WHEREOF, said Polyphase Corporation has caused this certificate
to be signed by Paul A. Tanner, its President and attested by Don E. McMillen,
its Secretary, this __________ day of November, 1995.
POLYPHASE CORPORATION
By: [Signature appears here]
____________________________________
President
ATTEST:
[Signature of Don E. McMillen appears here]
- -------------------------------------------
Don E. McMillen, Secretary
4
<PAGE>
THE STATE OF TEXAS )
)
COUNTY OF DALLAS )
On this __________ day of ____________________, 1995, before me, the
undersigned, Notary Public in and for the State of Texas, personally appeared
Paul A. Tanner, known to me to be the person described in and who executed the
foregoing instrument, and who acknowledged to me that he executed the same
freely and voluntarily and for the uses and purposes therein mentioned.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal the day and year in this certificate first witness above.
--------------------------------------------
Notary Public in and for the State of Texas
My Commission Expires:
- -------------------------------------
THE STATE OF TEXAS )
)
COUNTY OF DALLAS )
On this __________ day of _____________________, 1995, before me, the
undersigned, a Notary Public in and for the State Of Texas, personally
appeared Don E. McMillen, known to me to be the person described in and who
executed the foregoing instrument, and who acknowledged to me that he executed
the same freely and voluntarily and for the uses and purposes therein
mentioned.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal the day and year in this certificate first written above.
--------------------------------------------
Notary Public in and for the State of Texas
My Commission Expires:
- --------------------------------------
5
<PAGE>
EXHIBIT 10.27
FIRST AMENDMENT TO CREDIT AGREEMENT
This First Amendment to Credit Agreement (the "AMENDMENT") is entered into
as of September 1, 1995, between TEXAS TIMBERJACK, INC., a Texas corporation
("BORROWER") and COMERICA BANK-TEXAS, a banking association ("LENDER"). In
consideration of the mutual covenants contained herein, Borrower and Lender
agree as follows:
1. AMENDMENT TO CREDIT AGREEMENT. Borrower and Lender agree to amend and
modify the terms and provisions of that one certain Credit Agreement dated as of
August 29, 1994 executed by and between Borrower and Lender (as the same may
have been or hereafter be renewed, extended, amended, supplemented or modified
the "CREDIT AGREEMENT") as provided in this Amendment. All terms and provisions
of the Credit Agreement not specifically amended or modified by this Amendment
shall remain in full force and effect. References herein to section numbers
shall refer to the corresponding sections of the Credit Agreement and the
various terms herein shall have the meaning indicated in the Credit Agreement.
The Credit Agreement shall be amended and modified as follows:
a. Section 1, CERTAIN DEFINITIONS AND TERMS, is amended to delete
the present definition of BASE VALUE and ELIGIBLE PARTS INVENTORY and to
substitute the following:
BASE VALUE means as follows:
As it relates to the Loan as defined in Section 3, a sum not in excess of
(a) seventy percent (70%) of the value of the Eligible Accounts plus (b) a sum
not in excess of thirty percent (30%) of the value of the Eligible Parts
Inventory plus, (c) a sum not in excess of eighty-five percent (85%) of the
value of the Eligible New Equipment Inventory plus, (d) a sum not in excess of
sixty-five percent (65%) of the value of the Eligible Used Equipment Inventory
plus, (e) a sum not in excess of fifty-five percent (55%) of the value of the
Eligible Sales Contract Receivables.
ELIGIBLE PARTS INVENTORY means an amount equal to the lesser of the
original cost or the current wholesale cost to Borrower of all new and undamaged
parts inventory owned by Borrower (all finished goods and all raw materials),
save and except any and all Ford Motor Company, Hyundai Motor Company and
Cummins Sales and Service, Inc. and/or Cummins Southern Plains, Inc. parts
inventory, which is less than twelve (12) months old and, (a) is in the
possession of Borrower, (b) is subject to a perfected, first and prior Lien in
favor of Lender, (c) is not subject to any Liens other than that for the benefit
of Lender and (d) has been examined and appraised by Lender as Lender may
require.
All new and undamaged Cummins Sales and Service, Inc. and/or Cummins
Southern Plains, Inc. parts inventory shall be
FIRST AMENDMENT TO CREDIT AGREEMENT - Page 1
<PAGE>
eligible for inclusion in the definition of Eligible Parts Inventory upon: (i)
the payment by Borrower of any and all indebtedness owed by Borrower to Cummins
Sales and Service, Inc. and Cummins Southern Plains, Inc., and (ii) the filing
of a UCC Termination Statement by Cummins Sales and Service, Inc. and Cummins
Southern Plains, Inc. regarding Financing Statement No. 85-00021298, filed on
January 24, 1985, with the Texas Secretary of State.
b. SECTION 3, COMMITMENT TO LEND, is amended to delete the present
language and to substitute the following:
SECTION 3. COMMITMENT TO LEND. Subject to and in reliance upon the
terms, conditions, representations and warranties contained in this Amendment,
Lender agrees to modify, renew and extend that one certain revolving line of
credit loan evidenced by the Credit Agreement dated August 29, 1994, as provided
herein. In this regard, Lender agrees to make a revolving line of credit loan
(the "LOAN") to Borrower in an amount based upon the Base Value of the Eligible
Accounts, Eligible Parts Inventory, Eligible New Equipment Inventory, Eligible
Used Equipment Inventory, Eligible Sales Contract Receivables up to the sum of
$11,000,000.00.
In addition, subject to and in reliance upon the terms, conditions,
representations and warranties contained herein, Lender agrees to make a term
loan ("LOAN 2") to Borrower in the amount of $2,000,000.00.
c. Section 4.1, NOTE, is amended to delete the present language and
to substitute the following:
4.1 NOTES. The Loan and interest thereon shall be due and payable in
accordance with this Agreement and evidenced by a promissory note in the form
approved by Lender (the "NOTE"). Loan 2 and interest thereon shall be due and
payable in accordance with this Agreement and evidenced by a promissory note in
the form approved by Lender ("NOTE 2"). The Note and Note 2 are sometimes
hereinafter collectively referred to as the "NOTES."
d. Section 4.2, PAYMENTS, is amended to delete the present language
and to substitute the following:
4.2 PAYMENTS. Each payment or prepayment on the Note and Note 2 and
payments of fees must be paid at Lender's address set forth in Section 2.5 in
funds which are or will be available for immediate use by Lender at such address
at or before Noon (Dallas, Texas time) on the day due. If any action is
required or any payment is to be made on a day which is not a Business Day, then
such action or payment may be delayed until the succeeding Business Day. Any
extension of time shall be included in the computation of payments of interest.
e. Section 4.3, INTEREST, is amended to delete the present language
and to substitute the following:
FIRST AMENDMENT TO CREDIT AGREEMENT - Page 2
<PAGE>
4.3 INTEREST. The Loan from day to day shall bear interest at a per
annum rate which shall from day to day be equal to the lesser of (a) the Prime
Rate plus one half percent (1/2%) (the "TERM RATE"), and (b) the Highest Lawful
Rate. Each change in the Term Rate or the Highest Lawful Rate, subject to the
terms hereof, will become effective, without notice to Borrower, upon the
effective date of such change.
Notwithstanding the foregoing, Lender agrees to reduce the Term Rate to the
Prime Rate plus one-half percent ((0.5%) when Loan 2 is paid and performed in
its entirety and provided no Default or Potential Default exists.
Loan 2 from day to day shall bear interest at a per annum rate which shall
from day to day be equal to the lesser of (a) the Prime Rate plus one percent
(1.0%) ("TERM RATE 2"), and (b) the Highest Lawful Rate. Each change in the
Term Rate or the Highest Lawful Rate, subject to the terms hereof, will become
effective, without notice to Borrower, upon the effective date of such change.
f. Section 4.4, INTEREST RECAPTURE, is amended to delete the present
language and to substitute the following:
4.4 INTEREST RECAPTURE. If at any time either the Term Rate or Term
Rate 2 exceeds the Highest Lawful Rate, the rate of interest shall be limited to
the Highest Lawful Rate, but any subsequent reductions in either the Term Rate
or Term Rate 2 shall not reduce the rate of interest thereon below the Highest
Lawful Rate until the total amount of interest accrued thereon equals the amount
of interest which would have accrued thereon if the Term Rate had at all times
been in effect. If at maturity (stated or by acceleration), or at final payment
of either the Note or Note 2, the total amount of interest paid or accrued is
less than the amount of interest which would have accrued if either the Term
Rate or Term Rate 2 as applicable had at all times been in effect, then, at such
time and to the extent permitted by Law, Borrower shall pay to Lender an amount
equal to the difference between (a) the lesser of the amount of interest which
would have accrued if the Term Rate or Term Rate 2 as applicable had at all
times been in effect and the amount of interest which would have accrued if the
Highest Lawful Rate had at all times been in effect, and (b) the amount of
interest actually paid or accrued on either the Note or Note 2.
g. Section 4.5, DEFAULT RATE, is amended to delete the present
language and to substitute the following:
4.5 DEFAULT RATE. At Lender's option and to the extent permitted by
Law, all past due amounts under the Note and Note 2 and all accrued but unpaid
interest thereon and fees shall bear interest from maturity (stated or by
acceleration) at the Highest Lawful Rate until paid, regardless of whether such
payment is made before or after entry of a judgment.
FIRST AMENDMENT TO CREDIT AGREEMENT - Page 3
<PAGE>
h. Section 4.7, PAYMENT TERMS, is amended to delete the present
language and to substitute the following:
4.7 PAYMENT TERMS. The Note shall be payable on demand, but if no
demand is made, then the Note shall be payable as follows:
Interest on the total outstanding principal balance shall be due and
payable as it accrues in successive monthly installments beginning on October 1,
1995 and continuing on the same day of each successive month thereafter, through
and including February 1, 1997, when all remaining unpaid principal and all
accrued but unpaid interest shall be due and payable in full.
Note 2 shall be payable as follows:
In successive monthly principal installments of $167,000.00 each, plus
accrued but unpaid interest on the outstanding principal balance commencing on
November 1, 1995, and continuing on the same day of each successive month
thereafter, through and including October 1, 1996, when all remaining unpaid
principal and all accrued but unpaid interest shall be due and payable in full.
i. Section 4.10, COMMITMENT FEE, is hereby added to the Credit
Agreement as follows:
4.10 COMMITMENT FEE. On or before the date hereof, in connection with
Loan 2, Borrower shall have paid to Lender a non-refundable commitment fee in
the amount of $20,000.00.
j. Section 8.17, DISTRIBUTIONS, is amended to delete the present
language and to substitute the following:
8.17 DISTRIBUTIONS. Borrower will not, directly or indirectly, (a)
retire, redeem, purchase, or otherwise acquire for value any stock or other
equity securities issued by Borrower except to the extent that any Person has on
the date hereof, the Right, whether or not presently exercisable, to put any
such securities to Borrower, or (b) declare, make, or pay any dividend on or
with respect to such securities in excess of the aggregate sum of $145,000.00 in
any one (1) fiscal quarter.
k. Section 8.22, CHANGE IN OWNERSHIP OR MANAGEMENT, is amended to
delete the present language and to substitute the following:
8.22 CHANGE IN OWNERSHIP OR MANAGEMENT. Without the prior written
consent of Lender, (a) Borrower will not make any material change in the
management of Borrower which would result in the removal or replacement of
Harold Estes as chief executive officer of Borrower, and.
FIRST AMENDMENT TO CREDIT AGREEMENT - Page 4
<PAGE>
l. Section 8.27, MINIMUM TANGIBLE NET WORTH, is amended to delete the
present language and to substitute the following:
8.27 MINIMUM TANGIBLE NET WORTH. Borrower will not, at the end of any
month, permit its Tangible Net Worth to be less than $4,500,000.00.
m. Section 8.28, DEBT TO TANGIBLE NET WORTH, is amended to delete
the present language and to substitute the following:
8.28 DEBT TO TANGIBLE NET WORTH. Borrower will not, at the end of any
month, permit the ratio, determined on a consolidated basis for the Borrower of:
(i) total liabilities to (ii) Tangible Net Worth to be greater than 4.0 to 1.0.
n. Section 8.29, LIMITATION ON CONTINGENT LIABILITIES, is amended to
delete the present language and to substitute the following:
8.29 LIMITATION ON CONTINGENT LIABILITIES. Borrower will not, at the
end of any fiscal quarter, permit the total amount of its contingent liabilities
on debt secured by equipment (as determined in accordance with GAAP) to exceed
$10,000,000.00.
o. Section 8.30, LIMITATION ON NOTES RECEIVABLE, is amended to
delete the present language and to substitute the following:
8.30 LIMITATION ON NOTES RECEIVABLE. Beginning November 1, 1995,
Borrower shall not permit any additional notes receivable payable to Borrower
for goods and services to be originated, other than notes receivable resulting
from the sale of new or used equipment, in the ordinary course of Borrower's
business.
p. Section 8.31, DIVIDENDS, DISTRIBUTIONS AND PAYMENTS, is amended
to delete the present language and to substitute the following:
8.31 DIVIDENDS, DISTRIBUTIONS AND PAYMENTS. Except as provided in
Section 8.17 hereof, no dividends, distributions or payments on any stock or
payment will be made to any shareholders of Borrower without the prior written
consent of Lender.
q. Section 8.32, FIXED CHARGE COVERAGE RATIO, is hereby added to the
Credit Agreement as follows:
8.32 FIXED CHARGE COVERAGE RATIO. Borrower will not, for any fiscal
quarter, permit the ratio of: (i) profit before tax, plus depreciation,
amortization, interest expense to (ii) interest expense, all determined in
accordance with GAAP, to be less than 1.5 to 1.0. For the purposes of
calculating this ratio, interest expense shall include
FIRST AMENDMENT TO CREDIT AGREEMENT - Page 5
<PAGE>
dividends, loans, or other distributions to Borrower's parent company and/or
Borrower's officers, employees or shareholders.
r. Section 8.33, MINIMUM WORKING CAPITAL, is hereby added to the
Credit Agreement as follows:
8.33 MINIMUM WORKING CAPITAL. Borrower shall maintain minimum working
capital (as determined in accordance with GAAP), as provided below:
<TABLE>
<CAPTION>
<S> <C>
Minimum Working
Date Capital
---- ---------------
Closing Date $ 1.00
December 31, 1995 $ 550,000.00
March 31, 1996 $ 1,100,000.00
June 30, 1996 $ 1,650,000.00
September 30, 1996 to the
termination of the
effective date of this
Agreement $ 2,200,000.00
</TABLE>
s. Section 8.34, INDEBTEDNESS TO CUMMINS SALES AND SERVICE, INC., is
hereby added to the Credit Agreement as follows:
8.34 INDEBTEDNESS TO CUMMINS SALES AND SERVICE, INC. Borrower will
not incur any obligations, liabilities or indebtedness to Cummins Sales and
Service, Inc. and/or Cummins Southern Plains, Inc. in excess of the aggregate
principal amount of $100,000.00.
2. CONSENT OF GUARANTORS. Guarantors, by the execution of this
Amendment, hereby consent to the amendment and modification of the Credit
Agreement and any of the Loan Papers contemplated hereby and acknowledge and
agree that such action shall not impair in any way, the rights of Lender to
collect the Guaranteed Indebtedness (as defined in the separate guaranties
executed by Guarantors in favor of Lender in regard to the Loan) from the
Guarantors. In this regard, Guarantors waive all rights under Chapter 34 of the
Texas Business and Commerce Code and any defense given to guarantors at law or
in equity other than actual payment and performance of the indebtedness.
Guarantors further acknowledge and agree that the guaranty extends to and covers
any renewal or extension of any of Borrower's obligations and Guarantors agree
that Lender may, without prejudice to its rights against Guarantors at any time
and from time to time, in its sole discretion and without notice to or consent
from Guarantors, renew, extend or change the manner or terms of payment of any
of the obligations guaranteed. Each Guarantor hereby further affirms all terms
and provisions of such applicable guaranty and the obligations provided therein.
3. RATIFICATION OF LIENS AND SECURITY INTERESTS. Borrower and Guarantors
hereby extend and confirm any and all Liens and security interests given as
Collateral for the payment of the Notes
FIRST AMENDMENT TO CREDIT AGREEMENT - Page 6
<PAGE>
until the indebtedness evidenced by the Notes as so modified and extended has
been fully paid and agree that the extension, modification and/or rearrangement
of said indebtedness shall in no manner affect or impair the Notes or the Liens
or security interests securing same. The Notes and the Liens and security
interests securing same, shall not in any manner be waived, the purpose of this
Amendment being simply to modify, extend and/or rearrange the time and/or manner
of payment of the indebtedness evidenced by the Notes and the terms of the
Credit Agreement, and to carry forward all Liens and security interests securing
same, which are hereby acknowledged by Borrower and Guarantors to be valid and
subsisting. Borrower and Guarantors further agree that all terms and provisions
of the Notes and of the instrument or instruments creating the Liens and
security interests securing the same and all other Loan Papers shall be and
remain in full force and effect as therein written except as provided herein.
It is further understood by and between Borrower, Guarantors and Lender that the
Notes have not been extinguished but have been modified as described herein.
4. RATIFICATION OF INDEBTEDNESS AND RELEASE OF LENDER. Borrower and
Guarantors further declare said indebtedness evidenced by the Note as renewed,
extended and modified to be just, due, owing and unpaid and subject to no
offsets, deductions, credits, defenses, charges or claims of whatsoever kind or
character, and further agree that all offsets, credits, defenses, charges and
claims of whatsoever kind or character, are fully settled and satisfied.
Borrower and Guarantors further acknowledge and agree that any claims, causes of
action or defenses (including but not limited to credit reporting, usury, or
other lender liability claims), if any, that Borrower or Guarantors may have
against Lender, as a result of facts, circumstances or conditions arising on or
prior to the date hereof, are hereby released and discharged. Borrower and
Guarantors hereby further agree to pay the indebtedness on the date of said
extended maturity according to the terms of this instrument and of each
promissory note or other instrument evidencing said indebtedness.
5. CROSS-DEFAULT PROVISION. Any Default by Borrower or Guarantors on any
obligation owed to Lender shall constitute a Default of each other obligation
owed to Lender.
6. REPRESENTATIONS AND WARRANTIES. Borrower and Guarantors hereby
represent and warrant to Lender that (i) the execution, delivery and performance
of this Amendment and any and all other Loan Papers executed and/or delivered in
connection herewith have been authorized by all requisite corporate action on
the part of Borrower and Guarantors and will not violate the articles of
incorporation or bylaws of Borrower or any Guarantor, (ii) the representations
and warranties contained in the Credit Agreement, as amended hereby, and any
other Loan Paper were true and correct when made, and except to the extent any
representation or warranty was expressly made as of a specific date, or to the
extent the facts upon which such representations and warranties were based
FIRST AMENDMENT TO CREDIT AGREEMENT - Page 7
<PAGE>
have been changed by the extension of credit under the Credit Agreement, are
true and correct in all material respects on and as of the date hereof, (iii)
effective upon the execution of this Amendment no Default or Potential Default
has occurred and is continuing, and (iv) Borrower and Guarantors are in
compliance with all covenants and agreements contained in the Credit Agreement
and Loan Papers as amended hereby.
7. FURTHER INSTRUMENTS. The Parties hereto each agree to execute such
further instruments and documents as deemed reasonably necessary to fully and
completely effectuate the intent and purposes of this Amendment, the Credit
Agreement and/or any Loan Papers.
8. MISCELLANEOUS. The Parties further agree as follows:
8.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and
warranties made in this Amendment or any other Loan Paper including any Loan
Paper furnished in connection with this Amendment shall survive the execution
and delivery of this Amendment and the other Loan Papers, and no investigation
by Lender or any closing shall affect the representations and warranties or the
right of Lender to rely upon them.
8.2 REFERENCE TO CREDIT AGREEMENT. Each of the Loan Papers, including
the Credit Agreement and any and all other agreements, documents, or instruments
now or hereafter executed and delivered pursuant to the terms hereof or pursuant
to the terms of the Credit Agreement as amended hereby, are hereby amended so
that any reference in such Loan Papers to the Credit Agreement shall mean a
reference to the Credit Agreement as amended hereby.
8.3 EXPENSES OF LENDER. As provided in the Credit Agreement, Borrower
agrees to pay on demand all out-of-pocket expenses incurred by Lender in
connection with the preparation, negotiation, and execution of this Amendment
and all other Loan Papers executed pursuant hereto and any and all amendments,
modifications, and supplements thereto, including without limitation the
reasonable costs and fees of Lender's legal counsel, and all out-of-pocket
expenses incurred by Lender in connection with the enforcement or preservation
of any Rights under the Credit Agreement, as amended hereby, or any other Loan
Paper, including without limitation the costs and fees of Lender's legal
counsel.
8.4 SEVERABILITY. Any provision of this Amendment held by a court of
competent jurisdiction to be invalid or unenforceable shall not impair or
invalidate the remainder of this Amendment and the effect thereof shall be
confined to the provision so held to be invalid or unenforceable.
8.5 APPLICABLE LAW. This Amendment and all other Loan Papers executed
pursuant hereto shall be deemed to have been made and to be performable in
Dallas, Dallas County, Texas and shall be
FIRST AMENDMENT TO CREDIT AGREEMENT - Page 8
<PAGE>
governed by and construed in accordance with the laws of the State of Texas.
8.6 SUCCESSORS AND ASSIGNS. This Amendment is binding upon and shall
inure to the benefit of Lender and Borrower and their respective successors and
assigns, except Borrower may not assign or transfer any of its Rights or
obligations hereunder without the prior written consent of Lender.
8.7 COUNTERPARTS. This Amendment may be executed in one or more
counterparts, each of which when so executed shall be deemed to be an original,
but all of which when taken together shall constitute one and the same
instrument.
8.8 EFFECT OF WAIVER. No consent or waiver, express or implied, by Lender
to or for any breach of or deviation from any covenant, condition or duty by
Borrower or any Guarantor shall be deemed a consent or waiver to or of any other
breach of the same or any other covenant, condition or duty. Further, the
acceptance by Lender at any time and from time to time of partial payment on the
Obligation (as defined in the Credit Agreement) shall not be deemed to be a
waiver of any Default then existing. No failure to exercise and no delay on the
part of Lender in exercising any Right under the Credit Agreement, this
Amendment or any of the Loan Papers shall operate as a waiver thereof, nor shall
any single or partial exercise of any Right under the Credit Agreement, this
Amendment or the Loan Papers preclude any other or further exercise thereof or
the exercise of any other Right. No modification or waiver of any provision of
the Credit Agreement, this Amendment or the Loan Papers shall be effective
unless the same shall be in writing and signed by Lender and Borrower, and then
such waiver or consent shall be effective only in the specific instance to which
it relates and for the purpose for which it is given. The Rights provided for
in the Credit Agreement, this Amendment and other Loan Papers are cumulative and
not intended to be exclusive of any other Right given hereunder or now or
hereafter existing at law or in equity or by statute or otherwise.
8.9 HEADINGS. The headings, captions, and arrangements used in this
Amendment are for convenience only and shall not affect the interpretation of
this Amendment.
8.10 NO UNWRITTEN AGREEMENTS. THIS WRITTEN AGREEMENT REPRESENTS THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
FIRST AMENDMENT TO CREDIT AGREEMENT - Page 9
<PAGE>
EXECUTED as of the day and year first mentioned.
BORROWER:
TEXAS TIMBERJACK, INC.
By: /s/ MIKE S. BOATMAN
________________________________
Mike S. Boatman
--------------------------------
(printed name)
Its: Vice-President
--------------------------------
(title)
LENDER:
COMERICA BANK-TEXAS
By: /s/ W. REED ALLTON
_________________________________
W. Reed Allton
_________________________________
(printed name)
Its: VP
________________________________
(title)
FIRST AMENDMENT TO CREDIT AGREEMENT - Page 10
<PAGE>
GUARANTORS:
POLYPHASE CORPORATION
By: /s/ PAUL A. TANNER
______________________________
Paul A. Tanner
______________________________
(printed name)
Its: President
______________________________
(title)
POLYPHASE INSTRUMENT CO.
By: /s/ PAUL A. TANNER
______________________________
Paul A. Tanner
______________________________
(printed name)
Its: Vice-President
_____________________________
(title)
LETRONIX, INC.
By: /s/ PAUL A. TANNER
______________________________
Paul A. Tanner
______________________________
(printed name)
Its: Vice-President
_____________________________
(title)
NETWORK AMERICA, INC.
By: /s/ PAUL A. TANNER
______________________________
Paul A. Tanner
______________________________
(printed name)
Its: Vice-President
_____________________________
(title)
FIRST AMENDMENT TO CREDIT AGREEMENT - Page 11
<PAGE>
TAYLOR-BUILT INDUSTRIES, INC.
By: /s/ PAUL A. TANNER
______________________________
Paul A. Tanner
______________________________
(printed name)
Its: Vice-President
_____________________________
(title)
DALLAS PARKWAY PROPERTIES, INCORPORATED
By: /s/ PAUL A. TANNER
______________________________
Paul A. Tanner
______________________________
(printed name)
Its: Vice-President
_____________________________
(title)
KAPPA HAITA, SA
By: /s/ PAUL A. TANNER
______________________________
Paul A. Tanner
______________________________
(printed name)
Its: Vice-President
_____________________________
(title)
FIRST AMENDMENT TO CREDIT AGREEMENT - Page 12
<PAGE>
EXHIBIT 10.28
FLUCTUATING RATE LINE OF CREDIT NOTE
Dallas, Texas
$11,000,000.00 September 1, 1995
The undersigned promises to pay to the order of COMERICA BANK-TEXAS
(hereinafter referred to as "Lender"), at its principal office in Dallas, Dallas
County, Texas, or at such other place as the holder hereof may designate in
writing, the principal sum of up to Eleven Million and No/100 Dollars
($11,000,000.00), or so much thereof as may be disbursed and outstanding
hereunder, together with interest from the date hereof on the principal balance
from time to time remaining unpaid as hereinafter provided.
The principal balance hereof from time to time remaining unpaid shall bear
interest which shall be computed on the number of days actually elapsed, but
computed as though each year consisted of 365 days, from the date hereof until
maturity at an annual rate equal to one percent (1.0%) plus the Prime Rate (the
"Note Rate"), with the Prime Rate being the rate of interest from time to time
charged by COMERICA BANK-TEXAS, Dallas, Texas as its Prime Rate, as announced or
published from time to time, provided, however, if COMERICA BANK-TEXAS, Dallas,
Texas has more than one established or announced Prime Rate, it shall mean the
highest announced Prime Rate of COMERICA BANK-TEXAS, Dallas, Texas; and is not
the lowest, best or most favored rate of interest which Lender may charge on
loans to its customers. The Note Rate shall fluctuate with such Prime Rate
changing as of the day of any change in the Prime Rate; provided, however, the
Note Rate shall never exceed the highest maximum rate permitted by applicable
state or federal law with respect to loans of this nature (the "Maximum Rate").
All past due principal and accrued interest shall bear interest at the Maximum
Rate allowed by law. As used herein "Maximum Rate" shall mean the quarterly
ceiling from time to time in effect as described in Article 5069-1.04, Texas
Revised Civil Statutes Annotated; provided that if any other state or federal
law now or hereafter in effect and applicable to this Note permits a greater
rate of interest, the Maximum Rate shall be the highest lawful rate thereunder.
The quarterly ceiling shall be adjusted from time to time as required by Article
5069-1.04(h)(2), Texas Revised Civil Statutes Annotated. The holder hereof may
from time to time revise the terms of this Note, including the rate of interest
or the index, formula or provision of law used to compute such rate, by notice
to the undersigned as provided in Article 5069-1.04(i); but in no event shall
the rate of interest contracted for, charged or received hereunder ever exceed
the Maximum Rate.
FLUCTUATING RATE LINE OF CREDIT NOTE - Page 1
<PAGE>
The principal and interest of this Note shall be payable on demand, but if
no demand is made, the Note shall be payable as follows:
Interest on the total outstanding principal balance shall be payable as it
accrues in successive monthly installments commencing on October 1, 1995,
and continuing on the same day of each successive month thereafter, through
and including February 1, 1997, when all remaining unpaid principal and all
accrued but unpaid interest shall be due and payable in full.
This Note is executed in connection with that certain Credit Agreement (as
the same may have been or hereafter be renewed, extended, amended, supplemented
or modified, including without limitation that one certain First Amendment to
Credit Agreement dated as of September 1, 1995), dated as of August 29, 1994
between TEXAS TIMBERJACK, INC. and Lender and is subject to the terms of said
Credit Agreement. Reference is hereby made to the Credit Agreement for
provisions affecting this Note regarding amounts of allowed draws, payment,
prepayments, acceleration of maturity, exercise of rights, payment of attorneys'
fees, court costs, and other costs of collection, certain waivers by maker and
others, now or hereafter obligated for payment of any sums due hereunder, and
security for the payment hereof.
This Note may be prepaid without penalty at any time.
If default be made in the payment of any installment of principal or
interest under this Note or any other indebtedness owed by the undersigned to
Lender or under the provisions of any loan agreement, security agreement, deed
of trust or other instrument executed in connection herewith or securing the
payment hereof, then the holder of this Note may, at such holder's option,
declare the entire unpaid principal balance and any accrued but unpaid interest
hereon to be immediately due and payable. Failure to exercise this option shall
not constitute a waiver of the right to exercise the same in the event of any
subsequent default.
The makers, signers, sureties, guarantors and endorsers of this Note
jointly and severally waive demand, presentment, notice of dishonor, diligence
in collecting, grace, notice and protest, notice of intention to accelerate and
notice that acceleration has occurred and agree to one or more extensions for
any period or periods of time and partial payment before or after maturity,
without prejudice to the holder hereof.
If this Note should be collected by legal proceedings or through a probate
or bankruptcy court, or shall be placed in the hands of an attorney for
collection, then the undersigned agrees to pay all reasonable attorneys' fees
incurred by Lender with respect to such proceedings or in connection with its
collection of this Note.
FLUCTUATING RATE LINE OF CREDIT NOTE - Page 2
<PAGE>
It is the intent of Lender and the undersigned in the execution of this
Note and all other agreements and instruments executed in connection herewith to
contract in strict compliance with applicable usury law. In furtherance
thereof, Lender and the undersigned stipulate and agree that none of the terms
and provisions contained in this Note, or in any other agreement or instrument
executed in connection herewith, shall ever be construed to create a contract to
pay, for the use, forbearance or detention of money, interest at a rate in
excess of the Maximum Rate. In determining whether or not the interest paid or
payable, under any specific contingency, exceeds such Maximum Rate, Lender and
the undersigned shall, to the full extent permitted by applicable law, exclude
voluntary prepayments and the effects thereof, and amortize, prorate, allocate
and spread, in equal parts, the total amount of interest throughout the entire
contemplated term of this Note so that the interest rate is uniform throughout
the entire term of this Note. If it is so determined that any interest in
excess of such Maximum Rate is provided for, then such excess shall be applied
first to any other amounts not constituting interest due or which may become due
under this Note or any other instrument executed in connection herewith and the
balance, if any, shall be, at the election of the holder hereof, applied to the
reduction of the unpaid principal amount hereof or refunded to the undersigned.
Should this Note be signed by more than one individual, corporation or
other business entity, then all of the obligations herein contained shall be
considered joint and several obligations of each signer hereof.
This Note is executed in modification, renewal and extension of that one
certain Fluctuating Rate Line of Credit Note dated August 29, 1994, in the
original principal amount of $6,000,000.00 executed by TEXAS TIMBERJACK, INC.
payable to COMERICA BANK-TEXAS. The undersigned hereby extends all liens and
security interests securing the indebtedness represented hereby until this Note
has been fully paid and agrees that the execution of this instrument shall in no
manner affect or impair said liens and security interests. The undersigned
further acknowledges and agrees that all liens and security interests securing
the indebtedness are valid and subsisting and that the same shall be and remain
in full force and effect until this Note has been paid in full.
FLUCTUATING RATE LINE OF CREDIT NOTE - Page 3
<PAGE>
THIS WRITTEN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES
AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT
ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN
THE PARTIES.
TEXAS TIMBERJACK, INC.
By: /s/ MIKE S. BOATMAN
___________________________
Mike S. Boatman
___________________________
(printed name)
Its: Vice-President
__________________________
(title)
FLUCTUATING RATE LINE OF CREDIT NOTE - Page 4
<PAGE>
EXHIBIT 10.29
PROMISSORY NOTE
---------------
November 1, 1995 Dallas, Texas $ 2,000,000
FOR VALUE RECEIVED, the undersigned,
THE PYRENEES GROUP
("Maker"), whose address is: 2 Kelvingate Court
Dallas, Texas 75225
promises to pay to the order of
POLYPHASE CORPORATION
("Payee"), whose address is: 16885 Dallas Parkway
Dallas, Texas 75248
at Dallas, Texas, or at such other place as the holder hereof shall designate
from time to time in writing, in lawful money of the United States of America,
the principal sum of
TWO MILLION DOLLARS
and to pay interest from date hereof on the principal balance hereof from time
to time remaining unpaid prior to maturity at the rate of seven percent (7%) per
annum, said interest payable semi-annually commencing May 1, 1996. All past
due principal and interest shall bear interest at the rate of twelve percent (
12%) per annum until paid. The interest hereon shall never be charged or
collected at a rate in excess of the maximum permitted by law.
The entire principal of this Note and accrued interest shall be due
and payable upon demand.
This Note is secured by Security Agreement of even date herewith, from
Maker (as Debtor) to Payee (as Secured Party) covering 200,000 shares of Series
D Preferred Stock of Polyphase Corporation or all or any portion of the 500,000
shares of Common Stock into which such shares may have been converted.
Except as otherwise provided in this Note, the undersigned waives
demand, presentment for payment, protest, notice of intention to accelerate,
filing of suit, and diligence in collecting this Note or enforcing any of the
security herefor.
If this Note shall be collected by legal proceedings or through a
probate or bankruptcy court, or shall be placed in the hands of an attorney for
collection after maturity, no matter how maturity is brought about, the
undersigned agrees to pay reasonable attorney's or collection fees.
<PAGE>
This Note shall be construed in accordance with and governed by the
laws of the State of Texas.
The undersigned shall have the right to prepay the principal in whole
or in part from time to time without premium or penalty.
This Note shall become and be immediately due and payable if one or
more of the following events shall occur:
(a) a decree or order by a court of competent jurisdiction shall
have been entered, either (i) adjudging the Maker a bankrupt or insolvent, or
(ii) approving a petition seeking reorganization or arrangement of the Maker
under the National Bankruptcy Act or any other similar applicable federal or
state law, or (iii) appointing a receiver or liquidator or trustee or assignee
in bankruptcy or insolvency of the Maker or a receiver of all or any substantial
portion of his property, and any such decree or order shall have continued in
force undischarged or unstayed for a period of sixty (60) days; or
(b) the Maker shall institute proceedings to be adjudicated a
voluntary bankrupt, or shall consent to the filing of a bankruptcy petition
against him, or shall file a petition or answer or consent seeking
reorganization or arrangement under the National Bankruptcy Act or any other
similar applicable federal or state law, or shall consent to the filing of any
such petition, or shall consent to the appointment of a receiver or liquidator
or trustee or assignee in bankruptcy or insolvency of him or of all or
substantially all of his property, or shall make a general assignment for the
benefit of creditors, or shall admit in writing his inability to pay his debts
generally as they become due.
Any notice or demand required to be given hereunder by any holder
hereof shall be deemed to have been given and received (a) when actually
received by Maker, if delivered in person, or (b) forty-eight (48) hours after a
letter containing such notice is deposited in the United States mail, certified
or registered, with postage prepaid, and addressed to Maker at the above
designated address, or at such other address of Maker as Maker shall advise the
holder hereof by certified or registered mail.
EXECUTED as of the day and year first above written.
THE PYRENEES GROUP
[Signature appears here]
By:____________________________________________
President
<PAGE>
EXHIBIT 10.30
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (the "Agreement") dated this 1st day of November,
1995, by and between POLYPHASE CORPORATION (hereinafter called the "Secured
Party") with its principal offices at 16885 Dallas Parkway, 4th Floor, Dallas,
Texas 75248, and the Pyrenees Group, 2 Kelvingate Court, Dallas, Texas 75225,
(the "Debtor:"), in its capacity as the holder of the Note (as defined below).
1. Security Interest. For value received, Debtor hereby grants to
Secured Party, upon the terms and conditions of this Agreement, a security
interest in an to any and all present or future rights of Debtor in and to all
of the following rights, interest and property (all of the following being
herein sometimes called the "Collateral"): Two hundred thousand (200,000) shares
of Polyphase Corporation Series D Preferred Stock or all or any portion of the
500,000 shares of Common Stock into which such shares may have been converted.
2. Obligation. The security interest herein granted ("Security
Interests") shall secure full payment and performance of: (a) that certain
Promissory Note of even date herewith in the principal amount of $2,000,000,
made to Debtor and payable to the order of Secured party (such note and any
notes given in modification, renewal, extension or substitution thereof being
herein sometimes collectively referred to as the "Notes" and individually as the
"Note"); and (b) the due and punctual observance and performance of each and
every agreement, covenant and condition on Debtor's part to be observed or
performed under this Agreement and the Note (all of which debts, duties,
liabilities and obligations hereinbefore described and covered by this Agreement
and the Note are hereinafter referred to as the "Obligation").
3. Priority. Debtor represents and warrants that the Security Interests
are first and prior security interests in and to all of the Collateral, subject
to the following liens thereon or security interest therein in existence prior
to the Debtors acquisition of the Collateral: NONE
4. Title to Collateral. Debtor represents and warrants to Secured Party
that: (a) Debtor is the owner of the Collateral; (b) no dispute, right of
offset, counterclaim, or defense to the Security Interests exists with respect
to all or any part of the Collateral; and (c) Debtor will defend the Collateral
against the claims and demands of all persons other than any subordinate claims
or liens acknowledged by Secured Party.
5. Debtor's Obligation. So long as the Note is outstanding, Debtor
covenants and agrees with Secured Party: (a) not to permit any material part of
the Collateral to be levied upon under any legal process; (b) not to dispose of
any of the Collateral without the prior written consent of Secured
<PAGE>
Party; (c) to comply with all applicable federal, state and local statutes laws,
rules and regulations; the noncompliance with which could have a material and
adverse effect on the value of the Collateral; and (d) to pay all taxes accruing
after the Closing Date which constitute, or may constitute, a lien against the
Collateral, prior to the date when penalties or interest would attach to such
taxes; provided, that Debtor may contest any such tax claim if done diligently
and in good faith.
6. Event of Default. As used herein, the term "Event of Default" shall
include any or all of the following if same exist on the 10th day after written
notice by Secured Party to Debtor which certifies such default:
(a) The assignment, voluntary or involuntary conveyance of legal or
beneficial interest, mortgage, pledge or grant of a security interest in any of
the Collateral; or
(b) The filing or issuance of a notice of any lien, warrant for distraint
or notice of levy for taxes or assessment against the Collateral (except for
those which are being contested in good faith and for which adequate reserves
have been created); or
(c) Nonpayment of any installment of principal or interest upon the date
same shall be due and payable under the terms of the Note; or
(d) The adjudication of Debtor as bankrupt, or the taking of any
voluntary action by Debtor or any involuntary action against Debtor seeking an
adjudication of Debtor as bankrupt, or seeking relief by or against Debtor
under any provision of the Bankruptcy Code.
7. Remedies. Upon the occurrence and during the continuation of an
Event of Default as defined herein, in addition to any and all other rights and
remedies which Secured Party may then have hereunder or under the Note, under
the Uniform Commercial Code of the State of Texas or of any other pertinent
jurisdiction (the "Code"), or otherwise, Secured Party may, at its option: (a)
reduce his claim to judgement of foreclosure or otherwise enforce the Security
Interests, on whole or in part, by any available judicial procedure; (b) sell,
or otherwise dispose of, at the office of Secured Party, or elsewhere, all or
any part of the Collateral, and any such sale or other disposition may be as a
unit or on parcels, by public or private proceedings, and by way of one or more
contracts (it being agreed that the sale of any part of the Collateral shall not
exhaust the Secured Party's power of sale, but sales may be made from time to
time, and at any time, until all of the Collateral has been sold or until the
Obligation has been paid and performed in full); (c) at its discretion, retain
the Collateral in satisfaction of the Obligation whenever the circumstances are
such that Secured Party is entitled to do so under the Code or otherwise; and
(d) exercise any and all other rights, remedies and privileges it may have under
the Note and the other documents defining the Obligation.
8. Application of Proceeds by Secured Party. Any and all proceeds ever
received by Secured Party from any sale or other disposition of the Collateral,
or any part thereof, or the exercise of any other remedy pursuant hereto shall
be applies by Secured Party to the Obligation in such order
<PAGE>
and manner as Secured Party, in its sole discretion, may deem appropriate,
notwithstanding any directions or instructions to the contrary by Debtor;
provided that: (a) the proceeds and/or accounts shall be applied toward
satisfaction of the Obligation; and (b) if such proceeds and/or accounts are not
sufficient to pay the Obligation in full, Debtor shall remain liable to Secured
Party for the deficiency. Any proceeds received by Secured Party under this
Agreement in excess of those necessary to fully and completely satisfy the
obligation shall be distributed to Debtor.
9. Notice of Sale. Reasonable notification of the time and place of any
public sale of the Collateral, or reasonable notification of the time after
which any private sale or other intended disposition of the Collateral is to be
made, shall be sent to Debtor and to any other persons entitled under the Code
to notice; provided, that if any of the Collateral threatens to decline speedily
in value or is of a type customarily sold on a recognized market, Secured Party
may sell, pledge, assign or otherwise dispose of the Collateral without
notification, advertisement or other notice of any kind. It is agreed that
notice sent or given not less than ten (10) calendar days prior to the taking of
the action to which the notice relates is reasonable notification and notice for
the purposes of this paragraph.
10. Delivery of Notices. Any notice or demand required to be given
hereunder shall be in writing and shall be deemed to have been duly given and
received by the person to whom addressed or, if given by mail, two (2) business
days after a certified or registered letter containing such notice, with postage
prepaid, is deposited in the United States mails, addressed to:
If to Secured Party:
Polyphase Corporation
16885 Dallas Parkway, 4th Floor
Dallas, TX 75248
If Debtor:
Pyrenees Group
2 Kelvingate Court
Dallas, Texas 75225
Any such address may be changed from time to time by serving notice to the other
party as above provided. A business day shall mean a day of the week which is
not Saturday or Sunday or a holiday recognized by national banking associations.
11. Binding Effect. This Agreement shall be binding upon Debtor, its
successors and assigns, and shall inure to the benefit of Secured Party, its
heirs, successors, assigns, executors, administrators, and personal or legal
representatives.
<PAGE>
12. Governing Law. This Agreement shall be construed in accordance with
and governed by the laws of the State of Texas.
13. Severability. In the event that any one or more of the provisions
contained in this Agreement are held to be invalid, illegal or unenforced in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provision of this Agreement.
EXECUTED as of the day and year first herein set forth.
SECURED PARTY
POLYPHASE CORPORATION
[Signature appears here]
----------------------------------
President
DEBTOR:
PYRENEES GROUP
[Signature appears here]
By:_______________________________
President
<PAGE>
EXHIBIT 10.31
PROMISSORY NOTE
---------------
December 8, 1995 Dallas, Texas $ 2,000,872
FOR VALUE RECEIVED, the undersigned,
PAUL A. TANNER
("Maker"), whose address is: #2 Kelvingate Court
Dallas, Texas 75220
promises to pay to the order of POLYPHASE CORPORATION
("Payee"), whose address is: 16885 Dallas Parkway
Dallas, Texas 75248
at Dallas, Texas, or at such other place as the holder hereof shall designate
from time to time in writing, in lawful money of the United States of America,
the principal sum of
TWO MILLION EIGHT HUNDRED SEVENTY-TWO DOLLARS
and to pay interest from date hereof on the principal balance hereof from time
to time remaining unpaid prior to maturity at the rate of twelve percent (12%)
per annum, annually commencing from date hereof. All past due principal and
interest shall bear interest at the rate of twelve percent ( 12%) per annum
until paid. The interest hereon shall never be charged or collected at a rate
in excess of the maximum permitted by law.
The entire principal of this Note and accrued interest shall be due
and payable upon demand.
Except as otherwise provided in this Note, the undersigned waives
demand, presentment for payment, protest, notice of intention to accelerate,
filing of suit, and diligence in collecting this Note or enforcing any of the
security herefor.
If this Note shall be collected by legal proceedings or through a
probate or bankruptcy court, or shall be placed in the hands of an attorney for
collection after maturity, no matter how maturity is brought about, the
undersigned agrees to pay reasonable attorney's or collection fees.
This Note shall be construed in accordance with and governed by the
laws of the State of Texas.
The undersigned shall have the right to prepay the principal in whole
or in part from time to time without premium or penalty.
<PAGE>
This Note shall become and be immediately due and payable upon one or
more of the following events shall occur:
(a) a decree or order by a court of competent jurisdiction shall
have been entered, either (i) adjudging the Maker a bankrupt or insolvent, or
(ii) approving a petition seeking reorganization or arrangement of the Maker
under the National Bankruptcy Act or any other similar applicable federal or
state law, or (iii) appointing a receiver or liquidator or trustee or assignee
in bankruptcy or insolvency of the Maker or a receiver of all or any substantial
portion of his property, and any such decree or order shall have continued in
force undischarged or unstayed for a period of sixty (60) days; or
(b) the Maker shall institute proceedings to be adjudicated a
voluntary bankrupt, or shall consent to the filing of a bankruptcy petition
against him, or shall file a petition or answer or consent seeking
reorganization or arrangement under the National Bankruptcy Act or any other
similar applicable federal or state law, or shall consent to the filing of any
such petition, or shall consent to the appointment of a receiver or liquidator
or trustee or assignee in bankruptcy or insolvency of him or of all or
substantially all of his property, or shall make a general assignment for the
benefit of creditors, or shall admit in writing his inability to pay his debts
generally as they become due.
Any notice or demand required to be given hereunder by any holder
hereof shall be deemed to have been given and received (a) when actually
received by Maker, if delivered in person, or (b) forty-eight (48) hours after a
letter containing such notice is deposited in the United States mail, certified
or registered, with postage prepaid, and addressed to Maker at the above
designated address, or at such other address of Maker as Maker shall advise the
holder hereof by certified or registered mail.
EXECUTED as of the day and year first above written.
PAUL A. TANNER
[Signature of Paul A. Tanner appears here]
By:____________________________________________
#2 Kelvingate Court
Dallas, Texas 75220
<PAGE>
EXHIBIT 10.32
CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
THIS CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT ("Agreement") is
entered into as of November 10, 1995, by and between Polyphase Corporation, a
Nevada corporation (the "Company") and Infinity Investors, Ltd., a Nevis BVI
corporation (the "Investor").
SECTION 1. DESCRIPTION OF TRANSACTION
--------------------------
1.1 DESCRIPTION OF SECURITIES. The Company agrees to issue to the
-------------------------
Investor 250,000 shares of its authorized but unissued Series A-3 Preferred
Stock, $.01 par value per share (the "Preferred Shares"), for an aggregate
----------------
purchase price of $2,500,000 (the "Purchase Price"). The Preferred Shares will
--------------
be convertible into shares of the Company's common stock, $.01 par value per
share (the "Common Stock"), in accordance with the terms of the Designation (as
------------
defined in SECTION 1.3). Any securities of the Company issued or issuable upon
conversion of the Preferred Shares (and any Common Stock issued as stock
dividends and/or payments-in-kind on the Preferred Shares) are referred to as
"Conversion Shares."
- ------------------
1.2 CLOSING. The closing (the "Closing") of the sale of the Preferred
------- -------
Shares will take place at the offices of the Company, at 10:00 a.m., on the date
of this Agreement, or such other time and place as agreed to by the parties (the
"Closing Date"). At the Closing, the Company will deliver the Preferred Shares
------------
being acquired by the Investor upon payment of the Purchase Price by the
Investor to the Company by wire transfer, by certified or bank cashier's check,
or by other form of payment acceptable to the Company. The Company will not be
obligated to sell any Preferred Shares unless the Investor purchases all the
Preferred Shares indicated in SECTION 1.1 to be purchased at the Closing.
1.3 CONDITIONS TO CLOSING. At or prior to the Closing, (a) the Company
---------------------
shall have duly authorized and filed a Statement of Resolution Establishing
Series of Shares (the "Designation") with the Secretary of State of the State of
-----------
Nevada, substantially in the form attached hereto as Exhibit A; and (b) the
---------
Company shall have delivered to the Investor:
(i) (A) copies of the resolutions of the Board of Directors
of the Company or an authorized committee thereof authorizing and
approving this Agreement and all of the transactions and agreements
contemplated hereby, certified by the Secretary of the Company as
being true, correct, complete and in full force and effect and
unmodified as of the Closing Date, and (B) the Articles of
Incorporation and Bylaws of the Company, each as amended to date;
(ii) a certificate of the Secretary of the Company
certifying the names of the officer or officers of the Company
authorized to execute this Agreement and any and all documents,
agreements and instruments contemplated herein; and
<PAGE>
(iii) such other documents, opinions, instruments, and
certificates as the Investor may reasonably request.
SECTION 2. REPRESENTATIONS OF THE COMPANY
------------------------------
As part of the basis of this Agreement, the Company represents to the
Investor that on the date hereof:
2.1 ORGANIZATION. The Company and each of its subsidiaries (each a
------------
"Subsidiary") is a corporation duly organized, validly existing and in good
- -----------
standing under the laws of the jurisdiction of its organization, and is
qualified to do business as a foreign corporation in all other jurisdictions
where the failure to so qualify would have a material adverse effect on the
Company.
2.2 CORPORATE POWER. The Company and each of its Subsidiaries has all
---------------
requisite power and authority to own its respective properties and to carry on
its respective business as presently conducted and as proposed to be conducted.
The Company has all requisite corporate power and authority to enter into and
perform this Agreement and to carry out the transactions contemplated by this
Agreement. The copies of the Articles of Incorporation and Bylaws of the
Company, each as amended to date, which have been furnished to the Investor, are
correct and complete.
2.3 AUTHORIZATION. This Agreement and all documents executed pursuant to
-------------
this Agreement are valid and binding obligations of the Company, enforceable
against the Company in accordance with their terms. The execution, delivery and
performance of this Agreement and the issuance of the Preferred Shares and the
Conversion Shares have been, or will be upon such issuance, duly authorized by
all necessary corporate action of the Company.
2.4 CAPITALIZATION. The authorized and issued capital stock of the
--------------
Company is as set forth in Schedule 2.4. All of the presently outstanding
------------
shares of capital stock of the Company have been validly authorized and issued
and are fully paid and nonassessable. The Preferred Shares have been validly
authorized and, when delivered and paid for pursuant to this Agreement, will be
validly issued, fully paid and nonassessable and free of all encumbrances and
restrictions, except restrictions on transfer imposed by applicable securities
laws and/or this Agreement. The relative rights, preferences, restrictions and
other provisions relating to the Preferred Shares are as set forth in the
Designation. The Company has authorized and reserved for issuance upon
conversion of the Preferred Shares of its Common Stock sufficient for the
conversion of the Preferred Shares. Conversion Shares will be, when and if
issued, validly authorized and issued, fully paid and nonassessable and free of
all encumbrances and restrictions, except restrictions on transfer imposed by
applicable securities laws and/or this Agreement.
2.5 PREEMPTIVE RIGHTS. There are no preemptive rights affecting the
-----------------
issuance or sale of the Company's capital stock.
2
<PAGE>
2.6 FINANCIAL STATEMENTS. The Company has delivered to the Investor the
--------------------
audited consolidated financial statements of the Company dated as of September
30, 1994 and the unaudited financial statements for the quarterly periods ended
June 30, 1995. Such financial statements have been prepared in accordance with
generally accepted accounting principles applied consistently, and present
fairly the consolidated financial condition of the Company as of the dates
thereof, and the consolidated results of operations of the Company for the
period, or portion thereof, as applicable, then ended (except, in the case of
unaudited financial statements, for year-end adjustments and footnotes). Since
June 30, 1995, there has not been any material adverse change, nor to the
Company's knowledge is any such change threatened, in the business, condition
(financial or otherwise), operations or properties, assets, or results of
operation of the Company and its Subsidiaries, taken as a whole.
2.7 EFFECT OF TRANSACTIONS. The Company's execution and delivery of this
----------------------
Agreement, and its performance of the transactions contemplated by this
Agreement, will not, by the lapse of time, the giving of notice or otherwise,
(a) violate any judgment, decree or order, or any material contract or
obligation of the Company or any Subsidiary, (b) violate any statute, rule or
regulation of any federal, state or local government or agency applicable to the
Company or any Subsidiary, or any material contract to which any employee of the
Company or any Subsidiary is bound or (c) result in the imposition of any lien,
charge, security interest or encumbrance upon any property or assets of the
Company or any Subsidiary.
2.8 BROKERAGE. There are no claims for brokerage commissions, finder's
---------
fees or similar compensation in connection with the transactions contemplated by
this Agreement.
2.9 PUBLIC FILINGS. The Company's Annual Report on Form 10-K for the
--------------
fiscal year ended September 30, 1994, as amended, and its Quarterly Reports on
Form 10-Q for the three-month periods ended December 31, 1994, March 31, 1995
and June 30, 1995, respectively, as amended, when they were filed with the
Securities and Exchange Commission (the "Commission"), conformed in all material
respects to the requirements of the Securities Exchange Act of 1934, as amended,
and the rules and regulations of the Commission thereunder, and none of such
documents contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading.
2.10 AMEX LISTING. The Company's Common Stock is listed for trading on the
------------
American Stock Exchange, Inc.
2.11 DISCLOSURE. This Agreement, including the exhibits hereto, do not
----------
contain any untrue statement of material fact or, when taken as a whole, omit
any material fact necessary in order to make the statements contained herein or
therein not misleading.
3
<PAGE>
SECTION 3. REPRESENTATIONS OF THE INVESTOR
-------------------------------
As part of the basis of this Agreement, the Investor hereby represents to
the Company that on the date hereof:
3.1 AUTHORIZATION. The execution of this Agreement and the documents
-------------
executed by the Investor pursuant to this Agreement have been authorized by all
necessary corporate action on the part of the Investor, have been executed and
delivered, and constitute valid, legal, binding agreements of the Investor
enforceable against the Investor in accordance with their terms.
3.2 INVESTMENT PURPOSE. The Investor is acquiring the Preferred Shares
------------------
for its own account, for investment, and not with a view to any "distribution"
within the meaning of the Securities Act of 1933, as amended (the "Securities
----------
Act"). The Investor has no present intention to make any transfer of the
- ---
Preferred Shares in violation of the Securities Act. No broker-dealer acted on
behalf of the Investor in connection with the offer or sale of the Preferred
Shares.
3.3 RESTRICTIONS ON TRANSFER. The Investor understands that because the
------------------------
Preferred Shares have not been registered under the Securities Act, it cannot
dispose of any or all of the Preferred Shares unless such Preferred Shares are
subsequently registered under the securities Act or exemptions from such
registration are available. The Investor acknowledges and understands that
except as provided in SECTION 4 of this Agreement, with respect to the
Conversion Shares, it has no independent right to require the Company to
register the Preferred Shares. The Investor understands that the Company may,
as a condition to the transfer of any of the Preferred Shares, require that the
request for transfer be accompanied by an opinion of counsel, in form and
substance satisfactory to the Company, to the effect that the proposed transfer
does not result in a violation of the Securities Act, unless such transfer is
covered by an effective registration statement under the Securities Act.
3.4 SOPHISTICATION. The Investor is knowledgeable and experience in
--------------
business and financial matters and capable of evaluating the merits and risks of
the investment in the Preferred Shares, is able to bear the economic risk of
loss of its investment in the Company, has been granted the opportunity to make
a thorough investigation of the affairs of the Company, and has availed itself
of such opportunity either directly or through its authorized representatives.
3.5 PRIVATE OFFERING. The Investor has been advised that the Preferred
----------------
Shares have not been and are not being registered under the Securities Act or
under the "blue sky" laws of any jurisdiction and that the Company in issuing
the Preferred Shares and the Conversion Shares issuable upon conversion thereof
is relying upon, among other things, the representations and warranties of such
Investor contained in this SECTION 4 in concluding that such issuance is a
"private offering" and does not require compliance with the registration
provisions of the Securities Act.
3.6 ACCREDITED INVESTOR. The Investor is an "accredited investor" within
-------------------
the meaning of Rule 501 under the Securities Act.
4
<PAGE>
3.7 BROKERAGE. There are no claims with respect to the Investor for
---------
brokerage commissions, finder's fees or similar compensation in connection with
the transactions contemplated by this Agreement.
SECTION 4. REGISTRATION RIGHTS
-------------------
4.1 OPTIONAL REGISTRATIONS.
----------------------
(a) If the Company decides to register any of its Common Stock or
securities convertible into or exchangeable for Common Stock under the
Securities Act on a form suitable for an offering for cash, other than a
registration solely to implement an employee benefit plan or a transaction
to which Rule 145 or any other similar rule of the Commission is
applicable, the Company will promptly give written notice to the Investor,
and the Company will use all reasonable efforts to effect the registration
under the Securities Act of the Registrable Securities (as defined in
SECTION 4.3) if the Investor requests such securities be included in such
registration by a written notice delivered to the Company within fifteen
(15) days after the notice given by the Company. The Investor shall have
the right to one optional registration pursuant to this SECTION 4.1.
(b) If the registration involves an underwritten public offering, the
Company will not be required to register Registrable Securities in excess
of the amount that the principal underwriter reasonably and in good faith
recommends may be included in such offering (a "Cutback"). If such a
-------
Cutback occurs, the number of shares that are entitled to be included in
the registration and underwriting shall first be allocated to the Company
for securities being sold for its own account and thereafter shall be
allocated among the holders requesting inclusion in the registration pro
rata on the basis of the number of shares each requesting holder requests
be included bears to the total number of shares of all requesting holders
(other than the Company) that have been requested to be included in such
registration.
(c) If the Company elects to terminate any registration filed under
this SECTION 4.1, the Company will have no obligation to register the
securities sought to be included by the Investor or others in such
registration. In connection with a registration made by the Company
pursuant to this SECTION 4.1, all expenses of the Company for such
registration and offering will be borne by the Company (except that the
Investor will bear its underwriting discounts and commissions attributable
to its Registrable Securities being registered and transfer taxes on shares
being sold by it).
4.2 REQUIRED REGISTRATIONS.
----------------------
(a) At any time after conversion of the Preferred Shares, up until two
years from the date hereof, if the Investor notifies the Company in writing
that the Investor intends to offer for public sale all or any portion of
the Registrable Securities then held by the Investor, the Company will use
all reasonable efforts to cause the Registrable Securities as may be
requested by the Investor to be included in a registration statement
5
<PAGE>
under the Securities Act. In connection with a registration made by the
Company pursuant to this SECTION 4.2, all expenses of the Company for such
registration and offering will be borne by the Company (except that the
Investor will bear its underwriting discounts and commissions and transfer
taxes on shares being sold by the Investor). The Company shall not be
required to file any registration statement for other than Common Stock,
although any conversion of Preferred Shares may be conditioned upon such
registration statement becoming effective, to the extent that the
conversion or exercise relates to Conversion Shares covered by the
Investor's written notice of an intended public offering. The Company
shall not be required to make more than one registration under this SECTION
4.2.
(b) The registration statement filed pursuant to the request of the
Investor may include other securities of the Company with respect to which
"piggy-back" registration rights have been granted, and may include
securities of the Company being sold for the account of the Company;
provided, however, that if the Company shall request inclusion in any
-------- -------
registration pursuant to this SECTION 4.2 of the securities being sold for
its own account, or if other persons shall request inclusion in any
registration pursuant to this SECTION 4.2, the Company shall, on behalf of
all entities requesting inclusion in such registration, include such
securities in the offering and may condition such offer on their acceptance
of any other reasonable conditions (including without limitation, if such
offering is underwritten, that such requesting holders agree in writing to
enter into an underwriting agreement with usual and customary terms).
Notwithstanding any other provisions of this SECTION 4.2, if the
representative of the underwriter advises the Investor in writing that
marketing factors require a limitation on the number of shares to be
underwritten, the number of shares to be included in the underwriting or
registration shall be allocated first to the Investor and thereafter shall
be allocated among the Company and the holders requesting inclusion in the
registration pro rata on the basis of the number of shares each requesting
holder (or the Company, as the case may be) requests to be included bears
to the total number of shares of all requesting holders (and the Company)
that have been requested be included in such registration. If a person who
has requested inclusion in such registration as provided above does not
agree to the terms of any such underwriting, such person shall be excluded
therefrom by written notice from the Company, the underwriter or the
Investor. The securities so excluded shall also be withdrawn from
registration.
4.3 REGISTRABLE SECURITIES. For the purposes of this SECTION 4, the term
----------------------
"Registrable Securities" shall mean any shares of Common Stock issuable to the
----------------------
Investor upon conversion of Preferred Shares, any shares of Common Stock issued
to the Investor as a payment-in-kind in lieu of a cash dividend on the Preferred
Shares, and any other shares of Common Stock distributable on, with respect to,
or in substitution for such Registrable Securities, including those which have
been transferred as permitted under SECTION 5.8, except for those that have been
sold or transferred pursuant to an effective registration statement or pursuant
to Rule 144 under the Securities Act.
6
<PAGE>
4.4 PROCEDURE FOR REGISTRATION. Whenever the Company is required under
--------------------------
this Agreement to register Common Stock, it agrees to do the following:
(a) Use all reasonable efforts to prepare promptly for filing with the
Commission a registration statement and such amendments and supplements to
said registration statement and the prospectus as may be necessary to keep
the registration statement effective and to comply with the provisions of
the Securities Act for the period necessary to complete the proposed public
offering, but not more than 180 days;
(b) Furnish to each selling holder such copies of each preliminary and
final prospectus and such other documents as such holder may reasonably
request to facilitate the public offering of his Registrable Securities;
(c) Enter into any underwriting agreement with provisions reasonably
required by the proposed underwriter for the selling holders, if any; and
(d) Use all reasonable efforts to register or qualify the Registrable
Securities covered by the registration statement under the securities or
"blue-sky" laws of such jurisdictions as any selling holder may reasonably
request, although the Company will not have to register in any states that
require it to qualify to do business or subject itself to general service
of process, and for a registration under SECTION 4.1, the Company will not
be required to register in more states than are necessary to permit the
sale of the securities.
4.5 LIMITATION ON REGISTRATION. The Company is not required to file a
--------------------------
registration statement requested under SECTION 4.2 prior to ninety (90) days
following the effective date of any other registration statement initiated by
the Company. If (a) in the good faith judgment of the Board of Directors of the
Company, a required registration under SECTION 4.2 would be seriously
detrimental to the Company and the Board of Directors of the Company concludes,
as a result, that it is essential to defer the filing of such registration
statement at such time, and (b) the Company shall furnish to the Investor a
certificate signed by the President of the Company stating that in the good
faith judgment of the Board of Directors of the Company, it would be seriously
detrimental to the Company for such registration statement to be filed in the
near future and that it is, therefore, essential to defer the filing of such
registration statement, then the Company shall have the right to defer such
filing for a period of not more than one hundred eighty (180) days after receipt
of the request of the Investor, and, provided further, that the Company shall
not defer its obligation in this manner more than once in any 12-month period.
Notwithstanding the provisions of SECTION 4.2, the Company is not required to
file a registration statement requested under such sections if, on the date of
such request, the Investor could sell all of the Registrable Securities then
held by it, pursuant to the terms of Rule 144 under the Securities Act, within
thirty (30) days of the date of such request.
4.6 INDEMNIFICATION. Subject to applicable law, the Company will
---------------
indemnify each underwriter and the Investor and each person controlling any of
them, against all claims, losses, damages and liabilities, including legal and
other expenses reasonably incurred, arising out of
7
<PAGE>
any untrue or allegedly untrue statement of a material fact contained in the
registration statement, or any omission or alleged omission to state a material
fact required to be stated in the registration statement or necessary to make
the statements not misleading, or arising out of any violation by the Company of
the Securities Act, any state securities or "blue-sky" laws or any applicable
rule or regulation. This indemnification will not apply to any claims, losses,
damages or liabilities to the extent they may have been caused by an untrue
statement or omission based upon information furnished in writing to the Company
by such underwriter, Investor, or controlling person, respectively, expressly
for use in the registration statement. With respect to such untrue statement or
omission in the information furnished in writing to the Company, such person
will indemnify the underwriters, the Company, its directors and officers, the
other persons selling securities under the registration statement and each
person controlling any of them against any losses, claims, damages, expenses or
liabilities to which any of them may become subject as a result of such untrue
statement or omission (including those incurred in connection with investigating
or defending against such claims). In no event shall the liability of the
Investor under this paragraph be greater in amount than the dollar amount of the
proceeds received by the Investor upon the sale of the Common Stock pursuant to
the registration statement giving rise to such indemnification obligation.
4.7 TRANSFER OF REGISTRATION RIGHTS. The registration rights of the
-------------------------------
Investor under this SECTION 4 may be transferred to any transferee of
Registrable Securities. Any such transferee will be deemed to be the Investor
for purposes of this SECTION 4, and as a condition precedent to transfer, such
transferee must agree to be bound by the terms of this SECTION 4, including
those obligations under SECTION 4.8. Any transfer of registration rights as
permitted hereunder shall not increase the number of registrations that may be
required under SECTIONS 4.1 OR 4.2.
4.8 OBLIGATIONS OF INVESTOR AND OTHERS IN A REGISTRATION. The Investor
----------------------------------------------------
agrees to furnish timely such information regarding such person and the
securities sought to be registered and to take such other action as the Company
may reasonably request in connection with the registration or qualification of
such securities and/or the compliance of such registration statement with all
applicable laws. The Investor agrees that, in connection with any offering
undertaken pursuant to SECTION 4.2, the Company shall have the right to, if it
deems an underwriter or underwriters necessary or appropriate, designate such
underwriter(s); provided, however, that if the Company does not within thirty
-------- -------
(30) days from the date of the written notice of the Investor delivered pursuant
to SECTION 4.2, designate such underwriter(s) in writing to the Investor, the
Investor shall have the right to designate its own underwriter(s). If the
registration involves an underwriter, the Investor agrees, upon the request of
such underwriter, not to sell any unregistered securities of the Company for a
period of ninety (90) days following the effective date of the registration
statement for such offering, or such other period as the underwriter may
require, and to enter into an underwriting agreement with such underwriters
containing usual and customary terms and provisions.
8
<PAGE>
SECTION 5. GENERAL
-------
5.1 AMENDMENTS, WAIVERS AND CONSENTS. Any consents required and any
--------------------------------
waiver, amendment or other action of the Investor or holder of the Preferred
Shares (or Conversion Shares) may be made only by consent(s) in writing signed
by the holders of a majority of the Preferred Shares (including, for such
purposes, any Conversion Shares that have not been sold to the public). Any
amendment or waiver made according to this paragraph will be binding upon each
holder of any securities purchased under this Agreement at the time outstanding
(including securities into which such securities have been converted) and each
future holder. Any amendment or waiver by the Company must be made in writing.
5.2 SURVIVAL; ASSIGNABILITY OF RIGHTS. All representations of the parties
---------------------------------
made in this Agreement and in the certificates, exhibits or other written
information delivered or furnished by one party to the other in connection with
this Agreement will survive the delivery of the Preferred Shares for a period of
two (2) years. Except as otherwise expressly provided for herein, all covenants
and agreements made in this Agreement will survive Closing, and will bind and
inure to the benefit of the parties' successors and assigns.
5.3 GOVERNING LAW. THIS AGREEMENT IS TO BE GOVERNED BY AND CONSTRUED IN
-------------
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT GIVING EFFECT TO THE
CHOICE OF LAW PROVISIONS THEREOF.
5.4 COUNTERPARTS. This Agreement may be executed simultaneously in any
------------
number of counterparts, each of which will be taken to be an original; but such
counterparts will together constitute one document.
5.5 NOTICES AND DEMANDS. Any notice or demand which is permitted or
-------------------
required hereunder will be deemed to have been sufficiently received (except as
otherwise provided herein) (a) upon receipt when personally delivered, (b) one
(1) day after sent by overnight delivery or telecopy providing confirmation or
receipt of delivery, or (c) three (3) days after being sent by certified or
registered mail, postage and charges prepaid, return receipt requested to the
addresses shown on the signature page of this Agreement, or at any other address
designated by such applicable party in writing.
5.6 SEVERABILITY. If any provision of this Agreement is held invalid
------------
under applicable law, such provision will be ineffective to the extent of such
invalidity, and such invalid provision will be modified to the extent necessary
to make it valid and enforceable. Any such invalidity will not invalidate the
remainder of this Agreement.
5.7 EXPENSES. Each of the Company and the Investor will pay (a) its
--------
respective costs and expenses that it incurs with respect to the negotiation,
execution, delivery, amendment and/or performance of this Agreement.
9
<PAGE>
5.8 ENTIRE AGREEMENT. This Agreement (including the exhibits hereto) and
----------------
the agreements referenced as exhibits to this Agreement constitute the entire
agreement of the parties with respect to the subject matter hereof, and
supersede any prior agreements.
The undersigned have executed this Agreement as of the day and year first
written above.
COMPANY:
POLYPHASE CORPORATION
By:
----------------------------------------------
Name:
--------------------------------------------
Title:
-------------------------------------------
Address:
-----------------------------------------
-----------------------------------------
-----------------------------------------
Telecopy:
-------------------------------
INVESTOR:
INFINITY INVESTORS, LTD.
By:
----------------------------------------------
Name:
--------------------------------------------
Title:
-------------------------------------------
Address:
-----------------------------------------
-----------------------------------------
-----------------------------------------
Telecopy:
-------------------------------
10
<PAGE>
EXHIBIT 10.33
SECURITIES PURCHASE AGREEMENT
By and Among
POLYPHASE CORPORATION,
MERRILL LYNCH WORLD INCOME FUND, INC.
AND
CONVERTIBLE HOLDINGS, INC.
Dated as of December 1, 1995
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
ARTICLE 1 - DEFINITIONS....................................... 1
ARTICLE 2 - PURCHASE AND SALE OF BONDS........................ 5
2.1 Purchase and Sale of Bonds........................ 5
2.2 Closing........................................... 5
2.3 Conditions to Obligations of Purchasers to Close.. 6
2.4 Actions to be Taken at Closing by the Purchasers.. 8
ARTICLE 3 - REPRESENTATIONS AND WARRANTIES OF THE COMPANY..... 9
3.1 Corporate Existence and Power..................... 9
3.2 Corporate Authorization; No Contravention......... 9
3.3 Governmental Authorization; Third Party Consents.. 10
3.4 Binding Effect.................................... 10
3.5 Litigation........................................ 10
3.6 No Default........................................ 10
3.7 ERISA Compliance.................................. 11
3.8 Unions............................................ 12
3.9 Use of Proceeds; Margin Regulations............... 12
3.10 Properties; Condition; Insurance.................. 13
3.11 Taxes............................................. 14
3.12 Financial Condition............................... 14
3.13 Commission Documents.............................. 15
3.14 Environmental Matters............................. 15
3.15 Investment Company................................ 15
3.16 Subsidiaries...................................... 16
3.17 Capitalization.................................... 16
3.18 Equity Interests.................................. 16
3.19 ERISA............................................. 16
3.20 Solvency.......................................... 16
3.21 Private Offering.................................. 17
3.22 Restrictive Agreements............................ 17
3.23 Full Disclosure................................... 17
3.24 Outstanding Debt.................................. 17
3.25 Public Utility Holding Company Act................ 18
3.26 Patents, Etc...................................... 18
ARTICLE 4 - REPRESENTATION AND WARRANTIES OF THE PURCHASERS... 18
4.1 Purchase for Own Account.......................... 18
4.2 Sophistication.................................... 19
</TABLE>
i
<PAGE>
<TABLE>
<C> <S> <C>
ARTICLE 5 - INDEMNIFICATION................................... 19
5.1 Indemnification by the Company.................... 19
5.2 Notification...................................... 20
5.3 Registration Rights Agreement..................... 20
ARTICLE 6 - JUDICIAL PROCEEDINGS.............................. 20
6.1 Consent to Jurisdiction........................... 20
6.2 Enforcement of Judgments.......................... 20
6.3 Services of Process............................... 21
6.4 No Limitation on Service or Suit.................. 21
6.5 Waiver of Right to Trial by Jury.................. 21
ARTICLE 7 - MISCELLANEOUS..................................... 21
7.1 Expenses.......................................... 21
7.2 Survival of Provisions............................ 22
7.3 Notices........................................... 22
7.4 Successors and Assigns............................ 23
7.5 Amendment and Waiver.............................. 23
7.6 Counterparts...................................... 23
7.7 Headings.......................................... 24
7.8 Determinations.................................... 24
7.9 Governing Law..................................... 24
7.10 Severability...................................... 24
7.11 Rules of Construction............................. 24
7.12 Entire Agreement.................................. 24
7.13 Severalty of Obligations.......................... 24
</TABLE>
ii
<PAGE>
SCHEDULES
Schedule 3.5.................................................Litigation
Schedule 3.8.....................................................Unions
Schedule 3.16..............................................Subsidiaries
Schedule 3.17............................................Capitalization
Schedule 3.18..........................................Equity Interests
Schedule 3.22....................................Restrictive Agreements
EXHIBITS
Exhibit A............................................Form of Indenture
Exhibit B........................Form of Registration Rights Agreement
Exhibit C...................................Schedule of Bond Purchases
iii
<PAGE>
SECURITIES PURCHASE AGREEMENT, dated as of December 1, 1995, by and
among Polyphase Corporation, a Nevada corporation (the "Company"), and Merrill
Lynch World Income Fund, Inc., a Maryland corporation, and Convertible Holdings,
Inc., a Maryland corporation (together, the "Purchasers").
The Company proposes to issue to the Purchasers and the Purchasers
wish to purchase 12% Senior Convertible Debentures due December 1, 1997 of the
Company in the aggregate principal amount of $1,500,000, upon the terms and
subject to the conditions set forth in this Agreement.
In consideration of the mutual covenants and agreements set forth
herein and for good and valuable consideration, the receipt of which is hereby
acknowledged, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
-----------
As used in this Agreement, the following terms have the meanings
indicated:
"Affiliate" means, with respect to any Person, any other Person that,
directly or indirectly, controls, is controlled by or is under common control
with, the Person in question. For the purposes of this definition, "control"
(including, with correlative meanings, the terms "controlled by" and "under
common control with"), as used with respect to any Person, shall mean the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such person, whether through the
ownership of voting securities or by contract or otherwise.
"Agreement" means this Agreement as the same may be amended,
supplemented or modified in accordance with the terms hereof.
"Bonds" means the 12% Senior Convertible Debentures due December 1,
1997 of the Company to be issued under the Indenture and to be substantially in
the form set forth in the Indenture, including any such debentures issued under
the Indenture in substitution or exchange therefor.
"Business Day" means any day other than a Saturday, Sunday or other
day on which commercial banks in the City of New York are authorized or required
by law to close.
"Closing" has the meaning assigned to that term in SECTION 2.2.
"Closing Date" means the date specified in SECTION 2.2.
"Code" means the Internal Revenue Code of 1986, as amended, and the
rules and regulations thereunder.
<PAGE>
"Commission" means the Securities and Exchange Commission or any
similar agency then having jurisdiction to enforce the Securities Act.
"Common Stock" means the common stock, $.01 par value, of the Company.
"Contractual Obligations" means as to any Person, any provision of any
security issued by such Person or of any agreement, undertaking, contract,
indenture, mortgage, deed of trust or other instrument to which such Person is a
party or by which it or any of its property is bound.
"Conversion Shares" means the shares of Common Stock issued or
issuable upon conversion of the Bonds (including any additional shares of Common
Stock that may be issued pursuant to adjustments to the terms of the conversion
of the Bonds).
"Current Management" means Paul A. Tanner and James Rudis.
"Default" has the meaning specified in the Indenture.
"Environmental Laws" means any foreign, federal, state, territorial,
provincial or local law, common law doctrine, rule, order, decree, judgment,
injunction, license, permit or regulation relating to environmental matters,
including those pertaining to land use, air, soil, surface water, ground water
(including the protection, cleanup, removal, remediation or damage thereof),
public or employee health or safety or any other environmental matter, together
with any other laws (foreign, federal, state, territorial, provincial or local)
relating to emissions, discharges, releases or threatened releases of any
contaminant including, without limitation, medical, biological, biohazardous or
radioactive waste and materials, into ambient air, land, surface water,
groundwater, personal property or structures, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transportation, discharge or handling of any contaminant, including, without
limitation, the Comprehensive Environmental Response, Compensation, and
Liability Act (42 U.S.C. (S) 9601 et seq.), the Hazardous Material
Transportation Act (49 U.S.C. (S) 1801 et seq.), the Resource Conservation and
Recovery Act (42 U.S.C. (S) 6901 et seq.), the Federal Water Pollution Control
Act (33 U.S.C. (S) 1251 et seq.), the Clean Air Act (42 U.S.C. (S) 1251 et
seq.), the Toxic Substances Control Act (15 U.S.C. (S) 2601 et seq.), and the
Occupational Safety and Health Act (29 U.S.C. (S) 651 et seq.), as such laws
have been amended or supplemented and any analogous future federal, or present
or future foreign, state or local laws and statutes, and the regulations
promulgated thereunder.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and any regulation promulgated thereunder.
"ERISA Affiliate" means all trades or businesses (whether or not
incorporated) that are under common control with the Company or any Subsidiary
that, together with the Company or any Subsidiary, are treated as a single
employer under Section 414(b), 414(c), 414(m) or 414(o) of the Code.
2
<PAGE>
"ERISA Event" means as to the Company, any Subsidiary or any ERISA
Affiliate: (a) a Reportable Event described in Section 4043 of ERISA (other than
a Reportable Event not subject to the provision for 30-day notice to the PBGC
under such regulations); or (b) the withdrawal of the Company, any Subsidiary,
or any ERISA Affiliate from a Plan during a plan year in which it was a
"substantial employer" as defined in Section 4001(a)(2) of ERISA; or (c) the
filing of a notice of intent to terminate a Pension Plan covered by Title IV of
ERISA in a distress termination, or the treatment of an amendment of such
Pension Plan as a termination under Section 4041 of ERISA; or (d) the
institution of proceedings to terminate such a Pension Plan by the PBGC; or (e)
the imposition of a lien under Section 412 of the Code or Section 302 of ERISA;
or (f) any other event or condition that might reasonably be expected to
constitute grounds under Section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, any such Pension Plan or to result in
the imposition of any liability under ERISA or the Code other than for PBGC
premiums due but not delinquent under Section 4007 of ERISA.
"Event of Default" has the meaning specified in the Indenture.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations of the Commission thereunder.
"Financial Statements" has the meaning specified in SECTION 3.12.
"GAAP" means generally accepted accounting principles in the United
States of America in effect from time to time.
"Governmental Authority" means the government of any nation, state or
other political subdivision thereof, any central bank thereof, any entity
exercising executive, legislative, judicial, regulatory, enforcement or
administrative functions of or pertaining to government, and any corporation or
other entity owned or controlled, through stock or capital ownership or
otherwise, by any of the foregoing.
"Hazardous Materials" means those substances that are regulated by or
form the basis of liability under any Environmental Laws.
"Indebtedness" has the meaning specified in the Indenture.
"Indenture" means the Indenture to be entered into as of the Closing
Date by and between the Company and IBJ Schroder Bank and Trust Company as
Trustee, relating to the Bonds, to be substantially in the form of EXHIBIT A
hereto.
"Lien" means any mortgage, deed of trust, pledge, hypothecation,
assignment, charge, deposit arrangement, encumbrance, lien (statutory or other)
or preference, priority or other security interest or preferential arrangement
of any kind or nature whatsoever (including, without limitation, those created
by, arising under or evidenced by any conditional sale or other
3
<PAGE>
title retention agreement, the interest of a lessor under a capitalized lease
obligation, or any financing lease having substantially the same economic effect
as any of the foregoing).
"Multiemployer Plan" means a "multiemployer plan" within the meaning
of Section 4001(a)(3) of ERISA as to which the Company, any Subsidiary, or any
ERISA Affiliate could have any direct or indirect liability, obligation or
commitment of any nature (absolute, accrued, contingent or otherwise).
"Officers' Certificate" shall mean a certificate signed in the name of
the Company by its President or one of its Vice Presidents and by its Chief
Financial Officer, Treasurer or Controller.
"Organizational Documents" means as to any Person, the certificate or
articles of incorporation and bylaws or other organizational or governing
documents of such Person.
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"Pension Plan" means any Plan that is subject to Title IV of ERISA or
the minimum funding standards of Section 412 of the Code.
"Person" means any individual, corporation, partnership, trust,
estate, incorporated or unincorporated association, joint venture, joint stock
company, government (or an agency or political subdivision thereof) or other
entity of any kind.
"Plan" means at any time, an employee benefit plan as defined in
Section 3(3) of ERISA as to which the Company or any Subsidiary could have any
direct or indirect liability, obligation or commitment of any nature (absolute,
accrued, contingent or otherwise), provided, that the term "Plan" shall not
include any Multiemployer Plan.
"Polyphase Entities" means the Company and its Subsidiaries.
"Purchasers" means the Persons who accept and agree to the terms
hereof as indicated by signature on an execution page of this Agreement, and
shall include any subsequent direct or indirect transferee of Bonds pursuant to
SECTION 7.4 hereof.
"Registration Rights Agreement" means the Registration Rights
Agreement to be entered into as of the Closing Date, between the Company and the
Purchasers in substantially the form of EXHIBIT B hereto.
"Requirements of Law" means, as to any Person, any foreign, federal,
state or local statute, law, treaty, rule or regulation and any determination,
judgment, order, decree or award of an arbitrator or a court or other
Governmental Authority, in each case applicable or binding upon such Person or
any of its property or to which such Person or any of its property is subject.
4
<PAGE>
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the Commission thereunder.
"Solvent" means, with respect to any Person, that the fair saleable
value of the property of such Person is, on the date of determination, greater
than the total amount of liabilities (including contingent and unliquidated
liabilities) of such Person as of such date and that, as of such date, such
Person is able to pay all liabilities of such Person as such liabilities mature
and does not have unreasonably small capital. In computing the amount of
contingent or liquidated liabilities at any time, such liabilities will be
computed at the amount that, in light of all the facts and circumstances
existing at such time, represents the amount that can reasonably be expected to
become an actual or matured liability.
"Subsidiary" means, with respect to any Person, a corporation a
majority of whose outstanding capital stock with voting power, under ordinary
circumstances, to elect directors is at the time, directly or indirectly, owned
by such Person, by a Subsidiary of such Person or by such Person and a
Subsidiary thereof. Unless otherwise qualified, all references to a
"Subsidiary" or to "Subsidiaries" in this Agreement shall refer to a Subsidiary
or Subsidiaries of the Company.
"Time of Purchase" has the meaning provided therefor in SECTION 2.2 of
this Agreement.
"Trustee" has the meaning specified in the Indenture.
ARTICLE 2
PURCHASE AND SALE OF BONDS
2.1 Purchase and Sale of Bonds. Subject to the terms and conditions
herein set forth, the Company shall issue, sell and deliver to the Purchasers,
and the Purchasers shall acquire from the Company, at the Time of Purchase, one
or more Bonds in the aggregate principal amount of $1,500,000 (the aggregate
principal amount to be issued to each Purchaser being set forth opposite such
Purchaser's name on EXHIBIT C hereto) for an aggregate purchase price of 100% of
the principal amount thereof (the "Purchase Price"). The Purchase Price shall
be paid by wire transfer of immediately available funds to an account previously
designated by the Company in a notice delivered to the Purchasers at least two
Business Days prior to the Closing Date. The Bonds to be issued to and acquired
by each Purchaser shall be registered in the name of such Purchaser or its
nominee, as such Purchaser shall request, and shall be in such denominations as
such Purchaser shall request.
2.2 Closing. The closing of the purchase and issuance of the Bonds
(the "Closing") shall take place at the offices of Merrill Lynch Asset
Management at World Financial Center, South Tower, Fourth Floor, New York, New
York, on December 1, 1995 or on such other date as the parties hereto may agree
upon (the "Closing Date") at 10:00 A.M., New York
5
<PAGE>
City time. The time at which such Closing is concluded is herein called the
"Time of Purchase."
2.3 Conditions to Obligations of Purchasers to Close. The obligation
of each Purchaser to purchase and pay for the Bonds to be purchased by it at the
Closing is subject to the satisfaction, prior to or at the Closing, of the
following conditions:
(a) Deliveries. Each Purchaser shall have received:
(i) The Registration Rights Agreement, duly executed by
an authorized signatory of the Company, dated as of the
Closing Date and in form and substance satisfactory to the
Purchasers;
(ii) The Bonds in the names and denominations requested
by the Purchasers, duly executed and authenticated in
accordance with the Indenture, dated as of the Closing Date
and in form and substance satisfactory to the Purchasers;
(iii) The Indenture, duly executed by (y) an
authorized signatory of the Company, and (z) the Trustee,
which Trustee shall be satisfactory to the Purchasers, dated
as of the Closing Date and in form and substance
satisfactory to the Purchasers; and
(iv) An opinion from each of (A) Jenkens & Gilchrist, a
Professional Corporation, counsel for the Company, and (B)
Kazlow & Kazlow, special New York counsel to the Company, in
each case dated the Closing Date, in form and substance
satisfactory to the Purchasers and their counsel.
(b) Representations and Warranties; No Default. The representations
and warranties of the Company contained in this Agreement, the Indenture, the
Bonds or the Registration Rights Agreement and those otherwise made in writing
by or on behalf of the Company in connection with the transactions contemplated
by or described in this Agreement, the Indenture, the Bonds or the Registration
Rights Agreement shall be true when made and at the time of the Closing and
there shall exist at the time of the Closing, after giving effect to such
transactions, no Default or Event of Default. The Company shall have delivered
to each Purchaser an Officers' Certificate, dated the Closing Date, to all such
effects.
(c) Articles of Incorporation and Bylaws. Each Purchaser shall have
received a copy of the articles of incorporation of the Company, as amended
through the date hereof, certified by the Secretary of State of the State of
Nevada, and a copy of the Company's bylaws, as amended through the date hereof.
Neither the articles of incorporation nor the bylaws of the Company shall have
been further amended or modified, and each Purchaser shall have received an
Officers' Certificate of the Company, dated the Closing Date, to such effects.
6
<PAGE>
(d) Purchase Permitted by Applicable Laws. The purchase of and
payment for the Bonds to be purchased by each Purchaser hereunder shall not be
prohibited by any applicable law or governmental regulation (including, without
limitation, Regulations G, T, U or X of the Board of Governors of the Federal
Reserve System) and shall not subject either Purchaser to any tax, penalty,
liability or other onerous condition under or pursuant to any applicable law or
governmental regulation, and each Purchaser shall have received such
certificates or other evidence as such Purchaser may request to establish
compliance with this condition.
(e) No Adverse Legislation, Action or Decision. From and after the
date hereof no legislation, order, rule, ruling or regulation shall have been
enacted or made by or on behalf of any federal, state or local governmental
body, department or agency, nor shall have any legislation been introduced and
favorably reported for passage to either House of Congress by any committee of
either such House to which such legislation has been referred for consideration,
nor shall any decision of any court of competent jurisdiction within the United
States of America have been rendered which, in the reasonable judgment of the
Purchasers, would materially and adversely affect any of the Bonds as an
investment, such as legislation that would impair the Company's ability to meet
its obligations to make payments of principal, interest, and premium, if any, on
the Bonds or which would otherwise have a material adverse effect on the
business, condition (financial or other), assets, properties, operations or
prospects of the Company or any of its Subsidiaries. There shall be no action,
suit, investigation or proceeding pending, or, to the best knowledge of the
Purchasers, threatened, against or affecting either Purchaser, any of the
properties or rights of either Purchaser, any Affiliate of either Purchaser, or
any of their respective associates, officers or directors, before any court,
arbitrator or administrative or governmental body which (i) seeks to restrain,
enjoin, prevent the consummation of or otherwise affect any of the transactions
contemplated by this Agreement, the Indenture, the Bonds or the Registration
Rights Agreement or (ii) questions the validity or legality of any such
transactions or seeks to recover damages or to obtain other relief in connection
with any such transactions, and, to the best knowledge of the Purchasers, there
shall be no valid basis for any such action, proceeding or investigation.
(f) Compliance with Securities Laws. The offering and sale of the
Bonds under this Agreement shall have complied with all applicable requirements
of federal and state securities laws, and each Purchaser shall have received
evidence of such compliance in form and substance satisfactory to such
Purchaser.
(g) Approvals and Consents. The Company shall have duly received all
material authorizations, consents, approvals, licenses, franchises, permits and
certificates by or of, all foreign, federal, state and local governmental
authorities necessary or advisable for the ownership and operation of its assets
or the sale of the Bonds contemplated by this Agreement and all thereof shall be
in full force and effect at the time of the Closing. The Company shall have
delivered to each Purchaser an Officers' Certificate, dated the Closing Date, to
such effect.
(h) Proceedings. All corporate and other proceedings taken or to be
taken in connection with the transactions contemplated hereby, including the
issuance of the
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Bonds, and all documents incident thereto shall be satisfactory in form and
substance to each Purchaser and the Purchasers' special counsel, and each
Purchaser and such special counsel shall have received all such counterpart
originals or certified or other copies of such documents as any of them may
reasonably request.
(i) Material Adverse Effect. No event shall have occurred since
September 30, 1994 and be continuing which in the judgment of any Purchaser has
had or could reasonably be expected to have a material adverse effect on the
business, operations, properties, prospects or financial or other condition of
the Polyphase Entities, taken as a whole.
(j) Status of Financial Markets. There shall not have occurred (i)
any outbreak or escalation of hostilities or other national or international
calamity or crisis or change in economic conditions or in the financial markets
of the United States or elsewhere that, in the judgment of the Purchasers, is
material and adverse, (ii) the suspension or material limitation of trading in
securities on the New York Stock Exchange, the American Stock Exchange or the
National Association of Securities Dealers, Inc. Automated Quotation System
National Market System or limitation on prices for securities on any such
exchange or National Market System, (iii) the declaration of a banking
moratorium by either federal or New York State authorities or (iv) the taking of
any action by any federal, state or local government or agency in respect of its
monetary or fiscal affairs which in the opinion of the Purchasers has a material
adverse effect on the financial markets in the United States.
(k) Fees and Expenses Paid. The Purchasers shall have received
evidence satisfactory to them that the fees and expenses incurred through the
Closing Date and to be paid by the Company pursuant to SECTION 7.1 have been
paid in full.
(l) Additional Information. The Purchasers shall have received such
additional documents, information and materials as the Purchasers may reasonably
request, including, without limitation, copies of any debt agreements, security
agreements and other material contracts to which the Company or any Subsidiary
is a party.
2.4 Actions to be Taken at Closing by the Purchasers. At the
Closing, the Purchasers shall take the following actions, which shall constitute
conditions precedent to the Company's obligations to close hereunder:
(a) Deliver to the Company the Registration Rights Agreement, executed
by an authorized signatory of each of the Purchasers; and
(b) Wire transfer to the Company the Purchase Price, as described in
SECTION 2.1.
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ARTICLE 3
REPRESENTATIONS AND
WARRANTIES OF THE COMPANY
-------------------------
The Company hereby represents and warrants to the Purchasers that:
3.1 Corporate Existence and Power.
The Company and each of its Subsidiaries:
(a) is duly organized, validly existing and in good standing under the
laws of the state of its incorporation or organization;
(b) has the corporate power and authority to own and operate its
property, to lease the property it holds or operates as lessee and to conduct
the business in which it is currently, or is currently proposed to be, engaged;
(c) is duly qualified, licensed and in good standing as a foreign
corporation under the laws of each jurisdiction where its ownership, lease or
operation of property or the conduct of its business requires such
qualification; and
(d) is in compliance with (i) all of its Organizational Documents and
(ii) all Requirements of Law;
except, in the case of (c) or (d)(ii) of this SECTION 3.1, to the extent that
the failure to do so would not have a material adverse effect on the business,
operations, properties, prospects or financial or other condition of the
Polyphase Entities, taken as a whole.
3.2 Corporate Authorization; No Contravention. Each of the
execution, delivery and performance by the Company of its obligations under each
of this Agreement, the Indenture, the Bonds and the Registration Rights
Agreement and the consummation of the transactions contemplated hereby and
thereby:
(a) is within the Company's corporate power and authority and has been
duly authorized by all necessary corporate action; and
(b) does not and will not violate, conflict with, result in any breach
or contravention of or constitute a default (or an event that with notice or the
passage of time, or both, would constitute a default) under or the creation of
any Lien upon any of the properties or assets of any of the Polyphase Entities
pursuant to, any Contractual Obligation of the Company or any Subsidiary, the
Organizational Documents of the Company or any Subsidiary, in each case as
amended, or any Requirement of Law. The Company has not previously entered into
any agreement granting any registration rights to any Person that is or are
inconsistent with the rights granted to the Purchasers in the Registration
Rights Agreement.
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3.3 Governmental Authorization; Third Party Consents. No approval,
consent, exemption, authorization, or other action by, or notice to, or filing
with, any Governmental Authority or any other Person is necessary or required in
connection with the execution, delivery or performance by, or enforcement
against, the Company of this Agreement, the Indenture, the Bonds or the
Registration Rights Agreement or the consummation of the transactions
contemplated hereby or thereby except for filings with the Commission and blue
sky filings in connection with the issuance and sale of the Bonds to the
Purchasers and such filings as are contemplated by the Registration Rights
Agreement.
3.4 Binding Effect. This Agreement has been duly executed and
delivered by the Company and constitutes the legal, valid and binding obligation
of the Company enforceable against the Company in accordance with its terms,
except as enforceability may be limited by applicable bankruptcy, insolvency, or
similar laws affecting the enforcement of creditors' rights generally or by
equitable principles relating to enforceability. Upon execution and delivery by
the Company of the Indenture and the Registration Rights Agreement, each of the
Indenture and the Registration Rights Agreement will constitute, and upon
issuance, execution, authentication and delivery of the Bonds in accordance with
this Agreement and the Indenture, each of the Bonds will constitute, the legal,
valid and binding obligation of the Company enforceable against the Company in
accordance with its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, or similar laws affecting the enforcement of creditors'
rights generally or by equitable principles relating to enforceability.
3.5 Litigation. Except as described in SCHEDULE 3.5, there are no
actions, suits, proceedings, investigations, claims, charges or disputes
pending, or to the best knowledge of the Company, threatened, at law, in equity,
in arbitration or by or before any Governmental Authority against any of the
Polyphase Entities or any of their assets:
(a) with respect to this Agreement, the Indenture, the Bonds or the
Registration Rights Agreement or any of the transactions contemplated hereby or
thereby; or
(b) that could have a material adverse effect on the assets, business,
prospects, operations or financial or other condition of the Polyphase Entities,
taken as a whole, or that could have an adverse effect on the ability of the
Company to perform its obligations under this Agreement, the Indenture, the
Bonds or the Registration Rights Agreement or the consummation of the
transactions contemplated hereby or thereby. No injunction, writ, temporary
restraining order or any order of any nature has been issued by any court or
other Governmental Authority purporting to enjoin or restrain or otherwise
affect the execution, delivery and performance of this Agreement, the Indenture,
the Bonds or the Registration Rights Agreement or the consummation of the
transactions contemplated hereby or thereby.
3.6 No Default. No event has occurred and is continuing or would
result from the incurring or performance by the Company of its obligations under
this Agreement, the Indenture, the Bonds or the Registration Rights Agreement or
the consummation of the transactions contemplated hereby or thereby that
constitutes a Default or an Event of Default. None of the Polyphase Entities is
in default under or with respect to any Contractual Obligation,
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nor, to the best knowledge of the Company, is any other party to any Contractual
Obligation in default thereunder, nor has any event occurred that with notice or
lapse of time, or both, would constitute a default or event of default under any
Contractual Obligation, in any respect that, individually or together with all
such defaults, could be materially adverse to the business, operations,
property, prospects or financial or other condition of the Polyphase Entities,
taken as a whole, or that could adversely affect the ability of the Company to
perform its obligations under this Agreement, the Indenture, the Bonds or the
Registration Rights Agreement or to consummate the transactions contemplated
hereby or thereby.
3.7 ERISA Compliance.
(a) Except where the failure to comply would not have a material
adverse effect on the assets, business, prospects, operations, or financial or
other condition of the Polyphase Entities, taken as a whole, each Plan, and the
Company and its Subsidiaries and each ERISA Affiliate with respect to each Plan,
are in compliance with the applicable provisions of ERISA and the Code.
(b) There are no Pension Plans as to which the Company, any
Subsidiary, or any ERISA Affiliate has any liability that, individually or
together with any other such liability, is or could be material to the Polyphase
Entities, taken as a whole. For purposes of the preceding sentence, the term
"liability" means the "Accumulated Benefit Obligation" minus the fair market
value of plan assets, determined in accordance with Financial Accounting
Standard 87 as of the valuation date of such Plan immediately preceding the
Closing Date.
(c) There are no Multiemployer Plans as to which the Company, any
Subsidiary, or any ERISA Affiliate has any liability that, individually or
together with any other such liability, is or could be material to the Polyphase
Entities, taken as a whole. For purposes of the preceding sentence, the term
"liability" means the "Withdrawal Liability" under Section 4201 of ERISA such
Person would incur upon a complete or partial withdrawal from such Multiemployer
Plan.
(d) There are no Plans that are welfare plans within the meaning of
Section 3(1) of ERISA that provide for continuing benefits or coverage for any
participant or any beneficiary of any participant after the participant's
termination of employment (other than coverage required under Part 6 of Title I
of ERISA, the cost of which is borne by the participant or the beneficiary) the
liability of the Company and the Subsidiaries for which, individually or
together with any other such liability, is or could be material to the Polyphase
Entities, taken as a whole. For purposes of the preceding sentence, "liability"
means the "Expected Postretirement Benefit Obligation" within the meaning of
Financial Accounting Standard 106, without regard to whether such Financial
Accounting Standard is applicable with respect to any such Plan as of the date
of determination.
(e) Each Plan that is intended to be tax qualified under Section
401(a) or 403(a) of the Code is so qualified and any related trust is exempt
from tax under Section 501 of the Code.
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(f) There are no claims (other than claims for benefits in the normal
course), actions or lawsuits asserted or instituted or, to the best knowledge of
the Company, threatened against any Plan, against the assets of any Plan or
against any fiduciary thereof with respect to the operation of any such Plan
that, individually or in the aggregate, could have a material adverse effect on
the Polyphase Entities, taken as a whole.
(g) Neither the Company nor any Subsidiary has engaged in a
"prohibited transaction," as such term is defined in Section 4975 of the Code
and Title I of ERISA, or participated in a breach of fiduciary responsibility
(as described in Section 502(1) of ERISA), which would subject any of them
(after giving effect to any exemption) to the tax or penalty on prohibited
transactions imposed by Section 4975 of the Code or Section 502 of ERISA, the
penalties under Section 502(1) of ERISA, or any other liability, which taxes,
penalties or other liabilities, individually or in the aggregate, could have a
material adverse effect on the Polyphase Entities, taken as a whole.
3.8 Unions. Except as set forth in SCHEDULE 3.8, neither the Company
nor any Subsidiary is a party to any contract with any labor union or
organization representing any employee, or any other employee representative.
None of the Polyphase Entities has had at any time during the past five years
(or such earlier period as such entity has been in existence as a Subsidiary of
the Company), nor to the best knowledge of the Company is there now threatened,
any walkout, strike, picketing, work stoppage or any other similar occurrence
that has had or would have a material adverse effect on the assets, business,
prospects, operations or financial or other condition of the Polyphase Entities,
taken as a whole.
3.9 Use of Proceeds; Margin Regulations. The proceeds of the
issuance of the Bonds will be used to fund, in part, a land development deposit
for a proposed acquisition of certain real property in Las Vegas, Nevada in
connection with the construction of a domed stadium. Neither the Company nor
any Subsidiary owns or has any present intention of acquiring any "margin stock"
as defined in Regulation G (12 CFR Part 207) of the Board of Governors of the
Federal Reserve System ("margin stock"). No portion of the proceeds of the
issuance of the Bonds has been or will be used, directly or indirectly, (i) for
the purpose, whether immediate, incidental or ultimate, of purchasing or
carrying any margin stock, (ii) for the purpose of maintaining, reducing,
retiring or refinancing any Indebtedness of the Company or any other Person that
was originally incurred to purchase or carry a stock that is currently a margin
stock, or (iii) to extend credit for the purpose of purchasing or carrying any
margin stock, or for any other purpose that might constitute this transaction a
"purpose credit" within the meaning of such Regulation G. Neither the Company
nor any agent acting on its behalf has taken or will take any action that might
cause this Agreement, the Indenture or the Bonds to violate Regulation G,
Regulation T or any other regulation of the Board of Governors of the Federal
Reserve System or to violate the Exchange Act, in each case as in effect now or
as the same may hereafter be in effect.
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3.10 Properties; Condition; Insurance.
(a) Each of the Polyphase Entities has good record and marketable
title in fee simple to all its real property, and good title to all of its other
respective assets and properties (including in each case the properties and
assets reflected in the balance sheet included in the Financial Statements, but
excluding properties that it leases), except for such defects in title as could
not, individually or in the aggregate, have a material adverse effect on the
business, operations, property, prospects or financial or other condition of the
Polyphase Entities, taken as a whole, or an adverse effect on the ability of the
Company to perform its obligations under this Agreement, the Indenture, the
Bonds or the Registration Rights Agreement or to consummate the transactions
contemplated hereby or thereby. All leases necessary in any material respect
for the conduct of the respective businesses of the Company and its Subsidiaries
are valid and subsisting and are in full force and effect, and none of such
leases contains any unusual or burdensome provisions that might materially
affect or impair the operations of the properties subject thereto or the
respective businesses of the Company and its Subsidiaries. All of the
properties and assets of the Company and its Subsidiaries are free and clear of
all Liens except for:
(i) Liens for taxes, assessments or governmental charges or
levies not yet delinquent or that are being contested in good
faith by appropriate proceedings; and
(ii) other Liens incidental to the conduct of the business
of the Company or any of its Subsidiaries or the ownership of
their respective properties and assets that were not incurred in
connection with the borrowing of money or the obtaining of
advances or credit, and that do not in the aggregate materially
detract from the value of such properties or assets, or
materially impair the use thereof in the operation of their
respective business.
(b) The Company and each of its Subsidiaries has all foreign, federal,
state and local governmental licenses, authorizations, franchises, permits,
consents and approvals (including, without limitation, certificate of need
approvals) (collectively "Permits"), and has made all filings, applications,
notifications and reports with all Governmental Authorities (collectively,
"Filings"), which are required to own, operate, use and maintain its assets and
the property it holds or operates as lessee, and to conduct the business in
which it is currently, or is currently proposed to be, engaged. All Permits and
Filings of the Company and each of its Subsidiaries are in full force and effect
and no violations have occurred with respect to such Permits and Filings. No
proceeding is pending or, to the best knowledge of the Company, threatened to
modify, suspend, revoke, redraw, terminate or otherwise limit any such Permits
or Filings and no administrative or governmental actions have been taken or, to
the best knowledge of the Company, are threatened in connection with the
expiration or current renewal of such Permits or Filings that would materially
adversely affect the ability of the Company and its Subsidiaries to own,
operate, use or maintain their assets or to conduct their operations as
currently conducted or as currently proposed to be conducted.
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(c) All tangible properties that are part of the assets of any of the
Polyphase Entities and are material to the business and operations of the
Polyphase Entities considered as a whole are in good repair, working order and
condition (subject only to normal wear and tear).
(d) The Company has in effect, with financially sound and reputable
insurers, insurance with respect to its properties and business and the
properties and businesses of its Subsidiaries against loss or damage of the
kinds customarily insured against by corporations of established reputation
engaged in the same or similar businesses and similarly situated, of such type
and in such amounts as are customarily carried under similar circumstances by
such other corporations.
3.11 Taxes. The Company and its Subsidiaries have filed or caused to
be filed, or have properly filed extensions for, all returns of or relating to
any foreign, federal, state, local or other income, franchise, excise, sales,
use, ad valorem, transfer, social security, unemployment, employer or other tax,
assessment or other governmental charge ("Tax Returns") that are required to be
filed, have properly included all items of income, gain, loss, deduction, credit
and wages or other items required to be included in such Tax Returns and have
paid or caused to be paid all taxes as shown on said Tax Returns and on all
assessments received by it to the extent that such taxes have become due, except
taxes the validity or amount of which is being contested in good faith by
appropriate proceedings and with respect to which adequate reserves have been
set aside. The Company and its Subsidiaries have paid or caused to be paid, or
have established reserves that the Company reasonably believes to be adequate in
all material respects, for all income tax liabilities applicable to the Company
and its Subsidiaries for all fiscal years that have not been examined and
reported on by the taxing authorities (or closed by applicable statutes).
3.12 Financial Condition. The Company heretofore has delivered to the
Purchasers an audited consolidated balance sheet of the Company and its
Subsidiaries as at September 30 in each of the years 1992 to 1994, inclusive,
and audited consolidated statements of income, stockholders' equity and cash
flows of the Company and its Subsidiaries for each such year, including the
notes thereto (collectively, the "Financial Statements"). The Financial
Statements have been prepared in accordance with GAAP applied consistently, and
present fairly the consolidated financial condition of the Company and its
Subsidiaries as of the dates thereof, and the consolidated results of operations
and cash flows of the Company and its Subsidiaries for the period then ended.
The Company heretofore has also delivered to the Purchasers an unaudited
consolidated balance sheet of the Company and its Subsidiaries as at June 30
each of the years 1994 and 1995 and unaudited consolidated statements of income
and cash flows of the Company and its Subsidiaries for the nine-month period
ended on each such date, prepared by the Company. Such financial statements
were prepared in accordance with GAAP and on a basis consistent with the
Financial Statements and present fairly the consolidated financial condition of
the Company and its Subsidiaries as of the dates thereof, and the consolidated
results of operations and cash flows of the Company and its Subsidiaries for the
period then ended. Neither the Company nor any of its Subsidiaries has any
material debt, liability (including without limitation any tax liability) or
other obligation of any nature (whether accrued, absolute,
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contingent or otherwise, known or unknown, due or to become due) that is not (i)
reflected on the balance sheet (or in the notes thereto) included in the
Financial Statements or (ii) of a type reflected on such balance sheet and
incurred subsequent to the date of such balance sheet in the ordinary course of
business. Since September 30, 1994, there has not been any material adverse
change, nor has any event occurred that could result in any such change, nor to
the best of the Company's knowledge is any such change threatened, in the
condition (financial or otherwise), properties, prospects, assets, business or
operations of the Polyphase Entities, taken as a whole.
3.13 Commission Documents. The Company has filed all registration
statements, proxy statements, reports and other documents required to be filed
by it under the Securities Act and the Exchange Act, and all amendments thereto
(collectively, the "Commission Documents"); and the Company has furnished the
Purchasers copies of all Commission Documents filed by it with the Commission
since September 30, 1993 and of all of its material Commission Documents, each
as filed with the Commission. Each Commission Document (as finally amended) did
not contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading, and complied as to form, at the time of the filing thereof, in all
material respects with all applicable requirements of the Securities Act and the
Exchange Act.
3.14 Environmental Matters. Except as disclosed to the Purchasers in
those environmental and asbestos reports of which copies have been given to the
Purchasers:
(a) The property, assets and operations of the Company and its
Subsidiaries comply in all material respects with all applicable Environmental
Laws.
(b) To the best knowledge of the Company, none of the property, assets
or operations of the Company or its Subsidiaries is the subject of any foreign,
federal, state or local investigation evaluating whether any remedial action is
needed to respond to a release of any Hazardous Materials into the environment
or that is in contravention of any foreign, federal, state or local law, order
or regulation that is likely to have a material adverse effect on the Company
and its Subsidiaries, taken as a whole.
(c) Neither the Company nor any of its Subsidiaries has received any
notice or claim, nor are there pending, threatened or reasonably anticipated
lawsuits against any of them, with respect to violations of an Environmental Law
or in connection with any release of any Hazardous Materials into the
environment.
(d) Neither the Company nor any of its Subsidiaries has any material
contingent liability (material to the Company and its Subsidiaries, taken as a
whole) in connection with any release of any Hazardous Materials into the
environment.
3.15 Investment Company. Neither the Company nor any of its
Subsidiaries is an "investment company," or a company "controlled" by an
"investment company," within the meaning of the Investment Company Act of 1940,
as amended.
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3.16 Subsidiaries. SCHEDULE 3.16 sets forth a complete and accurate
list of all of the Subsidiaries of the Company, together with their respective
jurisdictions of incorporation or organization and an accurate description of
the percentage interest owned therein, directly or indirectly, by the Company.
All of the outstanding shares of capital stock of each Subsidiary (i) have been
duly authorized and validly issued, (ii) are fully paid and nonassessable and
free of, and were not issued in violation of, any preemptive rights and (iii)
are free and clear of any Liens.
3.17 Capitalization. The authorized capital stock of the Company
consists of 100,000,000 shares of Common Stock, of which 13,121,966 shares are
issued and outstanding as of the date hereof, and 50,000,000 shares of preferred
stock, $0.01 par value (the "Preferred Stock"), as described in further detail
in SCHEDULE 3.17, of which 250,000 are issued and outstanding as of the date
hereof. All of the outstanding shares of capital stock of the Company have been
duly authorized and validly issued and are fully paid and non-assessable and
free of, and were not issued in violation of any, preemptive rights. Of the
authorized shares of Common Stock, 350,000 shares are duly reserved for issuance
upon conversion of the Bonds. No event that constitutes a Change of Control or
a Delisting (in each case as defined in the Indenture) has occurred. The
Conversion Shares have been duly authorized and, when issued, will be validly
issued, fully paid and non-assessable and free and clear of any Liens and
preemptive rights, and will not have been issued in violation of any preemptive
rights. As of the date hereof, the number of shares of Common Stock issuable
upon conversion of all of the Bonds issuable pursuant to the Indenture shall
constitute less than 10% of all of the issued and outstanding shares of Common
Stock. Except as set forth on SCHEDULE 3.17, neither the Company nor any of its
Subsidiaries has outstanding any stock or securities convertible into or
exchangeable for any shares of capital stock of the Company or any Subsidiary,
any rights to subscribe for or to purchase, or any options for the purchase of,
or any agreements providing for the issuance (contingent or otherwise) of, or
any calls, commitments or claims of any other character relating to the issuance
of, any capital stock of the Company or any Subsidiary, or any stock or
securities convertible into or exchangeable for any such capital stock. Except
for relevant state and federal securities laws, there are no restrictions on the
transfer of shares of Common Stock to be issued upon conversion of the Bonds.
3.18 Equity Interests. Except as set forth in SCHEDULE 3.18, neither
the Company nor any of its Subsidiaries owns or holds, directly or indirectly,
any capital stock or equity interest in any other Person (other than a
Subsidiary).
3.19 ERISA. The execution and delivery of this Agreement and the
Indenture, the issuance of the Bonds and the consummation of the transactions
contemplated hereby and thereby will not involve any transaction that is subject
to the prohibitions of Section 406 of ERISA or in connection with which a tax
could be imposed pursuant to Section 4975 of the Code.
3.20 Solvency. On and as of the Closing Date, after giving effect to
the transactions contemplated in this Agreement, the Indenture and the Bonds,
the Company is Solvent.
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3.21 Private Offering. No form of general solicitation or general
advertising was used by the Company or its representatives in connection with
the offer or sale of the Bonds or any similar security. The Purchasers were the
only Persons solicited or otherwise approached by the Company or its
representatives in connection with the offer and sale of the Bonds or any
similar security. The Company agrees that neither it, nor anyone acting on its
behalf, will offer the Bonds or any other security so as to bring the issuance
and sale of the Bonds within the provisions of Section 5 of the Securities Act,
except pursuant to the provisions of the Registration Rights Agreement, or in a
manner that would violate the provisions of any securities or blue sky laws of
any applicable jurisdiction.
3.22 Restrictive Agreements. Except as set forth in SCHEDULE 3.22,
none of the Polyphase Entities is a party to, or is otherwise subject to, any
Contractual Obligation that (i) limits the amount of, or otherwise imposes
restrictions on the incurring of, Indebtedness of the Company of the type to be
evidenced by the Bonds or (ii) would restrict any Subsidiary from paying
management fees or dividends (whether of income, retained earnings or capital)
to, or the making of loans or advances to, the Company or to any Subsidiary.
3.23 Full Disclosure. No statement by the Company contained in this
Agreement, the Indenture, the Bonds, the Registration Rights Agreement or any
documents, certificates, notices, consents and any other papers whatsoever
(collectively, "Documents") delivered to the Purchasers at or prior to the
Closing contains (or will contain) an untrue statement of a material fact or
omits (or will omit) to state a material fact required to be stated therein or
necessary to make the statements made, in the context in which made, not false
or misleading; provided, however, that to the extent that information provided
to the Purchasers includes financial projections or estimates, such projections
and estimates are based upon factual assumptions that were reasonably made by
the Company and were made in good faith at the time such projections and
estimates were made. To the best knowledge of the Company, no facts exist that
would result in any material adverse change in any of such projections or
estimates. The Company shall have no liability under this Agreement for any
projection or estimate contained in such information, except with respect to any
projection or estimate based upon factual assumptions made unreasonably or not
made in good faith. There is no fact known to the Company that has not been
disclosed in the Commission Documents and that the Company has not disclosed to
the Purchasers prior to the date of this Agreement that materially adversely
affects or may materially adversely affect the business, assets, properties,
prospects or condition (financial or otherwise) of the Polyphase Entities taken
as a whole or that adversely affects or may adversely affect the ability of the
Company to perform its obligations under this Agreement, the Indenture, the
Bonds or the Registration Rights Agreement or to consummate the transactions
contemplated hereby or thereby.
3.24 Outstanding Debt. Except as reflected in the Financial
Statements, neither the Company nor any of its Subsidiaries has outstanding any
Indebtedness or any commitment for any Indebtedness. There exists no default
under the provisions of any instrument evidencing Indebtedness of the Company or
any Subsidiary or of any agreement relating thereto. None of the outstanding
Indebtedness of the Company is or will be senior in right of payment to the
Bonds.
17
<PAGE>
3.25 Public Utility Holding Company Act. Neither the Company nor any
of its Subsidiaries is a "holding company," or a "subsidiary company" of a
"holding company," or an "affiliate" of a "holding company" or of a "subsidiary
company" of a "holding company," as such terms are defined in the Public Utility
Holding Company Act of 1935, as amended.
3.26 Patents, Etc. The Polyphase Entities have rights to all patents,
trademarks, service marks, trade names, copyrights, permits, licenses,
franchises and other rights, free from burdensome restrictions, which are
necessary for the operation of the business of the Polyphase Entities as
presently conducted and as proposed to be conducted. Nothing has come to the
attention of the Company or any of its directors or officers to the effect that
(i) any activity in operating the business of the Polyphase Entities as
presently conducted or as proposed to be conducted may infringe any patent,
trademark, service mark, trade name, copyright, permit, license, franchise or
other right owned by any other Person, (ii) there is pending or threatened any
claim or litigation against or affecting any of the Polyphase Entities
contesting its right to carry on such activities or (iii) there is, or there is
pending or proposed, any Requirement of Law that would prevent or inhibit, or
substantially reduce the projected revenues of, or otherwise adversely affect,
the business, properties, prospects, condition (financial or other) or
operations of the Polyphase Entities, taken as a whole.
ARTICLE 4
REPRESENTATION AND
WARRANTIES OF THE PURCHASERS
----------------------------
The Purchasers represent and warrant to, and covenant and agree with,
the Company as follows:
4.1 Purchase for Own Account. The Bonds to be acquired by the
Purchasers pursuant to this Agreement are being acquired for their own account
and with no intention of distributing or reselling said Bonds or any part
thereof in any transaction that would be in violation of the securities laws of
the United States of America, or any state thereof, without prejudice, however,
to the rights of such Purchasers at all times to sell or otherwise dispose of
all or any part of said Bonds under an effective registration statement under
the Securities Act, or under an exemption from such registration available under
the Securities Act and subject, nevertheless, to the disposition of the
Purchasers' property being at all times within their control. If the Purchasers
should in the future decide to dispose of any of the Bonds, such Purchasers
understand and agree that they may do so only in compliance with the Securities
Act and applicable state securities laws, as then in effect, and that stop-
transfer instructions to that effect, where applicable, will be in effect with
respect to the Bonds. The Purchasers agree to the imprinting, so long as
required by law, of a legend on certificates representing all of the principal
amount of the Bonds to the following effect: "THE SECURITIES REPRESENTED BY THIS
CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR THE
SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT OR AN APPLICABLE
EXEMPTION TO THE
18
<PAGE>
REGISTRATION REQUIREMENTS OF SUCH ACT AND IN COMPLIANCE WITH APPLICABLE STATE
SECURITIES LAWS."
4.2 Sophistication. The Purchasers, by reason of their business and
financial experience, and the business and financial experience of those persons
retained to advise them with respect to their investment in the Bonds, together
with such advisors, have such knowledge, sophistication and experience in
business and financial matters to be capable of evaluating the merits and risks
of the prospective investment, to be able to bear the economic risk of this
investment and, at the present time, to be able to afford a complete loss of
such investment. The Purchasers represent that they have made their own
investigation whether or not to invest in the Bonds and in making their decision
to so invest are not in any way relying on the fact that any other person has
decided to be a Purchaser hereunder or to invest in the Bonds. The Purchasers
acknowledge that they have been afforded the opportunity (i) to ask such
questions as they have deemed necessary of, and to receive answers from,
representatives of the Company concerning the terms and conditions of the
offering of the Bonds and the merits and risks of investing in the Bonds and
(ii) to obtain such additional information that the Company possesses or can
acquire without unreasonable effort or expense that is necessary to verify the
accuracy and completeness of the information heretofore provided to it;
provided, however, that neither the availability of the foregoing opportunity
nor any investigation conducted by the Purchasers shall in any way affect,
diminish or derogate from the representations and warranties made or deemed made
to the Purchasers by the Company hereunder or the Purchasers' right to rely
thereon. Each of the Purchasers is an "accredited investor" within the meaning
of Regulation D under the Securities Act.
ARTICLE 5
INDEMNIFICATION
---------------
5.1 Indemnification by the Company. In addition to all other sums
due hereunder or provided for in this Agreement, the Company agrees to indemnify
and save harmless the Purchasers, each of their affiliates and their respective
officers, directors, employees, agents and partners (each, an "indemnified
party"), from and against any and all losses, claims, actions, causes of action,
suits, damages, liabilities, costs and expenses, including, without limitation,
costs and expenses and all fees and disbursements of counsel, which may be
incurred by or awarded against any such indemnified party in connection with or
arising out of, or by reason of the preparation of the defense of, any
investigation, litigation or proceeding, whether or not any indemnified party is
a party thereto, (i) related to or in connection with this Agreement, the
Indenture, the Bonds, the Registration Rights Agreement or the transactions
contemplated hereby or thereby, or (ii) arising out of the business, operations
or property of the Company, other than such losses, claims, costs, expenses,
damages or other liabilities resulting from the gross negligence or willful
misconduct of such indemnified party; provided, however, that if and to the
extent that such indemnification is unenforceable for any reason, the Company
shall make the maximum contribution to the payment and satisfaction of such
indemnified liability that shall be permissible under applicable laws.
19
<PAGE>
5.2 Notification. Each indemnified party under this ARTICLE 5 will,
promptly after the receipt of notice of the commencement of any action against
such indemnified party in respect of which indemnity may be sought from the
Company on account of an indemnity agreement contained in this ARTICLE 5, notify
the Company in writing of the commencement thereof. The omission of any
indemnified party so to notify the Company of any such action shall not relieve
the Company from any liability that it may have to such indemnified party other
than pursuant to this ARTICLE 5 or, unless the Company shall have been
prejudiced by the omission of such indemnified party so to notify the Company,
pursuant to this ARTICLE 5. In case any such action shall be brought against
any indemnified party and it shall notify the Company of the commencement
thereof, the Company shall be entitled to participate therein and, to the extent
that it may wish, to assume the defense thereof, with counsel reasonably
satisfactory to such indemnified party, and after notice from the Company to
such indemnified party of its election so to assume the defense thereof, the
Company will not be liable to such indemnified party under this ARTICLE 5 for
any legal fees or other expenses subsequently incurred by such indemnified party
in connection with the defense thereof; provided, however, that (i) if the
Company shall elect not to assume the defense of such claim or action or (ii) if
the indemnified party reasonably determines (x) that there may be a conflict
between the positions of the Company and of the indemnified party in defending
such claim or action or (y) that there may be legal defenses available to such
indemnified party different from or in addition to those available to the
Company, then separate counsel for the indemnified party shall be entitled to
participate in and conduct the defense, in the case of (i) and (ii)(x), or such
different defenses, in the case of (ii)(y), and the Company shall be liable for
any legal fees or other expenses incurred by the indemnified party in connection
with the defense.
5.3 Registration Rights Agreement. Notwithstanding anything to the
contrary in this ARTICLE 5, the indemnification and contribution provisions of
the Registration Rights Agreement shall govern any claim made with respect to
registration statements filed pursuant thereto or sales made thereunder.
ARTICLE 6
JUDICIAL PROCEEDINGS
--------------------
6.1 Consent to Jurisdiction. The Company irrevocably submits to the
non-exclusive jurisdiction of any New York State or Federal court sitting in the
City of New York over any suit, action or proceeding arising out of or relating
to this Agreement, the Indenture, the Bonds or the Registration Rights
Agreement. To the fullest extent it may effectively do so under applicable law,
the Company irrevocably waives and agrees not to assert, by way of motion, as a
defense or otherwise, any claim that it is not subject to the jurisdiction of
any such court, any objection that it may now or hereafter have to the laying of
the venue of any such suit, action or proceeding brought in any such court and
any claim that any such suit, action or proceeding brought in any such court has
been brought in an inconvenient forum.
6.2 Enforcement of Judgments. The Company agrees, to the fullest
extent it may effectively do so under applicable law, that a judgment in any
suit, action or proceeding
20
<PAGE>
of the nature referred to in SECTION 6.1 brought in any such court shall be
conclusive and binding upon the Company subject to rights of appeal, as the case
may be, and may be enforced in the courts of the United States of America or the
State of New York (or any other courts to the jurisdiction of which the Company
is or may be subject) by a suit upon such judgment.
6.3 Services of Process. The Company consents to process being
served in any suit, action or proceeding of the nature referred to in SECTION
6.1 by mailing a copy thereof by registered or certified mail, postage prepaid,
return receipt requested, to the address of the Company specified in or
designated pursuant to SECTION 7.3. The Company agrees that such service (i)
shall be deemed in every respect effective service of process upon it in any
such suit, action or proceeding and (ii) shall, to the fullest extent permitted
by law, be taken and held to be valid personal service upon and personal
delivery to the Company. Notices hereunder shall be conclusively presumed
received as evidenced by a delivery receipt furnished by the United States
Postal Service or any commercial delivery service.
6.4 No Limitation on Service or Suit. Nothing in this ARTICLE 6
shall affect the right of the Purchasers to service process in any manner
permitted by law, or limit any right that the Purchasers may have to bring
proceedings against the Company in the courts of any jurisdiction or to enforce
in any lawful manner a judgment obtained in one jurisdiction in any other
jurisdiction.
6.5 Waiver of Right to Trial by Jury. TO THE FULLEST EXTENT
PERMITTED UNDER APPLICABLE LAW, EACH OF THE PARTIES HERETO HEREBY WAIVES ANY
RIGHT TO TRIAL BY JURY WITH RESPECT TO ANY SUIT, ACTION OR PROCEEDING OF THE
NATURE REFERRED TO IN SECTION 6.1.
ARTICLE 7
MISCELLANEOUS
-------------
7.1 Expenses. The Company agrees, whether or not the transactions
hereby contemplated shall be consummated, to pay, and save each Purchaser
harmless against liability for the payment of, all out-of-pocket expenses,
arising in connection with this Agreement, the Indenture, the Bonds, the
Registration Rights Agreement and the transactions contemplated hereby and
thereby including, without limitation, all such expenses incurred with respect
to the enforcement of any provisions of any such agreement or instrument, all
such expenses incurred with respect to any consents, amendments or waivers
(whether or not the same become effective) under or in respect of any such
agreement or instrument, all expenses incurred in connection with the printing
of such agreements and instruments and all taxes (together in each case with
interest and penalties, if any) that may be payable in respect of the execution
and delivery of such agreements or instruments, or the issuance or delivery to
or purchase by any Purchaser of any Bond and all expenses incurred in any
bankruptcy case of the Company, and the fees and expenses of any special counsel
engaged by any Purchaser and all local counsel retained in connection with such
agreements and instruments and the transactions hereby and thereby
21
<PAGE>
contemplated, including the enforcement of any provision hereof or thereof and
any such consents, amendments or waivers, and any bankruptcy case of the
Company.
7.2 Survival of Provisions. All of the representations and
warranties made herein and each of the provisions of ARTICLES 3, 4, 5, 6 and 7
shall survive the execution and delivery of this Agreement and the Indenture,
any investigation by or on behalf of any Purchaser or any of its Affiliates,
acceptance of the Bonds and payment therefor, payment or prepayment of the Bonds
upon redemption or otherwise, conversion of the Bonds or termination of this
Agreement.
7.3 Notices. All notices, demands and other communications provided
for or permitted hereunder shall be made in writing and shall be by registered
or certified first-class mail, return receipt requested, telex, telegram,
telecopier, courier service or personal delivery:
(a) if to the Purchasers at the following address:
Merrill Lynch World Income Fund, Inc.
Convertible Holdings, Inc.
c/o Merrill Lynch Asset Management
800 Scudders Mill Road
Plainsboro, New Jersey 08536
Attention: John M. Johnson, Esq.
Fax No. 609-282-0727
with a copy to:
Brown & Wood
One World Trade Center
New York, New York 10048
Fax No. 212-321-9511
Attention: Michael F. Taylor, Esq.
(b) if to the Company at the following address:
Polyphase Corporation
16885 Dallas Parkway
Dallas, Texas 75248
Fax No. 214-732-6430
Attention: Paul A. Tanner
22
<PAGE>
with a copy to:
Jenkens & Gilchrist, a Professional Corporation
1445 Ross Avenue
Suite 3200
Dallas, Texas 75202
Fax No. 214-855-4300
Attention: Ronald J. Frappier, Esq.
All such notices and communications shall be deemed to have been duly
given: when delivered by hand, if personally delivered; three Business Days
after being deposited in the mail, postage prepaid, if mailed; when answered
back, if telexed; and when receipt is confirmed, if telecopied.
7.4 Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of the parties hereto.
Subject to the restrictions of this Agreement, the Purchasers may assign any of
its rights under this Agreement or the Bonds to a subsequent Purchaser or
Purchasers of the Bonds, or a portion thereof. The Company may not assign its
rights hereunder prior to the Time of Purchase.
7.5 Amendment and Waiver. No failure or delay on the part of the
Company or the Purchasers 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. The remedies provided for
herein are cumulative and are not exclusive of any remedies that may be
available to the Company or any Purchaser at law, in equity or otherwise. No
waiver of or consent to any departure by the Company from any provision of this
Agreement and no amendment, modification or termination of any provision of this
Agreement shall be effective unless signed in writing by or on behalf of holders
of at least a majority in principal amount of the then outstanding Bonds.
Any amendment, supplement or modification of or to any provision of
this Agreement, any waiver of any provision of this Agreement, and any consent
to any departure by the Company from the terms of any provision of this
Agreement, shall be effective only in the specific instance and for the specific
purpose for which made or given. Except where notice is specifically required
by this Agreement, no notice to or demand on the Company in any case shall
entitle the Company to any other or further notice or demand in similar or other
circumstances.
7.6 Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
23
<PAGE>
7.7 Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
7.8 Determinations. All determinations to be made by the Company or
any Purchaser hereunder in its opinion or judgment or with its approval or
otherwise shall be made by it in its sole discretion and in good faith.
7.9 Governing Law. This Agreement has been negotiated, executed and
delivered in the State of New York and shall be governed by and construed in
accordance with the laws of the State of New York, without regard to principles
of conflicts of law.
7.10 Severability. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable in any jurisdiction, in any respect and
for any reason, the validity, legality and enforceability of any such provision
in every other respect, and in any other jurisdiction, and of the remaining
provisions hereof shall not be in any way impaired, it being intended that all
of the rights and privileges of the Purchasers shall be enforceable to the
fullest extent permitted by law.
7.11 Rules of Construction. Unless the context otherwise requires,
"or" is not exclusive, and references in this Agreement to articles, sections or
subsections refer to articles, sections or subsections of this Agreement and
references in this Agreement to exhibits or schedules refer to exhibits or
schedules to this Agreement.
7.12 Entire Agreement. This Agreement, together with the exhibits and
schedules hereto, the Indenture, the Bonds and the Registration Rights
Agreement, is intended by the parties hereto as a final expression of their
agreement and intended to be a complete and exclusive statement of the agreement
and understanding of the parties hereto in respect of the subject matter
contained herein and therein. There are no restrictions, promises, warranties
or undertakings, other than those set forth or referred to herein or therein.
This Agreement, together with the exhibits and schedules hereto, the Indenture,
the Bonds and the Registration Rights Agreement, supersede all prior agreements
and understandings between the parties hereto with respect to such subject
matter.
7.13 Severalty of Obligations. The purchase of the Bonds by the
Purchasers hereunder are to be several transactions, and the obligations of the
Purchasers under this Agreement are several obligations. No failure of any
Purchaser to perform its obligations under this Agreement shall relieve any
other Purchaser or the Company of any of its obligations hereunder, and no
Purchaser shall be responsible for the obligations of, or any action taken or
omitted by, any other Purchaser hereunder.
[REST OF PAGE INTENTIONALLY LEFT BLANK]
24
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective officers hereunto duly authorized as of the date
first above written.
POLYPHASE CORPORATION
By: /s/ James Rudis
--------------------------------------
Name: James Rudis
-------------------------------
Title: Executive Vice President
------------------------------
MERRILL LYNCH WORLD INCOME FUND, INC.
By: /s/ Dan Luchansky
--------------------------------------
Name: Dan Luchansky
-------------------------------
Title: Vice President
------------------------------
CONVERTIBLE HOLDINGS, INC.
By: /s/ Dan Luchansky
--------------------------------------
Name: Dan Luchansky
-------------------------------
Title: Vice President
------------------------------
<PAGE>
EXHIBIT 10.34
================================================================================
REGISTRATION RIGHTS AGREEMENT
among
POLYPHASE CORPORATION,
MERRILL LYNCH WORLD INCOME FUND, INC.
and
CONVERTIBLE HOLDINGS, INC.
________________________________________
Dated as of December 1, 1995
________________________________________
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<C> <S> <C>
1. Background................................. 1
2. Registration Under Securities Act, etc..... 1
2.1 Registration on Request................ 1
2.2 Incidental Registration................ 4
2.3 Registration Procedures................ 5
2.4 Underwritten Offerings................. 10
2.5 Preparation; Reasonable Investigation.. 10
2.6 Indemnification........................ 11
3. Definitions................................. 14
4. Rule 144 and Rule 144A...................... 15
5. Amendments and Waivers...................... 16
6. Nominees for Beneficial Owners.............. 16
7. Notices..................................... 16
8. Assignment.................................. 17
9. Calculation of Percentage Interests of
Registrable Securities..................... 17
10. No Inconsistent Agreements.................. 17
11. Remedies.................................... 17
12. Severability................................ 18
13. Entire Agreement............................ 18
14. Descriptive Headings........................ 18
15. Governing Law............................... 18
16. Counterparts................................ 18
</TABLE>
i
<PAGE>
REGISTRATION RIGHTS AGREEMENT, dated as of December 1, 1995, by and among
POLYPHASE CORPORATION, a Nevada corporation (the "Company"), MERRILL LYNCH WORLD
INCOME FUND, INC., a Maryland corporation, and CONVERTIBLE HOLDINGS, INC., a
Maryland corporation (together, the "Purchasers").
1. Background.
(a) Pursuant to a Securities Purchase Agreement, dated as of the date
hereof between the Company and the Purchasers (the "Purchase Agreement), the
Purchasers have agreed to purchase from the Company, and the Company has agreed
to issue to the Purchasers, $1,500,000 in principal amount of the Company's 12%
Senior Convertible Debentures due December 1, 1997 (the "Bonds"). The Bonds are
convertible into shares of the Company's common stock, par value $0.01 per share
(the "Common Stock"), pursuant to an Indenture dated as of December 1, 1995
between the Company and IBJ Schroder Bank & Trust Company, as trustee (the
"Indenture"). Capitalized terms used herein but not otherwise defined shall
have the meanings given them in SECTION 3.
(b) As an inducement to the Purchasers to enter into the Purchase
Agreement and in satisfaction of a condition to the obligations of the Company
under the Purchase Agreement, the Company has agreed to register the Bonds and
the shares of Common Stock issuable upon conversion of the Bonds upon the terms
and subject to the conditions contained herein.
2. Registration Under Securities Act, etc.
2.1 Registration on Request.
(a) Request. At any time, or from time to time, upon written
request of one or more holders (the "Initiating Holders") of Registerable
Securities representing not less than 50% of the Registrable Securities that the
Company effect the registration under the Securities Act of all or part of such
Initiating Holders' Registrable Securities, the Company promptly will give
written notice of such requested registration to all registered holders of
Registrable Securities, and thereupon the Company will use its best efforts to
effect, at the earliest possible date, the registration under the Securities
Act, including by means of a shelf registration on Form S-3 (or any successor
form) pursuant to Rule 415 under the Securities Act if so requested in such
request (but only if the Company is then eligible to use such a shelf
registration and if Form S-3 (or such successor form) is then available to the
Company, the Company hereby agreeing to use its best efforts to become and
remain eligible to use Form S-3 (or such successor form)) or any other form of
registration statement pursuant to such Rule, of
(i) the Registrable Securities that the Company has been so
requested to register by such Initiating Holders, and
(ii) all other Registrable Securities that the Company has
requested to register by the holders thereof (such holders together with
the Initiating
1
<PAGE>
Holders hereinafter are referred to as the "Selling Holders") by written
request given to the Company within 30 days after the giving of such
written notice by the Company, all to the extent requisite to permit the
disposition of the Registrable Securities (in accordance with the methods
of disposition thereof intended by the Selling Holders) so to be
registered.
(b) Registration of Other Securities. Whenever the Company shall
effect a registration pursuant to this SECTION 2.1 in connection with an
underwritten offering by one or more holders of Registrable Securities, no
securities other than Registrable Securities shall be included among the
securities covered by such registration unless (a) the managing underwriter of
such offering shall have advised each Selling Holder of Registrable Securities
to be covered by such registration in writing that the inclusion of such other
securities would not adversely affect such offering or (b) the Selling Holders
of not less than 50% of all Registrable Securities to be covered by such
registration shall have consented in writing to the inclusion of such other
securities.
(c) Registration Statement Form. Registrations under this SECTION 2.1
shall be on such appropriate registration form of the Commission (i) as shall be
reasonably selected by the Company and as shall be reasonably acceptable to the
holders of more than 50% of the Registrable Securities so to be registered and
(ii) as shall permit the disposition of such Registrable Securities in
accordance with the method or methods of disposition intended by such holders.
The Company agrees to include in any such registration statement all information
that holders of Registrable Securities being registered shall reasonably
request.
(d) Effective Registration Statement. A registration requested
pursuant to this SECTION 2.1 shall not be deemed to have been effected (i)
unless a registration statement with respect thereto has become effective and
remained effective in compliance with the provisions of the Securities Act with
respect to the disposition of all Registrable Securities covered by such
registration statement until such time as all of such Registrable Securities
have been disposed of in accordance with the intended methods of disposition by
the seller or sellers thereof set forth in such registration statement;
provided, that except with respect to any registration statement on Form S-3 (or
any successor or similar form) or any other form of registration statement filed
pursuant to Rule 415 under the Securities Act, such period need not exceed 120
days (which period shall be increased by the cumulative duration of all Blackout
Periods), (ii) with respect to any Selling Holder, if after it has become
effective, such registration is interfered with by any stop order, injunction or
other order or requirement of the Commission or other governmental agency or
court for any reason not attributable to such Selling Holder, or (iii) with
respect to any Selling Holder, if the conditions to closing specified in the
purchase agreement or underwriting agreement, if any, entered into in connection
with such registration are not satisfied or waived, other than by reason of a
failure on the part of such Selling Holder.
(e) Selection of Underwriters. The underwriter or underwriters of
each underwritten offering of the Registrable Securities by one or more holders
of Registrable Securities in connection with a registration requested pursuant
to this SECTION 2.1 shall be
2
<PAGE>
reasonably selected by the Company and shall be reasonably acceptable to the
Selling Holders of at least 50% of the Registrable Securities to be included in
such registration.
(f) Priority in Requested Registration. If the managing underwriter
of any underwritten offering pursuant to this SECTION 2.1 shall advise the
Company in writing (and the Company shall so notify, in writing accompanied by a
copy of such advice, each Selling Holder of Registrable Securities requesting
registration of such advice) that, in its opinion, the number or principal
amount of securities requested to be included in such registration exceeds the
number or principal amount that can be sold in such offering within a price
range acceptable to the Selling Holders of more than 50% of the Registrable
Securities requested to be included in such registration, the Company, except as
provided in the following sentence, will include in such registration, to the
extent of the number or principal amount and type that the Company is so advised
can be sold in such offering, Registrable Securities requested to be included in
such registration, pro rata among the Selling Holders requesting such
registration on the basis of the estimated gross proceeds from the sale thereof.
In connection with any registration as to which the provisions of the preceding
sentence of this clause (f) apply, no securities other than Registrable
Securities shall be covered by such registration. If the total number of
Registrable Securities requested to be included as provided in such registration
cannot be included as provided in the next preceding sentence, holders of
Registrable Securities requesting registration thereof pursuant to this SECTION
2.1, representing not less than 15% of the Registrable Securities with respect
to which registration has been requested and constituting not less than 50% of
the Initiating Holders, shall have the right to withdraw the request for
registration by giving written notice to the Company within 20 days after
receipt of such notice from the Company and, in the event of such withdrawal,
such requested registration shall not be counted for purposes of the requested
registrations to which holders of Registrable Securities are entitled pursuant
to this SECTION 2.1.
(g) Limitations on Registration on Request. The Company will not be
required to (i) effect, in the aggregate, more than two registrations pursuant
to this SECTION 2.1, or (ii) effect a registration pursuant to this SECTION 2.1
within the twelve-month period occurring immediately subsequent to the
effectiveness (within the meaning of SECTION 2.1(D)) of a registration statement
filed pursuant to this SECTION 2.1.
(h) Limitations, Conditions and Qualifications to Obligations Under
Registration Covenants. If, prior to the effectiveness of any registration
statement otherwise required to be prepared and filed by the Company pursuant to
this SECTION 2.1, the Board of Directors of the Company determines in good faith
either (i) that the sale of the Registrable Securities pursuant to such
registration statement would require disclosure of material non-public
information, the disclosure of which would have a material adverse effect on the
Company (an "Information Blackout") or (ii) that the Company is required,
pursuant to the Exchange Act, to prepare financial statements in connection with
a material acquisition or other event (a "Financial Statement Blackout"), and in
either such case shall furnish to each holder of Registrable Securities a
certificate regarding such determination, then the Company's obligation to
effect such registration hereunder shall be deferred for a period not to exceed
the earliest of (x) the date upon which such material information is disclosed
to the public or ceases to be material,
3
<PAGE>
in the case of an Information Blackout, or the date on which the preparation of
such financial statements is complete, in the case of a Financial Statement
Blackout, (y) 90 days after the Company's Board of Directors makes such good
faith determination and (z) the date on which the Company files or is required
to file (whichever first occurs) with the Commission its next periodic report on
Form 10-K or Form 10-Q (or any successor form) under the Exchange Act, in the
case of an Information Blackout, or the first date on which the Company is
required to file with the Commission a report on Form 10-K, Form 10-Q or Form 8-
K under the Exchange Act that includes such financial statements, in the case of
a Financial Statement Blackout (a "Blackout Period"); provided, that if any such
registration statement is effective, the Company may, upon written notice of an
Information Blackout or a Financial Statement Blackout, as the case may be, to
each holder of Registrable Securities, suspend sales of Registrable Securities
pursuant to such registration statement for the Blackout Period; provided,
further, that the cumulative duration of all Blackout Periods shall not in any
event exceed 90 days during any twelve-month period. If the Company shall
postpone the filing of a registration statement pursuant to the preceding
provisions of this paragraph, holders of Registrable Securities with respect to
which registration has been requested and constituting not less than 15% of the
Registrable Securities with respect to which registration has been requested and
constituting not less than 50% of the Initiating Holders, shall have the right
to withdraw the request for registration by giving written notice to the Company
within 30 days after receipt of the notice of postponement and, in the event of
such withdrawal, such requested registration shall not be counted for purposes
of the requested registrations to which holders of Registrable Securities are
entitled pursuant to this SECTION 2.1. The Company acknowledges that the
provisions of this SECTION 2.1(H) shall not in any way affect the interest rate
provisions of the Bonds.
(i) Expenses. The Company will pay all Registration Expenses in
connection with the registrations requested pursuant to this SECTION 2.1.
2.2 Incidental Registration.
(a) Right to Include Registrable Securities. If the Company at any
time proposes to register any of its securities under the Securities Act by
registration on Forms S-1, S-2 or S-3 or any successor or similar form(s)
(except registrations on such Forms or similar form(s) solely for registration
of securities in connection with an employee benefit plan or dividend
reinvestment plan or a merger or consolidation, or solely with respect to any
securities to be exchanged for partnership interests and except for
registrations pursuant to SECTION 2.1), whether or not for sale for its own
account, it will each such time give prompt written notice to all registered
holders of Registerable Securities of its intention to do so and of such
holders' rights under this SECTION 2.2. Upon the written request of any such
holder (each, a "Requesting Holder") made as promptly as practicable and in any
event within 30 days after the receipt of any such notice (20 days if the
Company states in such written notice or gives telephonic notice to all
registered holders of Registrable Securities, with written confirmation to
follow promptly thereafter, stating that (i) such registration will be on Form
S-3 and (ii) such shorter period of time is required because of a planned filing
date) (which request shall specify the Registrable Securities intended to be
disposed of by such Requesting Holder), the Company will use its best efforts to
effect the registration under the Securities Act of all Registrable Securities
that the
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Company has been so requested to register by the Requesting Holders thereof to
the extent requisite to permit the disposition thereof in accordance with the
method or methods of disposition intended by such holders; provided, however,
that if, at any time after giving written notice of its intention to register
any securities and prior to the effective date of the registration statement
filed in connection with such registration, the Company shall determine for any
reason not to register or to delay registration of such securities, the Company
may, at its election, give written notice of such determination to each holder
of Registrable Securities and (i) in the case of a determination not to
register, shall be relieved of its obligation to register any Registrable
Securities in connection with such registration (but not from any obligation of
the Company to pay the Registration Expenses in connection therewith), without
prejudice, however, to the rights of any holder or holders of Registrable
Securities entitled to do so to cause such registration to be effected as a
registration under SECTION 2.1, and (ii) in the case of a determination to delay
registering, shall be permitted to delay registering any Registrable Securities,
for the same period as the delay in registering such other securities. No
registration effected under this SECTION 2.2 shall relieve the Company of its
obligation to effect any registration upon request under SECTION 2.1.
(b) Priority in Incidental Registrations. If (i) a registration
pursuant to this SECTION 2.2 involves an underwritten offering of the securities
so being registered, whether or not for sale for the account of the Company, to
be distributed (on a firm commitment basis) by or through one or more
underwriters of recognized standing under underwriting terms appropriate for
such a transaction, (ii) the Registrable Securities requested to be registered
in such registration pursuant to SECTION 2.2(A) for sale for the account of
holders of Registrable Securities are not also to be included in such
underwritten offering (because the Company has not been requested so to include
such Registrable Securities pursuant to SECTION 2.4(B)) and (iii) the managing
underwriter of such underwritten offering shall inform the Company by letter of
its opinion that the number or principal amount or type of Registrable
Securities requested to be included in such registration exceeds the number or
principal amount or type that can be sold in (or during the time of) such
offering, and the Company has so advised the Requesting Holders in writing with
a copy of such opinion, then the Company will include in such registration, to
the extent of the number or principal amount and type that the Company is so
advised can be sold in (or during the time of) such offering, the securities
proposed by the Company to be sold for its own account and such Registrable
Securities requested to be included in such registration pursuant to this
SECTION 2.2, pro rata among the Company and each of the Requesting Holders on
the basis of the estimated gross proceeds from the sale thereof.
(c) Expenses. The Company will pay all Registration Expenses in
connection with any registration effected pursuant to this SECTION 2.2.
2.3 Registration Procedures. If and whenever the Company is required
to use its best efforts to effect the registration of any Registrable Securities
under the Securities Act as provided in SECTIONS 2.1 and 2.2, the Company will,
as expeditiously as possible:
(i) prepare and (as soon as possible but in any event no later
than 60 days after the end of the period within which requests for
registration may be given to
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the Company pursuant to SECTION 2.1(A) or 2.2(A), as applicable) file with
the Commission the requisite registration statement to effect such
registration and thereafter use its best efforts to cause such registration
statement to become effective; provided, however, that the Company may
discontinue any registration of its securities that are not Registrable
Securities (and, under the circumstances specified in SECTION 2.2(A), its
securities that are Registrable Securities) at any time prior to the
effective date of the registration statement relating thereto;
(ii) prepare and file with the Commission such amendments,
supplements and post-effective amendments to such registration statement
and the prospectus used in connection therewith as may be necessary to keep
such registration statement effective and to comply with the provisions of
the Securities Act with respect to the disposition of all securities
covered by such registration statement until such time as all of
Registrable Securities covered by such registration statement have been
disposed of in accordance with the intended methods of disposition by the
seller or sellers thereof set forth in such registration statement;
provided, that except with respect to any such registration statement on
Form S-3 (or any successor or similar form) or any other form of
registration statement filed pursuant to Rule 415 under the Securities Act,
such period need not exceed 120 days (which period shall be increased by
the cumulative duration of all Blackout Periods); provided further, that
the Company shall (y) use its best efforts to keep any such registration
statement on Form S-3 or such other form continuously effective for a
period of at least three years (which period shall be increased by the
cumulative duration of all Blackout Periods) after the effective date of
such registration statement (or such shorter period terminating on the date
when all Registrable Securities have been disposed of) and (z) prepare and
file with the Commission, within 30 days following receipt by the Company
from any holder of Registrable Securities of written notice that such
holder wishes to include in such registration any Registrable Securities or
additional Registrable Securities, such amendments, supplements and post-
effective amendments to such registration statement and the related
prospectus as is necessary to effect the registration under the Securities
Act of such Registrable Securities and to permit the disposition thereof in
accordance with the method of disposition intended by such holder;
(iii) furnish to each seller of Registrable Securities covered
by such registration statement, such number of conformed copies of such
registration statement and of each such amendment, supplement and post-
effective amendment thereto (in each case including all exhibits), such
number of copies of the prospectus contained in such registration statement
(including each preliminary prospectus and any summary prospectus) and any
other prospectus filed under Rule 424 under the Securities Act, in
conformity with the requirements of the Securities Act, and such other
documents, as such seller may reasonably request;
(iv) use its best efforts (x) to register or qualify all
Registrable Securities and other securities covered by such registration
statement under such other securities or blue sky laws of such states,
possessions and territories of the United States
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of America where an exemption is not available and as each seller of
Registrable Securities covered by such registration statement shall
reasonably request, (y) to keep such registration or qualification in
effect for so long as such registration statement remains in effect, and
(z) to take any other action that may be reasonably necessary or advisable
to enable such seller to consummate the disposition in such jurisdictions
of the securities to be sold by such seller, except that the Company shall
not for any such purpose be required to qualify generally to do business as
a foreign corporation in any jurisdiction wherein it would not be but for
the requirements of this subdivision (iv) be obligated to be so qualified
or to consent to general service of process in any such jurisdiction;
(v) use its best efforts to cause all Registrable Securities
covered by such registration statement to be registered with or approved by
such other federal, state or local governmental agencies or authorities as
may be necessary in the opinion of counsel to the Company, to the seller or
sellers of Registrable Securities or to the underwriters to enable the
seller or sellers thereof to consummate the disposition of such Registrable
Securities in accordance with the method or methods of disposition intended
by such seller or sellers;
(vi) furnish to each seller of Registrable Securities, and each
such seller's underwriters, if any, a signed counterpart of
(x) an opinion of counsel for the Company (which counsel
shall be reasonably satisfactory to the holders of at least 50%
of the Registrable Securities covered by such registration
statement), dated the effective date of such registration
statement and, if applicable, the date of the closing under the
underwriting agreement, reasonably satisfactory in form and
substance to such seller, and
(y) a "comfort" letter, dated the effective date of such
registration statement and, if applicable, the date of the
closing under the underwriting agreement, signed by the
independent public accountants who have certified the Company's
financial statements included or incorporated by reference in
such registration statement,
covering substantially the same matters with respect to such registration
statement (and the prospectus included therein) and, in the case of the
accountants' comfort letter, with respect to events subsequent to the date
of such financial statements, as are customarily covered in opinions of
issuer's counsel and in accountants' comfort letters delivered to the
underwriters in underwritten public offerings of securities and, in the
case of the accountants' comfort letter, such other financial matters, and,
in the case of the legal opinion, such other legal matters, as the sellers
of the Registrable Securities covered by such registration statement, or
the underwriters, if any, may reasonably request;
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(vii) promptly notify each seller of Registrable Securities
covered by such registration statement, at any time when a prospectus
relating thereto is required to be delivered under the Securities Act, upon
discovery that, or upon 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 any
material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances under
which they were made, and at the request of any such seller promptly
prepare and furnish to it a reasonable number of copies of a supplement to
or an amendment of such prospectus as may be necessary so that, as
thereafter delivered to the purchasers of such securities, such prospectus
shall not include an untrue statement of a material fact or omit 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 under
which they were made;
(viii) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make available to
its security holders, as soon as reasonably practicable, an earnings
statement covering the period of at least twelve months, but not more than
eighteen months, beginning with the first full calendar month after the
effective date of such registration statement, which earnings statement
shall satisfy the provisions of Section 11(a) of the Securities Act and
Rule 158 promulgated thereunder, and furnish to each such seller of
Registrable Securities at least five business days prior to the filing
thereof a copy of any amendment, supplement or post-effective amendment to
such registration statement or prospectus and shall not file any thereof to
which any such seller shall have reasonably objected on the grounds that
such amendment, supplement or post-effective amendment does not comply in
all material respects with the requirements of the Securities Act;
(ix) provide and cause to be maintained a transfer agent and
registrar (which, in the case of the Bonds, may be the Company) for all
Registrable Securities covered by such registration statement from and
after a date not later than the effective date of such registration
statement;
(x) use its best efforts to list all Registrable Securities
covered by such registration statement on any national securities exchange
or national market system on which Registrable Securities of the same class
and, if applicable, series, covered by such registration statement are then
listed or, if such securities are not so listed, on the principal national
securities exchange or national market system on which the Common Stock is
then listed;
(xi) enter into such agreements and take such other actions as
any seller of Registrable Securities covered by such registration statement or
any underwriter shall reasonably request in order to effect, expedite or
facilitate the disposition of such Registrable Securities in accordance with the
method or methods of distribution intended by the Selling Holders thereof;
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(xii) not later than the effective date of such registration
statement, provide a CUSIP number for all Registrable Securities and provide the
applicable transfer agent or trustee with printed certificates for the
Registrable Securities that are in a form eligible for deposit with the
Depositary Trust Company;
(xiii) cause the Indenture to be qualified under the Trust Indenture
Act and, in connection therewith, cooperate with the trustee under the Indenture
and the holders of the Bonds to effect such changes to the Indenture as may be
required for the Indenture to be so qualified in accordance with the terms of
the Trust Indenture Act and execute, and use its best efforts to cause the
trustee to execute, all documents as may be required to effect such changes and
all other forms and documents required to be filed with the Commission to enable
the Indenture to be so qualified in a timely manner;
(xiv) in the event of the issuance of any stop order suspending the
effectiveness of such registration statement, or of any order suspending or
preventing the use of any related prospectus or suspending the qualification of
any Registrable Securities for sale in any jurisdiction, promptly notify each
holder of Registrable Securities in writing of such occurrence and use its best
efforts promptly to obtain the withdrawal of such order;
(xv) promptly notify each seller of Registrable Securities covered by
such registration statement (i) when such registration statement or any post-
effective amendment thereto has become effective under the Securities Act and
each applicable state law and (ii) of any request by the Commission or any other
federal or state governmental authority for amendments or supplements to a
registration statement or the related prospectus or for additional information;
and
(xvi) cause any Bonds covered by the Registration Statement to be
rated with the appropriate rating agencies, if so requested by the holders of a
majority of such Registrable Securities or the managing underwriters, if any.
The Company may require each seller of Registrable Securities as to which any
registration is being effected to furnish the Company such information regarding
such seller and the distribution of such securities by such seller as the
Company may from time to time reasonably request in writing.
Each holder of Registrable Securities agrees by acquisition of such
Registrable Securities that, upon receipt of any notice from the Company of the
happening of any event of any kind described in subdivision (vii) of this
SECTION 2.3, such holder will forthwith discontinue such holder's disposition of
Registrable Securities pursuant to the registration statement relating to such
Registrable Securities until such holder's receipt of the copies of the
supplemented or amended prospectus contemplated by subdivision (vii) of this
SECTION 2.3 and, if so directed by the Company, 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 relating to such Registrable
Securities current at the time of receipt of such notice.
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2.4 Underwritten Offerings.
(a) Requested Underwritten Offerings. If requested by the
underwriters for any underwritten offerings by holders of Registrable Securities
pursuant to a registration requested under SECTION 2.1, the Company will enter
into an underwriting agreement with such underwriters for such offering, such
agreement to be reasonably satisfactory in substance and form to each such
holder and the underwriters and to contain such representations and warranties
by the Company and such other terms as are generally prevailing in agreements of
that type, including, without limitation, indemnities to the effect and to the
extent provided in SECTION 2.6. Such holders of Registrable Securities to be
sold by such underwriters shall be parties to such underwriting agreement and
may, at their option, require that any or all of the representations and
warranties by, and the other agreements on the part of, the Company to and for
the benefit of such underwriters shall also be made to and for the benefit of
such holders of Registrable Securities and that any or all of the conditions
precedent to the obligations of such underwriters under such underwriting
agreement be conditions precedent to the obligations of such holders of
Registrable Securities. Any such holder of Registrable Securities shall not be
required to make any representations or warranties to or agreements with the
Company or the underwriters other than representations, warranties or agreements
regarding such holder, such holder's Registrable Securities and such holder's
intended method of distribution or any other representations required by
applicable law.
(b) Incidental Underwritten Offerings. If the Company at any time
proposes to register any of its securities under the Securities Act as
contemplated by SECTION 2.2 and such securities are to be distributed by or
through one or more underwriters, the Company will, if requested by any
Requesting Holder of Registrable Securities, use its best efforts to arrange for
such underwriters to include all the Registrable Securities to be offered and
sold by such Requesting Holder among the securities of the Company to be
distributed by such underwriters. The holders of Registrable Securities to be
distributed by such underwriters shall be parties to the underwriting agreement
between the Company and such underwriters and may, at their option, require that
any or all of the representations and warranties by, and the other agreements on
the part of, the Company to and for the benefit of such underwriters shall also
be made to and for the benefit of such holders of Registrable Securities and
that any or all of the conditions precedent to the obligations of such
underwriters under such underwriting agreement be conditions precedent to the
obligations of such holders of Registrable Securities. Any such Requesting
Holder of Registrable Securities shall not be required to make any
representations or warranties to or agreements with the Company or the
underwriters other than representations, warranties or agreements regarding such
Requesting Holder, such Requesting Holder's Registrable Securities and such
Requesting Holder's intended method of distribution or any other representations
required by applicable law.
2.5 Preparation; Reasonable Investigation. In connection with the
preparation and filing of each registration statement under the Securities Act
pursuant to this Agreement, the Company will (i) give the holders of Registrable
Securities registered or to be registered under such registration statement,
their underwriters, if any, and their respective counsel and accountants the
opportunity to participate in the preparation of such registration statement,
each
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prospectus included therein or filed with the Commission, and each amendment,
supplement or post-effective amendment thereto, (ii) prior to the filing of any
document that is to be incorporated by reference into any such registration
statement or prospectus (after initial filing of the registration statement),
promptly provide copies of such document to the holders of Registrable
Securities covered by such registration statement and to the managing
underwriters, if any, (iii) make the Company's representatives available for
discussion of any such document referred to in the preceding clauses (i) or (ii)
and make such changes in such document (other than any exhibits thereto) prior
to the filing thereof as such selling holders or underwriters may reasonably
request and (iv) give each of them such access to its books and records and such
opportunities to discuss the business of the Company with its officers and the
independent public accountants who have certified its financial statements as
shall be necessary, in the opinion of such holders' and such underwriters'
respective counsel, to conduct a reasonable investigation within the meaning of
the Securities Act.
2.6 Indemnification.
(a) Indemnification by the Company. The Company will, and hereby
does, indemnify and hold harmless, in the case of any registration statement
filed pursuant to SECTION 2.1 or 2.2, each seller of any Registrable Securities
covered by such registration statement and each other Person who participates as
an underwriter in the offering or sale of securities of the Company covered by
such registration statement and each other Person, if any, who controls such
seller or any such underwriter within the meaning of the Securities Act, and
their respective directors, officers and partners, against any losses, claims,
damages or liabilities, joint or several, to which such seller, underwriter or
controlling person or any such director, officer or partner may become subject
under the Securities Act or otherwise, including, without limitation, the fees
and expenses of legal counsel, insofar as such losses, claims, damages or
liabilities (or actions or proceedings, whether commenced or threatened, in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any registration statement
under which such securities were registered under the Securities Act, any
preliminary prospectus, final prospectus or summary prospectus contained
therein, or any amendment, supplement or post-effective amendment thereto, 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
the Company will reimburse each such seller, underwriter and controlling person
and each such director, officer and partner for any legal or any other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, liability, action or proceeding; provided, that the Company
shall not be liable in any such case to the extent that any such loss, claim,
damage, liability (or action or proceeding in respect thereof) or expense arises
out of or is based upon an untrue statement or alleged untrue statement or
omission or alleged omission made in such registration statement, preliminary
prospectus, final prospectus, summary prospectus, amendment, supplement or post-
effective amendment in reliance upon and in conformity with written information
furnished to the Company through an instrument duly executed by or on behalf of
such seller or underwriter, as the case may be, specifically stating that it is
for use in the preparation thereof; and provided, further, that the Company
shall not be liable to any Person who participates as an underwriter in the
offering or sale of Registrable Securities or any other Person, if any, who
controls such
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underwriter within the meaning of the Securities Act, in any such case to the
extent that any such loss, claim, damage, liability (or action or proceeding in
respect thereof) or expense arises out of such Person's failure to send or give
a copy of the final prospectus, as the same may be then supplemented or amended,
to the Person asserting an untrue statement or alleged untrue statement or
omission or alleged omission at or prior to the written confirmation of the sale
of Registrable Securities to such Person if such statement or omission was
corrected in such final prospectus. Such indemnity shall remain in full force
and effect regardless of any investigation made by or on behalf of any such
seller, underwriter or controlling Person or any such director, officer or
partner and shall survive the transfer of such securities by such seller.
(b) Indemnification by the Sellers. As a condition to including any
Registrable Securities in any registration statement, the Company shall have
received an undertaking satisfactory to it from the prospective seller of such
Registrable Securities, to indemnify and hold harmless (in the same manner and
to the same extent as set forth in subdivision (a) of this SECTION 2.6) the
Company, and each director of the Company, each officer of the Company and each
other Person, if any, who participates as an underwriter in the offering or sale
of such securities and each other Person, if any, who controls the Company or
any such underwriter within the meaning of the Securities Act, with respect to
any untrue statement or alleged untrue statement of any material fact contained
in any registration statement under which such securities were registered under
the Securities Act, any preliminary prospectus, final prospectus or summary
prospectus contained therein, or any amendment or supplement thereto, 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, if
such statement or alleged statement or omission or alleged omission was made in
reliance upon and in conformity with written information furnished to the
Company through an instrument duly executed by such seller specifically stating
that it is for use in the preparation of such registration statement,
preliminary prospectus, final prospectus, summary prospectus, amendment or
supplement; provided, however, that the liability of such indemnifying party
under this SECTION 2.6(B) shall be limited to the amount of proceeds received by
such indemnifying party in the offering giving rise to such liability. Such
indemnity shall remain in full force and effect, regardless of any investigation
made by or on behalf of the Company or any such director, officer or controlling
Person and shall survive the transfer of such securities by such seller.
(c) Notices of Claims, etc. Promptly after receipt by an indemnified
party of notice of the commencement of any action or proceeding involving a
claim referred to in the preceding subdivisions of this SECTION 2.6, such
indemnified party will, if a claim in respect thereof is to be made against an
indemnifying party, give written notice to the latter of the commencement of
such action; provided, however, that the failure of any indemnified party to
give notice as provided herein shall not relieve the indemnifying party of its
obligations under the preceding subdivisions of this SECTION 2.6, except to the
extent that the indemnifying party is actually prejudiced by such failure to
give notice. In case any such action is brought against an indemnified party,
the indemnifying party shall be entitled to participate in and, unless in such
indemnified party's reasonable judgment a conflict of interest between such
indemnified and indemnifying parties may exist in respect of such claim, to
assume the defense thereof, jointly with any other indemnifying party similarly
notified to the extent that it may wish, with counsel
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reasonably satisfactory to such indemnified party, and after notice from the
indemnifying party to such indemnified party of its election so to assume the
defense thereof, the indemnifying party shall not be liable to such indemnified
party for any legal or other expenses subsequently incurred by the latter in
connection with the defense thereof other than reasonable costs of
investigation. If, in the reasonable judgment of any indemnified party, a
conflict of interest may exist between such Person and the indemnifying party
with respect to such claim, the indemnifying party shall not have the right to
assume the defense of such claim on behalf of such Person if such Person
notifies the indemnifying party in writing that such Person elects to employ
separate counsel at the expense of the indemnifying party. An indemnifying
party that is not entitled to, or elects not to, assume the defense of a claim
will not be obligated to pay the fees and expenses of more than one counsel for
all parties indemnified by such indemnifying party with respect to such claim,
unless in the reasonable judgment of any indemnified party a conflict of
interest may exist between such indemnified party and any other of such
indemnified parties with respect to such claim, in which event the indemnifying
party shall be obligated to pay the fees and expenses of such additional counsel
or counsels. No indemnifying party shall be liable for any settlement of any
action or proceeding effected without its written consent. No indemnifying
party shall, without the consent of the 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 or that requires action other than the payment of money by the
indemnifying party.
(d) Contribution. If the indemnification provided for in this SECTION
2.6 shall for any reason be held by a court to be unavailable to an indemnified
party under subparagraph (a) or (b) hereof in respect of any loss, claim, damage
or liability, or any action or proceeding in respect thereof, then, in lieu of
the amount paid or payable under subparagraph (a) or (b) hereof, the indemnified
party and the indemnifying party under subparagraph (a) or (b) hereof shall
contribute to the aggregate losses, claims, damages and liabilities (including
legal or other expenses reasonably incurred in connection with investigating or
defending the same), (i) in such proportion as is appropriate to reflect the
relative fault of the indemnified party and the indemnifying party that resulted
in such loss, claim, damage or liability, or action or proceeding in respect
thereof, with respect to the statements or omissions that resulted in such loss,
claim, damage or liability, or action or proceeding in respect thereof, as well
as any other relevant equitable considerations or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as shall be appropriate to reflect the relative benefits received by
the indemnified party and the indemnifying party from the offering of the
securities covered by such registration statement. Notwithstanding the
provisions of this SECTION 2.6(D), no seller of Registrable Securities shall be
required to contribute any amount in excess of the amount by which the proceeds
received by such Person in the offering giving rise to such indemnification
exceeds the amount which such Person has otherwise been required to pay in
respect of such losses, claims, damages or liabilities. No Person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any Person who was not
guilty of such fraudulent misrepresentation. Such prospective sellers'
obligations to contribute as provided in this subparagraph (d) are several and
not joint. In addition, no Person shall be obligated to
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contribute hereunder any amounts in payment for any settlement of any action or
claim effected without such Person's consent, which consent shall not be
unreasonably withheld.
(e) Other Indemnification. Indemnification and contribution similar
to that specified in the preceding subdivisions of this SECTION 2.6 (with
appropriate modifications) shall be given by the Company and each seller of
Registrable Securities with respect to any required registration or other
qualification of securities under any federal or state law or regulation of any
governmental authority other than the Securities Act.
(f) Indemnification Payments. The indemnification and contribution
required by this SECTION 2.6 shall be made by periodic payments of the amount
thereof during the course of the investigation or defense, as and when bills are
received or expense, loss, damage or liability is incurred.
3. Definitions. As used herein, unless the context otherwise requires,
the following terms have the following respective meanings:
"Blackout Period" is defined in SECTION 2.1.
"Commission" means the Securities and Exchange Commission or any other
federal agency at the time administering the Securities Act.
"Conversion Shares" means the shares of Common Stock issued or issuable
upon conversion of the Bonds (including any additional shares of Common Stock
that may be issued pursuant to adjustments to the terms of the conversion of the
Bonds).
"Exchange Act" means the Securities Exchange Act of 1934, as amended, or
any similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time. Reference to a
particular section of the Securities Exchange Act of 1934, as amended, shall
include a reference to the comparable section, if any, of any such similar
federal statute.
"Initiating Holder" is defined in SECTION 2.1.
"Person" means any individual, corporation, partnership, trust, estate,
incorporated or unincorporated association, joint venture, joint stock company,
government (or an agency or political subdivision thereof) or other entity of
any kind.
"Registrable Securities" means $1,500,000 aggregate principal amount of the
Bonds, the Conversion Shares and all Related Registrable Securities. As to any
particular Registrable Securities, once issued such securities shall cease to be
Registrable Securities when (a) a registration statement with respect to the
sale of such securities shall have become effective under the Securities Act and
such securities shall have been disposed of in accordance with such registration
statement, (b) they shall have been sold to the public as permitted by Rule 144
(or any successor provision) under the Securities Act, (c) they shall have been
otherwise transferred,
14
<PAGE>
new certificates for them not bearing a legend restricting further transfer
shall have been delivered by the Company and subsequent distribution of them
shall not require registration or qualification of them under the Securities Act
or any similar state law then in force, (d) they shall have ceased to be
outstanding or (e) in the case of the Bonds, they shall have been redeemed by
the Company or otherwise acquired by the Company or any of its affiliates. All
references to percentages of Registrable Securities shall be calculated pursuant
to SECTION 9.
"Registration Expenses" means all expenses incident to the Company's
performance of or compliance with SECTION 2, including, without limitation, all
registration, filing, NASD, listing and rating agency fees, all fees and
expenses of complying with securities or blue sky laws, all word processing,
duplicating and printing expenses, messenger and delivery expenses, the fees and
disbursements of counsel for the Company and of its independent public
accountants, including the expenses of any special audit or "cold comfort"
letters required by or incident to such performance and compliance, and any fees
and disbursements of underwriters customarily paid by issuers or sellers of
securities (excluding any underwriting discounts or commissions with respect to
the Registrable Securities); provided that, with respect to an underwritten
offering, if counsel for the underwriter requests that the Selling Holders be
represented by counsel, "Registration Expenses" shall include the reasonable
fees and disbursements of one counsel to the Selling Holders (selected by
Selling Holders representing at least 50% of the Registrable Securities covered
by such registration); provided, further, that in the event the Company shall,
in accordance with SECTION 2.1(H) or SECTION 2.2(A), not register any securities
with respect to which it had given written notice of its intention to so
register to holders of Registrable Securities, notwithstanding anything to the
contrary in the foregoing, all of the costs incurred by Requesting Holders in
connection with such registration shall be deemed Registration Expenses.
"Related Registrable Securities" means with respect to Conversion Shares,
any securities of the Company issued or issuable with respect to any Conversion
Shares by way of a dividend or stock split or in connection with a combination
of shares, recapitalization, merger, consolidation or other reorganization or
otherwise.
"Securities Act" means the Securities Act of 1933, as amended, or any
similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time. References to a
particular section of the Securities Act of 1933 shall include a reference to
the comparable section, if any, of any such similar federal statute.
"Selling Holder" is defined in SECTION 2.1.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as amended, or
any similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time. References to a
particular section of the Trust Indenture Act shall include a reference to the
comparable section, if any, of any such similar federal statute.
4. Rule 144 and Rule 144A. The Company shall take all actions necessary
or reasonably requested by any holder of Registrable Securities to enable
holders of Registrable
15
<PAGE>
Securities to sell such securities without registration under the Securities Act
within the limitation of the exemptions provided by (a) Rule 144 under the
Securities Act, as such Rule may be amended from time to time, (b) Rule 144A
under the Securities Act, as such Rule may be amended from time to time, and (c)
any similar rules or regulations hereafter adopted by the Commission, including,
without limiting the generality of the foregoing, filing on a timely basis all
reports required to be filed by the Exchange Act (or, if the Company is not
required to file such reports, making publicly available, at the request of any
holder of Registrable Securities, other information necessary to enable such
holder to sell such securities pursuant to such rule); provided that this
provision will not prohibit the Company from ceasing to be registered pursuant
to Section 12 of the Exchange Act. Upon the request of any holder of
Registrable Securities, the Company will deliver to such holder a written
statement as to whether it has complied with such requirements.
5. Amendments and Waivers. This Agreement may be amended with the
consent of the Company and the Company may take any action herein prohibited, or
omit to perform any act herein required to be performed by it, only if the
Company shall have obtained the written consent to such amendment, action or
omission to act, of the holder or holders of at least 50% of the Registrable
Securities affected by such amendment, action or omission to act. Each holder
of any Registrable Securities at the time or thereafter outstanding shall be
bound by any consent authorized by this SECTION 5, whether or not such
Registrable Securities shall have been marked to indicate such consent.
6. Nominees for Beneficial Owners. In the event that any Registrable
Securities are held by a nominee for the beneficial owner thereof, the
beneficial owner thereof may, at its election in writing delivered to the
Company, be treated as the holder and as the registered holder of such
Registrable Securities for purposes of any request or other action by any holder
or holders of Registrable Securities pursuant to this Agreement or any
determination of any number or percentage of Registrable Securities held by any
holder or holders of Registrable Securities contemplated by this Agreement. If
the beneficial owner of any Registrable Securities so elects, the Company may
require assurances reasonably satisfactory to it of such owner's beneficial
ownership of such Registrable Securities. The Company acknowledges that the
Bonds being acquired by each Purchaser pursuant to the Purchase Agreement are
initially being registered in the name of a nominee for such Purchaser, and
agrees that each Purchaser shall be treated as the holder and the registered
holder of the Bonds so acquired by it for all purposes of this Agreement.
7. Notices. All notices, demands and other communications provided for
or permitted hereunder shall be made in writing and shall be by registered or
certified first-class mail, return receipt requested, telex, telegram,
telecopier, courier service or personal delivery:
(a) if to the Purchasers, addressed to them in the manner set forth in
the Purchase Agreement, or at such other address as they shall have furnished to
the Company in writing;
16
<PAGE>
(b) if to any other holder of Registrable Securities, at the address
that such holder shall have furnished to the Company in writing, or, until any
such other holder so furnishes to the Company an address, then to and at the
address of the last holder of such Registrable Securities who has furnished an
address to the Company; or
(c) if to the Company, addressed to it in the manner set forth in the
Purchase Agreement, or at such other address as the Company shall have furnished
to each holder of Registrable Securities at the time outstanding.
All such notices and communications shall be deemed to have been duly
given: when delivered by hand, if personally delivered; three business days
after being deposited in the mail, postage prepaid, if mailed; when answered
back, if telexed; and when receipt is confirmed, if telecopied.
8. Assignment. This Agreement shall be binding upon and inure to the
benefit of and be enforceable by the parties hereto and, with respect to the
Company, its respective successors and assigns and, with respect to each
Purchaser, its successors and assigns, including any holder of any Registrable
Securities, subject to the provisions respecting the minimum numbers of
percentages of shares of Registrable Securities required in order to be entitled
to certain rights, or take certain actions, contained herein. The Purchasers
named in the first paragraph of this Agreement (and not any other holder of
Registrable Securities or any other Person other than a successor of either such
Purchaser) shall be permitted, in connection with a transfer or disposition of
Registrable Securities in compliance with SECTION 4.1 of the Purchase Agreement,
to impose conditions or constraints on the ability of the transferee, as a
holder of Registrable Securities, to request a registration pursuant to SECTION
2.1 and shall provide the Company with copies of such conditions or constraints
and the identity of such transferees.
9. Calculation of Percentage Interests of Registrable Securities. For
purposes of this Agreement, all references to a percentage of the Registrable
Securities shall be calculated based upon the number of shares of the
Registrable Securities with respect to which such calculation is required to be
made, assuming the conversion of all Bonds included in such Registrable
Securities into shares of Common Stock at the then-current conversion price.
10. No Inconsistent Agreements. The Company will not hereafter enter into
any agreement with respect to its securities that is inconsistent or conflicts
with this Agreement or the rights granted to the holders of Registrable
Securities in this Agreement.
11. Remedies. Each holder of Registrable Securities, in addition to being
entitled to exercise all rights granted by law, including recovery of damages,
will be entitled to specific performance of its rights under this Agreement.
The Company agrees that monetary damages would not be adequate compensation for
any loss incurred by any holder of Registrable Securities by reason of a breach
by the Company of the provisions of this Agreement and that each such holder
would sustain irreparable harm, and hereby agrees to waive the defense in any
action for specific performance that a remedy at law would be adequate.
17
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12. Severability. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstances, is held
invalid, illegal or unenforceable in any jurisdiction, in any respect and for
any reason, the validity, legality and enforceability of any such provision in
every other respect, and in any other jurisdiction, and of the remaining
provisions contained herein shall not be in any way impaired thereby, it being
intended that all of the rights and privileges of the Purchasers shall be
enforceable to the fullest extent permitted by law.
13. Entire Agreement. This Agreement, together with the Purchase
Agreement (including the schedules and exhibits thereto), the Indenture and the
Bonds is intended by the parties as a final expression of their agreement and
intended to be a complete and exclusive statement of the agreement and
understanding of the parties hereto in respect of the subject matter contained
herein or therein. There are no restrictions, promises, warranties or
undertakings, other than those set forth or referred to herein or therein. This
Agreement, the Purchase Agreement (including the schedules and exhibits
thereto), the Indenture and the Bonds supersede all prior agreements and
understandings between the parties hereto with respect to such subject matter.
14. Descriptive Headings. The descriptive headings of the several
sections and paragraphs of this Agreement are inserted for reference only and
shall not limit or otherwise affect the meaning hereof.
15. Governing Law. This Agreement shall be construed and enforced in
accordance with, and the rights of the parties shall be governed by, the laws of
the State of New York applicable to agreements made and to be performed entirely
within such State.
16. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all such
counterparts shall together constitute one and the same instrument.
[REST OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
and delivered by their respective officers thereunto duly authorized as of the
date first above written.
COMPANY:
POLYPHASE CORPORATION
By: /s/ James Rudis
------------------------------------
Name: JAMES RUDIS
----------------------------------
Title: EXECUTIVE VICE PRESIDENT
---------------------------------
PURCHASERS:
MERRILL LYNCH WORLD INCOME FUND, INC.
By: /s/ Dan Luchansky
------------------------------------
Name: DAN LUCHANSKY
----------------------------------
Title: VICE PRESIDENT
---------------------------------
CONVERTIBLE HOLDINGS, INC.
By: /s/ Dan Luchansky
------------------------------------
Name: DAN LUCHANSKY
----------------------------------
Title: VICE PRESIDENT
---------------------------------
<PAGE>
EXHIBIT 10.35
================================================================================
POLYPHASE CORPORATION
TO
IBJ SCHRODER BANK & TRUST COMPANY,
TRUSTEE
----------------------------------------
INDENTURE
DATED AS OF DECEMBER 1, 1995
-----------------------------------------
$1,500,000
12% SENIOR CONVERTIBLE DEBENTURES DUE DECEMBER 1, 1997
================================================================================
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TABLE OF CONTENTS
<TABLE>
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Page
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ARTICLE ONE - DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION........... 1
SECTION 101. Definitions......................................... 1
SECTION 102. Compliance Certificates and Opinions................ 12
SECTION 103. Form of Documents Delivered to Trustee.............. 13
SECTION 104. Notices, etc., to Trustee and Company............... 13
SECTION 105. Notice to Holders; Waiver........................... 14
SECTION 106. Conflict with Trust Indenture Act................... 15
SECTION 107. Effect of Headings and Table of Contents............ 15
SECTION 108. Successors and Assigns.............................. 15
SECTION 109. Separability Clause................................. 15
SECTION 110. Benefits of Indenture............................... 16
SECTION 111. Governing Law....................................... 16
SECTION 112. Legal Holidays...................................... 16
SECTION 113. No Security Interest Created........................ 16
SECTION 114. Liability Solely Corporate.......................... 16
SECTION 115. Counterparts........................................ 17
SECTION 116. Further Instruments and Acts........................ 17
ARTICLE TWO - FORMS OF BONDS..................................................... 17
SECTION 201. Forms Generally..................................... 17
SECTION 202. Form of Face of Bond................................ 18
SECTION 203. Form of Reverse of Bond............................. 20
SECTION 204. Form of Trustee's Certificate of Authentication..... 27
ARTICLE THREE - THE BONDS........................................................ 27
SECTION 301. Title and Terms..................................... 27
SECTION 302. Denominations....................................... 28
SECTION 303. Execution, Authentication, Delivery and Dating...... 28
SECTION 304. Temporary Bonds..................................... 29
SECTION 305. Registration, Transfer and Exchange................. 29
SECTION 306. Mutilated, Destroyed, Lost and Stolen Bonds......... 31
SECTION 307. Payment of Interest; Interest Rights Preserved...... 31
SECTION 308. Cancellation........................................ 32
SECTION 309. Lists of Holders.................................... 32
ARTICLE FOUR - SATISFACTION AND DISCHARGE........................................ 33
SECTION 401. Satisfaction and Discharge of Company's Obligations. 33
SECTION 402. Application of Trust Money.......................... 34
</TABLE>
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<TABLE>
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ARTICLE FIVE - DEFAULTS AND REMEDIES............................................. 34
SECTION 501. Event of Default.................................... 34
SECTION 502. Acceleration........................................ 37
SECTION 503. Other Remedies...................................... 38
SECTION 504. Waiver of Existing Defaults......................... 38
SECTION 505. Control by Majority................................. 38
SECTION 506. Trustee May File Proofs of Claim.................... 38
SECTION 507. Trustee May Enforce Claims Without Possession of
Bonds............................................. 39
SECTION 508. Application of Money Collected...................... 39
SECTION 509. Limitation on Suits................................. 40
SECTION 510. Unconditional Right of Holders to Receive Principal,
Premium and Interest.............................. 40
SECTION 511. Restoration of Rights and Remedies.................. 41
SECTION 512. Rights and Remedies Cumulative...................... 41
SECTION 513. Delay or Omission Not Waiver........................ 41
SECTION 514. Undertaking for Costs............................... 41
ARTICLE SIX - THE TRUSTEE.. 42
SECTION 601. Certain Duties and Responsibilities................. 42
SECTION 602. Notice of Defaults.................................. 43
SECTION 604. Certain Rights of Trustee........................... 44
SECTION 605. Not Responsible for Recitals or Issuance of Bonds... 45
SECTION 606. May Hold Bonds...................................... 46
SECTION 607. Money Held in Trust................................. 46
SECTION 608. Compensation, Indemnification and Reimbursement..... 46
SECTION 609. Resignation and Removal; Appointment of Successor... 47
SECTION 610. Acceptance of Appointment by Successor.............. 48
SECTION 611. Merger, Conversion, Consolidation or Succession to
Business.......................................... 49
SECTION 612. Appointment of Authenticating Agent................. 49
SECTION 613. Preferential Collection of Claims Against Company... 50
ARTICLE SEVEN - CONCERNING THE HOLDERS........................................... 51
SECTION 701. Acts of Holders..................................... 51
SECTION 702. Proof of Ownership; Proof of Execution of Instruments
by Holders........................................ 51
SECTION 703. Persons Deemed Owners............................... 51
SECTION 704. Revocation of Consents; Future Holders Bound........ 52
ARTICLE EIGHT - CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE.............
SECTION 801. Company May Consolidate, etc., Only on Certain
Terms............................................. 52
SECTION 802. Successor Corporation Substituted................... 53
ARTICLE NINE - SUPPLEMENTAL INDENTURES........................................... 53
SECTION 901. Supplemental Indentures Without Consent of Holders.. 53
</TABLE>
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<TABLE>
<S> <C> <C>
SECTION 902. Supplemental Indentures With Consent of Holders..... 54
SECTION 903. Execution of Supplemental Indentures................ 55
SECTION 904. Effect of Supplemental Indentures................... 55
SECTION 905. Conformity with Trust Indenture Act................. 55
SECTION 906. Reference in Bonds to Supplemental Indentures....... 56
SECTION 907. Copies of Supplemental Indenture.................... 56
ARTICLE TEN - AFFIRMATIVE COVENANTS.............................................. 56
SECTION 1001. Financial Statements................................ 56
SECTION 1002. Certificates; Other Information..................... 57
SECTION 1003. Preservation of Corporate Existence................. 58
SECTION 1004. Maintenance of Property............................. 58
SECTION 1005. Insurance........................................... 58
SECTION 1006. Payment of Obligations.............................. 58
SECTION 1007. Compliance with Laws................................ 59
SECTION 1008. Notices............................................. 59
SECTION 1009. Issue Taxes......................................... 60
SECTION 1010. Payment and Conversion of Bonds..................... 60
SECTION 1011. Redemption and Purchase of Bonds.................... 60
SECTION 1012. Distributions to Holders............................ 60
SECTION 1013. HSR Act Filing...................................... 61
SECTION 1014. Cash Flow Ratio..................................... 61
SECTION 1015. Money for Bonds; Payments To Be Held in Trust....... 61
SECTION 1016. Officers' Certificate as to Default................. 62
ARTICLE ELEVEN - NEGATIVE COVENANTS 63
SECTION 1101. Transactions with Affiliates........................ 63
SECTION 1102. Compliance with ERISA............................... 63
SECTION 1103. Restricted Payments................................. 64
SECTION 1104. Restrictions on Classes of Certain Indebtedness..... 64
SECTION 1105. Use of Proceeds..................................... 64
SECTION 1106. No Restrictive Agreements........................... 65
ARTICLE TWELVE - OPTIONAL REDEMPTION OF BONDS; PURCHASE ON CHANGE OF CONTROL OR
DELISTING..................................................... 65
SECTION 1201. Election to Redeem; Notice to Trustee............... 65
SECTION 1202. Notice of Redemption................................ 65
SECTION 1203. Deposit of Redemption Price......................... 66
SECTION 1204. Bonds Payable on Redemption Date.................... 66
SECTION 1205. Bonds Redeemed in Part.............................. 67
SECTION 1206. Selection of Bonds To Be Redeemed................... 67
</TABLE>
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<TABLE>
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ARTICLE THIRTEEN - CONVERSION OF BONDS........................................... 69
SECTION 1301. Optional Conversion................................. 69
SECTION 1302. Issuance of Common Stock; Time of Conversion........ 70
SECTION 1303. Adjustment of Conversion Price...................... 71
SECTION 1304. No Fractional Shares................................ 73
SECTION 1305. Prior Notice of Certain Events...................... 74
SECTION 1306. Taxes and Charges................................... 74
SECTION 1308. Cancellation of Converted Bonds..................... 75
ARTICLE FOURTEEN - DISPOSITIONS.................................................. 75
SECTION 1401. Dispositions By Current Management.................. 75
</TABLE>
iv
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INDENTURE dated as of December 1, 1995, between POLYPHASE CORPORATION,
a Nevada corporation (hereinafter called the "Company"), having its principal
executive office at 16885 Dallas Parkway, Dallas, Texas 75248, and IBJ SCHRODER
BANK & TRUST COMPANY (hereinafter called the "Trustee"), having its Corporate
Trust Office at One State Street, New York, New York 10004.
RECITALS OF THE COMPANY
The Company has duly authorized the creation of an issue of its 12% Senior
Convertible Debentures due December 1, 1997 (the "Bonds"), of substantially the
tenor and amount hereinafter set forth, and to provide therefor the Company has
duly authorized the execution and delivery of this Indenture.
All things necessary to make the Bonds, when executed by the Company and
authenticated and delivered hereunder and duly issued by the Company, the valid
obligations of the Company, and to make this Indenture a valid agreement of the
Company, in accordance with their and its terms, have been done.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the Bonds
by the Holders thereof, it is mutually covenanted and agreed, for the equal and
proportionate benefit of all Holders of the Bonds, as follows:
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
SECTION 101. DEFINITIONS.
For all purposes of this Indenture, except as otherwise expressly
provided or unless the context otherwise requires:
(1) the terms defined in this Article have the meanings assigned to
them in this Article, and include the plural as well as the singular;
(2) the following Trust Indenture Act terms used in this Indenture
have the following meanings:
"indenture securities" means the Bonds;
"indenture security holder" means a Holder;
"indenture trustee" or "institutional trustee" means the Trustee; and
<PAGE>
"obligor" on the indenture securities means the Company and any other
obligor on the Bonds;
(3) all other terms used herein that are defined in the Trust
Indenture Act, either directly or by reference therein, have the meanings
assigned to them therein;
(4) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted accounting
principles, and, except as otherwise herein expressly provided, the term
"generally accepted accounting principles" with respect to any computation
required or permitted hereunder shall mean such accounting principles as
are generally accepted in the United States of America at the date of such
computation ("GAAP"); and
(5) the words "herein," "hereof" and "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision.
"Act" when used with respect to any Holder has the meaning specified
in SECTION 701.
"Affiliate" of any specified Person means any other Person that,
directly or indirectly, controls, is controlled by or is under common control
with such specified Person. For the purposes of this definition, "control" when
used with respect to any specified Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Acquisition" means the acquisition by the Company of certain land in
Las Vegas, Nevada in connection with the construction of a domed stadium.
"Authenticating Agent" has the meaning specified in SECTION 612.
"Average Price" means, when used with reference to the per share price
of the Common Stock for any date, (a) the average of the high and low sale
price, regular way, or, if no such sale takes place on such date the average of
the high bid and low asked prices, regular way, in each case as reported in the
principal consolidated transaction reporting system with respect to securities
listed on the principal national securities exchange on which the Common Stock
is listed or admitted to trading or (b) if the Common Stock is not listed or
admitted to trading on any national securities exchange, the average of the high
bid and low asked prices in the over-the-counter market, as reported by the
NASDAQ/NMS or such other system then in use or (c) if on any such date the
Common Stock is not quoted by any such organization, the average of the high bid
and low asked prices as furnished by a professional market maker that is a
member of the National Association of Securities Dealers, Inc. making a market
in the Common Stock selected by the Board of Directors of the Company. If the
Common Stock is not traded in such manner that the quotations referred to above
are available for the period required hereunder, "Average Price" shall mean the
Fair Market Value per share of Common Stock as determined in good faith by the
Board of Directors of the Company based on an
2
<PAGE>
opinion of an independent investment banking firm with an established reputation
as a valuer of securities, which opinion may be based on such assumptions as
such firm shall deem necessary and appropriate.
"Bankruptcy Law" means Title 11, U.S. Code or any other federal or
state law for the relief of debtors, as any such laws may be amended from time
to time.
"Board of Directors" means either the board of directors of the
Company, or any committee of that board duly authorized to act in respect
hereof.
"Board Resolution" means a copy of a resolution duly adopted in good
faith by the Board of Directors, certified by the Secretary or an Assistant
Secretary of the Company to have been duly adopted by the Board of Directors and
to be in full force and effect on the date of such certification, and delivered
to the Trustee.
"Bond Register" and "Bond Registrar" have the respective meanings
specified in SECTION 305(A).
"Bonds" has the meaning stated in the first recital of this Indenture
and more particularly means any Bonds authenticated and delivered under this
Indenture.
"Business Day" when used with respect to any Place of Payment or any
other particular location referred to in this Indenture or in the Bonds means
any day that is not a Saturday, a Sunday or a legal holiday or a day on which
banking institutions or trust companies in that Place of Payment are authorized
or obligated by law to close.
"Change of Control" has the meaning specified in Paragraph 5 of the
Bonds.
"Closing Price" means, when used with reference to the per share price
of the Common Stock for any date, (a) the last sale price, regular way, or, if
no such sale takes place on such date the average of the closing bid and asked
prices, regular way, in each case as reported in the principal consolidated
transaction reporting system with respect to securities listed on the principal
national securities exchange on which the Common Stock is listed or admitted to
trading or (b) if the Common Stock is not listed or admitted to trading on any
national securities exchange, the last quoted price or, if not so quoted, the
average of the high bid and low asked prices in the over-the-counter market, as
reported by the NASDAQ/NMS or such other system then in use, or (c) if on any
such date the Common Stock is not quoted by any such organization, the average
of the closing bid and asked prices as furnished by a professional market maker
that is a member of the National Association of Securities Dealers, Inc. making
a market in the Common Stock selected by the Board of Directors of the Company.
If the Common Stock is not traded in such manner that the quotations referred to
above are available for the period required hereunder, "Closing Price" shall
mean the Fair Market Value per share of Common Stock as determined in good faith
by the Board of Directors of the Company based on an opinion of an independent
investment banking firm with an established reputation as a valuer of
securities, which opinion may be based on such assumptions as such firm shall
deem necessary and appropriate.
3
<PAGE>
"Code" means the Internal Revenue Code of 1986, as amended, and the
rules and regulations thereunder.
"Commission" means the Securities and Exchange Commission, as from
time to time constituted, created under the Securities Exchange Act of 1934, as
amended, or if at any time after the execution of this instrument such
Commission is not existing and performing the duties now assigned to it under
the Trust Indenture Act, then the body performing such duties on such date.
"Common Stock" means the common stock, par value $0.01 per share, of
the Company and any other successor common stock of the Company into which the
Company's common stock, par value $0.01 per share, may be converted or
reclassified or that may be issued in exchange or substitution therefor.
"Company" means the Person named as the "Company" in the first
paragraph of this instrument (i) until a successor Person shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Company" shall include such successor Person and (ii) for purposes of any
provision contained herein and required by the Trust Indenture Act, each other
obligor on the Bonds.
"Company Request" and "Company Order" mean, respectively, a written
request or order signed in the name of the Company by the Chairman, a Vice
Chairman, the President or a Vice President and by the Chief Financial Officer,
the Treasurer or the Controller of the Company, and delivered to the Trustee.
"Consolidated Net Income", for any period, means the net income (or
loss) of the Company and its Subsidiaries on a consolidated basis for such
period (taken as a single accounting period) determined in conformity with GAAP,
excluding (i) to the extent otherwise included therein, any gains or losses
realized upon any sale of assets other than in the ordinary course of business
and (ii) the net income (or loss) of any Person acquired by the Company or any
Subsidiary in a transaction accounted for as a pooling of interests to the
extent such net income (or loss) is attributable to any period prior to the date
of such acquisition.
"Consolidated Operating Cash Flow", for any period, means Consolidated
Net Income plus (i) net interest expense and (ii) depreciation and amortization,
minus the aggregate amount of earnings not legally available to pay all interest
payable on the Bonds during such period.
"Consultant" has the meaning specified in SECTION 1014.
"Contingent Obligation" means, as applied to any Person, any direct or
indirect liability, contingent or otherwise, of that Person with respect to any
Indebtedness, lease, dividend, guaranty, letter of credit or other obligation
(the "primary obligation") of another Person (the "primary obligor"), including,
without limitation, any obligation of such Person, whether or not contingent,
(a) to purchase, repurchase or otherwise acquire such primary obligations or any
property constituting direct or indirect security therefor, or (b) to advance or
provide funds (i) for the payment or discharge of any such primary obligation
(whether in the
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form of loans, advances, stock purchases, capital contributions or otherwise),
or (ii) to maintain working capital or equity capital of the primary obligor or
otherwise to maintain the net worth or solvency or any balance sheet item, level
of income or financial condition of the primary obligor or (c) to purchase or
make payment for property, securities or services primarily for the purpose of
assuring the owner of any such primary obligation of the ability of the primary
obligor to make payment of such primary obligation, or that any agreements
relating thereto will be complied with, or (d) otherwise to assure or hold
harmless the owner of any such primary obligation against loss in respect
thereof. The amount of any Contingent Obligation shall be deemed to be an
amount equal to the stated or determinable amount of the primary obligation in
respect of which such Contingent Obligation is made or, if not stated or
determinable, the maximum reasonably anticipated liability in respect thereof as
determined by the Company in good faith.
"Contractual Obligations" means as to any Person, any provision of any
security issued by such Person or of any agreement, undertaking, contract,
indenture, mortgage, deed of trust or other instrument to which such Person is a
party or by which it or any of its property is bound.
"Conversion Price" has the meaning specified in SECTION 1301.
"Corporate Trust Office" means the principal corporate trust office of
the Trustee at which at any particular time its corporate trust business shall
be administered, which office at the date of execution of this instrument is
located at One State Street, New York, New York 10004.
"Current Management" means Paul A. Tanner and James Rudis.
"Current Market Price" means at any date the average of the daily
Closing Prices per share of Common Stock for the 20 consecutive Trading Days
immediately preceding the day in question. For purposes of SECTION 1303, the
term "Current Market Price" shall mean, with respect to an underwritten public
offering of Common Stock for cash on a firm commitment basis, the cash price at
which such Common Stock is sold to the public pursuant to such underwritten
offering.
"Default" means any event, act or condition that is, or after notice
or passage of time, or both, would constitute, an Event of Default.
"Delisting" has the meaning specified in Paragraph 5 of the Bonds.
"Dollar" or "$" means a dollar or other equivalent unit in such coin
or currency of the United States of America as at the time of payment is legal
tender for the payment of public and private debts.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and any regulation promulgated thereunder.
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"ERISA Affiliate" means all trades or businesses (whether or not
incorporated) that are under common control with the Company or any Subsidiary
that, together with the Company or any Subsidiary, are treated as a single
employer under Section 414(b), 414(c), 414(m) or 414(o) of the Code.
"ERISA Event" means as to the Company, any Subsidiary or any ERISA
Affiliate: (a) a Reportable Event described in Section 4043 of ERISA (other than
a Reportable Event not subject to the provision for 30-day notice to the PBGC
under such regulations); or (b) the withdrawal of the Company, any Subsidiary or
any ERISA Affiliate from a Plan during a plan year in which it was a
"substantial employer" as defined in Section 4001(a)(2) of ERISA; or (c) the
filing of a notice of intent to terminate a Pension Plan covered by Title IV of
ERISA in a distress termination, or the treatment of an amendment of such
Pension Plan as a termination under Section 4041 of ERISA; or (d) the
institution of proceedings to terminate such a Pension Plan by the PBGC; or (e)
the imposition of a lien under Section 412 of the Code or Section 302 of ERISA;
or (f) any other event or condition that might reasonably be expected to
constitute grounds under Section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, any such Pension Plan or to result in
the imposition of any liability under ERISA or the Code other than for PBGC
premiums due but not delinquent under Section 4007 of ERISA.
"Event of Default" has the meaning specified in SECTION 501.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations of the Commission thereunder.
"Fair Market Value" shall mean the amount that a willing buyer would
pay a willing seller in an arm's-length transaction.
"Financial Contracts" means, with respect to any Person, financial
futures, options on financial futures, forward purchase agreements, rate swap
transactions, basis swaps, forward rate transactions, swap options, bond
options, interest rate options, foreign exchange transactions, cap, floor and
collar transactions, currency and cross-currency swap transactions and options
thereon and any other similar transactions, options thereon and any combination
of any of the foregoing entered into by such Person.
"GAAP" means generally accepted accounting principles in the United
States of America in effect from time to time.
"Governmental Authority" means the government of any nation, state or
other political subdivision thereof, any central bank thereof, any entity
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government, and any corporation or other entity
owned or controlled, through stock or capital ownership or otherwise, by any of
the foregoing.
"Holder" means a person in whose name a Bond is registered in the Bond
Register.
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"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, and the rules and regulations of the Federal Trade Commission
thereunder.
"Indebtedness" means as to any Person (a) all obligations of such
Person for borrowed money (including, without limitation, reimbursement and all
other obligations with respect to surety bonds, letters of credit, bankers'
acceptances and similar credit transactions, whether or not matured), (b) all
obligations evidenced by notes, bonds, debentures or similar instruments, (c)
all obligations to pay the deferred purchase price of property or services,
except trade accounts payable or other accrued liabilities to trade creditors
arising in the ordinary course of business; (d) all indebtedness created or
arising under any conditional sale or other title retention agreement with
respect to property acquired by such Person (even though the rights and remedies
of the seller or lender under such agreement in the event of default are limited
to repossession or sale of such property); (e) all obligations under leases that
have been or should be, in accordance with GAAP, recorded as capital leases; (f)
all obligations of the type referred to in any of the preceding clauses (a)
through (e) of other Persons secured by any Lien (other than Liens in favor of
lessors under leases other than leases included in the preceding clause (e)) on
any property or asset owned or held by that Person regardless of whether the
indebtedness secured thereby shall have been assumed by that Person or is non-
recourse to the credit of that Person; and (g) any Contingent Obligation for any
of the foregoing.
"Indenture" means this instrument as originally executed, or as it may
from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof.
"Interest Payment Date" means the Stated Maturity of an installment of
interest on the Bonds.
"Lien" means any mortgage, deed of trust, pledge, hypothecation,
assignment, charge, deposit arrangement, encumbrance, lien (statutory or other)
or preference, priority or other security agreement or preferential arrangement
of any kind or nature whatsoever (including, without limitation, those created
by, arising under or evidenced by any conditional sale or other title retention
agreement, the interest of a lessor under a capitalized lease obligation, or any
financing lease having substantially the same economic effect as any of the
foregoing).
"Major Holder" means a Holder of at least $500,000 aggregate principal
amount of Bonds; provided that, for the purposes of this definition, all
investment companies registered under the Investment Company Act of 1940, as
amended, that are part of the same family of investment companies (as defined in
Rule 144A under the Securities Act) shall collectively be deemed to be a single
"Holder."
"Material Subsidiary," as of any date, means any Subsidiary of the
Company (i) having total assets in excess of 10% of the consolidated total
assets of the Company and its Subsidiaries, determined as of the end of the most
recently ended fiscal quarter of the Company, as adjusted to reflect any
material change in capital stock or paid in capital since that date, or (ii)
which shall have accounted for more than 10% of Consolidated Operating Cash Flow
for any of the three most recently ended fiscal years of the Company.
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"Maturity" when used with respect to any Bond means the date on which
the principal of or premium on such Bond or an installment of principal becomes
due and payable as therein or herein provided, whether at the Stated Maturity or
by declaration of acceleration, call for redemption, purchase at the option of
the Holder thereof or otherwise.
"Multiemployer Plan" means a "multiemployer plan" within the meaning
of Section 4001(a)(3) of ERISA as to which the Company, any Subsidiary, or any
ERISA Affiliate could have any direct or indirect liability, obligation or
commitment of any nature (absolute, accrued, contingent or otherwise).
"NASDAQ/NMS" means the National Association of Securities Dealers,
Inc. Automated Quotation System/National Market System.
"Officers' Certificate" means a certificate signed by the Chairman, a
Vice Chairman, the President or a Vice President, and by the Chief Financial
Officer, the Treasurer or the Controller of the Company, and delivered to the
Trustee.
"Opinion of Counsel" means a written opinion of counsel, who may be
counsel to the Company (including an employee of the Company) and who shall be
reasonably satisfactory to the Trustee, which is delivered to the Trustee.
"Outstanding" when used with respect to Bonds, means, as of the date
of determination, all Bonds theretofore authenticated and delivered under this
Indenture, except:
(i) Bonds theretofore canceled by the Trustee or delivered to the
Trustee for cancellation;
(ii) Bonds for whose payment or redemption money in the necessary
amount has been theretofore deposited with the Trustee or any Paying Agent
(other than the Company) in trust or set aside and segregated in trust by
the Company (if the Company shall act as its own Paying Agent) for the
Holders of such Bonds; provided, however, that if such Bonds are to be
redeemed, notice of such redemption has been duly given pursuant to this
Indenture; and
(iii) Bonds that have been surrendered pursuant to SECTION 306 or in
exchange for or in lieu of which other Bonds have been authenticated and
delivered pursuant to this Indenture, other than any such Bonds in respect
of which there shall have been presented to the Trustee proof satisfactory
to it that such Bonds are held by a bona fide purchaser in whose hands such
Bonds are valid obligations of the Company;
provided, however, that in determining whether the Holders of the requisite
principal amount of Bonds outstanding have performed any Act hereunder, Bonds
owned by the Company or any other obligor upon the Bonds or any Affiliate of the
Company or of such other obligor shall be disregarded and deemed not to be
Outstanding, except that, in determining whether the Trustee shall be protected
in relying upon any such Act, only Bonds that the Trustee knows to be so owned
shall be so disregarded. Bonds so owned that have been pledged in good faith
may be regarded as Outstanding if the pledgee establishes to the satisfaction of
the Trustee the pledgee's
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right to act with respect to such Bonds and that the pledgee is not the Company
or any other obligor upon the Bonds or any Affiliate of the Company or of such
other obligor. In determining whether the Holders of the requisite principal
amount of Outstanding Bonds have performed any Act hereunder, the principal
amount of a Bond that shall be deemed to be Outstanding for such purpose shall
be the amount of the principal thereof that would be due and payable as of the
date of such determination upon a declaration of acceleration of the Maturity
thereof pursuant to SECTION 502.
"Paying Agent" means any Person authorized by the Company to pay the
principal of (and premium, if any) or interest on any Bonds on behalf of the
Company.
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"Pension Plan" means any Plan that is subject to Title IV of ERISA or the
minimum funding standards of Section 412 of the Code.
"Person" means any individual, corporation, partnership, trust,
incorporated or unincorporated association, joint venture, association, joint
stock company, government (or an agency or political subdivision thereof) or
other entity of any kind.
"Place of Payment" when used with respect to the Bonds of means the place
or places where the principal of (and premium, if any) and interest on the Bonds
are payable as specified pursuant to SECTION 301.
"Plan" means at any time, an employee benefit plan as defined in Section
3(3) of ERISA as to which the Company or any Subsidiary could have any direct or
indirect liability, obligation or commitment of any nature (absolute, accrued,
contingent or otherwise), provided, that the term "Plan" shall not include any
Multiemployer Plan.
"Polyphase Entities" means the Company and its Subsidiaries.
"Predecessor Bond" of any particular Bond means every previous Bond
evidencing all or a portion of the same debt as that evidenced by such
particular Bond; and, for the purposes of this definition, any Bond
authenticated and delivered under SECTION 306 in exchange for or in lieu of a
mutilated, lost, destroyed or stolen Bond shall be deemed to evidence the same
debt as the mutilated, lost, destroyed or stolen Bond.
"Projected Consolidated Net Income," for any period, means the net income
(or loss), as reasonably projected by the Company and its Subsidiaries for such
period (which projections shall be based upon factual assumptions reasonably
made by the Company), of the Company and its Subsidiaries on a consolidated
basis, for such period (taken as a single accounting period) determined in
conformity with GAAP, excluding (i) to the extent otherwise included therein,
any gains or losses realized upon any sale of assets other than in the ordinary
course of business and (ii) the net income (or loss) of any Person acquired by
the Company or any Subsidiary in a transaction accounted for as a pooling of
interests to the extent such net income (or loss) is attributable to any period
prior to the date of such acquisition.
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"Projected Consolidated Operating Cash Flow," for any period, means
Projected Consolidated Net Income plus (i) net interest expense and (ii)
depreciation and amortization, minus the aggregate amount of earnings not
legally available to pay all interest on the Bonds during such period, in each
case as reasonably projected by the Company and its Subsidiaries in such period,
which projections shall be based upon factual assumptions reasonably made in
good faith by the Company.
"Projected Fixed Charges" means the sum of the following: (i) the maximum
total interest charges and expense plus (ii) all scheduled payments of principal
of (and premium, if any) of Indebtedness, in each case reasonably projected by
the Company to be paid or payable by the Company and its Subsidiaries in any
fiscal year of the Company ending on or before December 1, 1997, which
projections shall be based upon factual assumptions reasonably made in good
faith by the Company.
"Purchase Date" means the date fixed for purchase, pursuant to Paragraph 5
of the Bonds, of any Bond pursuant to this Indenture.
"Purchase Price" means, when used with respect to any Bond to be purchased
pursuant to Paragraph 4 or 5 of the Bonds, the price for purchase of such Bond
pursuant to this Indenture at the Purchase Date.
"Purchasers" means the Persons who accept and agree to the terms of the
Securities Purchase Agreement as indicated by signature on an execution page of
such Agreement, and shall include any indirect or direct transferees of Bonds
pursuant to such Agreement.
"Record Date" shall mean the fifteenth day preceding an Interest Payment
Date.
"Redemption Date" means the date fixed for redemption, pursuant to
Paragraph 2 of the Bonds, of any Bond pursuant to this Indenture.
"Redemption Price" means, when used with respect to any Bond to be
redeemed, the price for redemption of such Bond pursuant to this Indenture at
the Redemption Date.
"Registrar" means the Bond Registrar.
"Registration Rights Agreement" means the Registration Rights Agreement,
dated as of the date hereof, between the Company and the Purchasers.
"Requirements of Law" means, as to any Person, any foreign, federal, state
or local law, treaty, rule or regulation and any determination, judgment, order,
decree or award of an arbitrator or a court or other Governmental Authority, in
each case applicable to or binding upon such Person or any of its property or to
which such Person or any of its property is subject.
"Reserve Fund" has the meaning specified in SECTION 1005.
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"Responsible Officer" when used with respect to the Trustee means any Vice
President, any Assistant Vice President, the Secretary, any Assistant Secretary,
any Trust Officer or Assistant Trust Officer assigned by the Trustee to
administer its corporate trust matters, or any other officer of the Trustee
customarily performing functions similar to those performed by any of the above
designated officers and also means, with respect to a particular corporate trust
matter, any other officer to whom such matter is referred because of his or her
knowledge of and familiarity with the particular subject.
"Securities Purchase Agreement" means the Securities Purchase Agreement,
dated as December 1, 1995, by and among the Company, Merrill Lynch World Income
Fund, Inc. and Convertible Holdings, Inc.
"Special Record Date" has the meaning specified in SECTION 105.
"Stated Maturity" when used with respect to any Bond or any principal
thereof or premium thereon or installment of interest thereon means the date
specified in such Bond as the date on which such principal, premium or
installment of interest is due and payable.
"Subsidiary" means, as to any Person, (a) any corporation more than 50% of
the outstanding Voting Stock of which is owned, directly or indirectly, by such
Person or by one or more other Subsidiaries of such Person or by such Person and
one or more Subsidiaries thereof and (b) any other Person (other than a
corporation) in which such Person, or one or more other Subsidiaries of such
Person or such Person and one or more other Subsidiaries thereof, directly or
indirectly, has at least a majority ownership and power to direct the policies,
management and affairs thereof. Unless otherwise qualified, all references in
this Indenture to a "Subsidiary" or "Subsidiaries" shall refer to a Subsidiary
or Subsidiaries of the Company.
"Trading Day" means any day on which the applicable national securities
exchange on or the applicable national securities market in which the Common
Stock is listed or admitted to trading is open for the transaction of business
or, if the Common Stock is not listed or admitted to trading on any national
securities exchange or national securities market, a Business Day.
"Transfer Restricted Securities" means securities that are required to bear
the legend set forth in SECTION 201(B).
"Trigger Date" has the meaning specified in Paragraph 2 of the Bonds.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as amended and
in force at the date as of which this instrument was executed.
"Trustee" means the Person named as the "Trustee" in the first paragraph of
this instrument until a successor Trustee shall have become such pursuant to the
applicable provisions of this Indenture, and thereafter "Trustee" shall mean or
include each Person who is then a Trustee hereunder.
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"Vice President" includes with respect to the Company and the Trustee, any
Vice President of the Company or the Trustee, as the case may be, whether or not
designated by a number or word or words added before or after the title "Vice
President."
SECTION 102. COMPLIANCE CERTIFICATES AND OPINIONS.
Upon any application or request by the Company to the Trustee to take or
refrain from taking any action under any provision of this Indenture, the
Company shall furnish to the Trustee an Officers' Certificate, in form and
substance reasonably satisfactory to the Trustee, stating that all conditions
precedent, if any, provided for in this Indenture relating to the proposed
action have been complied with and an Opinion of Counsel, in form and substance
reasonably satisfactory to the Trustee, stating that in the opinion of such
counsel all such conditions precedent, if any, have been complied with, except
that in the case of any such application or request as to which the furnishing
of such documents is specifically required by any provision of this Indenture
relating to such particular application or request, no additional certificate or
opinion need be furnished.
Every certificate or opinion with respect to compliance with a condition or
covenant provided for in this Indenture shall include:
(1) a statement that each individual signing such certificate or
opinion has read such covenant or condition and the definitions herein
relating thereto;
(2) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of each such individual, such
individual has made such examination or investigation as is necessary to
enable such individual to express an informed opinion as to whether or not
such covenant or condition has been complied with; and
(4) a statement as to whether, in the opinion of each such individual,
such condition or covenant has been complied with.
SECTION 103. FORM OF DOCUMENTS DELIVERED TO TRUSTEE.
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be based,
insofar as it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that such certificate or opinion or representations
with respect to the matters upon which such officer's certificate or
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opinion is based are erroneous. Any such certificate or Opinion of Counsel may
be based, insofar as it relates to factual matters, upon a certificate or
opinion of, or representations by, an officer or officers of the Company stating
that the information with respect to such factual matters is in the possession
of the Company, unless such counsel knows, or in the exercise of reasonable care
should know, that such certificate or opinion or representations with respect to
such matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
SECTION 104. NOTICES, ETC., TO TRUSTEE AND COMPANY.
Any Act of Holders or other document provided or permitted by this
Indenture to be made upon, given or furnished to, or filed with:
(1) the Trustee by any Holder or by the Company shall be sufficient
for every purpose hereunder (unless otherwise herein expressly provided) if
delivered in person or mailed, first-class postage prepaid, to or with the
Trustee addressed to its Corporate Trust Office at the address specified in
the first paragraph of this instrument, Attention: Corporate Trust &
Agencies Administration; or
(2) the Company by the Trustee or by any Holder shall be sufficient
for every purpose hereunder (unless otherwise herein expressly provided) if
in writing and mailed, first-class postage prepaid or airmail postage
prepaid if sent from outside the United States, to the Company addressed to
it at the address of its principal office specified in the first paragraph
of this instrument, to the attention of its Treasurer, or at any other
address previously furnished in writing to the Trustee and each Holder by
the Company.
Any such Act or other document shall be in the English language, except
that any published notice may be in an official language of the country of
publication.
SECTION 105. NOTICE TO HOLDERS; WAIVER.
Where this Indenture provides for notice to Holders of any event or any
other communication to Holders, such notice or other communication shall be
sufficiently given to Holders (unless otherwise herein expressly provided) if in
writing and delivered in person or mailed, first-class postage prepaid, to such
Holders as their names and addresses appear in the Bond Register, within the
time prescribed. Any notice provided to Holders pursuant hereto shall be
provided to the Trustee as well, in the manner set forth in SECTION 104.
In the event of suspension of regular mail service or by reason of any
other cause it shall be impracticable to give notice by mail, such notice or
other communication shall be sent by telex, telecopy or other facsimile
transmission or by overnight courier, provided that any such notice or other
communication sent to any Holder in any such manner shall be deemed to be given
only upon receipt by such Holder.
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Where this Indenture provides for notice in any manner, such notice may be
waived in writing by the Person entitled to receive such notice, either before
or after the event, and such waiver shall be the equivalent of such notice.
Such waivers of notice by Holders shall be filed with the Trustee, but such
filing shall not be a condition precedent to the validity of any action taken in
reliance on such waiver. In any case where notice to Holders is given by mail,
neither the failure to mail such notice nor any defect in any notice so mailed
to any particular Holder, shall affect the sufficiency of such notice with
respect to other Holders, and any notice which is mailed in the manner herein
provided shall be conclusively presumed to have been duly given.
The Company may, in the circumstances permitted by the Trust Indenture Act,
fix any day as the record date (the "Special Record Date") for the purpose of
determining the Holders entitled to give or take any request, demand,
authorization, direction, notice, consent, waiver or other action, or to vote on
any action, authorized or permitted to be given or taken by Holders. If not set
by the Company prior to the first solicitation of a Holder made by any Person in
respect of any such action, or, in the case of any such vote, prior to such
vote, the record date for any such action or vote shall be the 30th day prior to
such first solicitation or vote, as the case may be. With regard to any such
record date, only the Holders on such date (or their duly designated proxies)
shall be entitled to give or take, or vote on, the relevant action or to revoke
any such act, whether or not such Holders continue to be Holders after such
record date.
Holders may communicate pursuant to Section 312(b) of the Trust Indenture
Act with other Holders with respect to their rights under this Indenture or the
Bonds.
SECTION 106. CONFLICT WITH TRUST INDENTURE ACT.
If and to the extent that any provision of this Indenture limits, qualifies
or conflicts with another provision required to be included in this Indenture by
operation of Sections 310 to 317, inclusive, of the Trust Indenture Act (an
"incorporated provision"), such incorporated provision shall control.
If any provision of this Indenture modifies or excludes any provision of
the Trust Indenture Act that may be so modified or excluded, the latter
provision shall be deemed to apply to this Indenture as so modified or to be
excluded, as the case may be.
If at such time as it becomes necessary to qualify the Indenture under the
Trust Indenture Act and any provision of this Indenture conflicts with the Trust
Indenture Act, the Company, when authorized by a Board Resolution, and the
Trustee shall enter into one or more indentures supplemental hereto, in form
satisfactory to the Trustee, to amend the Indenture to provide for the Indenture
to qualify under the Trust Indenture Act, all subject to and in accordance with
the provisions of ARTICLE NINE.
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SECTION 107. EFFECT OF HEADINGS AND TABLE OF CONTENTS.
The Article and Section headings herein and the Table of Contents are for
convenience only and shall not affect the construction hereof.
SECTION 108. SUCCESSORS AND ASSIGNS.
All covenants and agreements in this Indenture and the Bonds by the parties
hereto shall bind their respective successors and assigns and inure to the
benefit of their permitted successors and assigns, whether so expressed or not.
SECTION 109. SEPARABILITY CLAUSE.
In the event that any one or more of the provisions contained in this
Indenture or in the Bonds, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable in any jurisdiction, in any respect and
for any reason, the validity, legality and enforceability of any such provision
in every other respect, and in any other jurisdiction, and of the remaining
provisions hereof shall not be in any way impaired, it being intended that all
of the rights and privileges of the Holders shall be enforceable to the fullest
extent provided by law.
SECTION 110. BENEFITS OF INDENTURE.
Nothing in this Indenture or in the Bonds, express or implied, shall give
to any Person, other than the parties hereto, any Bond Registrar, any Paying
Agent and their successors hereunder, and the Holders, any benefit or any legal
or equitable right, remedy or claim under this Indenture.
SECTION 111. GOVERNING LAW.
This Indenture and the Bonds shall be deemed to be contracts made and to be
performed entirely in the State of New York, and for all purposes shall be
governed by and construed in accordance with the laws of said State without
regard to the conflicts of law rules of said State.
SECTION 112. LEGAL HOLIDAYS.
Unless otherwise specified pursuant to this Indenture or in any Bond, in
any case where any Interest Payment Date, Redemption Date, Purchase Date or
Stated Maturity of any Bond shall not be a Business Day at any Place of Payment
for the Bonds, then (notwithstanding any other provision of this Indenture or of
the Bonds) payment of principal (and premium, if any) or interest need not be
made at such Place of Payment on such date, but may be made on the next
succeeding Business Day at such Place of Payment with the same force and effect
as if made on the Interest Payment Date, Redemption Date, Purchase Date or at
the Stated Maturity, and no interest shall accrue on the amount so payable for
the period from and after such Interest Payment Date, Redemption Date, Purchase
Date or Stated Maturity, as the case may be, to such Business Day if such
payment is made on such Business Day.
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SECTION 113. NO SECURITY INTEREST CREATED.
Nothing in this Indenture or in the Bonds, express or implied, shall be
construed to constitute a security interest under the Uniform Commercial Code or
similar legislation, as now or hereafter enacted and in effect in any
jurisdiction where property of the Company or its Subsidiaries is or may be
located.
SECTION 114. LIABILITY SOLELY CORPORATE.
No recourse shall be had for the payment of the principal of (or premium,
if any) or the interest on any Bonds, or any part thereof, or of the
indebtedness represented thereby, or upon any obligation, covenant or agreement
of this Indenture, against any incorporator, or against any stockholder, officer
or director, as such, past, present or future, of the Company (or any
incorporator, stockholder, officer or director, as such, of any predecessor or
successor corporation), either directly or through the Company (or any such
predecessor or successor corporation), whether by virtue of any constitution,
statute or rule of law, or by the enforcement of any assessment or penalty or
otherwise; it being expressly agreed and understood that this Indenture and all
the Bonds are solely corporate obligations, and that no personal liability
whatsoever shall attach to, or be incurred by, any such incorporator,
stockholder, officer or director, as such, past, present or future, of the
Company (or any incorporator, stockholder, officer or director, as such, of any
such predecessor or successor corporation), either directly or indirectly
through the Company or any such predecessor or successor corporation, because of
the indebtedness hereby authorized or under or by reason of any of the
obligations, covenants, promises or agreements contained in this Indenture or in
any of the Bonds or to be implied herefrom or therefrom; and that any such
personal liability is hereby expressly waived and released as a condition of,
and as part of the consideration for, the execution of this Indenture and the
issue of the Bonds; provided, however, that nothing contained herein or in the
Bonds shall be taken to prevent recourse to and the enforcement of the
liability, if any, of any stockholder or subscriber to capital stock of the
Company upon or in respect of the shares of capital stock of the Company not
fully paid.
SECTION 115. COUNTERPARTS.
This Indenture may be executed in any number of counterparts, each of which
shall be an original, but such counterparts shall together constitute but one
and the same instrument.
SECTION 116. FURTHER INSTRUMENTS AND ACTS.
Upon request of the Trustee, the Company will execute and deliver such
further instruments and do such further acts as may be reasonably necessary or
proper to carry out more effectively the purposes of this Indenture.
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ARTICLE TWO
FORMS OF BONDS
SECTION 201. FORMS GENERALLY.
(a) The Bonds and the Trustee's certificate of authentication shall be
substantially in the forms set forth in this Article, and shall have such
appropriate insertions, omissions, substitutions and other variations as are
required or permitted by this Indenture, and may have such letters, numbers or
other marks of identification or designation and such legends or endorsements
placed thereon as are appropriate and as are not inconsistent with the
provisions of this Indenture, or as may be required to comply with any law or
with any rule or regulation of any securities exchange on which the Bonds may be
listed, or to conform to usage.
The definitive Bonds shall be printed, lithographed or engraved or
produced by any combination of these methods on steel engraved borders or may be
produced in any other manner, all as determined by the officers executing such
Bonds, as conclusively evidenced by their execution of such Bonds.
(b) The following legend shall appear at the top of the face of the
form of Bond set forth in SECTION 202 until such time as the Trustee receives an
opinion of Counsel that the same is no longer required under the Securities
Purchase Agreement:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 OR THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE
SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT OR AN APPLICABLE EXEMPTION TO THE REGISTRATION
REQUIREMENTS OF SUCH ACT AND IN COMPLIANCE WITH APPLICABLE STATE SECURITIES
LAWS."
At such time that the Trustee receives an opinion of counsel that a
Bond is no longer a Transfer Restricted Security, the provision set forth in
SECTION 203 requiring the Holder to (a) disclose its compliance with an
exemption from registration under the Securities Act provided by Rule 144 or
Rule 144A or (b) provide documents to evidence compliance with the conditions of
certain transfers, shall be removed from the form of such Bond.
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SECTION 202. FORM OF FACE OF BOND.
POLYPHASE CORPORATION
12% SENIOR CONVERTIBLE DEBENTURES
DUE DECEMBER 1, 1997
NO. _____________ $________________
Polyphase Corporation, a corporation duly organized and existing under the
laws of the State of Nevada (herein called the "Company", which term includes
any successor Person under the Indenture hereinafter referred to) for value
received, hereby promises to pay to ________________, or registered assigns, the
principal sum of _________________________ Dollars on December 1, 1997, and to
pay interest thereon from December 1, 1995 or from the most recent Interest
Payment Date to which interest has been paid, semi-annually on December 1 and
June 1 in each year, commencing June 1, 1996, at the rate of 12% per annum,
until the principal hereof is paid. In the event that, (i) the Company shall
have received a written request to effect a registration of securities under the
Securities Act pursuant to Section 2.1 of the Registration Rights Agreement and,
for any reason whatsoever, (ii) either (A) the Company shall not have filed with
the Commission a registration statement with respect to such registration in
accordance with Section 2.1 and the other applicable provisions of the
Registration Rights Agreement or (B) such registration statement shall have been
so filed but shall not have been declared effective by the Commission, in either
case on or before the 90th day following the receipt by the Company of such
written request, the interest rate in respect of the Bonds shall, on such date,
increase to 12 1/4% per annum, and shall further increase on the last day of
each consecutive fiscal quarter of the Company thereafter by an additional
1/4%; provided, however, that the interest rate shall revert to 12% per annum
when such registration statement has been filed as aforesaid and declared
effective by the Commission. The interest so payable, and punctually paid, on
any Interest Payment Date will, as provided in such Indenture, be paid to the
Person in whose name this Bond (or one or more Predecessor Bonds) is registered
at the close of business on the Record Date immediately preceding such Interest
Payment Date. The Company shall pay interest on overdue principal (and premium,
if any) at the interest rate then in effect plus 1% per annum, and it shall pay
interest on overdue installments of interest at the same rate to the extent
lawful. Interest on this Bond shall be computed on the basis of a 360-day year
of twelve 30-day months.
The principal of (and premium, if any) and interest on this Bond shall be
payable at the Corporate Trust Office of the Trustee and at the office or agency
of the Company at 16885 Dallas Parkway, the City of Dallas, the State of Texas,
maintained for such purpose and at any other office or agency maintained by the
Company for such purpose; provided, however, that at the option of the Company
payment of interest may be made at the Corporate Trust Office of the Trustee, by
check mailed to the address of the Person entitled thereto as such address shall
appear in the Bond Register or by wire transfer of immediately available funds
to an account previously designated to the Company by such Person at least three
Business Days prior to the Interest Payment Date.
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Reference is hereby made to the further provisions of this Bond set forth
on the reverse hereof, which further provisions shall for all purposes have the
same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by the
Trustee referred to on the reverse hereof by manual signature, this Bond shall
not be entitled to any benefit under the Indenture or be valid or obligatory for
any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its seal.
Dated:
POLYPHASE CORPORATION
By:
----------------------------------
Title:
--------------------------------
TRUSTEE'S CERTIFICATE OF Attest:
AUTHENTICATION
IBJ SCHRODER BANK & TRUST --------------------------------------
COMPANY, as Trustee, certifies Secretary
that this is one of the Bonds
referred to in the Indenture.
by
-----------------------------
Authorized Signatory
SECTION 203. FORM OF REVERSE OF BOND.
1. The Indenture. This Bond is one of a duly authorized issue of Bonds of
the Company designated as its 12% Senior Convertible Debentures due December 1,
1997 (herein called the "Bonds"), limited in aggregate principal amount to
$1,500,000, issued and to be issued under an Indenture, dated as of December 1,
1997 (herein called the "Indenture"), between the Company and IBJ Schroder Bank
& Trust Company, as Trustee (herein called the "Trustee", which term includes
any successor trustee under the Indenture), to which Indenture and all
indentures supplemental thereto reference is hereby made for a statement of the
respective rights, limitations of rights, duties and immunities thereunder of
the Company, the Trustee and the Holders of the Bonds and of the terms upon
which the Bonds are, and are to be, authenticated and delivered. The terms of
the Bonds include those stated in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act of 1939 as amended and in
effect on the date of the Indenture. All terms used in this Bond that are
defined in the Indenture shall have the meanings assigned to them in the
Indenture.
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Initially, IBJ Schroder Bank & Trust Company, as Trustee, will act as
Paying Agent, Registrar and Conversion Agent. The Company may change any Paying
Agent, Registrar, Conversion Agent or co-registrar without notice. The Company
may act in any such capacity.
The Company will furnish to any Holder upon written request and without
charge a copy of the Indenture which has in it the text of the Bond. Requests
may be made to: Polyphase Corporation, 16885 Dallas Parkway, Dallas, Texas
75248, Attention: Corporate Secretary.
2. Optional Redemption. Subject to the conditions set forth below, the
Company may, at its option, redeem the Bonds, in whole at any time or in part
from time to time, at the following redemption prices (expressed as a percentage
of principal amount), payable in cash, in each case together with accrued
interest to the Redemption Date:
Redemption Period Percentage
----------------- ----------
Within 12 months of 105%
the date hereof
Thereafter 104%
Notwithstanding the preceding provisions of this Paragraph 2, the Company
shall not have the right to redeem any Bonds pursuant to this Paragraph 2 unless
(a) the Average Price per share of Common Stock for each of any 40 Trading Days
occurring in a period of 60 consecutive Trading Days shall have exceeded 250% of
the Conversion Price in effect on such day and (b) the Company shall have given
to each Holder, in accordance with SECTION 105 of the Indenture, within 10 days
following the last day of such 60-day period (the "Trigger Date"), written
notice of such event, in which case the Company shall have the right to redeem
the Bonds as hereinabove described at any time during the period commencing on
the 51st day after the Trigger Date and ending on November 30, 1997.
3. Notice of Redemption. Notice of redemption pursuant to Paragraph 2
hereof will be given at least 30 days but not more than 60 days before the
Redemption Date to each Holder of Bonds to be redeemed at its registered
address. If money sufficient to pay the Redemption Price of and accrued
interest on all Bonds (or portions thereof) to be redeemed on the Redemption
Date is deposited with the Paying Agent on or before the Redemption Date, on and
after the Redemption Date, interest will cease to accrue on such Bonds or
portions thereof.
4. Use of Proceeds Put Provision. In the event that the Company uses any
of the proceeds of the issuance of the Bonds other than to fund the purchase
price for the Acquisition, the Company shall immediately provide the Holders
with written notice of such other use. In such event, the Holders have the
right for a period of 90 days from the date such notice is received, at its
option, to require the Company to purchsae all or any portion of such Holder's
Bonds at a price equal to the Purchase Price plus accrued but unpaid interest
through the date such Bonds are purchased by the Company.
5. Put Provision. In the event of a Change of Control or a Delisting
(each as hereinafter defined), each Holder shall have the right, at its option,
to require the Company to
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purchase all or any portion of such Holder's Bonds at a price equal to the
greater of (a) the Current Market Price per share of Common Stock (determined
with reference to the date described in the following clause (i) or (ii), as
applicable) multiplied by the number of shares of Common Stock into which the
aggregate principal amount of such Bonds is convertible at the Conversion Price
in effect on (i) in the event of a merger or consolidation described in clause
(d)(i) or (d)(ii) of the definition of Change of Control set forth below, the
earlier of (A) the date of execution of the definitive merger or consolidation
agreement in respect of such merger or consolidation and (B) the date any of the
principal terms of such merger or consolidation are publicly announced or (ii)
in the event of any other Change of Control, the date such Change of Control
occurs, and (b) the Redemption Price in effect on the date of such event, plus
accrued and unpaid interest to the Purchase Date, as provided in, and subject to
the terms of, the Indenture.
A "Change of Control" shall be deemed to have occurred if and at the time
that:
(a) any Person or "group" (within the meaning of Section 13(d)(3) of
the Exchange Act), other than Current Management (which for purposes of this
clause (a) shall include any Person to whom Current Management may transfer
Common Stock pursuant to SECTION 1401 of the Indenture) or their Affiliates, is
or becomes the beneficial owner, directly or indirectly, of outstanding shares
of stock of the Company entitling such Person or Persons to exercise 50% or more
of the total voting power of all classes of stock of the Company entitled to
vote in the election of directors (the term "beneficial owner" shall be
determined in accordance with Rules 13d-3 and 13d-5 promulgated by the
Commission under the Exchange Act);
(b)(i) Current Management (including their Affiliates, other than the
Company, and any Person to whom Current Management may transfer Common Stock
pursuant to SECTION 1401 of the Indenture) cease to be the beneficial owner,
directly or indirectly, in the aggregate, of shares of Common Stock having a
fair market value (based on the most recent Closing Price per share of the
Common Stock) of at least $12,500,000; (ii) any member of Current Management
ceases to be a director or executive officer (within the meaning of Rule 3b-7
promulgated by the Commission under the Exchange Act) of the Company; or (iii)
any member of Current Management ceases to devote a substantial part of his time
to the Company's business;
(c) the Company conveys, transfers or leases all or substantially all
of its assets to any other Person; or
(d) the Company consolidates or merges with or into any other Person
and (i) the Company is not the surviving corporation, (ii) the Company's
earnings per share of Common Stock determined on a pro forma basis, giving
effect to such merger or consolidation, for its fiscal year most recently ended
and any subsequent interim period with respect to which financial statements are
required to be delivered pursuant to SECTION 1201 of the Indenture, shall be
less than the Company's historical earnings per share for either such period,
which determination shall be made by the Board of Directors, as evidenced by a
Board Resolution, within five (5) days following the consummation of such
consolidation or merger, or (iii) at any time prior to the last day of the 36th
full calendar month following such consolidation or merger,
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persons who have continuously served as officers or directors of the Company for
a period of at least 24 months immediately prior to the effective date of such
consolidation or merger cease to constitute a majority of the board of directors
of the Person formed by such consolidation or into or with which the Company is
merged.
A "Delisting" shall be deemed to have occurred if and at such time as the
Common Stock is neither (a) listed on the New York Stock Exchange or the
American Stock Exchange nor (b) admitted for trading and traded through the
NASDAQ/NMS.
Notice of each Change of Control and each Delisting shall be given to each
Holder no later than ten (10) days following the occurrence of such event.
6. Optional Conversion. Any Holder shall have the right, at its option,
at any time prior to the close of business on December 1, 1997, to convert,
subject to the terms and provisions of the Indenture, the principal amount of
any Bond (or any portion of the principal amount thereof that is $1,000 or an
integral multiple of $1,000) into such number of fully paid and non-assessable
shares of Common Stock as is equal to (i) the principal amount of the Bond
divided by (ii) $5.00, subject to adjustment as provided in the Indenture (such
price, as so adjusted, is referred to herein as the "Conversion Price"), except
that (a) with respect to any Bond, or any portion thereof, which shall be called
for redemption pursuant to Paragraph 2 of the Bonds, such right shall terminate
at the close of business on the Redemption Date for such Bond, or such portion,
unless in any such case the Company shall default in payment of the Redemption
Price due upon such redemption and (b) with respect to any Bond, or any portion
thereof, delivered by a Holder for purchase by the Company pursuant to Paragraph
4 of the Bonds, such right shall terminate at the close of business on the
Purchase Date for such Bond, or such portion, unless in any such case the
Company shall default in payment of the Purchase Price therefor. Such
conversion right shall be exercised by the surrender of the Bond or Bonds, the
principal amount of which is so to be converted, to the Trustee at its Corporate
Trust Office any time during usual business hours, accompanied by written notice
that the Holder elects to convert such Bond or Bonds or any portion thereof and
specifying the name or names (with addresses) in which a certificate or
certificates for shares of Common Stock are to be issued and (if so required by
the Company) by a written instrument or instruments of transfer in form
reasonably satisfactory to the Trustee duly executed by the Holder or its duly
authorized legal representative and transfer tax stamps or funds therefor, if
required pursuant to the Indenture.
Upon conversion of any Bond or portion thereof, the Holder thereof shall be
entitled to receive payment of all accrued and unpaid interest on such Bond or
portion thereof through the date of conversion. The Company will deliver a
check in the amount of such accrued and unpaid interest plus any amount in lieu
of any fractional share.
7. Defaults and Remedies. If an Event of Default shall occur and be
continuing, the principal of (and premium, if any) and accrued interest on the
Bonds may be declared due and payable immediately in the manner and with the
effect provided in the Indenture.
8. Amendments and Waivers. The Indenture permits, with certain exceptions
as therein provided, the amendment thereof and the modification of the rights
and obligations of the Company and the rights of the Holders of the Bonds under
the Indenture at any time by the Company and the Trustee with the consent of the
Holders of a majority in aggregate principal
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amount of the Bonds at the time Outstanding. The Indenture also contains
provisions permitting the Holders of specified percentages in aggregate
principal amount of the Bonds at the time Outstanding, on behalf of the Holders
of all the Bonds, to waive compliance by the Company with certain provisions of
the Indenture and certain past defaults under the Indenture and their
consequences. Any such consent or waiver by the Holder of this Bond shall be
conclusive and binding upon such Holder and upon all future Holders of this Bond
and of any Bond issued upon the registration of transfer hereof or in exchange
herefor or in lieu hereof, whether or not notation of such consent or waiver is
made upon this Bond.
9. Obligations Unconditional. No reference herein to the Indenture and no
provision of this Bond or of the Indenture shall alter or impair the obligation
of the Company, which is absolute and unconditional, to pay the principal of
(and premium, if any) and interest on this Bond at the times, place and rate,
and in the coin or currency, herein prescribed.
10. Denominations, Transfers, Exchange. The Bonds are issuable only in
registered form in denominations of $1,000 and any integral multiple thereof. A
Holder may transfer or exchange Bonds in accordance with the Indenture. The
Bond Registrar may require a Holder, among other things, to furnish appropriate
endorsements and transfer documents and to pay any taxes permitted by the
Indenture.
11. Persons Deemed Owners. Prior to due presentment of this Bond for
registration of transfer, the Company, the Trustee and any agent of the Company
or the Trustee may treat the Person in whose name this Bond is registered as the
owner hereof for all purposes, whether or not this Bond be overdue, and neither
the Company, the Trustee nor any such agent shall be affected by notice to the
contrary.
12. Governing Law. The Indenture and this Bond shall be governed by and
construed in accordance with the laws of the State of New York without regard to
the conflicts of law rules of such State.
13. No Recourse Against Others. No recourse shall be had for the payment
of the principal of (or premium, if any) or the interest on any Bonds, or any
part thereof, or of the indebtedness represented thereby, or upon any
obligation, covenant or agreement of the Indenture, against any incorporator, or
against any stockholder, officer or director, as such, past, present or future,
of the Company. By accepting a Bond, each Holder waives and releases all such
liability. The waiver and release are part of the consideration for the issue
of the Bonds.
14. Authentication. This Bond shall not be valid until an authorized
signatory of the Trustee (or an authenticating agent) manually signs the
certificate of authentication on the other side of this Bond.
15. Abbreviations. Customary abbreviations may be used in the name of
Holder or an assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants
by the entireties), JT TEN (=joint tenants with rights of survivorship and not
as tenants in common), CUST (=custodian), and U/G/M/A (=Uniform Gift to Minors
Act).
ASSIGNMENT
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I or we assign and transfer this Bond to:
(Insert assignee's social security or tax I.D. number)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(Print or type name, address and zip code of assignee)
and irrevocably appoint:
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Agent to transfer this Bond on the books of the Company. The Agent may
substitute another to act for him.
[Check One]
---------
[_] (a) this Bond is being transferred in compliance with the exemption from
registration under the Securities Act provided by Rule 144 or Rule
144A thereunder.
or
[_] (b) this Bond is being transferred other than in accordance with (a)
above and documents are being furnished that comply with the
conditions of transfer set forth in this Bond and the Indenture.
If none of the foregoing boxes is checked, the Trustee or Registrar shall not be
obligated to register this Bond in the name of any person other than the Holder
hereof unless and until the conditions to any such transfer of registration set
forth herein and in Section 305 of the Indenture shall have been satisfied.
Date: Your Signature:
------------------------- -------------------------
----------------------------------------
(Sign exactly as your name appears on the
other side of this Bond)
Signature Guarantee: ----------------------------------------
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(Signature must be guaranteed by a member firm of a national securities exchange
or of the National Association of Securities Dealers, Inc. or by a commercial
bank or trust company)
OPTION OF HOLDER TO ELECT PURCHASE/CONVERSION
If you want to elect to have all or any part of this Bond purchased by
the Company pursuant to Paragraph 4 or 5 herein or converted into Common Stock
pursuant to Section 1301 of the Indenture, check the appropriate box:
[_] Purchase/Paragraph 4 or 5 [_] Convert/Section 1301
If you want to have only part of the Bond purchased or converted by
the Company pursuant to the above Sections, state the amount you elect to have
purchased/converted:
$___________________
If you want the stock certificate made out in another person's name,
complete the following:
(Insert other person's social security or tax I.D. number)
________________________________________
________________________________________
________________________________________
________________________________________
(Print or type other person's name, address and zip code)
Date: Your Signature:
--------------------------- ------------------------
-----------------------------------------
(Sign exactly as your name appears on the
other side of this Bond)
Signature Guarantee: -----------------------------------------
(Signature must be guaranteed by a member firm of a national securities exchange
or of the National Association of Securities Dealers, Inc. or by a commercial
bank or trust company)
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SECTION 204. FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION.
The form of the Trustee's certificate of authentication to be borne by the
Bonds shall be substantially as follows:
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Bonds issued under the within mentioned Indenture.
________________________________,
as Trustee
By:
------------------------------
Authorized Signatory
ARTICLE THREE
THE BONDS
SECTION 301. TITLE AND TERMS.
The aggregate principal amount of Bonds which may be authenticated and
delivered under this Indenture is limited to $1,500,000, except for Bonds
authenticated and delivered upon registration of transfer of, or in exchange
for, or in lieu of, other Bonds pursuant to SECTIONS 304, 305, 306, OR 906. The
Bonds shall be known and designated as the "12% Senior Convertible Debentures
due December 1, 1997" of the Company. The Stated Maturity of the Bonds shall be
as set forth in the form of Bond included in this Article, and the Bonds shall
pay interest as provided therein. The terms of the Bonds included in SECTIONS
202 and 203 are part of the terms of this Indenture.
The principal of (and premium, if any) and interest on the Bonds shall
be payable at the Corporate Trust Office of the Trustee and at the office or
agency of the Company at 16885 Dallas Parkway, the City of Dallas, the State of
Texas, maintained for such purpose and at any other office or agency maintained
by the Company for such purpose; provided, however, that at the option of the
Company payment of interest may be made at the Corporate Trust Office of the
Trustee, by check mailed to the address of the Person entitled thereto as such
address shall appear in the Bond Register or by wire transfer of immediately
available funds to an account previously designated to the Company by such
Person in writing at least three Business Days prior to the Interest Payment
Date. The Trustee shall be the initial Paying Agent hereunder. The Company
shall deposit with the Paying Agent no later than one (1) Business Day prior to
the date on which the payment of principal of (and premium, if any) and/or
interest on the Bonds is payable in immediately available Funds in the amounts
required for such payment.
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The Bonds shall be redeemable as provided in Paragraph 2 of the Bonds
and ARTICLE TWELVE.
Each Holder of Bonds shall have the right to require the Company to
purchase its Bonds as provided in Paragraph 4 of the Bonds and SECTION 1207.
The Bonds shall be convertible as provided in ARTICLE THIRTEEN.
SECTION 302. DENOMINATIONS.
The Bonds shall be issuable only in registered form and in
denominations of $1,000 and any integral multiple thereof and shall be payable
only in Dollars.
SECTION 303. EXECUTION, AUTHENTICATION, DELIVERY AND DATING.
The Bonds shall be executed on behalf of the Company by its Chairman
of the Board, its President, its Chief Financial Officer, one of its Vice
Presidents or its Treasurer, under its corporate seal reproduced thereon and
attested by its Secretary or one of its Assistant Secretaries. The signature of
any of these officers may be manual or facsimile.
Bonds bearing the manual or facsimile signatures of individuals who
were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Bonds or did not hold
such offices at the date of such Bonds.
The Trustee shall authenticate and deliver Bonds from time to time for
original issue up to the aggregate principal amount of $1,500,000, upon a
Company Order specifying the amount of Bonds to be authenticated and the date on
which the Bonds are to be authenticated. The aggregate principal amount of
Bonds outstanding at any time may not exceed $1,500,000.
Each Bond shall be dated the date of its authentication.
No Bond shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose unless there appears on such Bond a
certificate of authentication substantially in the form provided for herein duly
executed by the Trustee or by an Authenticating Agent, and such executed
certificate upon any Bond shall be conclusive evidence, and the only evidence,
that such Bond has been duly authenticated and delivered hereunder and is
entitled to the benefits of this Indenture. Notwithstanding the foregoing, if
any Bond shall have been duly authenticated and delivered hereunder but never
issued and sold by the Company, and the Company shall deliver such Bond to the
Trustee for cancellation as provided in SECTION 308 together with a written
statement (which need not comply with SECTION 102) stating that such Bond has
never been issued and sold by the Company, for all purposes of this Indenture
such Bond shall be deemed never to have been authenticated and delivered
hereunder and shall never be entitled to the benefits of this Indenture.
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SECTION 304. TEMPORARY BONDS.
(a) Pending the preparation of definitive Bonds, the Company may
execute, and upon Company Order the Trustee shall authenticate and deliver,
temporary Bonds that are printed, lithographed, typewritten, mimeographed or
otherwise produced, in any authorized denomination for the Bonds substantially
of the tenor of the definitive Bonds in lieu of which they are issued and with
such appropriate insertions, omissions, substitutions and other variations as
the Company may determine to be appropriate for temporary Bonds. Every such
temporary Bond shall be executed by the Company and shall be authenticated and
delivered by the Trustee upon the same conditions and in substantially the same
manner, and with the same effect, as the definitive Bonds in lieu of which they
are issued.
If temporary Bonds are issued, the Company will cause definitive Bonds
to be prepared without unreasonable delay. After the preparation of definitive
Bonds, the temporary Bonds shall be exchangeable for definitive Bonds, of a like
Stated Maturity and with like terms and provisions, upon surrender of the
temporary Bonds at the office or agency of the Company in a Place of Payment for
the Bonds, without charge to the Holder, except as provided in SECTION 305 in
connection with a transfer. Upon surrender for cancellation of any one or more
temporary Bonds, the Company shall execute and the Trustee shall authenticate
and deliver in exchange therefor a like principal amount of definitive Bonds of
authorized denominations and of a like Stated Maturity and like terms and
provisions. Until so exchanged, the temporary Bonds shall in all respects be
entitled to the same benefits under this Indenture as definitive Bonds.
SECTION 305. REGISTRATION, TRANSFER AND EXCHANGE.
(a) The Company shall cause to be kept at the Corporate Trust Office
of the Trustee a register (the registers maintained in such office and in any
other office or agency of the Company in a Place of Payment being herein
sometimes collectively referred to as the "Bond Register") in which, subject to
such reasonable regulations as it may prescribe, the Company shall provide for
the registration of the Bonds and of transfers and exchanges of the Bonds. The
Trustee is hereby appointed "Bond Registrar" for the purpose of registering the
Bonds and registering transfers and exchanges of the Bonds as herein provided.
Subject to subsection (c) below, upon surrender for registration of
transfer of any Bond at the office or agency of the Company maintained for such
purpose, the Company shall execute, and the Trustee shall authenticate and
deliver, in the name of the designated transferee, one or more new Bonds of like
aggregate principal amount of such denominations as are authorized for the Bonds
and of a like Stated Maturity and with like terms and conditions.
Subject to subsection (c) below, at the option of the Holder, Bonds
may be exchanged for other Bonds of like aggregate principal amount of other
authorized denominations and of a like Stated Maturity and with like terms and
conditions, upon surrender of the Bonds to be exchanged at such office or
agency. Whenever any Bonds are surrendered for exchange, the Company shall
execute, and the Trustee shall authenticate and deliver, the Bonds that the
Holder making the exchange is entitled to receive.
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(b) All Bonds issued upon any transfer or exchange of Bonds shall be
valid obligations of the Company, evidencing the same debt, and entitled to the
same benefits under this Indenture, as the Bonds surrendered for such transfer
or exchange.
No service charge will be made for any transfer or exchange of Bonds
except as provided in SECTION 306. The Company may require payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
connection with any transfer of Bonds, other than those expressly provided in
this Indenture to be made at the Company's own expense or without expense or
without charge to the Holders.
The Company shall not be required (i) to register, transfer or
exchange Bonds during a period beginning at the opening of business 15 days
before the day of the transmission of a notice of redemption of Bonds selected
for redemption under SECTION 1201 and ending at the close of business on the day
of such transmission, or (ii) to register, transfer or exchange any Bond so
selected for redemption in whole or in part, except the unredeemed portion of
any Bond being redeemed in part.
(c) When Bonds are presented by a Holder to the Bond Registrar with a
request to register the transfer of the Bonds, the Bond Registrar shall register
the transfer or make the exchange as requested if its requirements for such
transactions, which shall be reasonable, are met; provided, however, that the
Bonds presented or surrendered for transfer or exchange:
(i) shall be duly endorsed or accompanied by a written
instruction of transfer in form satisfactory to the Bond Registrar
duly executed by such Holder or by his attorney, duly authorized in
writing; and
(ii) in the case of a Bond that is a Transfer Restricted
Security, such request shall be accompanied by the following
additional information and documents, as applicable:
(A) if such Transfer Restricted Security is being
transferred to a "qualified institutional buyer" (as defined in
Rule 144A under the Securities Act) in accordance with Rule 144A
under the Securities Act or pursuant to an exemption from
registration in accordance with Rule 144 or Rule 904 under the
Securities Act or pursuant to an effective registration statement
under the Securities Act, a certification to that effect from
such Holder in form satisfactory to the Trustee; or
(B) if such Transfer Restricted Security is being
transferred in reliance on another exemption from the
registration requirements of the Securities Act, a certification
to that effect from such Holder in form satisfactory to the
Trustee and an Opinion of Counsel from such Holder or the
transferee reasonably acceptable to the Company and to the Bond
Registrar to the effect that such transfer is in compliance with
the Securities Act.
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SECTION 306. MUTILATED, DESTROYED, LOST AND STOLEN BONDS.
If (i) any mutilated Bond is surrendered to the Trustee at its
Corporate Trust Office, or (ii) the Company and the Trustee receive evidence to
their satisfaction of the destruction, loss or theft of any Bond, and, if
required by the Company or the Trustee, there is delivered to the Company and
the Trustee such security or indemnity as may be sufficient, in their judgment,
to save each of them and any Paying Agent harmless from any loss which they may
suffer if such Bond is replaced as described below, and neither the Company nor
the Trustee receives notice that such Bond has been acquired by a bona fide
purchaser, then the Company shall execute and upon Company Request the Trustee
shall authenticate and deliver, in exchange for or in lieu of any such
mutilated, destroyed, lost or stolen Bond, a new Bond of like Stated Maturity
and with like terms and conditions and like principal amount, bearing a number
not contemporaneously Outstanding.
In case any such mutilated, destroyed, lost or stolen Bond has become
or is about to become due and payable, the Company in its discretion may,
instead of issuing a new Bond, pay the amount due on such Bond in accordance
with its terms.
Upon the issuance of any new Bond under this Section, the Company may
require the payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in respect thereto and any other expenses (including
the fees and expenses of the Trustee) connected therewith.
Every new Bond issued pursuant to this Section shall constitute an
original additional contractual obligation of the Company, whether or not the
mutilated, destroyed, lost or stolen Bond shall be at any time enforceable by
anyone, and shall be entitled to all the benefits of this Indenture equally and
proportionately with any and all other Bonds duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to
the extent lawful) all other rights and remedies with respect to the replacement
or payment of mutilated, destroyed, lost or stolen Bonds.
SECTION 307. PAYMENT OF INTEREST; INTEREST RIGHTS PRESERVED.
(a) Interest on any Bond that is payable and is punctually paid on any
Interest Payment Date shall be paid to the Person in whose name such Bond (or
one or more Predecessor Bonds) is registered at the close of business on the
Record Date immediately preceding such Interest Payment Date notwithstanding the
cancellation of such Bond upon any transfer or exchange subsequent to such
Record Date. Payment of interest on Bonds shall be made at the offices of the
Paying Agent or Paying Agents specified pursuant to SECTION 301 or, at the
option of the Company, by check mailed to the address of the Person entitled
thereto as such address shall appear in the Bond Register or, if provided
pursuant to SECTION 301, by wire transfer to an account designated by the Holder
pursuant to SECTION 301.
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(b) Subject to the foregoing provisions of this Section, each Bond
delivered under this Indenture upon transfer of or in exchange for or in lieu of
any other Bond shall carry the rights to interest accrued and unpaid, and to
accrue, which were carried by such other Bond.
(c) The Company shall give notice to the Trustee of any increase or
decrease in the interest rate on the Bonds as provided in Section 2.1 of the
Registration Rights Agreement.
SECTION 308. CANCELLATION.
Each of the Bond Registrar and Paying Agent shall deliver to the
Trustee any Bonds surrendered to it for transfer, exchange, payment or
conversion. The Company may at any time deliver to the Trustee for cancellation
any Bonds previously authenticated and delivered hereunder that the Company may
have acquired in any manner whatsoever, and may deliver to the Trustee (or to
any other Person for delivery to the Trustee) for cancellation any Bonds
previously authenticated hereunder that the Company has not issued. All Bonds
delivered to the Trustee for transfer, exchange, conversion, payment or
cancellation shall be promptly canceled by the Trustee (and no one else). No
Bonds shall be issued or authenticated in lieu of or in exchange for any Bonds
canceled as provided in this Section, except as expressly permitted by this
Indenture. All canceled Bonds held by the Trustee shall be destroyed by the
Trustee, and the Trustee shall deliver a certificate to such effect to the
Company. The acquisition of any Bonds by the Company shall not operate as a
redemption or satisfaction of the indebtedness represented thereby unless and
until such Bonds are surrendered to the Trustee for cancellation.
SECTION 309. LISTS OF HOLDERS.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
Holders. If the Trustee is not the Bond Registrar, the Company shall furnish to
the Trustee, in writing at least five Business Days before each Interest Payment
Date and at such other times as the Trustee may request in writing, a list in
such form and as of such date as the Trustee may reasonably require of the names
and addresses of Holders.
ARTICLE FOUR
SATISFACTION AND DISCHARGE
SECTION 401. SATISFACTION AND DISCHARGE OF COMPANY'S OBLIGATIONS.
The Company may terminate all of its obligations under this Indenture
and the Bonds (except as to any surviving rights of registration of transfer or
exchange of the Bonds herein expressly provided for and rights to receive
payments of principal (and premium, if any) and interest on the Bonds and except
as provided below) and the Trustee, at the expense of the Company, shall execute
proper instruments acknowledging such termination, when
(1) either
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(A) all Bonds theretofore authenticated and delivered (other than
Bonds that have been destroyed, lost or stolen and which have been
replaced or paid as provided in SECTION 306) have been delivered to
the Trustee for cancellation; or
(B) all Bonds not theretofore delivered to the Trustee for
cancellation,
(i) have become due and payable; or
(ii) will become due and payable in full at their Stated
Maturity within one year;
and the Company, in the case of (i) or (ii) of this subclause
(B), has irrevocably deposited or caused to be deposited with the
Trustee as trust funds in trust for such purpose an amount in
cash sufficient to pay and discharge the entire indebtedness on
such Bonds for principal (and premium, if any) and interest to
the date of such deposit (in the case of Bonds that have become
due and payable) or to the Stated Maturity (the Company hereby
agreeing to promptly notify each Holder of the making of such
deposit);
(2) the Company has paid or caused to be paid all other sums payable
hereunder by the Company; and
(3) the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel each stating that all conditions precedent herein
provided for relating to such termination of the Company's obligations
under this Indenture have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company under SECTIONS 301, 305, 306, 307, 309, 402, 403,
608, 1010, 1011 AND 1015 and in ARTICLE THIRTEEN shall survive until the Bonds
have been paid in full. Thereafter, the Company's obligations under SECTION 608
and the last paragraph of SECTION 1015 shall survive.
SECTION 402. APPLICATION OF TRUST MONEY.
All money deposited with the Trustee pursuant to SECTION 401 shall be
held in trust and applied by it, in accordance with the provisions of the Bonds
and this Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Persons entitled thereto, of the principal (and premium, if
any) and interest for whose payment such money has been deposited with the
Trustee.
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SECTION 403. REINSTATEMENT.
If the Trustee or Paying Agent is unable to apply any money in accordance
with this ARTICLE FOUR by reason of any legal proceeding or by reason of any
order or judgment of any court or governmental authority enjoining, restraining
or otherwise prohibiting such application, the Company's obligations under this
Indenture and the Bonds shall be revived and reinstated as though no deposit had
occurred pursuant to this ARTICLE FOUR until such time as the Trustee or Paying
Agent is permitted to apply all such money in accordance with this ARTICLE FOUR;
provided, however, that if the Company has made any payment of interest (or
premium, if any) on or principal of any Bonds because of the reinstatement of
its obligations, the Company shall be subrogated to the rights of the Holders of
such Bonds to receive such payment from the money held by the Trustee or Paying
Agent.
ARTICLE FIVE
DEFAULTS AND REMEDIES
SECTION 501. EVENT OF DEFAULT.
"Event of Default" wherever used herein means any one of the following
events:
(1) the Company defaults in the payment of interest on any Bond
when the same becomes due and payable and such default continues for a
period of 10 Business Days;
(2) the Company (i) defaults in the payment of principal of (or
premium, if any, on) any Bond when the same becomes due and payable at its
Stated Maturity, upon redemption, upon purchase at the option of the Holder
thereof, upon declaration or otherwise or (ii) fails to redeem or purchase
any Bonds when required pursuant to ARTICLE TWELVE;
(3) the Company fails to comply with any of SECTIONS 801, 802,
1010, 1011, 1102, 1103, 1104, 1105 or 1106 of this Indenture;
(4) the Company fails to comply with any of its other agreements
in this Indenture or any of its agreements in the Bonds, the Securities
Purchase Agreement or the Registration Rights Agreement other than its
agreement in SECTION 1014 and the default continues for the period and
after the notice specified below;
(5) the ratio of Consolidated Operating Cash Flow for the
Company's fiscal year most recently ended to Projected Fixed Charges is
less than 1.25 to 1.0 unless (i) the Company shall have complied with the
other provisions of SECTION 1014 and shall have used its best efforts to
implement the recommendations of the Consultant referred to in such Section
and (ii) the ratio of Consolidated Operating Cash Flow for the Company's
fiscal year most recently ended to Projected Fixed Charges is not less than
1.0 to 1.0;
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(6) the ratio of Consolidated Operating Cash Flow for the
Company's fiscal year most recently ended to Projected Fixed Charges is
less than 1.0 to 1.0;
(7) any representation or warranty made by the Company herein or
in the Bonds, the Securities Purchase Agreement or the Registration Rights
Agreement or by the Company or any of its officers in writing furnished to
the Trustee or any Holder in connection with or pursuant to this Indenture,
the Bonds, the Securities Purchase Agreement or the Registration Rights
Agreement shall have been false in any material respect on the date as of
which made and shall continue to be false 30 days after the Company
receives notice thereof;
(8) the Company or any Material Subsidiary pursuant to or within
the meaning of any Bankruptcy Law:
(A) commences a voluntary case relating to the Company or any
Material Subsidiary;
(B) consents to the entry of an order for relief against it
in an involuntary case;
(C) petitions or applies to any tribunal for, or consents to,
the appointment of, or taking possession by, a trustee, receiver,
custodian, liquidator or similar official of the Company or any Material
Subsidiary, or of any substantial part of the property of the Company or
any Material Subsidiary; or
(D) makes a general assignment for the benefit of its
creditors;
(9) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that:
(A) is for relief against the Company or any Material
Subsidiary in an involuntary case and the order or decree remains unstayed
and in effect for 30 days;
(B) appoints a trustee, receiver, custodian, liquidator or
similar official of the Company or any Material Subsidiary or for all or
any substantial part of the property of the Company or any Material
Subsidiary and the order or decree remains unstayed and in effect for 60
days; or
(C) orders the dissolution, winding up or liquidation of the
Company and the order or decree remains unstayed and in effect for 60 days;
(10) the Company or any Material Subsidiary defaults, beyond any
applicable grace period, in any payment of (i) principal of (or premium, if
any) or interest on any Indebtedness the principal amount of which
Indebtedness exceeds
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$500,000 or (ii) any amounts payable under any Financial Contract to which
the Company or any Material Subsidiary is a party in excess of $500,000;
(11) any judgment, order or decree for the payment of money in
excess of $500,000 shall be rendered against the Company or any Subsidiary,
shall not be fully covered by insurance and the insurer shall not have
admitted liability with respect thereto, and within 30 days after entry
thereof (or such shorter period ending one day prior to the date on which
the judgment creditor could attach assets of the Company or such
Subsidiary) such judgment, order or decree is not discharged or waived or
the execution thereof stayed; and
(12) any material provision of the Indenture or of any of the
Bonds is found or held by any arbitrator or court to be invalid, illegal or
unenforceable in any jurisdiction and for any reason.
A default under clause (4) shall not be an Event of Default until
Holders of at least 25% in principal amount of the Outstanding Bonds notify the
Company of the Default and the Company does not cure the Default within 30 days
after receipt of such notice. Any such notice must specify the Default, demand
that it be remedied and state that the notice is a "Notice of Default." If the
Holders of at least 25% in principal amount of the Outstanding Bonds request the
Trustee to give such notice on their behalf, the Trustee shall do so.
The Company shall deliver to the Trustee, within 30 days after the
occurrence thereof, written notice in the form of an Officers' Certificate of
any event that with the giving of notice or the lapse of time or both would
become an Event of Default under clause (4), (7), (10) or (11), its status and
what action the Company is taking or proposes to take with respect thereto.
SECTION 502. ACCELERATION.
(a) If an Event of Default occurs under clauses (8) or (9) of SECTION
501, then the principal of (and premium, if any) and the accrued interest on all
the Bonds shall become and be due and payable immediately without any
declaration or other act on the part of the Trustee or any Holders; and the
Company will pay to the Trustee, for the benefit of the Holders of such Bonds,
the amount then due and payable on such Bonds for principal (and premium, if
any) and interest, if any, and, in addition thereto, such further amount as
shall be sufficient to cover the costs and expenses of collection, including the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel.
(b) If an Event of Default occurs under clauses (1) or (2) of SECTION
501, the Holder of any Bonds (other than the Company or any of its Affiliates)
may at its option, by notice to the Company, declare the principal of (and
premium, if any) and accrued interest on all such Bonds to be due and payable
immediately. Upon such declaration, such principal, premium and interest shall
be due and payable immediately.
(c) If any other Event of Default occurs and is continuing, the
Trustee by notice to the Company may, and the Trustee upon the request of the
Holders of at least 25% in principal amount of the Outstanding Bonds shall, or
the Holders of at least 25% in principal
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amount of the Outstanding Bonds by notice to the Trustee may, declare the
principal of (and premium, if any) and accrued interest on all the Bonds to be
due and payable immediately. Upon such declaration such principal (and premium,
if any) and interest shall be due and payable immediately.
(d) If the Company fails to pay any such amounts forthwith
immediately or upon such demand, the Trustee, in its own name and as trustee of
an express trust, may institute a judicial proceeding for the collection of the
sums so due and unpaid, and may prosecute such proceeding to judgment or final
decree, and may enforce the same against the Company or any other obligor upon
such Bonds, and collect the moneys adjudged or decreed to be payable in the
manner provided by law out of the property of the Company or any other obligor
upon such Bonds wherever situated.
(e) The Holders of a majority in principal amount of the Outstanding
Bonds may, by notice to the Trustee, rescind an acceleration pursuant to
subsection (a) or (c) of this SECTION 502 and its consequences if all existing
Events of Default have been cured or waived, except nonpayment of principal,
premium or interest that has become due solely because of the acceleration, and
if the rescission would not conflict with any judgment or decree. No such
rescission shall affect any subsequent Default or Event of Default or impair any
right consequent thereto.
SECTION 503. OTHER REMEDIES.
If an Event of Default occurs and is continuing, the Trustee may in
its discretion pursue any available remedy to collect the payment of principal
(or premium, if any) of or interest on the Bonds or to enforce the performance
of any provision of the Bonds or this Indenture, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein, or to enforce any other available remedy.
SECTION 504. WAIVER OF EXISTING DEFAULTS.
Subject to SECTIONS 510 and 902, Holders of a majority in principal
amount of the Outstanding Bonds may, by notice to the Trustee, waive an existing
Default and its consequences other than a Default in the payment of principal of
(or premium, if any) or interest on any Bond. When a Default is waived, it is
deemed cured, but no such waiver shall extend to any subsequent or other Default
or Event of Default or impair any consequent right.
SECTION 505. CONTROL BY MAJORITY.
Holders of a majority in principal amount of Outstanding Bonds may, by
notice to the Trustee, direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or of exercising any trust or
power conferred on the Trustee. However, the Trustee may refuse to follow any
direction that conflicts with law or this Indenture or, subject to SECTION 601,
that the Trustee determines is unduly prejudicial to the rights of other Holders
or would involve the Trustee in personal liability; provided, however, that the
Trustee may take any other action deemed proper by the Trustee that is not
inconsistent with such direction. Prior to taking any action hereunder, the
Trustee shall be entitled to indemnification
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reasonably satisfactory to it against all losses and expenses caused by taking
or not taking such action. Notwithstanding the preceding provisions of this
SECTION 505, if an "Event of Default" occurs under clause (1) or (2) of SECTION
501, the Holder of any Bonds that exercises its right to accelerate the maturity
of said Bonds may proceed to enforce its remedies with or without the Holders of
any other Bonds at the time and place and in the manner determined by such
Holder in its sole discretion.
SECTION 506. TRUSTEE MAY FILE PROOFS OF CLAIM.
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceedings, or any voluntary or involuntary case under any Bankruptcy
Law, as now or hereafter constituted, relative to the Company or any other
obligor upon the Bonds, or the property of the Company or of such other obligor,
or any of their creditors, the Trustee (irrespective of whether the principal of
such Bonds shall then be due and payable as therein expressed or by declaration
of acceleration or otherwise and irrespective of whether the Trustee shall have
made any demand on the Company for the payment of overdue principal (or premium,
if any) or interest) shall be entitled and empowered, by intervention in such
proceeding or otherwise:
(i) to file and prove a claim for the whole amount of principal
(and premium, if any) and interest owing and unpaid in respect of the Bonds
and to file such other papers or documents as may be necessary or advisable
in order to have the claims of the Trustee (including any claim for the
reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel) and of the Holders of such Bonds allowed
in such judicial proceeding; and
(ii) to collect and receive any moneys or other property payable
or deliverable on any such claims and to distribute the same;
and any receiver, assignee, trustee, custodian, liquidator, sequestrator or
other similar official in any such proceeding is hereby authorized by each such
Holder to make such payments to the Trustee, and in the event that the Trustee
shall consent to the making of such payments directly to such Holders, to pay to
the Trustee any amount due it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under SECTION 608.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Bonds or
the rights of any Holder thereof, or to authorize the Trustee to vote in respect
of the claim of any Holder in any such proceeding.
SECTION 507. TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF BONDS.
All rights of action and claims under this Indenture or the Bonds may
be prosecuted and enforced by the Trustee without the possession of any of the
Bonds or the production thereof in any proceeding relating thereto, and any such
proceeding instituted by the Trustee shall be brought in its own name, as
trustee of an express trust, and any recovery of
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judgment shall, after provision for the payment of the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel, be
for the ratable benefit of the Holders of the Bonds in respect of which such
judgment has been recovered.
SECTION 508. APPLICATION OF MONEY COLLECTED.
Any money collected by the Trustee pursuant to this Article shall be
applied in the following order and, in case of the distribution of such money on
account of principal (and premium, if any) or interest, upon presentation of the
Bonds in respect of which money has been collected and the notation thereon of
the payment if only partially paid and upon surrender thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee under SECTION
608;
SECOND: To the payment of the amounts then due and unpaid for
principal of (and premium, if any) and interest on the Bonds, in respect of
which or for the benefit of which such money has been collected, ratably,
without preference or priority of any kind, according to the amounts due
and payable on such Bonds for principal (and premium, if any) and interest,
respectively; and
THIRD: The balance, if any, to the Person or Persons entitled
thereto.
The Trustee may fix a record date and payment date for any payment to
Holders pursuant to this Section. At least 15 days before such record date, the
Trustee shall, at the expense of the Company, mail to each Holder a notice that
states the record date, the payment date and the amount to be paid.
SECTION 509. LIMITATION ON SUITS.
No Holder of any Bond shall have any right to institute any
proceeding, judicial or otherwise, with respect to this Indenture, or for the
appointment of a receiver or trustee, or for any other remedy hereunder, unless:
(1) such Holder has previously given written notice to the Trustee of
a continuing Event of Default with respect to the Bonds;
(2) the Holders of not less than 25% in principal amount of the
Outstanding Bonds shall have made written request to the Trustee to
institute such proceeding in respect of such Event of Default in its own
name as Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee indemnity
satisfactory to it against the costs, expenses and liabilities to be
incurred in compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice, request
and offer of indemnity has failed to institute such proceeding; and
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(5) no direction inconsistent with such written request has been given
to the Trustee during such 60-day period by the Holders of a majority in
principal amount of the Outstanding Bonds;
it being understood and intended that no one or more of the Holders shall have
any right in any manner whatever by virtue of, or by availing of, any provision
of this Indenture to affect, disturb or prejudice the rights of any other the
Holders, or to obtain or to seek to obtain priority or preference over any other
of the Holders or to enforce any right under this Indenture, except in the
manner herein provided and for the equal and ratable benefit of all of the
Holders.
SECTION 510. UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE PRINCIPAL, PREMIUM AND
INTEREST.
Notwithstanding any other provision in this Indenture, the Holder of
any Bond shall have the right, which is absolute and unconditional, to receive
payment of the principal of (and premium, if any) and (subject to SECTION 307)
interest on such Bond on the respective Stated Maturity or Maturities expressed
in such Bond (or, in the case of redemption or purchase, on the Redemption Date
or Purchase Date, as the case may be) and to institute suit for the enforcement
of any such payment and interest thereon, and such right shall not be impaired
or affected without the consent of such Holder.
Notwithstanding any other provision of this Indenture, the right of
any Holder to institute suit for the enforcement of its right to convert any
Bonds shall not be affected or impaired without the consent of such Holder.
SECTION 511. RESTORATION OF RIGHTS AND REMEDIES.
If the Trustee or any Holder has instituted any proceeding to enforce
any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Holder, then and in every such case the Company, the
Trustee and the Holders shall, subject to any determination in such proceeding,
be restored severally and respectively to their former positions hereunder, and
thereafter all rights and remedies of the Trustee and the Holders shall continue
as though no such proceeding had been instituted.
SECTION 512. RIGHTS AND REMEDIES CUMULATIVE.
Except as otherwise expressly provided elsewhere in this Indenture, no
right or remedy herein conferred upon or reserved to the Trustee or to the
Holders, or any of them, is intended to be exclusive of any other right or
remedy, and every right and remedy shall, to the fullest extent permitted by
law, be cumulative and in addition to every other right and remedy given
hereunder or now or hereafter existing at law or in equity or otherwise. The
assertion or employment of any right or remedy hereunder, or otherwise, shall
not prevent the concurrent assertion or employment of any other right or remedy.
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SECTION 513. DELAY OR OMISSION NOT WAIVER.
No delay or omission of the Trustee or of any Holder to exercise any
right or remedy accruing upon any Event of Default shall impair any such right
or remedy or constitute a waiver of any such Event of Default or any
acquiescence therein. Every right and remedy given by this Indenture or by law
to the Trustee or to the Holders , or any of them, may be exercised from time to
time, and as often as may be deemed expedient, by the Trustee or by the Holders,
or any of them, as the case may be.
SECTION 514. UNDERTAKING FOR COSTS.
All parties to this Indenture agree, and each Holder of any Bond by
its acceptance thereof shall be deemed to have agreed, that any court may in its
discretion require, in any suit for the enforcement of any right or remedy under
this Indenture, or in any suit against the Trustee for any action taken,
suffered or omitted by it as Trustee, the filing by any party litigant in such
suit other than the Trustee of an undertaking to pay the costs of such suit, and
that such court may in its discretion assess reasonable costs, including
reasonable attorneys' fees, against any party litigant in such suit, having due
regard to the merits and good faith of the claims or defenses made by such party
litigant; but the provisions of this Section shall not apply to any suit
instituted by the Trustee, to any suit instituted by any Holder or group of
Holders holding in the aggregate more than 10% in principal amount of the
Outstanding Bonds, or to any suit instituted by any Holder of a Bond for the
enforcement of the payment of the principal of (or premium, if any) or interest
on such Bond on or after the respective Stated Maturity or Maturities expressed
in such Bond (or, in the case of redemption or purchase, on or after the
Redemption Date or the Purchase Date, as the case may be).
ARTICLE SIX
THE TRUSTEE
SECTION 601. CERTAIN DUTIES AND RESPONSIBILITIES.
(a) Except during the continuance of an Event of Default,
(1) the Trustee undertakes to perform such duties as are specifically
set forth in this Indenture, and the Trustee need perform only those duties
that are specifically set forth in this Indenture and no others, and no
implied covenants or obligations shall be read into this Indenture against
the Trustee; and
(2) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon certificates or opinions furnished to
the Trustee and conforming to the requirements of this Indenture; but in
the case of any such certificates or opinions which by any provisions
hereof are specifically required to be furnished to the Trustee, the
Trustee shall be under a duty to examine the same to determine whether they
conform to the requirements of this Indenture.
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(b) In case an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in its exercise, as a
prudent person would exercise or use under the circumstances in the conduct of
such person's own affairs.
(c) No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act or its own willful misconduct, provided that
(1) this subsection shall not be construed to limit the effect of
subsection (a) of this Section;
(2) the Trustee shall not be liable for any error of judgment made in
good faith by a Responsible Officer, unless it shall be proved that the
Trustee was negligent in ascertaining the pertinent facts;
(3) the Trustee shall not be liable with respect to any action taken,
suffered or omitted to be taken by it with respect to the Bonds in good
faith in accordance with a direction received by it pursuant to SECTION
505; and
(4) the Trustee shall not be required to expend or risk its own funds
or otherwise incur any liability in the performance of any of its duties
hereunder, or in the exercise of any of its rights or powers, if it shall
have grounds for believing that repayment of such funds or indemnity,
reasonably satisfactory to it, against such risk or liability is not
reasonably assured to it.
(d) Whether or not herein expressly so provided, every provision of
this Indenture relating to the conduct of or affecting the liability of or
affording protection to the Trustee shall be subject to the provisions of this
SECTION 601 and to the provisions of the Trust Indenture Act.
SECTION 602. NOTICE OF DEFAULTS.
Within 30 days after the occurrence and continuation of any Default
that is known to the Trustee, the Trustee shall give notice to all Holders of
such Default unless such Default shall have been cured or waived; provided,
however, that, except in the case of a default in the payment of the principal
of (or premium, if any) or interest on any Bond, the Trustee shall be protected
in withholding such notice if and so long as the board of directors, the
executive committee or a trust committee of directors and/or Responsible
Officers of the Trustee in good faith determine that the withholding of such
notice is in the interest of the Holders.
Notice given pursuant to this SECTION 602 shall be transmitted by
mail:
(1) to all Holders, as the names and addresses of the Holders appear
in the Bond Register; and
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(2) to each Holder of a Bond whose name and address appear in the
information preserved at the time by the Trustee in accordance with either
of this Indenture or the Trust Indenture Act.
SECTION 603. REPORTS BY TRUSTEE TO HOLDERS.
If required by Section 313 (a) of the Trust Indenture Act, within 60
days after May 15 of any year, commencing the May 15 following the date of this
Indenture, the Trustee shall mail to each Holder a brief report dated as of such
May 15 that complies with Section 313(a) of the Trust Indenture Act. The
Trustee shall also comply with Section 313(b)(2) of the Trust Indenture Act.
The Trustee shall also transmit by mail all reports as required by Section
313(c) and Section 313(d) of the Trust Indenture Act.
Reports pursuant to this Section shall be transmitted by mail:
(1) to all registered Holders, as the names and addresses of such
Holders appear on the Bond Registrar's books;
(2) to such Holders as have, within the two years preceding such
transmission, filed their names and addresses with the Trustee for that purpose;
and
(3) except in the case of reports pursuant to Section 313(b) of the
Trust Indenture Act, to each Holder of Bonds whose name and address is preserved
at the time by the Trustee in accordance with either of this Indenture or the
Trust Indenture Act.
A copy of each report at the time of its mailing to Holders shall be
filed with the Commission and each national securities exchange or over-the-
counter system on which the Bonds are listed or traded. The Company shall
notify the Trustee when the Bonds are listed or traded on any national
securities exchange or over-the-counter market.
SECTION 604. CERTAIN RIGHTS OF TRUSTEE.
Except as otherwise provided in the Trust Indenture Act:
(a) the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note or other paper or document believed by it to be
genuine and to have been signed or presented by the proper party or parties
and the Trustee need not investigate any fact or matter stated therein;
(b) any request or direction of the Company mentioned herein shall be
sufficiently evidenced by a Company Request or Company Order and any
resolution of the Board of Directors shall be sufficiently evidenced by a
Board Resolution;
(c) whenever in the administration of this Indenture the Trustee shall
deem it desirable that a matter be proved or established prior to taking,
suffering or omitting any action hereunder, the Trustee may require an
Officers' Certificate or an Opinion of
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Counsel and (unless other evidence be herein specifically described) may
rely upon such Officers' Certificate or Opinion of Counsel and shall not be
liable for any action it takes or omits to take in reliance in good faith
on such Officers' Certificate or Opinion of Counsel, provided that the
Trustee shall have examined the same to the extent and as required by
SECTION 601;
(d) the Trustee may consult with counsel and the advice of such
counsel or any opinion of counsel shall be full and complete authorization
and protection from liability in respect of any action taken, suffered or
omitted by it hereunder in good faith and in reliance thereon;
(e) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction
of any of the Holders pursuant to this Indenture, unless such Holders shall
have offered to the Trustee security or indemnity reasonably satisfactory
to it against the costs, expenses and liabilities that might be incurred by
it in compliance with such request or direction;
(f) the Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, other evidence of indebtedness or other paper or
document, but the Trustee, in its discretion, may make such further inquiry
or investigation into such facts or matters as it may see fit, and, if the
Trustee shall determine to make such further inquiry or investigation, it
shall be entitled to examine the books, records and premises of the
Company, personally or by agent or attorney;
(g) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by
it;
(h) the permissive right of the Trustee to do things enumerated in
this Indenture shall not be construed as a duty;
(i) the Trustee shall not be liable for any action it takes or omits
to take in good faith that it believes to be authorized or within the rights or
powers conferred upon it by this Indenture; and
(j) unless otherwise specifically provided in this Indenture, any
demand, request, direction or notice from the Company shall be sufficient if
signed by an officer of the Company.
SECTION 605. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF BONDS.
The recitals and statements contained herein and in the Bonds and in
any document in connection with the sale of the Bonds, except the Trustee's
certificates of authentication, shall be taken as the statements of the Company,
and the Trustee assumes no
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responsibility for their correctness. The Trustee makes no representations as
to the validity or sufficiency of this Indenture or of the Bonds. The Trustee
shall not be accountable for the use or application by the Company of the
proceeds of the Bonds or the application of any money received by any Paying
Agent other than the Trustee.
SECTION 606. MAY HOLD BONDS.
The Trustee, any Paying Agent, the Bond Registrar or any other agent
of the Company, in its individual or any other capacity, may become the owner or
pledgee of Bonds, and, subject to any incorporated provisions of the Trust
Indenture Act, may otherwise deal with the Company with the same rights it would
have if it were not the Trustee, Paying Agent, Bond Registrar or such other
agent.
SECTION 607. MONEY HELD IN TRUST.
Money held by the Trustee or any Paying Agent (other than the Company
or any of its Affiliates) in trust hereunder need not be segregated from other
funds except to the extent required by law. Neither the Trustee nor any such
Paying Agent shall be under any liability for interest on any money received by
it hereunder except as otherwise agreed in writing with the Company.
SECTION 608. COMPENSATION, INDEMNIFICATION AND REIMBURSEMENT.
The Company agrees:
(1) to pay to the Trustee from time to time reasonable compensation in
Dollars for its acceptance of this Indenture and for all services rendered
by it hereunder (which compensation shall not be limited by any provision
of law in regard to the compensation of a trustee of an express trust);
(2) except as otherwise expressly provided herein, to reimburse the
Trustee in Dollars upon its request for all reasonable expenses,
disbursements and advances incurred or made by the Trustee in accordance
with any provision of this Indenture (including the reasonable compensation
and the expenses and disbursements of its agents and counsel); and
(3) to indemnify in Dollars the Trustee for, and to hold it harmless
against, any loss, liability or expense incurred by it without negligence
or bad faith on its part arising out of or in connection with the
acceptance or administration of this trust or performance of its duties
hereunder, including the costs and expenses of defending itself against any
claim or liability in connection with the exercise or performance of any of
its powers or duties hereunder.
The obligations of the Company under this SECTION 608 shall survive
the satisfaction and discharge of this Indenture.
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To secure the Company's payment obligations in this Section, the
Trustee shall have a Lien prior to the Bonds on all money or property held or
collected by the Trustee, except that held in trust to pay principal of (or
premium, if any) or interest on particular Bonds. Such Lien shall survive the
satisfaction and discharge of this Indenture.
SECTION 609. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR.
(a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee under SECTION 610.
(b) The Trustee may resign at any time by giving written notice
thereof to the Company. If an instrument of acceptance by a successor Trustee
shall not have been delivered to the Trustee within 30 days after the giving of
such notice of resignation, the resigning Trustee may petition any court of
competent jurisdiction for the appointment of a successor Trustee with respect
to the Bonds.
(c) The Trustee may be removed at any time and a successor Trustee
appointed by Act of the Holders of a majority in principal amount of the
Outstanding Bonds, delivered to the Trustee and to the Company.
(d) If at any time:
(1) the Trustee shall fail to comply with Section 310(b) of the Trust
Indenture Act with respect to the Bonds after written request therefor by
the Company or by any Holder; or
(2) the Trustee shall cease to be eligible under Section 310(a) of the
Trust Indenture Act and shall fail to resign after written request therefor
by the Company or by any Holder or shall cease to be eligible under
subsection (h) of this Section; or
(3) the Trustee shall become incapable of acting or shall be adjudged
a bankrupt or insolvent or a receiver of the Trustee or of its property
shall be appointed or any public officer shall take charge or control of
the Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation;
then, in any such case, (i) the Company by a Board Resolution may remove the
Trustee, or (ii) subject to SECTION 514, any Holder may, on behalf of itself and
all others similarly situated, petition any court of competent jurisdiction for
the removal of the Trustee and the appointment of a successor Trustee.
(e) If the Trustee shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of Trustee for any reason, the
Company, by a Board Resolution, shall promptly appoint a successor Trustee. If,
within 60 days after such resignation, removal or incapability, or the
occurrence of such vacancy, the successor Trustee appointed by the Company does
not take office, the Company or the Holders of a majority in principal amount of
the Outstanding Bonds may appoint a successor Trustee. If a successor
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Trustee shall be appointed by an Act of the Holders of a majority in principal
amount of the Outstanding Bonds delivered to the Company and to the retiring
Trustee, the successor Trustee so appointed shall, forthwith upon its acceptance
of such appointment, become the successor Trustee and to that extent supersede
the successor Trustee appointed by the Company. If no successor Trustee shall
have been so appointed by the Company or the Holders and accepted appointment in
the manner hereinafter provided, any Holder may, subject to SECTION 514, on
behalf of such Holder and all others similarly situated, petition any court of
competent jurisdiction for the appointment of a successor Trustee.
(f) The Company shall give prompt notice of each resignation and each
removal of the Trustee and each appointment of a successor Trustee in the manner
provided in SECTION 105 to each Holder. Each notice shall include the name of
the successor Trustee and the address of its Corporate Trust Office.
(g) If the Trustee has or shall acquire any conflicting interest
within the meaning of the Trust Indenture Act, it shall either eliminate such
conflicting interest or resign in the manner provided by, and subject to the
provisions of, the Trust Indenture Act and this Indenture, and the Company shall
take prompt action to have a successor Trustee appointed in the manner provided
herein.
(h) There shall at all times be a Trustee hereunder, which shall be a
Person that is eligible pursuant to the Trust Indenture Act to act as such,
having a combined capital and surplus of at least $50,000,000, subject to
supervision or examination by federal or state authority and having its
Corporate Trust Office in New York, New York. If such corporation publishes
reports of condition at least annually, pursuant to law or the requirements of
said supervising or examining authority, then for the purposes of this Section,
the combined capital and surplus of such corporation shall be deemed to be its
combined capital and surplus as set forth in its most recent report of condition
so published. If at any time the Trustee shall cease to be eligible in
accordance with the provisions of this Section, it shall resign immediately in
the manner and with the effect hereinafter specified in this Article.
Notwithstanding replacement of the Trustee pursuant to this SECTION 609, the
Company's obligations under SECTION 608 shall continue for the benefit of the
retiring Trustee.
SECTION 610. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR.
(a) In the case of an appointment hereunder of a successor Trustee,
each such successor Trustee so appointed shall execute, acknowledge and deliver
to the Company and to the retiring Trustee an instrument accepting such
appointment, and thereupon the resignation or removal of the retiring Trustee
shall become effective and such successor Trustee, without any further act, deed
or conveyance, shall become vested with all the rights, powers, trusts and
duties of the retiring Trustee under this Indenture; but, on request of the
Company or the successor Trustee, such retiring Trustee shall, upon payment of
its charges, execute and deliver an instrument transferring to such successor
Trustee all the rights, powers and trusts of the retiring Trustee, and shall
duly assign, transfer and deliver to such successor Trustee all property and
money held by such retiring Trustee hereunder, subject nevertheless to any Lien
and claim provided for in SECTION 608.
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(b) No successor Trustee shall accept its appointment unless at the
time of such acceptance such successor Trustee shall be qualified and eligible
under this Article.
SECTION 611. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS.
Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all of the corporate trust
business of the Trustee, shall be the successor of the Trustee hereunder,
provided that such corporation shall be otherwise qualified and eligible under
this Article, without the execution or filing of any paper or any further act on
the part of any of the parties hereto. In case any Bonds shall have been
authenticated, but not delivered, by the Trustee then in office, any successor
by merger, conversion or consolidation to such authenticating Trustee may adopt
such authentication and deliver the Bonds so authenticated with the same effect
as if such successor Trustee had itself authenticated such Bonds. In case any
Bonds shall not have been authenticated by such predecessor Trustee, any such
successor Trustee may authenticate and deliver such Bonds, in either its own
name or that of its predecessor Trustee, with the full force and effect which
this Indenture provides for the certificate of authentication of the Trustee.
SECTION 612. APPOINTMENT OF AUTHENTICATING AGENT.
As long as any Bonds remain Outstanding, upon a Company Request, there
shall be an authenticating agent (the "Authenticating Agent") appointed by the
Trustee to act as its agent on its behalf and subject to its direction in
connection with the authentication and delivery of the Bonds. Bonds
authenticated by such Authenticating Agent shall be entitled to the benefits of
this Indenture and shall be valid and obligatory for all purposes as if
authenticated by such Trustee. Wherever reference is made in this Indenture to
the authentication and delivery of Bonds by the Trustee or to the Trustee's
certificate of authentication, such reference shall be deemed to include
authentication and delivery on behalf of the Trustee by an Authenticating Agent
and a Certificate of Authentication executed on behalf of such Trustee by such
Authenticating Agent except that only the Trustee may authenticate Bonds upon
original issuance and pursuant to SECTION 306 hereof. Such Authenticating Agent
shall at all times be a corporation organized and doing business under the laws
of the United States of America or of any State, authorized under such laws to
exercise corporate trust powers, having a combined capital and surplus of at
least $25,000,000 and subject to supervision or examination by federal or state
authority. If such Authenticating Agent publishes reports of condition at least
annually, pursuant to law or to the requirements of said supervising or
examining authority, then for purposes of this Section, the combined capital and
surplus of such Authenticating Agent shall be deemed to be its combined capital
and surplus as set forth in its most recent report of condition so published.
If at any time an Authenticating Agent shall cease to be eligible in accordance
with the provisions of this Section, such Authenticating Agent shall resign
immediately in the manner and with the effect specified in this Section.
Any corporation into which any Authenticating Agent may be merged or
converted, or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which any Authenticating Agent
shall be a party, or any
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corporation succeeding to the corporate agency business of any Authenticating
Agent, shall continue to be the Authenticating Agent without the execution or
filing of any paper or any further act on the part of the Trustee or such
Authenticating Agent. Any Authenticating Agent may resign at any time, and if
it shall cease to be eligible in accordance with the provisions of this Section
shall resign immediately, by giving written notice of resignation to the
applicable Trustee and to the Company.
Upon receiving such a notice of resignation or upon such a
termination, the Trustee shall appoint a successor Authenticating Agent, and the
Company shall provide notice of such appointment to all Holders of Bonds in the
manner provided in SECTION 105. Any successor Authenticating Agent upon
acceptance of its appointment hereunder shall become vested with all rights,
powers, duties and responsibilities of its predecessor hereunder, with like
effect as if originally named as Authenticating Agent herein. The Trustee for
the Bonds agrees to pay to the Authenticating Agent from time to time reasonable
compensation for its services, and the Trustee shall be entitled to be
reimbursed for such payment, subject to the provisions of SECTION 608. The
Authenticating Agent for the Bonds shall have no responsibility or liability for
any action taken by it as such at the direction of the Trustee.
If an appointment is made pursuant to this Section, the Bonds may have
endorsed thereon, in addition to the Trustee's certificate of authentication, an
alternative certificate of authentication in the following form:
This is one of the Bonds issued under the within mentioned Indenture.
--------------------------------,
as Trustee
By
------------------------------
As Authenticating Agent
By
------------------------------
Authorized Signatory
SECTION 613. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY.
If and when the Trustee becomes a creditor of the Company, the Trustee
shall be subject to the provisions of the Trust Indenture Act regarding the
collection of claims against the Company. A Trustee that has resigned or been
removed is subject to such provisions of the Trust Indenture Act to the extent
provided therein.
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ARTICLE SEVEN
CONCERNING THE HOLDERS
SECTION 701. ACTS OF HOLDERS.
Any request, demand, authorization, direction, notice, consent, waiver
or other action provided by this Indenture to be given or taken by Holders may
be embodied in and evidenced by one or more instruments of substantially similar
tenor signed by such Holders in person or by an agent or proxy duly appointed in
writing; and, except as herein otherwise expressly provided, such action shall
become effective when such instrument or instruments are delivered to the
Trustee, and, where it is hereby expressly required, to the Company or such
instrument or instruments become effective in accordance with their terms,
whichever is later. Such instrument or instruments (and the action embodied
therein and evidenced thereby) are herein sometimes referred to as the "Act" of
the Holders signing such instrument or instruments. Whenever in this Indenture
it is provided that the Holders of a specified percentage in aggregate principal
amount of the Outstanding Bonds may take any Act, the fact that the Holders of
such specified percentage have joined therein may be evidenced by the instrument
or instruments executed by Holders in person or by agent or proxy appointed in
writing.
SECTION 702. PROOF OF OWNERSHIP; PROOF OF EXECUTION OF INSTRUMENTS BY HOLDERS.
The ownership of Bonds shall be proved by the Bond Register or by a
certificate of the Bond Registrar.
Subject to the provisions of SECTION 604, proof of the execution of a
writing appointing an agent or proxy and of the execution of any instrument by a
Holder or its agent or proxy shall be sufficient and conclusive in favor of the
Trustee and the Company if made in the following manner: The fact and date of
the execution by any such person of any instrument may be proved by the
certificate of any notary public or other officer authorized to take
acknowledgement of deeds, that the person executing such instrument acknowledged
to such officer the execution thereof, or by an affidavit of a witness to such
execution sworn to before any such notary or other such officer. Where such
execution is by an officer of a corporation or association or a member of a
partnership on behalf of such corporation, association or partnership, as the
case may be, or by any other person acting in a representative capacity, such
certificate or affidavit shall also constitute sufficient proof of such person's
authority.
The Trustee may in any instance require further proof with respect to
any of the matters referred to in this Section so long as the request is a
reasonable one.
SECTION 703. PERSONS DEEMED OWNERS.
The Company, the Trustee and any agent of the Company or the Trustee
may treat the Person in whose name any Bond is registered as the owner of such
Bond for the purpose of receiving payment of the principal of (and premium, if
any) and (subject to SECTION 307) interest, if any, on such Bond and for all
other purposes whatsoever, whether or not such Bond be overdue, and neither the
Company, the Trustee nor any agent of the Company or the
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Trustee shall be affected by notice to the contrary. All payments made to any
Holder, or upon its order, shall be valid and, to the extent of the sum or sums
paid, effectual to satisfy and discharge the liability for the moneys so paid
upon such Bond.
SECTION 704. REVOCATION OF CONSENTS; FUTURE HOLDERS BOUND.
At any time prior to (but not after) any Act by the Holders of the
percentage in aggregate principal amount of the Outstanding Bonds specified in
this Indenture in connection with such Act becomes effective, as provided in
SECTION 701, any Holder of a Bond the number, letter or other distinguishing
symbol of which is shown by the evidence to be included in the Bonds the Holders
of which have consented to such Act may, by filing written notice with the
Trustee at the Corporate Trust Office and upon proof of ownership as provided in
SECTION 702, revoke such Act so far as it concerns such Bond. Except as
aforesaid, any such Act taken by the Holder of any Bond shall be conclusive and
binding upon such Holder and upon all future Holders of such Bond and of any
Bonds issued on transfer or in lieu thereof or in exchange or substitution
therefor, irrespective of whether or not any notation in regard thereto is made
upon such Bond or such other Bonds.
ARTICLE EIGHT
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
SECTION 801. COMPANY MAY CONSOLIDATE, ETC., ONLY ON CERTAIN TERMS.
The Company shall not consolidate or merge with or into any other
Person or convey, transfer or lease its properties and assets substantially as
an entirety to any Person, unless:
(1) the Person formed by such consolidation or surviving such merger
(if not the Company) or the Person that acquires by conveyance or transfer,
or that leases, the properties and assets of the Company substantially as
an entirety (the "successor corporation") shall be a corporation organized
and existing under the laws of the United States of America or any state
thereof or the District of Columbia and shall expressly assume, by an
indenture supplemental hereto, executed and delivered to the Trustee, in
form satisfactory to the Trustee, the due and punctual payment of the
principal of (and premium, if any) and interest on all the Bonds and the
performance and observance of every covenant and other obligation of this
Indenture and the Bonds on the part of the Company to be performed or
observed;
(2) immediately after giving effect to such transaction (and treating
any Indebtedness that becomes an obligation of the successor corporation or
any Subsidiary as a result of such transaction as having been incurred by
such corporation or such Subsidiary at the time of such transaction), no
Default or Event of Default shall have happened and be continuing;
(3) if, as a result of any such consolidation or merger or such
conveyance, transfer or lease, properties or assets of the Company would
become subject to a
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mortgage, pledge, lien, security interest or other encumbrance that would
not be permitted by this Indenture, the Company or such successor
corporation shall take such steps as shall be necessary effectively to
secure all Bonds equally and ratably with (or prior to) all Indebtedness
secured thereby; and
(4) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel each stating that such consolidation,
merger, conveyance, transfer or lease and such supplemental indenture (if
any) comply with this Indenture and that all conditions precedent herein
provided for relating to such transaction have been complied with.
SECTION 802. SUCCESSOR CORPORATION SUBSTITUTED.
Upon any consolidation with or merger into any other corporation or any
conveyance or transfer or lease of the properties and assets of the Company
substantially as an entirety in accordance with SECTION 801, the successor
corporation formed by such consolidation or into which the Company is merged or
to which such conveyance, transfer or lease is made shall succeed to, and be
substituted for, and may exercise every right and power of, the Company under
this Indenture with the same effect as if such successor corporation had been
named as the Company herein, and thereafter the predecessor corporation shall be
relieved of all obligations and covenants under this Indenture and the Bonds.
Nothing in this ARTICLE EIGHT shall be deemed to affect the rights of any
Holder under SECTION 1207.
ARTICLE NINE
SUPPLEMENTAL INDENTURES
SECTION 901. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF HOLDERS.
Without the consent of any Holders, the Company, when authorized by a Board
Resolution, and the Trustee, at any time and from time to time, may enter into
one or more indentures supplemental hereto, in form satisfactory to the Trustee,
for any of the following purposes:
(1) to evidence the succession of another corporation to the Company
and the assumption by such successor of the covenants and other obligations
of the Company herein and in the Bonds contained, all pursuant to and in
accordance with this Indenture, including, without limitation, ARTICLE
EIGHT and SECTION 1307; or
(2) to add to the covenants or other obligations of the Company, for
the benefit of the Holders, or to surrender any right or power herein
conferred upon the Company; or
(3) to add any additional Events of Default; or
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(4) to secure the Bonds; or
(5) to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee with respect to the Bonds; or
(6) to cure any ambiguity; to correct or supplement any provision
herein which may be defective or inconsistent with any other provision
herein; or to make any other provisions with respect to matters or
questions arising under this Indenture which shall not be inconsistent with
any provision of this Indenture, provided such other provisions shall not
adversely affect the interests of the Holders of Outstanding Bonds; or
(7) to change any place or places where (A) the principal of and
premium, if any, and interest on Bonds shall be payable, (B) all Bonds may
be surrendered for registration or transfer, (C) all Bonds may be
surrendered for exchange, and (D) notices and demands to or upon the
Company in respect of all Bonds and this Indenture may be served.
SECTION 902. SUPPLEMENTAL INDENTURES WITH CONSENT OF HOLDERS.
With the consent of the Holders of not less than a majority in principal
amount of the Outstanding Bonds, by Act of said Holders delivered to the Company
and the Trustee, the Company, when authorized by a Board Resolution, and the
Trustee may enter into an indenture or indentures supplemental hereto for the
purpose of adding any provisions to or changing in any manner or eliminating any
of the provisions of this Indenture or of modifying in any manner the rights of
the Holders under this Indenture; provided, however, that no such supplemental
indenture shall, without the consent of the Holder of each Outstanding Bond
affected thereby,
(1) change the Stated Maturity of the principal of, or premium, if
any, or installment of interest on, any Bond, or reduce the principal
amount thereof or the rate of interest thereon or any premium payable upon
redemption or purchase thereof, or otherwise, or adversely affect the right
of repayment or purchase, if any, at the option of the Holder, or impair
the right to institute suit for the enforcement of any payment on or after
the Stated Maturity thereof (or, in the case of redemption or purchase, on
or after the Redemption Date or the Purchase Date, as the case may be); or
(2) change the percentage in principal amount of the Outstanding
Bonds, the consent of whose Holders is required for any supplemental
indenture, or the consent of whose Holders is required for any waiver,
including waiver of compliance with the provisions of this Indenture or
defaults hereunder and their consequences provided for in this Indenture;
or
(3) modify any of the provisions of this Section, SECTION 504 or
SECTION 510, except to provide that certain other provisions of this
Indenture cannot be modified or waived without the consent of the Holder of
each Outstanding Bond affected thereby; provided, however, that this clause
shall not be deemed to require the consent of any
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Holder with respect to changes in the references to "the Trustee" and
concomitant changes in this Section, or the deletion of this proviso, in
accordance with the requirements of SECTIONS 610 and 901(5); or
(4) make any Bond payable in money other than Dollars; or
(5) make any change that adversely affects the rights of any Holder.
It shall not be necessary for any Act of Holders under this Section to
approve the particular form of any proposed supplemental indenture, but it shall
be sufficient if such Act shall approve the substance thereof.
SECTION 903. EXECUTION OF SUPPLEMENTAL INDENTURES.
In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article or the modifications thereby of
the trusts created by this Indenture, the Trustee shall be entitled to receive,
and (subject to any incorporated provisions of the Trust Indenture Act) shall be
fully protected in relying upon, an Officers' Certificate and an Opinion of
Counsel stating that the execution of such supplemental indenture is authorized
or permitted by this Indenture. The Trustee may, but shall not be obligated to,
enter into any such supplemental indenture which adversely affects the Trustee's
own rights, duties or immunities under this Indenture or otherwise in a material
way.
SECTION 904. EFFECT OF SUPPLEMENTAL INDENTURES.
Upon the effectiveness of any supplemental indenture under this
Article in accordance with its terms, this Indenture shall be modified in
accordance therewith, and such supplemental indenture shall form a part of this
Indenture for all purposes; and every Holder of Bonds theretofore or thereafter
authenticated and delivered hereunder shall be bound thereby.
SECTION 905. CONFORMITY WITH TRUST INDENTURE ACT.
Every supplemental indenture executed pursuant to this Article shall
conform to the requirements of the Trust Indenture Act as then in effect.
SECTION 906. REFERENCE IN BONDS TO SUPPLEMENTAL INDENTURES.
Bonds authenticated and delivered after the execution of any supplemental
indenture pursuant to this Article may, and shall if required by the Trustee,
bear a notation in form approved by the Trustee as to any matter provided for in
such supplemental indenture. If the Company shall so determine, new Bonds so
modified as to conform, in the opinion of the Trustee and the Board of
Directors, to any such supplemental indenture may be prepared and executed by
the Company and authenticated and delivered by the Trustee in exchange for
Outstanding Bonds.
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SECTION 907. COPIES OF SUPPLEMENTAL INDENTURE.
Promptly after the execution by the Company and the appropriate
Trustee of any supplemental indenture pursuant to SECTION 901 or SECTION 902,
the Company shall transmit, in the manner provided in SECTION 105, to all
Holders of any of the Bonds, a copy of such supplemental indenture.
ARTICLE TEN
AFFIRMATIVE COVENANTS
The Company hereby covenants and agrees with the Trustee and (i) with
the Purchasers and any Major Holder, with respect to all of this ARTICLE TEN,
and (ii) with any other Holder, with respect to all of this ARTICLE TEN except
SECTIONS 1002(B) and 1002(D), that, so long as any Bonds remain unpaid:
SECTION 1001. FINANCIAL STATEMENTS.
The Company shall deliver to the Trustee and each Holder, all in form
and substance satisfactory to it:
(a) as soon as available, but not later than ninety (90) after
the end of each fiscal year of the Company (or until the end of the period
permitted under Rule 12b-25(b)(2)(ii) under the Exchange Act), a copy of
the audited consolidated balance sheet of the Company and its Subsidiaries
as of the end of such year and the related consolidated statements of
income, cash flows and stockholders' equity for such fiscal year, reported
on by independent public accountants of recognized national standing
selected by the Company whose report shall be without limitation as to the
scope of the audit, provided, however, that the delivery of the Company's
Annual Report on Form 10-K shall satisfy the requirements of this SECTION
1001(A);
(b) commencing with the fiscal period ending on December 31,
1995, as soon as available, but in any event not later than forty-five (45)
days after the end of each of the first three fiscal quarters of the
Company of each year (or until the end of the period permitted under Rule
12b-25(b)(2)(ii) under the Exchange Act), the unaudited consolidated
balance sheet of the Company and its Subsidiaries, and the related
consolidated statements of income and cash flow for such quarter and for
the period commencing on the first day of the fiscal year and ending on the
last day of such quarter, certified by an authorized financial officer of
the Company, provided, however, that the delivery of the Company's
Quarterly Report on Form 10-Q shall satisfy the requirements of this
SECTION 1001(B);
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SECTION 1002. CERTIFICATES; OTHER INFORMATION.
The Company shall furnish to the Trustee, the Purchasers, any Major
Holder or any Holder, as appropriate:
(a) concurrently with each delivery of the financial statements
pursuant to SECTIONS 1001(A) and (B) above, a certificate of an officer of
the Company (i) including calculations set forth in reasonable detail
showing the Company's compliance with the financial covenants contained
herein and (ii) stating that such officer has reviewed the terms of this
Indenture, the Bonds, the Securities Purchase Agreement and the
Registration Rights Agreement and has made, or caused to be made, a review
in reasonable detail of the transactions of the Company and its
Subsidiaries during the fiscal period covered by such financial statements,
that, to the best of such officer's knowledge, the Company, during such
period, has observed or performed all of its covenants and other
agreements, and satisfied every condition, in all material respects,
contained in this Indenture to be observed, performed or satisfied by it,
and that such officer has obtained no knowledge of any Default or Event of
Default except as specified in such certificate;
(b) promptly after the same are sent or filed, copies of all such
financial statements, proxy statements, notices and reports as it shall
send to the holders of its outstanding securities (or trustees or agents
therefor) and copies of all registration statements (without exhibits) and
all reports that it files with the Commission except preliminary proxy
statements, preliminary Registration Statements on Form S-8 and Forms 3, 4
and 5;
(c) upon request by any Holder, any information required to
permit the Bonds to be eligible for resale pursuant to Rule 144A
promulgated by the Commission under the Securities Act; and
(d) such additional information or documents pertaining to the
Polyphase Entities (financial or otherwise) as the Purchasers or a Major
Holder reasonably may request; provided, however, that the Company shall
not provide the Purchasers or any Major Holder with material nonpublic
information unless the Purchasers or such Major Holder has specifically so
requested and entered into a confidentiality agreement with the Company in
connection therewith;
and shall also comply with the provisions of Section 314(a) of the Trust
Indenture Act.
SECTION 1003. PRESERVATION OF CORPORATE EXISTENCE.
Except for such actions as (i) the Board of Directors of the Company
shall determine are in the best interest of the Company or (ii) do not have a
material adverse effect on the assets, business, prospects, operations or
financial or other condition of the Polyphase Entities, taken as a whole, the
Company shall, and shall cause each of its Subsidiaries, to:
(1) preserve and maintain in full force and effect its corporate
existence and good standing under the laws of its state of incorporation;
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(2) preserve and maintain in full force and effect all material
rights, privileges, qualifications, licenses and franchises necessary in
the normal conduct of its business;
(3) qualify to do business as a foreign corporation under the
laws of each jurisdiction where its ownership, lease or operation of
property or the conduct of its business requires such qualification; and
(4) use its reasonable efforts, in the ordinary course, to
preserve its business organization and preserve the goodwill and business
of its customers and suppliers and others having business relations with
it.
SECTION 1004. MAINTENANCE OF PROPERTY.
The Company shall, and shall cause each of its Subsidiaries to,
maintain and preserve all its property that is material to its business in
good working order and condition, ordinary wear and tear excepted.
SECTION 1005. INSURANCE.
The Company shall maintain, and shall cause each Subsidiary to maintain,
with financially sound and reputable insurance companies, insurance with respect
to its properties and business, against such losses, damages, casualties and
contingencies, of the kinds, covering the risks, and in the relative
proportionate amounts, usually carried by companies engaged in businesses
similar to that of the Company.
SECTION 1006. PAYMENT OF OBLIGATIONS.
Except to the extent that the failure to do so would have (i) a material
adverse effect on the assets, business, prospects, operations or financial or
other condition of the Polyphase Entities, taken as a whole, or (ii) an adverse
effect on the Company's ability to perform its obligations under the Securities
Purchase Agreement, the Indenture, the Bonds or the Registration Rights
Agreement, the Company shall, and shall cause its Subsidiaries to, pay and
discharge as the same shall become due and payable, all their respective
obligations and liabilities, including without limitation:
(1) all tax liabilities, assessments and governmental charges or
levies upon it or its properties or assets, unless the same are being
contested in good faith by appropriate proceedings and adequate reserves in
accordance with GAAP are being maintained by the Company or such
Subsidiary; and
(2) all lawful claims (including, without limitation, claims for
labor, services, materials and supplies) that the Company is obligated to
pay, which are due and which, if unpaid, might by law become a Lien upon
any of its properties or assets.
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SECTION 1007. COMPLIANCE WITH LAWS.
The Company shall comply, and shall cause each Subsidiary to comply,
in all material respects with all Requirements of Law and with the directions of
any Governmental Authority having jurisdiction over it or its business, except
where any failure to so comply would not have a material adverse effect on the
business, operations, properties, prospects, assets or financial or other
condition of the Polyphase Entities, taken as a whole.
SECTION 1008. NOTICES.
Upon knowledge of the Chief Executive Officer, the President, the
Chief Financial Officer or the Treasurer of the Company of the events described
below, the Company shall give written notice within ten (10) days to the Trustee
and each of the Holders:
(1) of the occurrence of any Default or Event of Default
accompanied by a certificate specifying the nature of such Default or Event
of Default and the period of existence thereof;
(2) of the giving of any notice or the taking of any other action
by any Holder with respect to a claimed Default or Event of Default; and
(3) of any (i) material default or event of default under any
material Contractual Obligation of the Company or any of its Subsidiaries
or (ii) material dispute, litigation, investigation, proceeding or
suspension that may exist at any time between the Company or any of its
Subsidiaries and any Governmental Authority.
Each notice pursuant to this SECTION 1008 shall be accompanied by a statement by
the Chief Executive Officer, President or Chief Financial Officer of the Company
setting forth details of the occurrence referred to therein and stating what
action the Company proposes to take with respect thereto.
SECTION 1009. ISSUE TAXES.
The Company shall pay, or cause to be paid, all documentary and
similar taxes levied under the laws of the United States of America or any state
or local taxing authority thereof or therein in connection with the issuance of
the Bonds and the execution and delivery of the other agreements and documents
contemplated hereby and any modification of the Bonds or such other agreements
and documents and will hold the Holders and the Trustee harmless, without
limitation as to time, against any and all liabilities with respect to all such
taxes.
SECTION 1010. PAYMENT AND CONVERSION OF BONDS.
The Company shall pay the principal of (and premium, if any) and,
subject to the grace period contained in SECTION 501 hereof, interest on the
Bonds on the dates and in the manner provided therein and in this Indenture
(including in each case all such amounts payable upon redemption or purchase of
the Bonds pursuant to this Indenture and the Bonds). The Company will at all
times reserve and keep available out of its authorized Common Stock, solely
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for the purpose of issue or delivery upon conversion of the Bonds as provided in
ARTICLE THIRTEEN, such number of shares of Common Stock as shall then be
issuable or deliverable upon the conversion of all outstanding Bonds. All
shares of Common Stock that shall be so issuable or deliverable shall have been
duly authorized and shall, when issued or delivered, be validly issued and fully
paid and non-assessable, free and clear of any Liens, and shall not have been
issued in violation of any preemptive rights. The Company shall use its best
efforts to list all such shares of Common Stock on the American Stock Exchange
as promptly as practicable following the date hereof. The Company shall issue
the Common Stock into which the Bonds are convertible upon the proper surrender
thereof in accordance with the provisions of this Indenture and the Bonds and
shall otherwise comply with the terms hereof and thereof.
SECTION 1011. REDEMPTION AND PURCHASE OF BONDS.
The Company shall redeem the Bonds and purchase the Bonds pursuant to
and in accordance with this Indenture.
SECTION 1012. DISTRIBUTIONS TO HOLDERS.
All distributions to Holders, whether upon redemption, purchase,
payment of principal (or premium, if any) or interest, or otherwise, shall be
made pro rata in accordance with the aggregate unpaid principal amount of Bonds
held by each such Holder at the time of such distribution.
SECTION 1013. HSR ACT FILING.
The Company shall prepare and file, and cooperate with any Holder so
that it may prepare and file, in each case within five Business Days of a
request by any such Holder, notification and report forms in compliance with the
HSR Act in connection with the conversion of any Bonds, if required by the HSR
Act, and otherwise fully comply with the requirements of the HSR Act and any
requests or requirements of the United States Federal Trade Commission or the
United States Department of Justice in connection therewith.
SECTION 1014. CASH FLOW RATIO.
The Company covenants that it will not permit the ratio of
Consolidated Operating Cash Flow for its fiscal year most recently ended
(commencing with the fiscal year ended September 30, 1995) to Projected Fixed
Charges to be less than 1.25 to 1.0. If the ratio of Consolidated Operating
Cash Flow for any such fiscal year to Projected Fixed Charges is less than 1.25
to 1.0, the Company shall, no later than December 31 of the next fiscal year
(or, in the case of the fiscal year ended September 30, 1995, within 30 days
following the date of this Indenture), hire an independent financial consultant,
who shall be acceptable to a majority of the Major Holders (the "Consultant"),
to, within 60 days, prepare a written report in which the Consultant shall
recommend to the Company the courses of action that, in the opinion of the
Consultant, may enable the Company to maintain a ratio of Consolidated Operating
Cash Flow for such and subsequent fiscal years to Projected Fixed Charges of at
least 1.25 to 1.0. The Company shall implement all recommendations set forth in
such report to the extent and as soon as possible.
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SECTION 1015. MONEY FOR BONDS; PAYMENTS TO BE HELD IN TRUST.
If the Company shall at any time act as its own Paying Agent, it will,
on or before each due date of the principal of (and premium, if any) or interest
on any of the Bonds, segregate and hold in trust for the benefit of the Persons
entitled thereto a sum sufficient to pay the principal (and premium, if any) or
interest so becoming due until such sums shall be paid to such Persons or
otherwise disposed of as herein provided, and will promptly notify the Trustee
of its action or failure so to act.
Whenever the Company shall have one or more Paying Agents, it will, by
or on each due date of the principal of (and premium, if any) or interest on any
Bonds, deposit with any such Paying Agent a sum sufficient to pay the principal
(and premium, if any) or interest so becoming due, such sum to be held in trust
by the Paying Agent for the benefit of the Persons entitled thereto, and (unless
any such Paying Agent is the Trustee) the Company will promptly notify the
Trustee of its action or failure so to act.
The Company will cause each Paying Agent other than the Trustee to
execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee, subject to the provisions of this Section, that
such Paying Agent will:
(1) hold all sums held by it for the payment of the principal of (and
premium, if any) or interest on Bonds in trust for the benefit of the
Persons entitled thereto until such sums shall be paid to such Persons or
otherwise disposed of as herein provided;
(2) give the Trustee notice of any default by the Company (or any
other obligor upon the Bonds) in the making of any payment of principal of
(and premium, if any) or interest on the Bonds; and
(3) at any time during the continuance of any such default, upon the
written request of the Trustee, forthwith pay to the Trustee all sums so
held in trust by such Paying Agent.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held in
trust by the Company or such Paying Agent, such sums to be held by the Trustee
upon the same trusts as those upon which such sums were held by the Company or
such Paying Agent; and, upon such payment by any Paying Agent to the Trustee,
such Paying Agent shall be released from all further liability with respect to
such sums.
Any money deposited with the Trustee or any Paying Agent, or then held
by the Company, in trust for the payment of the principal of (and premium, if
any) or interest on any Bond and remaining unclaimed for two years after such
principal (and premium, if any) or interest has became due and payable shall be
paid to the Company upon Company Request, or (if then held by the Company) shall
be discharged from such trust; and the Holder of such Bond shall thereafter, as
an unsecured general creditor, look to the Company for payment thereof, and all
liability of the Trustee or such Paying Agent with respect to such trust money,
and all
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liability of the Company as trustee thereof, shall thereupon cease; provided,
however, that the Trustee or such Paying Agent, before being required to make
any such repayment, may at the expense of the Company cause to be transmitted to
such Holder, in the manner provided by SECTION 105, notice that such money
remains unclaimed and that, after a date specified therein, which shall not be
less than 30 days from the date of such notification, any unclaimed balance of
such money then remaining will be repaid to the Company.
SECTION 1016. OFFICERS' CERTIFICATE AS TO DEFAULT.
The Company will deliver to the Trustee, within forty-five (45) days
after the end of each of the first three fiscal quarters in each fiscal year of
the Company and ninety (90) days after the end of each fiscal year of the
Company, an Officers' Certificate stating whether or not to the best knowledge
of the signers thereof (i) the Company is in default in the performance and
observation of any of the terms, provisions and conditions of this Indenture or
the Bonds or (ii) a Default has occurred, and, if the Company shall be so in
default or if a Default shall have occurred, specifying all such defaults and
Defaults and the nature thereof of which they may have knowledge and the action
that the Company has taken or proposes to take with respect thereto.
ARTICLE ELEVEN
NEGATIVE COVENANTS
The Company hereby covenants and agrees with the Trustee and (i) with
the Purchasers, with respect to all of this ARTICLE ELEVEN and (ii) with any
other Holder, with respect to all of this ARTICLE ELEVEN that, so long as any
Bonds remain unpaid:
SECTION 1101. TRANSACTIONS WITH AFFILIATES.
The Company shall not, and shall not permit any of its Subsidiaries
to, enter into any transaction or otherwise deal with any Affiliate of the
Company or of any such Subsidiary (including, in any such case, without
limitation, either member of Current Management or any Affiliate of either such
member), in the ordinary course of business or otherwise, except pursuant to the
reasonable requirements of the business of the Company or such Subsidiary and on
terms no less favorable to the Company or such Subsidiary than would obtain in a
comparable arm's-length transaction with a Person not an Affiliate of the
Company or of such Subsidiary or of such member of Current Management, except
for (i) employment agreements entered into and other employee benefits granted
with the approval of the Board of Directors of the Company; (ii) payments under
the Bonds; (iii) tax allocation agreements or management agreements among the
Polyphase Entities; (iv) guaranty agreements pursuant to which the Company
guarantees any of the obligations of the Polyphase Entities; and (v)
transactions between or among any of the Company and any Subsidiary or between
or among Subsidiaries.
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SECTION 1102. COMPLIANCE WITH ERISA.
The Company shall not directly or indirectly and will not permit any
Subsidiary or any ERISA Affiliate directly or indirectly to (i) terminate in a
distress termination any Pension Plan subject to Title IV of ERISA so as to
result in any liability to the Company or any Subsidiary, (ii) permit to exist
any ERISA Event that presents the risk of a liability of the Company or any
Subsidiary, (iii) make a complete or partial withdrawal (within the meaning of
ERISA Section 4201) from any Multiemployer Plan so as to result in any liability
to the Company or any Subsidiary or (iv) take any action that shall result in a
Plan intended to be qualified under Section 401(a) or 403(a) of the Code ceasing
to be so qualified as to which the Company or its Subsidiary has any liability,
which liability in the case of clauses (i) through (iv), individually or
together with all other such liabilities, is materially adverse to the assets,
business, prospects, operations or financial or other condition of the Polyphase
Entities taken as a whole.
SECTION 1103. RESTRICTED PAYMENTS.
(a) The Company shall not declare, pay or make a dividend or other
distribution on the Common Stock (other than a dividend or distribution with
respect to which an adjustment under SECTION 1303(A) is made), including,
without limitation, any distribution of assets, properties, cash, rights,
obligations or securities, during any 12-month period, having an aggregate Fair
Market Value equal to more than 50% of the Consolidated Net Income of the
Company for such period, unless at the time of such distribution a payment or
other distribution (a "Special Payment") is paid to each Holder in an amount
equal to the dividend or other distribution that such Holder would have received
had such Holder converted such Bond into shares of Common Stock immediately
prior to the declaration or payment of such dividend or other distribution,
whichever is earlier.
(b) Notwithstanding the provisions of subsection (a) of this Section, if
and for so long as an Event of Default shall have occurred and be continuing,
the Company shall not declare, make or pay any dividend or other distribution
(including, without limitation, any distribution of assets, properties, cash,
rights, obligations or securities) on, or redeem, purchase or otherwise acquire,
directly or indirectly, any shares of any class of its capital stock.
SECTION 1104. RESTRICTIONS ON CLASSES OF CERTAIN INDEBTEDNESS.
The Company shall not create, assume, issue or incur, for cash,
property or any other consideration or benefit or otherwise, or permit to exist
any Indebtedness that is senior in right of payment to the Bonds; provided,
however, that nothing in this SECTION 1104 shall be interpreted to prevent the
Company from assuming any Indebtedness of any Person that is not senior in right
of payment to the Bonds, in anticipation of or in connection with the
acquisition of such Person or all or substantially all of the assets of such
Person.
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SECTION 1105. USE OF PROCEEDS.
Unless the Company immediately provides written notice to Holders of
the Bonds to the contrary upon application, the proceeds of the issuance of the
Bonds will be used solely to fund a portion of the purchase price for the
Acquisition. Neither the Company nor any Subsidiary owns or has any present
intention of acquiring any "margin stock" as defined in Regulation G (12 CFR
Part 207) of the Board of Governors of the Federal Reserve System ("margin
stock"). No portion of the proceeds of the issuance of the Bonds has been or
will be used, directly or indirectly, (i) for the purpose, whether immediate,
incidental or ultimate, of purchasing or carrying any margin stock, (ii) for the
purpose of maintaining, reducing, retiring or refinancing any Indebtedness of
the Company or any other Person that was originally incurred to purchase or
carry a stock that is currently a margin stock, or (iii) to extend credit for
the purpose of purchasing or carrying any margin stock, or for any other purpose
that might constitute this transaction a "purpose credit" within the meaning of
such Regulation G. Neither the Company nor any agent acting on its behalf has
taken or will take any action that might cause this Indenture or the Bonds to
violate Regulation G, Regulation T or any other regulation of the Board of
Governors of the Federal Reserve System or to violate the Exchange Act, in each
case as in effect now or as the same may hereafter be in effect.
SECTION 1106. NO RESTRICTIVE AGREEMENTS.
The Company shall not (and shall not permit any Subsidiary) to enter
into or permit to exist any Contractual Obligations that would restrict any
Subsidiary from paying management fees, dividends or partnership distributions
(whether of income, retained earnings or capital) to, or making loans or
advances to the Company or to any Subsidiary directly controlling such
Subsidiary, unless the Consolidated Net Income for each fiscal quarter and
fiscal year of the Company for which financial statements are required to be
delivered pursuant to SECTION 1001 would exceed the sum of (i) Projected Fixed
Charges for such fiscal period plus (ii) total operating expenses of the Company
and its Subsidiaries for such fiscal period, in each case as reasonably
projected by the Company, at the time the Company or such Subsidiary enters into
such agreement and giving effect to all such restrictions, based upon factual
assumptions reasonably made by the Company in good faith.
ARTICLE TWELVE
OPTIONAL REDEMPTION OF BONDS;
PURCHASE ON CHANGE OF CONTROL OR DELISTING
SECTION 1201. ELECTION TO REDEEM; NOTICE TO TRUSTEE.
The election of the Company to redeem any Bonds pursuant to Paragraph
2 of the Bonds shall be evidenced by a Board Resolution. In case of any
redemption at the election of the Company of less than all of the Bonds pursuant
to Paragraph 2 of the Bonds, the Company shall, at least 60 days prior the
Redemption Date fixed by the Company (unless a shorter notice shall be
satisfactory to the Trustee), notify the Trustee of such Redemption Date and of
the principal amount of Bonds to be redeemed. Such notice shall be accompanied
by an Officers' Certificate from the Company to the effect that such redemption
complies with the conditions
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herein. In the case of any redemption of Bonds pursuant to Paragraph 2 of the
Bonds prior to the expiration of any restriction on such redemption provided in
the terms of such Bonds or elsewhere in this Indenture, the Company shall
furnish the Trustee with an Officers' Certificate evidencing compliance with
such restrictions.
SECTION 1202. NOTICE OF REDEMPTION.
Notice of redemption of Bonds pursuant to Paragraph 2 of the Bonds
shall be given by the Company, or at the Company's request, by the Trustee in
the name and at the expense of the Company, not less than thirty (30) days and
not more than sixty (60) days prior to the Redemption Date to each Holder of
Bonds to be redeemed in whole or in part pursuant to Paragraph 2 of the Bonds,
in the manner provided in SECTION 105. Any notice so given shall be
conclusively presumed to have been duly given, whether or not the Holder
receives such notice. Failure to give such notice, or any defect in such notice
to the Holder of any Bond, shall not affect the sufficiency of any notice of
redemption with respect to the Holder of any other Bond.
All notices of redemption shall state:
(1) the Redemption Date;
(2) the Redemption Price and the amount of accrued and unpaid interest
on the Bonds to be redeemed to the Redemption Date;
(3) the then-current Conversion Price;
(4) that Bonds are being redeemed by the Company pursuant to Paragraph
2 of the Bonds, together with a brief statement of the facts permitting
such redemption;
(5) if less than all Outstanding Bonds are to be redeemed, the
identification and principal amounts to be redeemed;
(6) that on the Redemption Date the Redemption Price will become due
and payable upon each such Bond to be redeemed together with all accrued
and unpaid interest thereon to the Redemption Date, and that, unless the
Company defaults in the payment of the Redemption Price, interest thereon,
if any, shall cease to accrue on and after said date;
(7) that the right to convert Bonds called for redemption will
terminate at the close of business on the Redemption Date; and
(8) the name of the Paying Agent and the Place or Places of Payment
where such Bonds are to be surrendered for payment of the Redemption Price
and the name and address of the conversion agent for the Bonds.
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SECTION 1203. DEPOSIT OF REDEMPTION PRICE.
On or prior to the Redemption Date for any Bonds, the Company shall
deposit with the Trustee or with a Paying Agent (or, if the Company is acting as
its own Paying Agent, segregate and hold in trust as provided in SECTION 1015)
an amount of money sufficient to pay the Redemption Price of such Bonds or any
portions thereof that are to be redeemed on that date together with all accrued
and unpaid interest thereon to such date.
SECTION 1204. BONDS PAYABLE ON REDEMPTION DATE.
Notice of redemption having been given as aforesaid, any Bonds to be
redeemed pursuant to Paragraph 2 of the Bonds shall, on the Redemption Date,
become due and payable at the Redemption Price and from and after such date
(unless the Company shall default in the payment of the Redemption Price) such
Bonds shall cease to bear interest. Upon surrender of any such Bond for
redemption in accordance with the notice described in SECTION 1202, such Bond
shall be paid by the Company at the Redemption Price, plus accrued interest to
the Redemption Date.
If any Bond called for redemption shall not be so paid upon surrender
thereof for redemption, the principal (and premium, if any) of such Bond shall,
until paid, bear interest from the Redemption Date at the rate prescribed
therefor in the Bond.
SECTION 1205. BONDS REDEEMED IN PART.
Any Bond that is to be redeemed only in part shall be, if the Company,
the Bond Registrar or the Trustee so requires, duly endorsed by, or accompanied
by a written instrument of transfer, in form satisfactory to the Company, the
Bond Registrar and the Trustee, duly executed by, the Holder thereof or its
attorney duly authorized in writing, and the Company shall execute, and the
Trustee shall authenticate and deliver to the Holder of such Bond without
service charge, a new Bond or Bonds, of like tenor and form, of any authorized
denomination as requested by such Holder in aggregate principal amount equal to
and in exchange for the unredeemed portion of the principal of the Bond so
surrendered.
If any Bond selected for partial redemption is converted in part, the
converted portion of such Bond shall be deemed (so far as may be) to be the
portion selected for redemption.
SECTION 1206. SELECTION OF BONDS TO BE REDEEMED.
If fewer than all the Bonds are to be redeemed pursuant to Paragraph 2
of the Bonds, the Trustee shall select the Bonds to be redeemed on a pro rata
basis, provided, that if pro rata redemption is not then permitted by an
applicable legal or securities exchange requirement, the Trustee shall select
the Bonds to be redeemed by lot or by any other method that complies with
applicable legal and securities exchange requirements, if any. The Trustee shall
make the selection from Outstanding Bonds not previously called for redemption.
The Trustee may select for redemption portions of the principal of Bonds that
have denominations larger than $1,000. Bonds and portions of them that the
Trustee selects shall be in amounts of $1,000 or a whole multiple of $1,000.
Provisions of this Indenture that apply to Bonds called for redemption also
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apply to portions of Bonds called for redemption. The Trustee shall notify the
Company promptly of the Bonds or portions of Bonds to be redeemed.
SECTION 1207. CHANGE OF CONTROL; DELISTING.
(a) Put Provision. If and whenever a Change of Control or a Delisting
shall occur, each Holder shall have the right, at its option, to require the
Company to purchase all or any portion of such Holder's Bonds at a cash price
(the "Purchase Price") equal to the greater of (i) the Current Market Price per
share of Common Stock (determined with reference to the date described in the
following clause (i) or (ii), as applicable) multiplied by the number of shares
of Common Stock into which the aggregate principal amount of such Bonds is
convertible at the Conversion Price in effect on (A) in the event of a merger or
consolidation described in clause (d)(i) or (d)(ii) of the definition of Change
of Control set forth in Paragraph 4 of the Bonds, the earlier of (1) the date of
execution of the definitive merger or consolidation agreement in respect of such
merger or consolidation and (2) the date any of the principal terms of such
merger or consolidation are publicly announced or (B) in the event of any other
Change of Control, the date such Change of Control occurs, and (ii) the
Redemption Price in effect on the date of such event, together with all accrued
and unpaid interest to the Purchase Date, in accordance with this SECTION 1207.
(b) Within 10 days following each Change of Control or Delisting, the
Company shall mail a notice to each Holder, with a copy to the Trustee, stating:
(1) that a Change in Control or Delisting has occurred and that such
Holder has the right to require the Company to purchase all or any portion
of such Holder's Bonds at the Purchase Price;
(2) the circumstances and relevant facts regarding such Change of
Control (including information with respect to pro forma historical income,
earnings per share, cash flow and capitalization after giving effect to
such Change of Control) or such Delisting;
(3) the purchase date fixed by the Company in respect of such event,
which shall be no earlier than 30 days nor later than 60 days from the date
such notice is given (the "Purchase Date") and the Purchase Price;
(4) the instructions determined by the Company, consistent with this
Section, that a Holder must follow in order to have its Bonds purchased,
including the Place or Places of Payment at which Bonds are to be
surrendered for payment of the Purchase Price; and
(5) the then-current Conversion Price.
No failure on the part of the Company to give such notice shall limit any of the
Holder's rights under this Section.
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(c) Holders electing to have a Bond purchased will be required to surrender
the Bond, with an appropriate form duly completed, to the Company at the address
specified in the notice at least ten Business Days prior to the Purchase Date.
Any Holder will be entitled to withdraw its election if the Trustee or the
Company receives not later than three Business Days prior to the Purchase Date,
a telegram, telex, facsimile transmission or letter setting forth the name of
such Holder, the principal amount of the Bonds delivered for purchase by such
Holder and a statement that such Holder is withdrawing its election to have such
Bonds purchased. Holders electing to have a Bond, or any portion thereof,
purchased shall retain the right to convert all Bonds, or any portion thereof,
delivered for purchase at any time prior to the close of business on the third
Business Day immediately preceding the Purchase Date.
(d) On the Purchase Date, all Bonds required to be purchased by the Company
under this Section shall become due and payable at the Purchase Price, and the
Company shall pay the Purchase Price plus accrued and unpaid interest, if any,
on such Bonds to the Holders entitled thereto and shall deliver all Bonds so
purchased to the Trustee for cancellation. The provisions of SECTION 1205 shall
also apply to the purchase by the Company of any portions of Bonds pursuant to
this Section. The Company shall deposit with the Paying Agent no later than one
(1) Business Day prior to any Purchase Date an amount equal to the Purchase
Price. Provisions of this Indenture that apply to the right of Holders to
require the Company to purchase Bonds pursuant to this Section also apply to
portions of Bonds.
ARTICLE THIRTEEN
CONVERSION OF BONDS
SECTION 1301. OPTIONAL CONVERSION.
Any Holder shall have the right, at its option, at any time prior to
the close of business on December 1, 1997, to convert, subject to the terms and
provisions of this ARTICLE THIRTEEN, the principal amount of any Bond (or any
portion of the principal amount thereof that is $1,000 or an integral multiple
of $1,000) into such number of fully paid and non-assessable shares of Common
Stock (calculated as to each conversion to the nearest 1/100 of a share) as is
equal to (i) the principal amount of the Bond or such portion divided by (ii)
$5.00, subject to adjustment as provided in SECTION 1303 (such price, as so
adjusted, is referred to herein as the "Conversion Price"), except that (a) with
respect to any Bond, or any portion thereof, which shall be called for
redemption pursuant to Paragraph 2 of the Bonds, such right shall terminate at
the close of business on the Redemption Date for such Bond, or such portion,
unless in any such case the Company shall default in payment of the Redemption
Price due upon such redemption and (b) with respect to any Bond, or any portion
thereof, delivered by a Holder for purchase by the Company pursuant to Paragraph
4 of the Bonds, such right shall terminate at the close of business on the
Purchase Date for such Bond, or such portion, unless in any such case the
Company shall default in payment of the Purchase Price therefor. Such
conversion right shall be exercised by the surrender of the Bond or Bonds, the
principal amount of which is so to be converted, to the Trustee at its Corporate
Trust Office any time during usual business hours, with the Option of the Holder
to Elect Purchase/Conversion on the back of the Bond completed and signed,
accompanied (if so required by the Company) by a written instrument or
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instruments of transfer in form reasonably satisfactory to the Trustee duly
executed by the Holder or its duly authorized legal representative and transfer
tax stamps or funds therefor, if required pursuant to SECTION 1306. For
convenience, the conversion of all or a portion, as the case may be, of the
principal amount of any Bond into Common Stock is hereinafter sometimes referred
to as the conversion of such Bond. All Bonds surrendered for conversion shall
be delivered to the Trustee for cancellation and canceled by it and, subject to
the next sentence, no Bond shall be issued in lieu thereof. In the case of any
Bond that is converted in part only, upon such conversion the Trustee shall
authenticate and deliver to the Holder thereof a new Bond or Bonds of authorized
denominations equal in aggregate principal amount to the unconverted portion of
the Bond surrendered.
Upon conversion of any Bond or portion thereof, the Holder thereof shall be
entitled to receive payment of all accrued and unpaid interest on such Bond or
portion thereof through the date of conversion.
The Company shall comply with all securities laws regulating the offer and
delivery of shares of Common Stock upon conversion of Bonds and will use its
best efforts to list such shares on each national securities exchange or
national market system on which the Common Stock is listed or traded.
SECTION 1302. ISSUANCE OF COMMON STOCK; TIME OF CONVERSION.
As promptly as practicable after the surrender, as herein provided, of
any Bond or Bonds for conversion pursuant to SECTION 1301, the Company shall,
directly or through the Trustee, deliver to or upon the written order of the
Holder of the Bond or Bonds so surrendered a certificate or certificates
representing the number of fully paid and non-assessable shares of Common Stock
into which such Bond or Bonds (or portion thereof) may be or was converted in
accordance with the provisions of this ARTICLE THIRTEEN together with a check in
an amount equal to (i) any amount in lieu of a fractional share of Common Stock
determined in accordance with SECTION 1304 and (ii) the amount of all accrued
and unpaid interest on the converted Bond or Bonds through the date of
conversion. Subject to the following provisions of this paragraph and of
SECTION 1303, such conversion shall be deemed to have been made immediately
prior to the close of business on the date that such Bond or Bonds shall have
been surrendered in satisfactory form for conversion, so that the rights of the
Holder of such Bond or Bonds as a Holder shall cease with respect to such Bond
or Bonds (or the portion thereof being converted) at such appropriate time, and
the Person or Persons entitled to receive the Common Stock deliverable upon
conversion of such Bond or Bonds shall be treated for all purposes as having
become the record holder or holders of such Common Stock at such appropriate
time, and such conversion shall be at the Conversion Price in effect at such
time; provided, however, that no surrender shall be effective to constitute the
Person or Persons entitled to receive the Common Stock deliverable upon such
conversion as the record holder or holders of such Common Stock while the share
transfer books of the Company shall be closed (but not for any period in excess
of fifteen (15) days), but such surrender shall be effective to constitute the
Person or Persons entitled to receive such Common Stock as the record holder or
holders thereof for all purposes immediately prior to the close of business on
the next succeeding day on which such share transfer books are open (or
following such fifteen-day period), and such conversion shall be
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deemed to have been made at, and shall be made at the Conversion Price in effect
at, such time on such next succeeding day.
If the last day for the exercise of the conversion right shall not be
a Business Day, then such conversion right may be exercised on the next
succeeding Business Day.
SECTION 1303. ADJUSTMENT OF CONVERSION PRICE.
The Conversion Price shall be subject to adjustment as follows:
(a) In case the Company shall at any time or from time to time
(i) pay a dividend or make a distribution on the outstanding shares of
Common Stock in capital stock (which, for purposes of this SECTION 1303
shall include, without limitation, any options, warrants or other rights to
acquire capital stock) of the Company, (ii) subdivide the outstanding
shares of Common Stock into a larger number of shares, (iii) combine the
outstanding shares of Common Stock into a smaller number of shares, (iv)
issue any shares of its capital stock in a reclassification of the Common
Stock or (v) pay a dividend or make a distribution on the outstanding
shares of Common Stock in shares of its capital stock pursuant to a
shareholder rights plan, "poison pill" or similar arrangement, then, and in
each such case, the conversion privilege and the Conversion Price in effect
immediately prior to such event shall be adjusted so that the Holder of any
Bond thereafter surrendered for conversion shall be entitled to receive the
number of shares of Common Stock or other securities of the Company that
such Holder would have owned or would have been entitled to receive upon or
by reason of any of the events described above, had such Bond been
converted immediately prior to the happening of such event. Such adjustment
shall be made successively whenever any event described above shall occur.
An adjustment made pursuant to this subsection (a) shall become effective
retroactively (A) in the case of any such dividend or distribution,
immediately after the close of business on the record date for the
determination of holders of Common Stock entitled to receive such dividend
or distribution or (B) in the case of any such subdivision, combination or
reclassification, at the close of business on the day upon which such
corporate action becomes effective.
(b) In case the Company shall at any time or from time to time
issue or sell shares of Common Stock (or securities convertible into or
exchangeable for shares of Common Stock, or any options, warrants or other
rights to acquire shares of Common Stock) to all holders of its Common
Stock at a price per share less than the Current Market Price per share of
Common Stock then in effect at the record date referred to in the
immediately following paragraph (treating the price per share of any
security convertible or exchangeable or exercisable into Common Stock as
equal to (x) the sum of the price for such security convertible,
exchangeable or exercisable into Common Stock plus any additional
consideration payable (without regard to any anti-dilution adjustments)
upon the conversion, exchange or exercise of such security into Common
Stock divided by (y) the number of shares of Common Stock initially
underlying such convertible, exchangeable or exercisable security), other
than issuances or sales of Common Stock pursuant to any employee benefit
plan, then, and in each such case, the Conversion Price then in effect
shall be adjusted by dividing the Conversion Price in
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effect on the day immediately prior to such record date, by a fraction (A)
the numerator of which shall be the sum of the number of shares of Common
Stock outstanding on such record date plus the number of additional shares
of Common Stock issued (or the maximum number into which such convertible
or exchangeable securities initially may convert or exchange or for which
such options, warrants or other rights initially may be exercised) and (B)
the denominator of which shall be the sum of the number of shares of Common
Stock outstanding on such record date plus the number of shares of Common
Stock that the aggregate consideration for the total number of such
additional shares of Common Stock so issued (or into which such convertible
or exchangeable securities may convert or exchange or for which such
options, warrants or other rights may be exercised plus the aggregate
amount of any additional consideration initially payable upon conversion,
exchange or exercise of such security) would purchase at the Current Market
Price per share of Common Stock on such record date. If the Company shall
issue or sell shares of Common Stock or rights, options, warrants or
convertible or exchangeable securities for a consideration consisting, in
whole or in part, of property other than cash, the amount of such
consideration shall be determined in good faith by the Board of Directors
whose determination shall be conclusive and evidenced by a Board
Resolution.
Such adjustment shall be made whenever such shares, securities,
options, warrants or other rights are issued, and shall become effective
retroactively immediately after the close of business on the record date
for the determination of stockholders entitled to receive such shares,
securities, options, warrants or other rights; provided, that the
determination as to whether an adjustment is required to be made pursuant
to this SECTION 1303(B) shall only be made upon the issuance of such shares
or such convertible or exchangeable securities, options, warrants or other
rights, and not upon the issuance of the security into which such
convertible or exchangeable security converts or exchanges, or the security
underlying such option, warrant or other right.
Notwithstanding the foregoing, in the event of such issuance or
sale of Common Stock at a price less than the Current Market Price, no such
adjustment under this SECTION 1303(B) need be made to the Conversion Price
unless such adjustment would require an increase or decrease of at least 1%
of the Conversion Price then in effect. Any lesser adjustment shall be
carried forward and shall be made at the time of and together with the next
subsequent adjustment that, together with any adjustment or adjustments so
carried forward, shall amount to an increase or decrease of at least 1% of
such Conversion Price.
(c) If the Company shall distribute to all holders of Common
Stock (i) any rights or warrants to subscribe for or purchase any security
of the Company (other than those referred to in paragraph (b) above) or
(ii) any evidence of indebtedness or other securities of the Company (other
than capital stock) or (iii) assets (other than cash) having an aggregate
fair market value (as determined by the Board of Directors as provided
below) that, together with all other such distributions for which an
adjustment pursuant to this paragraph (c) has not been made within 12
months preceding the record date fixed for determination of holders
entitled to receive such distribution, exceeds 10% of the product of the
number of shares of Common Stock outstanding on such record date multiplied
by the Current Market Price per share of the Common Stock on such record
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date, then in each case the Conversion Price shall be adjusted so that the
Conversion Price shall thereafter equal the price determined by multiplying
the Conversion Price on the day immediately preceding such record date by a
fraction, the numerator of which shall be such Current Market Price minus
the per share Fair Market Value (as determined in a Board Resolution, which
shall be conclusive evidence of such Fair Market Value) of such rights,
warrants, evidences of indebtedness or other securities or assets, as the
case may be, so distributed to holders of the Common Stock, and the
denominator of which shall be such Current Market Price.
(d) If, at any time, as a result of any adjustment made pursuant
to paragraphs (a), (b) or (c) above, the Holder of any Bond thereafter
surrendered for conversion shall become entitled to receive any shares of
capital stock of the Company other than shares of Common Stock, the number
of such shares so receivable upon conversion of any Bond shall be subject
to adjustment from time to time in a manner and on terms as nearly
equivalent as practicable to the provisions contained in such paragraphs
(a), (b) and (c) with respect to the Common Stock.
(e) If the Company shall take a record of the holders of its
Common Stock for the purpose of entitling them to receive a dividend or
other distribution, and shall thereafter and before the distribution to
stockholders thereof legally abandon its plan to pay or deliver such
dividend or distribution, then thereafter no adjustment in the Conversion
Price then in effect shall be required by reason of the taking of such
record.
(f) Upon any increase or decrease in the Conversion Price, then,
and in each such case, the Company promptly shall deliver to the Trustee
and each Holder at least ten (10) Business Days prior to effecting any of
the foregoing transactions an Officers' Certificate, setting forth in
reasonable detail the event requiring the adjustment and the method by
which such adjustment was calculated and specifying the increased or
decreased Conversion Price then in effect following such adjustment.
(g) Notwithstanding any other provision of this SECTION 1303, no
adjustment to the Conversion Price shall reduce the Conversion Price below
the then par value per share of the Common Stock and any such purported
adjustment shall instead reduce the Conversion Price to such par value.
The Company hereby covenants not to take any action (i) to increase the par
value per share of the Common Stock or (ii) that would or does result in
any adjustment in the Conversion Price that, if made without giving effect
to the previous sentence, would cause the Conversion Price to be less than
the par value per share of the Common Stock.
SECTION 1304. NO FRACTIONAL SHARES.
No fractional shares or scrip representing fractional shares
shall be issued upon the conversion of any Bond or Bonds. If more than one
Bond shall be surrendered for conversion at one time by the same Holder,
the number of full shares of Common Stock issuable upon conversion thereof
shall be computed on the basis of the aggregate principal amount of the
Bonds so surrendered. If the conversion of any Bond or Bonds results in a
fraction, an amount equal to such fraction multiplied by the Closing Price
of the Common Stock on the Business Day
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immediately preceding the day of conversion shall be paid to such holder in cash
by the Company.
SECTION 1305. PRIOR NOTICE OF CERTAIN EVENTS.
In case at any time or from time to time:
(1) the Company shall declare a dividend (or any other
distribution) on its Common Stock;
(2) the Company shall authorize the granting to the holders of
its Common Stock of rights or warrants to subscribe for or purchase any
shares of stock of any class or of any other rights or warrants;
(3) there shall be any reclassification of the Common Stock
(other than a subdivision or combination of the outstanding Common Stock),
or of any consolidation or merger to which the Company is a party and for
which approval of any stockholders of the Company is required, or of the
sale or other disposition of all or substantially all of the assets of the
Company; or
(4) of the voluntary or involuntary dissolution, liquidation or
winding up of the Company;
then the Company shall mail to the Trustee and each Holder of Bonds at its last
address appearing on the Bond Register, as promptly as possible but in any event
at least ten (10) days prior to the applicable date hereinafter specified, a
notice stating (x) the date on which a record is to be taken for the purpose of
such dividend, distribution or granting of rights or warrants or, if a record is
not to be taken, the date as of which the holders of Common Stock of record to
be entitled to such dividend, distribution, rights or warrants are to be
determined, or (y) the date on which such reclassification, consolidation,
merger, sale, conveyance, dissolution, liquidation or winding up is expected to
become effective. Such notice also shall specify the date as of which it is
expected that holders of Common Stock of record shall be entitled to exchange
their Common Stock for shares of stock or other securities or property or cash
deliverable upon such reclassification, consolidation, merger, sale, conveyance,
dissolution, liquidation or winding up.
SECTION 1306. TAXES AND CHARGES.
The issuance or delivery of certificates for Common Stock upon the
conversion of Bonds shall be made without charge to the converting Holder of
Bonds for such certificates or for any documentary, stamp, transfer or other tax
in respect of the issuance or delivery of such certificates or the securities
represented thereby, and such certificates shall be issued or delivered in the
respective names of, or in such names as may be directed by, the Holders of the
Bonds converted; provided, however, that the Company shall not be required to
pay any tax that may be payable in respect of any transfer involved in the
issuance and delivery of any such certificate in a name other than that of the
Holder of the Bonds converted, and the Company shall not be required to issue or
deliver such certificate unless or until the Person or Persons requesting the
issuance or delivery thereof shall have paid to the Company the amount of such
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tax or shall have established to the reasonable satisfaction of the Company that
such tax has been paid.
SECTION 1307. REORGANIZATION OF THE COMPANY.
If the Company is a party to a transaction subject to SECTION 801 or a
merger that reclassifies or changes its outstanding Common Stock, the successor
corporation shall enter into a supplemental indenture, in accordance with and
subject to the provisions of ARTICLE NINE, that shall provide that the Holder of
a Bond may convert it into the kind and amount of securities, cash or other
assets which such Holder would have owned immediately after the consolidation,
merger, conveyance, transfer or lease if such Holder had converted the Bond
immediately before the effective date of such transaction. The supplemental
indenture shall provide for adjustments that shall be as nearly equivalent as
may be practical to the adjustments provided for in this Article.
SECTION 1308. CANCELLATION OF CONVERTED BONDS.
All Bonds delivered for conversion shall be delivered to the Trustee to be
canceled by or at the direction of the Trustee as provided in SECTION 308.
ARTICLE FOURTEEN
DISPOSITIONS
SECTION 1401. DISPOSITIONS BY CURRENT MANAGEMENT.
Notwithstanding anything to the contrary in this Indenture, each
member of Current Management shall be free to transfer any part of their
respective shares of Common Stock to (i) the spouse of such member, (ii) any
lineal descendant of such member or (iii) any entity controlled by such member
or both such members.
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IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed, and their respective corporate seals to be hereunto affixed
and attested, all as of the day and year first above written.
POLYPHASE CORPORATION
By: /s/ James Rudis
-----------------------------------------
Print Name: James Rudis
---------------------------------
Title: Executive Vice President
--------------------------------------
Attest:
By: /s/ Don E. McMillen
--------------------------
Print Name: Don E. McMillen
------------------
Title: Secretary
-----------------------
Seal
IBJ SCHRODER BANK & TRUST COMPANY,
AS TRUSTEE
By: /s/ Max Volmar
-----------------------------------------
Print Name: Max Volmar
---------------------------------
Title: Vice President
--------------------------------------
Attest:
By: /s/ Kerry A. Monaghan
--------------------------
Print Name: Kerry A. Monaghan
------------------
Title: Assistant Secretary
-----------------------
Seal
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STATE OF NEW YORK )
) ss:
COUNTY OF NEW YORK )
On the 1st day of December, 1995, before me personally came James
Rudis to me known, who, being by me duly sworn, did depose and say that he is
Executive Vice President of Polyphase Corporation, one of the corporations
described in and which executed the foregoing instrument; that he knows the seal
of said corporation; that the seal affixed to said instrument is such corporate
seal; that it was so affixed by authority of the Board of Directors of said
corporation, and that he signed his name thereto by like authority.
/s/ Susan Porro
--------------------------------------
Notary Public
SEAL SUSAN PORRO
Notary Public, State of New York
No. 31-4832995
Qualified in New York County
Certificate Filed In Ne York County
Commission Expires August 31, 1997
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STATE OF NEW YORK )
) ss:
COUNTY OF NEW YORK )
On the 1st day of December, 1995, before me personally came Max Volmar
to me known, who, being by me duly sworn, did depose and say that he is a Vice
President of IBJ Schroder Bank & Trust Company, one of the corporations
described in and which executed the foregoing instrument; that he knows the seal
of said corporation; that the seal affixed to said instrument is such corporate
seal; that it was so affixed by authority of the Board of Directors of said
association, and that he signed his name thereto by like authority.
/s/ Kathleen Keavey
--------------------------------------
Notary Public
SEAL KATHLEEN KEAVEY
Notary Public, State of New York
No. 01KE4971667
Qualified in New York County
Certificate Filed In New York County
Commission Expires November 9, 1997
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EXHIBIT 10.36
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 OR THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE
SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT OR AN APPLICABLE EXEMPTION TO THE REGISTRATION
REQUIREMENTS OF SUCH ACT AND IN COMPLIANCE WITH APPLICABLE STATE SECURITIES
LAWS.
POLYPHASE CORPORATION
12% SENIOR CONVERTIBLE DEBENTURES
DUE DECEMBER 1, 1997
NO. 1 $500,000
Polyphase Corporation, a corporation duly organized and existing under the
laws of the State of Nevada (herein called the "Company", which term includes
any successor Person under the Indenture hereinafter referred to) for value
received, hereby promises to pay to Bridge Rope & Co., or registered assigns,
the principal sum of Five Hundred Thousand Dollars on December 1, 1997, and to
pay interest thereon from December 1, 1995 or from the most recent Interest
Payment Date to which interest has been paid, semi-annually on December 1 and
June 1 in each year, commencing June 1, 1996, at the rate of 12% per annum,
until the principal hereof is paid. In the event that, (i) the Company shall
have received a written request to effect a registration of securities under the
Securities Act pursuant to Section 2.1 of the Registration Rights Agreement and,
for any reason whatsoever, (ii) either (A) the Company shall not have filed with
the Commission a registration statement with respect to such registration in
accordance with Section 2.1 and the other applicable provisions of the
Registration Rights Agreement or (B) such registration statement shall have been
so filed but shall not have been declared effective by the Commission, in either
case on or before the 90th day following the receipt by the Company of such
written request, the interest rate in respect of the Bonds shall, on such date,
increase to 12 1/4% per annum, and shall further increase on the last day of
each consecutive fiscal quarter of the Company thereafter by an additional
1/4%; provided, however, that the interest rate shall revert to 12% per annum
when such registration statement has been filed as aforesaid and declared
effective by the Commission. The interest so payable, and punctually paid, on
any Interest Payment Date will, as provided in such Indenture, be paid to the
Person in whose name this Bond (or one or more Predecessor Bonds) is registered
at the close of business on the Record Date immediately preceding such Interest
Payment Date. The Company shall pay interest on overdue principal (and premium,
if any) at the interest rate then in effect plus 1% per annum, and it shall pay
interest on overdue installments of interest at the same rate to the extent
lawful. Interest on this Bond shall be computed on the basis of a 360-day year
of twelve 30-day months.
The principal of (and premium, if any) and interest on this Bond shall be
payable at the Corporate Trust Office of the Trustee and at the office or agency
of the Company at 16885 Dallas Parkway, the City of Dallas, the State of Texas,
maintained for such purpose and at any other office or agency maintained by the
Company for such purpose; provided, however, that at the option of the Company
payment of interest may be made at the Corporate Trust Office of the Trustee, by
check mailed to the address of the Person entitled thereto as such address shall
appear in the Bond Register or by wire transfer of immediately available funds
to an account previously designated to the Company by such Person at least three
Business Days prior to the Interest Payment Date.
Reference is hereby made to the further provisions of this Bond set forth on
the reverse hereof, which further provisions shall for all purposes have the
same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by the
Trustee referred to on the reverse hereof by manual signature, this Bond shall
not be entitled to any benefit under the Indenture or be valid or obligatory for
any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its seal.
Dated: December 1, 1995
POLYPHASE CORPORATION
By:_______________________
Title:____________________
TRUSTEE'S CERTIFICATE OF AUTHENTICATION Attest:
IBJ SCHRODER BANK & TRUST __________________________
COMPANY, as Trustee, certifies Secretary
that this is one of the Bonds referred
to in the Indenture.
by_____________________________________
Authorized Signatory
<PAGE>
1. The Indenture. This Bond is one of a duly authorized issue of Bonds
of the Company designated as its 12% Senior Convertible Debentures due December
1, 1997 (herein called the "Bonds"), limited in aggregate principal amount to
$1,500,000, issued and to be issued under an Indenture, dated as of December 1,
1995 (herein called the "Indenture"), between the Company and IBJ Schroder Bank
& Trust Company, as Trustee (herein called the "Trustee", which term includes
any successor trustee under the Indenture), to which Indenture and all
indentures supplemental thereto reference is hereby made for a statement of the
respective rights, limitations of rights, duties and immunities thereunder of
the Company, the Trustee and the Holders of the Bonds and of the terms upon
which the Bonds are, and are to be, authenticated and delivered. The terms of
the Bonds include those stated in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act of 1939 as amended and in
effect on the date of the Indenture. All terms used in this Bond that are
defined in the Indenture shall have the meanings assigned to them in the
Indenture.
Initially, IBJ Schroder Bank & Trust Company, as Trustee, will act as
Paying Agent, Registrar and conversion agent. The Company may change any Paying
Agent, Registrar, Conversion Agent or co-registrar without notice. The Company
may act in any such capacity.
The Company will furnish to any Holder upon written request and without
charge a copy of the Indenture which has in it the text of the Bond. Requests
may be made to: Polyphase Corporation, 16885 Dallas Parkway, Dallas, Texas
75248, Attention: Corporate Secretary.
2. Optional Redemption. Subject to the conditions set forth below, the
Company may, at its option, redeem the Bonds, in whole at any time or in part
from time to time, at the following redemption prices (expressed as a percentage
of principal amount), payable in cash, in each case together with accrued
interest to the Redemption Date:
Redemption Period Percentage
----------------- ----------
Within 12 months
of the date hereof 105%
Thereafter 104%
Notwithstanding the preceding provisions of this Paragraph 2, the Company
shall not have the right to redeem any Bonds pursuant to this Paragraph 2 unless
(a) the Average Price per share of Common Stock for each of any 40 Trading Days
occurring in a period of 60 consecutive Trading Days during the First Contingent
Redemption Period shall have exceeded 250% of the Conversion Price in effect on
such day and (b) the Company shall have given to each Holder, in accordance with
SECTION 105 of the Indenture, within 10 days following the last day of such 60-
day period (the "Trigger Date"), written notice of such event, in which case the
Company shall have the right to redeem the Bonds as hereinabove described at any
time during the period commencing on the 51st day after the Trigger Date and
ending on November 30, 1997.
3. Notice of Redemption. Notice of redemption pursuant to Paragraph 2
hereof will be given at least 30 days but not more than 60 days before the
Redemption Date to each Holder of Bonds to be redeemed at its registered
address. If money sufficient to pay the Redemption Price of and accrued
interest on all Bonds (or portions thereof) to be redeemed on the Redemption
Date is deposited with the Paying Agent on or before the Redemption Date, on and
after the Redemption Date, interest will cease to accrue on such Bonds or
portions thereof.
4. Use of Proceeds Put Provision. In the event that the Company uses any
of the proceeds of the issuance of the Bonds other than to fund the purchase
price for the Acquisition, the Company shall immediately provide the Holders
with written notice of such other use. In such event, the Holders shall have
the right for a period of 90 days from the date such notice is received, at its
option, to require the Company to purchase all or any portion of such Holder's
Bonds at a price equal to the Purchase Price plus accrued but unpaid interest
through the date such Bonds are purchased by the Company.
5. Put Provision. In the event of a Change of Control or a Delisting
(each as hereinafter defined), each Holder shall have the right, at its option,
to require the Company to purchase all or any portion of such Holder's Bonds at
a price equal to the greater of (a) the Current Market Price per share of Common
Stock (determined with reference to the date described in the following clause
(i) or (ii), as applicable) multiplied by the number of shares of Common Stock
into which the aggregate principal amount of such Bonds is convertible at the
Conversion Price in effect on (i) in the event of a merger or consolidation
described in clause (d)(i) or (d)(ii) of the definition of Change of Control set
forth below, the earlier of (A) the date of execution of the definitive merger
or consolidation agreement in respect of such merger or consolidation and (B)
the date any of the principal terms of such merger or consolidation are publicly
announced or (ii) in the event of any other Change of Control, the date such
Change of Control occurs, and (b) the Redemption Price in effect on the date of
such event, plus accrued and unpaid interest to the Purchase Date, as provided
in, and subject to the terms of, the Indenture.
A "Change of Control" shall be deemed to have occurred if and at the time
that:
(a) any Person or "group" (within the meaning of Section 13(d)(3) of
the Exchange Act), other than Current Management (which for purposes of this
clause (a) shall include any Person to whom Current Management may transfer
Common Stock pursuant to SECTION 1401 of the Indenture) or their Affiliates, is
or becomes the beneficial owner, directly or indirectly, of outstanding shares
of stock of the Company entitling such Person or Persons to exercise 50% or more
of the total voting power of all classes of stock of the Company
<PAGE>
entitled to vote in the election of directors (the term "beneficial owner" shall
be determined in accordance with Rules 13d-3 and 13d-5 promulgated by the
Commission under the Exchange Act);
(b)(i) Current Management (including their Affiliates, other than the
Company, and any Person to whom Current Management may transfer Common Stock
pursuant to SECTION 1401 of the Indenture) cease to be the beneficial owner,
directly or indirectly, in the aggregate, of shares of Common Stock having a
fair market value (based on the most recent Closing Price per share of the
Common Stock) of at least $12,500,000; (ii) any member of Current Management
ceases to be a director or executive officer (within the meaning of Rule 3b-7
promulgated by the Commission under the Exchange Act) of the Company; or (iii)
any member of Current Management ceases to devote a substantial part of his time
to the Company's business;
(c) the Company conveys, transfers or leases all or substantially all
of its assets to any other Person; or
(d) the Company consolidates or merges with or into any other Person
and (i) the Company is not the surviving corporation, (ii) the Company's
earnings per share of Common Stock determined on a pro forma basis, giving
effect to such merger or consolidation, for its fiscal year most recently ended
and any subsequent interim period with respect to which financial statements are
required to be delivered pursuant to SECTION 1201 of the Indenture, shall be
less than the Company's historical earnings per share for either such period,
which determination shall be made by the Board of Directors, as evidenced by a
Board Resolution, within five (5) days following the consummation of such
consolidation or merger, or (iii) at any time prior to the last day of the 36th
full calendar month following such consolidation or merger, persons who have
continuously served as officers or directors of the Company for a period of at
least 24 months immediately prior to the effective date of such consolidation or
merger cease to constitute a majority of the board of directors of the Person
formed by such consolidation or into or with which the Company is merged.
A "Delisting" shall be deemed to have occurred if and at such time as the
Common Stock is neither (a) listed on the New York Stock Exchange or the
American Stock Exchange nor (b) admitted for trading and traded through the
NASDAQ/NMS.
Notice of each Change of Control and each Delisting shall be given to each
Holder no later than ten (10) days following the occurrence of such event.
6. Optional Conversion. Any Holder shall have the right, at its option,
at any time prior to the close of business on December 1, 1997 to convert,
subject to the terms and provisions of the Indenture, the principal amount of
any Bond (or any portion of the principal amount thereof that is $1,000 or an
integral multiple of $1,000) into such number of fully paid and non-assessable
shares of Common Stock as is equal to (i) the principal amount of the Bond
divided by (ii) $5.00, subject to adjustment as provided in the Indenture (such
price, as so adjusted, is referred to herein as the "Conversion Price"), except
that (a) with respect to any Bond, or any portion thereof, which shall be called
for redemption pursuant to Paragraph 2 of the Bonds, such right shall terminate
at the close of business on the Redemption Date for such Bond, or such portion,
unless in any such case the Company shall default in payment of the Redemption
Price due upon such redemption and (b) with respect to any Bond, or any portion
thereof, delivered by a Holder for purchase by the Company pursuant to Paragraph
4 of the Bonds, such right shall terminate at the close of business on the
Purchase Date for such Bond, or such portion, unless in any such case the
Company shall default in payment of the Purchase Price therefor. Such
conversion right shall be exercised by the surrender of the Bond or Bonds, the
principal amount of which is so to be converted, to the Trustee at its Corporate
Trust Office any time during usual business hours, accompanied by written notice
that the Holder elects to convert such Bond or Bonds or any portion thereof and
specifying the name or names (with addresses) in which a certificate or
certificates for shares of Common Stock are to be issued and (if so required by
the Company) by a written instrument or instruments of transfer in form
reasonably satisfactory to the Trustee duly executed by the Holder or its duly
authorized legal representative and transfer tax stamps or funds therefor, if
required pursuant to the Indenture.
Upon conversion of any Bond or portion thereof, the Holder thereof shall be
entitled to receive payment of all accrued and unpaid interest on such Bond or
portion thereof through the date of conversion. The Company will deliver a
check in the amount of such accrued and unpaid interest plus any amount in lieu
of any fractional share.
7. Defaults and Remedies. If an Event of Default shall occur and be
continuing, the principal of (and premium, if any) and accrued interest on the
Bonds may be declared due and payable immediately in the manner and with the
effect provided in the Indenture.
8. Amendments and Waivers. The Indenture permits, with certain
exceptions as therein provided, the amendment thereof and the modification of
the rights and obligations of the Company and the rights of the Holders of the
Bonds under the Indenture at any time by the Company and the Trustee with the
consent of the Holders of a majority in aggregate principal amount of the Bonds
at the time Outstanding. The Indenture also contains provisions permitting the
Holders of specified percentages in aggregate principal amount of the Bonds at
the time Outstanding, on behalf of the Holders of all the Bonds, to waive
compliance by the Company with certain provisions of the Indenture and certain
past defaults under the Indenture and their consequences. Any such consent or
waiver by the Holder of this Bond shall be conclusive and binding upon such
Holder and upon all future Holders of this Bond and of any Bond issued upon the
registration of transfer hereof or in exchange herefor or in lieu hereof,
whether or not notation of such consent or waiver is made upon this Bond.
9. Obligations Unconditional. No reference herein to the Indenture and
no provision of this Bond or of the Indenture shall alter or impair the
obligation of the Company, which is absolute and unconditional, to pay the
principal of (and premium, if any) and interest on this Bond at the times, place
and rate, and in the coin or currency, herein prescribed.
<PAGE>
10. Denominations, Transfers, Exchange. The Bonds are issuable only in
registered form in denominations of $1,000 and any integral multiple thereof. A
Holder may transfer or exchange Bonds in accordance with the Indenture. The
Bond Registrar may require a Holder, among other things, to furnish appropriate
endorsements and transfer documents and to pay any taxes permitted by the
Indenture.
11. Persons Deemed Owners. Prior to due presentment of this Bond for
registration of transfer, the Company, the Trustee and any agent of the Company
or the Trustee may treat the Person in whose name this Bond is registered as the
owner hereof for all purposes, whether or not this Bond be overdue, and neither
the Company, the Trustee nor any such agent shall be affected by notice to the
contrary.
12. Governing Law. The Indenture and this Bond shall be governed by and
construed in accordance with the laws of the State of New York without regard to
the conflicts of law rules of such State.
13. No Recourse Against Others. No recourse shall be had for the payment
of the principal of (or premium, if any) or the interest on any Bonds, or any
part thereof, or of the indebtedness represented thereby, or upon any
obligation, covenant or agreement of the Indenture, against any incorporator, or
against any stockholder, officer or director, as such, past, present or future,
of the Company. By accepting a Bond, each Holder waives and releases all such
liability. The waiver and release are part of the consideration for the issue
of the Bonds.
14. Authentication. This Bond shall not be valid until an authorized
signatory of the Trustee (or an authenticating agent) manually signs the
certificate of authentication on the other side of this Bond.
15. Abbreviations. Customary abbreviations may be used in the name of
Holder or an assignee, such as TEN COM (=tenants in common), TENENT (=tenants by
the entireties), JT TEN (=joint tenants with rights of survivorship and not as
tenants in common), CUST (=custodian), and U/G/M/A (=Uniform Gift to Minors
Act).
ASSIGNMENT
I or we assign and transfer this Bond to:
(Insert assignee's social security or tax I.D. number)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type name, address and zip code of assignee)
and irrevocably appoint:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Agent to transfer this Bond on the books of the Company. The Agent may
substitute another to act for him.
[Check One]
[_] (a) this Bond is being transferred in compliance with the exemption from
registration under the Securities Act provided by Rule 144 or Rule
144A thereunder.
or
[_] (b) this Bond is being transferred other than in accordance with (a) above
and documents are being furnished that comply with the conditions of
transfer set forth in this Bond and the Indenture.
If none of the foregoing boxes is checked, the Trustee or Registrar shall not be
obligated to register this Bond in the name of any person other than the Holder
hereof unless and until the conditions to any such transfer of registration set
forth herein and in Section 305 of the Indenture shall have been satisfied.
Date: Your Signature:
----------------------- ----------------------
<PAGE>
---------------------------------------
(Sign exactly as your name appears on
the other side of this Bond)
---------------------------------------
Signature Guarantee:
(Signature must be guaranteed by a member firm of a national securities exchange
or of the National Association of Securities Dealers, Inc. or by a commercial
bank or trust company)
OPTION OF HOLDER TO ELECT PURCHASE/CONVERSION
If you want to elect to have all or any part of this Bond purchased by
the Company pursuant to Paragraph 4 herein or converted into Common Stock
pursuant to Section 1301 of the Indenture, check the appropriate box:
[_] Purchase/Paragraph 4 [_] Convert/Section 1301
If you want to have only part of the Bond purchased or converted by the
Company pursuant to the above Sections, state the amount you elect to have
purchased/converted:
$
---------------------
If you want the stock certificate made out in another person's name,
complete the following:
(Insert other person's social security or tax I.D. number)
----------------------------------------
----------------------------------------
----------------------------------------
----------------------------------------
(Print or type other person's name, address and zip code)
Date: Your Signature:
-------------------------- -----------------------
--------------------------------------
(Sign exactly as your name appears on
the other side of this Bond)
--------------------------------------
Signature Guarantee:
(Signature must be guaranteed by a member firm of a national securities exchange
or of the National Association of Securities Dealers, Inc. or by a commercial
bank or trust company)
<PAGE>
EXHIBIT 10.37
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 OR THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE
SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT OR AN APPLICABLE EXEMPTION TO THE REGISTRATION
REQUIREMENTS OF SUCH ACT AND IN COMPLIANCE WITH APPLICABLE STATE SECURITIES
LAWS.
POLYPHASE CORPORATION
12% SENIOR CONVERTIBLE DEBENTURES
DUE DECEMBER 1, 1997
NO. 2 $1,000,000
Polyphase Corporation, a corporation duly organized and existing under the
laws of the State of Nevada (herein called the "Company", which term includes
any successor Person under the Indenture hereinafter referred to) for value
received, hereby promises to pay to Kane & Co., or registered assigns, the
principal sum of One Million Dollars on December 1, 1997, and to pay interest
thereon from December 1, 1995 or from the most recent Interest Payment Date to
which interest has been paid, semi-annually on December 1 and June 1 in each
year, commencing June 1, 1996, at the rate of 12% per annum, until the principal
hereof is paid. In the event that, (i) the Company shall have received a
written request to effect a registration of securities under the Securities Act
pursuant to Section 2.1 of the Registration Rights Agreement and, for any reason
whatsoever, (ii) either (A) the Company shall not have filed with the Commission
a registration statement with respect to such registration in accordance with
Section 2.1 and the other applicable provisions of the Registration Rights
Agreement or (B) such registration statement shall have been so filed but shall
not have been declared effective by the Commission, in either case on or before
the 90th day following the receipt by the Company of such written request, the
interest rate in respect of the Bonds shall, on such date, increase to 12 1/4%
per annum, and shall further increase on the last day of each consecutive fiscal
quarter of the Company thereafter by an additional 1/4%; provided, however,
that the interest rate shall revert to 12% per annum when such registration
statement has been filed as aforesaid and declared effective by the Commission.
The interest so payable, and punctually paid, on any Interest Payment Date will,
as provided in such Indenture, be paid to the Person in whose name this Bond (or
one or more Predecessor Bonds) is registered at the close of business on the
Record Date immediately preceding such Interest Payment Date. The Company shall
pay interest on overdue principal (and premium, if any) at the interest rate
then in effect plus 1% per annum, and it shall pay interest on overdue
installments of interest at the same rate to the extent lawful. Interest on
this Bond shall be computed on the basis of a 360-day year of twelve 30-day
months.
The principal of (and premium, if any) and interest on this Bond shall be
payable at the Corporate Trust Office of the Trustee and at the office or agency
of the Company at 16885 Dallas Parkway, the City of Dallas, the State of Texas,
maintained for such purpose and at any other office or agency maintained by the
Company for such purpose; provided, however, that at the option of the Company
payment of interest may be made at the Corporate Trust Office of the Trustee, by
check mailed to the address of the Person entitled thereto as such address shall
appear in the Bond Register or by wire transfer of immediately available funds
to an account previously designated to the Company by such Person at least three
Business Days prior to the Interest Payment Date.
Reference is hereby made to the further provisions of this Bond set forth on
the reverse hereof, which further provisions shall for all purposes have the
same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by the
Trustee referred to on the reverse hereof by manual signature, this Bond shall
not be entitled to any benefit under the Indenture or be valid or obligatory for
any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its seal.
Dated: December 1, 1995
POLYPHASE CORPORATION
By:_______________________
Title:____________________
TRUSTEE'S CERTIFICATE OF AUTHENTICATION Attest:
IBJ SCHRODER BANK & TRUST __________________________
COMPANY, as Trustee, certifies Secretary
that this is one of the Bonds referred
to in the Indenture.
by_____________________________________
Authorized Signatory
<PAGE>
1. The Indenture. This Bond is one of a duly authorized issue of Bonds
of the Company designated as its 12% Senior Convertible Debentures due December
1, 1997 (herein called the "Bonds"), limited in aggregate principal amount to
$1,500,000, issued and to be issued under an Indenture, dated as of December 1,
1995 (herein called the "Indenture"), between the Company and IBJ Schroder Bank
& Trust Company, as Trustee (herein called the "Trustee", which term includes
any successor trustee under the Indenture), to which Indenture and all
indentures supplemental thereto reference is hereby made for a statement of the
respective rights, limitations of rights, duties and immunities thereunder of
the Company, the Trustee and the Holders of the Bonds and of the terms upon
which the Bonds are, and are to be, authenticated and delivered. The terms of
the Bonds include those stated in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act of 1939 as amended and in
effect on the date of the Indenture. All terms used in this Bond that are
defined in the Indenture shall have the meanings assigned to them in the
Indenture.
Initially, IBJ Schroder Bank & Trust Company, as Trustee, will act as
Paying Agent, Registrar and conversion agent. The Company may change any Paying
Agent, Registrar, Conversion Agent or co-registrar without notice. The Company
may act in any such capacity.
The Company will furnish to any Holder upon written request and without
charge a copy of the Indenture which has in it the text of the Bond. Requests
may be made to: Polyphase Corporation, 16885 Dallas Parkway, Dallas, Texas
75248, Attention: Corporate Secretary.
2. Optional Redemption. Subject to the conditions set forth below, the
Company may, at its option, redeem the Bonds, in whole at any time or in part
from time to time, at the following redemption prices (expressed as a percentage
of principal amount), payable in cash, in each case together with accrued
interest to the Redemption Date:
Redemption Period Percentage
----------------- ----------
Within 12 months
of the date hereof 105%
Thereafter 104%
Notwithstanding the preceding provisions of this Paragraph 2, the Company
shall not have the right to redeem any Bonds pursuant to this Paragraph 2 unless
(a) the Average Price per share of Common Stock for each of any 40 Trading Days
occurring in a period of 60 consecutive Trading Days during the First Contingent
Redemption Period shall have exceeded 250% of the Conversion Price in effect on
such day and (b) the Company shall have given to each Holder, in accordance with
SECTION 105 of the Indenture, within 10 days following the last day of such 60-
day period (the "Trigger Date"), written notice of such event, in which case the
Company shall have the right to redeem the Bonds as hereinabove described at any
time during the period commencing on the 51st day after the Trigger Date and
ending on November 30, 1997.
3. Notice of Redemption. Notice of redemption pursuant to Paragraph 2
hereof will be given at least 30 days but not more than 60 days before the
Redemption Date to each Holder of Bonds to be redeemed at its registered
address. If money sufficient to pay the Redemption Price of and accrued
interest on all Bonds (or portions thereof) to be redeemed on the Redemption
Date is deposited with the Paying Agent on or before the Redemption Date, on and
after the Redemption Date, interest will cease to accrue on such Bonds or
portions thereof.
4. Use of Proceeds Put Provision. In the event that the Company uses any
of the proceeds of the issuance of the Bonds other than to fund the purchase
price for the Acquisition, the Company shall immediately provide the Holders
with written notice of such other use. In such event, the Holders shall have
the right for a period of 90 days from the date such notice is received, at its
option, to require the Company to purchase all or any portion of such Holder's
Bonds at a price equal to the Purchase Price plus accrued but unpaid interest
through the date such Bonds are purchased by the Company.
5. Put Provision. In the event of a Change of Control or a Delisting
(each as hereinafter defined), each Holder shall have the right, at its option,
to require the Company to purchase all or any portion of such Holder's Bonds at
a price equal to the greater of (a) the Current Market Price per share of Common
Stock (determined with reference to the date described in the following clause
(i) or (ii), as applicable) multiplied by the number of shares of Common Stock
into which the aggregate principal amount of such Bonds is convertible at the
Conversion Price in effect on (i) in the event of a merger or consolidation
described in clause (d)(i) or (d)(ii) of the definition of Change of Control set
forth below, the earlier of (A) the date of execution of the definitive merger
or consolidation agreement in respect of such merger or consolidation and (B)
the date any of the principal terms of such merger or consolidation are publicly
announced or (ii) in the event of any other Change of Control, the date such
Change of Control occurs, and (b) the Redemption Price in effect on the date of
such event, plus accrued and unpaid interest to the Purchase Date, as provided
in, and subject to the terms of, the Indenture.
A "Change of Control" shall be deemed to have occurred if and at the time
that:
(a) any Person or "group" (within the meaning of Section 13(d)(3) of
the Exchange Act), other than Current Management (which for purposes of this
clause (a) shall include any Person to whom Current Management may transfer
Common Stock pursuant to SECTION 1401 of the Indenture) or their Affiliates, is
or becomes the beneficial owner, directly or indirectly, of outstanding shares
of stock of the Company entitling such Person or Persons to exercise 50% or more
of the total voting power of all classes of stock of the Company
<PAGE>
entitled to vote in the election of directors (the term "beneficial owner" shall
be determined in accordance with Rules 13d-3 and 13d-5 promulgated by the
Commission under the Exchange Act);
(b)(i) Current Management (including their Affiliates, other than the
Company, and any Person to whom Current Management may transfer Common Stock
pursuant to SECTION 1401 of the Indenture) cease to be the beneficial owner,
directly or indirectly, in the aggregate, of shares of Common Stock having a
fair market value (based on the most recent Closing Price per share of the
Common Stock) of at least $12,500,000; (ii) any member of Current Management
ceases to be a director or executive officer (within the meaning of Rule 3b-7
promulgated by the Commission under the Exchange Act) of the Company; or (iii)
any member of Current Management ceases to devote a substantial part of his time
to the Company's business;
(c) the Company conveys, transfers or leases all or substantially all
of its assets to any other Person; or
(d) the Company consolidates or merges with or into any other Person
and (i) the Company is not the surviving corporation, (ii) the Company's
earnings per share of Common Stock determined on a pro forma basis, giving
effect to such merger or consolidation, for its fiscal year most recently ended
and any subsequent interim period with respect to which financial statements are
required to be delivered pursuant to SECTION 1201 of the Indenture, shall be
less than the Company's historical earnings per share for either such period,
which determination shall be made by the Board of Directors, as evidenced by a
Board Resolution, within five (5) days following the consummation of such
consolidation or merger, or (iii) at any time prior to the last day of the 36th
full calendar month following such consolidation or merger, persons who have
continuously served as officers or directors of the Company for a period of at
least 24 months immediately prior to the effective date of such consolidation or
merger cease to constitute a majority of the board of directors of the Person
formed by such consolidation or into or with which the Company is merged.
A "Delisting" shall be deemed to have occurred if and at such time as the
Common Stock is neither (a) listed on the New York Stock Exchange or the
American Stock Exchange nor (b) admitted for trading and traded through the
NASDAQ/NMS.
Notice of each Change of Control and each Delisting shall be given to each
Holder no later than ten (10) days following the occurrence of such event.
6. Optional Conversion. Any Holder shall have the right, at its option,
at any time prior to the close of business on December 1, 1997 to convert,
subject to the terms and provisions of the Indenture, the principal amount of
any Bond (or any portion of the principal amount thereof that is $1,000 or an
integral multiple of $1,000) into such number of fully paid and non-assessable
shares of Common Stock as is equal to (i) the principal amount of the Bond
divided by (ii) $5.00, subject to adjustment as provided in the Indenture (such
price, as so adjusted, is referred to herein as the "Conversion Price"), except
that (a) with respect to any Bond, or any portion thereof, which shall be called
for redemption pursuant to Paragraph 2 of the Bonds, such right shall terminate
at the close of business on the Redemption Date for such Bond, or such portion,
unless in any such case the Company shall default in payment of the Redemption
Price due upon such redemption and (b) with respect to any Bond, or any portion
thereof, delivered by a Holder for purchase by the Company pursuant to Paragraph
4 of the Bonds, such right shall terminate at the close of business on the
Purchase Date for such Bond, or such portion, unless in any such case the
Company shall default in payment of the Purchase Price therefor. Such
conversion right shall be exercised by the surrender of the Bond or Bonds, the
principal amount of which is so to be converted, to the Trustee at its Corporate
Trust Office any time during usual business hours, accompanied by written notice
that the Holder elects to convert such Bond or Bonds or any portion thereof and
specifying the name or names (with addresses) in which a certificate or
certificates for shares of Common Stock are to be issued and (if so required by
the Company) by a written instrument or instruments of transfer in form
reasonably satisfactory to the Trustee duly executed by the Holder or its duly
authorized legal representative and transfer tax stamps or funds therefor, if
required pursuant to the Indenture.
Upon conversion of any Bond or portion thereof, the Holder thereof shall be
entitled to receive payment of all accrued and unpaid interest on such Bond or
portion thereof through the date of conversion. The Company will deliver a
check in the amount of such accrued and unpaid interest plus any amount in lieu
of any fractional share.
7. Defaults and Remedies. If an Event of Default shall occur and be
continuing, the principal of (and premium, if any) and accrued interest on the
Bonds may be declared due and payable immediately in the manner and with the
effect provided in the Indenture.
8. Amendments and Waivers. The Indenture permits, with certain
exceptions as therein provided, the amendment thereof and the modification of
the rights and obligations of the Company and the rights of the Holders of the
Bonds under the Indenture at any time by the Company and the Trustee with the
consent of the Holders of a majority in aggregate principal amount of the Bonds
at the time Outstanding. The Indenture also contains provisions permitting the
Holders of specified percentages in aggregate principal amount of the Bonds at
the time Outstanding, on behalf of the Holders of all the Bonds, to waive
compliance by the Company with certain provisions of the Indenture and certain
past defaults under the Indenture and their consequences. Any such consent or
waiver by the Holder of this Bond shall be conclusive and binding upon such
Holder and upon all future Holders of this Bond and of any Bond issued upon the
registration of transfer hereof or in exchange herefor or in lieu hereof,
whether or not notation of such consent or waiver is made upon this Bond.
9. Obligations Unconditional. No reference herein to the Indenture and
no provision of this Bond or of the Indenture shall alter or impair the
obligation of the Company, which is absolute and unconditional, to pay the
principal of (and premium, if any) and interest on this Bond at the times, place
and rate, and in the coin or currency, herein prescribed.
<PAGE>
10. Denominations, Transfers, Exchange. The Bonds are issuable only in
registered form in denominations of $1,000 and any integral multiple thereof. A
Holder may transfer or exchange Bonds in accordance with the Indenture. The
Bond Registrar may require a Holder, among other things, to furnish appropriate
endorsements and transfer documents and to pay any taxes permitted by the
Indenture.
11. Persons Deemed Owners. Prior to due presentment of this Bond for
registration of transfer, the Company, the Trustee and any agent of the Company
or the Trustee may treat the Person in whose name this Bond is registered as the
owner hereof for all purposes, whether or not this Bond be overdue, and neither
the Company, the Trustee nor any such agent shall be affected by notice to the
contrary.
12. Governing Law. The Indenture and this Bond shall be governed by and
construed in accordance with the laws of the State of New York without regard to
the conflicts of law rules of such State.
13. No Recourse Against Others. No recourse shall be had for the payment
of the principal of (or premium, if any) or the interest on any Bonds, or any
part thereof, or of the indebtedness represented thereby, or upon any
obligation, covenant or agreement of the Indenture, against any incorporator, or
against any stockholder, officer or director, as such, past, present or future,
of the Company. By accepting a Bond, each Holder waives and releases all such
liability. The waiver and release are part of the consideration for the issue
of the Bonds.
14. Authentication. This Bond shall not be valid until an authorized
signatory of the Trustee (or an authenticating agent) manually signs the
certificate of authentication on the other side of this Bond.
15. Abbreviations. Customary abbreviations may be used in the name of
Holder or an assignee, such as TEN COM (=tenants in common), TENENT (=tenants by
the entireties), JT TEN (=joint tenants with rights of survivorship and not as
tenants in common), CUST (=custodian), and U/G/M/A (=Uniform Gift to Minors
Act).
ASSIGNMENT
I or we assign and transfer this Bond to:
(Insert assignee's social security or tax I.D. number)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type name, address and zip code of assignee)
and irrevocably appoint:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Agent to transfer this Bond on the books of the Company. The Agent may
substitute another to act for him.
[Check One]
[_] (a) this Bond is being transferred in compliance with the exemption from
registration under the Securities Act provided by Rule 144 or Rule
144A thereunder.
or
[_] (b) this Bond is being transferred other than in accordance with (a) above
and documents are being furnished that comply with the conditions of
transfer set forth in this Bond and the Indenture.
If none of the foregoing boxes is checked, the Trustee or Registrar shall not be
obligated to register this Bond in the name of any person other than the Holder
hereof unless and until the conditions to any such transfer of registration set
forth herein and in Section 305 of the Indenture shall have been satisfied.
Date: Your Signature:
-------------------------- ------------------------
<PAGE>
--------------------------------------
(Sign exactly as your name appears on
the other side of this Bond)
Signature Guarantee: --------------------------------------
(Signature must be guaranteed by a member firm of a national securities exchange
or of the National Association of Securities Dealers, Inc. or by a commercial
bank or trust company)
OPTION OF HOLDER TO ELECT PURCHASE/CONVERSION
If you want to elect to have all or any part of this Bond purchased by
the Company pursuant to Paragraph 4 herein or converted into Common Stock
pursuant to Section 1301 of the Indenture, check the appropriate box:
[_] Purchase/Paragraph 4 [_] Convert/Section 1301
If you want to have only part of the Bond purchased or converted by the
Company pursuant to the above Sections, state the amount you elect to have
purchased/converted:
$
------------------
If you want the stock certificate made out in another person's name,
complete the following:
(Insert other person's social security or tax I.D. number)
----------------------------------------
----------------------------------------
----------------------------------------
----------------------------------------
(Print or type other person's name, address and zip code)
Date: Your Signature:
--------------------------- ------------------------
--------------------------------------
(Sign exactly as your name appears on
the other side of this Bond)
Signature Guarantee: --------------------------------------
(Signature must be guaranteed by a member firm of a national securities exchange
or of the National Association of Securities Dealers, Inc. or by a commercial
bank or trust company)
<PAGE>
EXHIBIT 10.38
RENEWAL
PROMISSORY NOTE
(this "Note")
$11,200,000.00 Date: October 31, 1995
FOR VALUE RECEIVED, the undersigned, Polyphase Corporation (the
"Borrower"), promises to pay to the order of Harold Estes("Lender"), at Lufkin,
Texas, the principal sum of Eleven Million Two Hundred Thousand and 00/100
Dollars ($11,200,000.00), upon the following terms:
1. INTEREST. The unpaid principal balance hereof shall be due and payable
--------
on the Maturity Date (as hereafter defined), with interest thereon at the rate
of seventeen and one-half percent (17 l/2%) per annum. Notwithstanding anything
to the contrary contained herein, past due principal and interest shall bear
interest at the rate of interest equal to the lesser of (a) eighteen percent
(18%) per annum or (b) the Maximum Lawful Rate. Interest shall be calculated at
a daily rate equal to l/365th of the applicable annual percentage rate. The
"Maximum Lawful Rate" shall mean the maximum rate of interest from time to time
permitted under federal or state laws now or hereafter applicable to this Note,
after taking into account, to the extent required by applicable law, any and all
relevant changes and calculations.
2. PAYMENT OF PRINCIPAL AND INTEREST. The entire unpaid principal amount
---------------------------------
of this Note shall be due and payable on February 29, 1996, (the "Maturity
Date").
If any installment of principal on this Note shall become due on a
Saturday, Sunday or other day on which national banks are not open for business,
such payment shall be due on the next succeeding business day. Each payment
hereunder (including any prepayment) received by Lender shall be applied first
to the payment of accrued interest due hereunder, if any, and then to the
reduction of the unpaid principal balance hereof. After the occurrence and
during the continuation of any event of default (as hereinafter defined), any
payment hereunder received by Lender may be applied in any manner as Lender
determines, in his sole discretion.
3. PREPAYMENT. The Borrower may, at its option upon five business days
----------
notice, prepay the outstanding amount of this Note, in whole or in part, with
accrued interest but without any premium or other prepayment fee.
4. SECURITY. The indebtedness evidenced hereby is secured by: (i) that
--------
certain Pledge Agreement dated June 24, 1994, as amended, between Borrower, as
pledgor, and Lender, as secured party (the "Pledge Agreement"), whereby Borrower
grants to Lender a first and prior lien and security interest in and upon the
Pledge Stock (as defined in the Pledge Agreement) and (ii) that certain Security
Agreement dated June 24, 1994, as amended, between Texas Timberjack, Inc., a
Texas corporation, as debtor (the "Company"), and Lender, as secured party (the
"Security Agreement"), whereby the Company grants to Lender a lien and security
interest in and upon all of the Assets (as defined in the Security Agreement) of
the Company.
<PAGE>
5. EVENTS OF DEFAULT; REMEDIES. Each of the following shall constitute an
---------------------------
event of default hereunder:
a. Borrower's failure to make any payment hereunder when due;
b. Borrower's default under the terms and conditions of the Pledge
Agreement;
c. The Company's default under the terms and conditions of the Security
Agreement;
d. A decree or order by a court of competent jurisdiction shall have been
entered either: (i) adjudging Borrower or the Company a bankrupt or insolvent,
or (ii) approving a petition seeking reorganization or arrangement of the
Borrower under state or federal law, or (iii) appointing for the Borrower or
the Company a receiver, liquidator or trustee or assignee in bankruptcy or
insolvency or any receiver of all or any substantial portion of its property,
and such decree or order shall continue in force for a period of more than
thirty days; or
e. The Borrower or the Company shall institute any proceeding to be
adjudicated a voluntary bankrupt, or shall consent to the filing of a
bankruptcy or reorganization petition against it, or shall consent to the
appointment of a receiver, liquidator, or trustee or assignee in bankruptcy or
insolvency or any receiver of all or any substantial portion of its property, or
Borrower makes a general assignment for the benefit of creditors or admits in
writing its inability to pay its debts as they become due.
Upon the occurrence of any event of default, this Note, without notice or demand
by Lender, shall become immediately due and payable. Upon the occurrence of an
event of default Lender will be entitled to any and all remedies described in
the Pledge Agreement and/or the Security Agreement, which remedies are
incorporated herein for all purposes, and all other remedies available at law or
in equity.
6. CUMULATIVE RIGHTS. No delay on the part of the holder of this Note in
-----------------
the exercise of any power or right under this Note or any other agreement,
instrument or document executed pursuant hereto or in connection herewith shall
operate as a waiver thereof, nor shall a single or partial exercise of any other
power or right. Enforcement by the holder of this Note of any security for the
payment hereof shall not constitute any election by it of remedies so as to
preclude the exercise of any other remedy available to it.
7. WAIVER. Borrower and each surety, endorser, guarantor and other party
------
ever liable for payment of any part hereof jointly and severally waive
presentment and demand for payment, protest, notice of intention to accelerate,
notice of acceleration and notice of protest and nonpayment, and agree that
their liability on this Note shall not be affected by, and hereby consent to any
renewal or extension in the time of payment hereof, any indulgences or any
release or change on any security for the payment of this Note.
<PAGE>
8. USURY. Regardless of any provisions contained in this Note or in any
-----
other documents and instruments referred to herein, Lender shall never be deemed
to have contracted for or be entitled to receive, collect, or apply as interest
on this Note any amount in excess of the Maximum Lawful Rate, and in the event
Lender ever receives, collects or applies as interest any such excess, such
amount which would be excessive interest shall be applied to the reduction of
the unpaid, principal balance of this Note, and, if the principal balance of
this note is paid in full, any remaining excess shall forthwith be paid to
Borrower. In determining whether or not the interest paid or payable under any
specific contingency exceeds the Maximum Lawful Rate, Borrower and Lender shall,
to the maximum extent permitted under applicable law, (i) characterize any non-
principal payment as an expense, fee or premium, rather than as interest; and
(ii) exclude voluntary prepayments and the effect thereof; and (iii) amortize,
prorate, allocate, and spread, in equal parts, the total amount of interest
throughout the entire contemplated term of this Note so that the interest rate
is uniform throughout the term of this Note; provided that if this Note is paid
and performed in full prior to the end of the full contemplated term thereof,
and if the interest received during the actual period of existence thereof
exceeds the Maximum Lawful Rate, the holder of this Note shall refund to
Borrower the amount of such excess or credit the amount of such excess against
the principal amount due thereunder, and in such event, no holder of this Note
shall be subject to any penalties provided by any laws for contracting for,
charging for, or receiving interest in excess of the Maximum Lawful Rate.
If at any time and from time to time Lender is prevented from collecting
the rate of interest and the fees specified in this Note, by applicable law or
governmental regulation, it shall be entitled to recoup the amount it would have
otherwise been able to collect when such recoupment will not violate such
applicable law or governmental regulation. Such recoupment shall be
accomplished by the Borrower paying interest at the Maximum Lawful Rate until
such time as Lender shall have fully recouped the interest it would have
otherwise been able to collect from Borrower in the absence of such applicable
law or governmental regulation. During any such period of recoupment, interest
collected by Lender shall first be credited to payment of current interest due
at the rate specified in this Note, then any remaining interest collected shall
be applied to recoupment. When Lender shall have recouped all such interest,
the interest rate payable by Borrower shall revert to the rate specified in this
Note. In no event, however, shall the interest rate charged hereunder ever
exceed the maximum rate of interest permitted by applicable law.
9. GOVERNING LAW. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN
-------------
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND THE APPLICABLE LAWS OF THE
UNITED STATES OF AMERICA. THIS NOTE IS PERFORMABLE IN ANGELINA COUNTY, TEXAS,
AND BORROWER WAIVES THE RIGHT TO BE SUED HEREON ELSEWHERE. COURTS WITHIN THE
STATE OF TEXAS SHALL HAVE JURISDICTION OVER ANY AND ALL DISPUTES BETWEEN LENDER
AND BORROWER, WHETHER AT LAW OR IN EQUITY, INCLUDING, BUT NOT LIMITED TO, ANY
AND ALL DISPUTES ARISING OUT OF OR RELATING TO THIS NOTE OR ANY OTHER AGREEMENT,
INSTRUMENT OR DOCUMENT EXECUTED IN CONNECTION HEREWITH; AND VENUE IN ANY SUCH
DISPUTE SHALL BE IN LUFKIN, TEXAS.
<PAGE>
10. ATTORNEY'S FEES. If this Note is not paid at maturity whether by
---------------
acceleration or otherwise or is placed in the hands of an attorney for
collection, or suit is filed hereon, or proceedings are had in probate,
bankruptcy, receivership, reorganization, arrangement or other legal proceedings
for collection thereof, Borrower agrees to pay Lender its collection costs,
including a reasonable amount as attorney's fees, but in no event to exceed the
maximum amount permitted by law.
11. SEVERABILITY. If any portion of this Note is declared invalid, for
------------
any reason, such declaration shall not affect the validity of any remaining
portion, which remaining portion shall remain in force and effect as if this
Note had been executed with the invalid portion thereof eliminated.
12. HEADINGS. The headings used herein are for convenience only, have no
--------
substantive content, may not thoroughly describe the contents of the paragraphs
which they head and shall not be used in construing this Note.
13. BUSINESS PURPOSE. The indebtedness represented by this Note (and any
----------------
predecessor indebtedness extended and renewed hereby) was and is for business
purposes only and not for any personal, family or household purposes.
14. MODIFICATION, EXTENSION AND RENEWAL. This Note is a modification,
-----------------------------------
extension and renewal of that one certain renewed and extended promissory note
dated October 31, 1994 in the original amount of Ten Million and 00/100 Dollars
($10,000,000.00) given by Borrower to Lender (the "First Amended Note").
Borrower acknowledges that the First Amended Note has matured. The First Amended
Note was a modification, extension and renewal of that one certain promissory
note dated June 24, 1994 in the original amount of Ten Million and 00/100
Dollars ($10,000,000.00) given by Borrower to Lender (the "Original Note").
Following the execution and delivery of the First Amended Note the Original Note
was marked "modified, extended and renewed" and attached to the First Amended
Note. Following the execution and delivery of this Note the First Amended Note
will be marked "modified, extended and renewed" and the First Amended Note and
the Original Note will be attached hereto. The collateral given under the
Pledge Agreement and the Security Agreement is not being released or modified.
15. NOTICES. All notices and other communications hereunder shall be in
-------
writing and shall be deemed given if delivered personally or by facsimile
transmission, telexed or mailed by registered or certified mail (return receipt
requested), postage prepaid, to the parties at the following addresses (or at
such other address for a party as shall be specified by like notice):
BORROWER:
Polyphase Corporation
16885 Dallas Parkway, Suite 400
Dallas, Texas 75248
Fax No. (214) 732-6430
Attn: Paul A. Tanner
<PAGE>
LENDER:
Harold Estes
3409 S. Medford
Lufkin, Texas 75901
Fax No. (409) 639-3673
IN WITNESS WHEREOF, Borrower has duly executed this note as of the day and
year above first written.
BORROWER:
--------
POLYPHASE CORPORATION
[Signature of Paul A. Tanner
appears here]
By:_______________________________________
Paul A. Tanner, President
<PAGE>
EXHIBIT 10.39
AMENDED PLEDGE AGREEMENT
This Amended Pledge Agreement (the "Agreement") is made and entered into
effective as of October 31, 1995 (the "Effective Date"), between Polyphase
Corporation ("Pledgor"), and Harold Estes ("Secured Party").
W I T N E S S E T H :
-------------------------
WHEREAS, pursuant to the terms of that one certain Stock Purchase
Agreement dated November 22, 1993, as amended by amendments one through four
thereto (the Stock Purchase Agreement, as amended is referred to herein as the
"Stock Purchase Agreement") Pledgor has become the owner of 100,000 shares (the
"Stock") of the issued and outstanding common stock, no par value of Texas
Timberjack, Inc., a Texas corporation (the "Company"), which represents one
hundred percent (100%) of the outstanding shares of the Company; and
WHEREAS, pursuant to the terms of the Stock Purchase Agreement the
Pledgor executed that certain Ten Million and 00/100 Dollar ($10,000,000.00)
promissory note (the "Original Note") made payable to the order of the Secured
Party; and
WHEREAS, the Original Note has been modified, renewed and extended
pursuant to the terms of a Renewal Promissory Note dated October 31, 1995 in the
principal amount of Eleven Million Two Hundred Thousand and 00/100 Dollars
($11,200,000.00) (the "Renewal Note"); and
WHEREAS, the Pledgor's obligations to the Secured Party have been
secured pursuant to the terms of a Pledge Agreement dated as June 24, 1994
between Pledgor and Secured Party (the "Pledge Agreement"); and
WHEREAS, it is the parties intention that the Pledge Agreement shall
continue to secure the obligations of Pledgor to the Secured Party, including
payment of the Renewal Note;
NOW, THEREFORE, in consideration of the foregoing, the covenants and
agreement contained herein, and for Ten Dollars ($10.00) and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties agree as follows:
1. Section 1.2 of the Pledge Agreement is hereby amended to read in
its entirely as follows:
Section 1.2 Secured Obligations. This Agreement and the security
-------------------
interest herein created secures (i) the full and punctual payment and
performance of all indebtedness, liabilities and obligations now owed or
hereafter owing by Pledgor to Secured Party (the "Secured Obligations")
including those under that certain promissory note executed by Pledgor in
favor of Secured Party in the original principal amount of Eleven Million Two
Hundred Thousand and 00/100 Dollars ($11,200,000.00) (the "Note"), as the same
may be renewed, extended, modified or amended from time to time, and (ii) full
and punctual
<PAGE>
performance of all the obligations of Pledgor to the Secured Party under the
terms of the Stock Purchase Agreement.
2. Except as otherwise provided herein, all terms, covenants and
conditions contained in the Pledge Agreement continue in full force and effect
without modification or alteration.
Executed as of the 31st day of October, 1995.
[Signature of Harold Estes
appears here]
----------------------------------------
Harold Estes
POLYPHASE CORPORATION
[Signature of Paul A. Tanner
appears here]
By ____________________________________
Paul A. Tanner
<PAGE>
EXHIBIT 10.40
AMENDED SECURITY AGREEMENT
This Amended Security Agreement is dated as of October 31, 1995 between
Texas Timberjack, Inc., a Texas corporation ("Pledgor"), and Harold Estes
("Secured Party") and amends that certain Security Agreement between the parties
dated as of June 24, 1994.
WHEREAS, Secured Party has sold to Polyphase Corporation ("Polyphase") all
of the issued and outstanding capital stock of Pledgor and Polyphase gave its
Ten Million and 00/100 Dollar ($10,000,000.00) promissory note (the "Note") as
partial consideration for the purchase of such stock; and
WHEREAS, the Note has been modified, renewed and extended and is now
evidenced by Polyphase's Eleven Million Two Hundred Thousand and 00/100 Dollar
($11,200,000.00) promissory note (the "Renewal Note"); and
WHEREAS, as a subsidiary of Polyphase, which is a public company, Pledgor
has been able and expects in the future to be able to obtain larger lines of
credit at more attractive interest rates than previously available to it and to
receive other direct benefits as a result of becoming a subsidiary of Polyphase;
and
WHEREAS, as an inducement to Secured Party to extend such credit to
Polyphase, Pledgor has agreed to grant Secured Party a security interest in the
property described in the Security Agreement and Pledgor acknowledges it will
receive a direct benefit therefrom;
NOW, THEREFORE, for and in consideration of the premises and mutual
undertaking of the parties, and Ten Dollars ($10.00) and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereto agree as follows:
1. Section 1 of the Security Agreement is hereby amended to read in its
entirety as follows:
Secured Indebtedness - All indebtedness, obligations and liabilities of
--------------------
Polyphase to Secured Party including, but not limited to, those under the Note
and Renewal Note, whether now existing or hereafter arising or arising under
this Security Agreement or otherwise and all renewals and extensions thereof,
and all interest accruing thereon, fees charged in connection therewith,
expenses reimbursable as provided therein, and attorney's fees incurred in the
enforcement or collection thereof, regardless of whether such indebtedness,
obligations and liabilities are direct, indirect, fixed, contingent, joint,
several or joint and several, and whether now existing or hereafter arising
and however acquired.
2. Except as expressly provided herein, all other terms, covenants and
conditions of the Security Agreement remain in full force and effect without
modification or alteration.
<PAGE>
Executed as of the 31st day of October, 1995.
SECURED PARTY:
[Signature of Harold Estes
appears here]
--------------------------------------
Harold Estes
PLEDGOR:
TEXAS TIMBERJACK, INC.
[Signature appears here]
By _______________________________________
Title_____________________________________
<PAGE>
EXHIBIT 21.1
Polyphase Corporation
Subsidiaries of Registrant
Polyphase Instrument Co.
Network America, Inc
Letronix, Inc.
Dallas Parkway Properties Incorporated
PC Repair of Florida, Inc.
Register-Mate, Inc.
Texas Timberjack, Inc.
Micro Configurations, Inc.
Overhill Farms, Inc.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-3 No. 33-85334) of Polyphase Corporation and in the related Prospectus and in
the Registration Statements (Form S-8 No. 33-82008, No. 33-75860 and No. 33-
72458) pertaining to the 1994 Stock Option Plan and various stock option
agreements of our report dated December 8, 1995, with respect to the
consolidated financial statements and schedules of Polyphase Corporation
included in this Annual Report (Form 10-K) for the year ended September 30,
1995.
/s/ ERNST & YOUNG LLP
Dallas, Texas
January 9, 1996
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statement on Post-Effective Amendment No.
2 to Form SB-2 on Form S-3 (No. 33-85334) and to the incorporation by reference
in the Registration Statements on Form S-8 (Nos. 33-82008, 33-755860 and 33-
72458) of Polyphase Corporation of our report dated January 4, 1995 appearing on
page F-3 of this Form 10-K.
PRICE WATERHOUSE LLP
Dallas, Texas
January 11, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> SEP-30-1995
<CASH> 3,275,000
<SECURITIES> 0
<RECEIVABLES> 20,529,000
<ALLOWANCES> (507,000)
<INVENTORY> 26,008,000
<CURRENT-ASSETS> 51,648,000
<PP&E> 12,079,000
<DEPRECIATION> (2,672,000)
<TOTAL-ASSETS> 88,159,000
<CURRENT-LIABILITIES> 37,671,000
<BONDS> 0
<COMMON> 126,000
0
0
<OTHER-SE> 21,011,000
<TOTAL-LIABILITY-AND-EQUITY> 88,159,000
<SALES> 102,035,000
<TOTAL-REVENUES> 102,035,000
<CGS> 82,056,000
<TOTAL-COSTS> 13,228,000
<OTHER-EXPENSES> 592,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,791,000
<INCOME-PRETAX> 3,553,000
<INCOME-TAX> 76,000
<INCOME-CONTINUING> 3,286,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,286,000
<EPS-PRIMARY> .26
<EPS-DILUTED> .26
</TABLE>
