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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) JULY 12, 1996
POLYPHASE CORPORATION
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(Exact name of registrant as specified in its charter)
NEVADA 1-9083 23-2708876
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(State or other jurisdiction of (Commission File (IRS Employer
incorporation) Number) Identification No.)
16885 DALLAS PARKWAY, DALLAS, TEXAS 75248
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (214) 732-0010
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ITEM 5. OTHER EVENTS
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On July 12, 1996, but effective as of July 1, 1996, Polyphase Corporation
(the "Company"), sold 51% of the outstanding capital stock (the "Stock") of its
wholly owned subsidiary, PC Networx America, Inc. ("PCNA") to Letronix
Acquisition Corp. ("Acquisition") pursuant to a Stock Purchase Agreement dated
as of June 28, 1996 (the "Stock Purchase Agreement"). PCNA's sole assets
consisted of the outstanding capital stock of the following corporations:
Network America, Inc., PC Repair of Florida, Inc., Letronix, Inc. and Register-
Mate, Inc. (the "Subsidiaries").
The consideration for the Stock consisted of $475,000 in cash, 1,175,000
shares of Acquisition's Class A Preferred Stock (the "Preferred Stock"), and a
secured promissory note (the "Note") from Acquisition in the original principal
amount of $850,000 and bearing interest at 7% per annum. Interest on the Note
is payable in arrears every six months, commencing on the last business day of
December, 1996 and continuing up to and including the last business day of
December, 1997. On January 1, 1998, all principal and accrued but unpaid
interest on the Note is due and payable. The principal amount of the Note is
subject to adjustment (up or down) depending on the difference between (i) 51%
of the book value of the outstanding Common Stock of PCNA on June 30, 1996 and
(ii) $2,500,000. The Note is secured by the Stock.
The sale of the Stock left the Company with a 49% equity ownership of PCNA,
consisting of an aggregate of 980,000 shares (the "Remaining Shares") of Common
Stock. In connection with the sale of the Stock, the Company granted
Acquisition an option to purchase up to 200,000 of the Remaining Shares (the
"Optioned Shares") at a price per share ranging from 1.25 times to 1.75 times
the book value of the Common Stock of PCNA as of June 30, 1996. Such option is
exercisable at any time on or prior to the 545th day (the "Termination Date")
following the date on which the registration statement relating to a proposed
registered spin-off (the "Spin-off") by the Company of 600,000 of the Remaining
Shares is first declared effective by the Securities and Exchange Commission
(the "Effective Date"). The Company has also granted Acquisition a right of
first refusal to purchase at an agreed to valuation (i) prior to the Termination
Date, any of the Remaining Shares other than the Optioned Shares and (ii) on or
after the Termination Date, any of the Remaining Shares. This right of first
refusal is exercisable on any sales proposed to be made by the Company on or
prior to June 28, 1999. If the Effective Date does not occur on or before
December 28, 1996, Acquisition has the option to purchase from the Company
600,000 of the Remaining Shares for the consideration described in Section 2(a)
of the Stock Purchase Agreement.
Acquisition has agreed to vote in its shares of Common Stock of PCNA to
elect one (1) designee of the Company to the board of directors of PCNA, which
may not consist of more than seven (7) numbers.
The terms of the stock sale, the options granted by the Company and the
right of first refusal granted by the Company are set forth in the Stock
Purchase Agreement, that certain Secured Promissory Note, dated as of June 28,
1996, that certain Security and Pledge Agreement, dated as of June 28, 1996, and
that certain Stock Option and Right of First Refusal Agreement, dated as of June
28, 1996. Reference is made to the documents listed above, each of which is
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included as an exhibit to this current report, for a more complete description
of the terms and provisions of each such document.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
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(a) Financial Statements of business acquired.
Not applicable.
(b) Pro forma financial information.
Not applicable.
(c) Exhibits.
1. Stock Purchase Agreement, dated as of June 28, 1996.
2. Secured Promissory Note, dated as of June 28, 1996.
3. Security and Pledge Agreement, dated as of June 28, 1996.
4. Stock Option and Right of First Refusal Agreement, dated as of
June 28, 1996.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
POLYPHASE CORPORATION
(Registrant)
Date: August 1, 1996 By: /s/ Paul A. Tanner
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Paul A. Tanner
President
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EXHIBIT 1
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement ("Agreement") is entered into as of June 28,
1996, by Letronix Acquisition Corp., a Nevada corporation ("Buyer"), and
Polyphase Corporation, a Nevada corporation ("Seller").
RECITALS
Seller desires to sell, and Buyer desires to purchase, 1,020,000 shares
(the "Shares") of capital stock of PC Networx America, Inc., a Nevada
corporation (the "Company"), being fifty-one percent (51%) of the outstanding
shares of the Common Stock, par value $.001 per share, of the Company (the
"Common Stock"), for the consideration and on the terms set forth in this
Agreement.
AGREEMENT
The parties, intending to be legally bound, agree as follows:
1. SALE AND TRANSFER OF SHARES; CLOSING.
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1.1 SHARES. Subject to the terms and conditions of this Agreement, at
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the Closing, Seller will sell and transfer the Shares to Buyer, and Buyer will
purchase the Shares from Seller.
1.2 PURCHASE PRICE. The purchase price (the "Purchase Price") for the
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Shares will be equal to 51% of the book value of the outstanding shares of
Common Stock of the Company as of March 31, 1996, which is hereby deemed to be
equal to $2,500,000. The Purchase Price shall be subject to a post-Closing
adjustment as set forth in SECTION 1.5 hereof.
1.3 CLOSING. The purchase and sale (the "Closing") provided for in this
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Agreement will take place at the offices of Seller at 16885 Dallas Parkway, 4th
Floor, Dallas, Texas, at 10:00 a.m. (local time) on June 28, 1996 or at such
other time and place as the parties may agree (the "Closing Date"). Subject to
the provisions of SECTION 9, failure to consummate the purchase and sale
provided for in this Agreement on the date and time and at the place determined
pursuant to this SECTION 1.3 will not result in the termination of this
Agreement and will not relieve any party of any obligation under this Agreement.
1.4 CLOSING OBLIGATIONS. At the Closing:
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(a) Seller will deliver to Buyer:
(i) certificates representing the Shares, duly endorsed (or
accompanied by duly executed stock powers) (which Buyer will return to Seller as
collateral as hereinafter described);
(ii) a certificate executed by Seller to the effect that, except as
otherwise stated in such certificate, each of Seller's representations and
warranties in this Agreement was accurate in all material respects as of the
date of this Agreement and is accurate in all material respects as of the
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Closing Date as if made on the Closing Date (giving full effect to any
supplements to the Disclosure Schedule (as hereinafter defined) that were
delivered by Seller to Buyer at or prior to the Closing Date);
(b) Buyer will deliver to Seller the Purchase Price at Closing, as follows:
(i) cash in the amount of Four Hundred Seventy Five Thousand Dollars
($475,000) by bank cashier's or certified check payable to the order of Seller,
or, at Seller's election, by wire transfer to accounts specified by Seller;
(ii) One Million One Hundred Seventy Five Thousand (1,175,000) shares
of the Buyer's Class A Preferred Stock, par value $1.00 per share (the
"Preferred Stock"), having the designations, preferences and relative,
participating, optional and other rights as set forth on the Designation of
Class A Preferred Stock attached hereto as ANNEX A;
(iii) A secured promissory note in the amount of $850,000 (the "Note")
having the terms and provisions set forth in the form thereof attached hereto as
ANNEX B; and
(iv) a certificate executed by Buyer to the effect that, except as
otherwise stated in such certificate, each of Buyer's representations and
warranties in this Agreement was accurate in all material respects as of the
date of this Agreement and is accurate in all material respects as of the
Closing Date as if made on the Closing Date.
1.5 POST-CLOSING ADJUSTMENT. The Note issued to Seller at Closing shall
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be subject to increase or decrease after the Closing, based upon the book value
of the Common Stock of the Company as of June 30, 1996, as set forth in this
SECTION 1.5. Promptly following the Closing, an auditor of nationally
recognized standing reasonably acceptable to both Seller and Buyer shall audit
the consolidated balance sheet of the Company and its subsidiaries as of June
30, 1996 and shall determine therefrom the book value of the outstanding shares
of Common Stock as of June 30, 1996 (the "Book Value") and shall report its
finding to both Seller and Buyer. The report of such auditor shall be final and
binding on both Seller and Buyer. In the event that the Book Value multiplied
by 51%, as such figure is rounded to the nearest whole number (the "Pro Rata
Book Value"), is less than $2,500,000, then the Seller shall promptly surrender
to Buyer the Note referred to in SECTION 1.4(B)(III) above in exchange for a new
promissory note (the "New Note") with terms identical to the Note except that
the principal amount of such New Note shall be reduced to equal (i) $850,000
less (ii) the difference between the Pro Rata Book Value and $2,500,000;
provided, however, that in no event shall Seller be required to pay money to
Buyer as a result of the adjustment, if any, hereunder. In the event that the
Pro Rata Book Value is more than $2,500,000, then Seller shall promptly
surrender the Note referred to in SECTION 1.4(B)(III) above in exchange for a
new promissory note (the "Alternate New Note") with terms identical to the Note
except that the principal amount of such Alternate New Note shall be increased
to equal (i) $850,000 plus (ii) the difference between $2,500,000 and the Pro
Rata Book Value. For purposes of this Agreement, if the New Note or the
Alternate New Note are issued, the capitalized term "Note" as used herein shall
be interpreted to mean the "New Note" or the "Alternate New Note" where the
context requires.
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2. SPECIAL POST-CLOSING ITEMS.
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(a) In connection with the acquisition contemplated hereby, Seller agrees
that following the Closing, it will use its best efforts to effect the
distribution to its public shareholders of shares of Common Stock representing
thirty percent (30%) of the outstanding shares of Common Stock (the "Spinoff"),
and that it will register such distribution with the Securities and Exchange
Commission and use its best efforts to cause the registration statement for such
distribution to be declared effective. If the registration statement relating to
the Spinoff is not declared effective by the Securities and Exchange Commission
on or prior to the date that is six (6) months following the Closing Date (the
"Termination Date"), Seller hereby grants Buyer an option (the "Spinoff Option")
to purchase such shares representing thirty percent (30%) of the outstanding
shares of Common Stock (the "Option Shares"). Such Spinoff Option shall be
exercisable by Buyer by written notice to Seller on or prior to the date that is
ten (10) days after the Termination Date. Assuming Buyer gives written notice as
described above, the closing of the purchase and sale of the Option Shares shall
be held no later than sixty days following the Termination Date. The purchase
price for the Option Shares shall be 30% of the Book Value as of June 30, 1996
(as defined in Section 1.5), and such purchase price shall consist of 20% of the
purchase price in cash, a promissory note from Buyer to Seller in original
principal amount of 30% of the such purchase price (but otherwise on
substantially the same terms as the Note), and the remaining 50% of such
purchase price shall be payable by issuance of shares of Buyer's Preferred Stock
with a deemed value of $1.00 per share (but the number of such shares issued
shall be appropriately adjusted to account for any stock splits, dividends and
recapitalizations). Buyer covenants and agrees with Seller that Seller shall not
be obligated to sell Buyer the Option Shares unless Buyer (i) enters into a
purchase agreement containing representations and warranties substantially
similar to those made by the Buyer contained herein, (ii) enters into a purchase
agreement containing such other terms and provisions as are necessary, in the
opinion of counsel for the Seller, to comply with applicable law, and (iii)
agrees that the Option Shares shall become subject to the same restrictions and
other provisions provided for the Shares in Section 11.16 hereof. In such
purchase agreement, (i) Seller shall not be obligated to make representations
and warranties to Seller, other than such representations and warranties as are
substantially similar to those contained in Sections 3.1, 3.2, 3.3 and 3.4
hereof and (ii) such representations and warranties of Seller shall survive for
a period not to exceed two (2) years after the closing of the purchase and sale
of the Option Shares.
(b) Seller agrees that it will cause its Affiliates that own shares of
Common Stock, to grant to Buyer the option to acquire the shares of Common Stock
owned by Seller and such Affiliates upon the terms and conditions set forth in
the form of the Option Agreement attached hereto as ANNEX C.
3. REPRESENTATIONS AND WARRANTIES OF SELLER.
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Seller represents and warrants to Buyer as follows:
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3.1 ORGANIZATION AND GOOD STANDING. PART 3.1 of the Disclosure Schedule
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delivered by Seller to Buyer at or prior to the Closing Date (the "Disclosure
Schedule") contains a complete and accurate list for each of the Company and
each of its subsidiaries (collectively, the "Acquired Companies") of its name,
its federal employer identification number, its jurisdiction of incorporation
and the other jurisdictions in which it is authorized to do business. Each
Acquired Company is a corporation duly organized, validly existing, and in good
standing under the laws of its jurisdiction of incorporation, with full
corporate power and authority to conduct its business as it is now being
conducted, to own or use the properties and assets that it purports to own or
use. Each Acquired Company is duly qualified to do business as a foreign
corporation and is in good standing under the laws of each state or other
jurisdiction in which either the ownership or use of the properties owned or
used by it, or the nature of the activities conducted by it, requires such
qualification.
3.2 AUTHORITY; NO CONFLICT.
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(a) This Agreement constitutes the legal, valid, and binding obligation of
Seller, enforceable against Seller in accordance with its terms. Seller has the
absolute and unrestricted right, power, authority, and capacity to execute,
deliver and perform this Agreement.
(b) Neither the execution and delivery of this Agreement nor the
consummation or performance of any of the transactions contemplated by this
Agreement will, directly or indirectly (with or without notice or lapse of
time):
(i) contravene, conflict with, or result in a violation of any
provision of the certificate of incorporation or bylaws of the Acquired
Companies;
(ii) contravene, conflict with, or result in a violation of, or give
any governmental body or other person the right to challenge any of the
transactions contemplated by this Agreement or to exercise any remedy or obtain
any relief under, any federal, state or local order, law, ordinance or
regulation or any injunction, judgment, order or decree of any court,
administrative agency or other governmental body to which any Acquired Company,
or any of the assets owned or used by any Acquired Company, may be subject;
(iii) contravene, conflict with, or result in a violation or breach of
any provision of, or give any person the right to declare a default or exercise
any remedy under, or to accelerate the maturity or performance of, or to cancel,
terminate, or modify, any contracts applicable to the Acquired Companies that
would have a material adverse effect on the Acquired Companies; or
(iv) result in the imposition or creation of any charge, claim, lien,
option, pledge, security interest or restriction of any kind upon or with
respect to any of the assets owned or used by any Acquired Company.
3.3 OWNERSHIP; CAPITALIZATION.
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(a) Seller is or will be on the Closing Date the record and beneficial
owner and holder of all the Shares, free and clear of any charge, claim, lien,
option, pledge, security interest or restriction of any kind.
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(b) The authorized equity securities of the Company consist of (i)
100,000,000 shares of common stock, par value $.001 per share, of which
2,000,000 shares are issued and outstanding and (ii) 50,000,000 shares of
preferred stock, par value $.001 per share, of which no shares are issued and
outstanding. The Shares represent all of the issued and outstanding capital
stock of the Company on the Closing Date. Upon transfer of the Shares to Buyer
at the Closing, Buyer will own the entire legal and beneficial interest in the
Shares, free and clear of all liens, claims and encumbrances and subject to no
legal or equitable restriction of any kind. With the exception of the Company,
all of the outstanding equity securities and other securities of each Acquired
Company are owned of record and beneficially by one or more of the Acquired
Companies, free and clear of any charge, claim, lien, option, pledge, security
interest or restriction of any kind. All of the outstanding equity securities of
each Acquired Company have been duly authorized and validly issued and are fully
paid and nonassessable. Except as set forth in PART 3.3 of the Disclosure
Schedule, there are no agreements, contracts, obligations, promises or
undertakings relating to the issuance, sale, or transfer of any equity
securities or other securities of any Acquired Company.
3.4 FINANCIAL MATTERS. Seller has delivered to Buyer: (i) the pro forma
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consolidated balance sheets of the Acquired Companies as at the years September
30, 1995, and the related pro forma consolidated statements of income, changes
in stockholders' equity, and cash flow for each of the fiscal years then ended
(the "Financial Statements"), and (ii) an unaudited pro forma consolidated
balance sheet of the Acquired Companies as at March 31, 1996, and the related
unaudited consolidated statements of income, changes in stockholders' equity,
and cash flow for the six months then ended, including in each case the notes
thereto (the "Interim Financial Statements"). Such Financial Statements fairly
present in all material respects the financial condition and the results of
operations, changes in stockholders' equity, and cash flow of the Acquired
Companies as at the respective dates of and for the periods referred to in such
financial statements, all in accordance with generally accepted accounting
principles, subject, in the case of the Interim Financial Statements, to normal
recurring year-end adjustments (the effect of which will not, individually or in
the aggregate, be materially adverse) and the absence of notes (which, if
presented, would not differ materially from those included in the Financial
Statements); the financial statements referred to in this SECTION 3.4 reflect
the consistent application of such accounting principles throughout the periods
involved, except as disclosed in the notes to such Financial Statements.
3.5 BOOKS AND RECORDS. The books of account, minute books, stock record
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books, and other records of the Acquired Companies, all of which have been made
available to Buyer, are complete and correct in all material respects. The
minute books of the Acquired Companies contain accurate and complete records of
all meetings held of, and corporate action taken by, the stockholders and the
Boards of Directors. At the Closing, all of those books and records will be in
the possession of the Acquired Companies.
3.6 TITLE TO PROPERTIES. The Acquired Companies own (with good and
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marketable title in the case of real property, subject only to the matters
permitted by the following sentence) all the properties and assets (whether
real, personal, or mixed and whether tangible or intangible) that they purport
to own, including all of the properties and assets reflected in the Financial
Statements and the Interim Financial Statements (except for assets held under
capitalized leases and personal property sold since the date of the Financial
Statements and the Interim Financial Statements, as the case may be, in the
ordinary course of business), and all of the properties and assets purchased or
otherwise
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acquired by the Acquired Companies since the date of the Financial Statements
(except for personal property acquired and sold since the date of the Financial
Statements in the ordinary course of business and consistent with past
practice).
3.7 CONDITION AND SUFFICIENCY OF ASSETS. The buildings, structures, and
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equipment of the Acquired Companies are structurally sound, are in good
operating condition and repair, and are adequate for the uses to which they are
being put, and none of such buildings, structures, or equipment is in need of
maintenance or repairs except for ordinary, routine maintenance and repairs that
are not material in nature or cost. The building, structures, and equipment of
the Acquired Companies are sufficient for the continued conduct of the Acquired
Companies' businesses after the Closing in substantially the same manner as
conducted prior to the Closing.
3.8 NO UNDISCLOSED LIABILITIES. The Acquired Companies have no material
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liabilities or obligations of any nature (whether known or unknown and whether
absolute, accrued, contingent, or otherwise) except for liabilities or
obligations reflected or reserved against in the Financial Statements or the
Interim Financial Statements and current liabilities incurred in the ordinary
course of business since the respective dates thereof.
3.9 TAXES. (a) Except as set forth on PART 3.9 of the Disclosure
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Schedule, all federal, state and local tax returns, reports, declarations,
information returns and estimates that the Acquired Companies were required to
file ("Tax Returns") have been filed for the Acquired Companies for all periods
for which such were due. All Taxes (as defined below) of the Acquired
Companies, whether or not disclosed in the Tax Returns, have been paid in full
and all such Tax Returns are true, correct and complete in all material
respects. The federal income tax returns of the Acquired Companies have not
been audited by the Internal Revenue Service. There is not in force any
extension of the date on which any Tax Return was or is due to be filed by or
with respect to the Acquired Companies, or any waiver or agreement by them for
the extension of time for the payment of any Tax. The reserve for Tax liability
(rather than any reserve for deferred Taxes established to reflect timing
differences between book and Tax income) shown on the Financial Statements is
adequate to cover the liability of the Acquired Companies for all Taxes
(including employee income tax withholding, social security and unemployment
taxes) to the date thereof.
(b) There is no claim against any of the Acquired Companies with respect to
any Taxes and no assessment, deficiency or adjustment has been asserted or
proposed with respect to any Tax Return which would, if determined adversely to
the Acquired Companies, have a material adverse effect on the Acquired
Companies. All prior audits and examinations of the Acquired Companies have
been disclosed to Buyer.
(c) Each Acquired Company has withheld and paid all Taxes required to have
been withheld and paid in connection with amounts paid or owing to any employee,
independent contractor, creditor, stockholder or other third party.
(d) For purposes of this Agreement, "Tax" (and, with correlative meaning,
"Taxes") shall mean any federal, state, local or foreign income, gross receipts,
windfall profit, severance, property, alternative minimum or add-on minimum
production, sales, use, license, excise, franchise, employment, payroll,
withholding, ad valorem, or other taxes, assessments, duties, fees, levies or
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other governmental charges, together with any interest, penalty or addition to
tax, or additional amount imposed by any governmental authority.
3.10 EMPLOYEE BENEFITS. PART 3.10 of the Disclosure Schedule contains a
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complete and accurate list of all plans or other obligations, arrangements, or
customary practices, whether or not legally enforceable, to provide benefits,
other than salary, as compensation for services rendered, to present or former
officers, directors, employees, or agents ("Benefits"). The Acquired Companies,
with respect to all Benefits are, and each Benefit is, in material compliance
with the Employee Retirement Income Security Act of 1974 ("ERISA"), the IRC, and
other applicable laws.
3.11 PROCEEDINGS. There are currently no pending lawsuits,
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administrative proceedings or investigations ("Proceedings") against any of the
Acquired Companies or to which any of their assets is subject and Seller is not
aware of any threatened Proceedings. None of the Acquired Companies is subject
to any currently existing order, writ, injunction or decree relating to its
operations.
3.12 ABSENCE OF CERTAIN CHANGES AND EVENTS. Except as set forth in PART
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3.12 of the Disclosure Schedule, since the date of the Financial Statements,
there has not been any material adverse change in the financial condition,
results of operation, business, prospects, assets or liabilities, of any of the
Acquired Companies, except for changes in the ordinary course of business
consistent with historical experience.
3.13 CONTRACTS. PART 3.13 of the Disclosure Schedule contains a complete
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and accurate list of (i) all current or pending contracts, commitments and
leases (of real or personal property), written or otherwise, between any of the
Acquired Companies and any party which are material to the operations of the
Acquired Companies and that cannot be canceled without penalty upon thirty (30)
days' notice (collectively, the "Material Contracts"); (ii) all patents,
copyrights, trade names, trademarks and service marks used or owned by any of
the Acquired Companies, and all licenses or agreements relating thereto; (iii) a
list of all leases, contracts or agreements for which consents of any private
persons or governmental bodies is required for the consummation of the
transactions contemplated by this Agreement, or for the preventing of any
termination of any material right, privilege, license or agreement of, or any
loss or disadvantage to, any of the Acquired Companies or Buyer upon
consummation of the transactions contemplated by this Agreement; and (iv) all
real property owned or leased by the Acquired Companies.
3.14 ENVIRONMENTAL MATTERS. To Seller's knowledge, each Acquired Company
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is, and at all times has been, in material compliance with, and has not been and
is not in material violation of or liable under, any environmental law. To
Seller's knowledge, no toxic chemicals or hazardous wastes have been deposited
or disposed of on any property owned by the Acquired Companies and none of such
property has suffered any material environmental damage due to the Acquired
Companies operations.
3.15 EMPLOYEES. PART 3.15 of the Disclosure Schedule contains a complete
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and accurate list of the following information for each employee of the Acquired
Companies, including each employee on leave of absence or layoff status:
employer; name; job title; current compensation paid or payable and any change
in compensation since September 30, 1995.
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3.16 CERTAIN PAYMENTS. To Seller's knowledge, no Acquired Company or
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director, officer, agent, or employee of any Acquired Company, or any other
person associated with or acting for or on behalf of any Acquired Company, has
directly or indirectly (a) made any contribution, gift, bribe, rebate, payoff,
influence payment, kickback, or other payment to any person, private or public,
regardless of form, whether in money, property, or services (i) to obtain
favorable treatment in securing business, (ii) to pay for favorable treatment
for business secured, (iii) to obtain special concessions or for special
concessions already obtained, for or in respect of any Acquired Company or any
Affiliate (as defined in the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) of an Acquired Company, or (iv) in violation of any federal,
state or local order, law, ordinance or regulation, (b) established or
maintained any fund or asset that has not been recorded in the books and records
of the Acquired Companies.
3.17 DISCLOSURE.
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(a) The Company has filed with the Securities and Exchange Commission all
reports required to be filed by the Exchange Act since at least October 1, 1995
and none of such filings contains any misstatement of a material fact or omits
to state a material fact necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading, as regards the
Acquired Companies, as the case may be.
(b) The Company has delivered to Buyer true and correct copies of all
reports filed with the Securities and Exchange Commission by the Company
pursuant to the Exchange Act since October 1, 1995.
3.18 NO MISSTATEMENTS OR OMISSIONS. No representation or warranty of
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Seller in this Agreement and no statement in the Disclosure Schedule omits to
state a material fact necessary to make the statements herein or therein, in
light of the circumstances under which they were made, not misleading.
3.19 RELATIONSHIPS WITH AFFILIATES. Except as set forth in PART 3.19 of
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the Disclosure Schedule:
(a) No Seller or any Affiliate of Seller or of any Acquired Company has, or
since January 1, 1995, has had, any interest in any property (whether real,
personal, or mixed and whether tangible or intangible), used in or pertaining to
the Acquired Companies' businesses.
(b) No Seller or any Affiliate of Seller or of any Acquired Company is, or
since January 1, 1995, has owned (of record or as a beneficial owner) an equity
interest or any other financial or profit interest in, a person that has had
business dealings or a material financial interest in any transaction with any
Acquired Company other than business dealings or transactions conducted in the
ordinary course of business with the Acquired Companies at substantially
prevailing market prices and on substantially prevailing market terms. Except
as set forth in PART 3.19 of the Disclosure Schedule, no Seller or any Affiliate
of Seller or of any Acquired Company is a party to any agreement, contract,
obligation, promise or undertaking with, or has any claim or right against, any
Acquired Company.
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3.20 BROKERS OR FINDERS. Seller and its agents have incurred no
------------------
obligation or liability, contingent or otherwise, for brokerage or finders' fees
or agents' commissions or other similar payment in connection with this
Agreement.
4. REPRESENTATIONS AND WARRANTIES OF BUYER.
---------------------------------------
Buyer represents and warrants to Seller as follows:
4.1 ORGANIZATION AND GOOD STANDING. Buyer is a corporation duly
------------------------------
organized, validly existing, and in good standing under the laws of the State of
Nevada.
4.2 AUTHORITY; NO CONFLICT.
----------------------
(a) This Agreement constitutes the legal, valid, and binding obligation of
Buyer, enforceable against Buyer in accordance with its terms. Buyer has the
absolute and unrestricted right, power, and authority to execute, deliver and
perform its obligations under this Agreement.
(b) Neither the execution and delivery of this Agreement by Buyer nor the
consummation or performance of any of the transactions contemplated by this
Agreement by Buyer will give any person the right to prevent, delay, or
otherwise interfere with any of the transactions contemplated by this Agreement
pursuant to:
(i) any provision of Buyer's certificate of incorporation or bylaws;
(ii) any resolution adopted by the board of directors or the
stockholders of Buyer;
(iii) any federal, state or local order, law, ordinance or regulation
or injunction, judgment, order or decree of any court, administrative agency or
other governmental body to which Buyer may be subject; or
(iv) any agreement, contract, obligation, promise or undertaking to
which Buyer is a party or by which Buyer may be bound.
(c) Buyer is not and will not be required to obtain any consent from any
person in connection with the execution and delivery of this Agreement or the
consummation or performance of any of the transactions contemplated by this
Agreement.
4.3 INVESTMENT IN SHARES.
--------------------
(a) Buyer is acquiring the Shares for its own account and not with a view
to their distribution within the meaning of Section 2(11) of the Securities Act.
(b) Buyer has received all information it believes necessary to make an
informed decision about its acquisition of the Shares.
9
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(c) Each of the equity owners of Buyer is an "accredited investor" as such
term is defined in Rule 501(a) under the Securities Act.
(d) Buyer understands that the Shares are not registered under federal or
state securities laws and may not be offered, sold, transferred or otherwise
disposed of except pursuant to a registration statement or an exemption from
registration under those laws.
(e) Buyer acknowledges that the certificates representing the Shares may
bear a legend substantially as follows:
THESE SHARES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR
UNDER ANY APPLICABLE STATE LAW. THEY MAY NOT BE OFFERED FOR SALE, SOLD,
TRANSFERRED OR PLEDGED WITHOUT (1) REGISTRATION UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR ANY APPLICABLE STATE LAW, OR (2) AN OPINION OF COUNSEL
(SATISFACTORY TO THE COMPANY) THAT REGISTRATION IS NOT REQUIRED.
4.4 CERTAIN PROCEEDINGS. There is no pending proceeding against Buyer
-------------------
that challenges, or may have the effect of preventing, delaying, making illegal,
or otherwise interfering with, any of the transactions contemplated by this
Agreement. To Buyer's knowledge, no such proceeding has been threatened.
4.5 BROKERS OR FINDERS. Buyer and its officers and agents have incurred
------------------
no obligation or liability, contingent or otherwise, for brokerage or finders'
fees or agents' commissions or other similar payment in connection with this
Agreement and will indemnify and hold Seller harmless from any such payment
alleged to be due by or through Buyer as a result of the action of Buyer or its
officers or agents.
5. COVENANTS OF SELLER PRIOR TO CLOSING DATE.
-----------------------------------------
5.1 ACCESS AND INVESTIGATION. Between the date of this Agreement and the
------------------------
Closing Date, Seller will, and will cause each Acquired Company and its
directors, officers and agents to, (a) afford Buyer and its directors, officers
and agents and prospective lenders and their representatives (collectively,
"Buyer's Advisors") full and free access to each Acquired Company's personnel,
properties, contracts, books and records, and other documents and data, (b)
furnish Buyer and Buyer's Advisors with copies of all such contracts, books and
records, and other existing documents and data as Buyer may reasonably request,
and (c) furnish Buyer and Buyer's Advisors with such additional financial,
operating, and other data and information as Buyer may reasonably request.
5.2 OPERATION OF THE BUSINESSES OF THE ACQUIRED COMPANIES. Between the
-----------------------------------------------------
date of this Agreement and the Closing Date, Seller will, and will cause each
Acquired Company to conduct the business of such Acquired Company only in the
ordinary course of business and in material compliance with all applicable laws,
rules and regulations.
10
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5.3 NEGATIVE COVENANTS. Between the date of this Agreement and the
------------------
Closing Date, Seller will not, and will cause each Acquired Company not to,
without prior notice to Buyer: (i) make any changes in its capital structure,
(ii) incur any liability or obligation other than current liabilities incurred
in the ordinary and usual course of business, (iii) incur any indebtedness for
borrowed money, (iv) make any loans or advances other than advances to employees
and owner-operators, in the ordinary and usual course of business, (v) mortgage,
pledge or subject to any encumbrance any of its assets or properties, (vi) sell
or transfer any of its assets or properties except in the ordinary and usual
course of business, (vii) make any investment of a capital nature, except in the
ordinary and usual course of business, (viii) adopt or amend in any material
respect any collective bargaining agreement or employee benefit plan, or (ix)
enter into any contract, agreement, or other commitment which is material to the
business, assets, properties, or financial position of the Acquired Companies.
5.4 BEST EFFORTS. Between the date of this Agreement and the Closing
------------
Date, Seller will use its best efforts to cause the conditions in SECTIONS 7 and
8 to be satisfied.
6. COVENANTS OF BUYER.
------------------
6.1 APPROVALS OF GOVERNMENTAL BODIES. As promptly as practicable after
--------------------------------
the date of this Agreement, Buyer will, and will cause each of its Affiliates
to, make all filings required by federal, state or local laws, orders,
ordinances or regulations to be made by them to consummate the transactions
contemplated by this Agreement. Between the date of this Agreement and the
Closing Date, Buyer will, and will cause each Affiliate to, (i) cooperate with
Seller with respect to all filings that Seller is required by federal, state or
local laws, orders, ordinances or regulations to make in connection with the
transactions contemplated by this Agreement, and (ii) cooperate with Seller in
obtaining all consents identified in PART 3.13 of the Disclosure Schedule.
6.2 BEST EFFORTS. Between the date of this Agreement and the Closing
------------
Date, Buyer will use its best efforts to cause the conditions in SECTIONS 7 and
8 to be satisfied.
6.3 ACTIONS WITH RESPECT TO THE ACQUIRED COMPANIES AND BUYER. Buyer
--------------------------------------------------------
covenants and agrees that, after the Closing and for so long as any shares of
Preferred Stock issued to Polyphase or any amounts under the Note remain
outstanding:
(a) it will comply, and cause the persons it elects or causes to be elected
as directors and officers of the Company and the Acquired Companies to comply,
with its and their obligations under federal and state securities laws and its
and their fiduciary duties to the Company's shareholders;
(b) it will acquire shares, receive payments and otherwise engage in
transactions with the Acquired Companies only on terms that are fair to the
Company and its shareholders;
(c) it will, and it will cause each of the Acquired Companies, to:
(i) preserve and maintain in full force and effect its corporate
existence and good standing under the laws of its state of incorporation or
organization and all other states where it is legally required to be qualified
to do business as a foreign corporation;
11
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(ii) preserve and maintain in full force and effect all material
rights, privileges, qualifications, licenses and franchises necessary in the
normal conduct of its business;
(iii) use its reasonable efforts, in the ordinary course, to
preserve its business organization and preserve the goodwill and business of the
customers, suppliers and others having business relations with it;
(iv) maintain and preserve all its property and the property of the
Acquired Companies in good working order and condition, ordinary wear and tear
excepted, except where failure to do so would not have a material adverse
effect.
(v) maintain, and shall cause each Acquired Company to maintain,
with financially sound insurance companies, insurance with respect to its
properties and business, against such 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;
(vi) except to the extent that the failure to do so would have a
material adverse effect, it will and it will cause the Acquired Companies to,
pay and discharge as the same shall become due and payable, all their respective
obligations and liabilities, including without limitation:
(A) 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
(B) all lawful claims which any of Buyer or the Acquired
Companies is obligated to pay, which are due and which, if unpaid, would likely
by law become a Lien upon its property;
(vii) comply, and will cause each Acquired Company 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
such
(A) as may be contested in good faith or as to which a bona fide
dispute may exist, and
(B) as to which such failure to comply would not have a material
adverse effect on Buyer or the Acquired Companies.
(d) neither it nor any Acquired Company will, merge, consolidate with or
into, or convey, transfer, lease or otherwise dispose of (whether in one
transaction or in a series of transactions) all or substantially all of its
assets (whether now owned or hereafter acquired)
(e) neither it nor the Company will declare, pay or make a dividend or
other distribution on its capital stock;
12
<PAGE>
(f) neither it nor any Acquired Company will create any stock option,
bonus, profit sharing, stock purchase, deferred compensation, retainer, pension,
retirement or other compensation, benefit, welfare or incentive plans or
contracts without the prior approval of Seller, which approval shall not be
unreasonably withheld;
(g) no Acquired Company will, without the prior written consent of Seller
(which consent will not be unreasonably withheld), organize any subsidiary or
acquire any interest in or control of another person, whether by merger,
consolidation or purchase of the stock, assets or inventories of another person;
(h) neither it nor any Acquired Company will, without the prior written
consent of Seller (i) amend its Articles of Incorporation (including by a
Certificate of Designation), (ii) amend its Bylaws in a manner which would
result in such Bylaws conflicting with any provisions of this Agreement or of
the Shareholders' Agreement, or (iii) effect a reclassification or
recapitalization of its outstanding capital stock;
(i) neither it nor any Acquired Company will lend money to any person;
(j) neither it nor any Acquired Company will take any action to place it in
dissolution, liquidation or receivership.
7. CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE.
---------------------------------------------------
Buyer's obligation to purchase the Shares and to take the other actions
required to be taken by Buyer at the Closing is subject to the satisfaction, at
or prior to the Closing, of each of the following conditions (any of which may
be waived by Buyer, in whole or in part):
7.1 ACCURACY OF REPRESENTATIONS. All of Seller's representations and
---------------------------
warranties in this Agreement must have been accurate in all material respects as
of the date of this Agreement, and must be accurate in all material respects as
of the Closing Date as if made on the Closing Date.
7.2 SELLER'S PERFORMANCE.
--------------------
(a) All of the covenants and obligations that Seller is required to perform
or to comply with pursuant to this Agreement at or prior to the Closing, must
have been duly performed and complied with in all material respects.
(b) Each document required to be delivered pursuant to SECTION 1.4 must
have been delivered.
7.3 CONSENTS. Each of the consents identified in PART 3.13 of the
--------
Disclosure Schedule must have been obtained and must be in full force and
effect.
7.4 ADDITIONAL DOCUMENTS. Each of the following documents must have been
--------------------
delivered to Buyer:
13
<PAGE>
(a) the documents necessary to effect the resignation of each of the
noncontinuing directors and officers of each of the Acquired Companies, to be
effective not later than the Closing Date;
(b) the documents necessary to effect the election of one (1) director
designated by Buyer to the Board of Directors of the Company; and
(c) such other documents as Buyer may reasonably request for the purpose of
(i) evidencing the accuracy of any of Seller's representations and warranties,
(ii) evidencing the performance by Seller of, or the compliance by Seller with,
any covenant or obligation required to be performed or complied with by Seller,
or (iii) evidencing the satisfaction of any condition referred to in this
SECTION 7.
7.5 NO PROCEEDINGS. Since the date of this Agreement, there must not have
--------------
been with respect to Buyer (i) any effective injunction, writ, or temporary
restraining order of any nature issued by a court or governmental agency of
competent jurisdiction directing that the proposed acquisition not be
consummated or (ii) any action, suit, or proceeding pending or threatened by or
before any court or governmental body in which it is or may be sought to
prohibit, substantially delay, or rescind the proposed acquisition, or to limit
in any way Buyer's right to acquire the Acquired Companies.
8. CONDITIONS PRECEDENT TO SELLER'S OBLIGATION TO CLOSE.
-----------------------------------------------------
Seller's obligation to sell the Shares and to take the other actions
required to be taken by Seller at the Closing is subject to the satisfaction, at
or prior to the Closing, of each of the following conditions (any of which may
be waived by Seller, in whole or in part):
8.1 ACCURACY OF REPRESENTATIONS. All of Buyer's representations and
---------------------------
warranties in this Agreement must have been accurate in all material respects as
of the date of this Agreement and must be accurate in all material respects as
of the Closing Date as if made on the Closing Date.
8.2 BUYER'S PERFORMANCE.
-------------------
(a) All of the covenants and obligations that Buyer is required to perform
or to comply with pursuant to this Agreement at or prior to the Closing must
have been performed and complied with in all material respects.
(b) Buyer must have delivered each of the documents required to be
delivered by Buyer pursuant to SECTION 1.4 and must have paid the Purchase Price
required to be made by Buyer pursuant to SECTION 1.4(B).
8.3 CONSENTS. Each of the consents identified in PART 3.13 of the
--------
Disclosure Schedule must have been obtained and must be in full force and
effect.
8.4 ADDITIONAL DOCUMENTS. Buyer must have caused the following documents
--------------------
to be delivered to Seller:
14
<PAGE>
(a) such documents as Seller may reasonably request for the purpose of (i)
evidencing the accuracy of any representation or warranty of Buyer, (ii)
evidencing the performance by Buyer of, or the compliance by Buyer with, any
covenant or obligation required to be performed or complied with by Buyer, or
(iii) evidencing the satisfaction of any condition referred to in this SECTION
8.
8.5 NO PROCEEDINGS. Since the date of this Agreement, there must not have
--------------
been with respect to Seller (i) any effective injunction, writ, or temporary
restraining order of any nature issued by a court or governmental agency of
competent jurisdiction directing that the proposed acquisition not be
consummated or (ii) any action, suit, or proceeding pending or threatened by or
before any court or governmental body in which it is or may be sought to
prohibit, substantially delay, or rescind the proposed acquisition, or to limit
in any way Seller's right to sell the Acquired Companies.
9. TERMINATION.
-----------
9.1 TERMINATION EVENTS. This Agreement may, by notice given prior to or
------------------
at the Closing, be terminated:
(a) by either Buyer or Seller if a material breach of any provision of this
Agreement has been committed by the other party and such breach has not been
waived;
(b) (i) by Buyer if any of the conditions in SECTION 7 has not been
satisfied as of the Closing Date or if satisfaction of such a condition is or
becomes impossible (other than through the failure of Buyer to comply with its
obligations under this Agreement) and Buyer has not waived such condition on or
before the Closing Date; or (ii) by Seller, if any of the conditions in SECTION
8 has not been satisfied of the Closing Date or if satisfaction of such a
condition is or becomes impossible (other than through the failure of Seller to
comply with its obligations under this Agreement) and Seller has not waived such
condition on or before the Closing Date;
(c) by mutual consent of Buyer and Seller; or
(d) by either Buyer or Seller if the Closing has not occurred (other than
through the failure of any party seeking to terminate this Agreement to comply
fully with its obligations under this Agreement) on or before July 15, 1996, or
such later date as the parties may agree upon.
9.2 EFFECT OF TERMINATION. Each party's right of termination under
---------------------
SECTION 9.1 is in addition to any other rights it may have under this Agreement
or otherwise, and the exercise of a right of termination will not be an election
of remedies. If this Agreement is terminated pursuant to SECTION 9.1, all
further obligations of the parties under this Agreement will terminate, except
that the obligations in SECTIONS 11.1 and 11.3 will survive; provided, however,
that if this Agreement is terminated by a party because of the breach of the
Agreement by the other party or because one or more of the conditions to the
terminating party's obligations under this Agreement is not satisfied as a
result of the other party's failure to comply with its obligations under this
Agreement, the terminating party's right to pursue all legal remedies will
survive such termination unimpaired.
10. INDEMNIFICATION; REMEDIES.
-------------------------
15
<PAGE>
10.1 SURVIVAL. The representations of Seller contained in SECTION 3
--------
hereof will survive the Closing for a period of two (2) years.
10.2 INDEMNIFICATION AND PAYMENT OF DAMAGES BY SELLER. Seller will
------------------------------------------------
indemnify and hold harmless Buyer, the Acquired Companies, and their respective
directors, officers, stockholders, controlling persons, and affiliates
(collectively, the "Indemnified Persons") for, and will pay to the Indemnified
Persons the amount of, any loss, liability, claim, damage, expense (including
costs of investigation and defense and reasonable attorneys' fees) or diminution
of value, whether or not involving a third-party claim (collectively,
"Damages"), arising, directly or indirectly, from or in connection with any
breach of the representations made in SECTIONS 3.17 and 3.19.
The remedies provided in this SECTION 10.2 will be the exclusive remedies
available to Buyer or the other Indemnified Persons for any breach of this
Agreement or the conduct of the business of the Acquired Companies prior to the
Closing Date.
10.3 INDEMNIFICATION AND PAYMENT OF DAMAGES BY BUYER. Buyer will
-----------------------------------------------
indemnify and hold harmless Seller from and will pay to Seller the amount of any
Damages arising, directly or indirectly, from or in connection with any breach
of the representations made in SECTIONS 4.2(A), 4.3 or 4.5.
The remedies provided in this SECTION 10.3 will be the exclusive remedies
available to Seller for any breach of this Agreement.
10.4 TIME LIMITATIONS. If the Closing occurs, neither party will have
----------------
liability (for indemnification or otherwise) with respect to any representation,
unless on or before the first anniversary of the Closing Date the other party
notifies the party of a claim specifying the factual basis of that claim in
reasonable detail to the extent then known by the other party.
10.5 FLOOR ON AMOUNT--SELLER. Seller will have no liability (for
-----------------------
indemnification or otherwise) to Buyer unless the amount of Damages sought is in
the aggregate at least $50,000.
10.6 [INTENTIONALLY LEFT BLANK].
--------------------------
10.7 PROCEDURE FOR INDEMNIFICATION--THIRD PARTY CLAIMS.
-------------------------------------------------
(a) Promptly after receipt by an indemnified party of notice of the
commencement of any proceeding against it, such indemnified party will, if a
claim is to be made against an indemnifying party, give notice to the
indemnifying party of the commencement of such claim, but the failure to notify
the indemnifying party will not relieve the indemnifying party of any liability
that it may have to any indemnified party, except to the extent that the
indemnifying party demonstrates that the defense of such action is prejudiced by
the indemnifying party's failure to give such notice.
(b) If any proceeding referred to in SECTION 10.9(A) is brought against an
indemnified party and it gives notice to the indemnifying party of the
commencement of such proceeding, the indemnifying party will be entitled to
participate in such proceeding and, to the extent that it wishes (unless (i) the
indemnifying party is also a party to such proceeding and the indemnified party
16
<PAGE>
determines in good faith that joint representation would be inappropriate, or
(ii) the indemnifying party fails to provide reasonable assurance to the
indemnified party of its financial capacity to defend such proceeding and
provide indemnification with respect to such proceeding), to assume the defense
of such proceeding with counsel satisfactory to the indemnified party and, after
notice from the indemnifying party to the indemnified party of its election to
assume the defense of such proceeding, the indemnifying party will not, as long
as it diligently conducts such defense, be liable to the indemnified party under
this SECTION 10 for any fees of other counsel or any other expenses with respect
to the defense of such proceeding, in each case subsequently incurred by the
indemnified party in connection with the defense of such proceeding, other than
reasonable costs of investigation. If the indemnifying party assumes the defense
of a proceeding, (i) no compromise or settlement of such claims may be effected
by the indemnifying party without the indemnified party's consent unless (A)
there is no finding or admission of any violation of federal, state or local
laws, orders, ordinances or regulations or any violation of the rights of any
person and no effect on any other claims that may be made against the
indemnified party, and (B) the sole relief provided is monetary damages that are
paid in full by the indemnifying party; and (ii) the indemnified party will have
no liability with respect to any compromise or settlement of such claims
effected without its consent. If notice is given to an indemnifying party of the
commencement of any proceeding and the indemnifying party does not, within ten
days after the indemnified party's notice is given, give notice to the
indemnified party of its election to assume the defense of such proceeding, the
indemnifying party will be bound by any determination made in such proceeding or
any compromise or settlement effected by the indemnified party.
(c) Notwithstanding the foregoing, if an indemnified party determines in
good faith that there is a reasonable probability that a proceeding may
adversely affect it or its affiliates other than as a result of monetary damages
for which it would be entitled to indemnification under this Agreement, the
indemnified party may, at its own expense, participate in the defense,
compromise, or settlement of such proceeding, but the indemnifying party will
not be bound by any determination of a proceeding so defended or any compromise
or settlement effected without its consent (which may not be unreasonably
withheld).
10.8 PROCEDURE FOR INDEMNIFICATION--OTHER CLAIMS. A claim for
-------------------------------------------
indemnification for any matter not involving a third-party claim may be asserted
by notice to the party from whom indemnification is sought.
11. GENERAL PROVISIONS.
------------------
11.1 EXPENSES. Except as otherwise expressly provided in this Agreement,
--------
each party to this Agreement will bear its respective expenses incurred in
connection with the preparation, execution, and performance of this Agreement
and the transactions contemplated by this Agreement, including all fees and
expenses of agents, representatives, counsel, and accountants.
11.2 PUBLIC ANNOUNCEMENTS. Buyer will keep this Agreement strictly
--------------------
confidential and may not make any disclosure of this Agreement or the
transactions contemplated by this Agreement to any person. The Company will
issue any press release or other publicity, if at all, at such time and in such
manner as it shall determine in its sole discretion. Buyer will not contact or
have any dealings with the Acquired Companies' employees, customers, and
suppliers without the consent of Seller.
17
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11.3 CONFIDENTIALITY. Between the date of this Agreement and the
---------------
Closing Date, Buyer and Seller will maintain in confidence, and will cause the
directors, officers, employees, agents, and advisors of Buyer and the Acquired
Companies to maintain in confidence, and not use to the detriment of another
party or an Acquired Company any written, oral, or other information obtained in
confidence from another party or an Acquired Company in connection with this
Agreement or the transactions contemplated by this Agreement, unless (a) such
information is already known to such party or to others not bound by a duty of
confidentiality or such information becomes publicly available through no fault
of such party, (b) the use of such information is necessary or appropriate in
making any filing or obtaining any consent or approval required for the
consummation of the transactions contemplated by this Agreement, or (c) the
furnishing or use of such information is required by legal proceedings.
If the transactions contemplated by this Agreement are not consummated,
each party will return all of such written information as the other party has
provided.
11.4 NOTICES. All notices, consents, waivers, and other communications
-------
under this Agreement must be in writing and will be deemed to have been duly
given when (a) delivered by hand (with written confirmation of receipt), (b)
sent by telecopier (with written confirmation of receipt), provided that a copy
is mailed by registered mail, return receipt requested, or (c) when received by
the addressee, if sent by a nationally recognized overnight delivery service
(receipt requested), in each case to the appropriate addresses and telecopier
numbers set forth below (or to such other addresses and telecopier numbers as a
party may designate by notice to the other parties):
Seller:
Polyphase Corporation
16885 Dallas Parkway
4th Floor
Dallas, Texas 75248
Attention: Paul A. Tanner
Facsimile No.: (214) 732-6430
with a copy to:
Jenkens & Gilchrist,
A Professional Corporation
1445 Ross Ave.
Suite 3200
Dallas, Texas 75202
Attention: Ronald J. Frappier
Facsimile No.: (214) 855-4300
18
<PAGE>
Buyer:
Letronix Acquisition Corp.
2620 South Maryland Parkway, Suite 202
Las Vegas, Nevada 89109
Attention: President
Facsimile No.: (214) 980-0790
with a copy to:
Al Greco, Esq.
2 Galleria Tower
13455 Noel Road
Box 15, Suite 1420
Dallas, Texas 75240
Facsimile No.:
11.5 JURISDICTION; SERVICE OF PROCESS. Any action or proceeding seeking to
--------------------------------
enforce any provision of, or based on any right arising out of, this Agreement
may be brought against any of the parties in the courts of the State of Texas,
County of Dallas, and each of the parties consents to the jurisdiction of such
courts (and of the appropriate appellate courts) in any such action or
proceeding and waives any objection to venue laid therein. Process in any action
or proceeding referred to in the preceding sentence may be served on any party
anywhere in the world.
11.6 FURTHER ASSURANCES. The parties agree (a) to furnish upon
------------------
request to each other such further information, (b) to execute and deliver to
each other such other documents, and (c) to do such other acts and things, all
as the other party may reasonably request for the purpose of carrying out the
intent of this Agreement and the documents referred to in this Agreement.
11.7 WAIVER. The rights and remedies of the parties to this Agreement
------
are cumulative and not alternative. Neither the failure nor any delay by any
party in exercising any right, power, or privilege under this Agreement or the
documents referred to in this Agreement will operate as a waiver of such right,
power, or privilege, and no single or partial exercise of any such right, power,
or privilege will preclude any other or further exercise of such right, power,
or privilege or the exercise of any other right, power, or privilege. To the
maximum extent permitted by applicable law, (a) no claim or right arising out of
this Agreement or the documents referred to in this Agreement can be discharged
by one party, in whole or in part, by a waiver or renunciation of the claim or
right unless in writing signed by the other party; (b) no waiver that may be
given by a party will be applicable except in the specific instance for which it
is given; and (c) no notice to or demand on one party will be deemed to be a
waiver of any obligation of such party or of the right of the party giving such
notice or demand to take further action without notice or demand as provided in
this Agreement or the documents referred to in this Agreement.
19
<PAGE>
11.8 ENTIRE AGREEMENT AND MODIFICATION. This Agreement supersedes all
---------------------------------
prior agreements between the parties with respect to its subject matter and
constitutes (along with the documents referred to in this Agreement) a complete
and exclusive statement of the terms of the agreement between the parties with
respect to its subject matter. This Agreement may not be amended except by a
written agreement executed by the party to be charged with the amendment.
11.9 DISCLOSURE SCHEDULE. The Disclosure Schedule is incorporated
-------------------
into and shall be part of this Agreement.
11.10 ASSIGNMENTS, SUCCESSORS, AND NO THIRD-PARTY RIGHTS. No party may
--------------------------------------------------
assign any of its rights under this Agreement without the prior consent of the
other parties, except that Buyer may assign any of its rights under this
Agreement to any subsidiary of Buyer. Subject to the preceding sentence, this
Agreement will apply to, be binding in all respects upon, and inure to the
benefit of the successors and permitted assigns of the parties. Nothing
expressed or referred to in this Agreement will be construed to give any person
other than the parties to this Agreement any legal or equitable right, remedy,
or claim under or with respect to this Agreement or any provision of this
Agreement. This Agreement and all of its provisions and conditions are for the
sole and exclusive benefit of the parties to this Agreement and their successors
and assigns.
11.11 SEVERABILITY. If any provision of this Agreement is held invalid
------------
or unenforceable by any court of competent jurisdiction, the other provisions of
this Agreement will remain in full force and effect. Any provision of this
Agreement held invalid or unenforceable only in part or degree will remain in
full force and effect to the extent not held invalid or unenforceable.
11.12 SECTION HEADINGS, CONSTRUCTION. The headings of Sections in this
------------------------------
Agreement are provided for convenience only and will not affect its construction
or interpretation. All references to "Section" or "Sections" refer to the
corresponding Section or Sections of this Agreement. All words used in this
Agreement will be construed to be of such gender or number as the circumstances
require. Unless otherwise expressly provided, the word "including" does not
limit the preceding words or terms.
11.13 TIME OF ESSENCE. With regard to all dates and time periods set
---------------
forth or referred to in this Agreement, time is of the essence.
11.14 GOVERNING LAW. This Agreement will be governed by the laws of
-------------
the State of Texas without regard to conflicts of laws principles.
11.15 COUNTERPARTS. This Agreement may be executed in one or more
------------
counterparts, each of which will be deemed to be an original copy of this
Agreement and all of which, when taken together, will be deemed to constitute
one and the same agreement.
11.16 FURTHER COVENANTS OF BUYER AND THE COMPANY.
------------------------------------------
(a) Until the Termination Date, the Company shall not, and Buyer shall not
allow the Company to, issue common stock or other
20
<PAGE>
securities convertible into or exchangeable for common stock which represent
more than 5% of its common stock on a fully diluted basis.
(b) The Buyer covenants and agrees that, it in any election of directors
of the Company, it shall vote all shares of common stock of the Company then
held by Buyer ("Buyer Shares") to elect a board of directors comprised of not
less than three (3) directors and not more than seven (7) directors, one (1) of
which shall be designated by Seller. In the event of any vacancy in the board of
directors of the Company, Buyer covenants and agrees to vote all Buyer Shares
and to otherwise use its best efforts to fill such vacancy so that the board of
directors will include directors designated as provided above.
(c) Buyer agrees that the face of each certificate evidencing shares of
common stock held or to be held by Buyer shall bear an endorsement (which shall
be made conspicuous using capital letters, bold face or contrasting type,
underlining or similar means) in substantially the following form:
"AS SET FORTH ON THE REVERSE HEREOF, THE SHARES EVIDENCED BY THIS
CERTIFICATE ARE SUBJECT TO RESTRICTIONS AS CONTAINED IN A STOCK
PURCHASE AGREEMENT, DATED AS OF JUNE 28, 1996."
The reverse of each such certificate shall bear an endorsement
substantially as follows:
"THE SHARES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS,
INCLUDING A VOTING AGREEMENT, AS SET FORTH IN A STOCK PURCHASE
AGREEMENT, DATED AS OF JUNE 28, 1996, A COPY OF WHICH HAS BEEN
DEPOSITED AT THE PRINCIPAL OFFICE OF THE COMPANY."
(d) Buyer shall not, and the Company shall not recognize any attempted,
transfer, voluntarily or involuntarily, of Buyer Shares unless such proposed
transferee agrees to be bound by the terms of this Agreement as a holder of
Buyer Shares, and specifically this Section 11.16 . Any attempted transfer in
violation of this Section 11.16 shall be void ab initio.
21
<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
as of the date first written above.
Seller:
POLYPHASE CORPORATION
By: /s/ Paul A. Tanner
-------------------------------------------
Name: Paul A. Tanner
-----------------------------------------
Title: President
----------------------------------------
Buyer:
LETRONIX ACQUISITION CORP.
By: /s/ Albert B. Greco, Jr.
-------------------------------------------
Name: Albert B. Greco, Jr.
-----------------------------------------
Title: President
----------------------------------------
22
<PAGE>
EXHIBIT 2
SECURED PROMISSORY NOTE
$850,000 June 28, 1996
Dallas, Texas
FOR VALUE RECEIVED, this Promissory Note (this "Note") is made by
----
Letronix Acquisition Corp., a Texas corporation ("Maker"), to Polyphase
-----
Corporation, a Nevada corporation ("Payee").
-----
1. Payments. Maker hereby promises to pay to the order of Payee the
--------
principal sum of Eight Hundred Fifty Thousand Dollars ($850,000) at its
office at 16885 Dallas Parkway, Suite 400, Dallas, Texas 75248, or such
other place as the holder hereof may designate from time to time in
writing, in lawful money of the United States of America and in
immediately available funds, together with interest on the unpaid
principal balance hereof at the rate provided herein from the date of this
Note until payment in full of the indebtedness evidenced by this Note.
Principal and interest on the Note shall be due and payable as follows:
(a) Interest only on this Note shall be due and payable in arrears
once every six months, commencing on the last business day of December, 1996,
and continuing up to and including the last business day of December, 1997.
(b) On January 1, 1998 (the "Maturity Date") all principal and accrued
but unpaid interest on the Note shall be due and payable.
2. Final Payment. On the Maturity Date, all amounts hereunder shall
-------------
immediately become due and payable without demand or notice. All payments
received by Payee after the Maturity Date (whether of principal, interest
or other amounts) which are applied at any time by Payee to indebtedness
evidenced by this Note may be allocated, applied and reapplied by Payee to
principal, interest or other amounts then due and payable as Payee may
determine in Payee's sole discretion.
3. Interest Rate. The principal amount outstanding from time to time
-------------
hereunder shall bear interest calculated daily on the basis of a 360-day
year, at a rate equal to seven percent (7%) per annum. Any statements or
invoices sent by Payee to Maker and setting forth the amount of interest
payable hereunder, unless contested in writing to Payee by Maker within
thirty (30) days from the date of such statement or invoice, shall be
deemed conclusive as to the interest actually payable hereunder.
4. Maximum Rate. It is the intention of the parties hereto to conform
------------
strictly to any usury laws in force that apply to this transaction.
Accordingly, all agreements among the parties hereto (including, without
limitation, the Transaction Documents, as defined herein), whether
previously existing, now existing or hereafter arising and whether written
or oral, are hereby limited so that in no contingency, whether by reason
of acceleration of the maturity of the amounts owing under this Note or
otherwise, shall the interest (and all
<PAGE>
other sums that are deemed to be interest) contracted for, charged or
received by Payee with respect to this Note, exceed the Highest Lawful
Rate. The "Highest Lawful Rate" means the maximum nonusurious interest
rate, if any, that at any time or from time to time may be contracted for,
taken, reserved, charged or received under the laws of the United States
and the laws of such states as may be applicable thereto which are
presently in effect or, to the extent allowed under such applicable laws
of the United States and the laws of such states, which may hereafter be
in effect and which allow a higher maximum nonusurious interest rate than
applicable laws now allow. If, from any circumstance whatsoever, interest
under any agreement to which Maker and Payee are parties (including,
without limitation, under the Transaction Documents) would otherwise be
payable in excess of the Highest Lawful Rate, and if from any circumstance
Payee shall ever receive anything of value deemed interest by applicable
law in excess of the Highest Lawful Rate, then Payee's receipt of such
excess interest shall be deemed a mistake and the same shall, so long as
no Event of Default under this Note or the Security Agreement shall be
continuing, at the option of Maker, either be repaid to Maker or credited
to the unpaid principal; provided, however, that if an Event of Default
-------- -------
shall have occurred and be continuing, and Payee shall receive excess
interest during such period, then Payee shall have the option of either
crediting such excess amount to principal or refunding such excess amount
to Maker. All interest paid or agreed to be paid to Payee shall, to the
extent allowed by applicable law, be amortized, prorated, allocated, and
spread throughout the full period of Maker's credit relationship with
Payee until payment in full of the principal (including the period of any
renewal or extension) so that the interest for such full period shall not
exceed the Highest Lawful Rate.
5. Prepayment.
----------
(a) This Note may be prepaid, in whole or in part, without premium or
penalty.
(b) In the event of any public or private offering by Maker of any of
the Maker's common stock, or other debt or equity securities which are
convertible or exchangeable into shares of common stock, Maker shall prepay the
Note in an amount equal to the lesser of the (i)(A) 10% of the gross proceeds
from such offering if such offering raises less than $2,000,000 in gross
proceeds or (B) 30% of the gross proceeds from such offering if such offering
raises $2,000,000 or more in gross proceeds or (ii) the aggregate amount of all
amounts due and owing under the terms of this Note at such time, such prepayment
to be made within five (5) business days of receipt of such net cash proceeds.
(c) All prepayments shall be applied first to accrued interest and
then to principal.
6. Default Rate. Upon the failure of Maker to make any payment of
------------
principal or interest on, or any amount owing in respect of, the
indebtedness evidenced by this Note, or any other amounts payable by Maker
to Payee pursuant to the terms hereof or any other agreement, when due and
payable or declared due and payable, the interest rate applicable
2
<PAGE>
to this Note shall be increased by three percent (3%) per annum above the
rate otherwise applicable.
7. Transaction Documents. This Note, including the principal, interest
---------------------
and fees and costs payable pursuant hereto, is secured by, among other
things, that certain Security and Pledge Agreement between Maker and
Payee, dated as of even date herewith (the "Security Agreement"), and all
------------------
covenants, agreements and undertakings of Maker and each Obligated Party
(as hereinafter defined) set forth therein are incorporated in and made
part of this Note with the same force as if fully set forth herein. This
Note is issued in connection with, among other things, that certain Stock
Purchase Agreement dated as of even date herewith (the "Stock Purchase
--------------
Agreement") by and between Maker and Payee. This Note, the Security
---------
Agreement, the Stock Purchase Agreement, and all documents, instruments
and certificates executed and delivered in connection therewith, are
sometimes hereinafter collectively referred to as the "Transaction
Documents". Maker and any guarantor or other natural or legal person who
is or becomes party to any agreement that guarantees or secures payment
and performance of the indebtedness and obligations evidenced by this
Note, are all referred to individually as an "Obligated Party" and
collectively as the "Obligated Parties".
8. Event of Default. The occurrence of any one or more of the following
----------------
shall constitute an "Event of Default" hereunder.
(a) Maker shall fail to pay any principal, interest or other
amounts when due and payable or declared due and payable
(whether at maturity, by acceleration or otherwise) under
this Note, and such failure shall remain uncured or
unremedied for a period of five (5) days after notice of the
failure to Maker by payee of such failure;
(b) Maker or any other Obligated Party shall fail or neglect
to perform, keep or observe any provision, condition,
covenant or warranty contained in this Note or any of the
other Transaction Documents to which it is a party (other
than as set forth in paragraph 8(a) of this Note);
--------------
(c) Any statement, report, financial statement or
certificate made or delivered by Maker, any other Obligated
Party or any of their officers, employees or agents, to
Payee is untrue, incomplete or incorrect in any material
respect;
(d) There shall occur any material uninsured damage to, or
loss, theft, or destruction of, any of the Pledged
Collateral (as defined in the Security Agreement);
3
<PAGE>
(e) A judgment or judgments for the payment of money in
excess of $5,000 in the aggregate shall be rendered against
either Maker or any other Obligated Party and any such
judgment or judgments shall, if unsatisfied, remain unstayed
for a period in excess of thirty (30) days;
(f) The Pledged Collateral or any other of any Obligated
Party's assets are attached, seized, levied upon or
subjected to a writ or distress warrant, or come within the
possession of any receiver, trustee, custodian or assignee
for the benefit of creditors and the same is not cured
within sixty (60) days thereafter; an application is made by
any person, other than such Obligated Party, for the
appointment of a receiver, trustee, or custodian for such
Obligated Party's assets, respectively and the same is not
dismissed within sixty (60) days after the application
therefor;
(g) An application is made by Maker or any other Obligated
Party for the appointment of a receiver, trustee or
custodian for any of Maker's or any such Obligated Party's
assets; a petition under any section or chapter of the
Bankruptcy Code or any similar law or regulation shall be
filed by Maker or any other Obligated Party; Maker or any
other Obligated Party makes an assignment for the benefit of
its creditors or any case or proceeding is filed by Maker or
any other Obligated Party for its dissolution, liquidation,
or termination;
(h) Maker or any other Obligated Party ceases to conduct its
business as now conducted or is enjoined, restrained or in
any way prevented by court order from conducting all or any
material part of its business affairs; a petition under any
section or chapter of the Bankruptcy Code or any similar law
or regulation is filed against Maker or any other Obligated
Party or any case or proceeding is filed against Maker or
any other Obligated Party for its dissolution or
liquidation, and such injunction, restraint or petition is
not dismissed within sixty (60) days after the entry or
filing thereof;
(i) A notice of lien, levy or assessment is filed of record
with respect to all or any of Maker's or any other Obligated
Party's assets by the United States, or any department,
agency or instrumentality thereof, or by any state, county,
municipal or other governmental agency, including, without
4
<PAGE>
limitation, the Pension Benefit Guaranty Corporation, or if
any taxes or debts owing at any time or times hereafter to
any one of these becomes a lien or encumbrance upon any of
Maker's or any other Obligated Party's assets and the same
is not released within sixty (60) days after the same
becomes a lien or encumbrance; provided that Maker or such
Obligated Party shall have the right to contest in good
faith and by appropriate proceedings any such lien, levy or
assessment if Maker or such Obligated Party provides Payee
with a bond or indemnity satisfactory to Payee assuring the
payment of such lien, levy or assessment; or
(j) Maker or any other Obligated Party becomes insolvent or
admits in writing its inability to pay its debts as they
mature or communicates its intention to petition for
protection under the Bankruptcy Code or apply for the
appointment of a receiver, trustee or custodian.
9. Remedies; No Offset. Upon and after the occurrence and continuance of
-------------------
an Event of Default, Payee shall have the option, without demand or notice
or legal process of any kind, to declare the unpaid principal of this
Note, together with interest thereon and any other sums owing hereunder,
at once due and payable, and to exercise any and all other rights and
remedies available hereunder or under the Security Agreement, or the other
Transaction Documents, or otherwise available at law or in equity. Maker
shall not be entitled to offset against this Note any amounts due and
owing from Payee to Maker, if any.
10. Remedies Cumulative. The remedies of Payee, as provided herein, shall
-------------------
be cumulative and concurrent, and may be pursued singularly, successively
or together, at the sole discretion of Payee, and may be exercised as
often as occasion therefor shall arise. No act of omission or commission
of Payee, including specifically any failure to exercise any right, remedy
or recourse, shall be deemed to be a waiver or release of the same, such
waiver or release to be effected only through a written document executed
by Payee and then only to the extent specifically recited therein. A
waiver or release with reference to any one event shall not be construed
as continuing, as a bar to, or as a waiver or release of, any subsequent
right, remedy or recourse as to a subsequent event.
11. Costs of Collection. Maker promises to pay all of Payee's costs of
-------------------
collection of every kind, including but not limited to all reasonable
attorneys' fees, court costs, and expenses of every kind, incurred by
Payee in connection with the collection (including, but not limited to
collection through a bankruptcy or other Court) or enforcement of this
Note. If Payee or its affiliates advances any additional amounts to or on
behalf of Maker, then the principal amount of this Note may, at the option
of Payee, be increased by the amounts
5
<PAGE>
so advanced, and Maker agrees to repay such additional amounts pursuant to
the terms hereof.
12. Waivers. Maker and each surety, endorser, guarantor and other party
-------
now or hereafter liable for the payment of any sums of money payable on
this Note, hereby severally (a) waive demand, presentment for payment,
notice of dishonor, notice of nonpayment, protest, notice of protest,
notice of intent to accelerate, notice of acceleration and all other
notices, filing of suit and diligence in collecting this Note or enforcing
any other security with respect to same, (b) agree to any substitution,
subordination, exchange or release of any such security or the release of
any parties primarily or secondarily liable hereon, (c) agree that Payee
shall not be required first to institute suit or exhaust its remedies
hereunder against Maker, or others liable or to become liable hereon or to
enforce its rights against them or any security with respect to same, (d)
consent to any and all renewals, extensions, indulgences, releases or
changes regardless of the number of such renewals, extensions,
indulgences, releases or changes, without notice thereof, and (e) agree to
the application of any deposit balance with Payee as payment or part
payment hereon or as an offset hereto. No such conduct shall affect,
impair, release or change the liability of Maker, surety, endorser,
guarantor and any other party. No waiver by Payee of any of its rights or
remedies hereunder or under any other document evidencing or securing this
Note or otherwise shall be considered a waiver of any other subsequent
right or remedy of Payee; no delay or omission in the exercise or
endorsement by Payee of any rights or remedies shall ever be construed as
a waiver of the same or any other right or remedy of Payee; and no
exercise or enforcement of any such right or remedy shall ever be held to
exhaust any right or remedy of Payee.
13. Notices. Except as otherwise provided herein, any notice or demand
-------
which, by the provisions hereof, is required or which may be given to or
served upon the Maker or Payee shall be in writing and, if by telecopy,
shall be deemed to have been validly served, given or delivered when
transmitted with a copy immediately mailed by registered or certified
mail, if by personal delivery, shall be deemed to have been validly
served, given or delivered upon actual delivery and, if mailed, shall be
deemed to have been validly served, given or delivered three (3) business
days after deposit in the United States mails, as registered or certified
mail, with proper postage prepaid and addressed to the party to be
notified, at the following addresses (or such other address(es) as a party
may designate for itself by like notice):
If to Maker: Letronix Acquisition Corp.
- ----------- 2620 South Maryland Parkway, Suite 202
Las Vegas, Nevada 89109
Attention: President
Telecopier No.: (214) 980-0790
6
<PAGE>
If to Payee: Polyphase Corporation
- ----------- 16885 Dallas Parkway, Suite 400
Dallas, Texas 75248
Attention: President
Telecopier No.: 214-732-6430
14. Successors and Assigns. This Note shall be binding upon Maker and its
----------------------
successors and assigns (including, without limitation, a receiver, trustee
or debtor-in-possession of or for Maker) and shall inure to the benefit of
Payee and its successors and assigns. Maker may not assign its rights
hereunder without the prior written consent of Payee, in its sole
discretion. Payee may assign all or a part of its interest in this Note
and its rights hereunder to any party.
15. GOVERNING LAW. THIS NOTE SHALL BE DEEMED A CONTRACT AND INSTRUMENT
-------------
MADE UNDER THE LAWS OF THE STATE OF TEXAS AND ACCEPTED BY PAYEE IN SAID
STATE, THE LOCATION OF PAYEE'S PRINCIPAL PLACE OF BUSINESS, AND ANY AND
ALL CLAIMS, DEMANDS OR ACTIONS IN ANY WAY RELATING THERETO OR INVOLVING
ANY DISPUTE BETWEEN ANY OF THE PARTIES TO THIS NOTE, WHETHER ARISING IN
CONTRACT OR TORT, AT LAW, IN EQUITY OR STATUTORILY, SHALL BE CONSTRUED AND
ENFORCED IN ACCORDANCE WITH AND/OR GOVERNED BY THE LAWS OF THE STATE OF
TEXAS (EXCEPTING ITS CHOICE OF LAW RULES) AND THE LAWS OF THE UNITED
STATES OF AMERICA. MAKER HEREBY IRREVOCABLY SUBMITS ITSELF TO THE NON-
EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS OF THE STATE OF
TEXAS AND AGREES AND CONSENTS THAT SERVICE OF PROCESS MAY BE MADE UPON IT
IN ANY LEGAL PROCEEDING RELATING TO THE TRANSACTION DOCUMENTS, THE
RELATIONSHIPS CREATED THEREBY OR THE DEBT BY ANY MEANS ALLOWED UNDER TEXAS
OR FEDERAL LAW. VENUE FOR ANY LEGAL PROCEEDING MAY BE DALLAS COUNTY,
TEXAS; PROVIDED, THAT PAYEE MAY CHOOSE ANY VENUE IN ANY STATE WHICH IT
DEEMS APPROPRIATE IN THE EXERCISE OF ITS SOLE DISCRETION.
16. WAIVER OF JURY TRIAL. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE
--------------------
LAW, MAKER AND PAYEE HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE
ANY RIGHT TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR
ARISING OUT OF, UNDER OR IN CONNECTION WITH, THIS NOTE AND THE OTHER
TRANSACTION DOCUMENTS OR ANY COURSE OF CONDUCT, COURSE OF DEALING,
STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF PAYEE OR MAKER IN
CONNECTION HEREWITH, WHETHER NOW EXISTING OR HEREAFTER ARISING, AND
WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE, MAKER AND PAYEE HEREBY
CONSENT AND AGREE THAT ANY SUCH CLAIM, DEMAND, ACTION, CAUSE OF ACTION,
SUIT OR
7
<PAGE>
PROCEEDING SHALL BE DECIDED BY A COURT TRIAL, WITHOUT A JURY, AND THAT ANY
PARTY MAY FILE AN ORIGINAL COUNTERPART OR COPY OF THIS NOTE WITH ANY COURT
AS WRITTEN EVIDENCE OF THE OTHER PARTIES' CONSENT TO SUCH.
17. Severability. If any provisions of this Note or any payments pursuant
------------
to the terms hereof shall be invalid or unenforceable to any extent, the
remainder of this Note and any other payments hereunder shall not be
affected thereby and shall be enforceable to the greatest extent permitted
by law.
18. Time of the Essence. Time is of the essence with respect to all of
-------------------
Maker's obligations and agreements under this Note and the other
Transaction Documents.
IN WITNESS WHEREOF, the undersigned have executed and delivered this
Note at Dallas, Texas as of the date and year first above written.
LETRONIX ACQUISITION CORPORATION
By: /s/ Albert B. Greco, Jr.
------------------------------------------------
Name: Albert B. Greco, Jr.
----------------------------------------------
Title: President
---------------------------------------------
8
<PAGE>
EXHIBIT 3
SECURITY AND PLEDGE AGREEMENT
-----------------------------
THIS SECURITY AND PLEDGE AGREEMENT (the "Agreement") is made as of
this 28th day of June, 1996, by Letronix Acquisition Corporation ("Pledgor"), in
favor of Polyphase Corporation ("Secured Party").
R E C I T A L S:
----------------
A. Pledgor owns beneficially and of record 1,020,000 shares (the
"Stock") of the common stock of Letronix, Inc., a Nevada corporation (the
"Company");
B. The Secured Party has agreed to loan to the Company the aggregate
principal sum of $850,000 (the "Loan") pursuant to a Secured Promissory Note
(the "Loan Agreement"). The principal sum of the Loan is subject to adjustment
as provided for in the Stock Purchase Agreement (as defined herein). All
capitalized terms used but not defined herein shall have the meanings set forth
in the Loan Agreement.
C. It is a condition precedent to the extension of the Loan by the
Secured Party that the Pledgor shall have executed and delivered to the Secured
Party, inter alia, a pledge agreement providing for the pledge to the Secured
Party of all of the Stock of the Company now or hereafter owned by Pledgor.
AGREEMENT:
---------
NOW, THEREFORE, in consideration of the covenants and agreements
contained herein, and other good and valuable consideration, receipt and
sufficiency of which are hereby acknowledged, and in order to induce the Secured
Party to extend the Loan to the Company, and with the intent to be legally bound
hereby, the Pledgor hereby agrees with the Secured Party as follows:
SECTION 1. DEFINITIONS. All terms used in this Agreement that are defined
-----------
in Article 9 of the Uniform Commercial Code currently in effect in the State of
Texas (the "Code") and are not otherwise defined herein shall have the same
meanings as set forth in the Code.
SECTION 2. PLEDGE AND GRANT OF SECURITY INTEREST. As collateral security
-------------------------------------
for all of the obligations of the Company under the Loan Agreement
(collectively, the "Obligations"), the Pledgor hereby pledges and assigns to the
Secured Party, and grants to the Secured Party a continuing security interest
in, the following (the "Pledged Collateral"):
(a) All right, title and interest of Pledgor in and to all stock and
other securities of the Company, whether now owned or hereafter acquired,
including, without limitation, the Stock, all options and other rights,
contractual or otherwise, of Pledgor now existing or hereafter arising with
respect to the Stock or other securities of the Company and all
distributions, cash, instruments and other property from time to time
received, receivable or
<PAGE>
otherwise distributed in respect of or in exchange for any or all of
Pledgor's interest in such stock or other securities of the Company; and
(b) All proceeds of any and all of the foregoing; in each case,
whether now owned or hereafter acquired by the Pledgor and howsoever its
interest therein may arise or appear (whether by ownership, security
interest, claim or otherwise).
SECTION 3. SECURITY FOR OBLIGATIONS. The security interest created hereby
------------------------
in the Pledged Collateral constitutes continuing collateral security for all of
the Obligations, whether now existing or hereafter incurred.
SECTION 4. DELIVERY OF THE PLEDGED COLLATERAL.
----------------------------------
(a) All certificates and instruments, if any, representing the Pledged
Collateral shall be delivered to the Secured Party or to its designated
agent upon the execution and delivery of this Agreement. All other
certificates and instruments constituting Pledged Collateral from time to
time shall be delivered to the Secured Party or to its designated agent
promptly upon the receipt thereof by or on behalf of the Pledgor. All such
certificates and instruments shall be held by the Secured Party or its
designated agent pursuant hereto and shall be delivered in suitable form
for transfer by delivery or shall be accompanied by duly executed
instruments of transfer or assignment in blank, all in form and substance
satisfactory in the Secured Party.
(b) If the Pledgor shall receive, by virtue of its being or having
been an owner of any Pledged Collateral, any (i) stock certificate
(including, without limitation, any certificate representing a stock
dividend or distribution in connection with any increase or reduction of
capital, reclassification, merger, consolidation, sale of assets,
combination of shares, stock split, spinoff or split-off), promissory note
or other instrument; (ii) option or right, whether as an addition to,
substitution for, or in exchange for, any Pledged Collateral, or otherwise;
(iii) distributions payable in cash (except such distributions permitted to
be retained by the Pledgor pursuant to Section 7 hereof) or in securities
or other property; or (iv) distributions in connection with a partial or
total liquidation or dissolution, Pledgor shall receive such stock
certificate, promissory note, instrument, option, right, payment or
distribution in trust, for the benefit of the Secured Party, shall
segregate it from the Pledgor's other property and shall deliver it
forthwith to the Secured Party or to its designated agent in the exact form
received, with any necessary indorsement and/or appropriate stock powers
duly executed in blank, to be held by the Secured Party or its designated
agent as Pledged Collateral and as further collateral security for the
Obligations.
SECTION 5. REPRESENTATIONS AND WARRANTIES. The Pledgor represents and
------------------------------
warrants as follows:
(a) The Pledgor is and will be at all times the legal and beneficial
owner of the Pledged Collateral free and clear of any lien, security
interest or other charge or encumbrance except for (i) the security
interest created by this Agreement and (ii) any restrictive legends
contained on any certificates representing the Pledged Collateral.
2
<PAGE>
(b) Pledgor is a corporation duly organized, validly existing and in
good standing in Nevada and has taken all necessary corporate actions in
order to duly authorize the execution, delivery and performance of this
Agreement and the Loan Agreement. This Agreement and the Loan Agreement
constitute the legal, valid and binding obligations of Pledgor, enforceable
against Pledgor in accordance with their terms. The execution, delivery and
performance of this Agreement will not contravene any law or governmental
regulation or any contractual restriction binding on or affecting the
Pledgor or any of its properties and will not result in or require the
creation of any lien, security interest or other, charge or encumbrance
upon or with respect to any of Pledgor's properties.
(c) No authorization or approval or other action by, and no notice to
or filing with, any governmental authority or regulatory body is required
in connection with the pledge hereunder by the Pledgor of, or the grant by
the Pledgor of the security interest created hereby in, the Pledged
Collateral, except as may be required in respect of any such exercise by
laws affecting the offering and sale of securities generally.
(d) This Agreement creates a valid security interest in favor of the
Secured Party in the Pledged Collateral. The filing by Secured Party of a
UCC-1 financing statement in the office of the Secretary of State of Texas
and the taking of possession by Secured Party or its designated agent of
all certificates, instruments and cash constituting Pledged Collateral from
time to time will perfect, and establish the first priority of, the Secured
Party's security interest hereunder in the Pledged Collateral, securing the
Obligations. Except as set forth in this Section 5(d) and except for the
delivery of certain of the Pledged Collateral to Secured Party, no action
is necessary or desirable to perfect or otherwise protect such security
interest.
(e) The Pledgor's principal place of business is located at 2620 South
Maryland Parkway, Suite 202, Las Vegas, Nevada 89109.
SECTION 6. COVENANTS AS TO THE PLEDGED COLLATERAL. So long as any of the
--------------------------------------
Obligations shall remain outstanding, the Pledgor will, unless the Secured Party
shall otherwise consent in writing:
(a) Provide the Secured Party with thirty (30) days' advance notice of
any change in the location of its primary residence from the address
specified for the Pledgor in Section 5(e) above; and
(b) Keep adequate records concerning the Pledged Collateral and permit
the Secured Party or any agents or representatives thereof at any
reasonable time and from time to time to examine and make copies of and
abstracts from such records; and
(c) At its expense, promptly deliver to the Secured Party a copy of
each notice or other communication received by it in respect of the Pledged
Collateral; and
(d) At its expense, defend the Secured Party's right, title and
special property and security interest in and to the Pledged Collateral
against the claims of any person; and
3
<PAGE>
(e) At its expense, at any time and from time to time, promptly
execute and deliver all further instruments and documents and take all
further action that may be necessary or desirable or that the Secured Party
may reasonably request in order (i) to perfect and protect the security
interest created or purported to be created hereby; (ii) to exercise and
enforce its rights and remedies hereunder in respect of the Pledged
Collateral; or (iii) to otherwise effect the purposes of this Agreement,
including, without limitation, delivering to the Secured Party irrevocable
proxies in respect of the Pledged Collateral; and
(f) Not sell, assign, exchange or otherwise dispose of any Pledged
Collateral or any interest therein; and
(g) Not create or suffer to exist any lien, security interest or other
charge or encumbrance upon or with respect to any Pledged Collateral except
for the pledge hereunder and the security interest created hereby; and
(h) Not make or consent to any amendment or other modification or
waiver with respect to any Pledged Collateral or enter into any agreement
or permit to exist any restriction with respect to any Pledged Collateral;
and
(i) Not (i) take any action that would, in any manner, impair the
enforceability of the Secured Party's security interest in any Pledged
Collateral or (ii) fail to take any action where such failure would result
in such impairment.
SECTION 7. VOTING RIGHTS, DISTRIBUTIONS, ETC. IN RESPECT OF THE PLEDGED
------------------------------------------------------------
COLLATERAL.
----------
(a) So long as no default shall have occurred hereunder, and so long
as neither the Company nor any other party thereto (other than Secured
Party) has failed to make any payment or perform any other covenant,
agreement or obligation under the Loan Agreement or the Note, subject to
any applicable cure periods contained therein (each, an "Event of Default")
then:
(i) The Pledgor may exercise any and all voting, managerial and
other rights pertaining to the Pledged Collateral or any part thereof
for any purpose not inconsistent with the terms of this Agreement, the
Loan Agreement or any shareholders' agreement to which Pledgor may be
bound; provided, however, that the Pledgor will not exercise or
refrain from exercising any such right, as the case may be, if such
action would have a material adverse effect on the value of any
Pledged Collateral;
(ii) The Pledgor may receive and retain any and all distributions
or interest paid in respect of the Pledged Collateral; provided,
however, that any and all
(A) Distributions and interest paid or payable other than in
cash in respect of, and instruments and other property received,
receivable or otherwise distributed in respect of or in exchange
for, any Pledged Collateral,
4
<PAGE>
(B) Distributions paid or payable in cash in respect of any
Pledged Collateral in connection with a partial or total
liquidation or dissolution, and
(C) Cash paid, payable or otherwise distributed in
redemption of, or in exchange for, any Pledged Collateral,
shall be, and shall forthwith be delivered to the Secured Party or its
designated agent to hold as Pledged Collateral and shall, if received by
the Pledgor, be received in trust for the benefit of the Secured Party,
shall be segregated from the other property or funds of the Pledgor, and
shall be forthwith delivered to the Secured Party or its designated agent
in the exact form received with any necessary endorsement and/or
appropriate stock powers or other instruments of assignment duly executed
in blank, to be held by the Secured Party or its designated agent as
Pledged Collateral and as further collateral security for the Obligations.
(b) Upon the occurrence and during the continuance of any Event of
Default:
(i) All rights of the Pledgor to exercise the voting, managerial
and other rights that it would otherwise be entitled to exercise
pursuant to paragraph (i) of subsection (a) of this Section 7, and to
receive the distributions and interest payments that it would
otherwise be authorized to receive and retain pursuant to paragraph
(ii) of subsection (a) of this Section 7, shall cease, and all such
rights shall thereupon become vested in the Secured Party who shall
thereupon have the sole right to exercise such voting, managerial and
other rights and to receive and hold as Pledged Collateral such
distributions and interest payments; and
(ii) Without limiting the generality of the foregoing, the
Secured Party may at its option exercise any and all rights of
conversion, exchange, subscription or any other rights, privileges or
options pertaining to any of the Pledged Collateral as if Secured
Party were the absolute owner thereof, including, without limitation
the right to exchange, in its discretion, any and all of the Pledged
Collateral upon the merger, consolidation, reorganization,
recapitalization or other adjustment of the Company, or upon the
exercise by the Secured Party of any right, privilege or option
pertaining to any Pledged Collateral, and in connection therewith, to
deposit and deliver any and all of the Pledged Collateral with any
committee, depository, transfer agent, registrar or other designated
agent upon such terms and conditions as such committee, depository,
transfer agent, registrar or other designated agent may determine; and
(iii) All distributions and interest payments that are received
by the Pledgor contrary to the provisions of paragraph (i) of this
Section 7(b) shall be received in trust for the benefit of the Secured
Party, shall be segregated from other funds of the Pledgor, and shall
be forthwith paid over to the Secured Party or its designated agent as
Pledged Collateral in the exact form received, to be held by the
Secured Party as Pledged Collateral and as further collateral security
for the Obligations.
5
<PAGE>
SECTION 8. ADDITIONAL PROVISIONS CONCERNING THE PLEDGED COLLATERAL.
-------------------------------------------------------
(a) The Pledgor hereby authorizes the Secured Party to file, without
the signature of the Pledgor where permitted by law, one or more financing
or continuation statements, and amendments thereto, relating to the Pledged
Collateral.
(b) The Pledgor hereby irrevocably appoints the Secured Party as the
Pledgor's attorney-in-fact and proxy, with full authority in the place and
stead of the Pledgor and in the name, of the Pledgor or otherwise, from
time to time prior to the payment in full of the Obligations, at the
Secured Party's reasonable discretion, to take any action and to execute
any instrument that the Secured Party may deem necessary or advisable to
accomplish the purposes of this Agreement (subject to the rights of the
Pledgor under Section 7(a) hereof), including, without limitation, to
receive, indorse and collect all instruments made payable to the Pledgor
representing any distribution in respect of the Pledged Collateral or any
part thereof and to give full discharge for the same.
(c) If the Pledgor fails to perform any agreement or obligation
contained herein and such failure shall remain unremedied for a period of
twenty (20) days, the Secured Party may itself perform, or cause
performance of, such agreement or obligation, and the expenses of the
Secured Party incurred in connection therewith shall be payable by the
Pledgor pursuant to Section 10 hereof. The Secured Party agrees to notify
the Pledgor of any such action taken, but failure to so notify the Pledgor
shall not affect the rights of the Secured Party hereunder.
(d) Other than the exercise of reasonable care to assure the safe
custody of the Pledged Collateral while held hereunder, the Secured Party
shall have no duty or liability to preserve rights pertaining thereto and
shall be relieved of all responsibility for the Pledged Collateral upon
surrendering it or tendering surrender of it to the Pledgor. The Secured
Party shall be deemed to have exercised reasonable care in the custody and
preservation of the Pledged Collateral in its possession if the Pledged
Collateral is accorded treatment substantially equal to that which the
Secured Party accords its own property of a similar nature, it being
understood that the Secured Party shall not have responsibility for (i)
ascertaining or taking action with respect to calls, conversions,
exchanges, maturities, tenders or other matters relating to any Pledged
Collateral, whether or not the Secured Party has or is deemed to have
knowledge of such matters, or (ii) taking any necessary steps to preserve
rights against any parties with respect to any Pledged Collateral.
(e) The Secured Party may at any time in its discretion (i) transfer
or register in the name of the Secured Party or any nominees of the Secured
Party any or all of the Pledged Collateral, subject only to the revocable
rights of the Pledgor under Section 7(a) hereof, and (ii) exchange
certificates or instruments constituting Pledged Collateral for
certificates or instruments of smaller or larger denominations. The Secured
Party will inform the Pledgor of any transfer or registration effected
pursuant to clause (i) of the preceding sentence.
SECTION 9. REMEDIES UPON DEFAULT. If any Event of Default shall have
---------------------
occurred and be continuing:
6
<PAGE>
(a) The Secured Party may, by notice to the Pledgor, (i) exercise in
respect of the Pledged Collateral, in addition to other rights and remedies
provided for herein or otherwise available to it, all of the rights and
remedies of a secured party on default under the Code (whether or not the
Code applies to the affected Pledged Collateral) then in effect in the
State of Georgia or other applicable law; and (ii) without limiting the
generality of the foregoing and without notice except as specified below,
sell the Pledged Collateral or any part thereof in one or more, parcels at
public or private sale, at any exchange or broker's board or elsewhere, as
such price or prices and on such other terms as Secured Party may deem
commercially reasonable, for cash or on credit or for future delivery.
Pledgor agrees that, to the extent notice of sale shall be required by law,
notice to Pledgor at least ten (10) days prior to the time and place of any
public sale or the time after which any private sale is to be made shall
constitute reasonable notification. The Secured Party shall not be
obligated to make any sale of Pledged Collateral regardless of notice of
sale having been given. The Secured Party may adjourn any public or private
sale from time to time by announcement at the time and place fixed
therefor, and such sale may, without further notice, be made at the time
and place to which it was so adjourned.
(b) The Pledgor recognizes that the Secured Party may deem it
impracticable to effect a public sale of all or any part of the any
securities constituting Pledged Collateral and that the Secured Party may,
therefore, determine to make one or more private sales of any such
securities to a restricted group of purchasers who will be obligated to
agree, among other things, to acquire such securities for their own
account, for investment and not with a view to the distribution or resale
thereof. The Pledgor acknowledges that any such private sale may be at
prices and on terms less favorable to the seller than the prices and other
terms which might have been obtained at a public sale and, notwithstanding
the foregoing, agrees that such private sales shall be deemed to have been
made in a commercially reasonable manner and that the Secured Party shall
have no obligation to delay sale of any such securities for the period of
time necessary to permit the issuer of such securities to register such
securities for public sale under the Securities Act of 1933 (the
"Securities Act") or any applicable state securities laws. Pledgor further
acknowledges and agrees that any offer to sell such securities which has
been (i) publicly advertised on a bona fide basis in a newspaper or other
publication of general circulation in the financial community of Atlanta,
Georgia (to the extent that such an offer may be so advertised without
prior registration under the Securities Act or applicable state securities
laws), or (ii) made privately in the manner described above to not less
than five bona fide offerees shall be deemed to involve a "public sale" for
the purposes of Section 9-504(3) of the Code (or any successor or similar
applicable statutory provision) as then in effect in the State of Georgia,
notwithstanding that such sale may not constitute a "public offering" under
the Securities Act or applicable state securities laws and that the Agent
on behalf of Secured Party may, in such event, bid for and purchase of such
securities.
(c) Any cash held by the Secured Party as Pledged Collateral and all
cash proceeds received by the Secured Party in respect of any sale of,
collection from, or other realization upon, all or any part of the Pledged
Collateral shall be applied as follows:
7
<PAGE>
(i) First, to the extent not otherwise paid or reimbursed by
Pledgor, to the repayment of the reasonable costs and expenses,
including reasonable attorneys fees and legal expenses, incurred by
the Secured Party in connection with (A) the administration of this
Agreement, (B) the custody, preservation, use or operation of, or the
sale of, collection from, or other realization upon, any Pledged
Collateral, (C) the exercise or enforcement of any of the rights of
the Secured Party hereunder, and/or (D) the failure of the Pledgor to
perform or observe any of the provisions hereof;
(ii) Second, at the option of the Secured Party, to the payment
or other satisfaction of any liens and other encumbrances upon any of
the Pledged Collateral;
(iii) Third, to the reimbursement of the Secured Party for the
amount of any obligations of the Pledgor and/or the Company paid or
discharged by the Secured Party pursuant to the provisions of this
Agreement, the Loan Agreement or any Other Agreement and of any
reasonable expense of the Secured Party payable by the Pledgor
hereunder or under the Loan Agreement or any Other Agreement;
(iv) Fourth, to the satisfaction of any other indebtedness of the
Pledgor and/or the Company to the Secured Party;
(v) Fifth, to the payment of any other amounts required by
applicable law (including, without limitation, Section 9-504(1)(c) of
the Code or any successor or similar, applicable statutory provision);
and
(vi) Sixth, the surplus proceeds, if any, to the Pledgor or to
whomsoever shall be lawfully entitled to receive the same or as a
court of competent jurisdiction shall direct.
(d) In the event that the proceeds of any such sale, collection or
realization are insufficient to pay all amounts to which the Secured Party
is legally entitled, the Pledgor shall be liable for the deficiency,
together with interest thereon at the default rate provided in Section 1.1
of the Loan Agreement, together with the costs of collection and the
reasonable fees of any attorneys employed by the Secured Party to collect
such deficiency.
(e) The Secured Party agrees that it will not sell or transfer any
securities constituting all or part of the Pledged Collateral except in
compliance with all applicable securities laws.
8
<PAGE>
SECTION 10. INDEMNITY AND EXPENSES.
----------------------
(a) [intentionally left blank]
(b) The Pledgor will upon demand pay to the Secured Party, the amount
of any and all costs and expenses, including, without limitation, court
costs and the reasonable fees and disbursements of the Secured Party's
counsel and of any experts and agents, that the Secured Party or such
Purchaser may incur in connection with (i) the administration of this
Agreement; (ii) the custody, preservation, use or operation of, or the sale
of, collection from, or other realization upon, any Pledged Collateral;
(iii) the exercise or enforcement of any of the rights of the Secured Party
hereunder; or (iv) the failure by the Pledgor to perform or observe any of
the provisions hereof; except for expenses resulting solely and directly
from the Secured Party's or a Purchaser's gross negligence, willful
misconduct or breach of this Agreement.
SECTION 11. NOTICES. Unless otherwise required herein, all notices and
-------
other communications provided for hereunder shall be given as set forth in the
Loan Agreement.
SECTION 12. MISCELLANEOUS.
-------------
(a) No amendment of any provision of this Agreement shall be effective
unless it is in writing and signed by the Pledgor and the Secured Party,
and no waiver of any provision of this Agreement, and no consent to any
departure by the Pledgor therefrom, shall be effective unless it is in
writing and signed by the Secured Party and then such waiver or consent
shall be effective only in the specific instance and for the specific
purpose for which given.
(b) No failure on the part of the Secured Party to exercise, and no
delay in exercising, any right hereunder or under the Loan Agreement, any
Other Agreement or any related agreement, instrument or documents shall
operate as a waiver thereof; nor shall any single or partial exercise of
any such right preclude any other or further exercise thereof or the
exercise of any other right. The rights and remedies of the Secured Party
provided herein and in the Loan Agreement, the Other Agreements and all
related agreements, instruments and documents are cumulative and are in
addition to, and not exclusive of, any rights or remedies provided by law.
The rights of the Secured Party under each of this Agreement, the Loan
Agreement, the Other Agreements and any related agreements, instruments and
documents against any party thereto are not conditional or contingent on
any attempt by the Secured Party to exercise any of its rights hereunder or
under the Loan Agreement, the Other Agreements or any related agreement,
instrument or document against such party or against any other person or
entity.
(c) Any provision of this Agreement that is prohibited or
unenforceable in any jurisdiction shall be ineffective, as to such
jurisdiction, to the extent of such prohibition or invalidity without
invalidating the remaining portions hereof or thereof or affecting the
validity or enforceability of such provision in any other jurisdiction.
9
<PAGE>
(d) This Agreement shall create a present continuing security interest
in the Pledged Collateral and shall (i) remain in full force and effect
until the earlier of the payment and satisfaction in full or release of the
Obligations, (ii) be binding on the Pledgor and its successors and assigns
and shall inure, together with all rights and remedies of the Secured Party
hereunder, to the benefit of the Secured Party and its successors,
transferees and assigns. Without limiting the generality of the foregoing,
the Secured Party may assign or otherwise transfer the Note held by it as
provided in the Loan Agreement, and the Secured Party may assign or
otherwise transfer its rights under the Loan Agreement to any other person
or entity, and such other person or entity shall thereupon become vested
with all of the benefits in respect thereof granted to the Secured Party,
herein or otherwise. None of the rights or obligations of the Pledgor
hereunder may be assigned or otherwise transferred without the prior
written consent of the Secured Party.
(e) Upon the earlier of the final and irrevocable payment and
satisfaction in full or release of the Obligations, this Agreement and the
security interest created hereby shall terminate and all rights to the
Pledged Collateral shall revert to the Pledgor. The Secured Party shall
thereafter, upon the Pledgor's request and at the Pledgor's expense, (i)
return to the Pledgor such of the Pledged Collateral as shall not have been
sold or otherwise disposed of or applied pursuant to the terms hereof; and
(ii) execute and deliver to the Pledgor such documents as the Pledgor shall
reasonably request to evidence such termination.
(f) THIS AGREEMENT CONSTITUTES A SECURED COMMERCIAL LENDING
TRANSACTION GOVERNED BY THE UNIFORM COMMERCIAL CODE (TO THE EXTENT
APPLICABLE). THIS AGREEMENT SHALL BE DEEMED TO HAVE BEEN MADE AT DALLAS,
TEXAS AND SHALL BE INTERPRETED AND THE RIGHTS AND LIABILITIES OF THE
PARTIES HERETO DETERMINED IN ACCORDANCE WITH THE LAWS OF THE UNITED STATES
APPLICABLE THERETO AND THE INTERNAL LAWS OF THE STATE OF TEXAS, APPLICABLE
TO AGREEMENTS EXECUTED, DELIVERED AND PERFORMED WITHIN SUCH STATE, EXCEPT
AS REQUIRED BY MANDATORY PROVISIONS OF LAW AND EXCEPT TO THE EXTENT THAT
THE VALIDITY OR PERFECTION OF THE SECURITY INTEREST CREATED HEREBY, OR
REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR PLEDGED COLLATERAL ARE
GOVERNED BY THE LAW OF A JURISDICTION OTHER THAN THE STATE OF TEXAS.
PLEDGOR HEREBY CONSENTS THAT ALL SERVICE OF PROCESS BE MADE BY REGISTERED
MAIL DIRECTED TO SUCH PARTY AT ITS ADDRESS SET FORTH IN SECTION 5(E)
HEREOF. PLEDGOR WAIVES TRIAL BY JURY (TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW), ANY OBJECTION BASED ON FORUM NON CONVENIENS, AND ANY
OBJECTION TO VENUE OF ANY ACTION INSTITUTED HEREUNDER AND CONSENTS TO THE
GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY THE
COURT. NOTHING IN THIS SECTION 12(F) SHALL AFFECT THE RIGHT OF SECURED
PARTY TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR AFFECT
THE RIGHT OF SECURED PARTY TO BRING ANY ACTION OR PROCEEDING AGAINST
PLEDGOR AND/OR ITS
10
<PAGE>
PROPERTY IN THE COURTS OF ANY OTHER JURISDICTION WHERE SUCH PARTY MAINTAINS
OFFICES OR HAS PROPERTY.
(g) This Agreement may be executed in multiple counterparts, each of
which shall be deemed an original, and all counterparts hereof so executed
by the parties hereto, whether or not such counterpart shall bear the
execution of each of the parties hereto, shall be deemed to be, and shall
be construed as, one and the same Agreement. A photocopy, telecopy or
facsimile transmission of a signed counterpart of this Agreement shall be
sufficient to bind the party or parties whose signature(s) appear thereon.
(h) Secured Party hereby agrees to release a pro rata portion of the
--------
Stock securing the Obligations within ten (10) days following proper and
timely payment of all or a part of the principal amount paid in accordance
with the terms of the Loan Agreement. The number of shares of Stock to be
released shall be in the same proportion as the Stock bears to the original
principal amount of the Loan (as adjusted pursuant to the Stock Purchase
Agreement pursuant to which the stock was sold to Pledgor (the "Stock
Purchase Agreement"))on the date hereof. For example, if the Stock is equal
to 825 shares on the date hereof, then (assuming the $850,000 Loan remains
unadjusted under the Stock Purchase Agreement) .000970 shares of the Stock
shall be released for each dollar of principal paid off under the Loan
Agreement. Notwithstanding, no release shall be made of fractional shares.
11
<PAGE>
IN WITNESS WHEREOF, the Pledgor has executed this Agreement as of the
date first above written.
PLEDGOR:
LETRONIX ACQUISITION CORPORATION
By: /s/ ALBERT B. GRECO, JR.
-------------------------------------
Name: Albert B. Greco, Jr.
-----------------------------------
Title: President
----------------------------------
SECURED PARTY:
POLYPHASE CORPORATION
By: /s/ PAUL A. TANNER
-------------------------------------
Name: Paul A. Tanner
-----------------------------------
Title: President
----------------------------------
12
<PAGE>
EXHIBIT 4
[POLYPHASE FORM]
STOCK OPTION AND RIGHT OF FIRST REFUSAL AGREEMENT
-------------------------------------------------
This Stock Option and Right of First Refusal Agreement is made and entered
effective the 28th day of June, 1996, by and between Polyphase Corporation
("Grantor"), and Letronix Acquisition Corp. ("Grantee").
RECITALS
--------
WHEREAS, Grantor is now the owner of 980,000 shares (the "Shares") of the
common stock of PC Networx America, Inc., a Nevada corporation (the "Company" or
"Corporation"); and
WHEREAS, in connection with the public distribution in a registered "spin-
off" of 30% of the outstanding shares of the common stock of the Company (the
"Spin-off"), Grantor desires to grant an option to Grantee to purchase certain
of the Shares, on and subject to the terms of this Agreement.
AGREEMENT
---------
NOW, THEREFORE, in consideration of the mutual covenants hereinafter set
forth and for other good and valuable consideration, the parties hereto agree as
follows:
1. Grant of Option. Subject to the terms and conditions of this
---------------
Agreement, Grantor grants to Grantee the right (the "Option") to purchase up to
200,000 of the Shares held by Grantor (the "Optioned Shares"). The Optioned
Shares hereunder are subject to adjustment in the manner provided in Paragraph 6
of this Agreement.
2. Term of Option. Subject to earlier termination as otherwise provided
--------------
herein, the Option shall be exercisable by Grantee at any time beginning on the
date the registration statement relating to the Spin-off is first declared
effective by the Securities and Exchange Commission (the "Effective Date") and
ending on the close of business on the 545th day after the Effective Date (the
"Termination Date").
3. Method of Exercising Option. Subject to the terms and conditions of
---------------------------
this Agreement, the Option shall be exercised by giving written notice to the
Grantor. Such notice shall state the number of shares being purchased and shall
be signed by Grantee. At the time of exercise of the Option, payment of the
purchase price must be made in cash, by certified check or by a wire
<PAGE>
transfer of funds. The certificate or certificates for the Optioned Shares as
to which the Option shall have been so exercised shall be registered in the name
of Grantee, upon payment in full of the Option Price (defined below) for each
Optioned Share purchased and shall be delivered as provided above to or upon the
written order of Grantee. All Optioned Shares that shall be purchased upon the
exercise of the Option as provided herein shall be fully paid and nonassessable.
4. Option Price. The "Option Price" for the Optioned Shares shall be as
------------
set forth in Exhibit A.
---------
5. Transferability. The Option and the Right of First Refusal specified
---------------
in Section 11 hereof may be transferred or assigned by Grantee.
6. Changes in Capital Structure. In the event of any reorganization,
----------------------------
merger, acquisition, separation, recapitalization, split-up, combination or
exchange of shares of the common voting stock of Corporation, or like
adjustment, the percentage and number of Optioned Shares of stock and the class
of shares of stock subject to the Option granted pursuant to this Agreement and,
if necessary, the Option Price, shall be adjusted by appropriate changes in
Option herein to reflect such changes.
In the event of the complete liquidation or, dissolution of Corporation,
other than as an incident to a merger, reorganization, or other adjustment
referred to in the immediately preceding paragraph, any options granted pursuant
to this Agreement and remaining unexercised shall be deemed canceled,
notwithstanding anything to the contrary provided in this Agreement.
7. Warranties and Representations.
------------------------------
a. Grantee expressly recognizes that the purchase of stock, if any,
pursuant to this Stock Option Agreement shall be for investment purposes only.
The shares purchased pursuant to the terms of this Agreement shall not be resold
or otherwise distributed unless the stock subject to such sale, transfer,
option, or distribution is registered under the Securities Act of 1933, as
amended, or unless, in the opinion of counsel for the Corporation, registration
is not required pursuant to said Act, is not required pursuant to the Private
Placement exemption of said Act or, is not required pursuant to any other
exemption in said Act, or pursuant to any other applicable law, regulation, or
rule of any governmental agency, whether State or Federal.
2
<PAGE>
b. Grantee hereby acknowledges that he has examined the books and
records of the Corporation and is satisfied as to the accurateness thereof.
Grantee further represents that, based upon his examination of the Corporation's
books and records and his knowledge of the industry in which the Corporation
operates, the option price for the shares hereunder is fair.
8. Title to Shares. The purchase and sale of shares pursuant to the
---------------
terms of this Agreement shall be complete only upon payment of the purchase
price in the manner set forth above. Until payment of the purchase price,
Grantee shall have no rights as a shareholder with respect to the Optioned
Shares and title to the Optioned Shares shall remain in Grantor. Such shares
shall be transferred to Grantee free and clear of all liens, claims and/or
encumbrances, and shall not be subject to any proxies or other similar
restrictions, except for applicable restrictions or limitations imposed by
federal and state securities laws.
9. Covenants of Grantor. Grantor covenants and agrees that, prior to the
--------------------
Termination Date, it will not sell, assign, hypothecate or otherwise encumber
the Optioned Shares.
10. Compliance with Law. If any provision of this Agreement becomes or is
-------------------
found to be illegal, unenforceable, void, or voidable pursuant to applicable
laws, regulations, or restrictions, or for any other reason, such clause or
provision must first be modified to the extent necessary to make this Agreement
legal and enforceable and then if necessary, second, severed from the remainder
of the Agreement to allow the remainder of the Agreement to remain in full force
and effect.
11. Right of First Refusal. In the event Grantor proposes, on or before
----------------------
June 28, 1999, to sell (i) on or prior to the Termination Date, any of the
Shares other than the Optioned Shares and (ii) after the Termination Date, any
of the Shares (the "ROFR Shares"), then the Grantor shall give the Grantee
written notice of the name of the proposed transferee (if known), the price (as
determined below), the other terms and the conditions of the proposed sale. The
Grantee shall have 14 days from the date of receipt of such notice to agree to
purchase all or any part of such ROFR Shares upon the terms and conditions
specified in the notice, by delivering written notice to the Grantor stating his
agreement to buy such ROFR Shares not later than 10 days following the date of
such notice delivered to Grantor. Notwithstanding anything herein to the
contrary, the
3
<PAGE>
purchase price per ROFR Share shall be (i) in the case of a bona fide offer from
a third party, the price offered by such third party or (ii) in all other cases,
the Market Price (as defined below). In the event that the Grantor does not
agree to buy such ROFR Shares in accordance with the terms hereof, Grantor shall
have 90 days following expiration of the 14-day period above to sell such ROFR
Shares to the proposed transferee stated in the notice without renewed
compliance with this Section 11. As used herein, the term "Market Value" shall
mean:
(i) If traded on a national securities exchange or the NASDAQ National
Market ("NNM"), the value shall be deemed to be the average of the
---
security's closing prices on such exchange or NNM over the ten (10) day
period ending two (2) days prior to the date of the notice sent by Grantor
to Grantee hereunder;
(ii) If actively traded over-the-counter (other than NNM), the value
shall be deemed to be the average of the closing bid prices over the ten
(10) day period ending two (2) days prior to the date of the notice sent by
Grantor to Grantee hereunder.
12. Miscellaneous.
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a. Survival of Representations. All representations and warranties
---------------------------
made hereunder shall survive execution of this Agreement.
b. Notices. Any notices required or permitted to be given hereunder
-------
shall be sufficient if in writing and if sent by registered mail to the last
known address of party to receive such notice.
c. Waiver of Breach. The waiver by any party of a breach of any
----------------
provision of this Agreement shall not operate or be construed as a waiver of any
subsequent breach by any party.
d. Severability. If any provision of this Agreement becomes or is
------------
found to be illegal, unenforceable or void, then such clause or provision must
first be modified to the extent necessary to make this Agreement legal and
enforceable and then, if necessary, second, severed
4
<PAGE>
from the remainder of this Agreement to allow the remainder of this Agreement to
remain in full force and effect.
e. Entire Agreement. This instrument contains the entire Agreement
----------------
of the parties with respect to the subject matter hereof. All negotiations
relative to the matters contemplated by this Agreement are merged herein and
there are no other understandings or agreements relating to the matters and
things herein set forth other than those incorporated in this Agreement. No
provision of this Agreement shall be altered, amended, revoked or waived, except
by an instrument in writing signed by the party sought to be charged with such
amendment, revocation or waiver.
f. Jurisdiction and Venue. The parties agree that the District
----------------------
Court of the City and County of Dallas, Texas, shall have exclusive
jurisdiction, including in personam jurisdiction, and shall be the exclusive
-- --------
venue for any and all controversies and claims arising out of or relating to
this Agreement or a breach thereof, except as otherwise unanimously agreed by
the parties.
g. Interpretation. This Agreement shall be interpreted and construed
--------------
in accordance with the laws of the State of Texas, without regard to the choice
of law principles thereof.
h. Counterparts. This Agreement may be executed in one or more
------------
counterparts, all of which taken together shall constitute one instrument.
i. Construction of Agreement. This Agreement is the product of the
-------------------------
negotiation of the parties hereto. For convenience it has been drafted by one
of the parties hereto. This Agreement shall not be construed in favor of, or
against, any party hereto.
j. Attorneys' Fees. Should any party hereto retain counsel for the
---------------
purpose of enforcing or preventing breach of any provision hereof, then the
prevailing party shall be entitled to be, reimbursed by the losing party for all
costs and expenses incurred thereby including, but not limited to, reasonable
attorneys' fees.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on this
15th day of July, 1996.
Grantor: Grantee:
Polyphase Corporation Letronix Acquisition Corp.
- ------------------------------ -------------------------------------
[Print Name] [Print Name]
By: /s/ PAUL A. TANNER By: /s/ ALBERT B. GRECO, JR.
--------------------------- -------------------------------------
Title: President Title: President
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<PAGE>
EXHIBIT A
Option Price:
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1. if the date of exercise with respect to the Optioned Shares to be
acquired is 180 days or less after the Effective Date, then the Option Price per
share shall be 1.25 times the book value of the Company's common stock as of
June 30, 1996, as such book value is specified in Section 1.5 of that certain
Stock Purchase Agreement, dated as of even date herewith, by and between
Letronix Acquisition Corp. and Polyphase Corporation (the "Book Value").
2. if the date of exercise with respect to the Optioned Shares to be
acquired is more than 180 days but less than 365 days after the Effective Date,
then the Option Price per share shall be 1.5 times the Book Value.
3. if the date of exercise with respect to the Optioned Shares to be
acquired is 365 days or more after the Effective Date, then the Option Price per
share shall be 1.75 times the Book Value.
7
