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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended September 30, 1998
OR
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ___________ to ___________
Commission file number: 1-9083
POLYPHASE CORPORATION
(Exact name of registrant as specified in its charter)
NEVADA 23-2708876
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4800 BROADWAY, SUITE A
ADDISON, TEXAS 75001
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (972) 386-0101
Securities Registered Pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
- ----------------------------------------- ------------------------
COMMON STOCK, $.01 PAR VALUE PER SHARE AMERICAN STOCK EXCHANGE
Securities Registered Pursuant to Section 12(g) of the Act:
NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act during the past
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes X No _______
-------
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of voting stock held by non-affiliates of the
registrant, based on the closing price of such stock on November 30, 1998, was
approximately $3.4 million. For purposes of this computation, all executive
officers, directors and 10% beneficial owners of the registrant are deemed to be
affiliates. Such determination should not be deemed an admission that such
executive officers, directors and 10% beneficial owners are affiliates. As of
November 30, 1998, the registrant had issued and outstanding 15,177,321 shares
of common stock, $ .01 par value.
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POLYPHASE CORPORATION
1998 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
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Page
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PART I
Item 1 Description of Business 1
Item 2 Description of Property 7
Item 3 Legal Proceedings 7
Item 4 Submission of Matters to a Vote of Security Holders 8
PART II
Item 5 Market for Registrant's Common Equity and Related Stockholder Matters 9
Item 6 Selected Financial Data 11
Item 7 Management's Discussion and Analysis of Financial Condition and
Results of Operation 12
Item 7A Quantitative and Qualitative Disclosures about Market Risk 18
Item 8 Financial Statements 18
Item 9 Changes In and Disagreements with Accountants
on Accounting and Financial Disclosure 18
PART III
Item 10 Directors and Executive Officers of the Registrant 18
Item 11 Executive Compensation 18
Item 12 Security Ownership of Certain Beneficial Owners and Management 18
Item 13 Certain Relationships and Related Transactions 18
PART IV
Item 14 Exhibits, Financial Statement Schedule and Reports on Form 8-K 19
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
------------------------
GENERAL
The Company is a diversified holding company that, through its subsidiaries,
currently operates in three industry segments: the food segment, which produces
high quality entrees, plated meals, soups, sauces and poultry, meat and fish
specialties (the "Food Group"); the forestry segment, which distributes, leases
and provides financing for industrial and logging equipment (the "Forestry
Group"); and the transformer manufacturing segment, which manufactures and
markets electronic transformers, inductors and filters (the "Transformer
Group"). The Company was incorporated in New Jersey in 1963 under the name
Kappa Networks, Inc. In June 1991, through a merger with a wholly owned
subsidiary, the Company reincorporated in Pennsylvania and formally changed its
name to Polyphase Corporation. In June 1994, the Company, through a merger with
a wholly owned subsidiary, reincorporated in Nevada.
ACQUISITIONS
In connection with the Company's program of diversification and expansion, the
more significant acquisitions consummated by the Company over the past five
years were:
. Texas Timberjack, Inc. ("Timberjack" or "TTI") In June 1994, the
----------------------------------------------
Company acquired all of the outstanding capital stock of TTI from Harold Estes,
current President of TTI. Timberjack, with locations in Lufkin, Jasper,
Cleveland and Atlanta, Texas, is a distributor of industrial and logging
equipment in East Texas and Western Louisiana. The capital stock of TTI was
acquired from Mr. Estes for consideration of approximately $4,000,000 in cash, a
$10,000,000 promissory note payable to the order of Mr. Estes, and 100,000
shares of the Company's Series A Preferred Stock, which were subsequently
converted into 2,000,000 shares of common stock. Subsequent to June 1994, the
Company and Mr. Estes have modified, renewed and extended the promissory note
payable to Mr. Estes. As of September 30, 1998 the promissory note had a
balance of $16,307,405 (including accrued and unpaid interest) and was due
October 6, 1998. Subsequent to year end the note was modified, renewed and
extended through December 15, 1999. See "Management's Discussion and Analysis of
Financial Condition and Results of Operation- Liquidity and Capital Resources."
. Overhill Farms, Inc. ("Overhill") In May 1995, the Company acquired
---------------------------------
all the operating assets of IBM Foods, Inc. The purchase, which was
accomplished through Overhill, a newly-formed subsidiary of the Company,
provided for cash payment to the seller of $31.3 million plus the assumption by
the Company of certain liabilities of the acquired business. Overhill is
located in Culver City, California.
BUSINESS STRATEGY
Management believes the Company's future growth opportunities will concentrate
on the two largest core holdings, the Food Group and Forestry Group. The
business environment of the food industry is mandating consolidation of smaller
regional food processing companies to enhance operating efficiencies and provide
service to large national accounts. The Food Group is evaluating selected
acquisition candidates which can complement Overhill Farms by providing one or
more of the following selected criteria such as: regional brand labels,
additional production capacity, geographical diversification , new markets
and/or new customers. The Forestry Group continues to develop internal growth
through product line extensions and geographic expansions. Additional growth
will be primarily from the investment in or acquisitions of other forestry
related industries.
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To achieve future growth within the Company , Management has identified the
following basic initiatives:
1) Continue to provide high quality products and superior services to our
customers.
2) Seek internal growth by developing new products, adding customers,
leveraging its geographic presence and securing distribution rights to
additional products.
3) Seek additional growth through strategic acquisitions of complementary
businesses with strong management, solid product lines and growth
potential.
OPERATING SEGMENTS
The following table sets forth business segment information with respect to the
percentage of net sales and operating income contributed by each segment for the
years ended September 30, 1998, 1997 and 1996.
1998 1997 1996
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Net Sales
<S> <C> <C> <C>
Food Group 64% 63% 66%
Forestry Group 33% 34% 23%
Transformer Group 3% 3% 2%
Other - - 9%
--- --- ---
Total 100% 100% 100%
Operating Income
Food Group 55% 53% 94%
Forestry Group 45% 48% 46%
Transformer Group - (1%) -
Other - - (40%)
--- --- ---
Total 100% 100% 100%
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</TABLE>
Reference is made to Note 18 to the Company's consolidated statements for
revenues, operating profits or losses and identifiable assets attributable to
each industry segment for each of the last three fiscal years.
FOOD GROUP
PRODUCTS AND SERVICES - The Food Group, through Overhill, is a value-added
manufacturer of quality frozen food products including entrees, plated meals,
soups, sauces, poultry, meat and fish specialities. Overhill is positioned as a
provider of custom prepared foods to a number of prominent customers such as
American Airlines, Jenny Craig, Albertsons, Carl's Jr., Jack in the Box, Panda
Express and King's Hawaiian. Historically, Overhill has served five industry
segments: airlines, health care, food service, club stores and retail.
SALES AND MARKETING - Overhill markets its products through an internal sales
force and outside food brokers. Overhill believes the airline and health care
industries are mature industries with stable growth potential over the next five
years. The Company is focusing on the retail, club stores and food service
markets as areas of significant future growth. As a result, Overhill management
has restructured its sales force and redirected its marketing efforts to
concentrate on these markets. During fiscal 1998, Overhill has concentrated on
building on and increasing the profitability of existing accounts while
establishing new relationships with companies such as, Panda Express, American
Stores, Wolfgang Puck Food Services and Denny's.
Approximately 62% of Overhill's sales in fiscal 1998 were derived from three
customers, Jenny Craig, Inc. (32%), King's Hawaiian (15%) and American Airlines
(15%). On a consolidated basis these three customers represented approximately
22%, 9% and 9% of the Company's total sales, respectively. Although the
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Company's relationships with these customers remains strong, signified by Jenny
Craig entering into a two year supplier agreement in August 1997 (with an option
for a third year), there can be no assurance that these relationships will
continue. A decline in the sales of Overhill's products to these customers or
the loss of, or a significant change in the relationship between the Company and
any of these key customers, could have a material adverse effect on the
Company's business and operating results. It is management's objective to
reduce the reliance on this concentration of accounts by further expansion into
the retail and food service markets as described above.
MANUFACTURING AND SOURCING - Overhill's manufacturing operations are located in
three separate facilities near Los Angeles, California. The operations are
labor intensive requiring semi-skilled employees. All manufacturing employees
are unionized with contracts covering each plant. Such contracts are due to
expire at various times over the next three years. Management believes
relations with the unions are excellent and does not anticipate any problems
which would affect future production. Each plant specializes in different
processing operations allowing efficiencies in production. In fiscal 1998, the
plants operated collectively at approximately 75% of capacity.
The Company's ability to economically produce large quantities of its products,
while at the same time maintaining a high degree of quality, depends in a large
part on its ability to procure raw materials on a reasonable basis. The Company
relies on a few large suppliers for its poultry products with the remaining raw
materials purchased from suppliers in the open market. The Company does not
anticipate any difficulty in acquiring these materials in the future. Raw
materials, packaging for production and finished goods are stored on site or in
a public frozen food storage facility until shipment is required.
BACKLOG - Overhill typically delivers products directly from finished goods
inventory, and as such does not maintain a large backlog of unfilled purchase
orders. While at any given time there may be a small backlog of orders, such
backlog is not material in relation to total sales, nor is it necessarily
indicative of trends in its business. Orders are subject to changes in
quantities or to cancellation with thirty days notice without penalties to
customers.
PRODUCT DEVELOPMENT - Overhill maintains a comprehensive, fully staffed test
kitchen, which formulates recipes and upgrades specific products for current
customers and establishes production and quality standards. Products are
developed based upon either customers' specifications, conventional recipes or
new product developments. Overhill is continuously developing recipes as
customers' tastes change. Overhill also maintains a quality control department
for testing and quality control. The Company manufactures products in the
retail and food service areas with branded and private label entrees.
COMPETITION - Overhill's food products, consisting primarily of poultry, pasta,
beef and assorted related products, compete with products produced by numerous
regional and national firms. Many of these companies are divisions of larger
fully integrated companies such as Tyson Foods and ConAgra, which have greater
financial, technical, human and marketing resources than the Company.
Competition is intense with most firms producing similar products for the food
service and retail industries. Competitive factors include price, product
quality, product development, customer service and, on a retail basis, name
recognition. There can be no assurance that the Company will compete
successfully against existing companies or new entrants to the marketplace.
Furthermore, the development by competitors of new or improved products,
services and/or technologies may render the Company's products or services (or
proposed products or services) obsolete or less competitive. Overhill competes
in this market by its ability to produce small/custom product runs, within a
short time frame and on a cost effective basis.
FORESTRY GROUP
PRODUCTS AND SERVICES - The Forestry Group, through Timberjack and its majority-
owned subsidiaries, is a distributor of industrial and logging equipment with
investments in related timber and sawmill operations. TTI has four locations
in eastern Texas; TTI's headquarters are located in Lufkin and smaller
satellite showrooms and repair facilities are located in Jasper, Cleveland and
Atlanta, Texas. TTI carries the Timberjack, Blount and Hyundai lines of
industrial and logging equipment and the New Holland line of farm equipment.
TTI is involved in the sale, leasing and financing of the equipment it
distributes as well as the servicing of all major
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brands of related equipment. TTI's operations are primarily concentrated in the
forested areas of East Texas although its market extends into Western Louisiana.
TTI operates in a fragmented industry where its major competition is from
distributors and dealers of Caterpillar and John Deere equipment. TTI estimates
that in Eastern Texas it currently holds approximately 60% of the shear (a
machine that cuts timber) market, 35% of the skidder (a machine that transports
logs out of the forest onto a loader) market and 70% of the loader (a machine
that stacks trees onto trucks) market.
SALES AND MARKETING - Timberjack currently maintains sales and distribution
offices in Lufkin, Jasper, Cleveland and Atlanta, Texas primarily to serve
Eastern Texas and Western Louisiana. Sales are generated through repeat
customers, advertisements in various trade publications and direct marketing
calls on companies located in the area. A general sales manager and several
branch managers supply technical and operational support at the Lufkin
headquarters, while nine salesman have direct responsibility for customer
relationships. TTI meets customers' orders for new equipment and replacement
parts out of existing inventory or through purchase orders placed with the
manufacturers TTI currently represents.
Approximately 49% of TTI's equipment sales during fiscal 1998 are from new
equipment sold to companies involved in the forestry industries. Additional
revenues are derived from sales of used equipment (11%), servicing of equipment
(7%), sales of parts (19%) and financing equipment sales (14%). No single
customer accounts for more than 10% of TTI's sales. Equipment sales financed by
TTI are typically for periods ranging from 12 to 24 months at interest rates
ranging from 12.5% to 18% per annum.
BACKLOG - As a dealer, servicer and financier of forestry equipment, TTI does
not maintain a backlog of orders. Equipment ordered that is not in inventory
takes approximately one to six weeks to be shipped to a customer from the
manufacturer or another distributor.
PRODUCT DEVELOPMENT - TTI does not develop products for sale to the public. TTI
relies primarily upon its suppliers (Timberjack, Blount, New Holland, Hyundai)
for a majority of its new units and parts.
COMPETITION - Competition in the forestry segment is highly fragmented in the
Eastern Texas and Western Louisiana areas where TTI principally operates.
Because of its lengthy historical presence in these regions, TTI believes it has
established a strong local identity in its field with a proven record of
delivering equipment on a timely basis, providing satisfactory financing and
strong customer support and service. TTI is one of only a few distributors of
Timberjack and Blount forestry equipment in its operating areas. TTI has the
added advantage of being a leading seller and financier of various makes and
models of used logging equipment. Principal competitors include local John Deere
and Caterpillar distributors.
TRANSFORMER GROUP
PRODUCTS AND SERVICES - The Company's Transformer Group consists solely of
Polyphase Instrument Co. ("PIC"). Transformers are electromagnetic mechanisms
used in a wide variety of electronic and electro-mechanical applications to
convert electrical currents from one voltage level to another. The Transformer
Group's products include power transformers used in direct current power
supplies; audio transformers used in voice and audio signal circuits for
transferral of low level, precise signals; pulse transformers used in radar,
digital signaling and computer applications; telephone modem transformers used
in telephone circuits; and ferro-resonant transformers used in computers and
stabilized power systems. PIC manufactures a large line of transformers ranging
from miniaturized versions to oil-filled units, with power levels ranging from
microwatts to over 20 kilowatts, voltage levels of up to 20 kilovolts and
currents ranging from micro-amperes to 700 amperes. PIC supplies products to
meet its customers' exact specification requirements. Specifications include
frequency response and temperature range; energy loss; and voltage, current, and
energy levels.
SALES AND MARKETING - The Company sells transformers and filters directly to
customers and through commissioned sales representatives and outside brokers
principally in the Mid-Atlantic and Northeast regions of the United States. As
of September 30, 1998, PIC had an in-house sales and marketing staff of two
full-time employees. To obtain new business, PIC relies on referrals from its
existing customer base, advertisements in various trade journals and leads
generated by its reputation.
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Approximately 92% of the transformers and filters sold by PIC are components of
systems used by the United States Armed Forces. Most of the remaining 8% is
utilized in various industrial processing systems and commercial avionics.
Major projects in which PIC's products are currently used include the United
States Navy's Aegis Destroyer, Airborne Self Protection Jammer and new nuclear
attack submarine as well as the United States Army's Bradley Infantry Fighting
Vehicle and PLGR Global Positioning System Receiver. Approximately 4% of PIC's
sales from these operations in fiscal 1998 were direct replacement parts
procurement for various government activities.
PIC's products are sold to approximately 120 active accounts, consisting
principally of defense contractors and their suppliers. Nine customers
accounted for approximately 83%, 80% and 76% of PIC's sales for fiscal 1998,
1997, and 1996 respectively, which percentages represented approximately 3% of
the Company's consolidated sales, over the respective years. The three largest
accounts, Eaton, Enosa and Rockwell International comprise approximately 17%,
14% and 11%, respectively, of PIC's overall sales.
MANUFACTURING AND SOURCING - PIC operates a manufacturing facility in Fort
Washington, Pennsylvania that produces approximately 92% of the Transformer
Group's transformers and 100% of its filters. Transformers are also
manufactured at a leased facility in Haiti. See "Description of Property -
Transformer Group."
The manufacturing process for PIC's products is labor intensive, involving
mostly low-technology, manually operated machinery. The process is not highly
automated since PIC's products are custom designed to customer specifications.
Wherever economically feasible, operations are automated. Given the nature of
PIC's products and their end uses, PIC maintains extensive test equipment for
its quality control operation.
Raw materials used by PIC include ferrites, laminates, copper wire and
electronic components purchased in predesigned configurations. Substantially
all raw materials and components are purchased from domestic sources and are
widely available. PIC carries adequate inventories of raw materials and other
product components as required to meet open customer orders.
BACKLOG - At September 30, 1998, PIC had unfilled purchase orders aggregating
approximately $2,800,000 as compared to $2,200,000 at September 30, 1997.
Orders may be subject to cancellation at the customer's discretion subject to
substantial cancellation charges. Based on current delivery schedules and
shipments, management believes that the Transformer Group will ship
substantially all of its current backlog within the following twelve months.
The Transformer Group's backlog may not provide meaningful period-to-period
comparisons and such comparisons and the backlog may not necessarily be
indicative of future results.
PRODUCT DEVELOPMENT - PIC does not maintain a formal research and development
program, nor are material amounts expended for research and development.
However, PIC's engineering, marketing and operations staff are regularly engaged
in engineering design and product development since most products are designed
to customers' specifications. Customers either supply PIC with design
specifications or submit proposed designs and require PIC to determine whether
such designs will meet the customers' performance specifications. PIC
continuously modifies and enhances its transformers and communication filters to
accommodate its customers' systems and equipment and, in this manner, attempts
to increase its market penetration.
COMPETITION - The business in which PIC is engaged is highly competitive,
characterized by ease of entry and intense regionally-based competition.
Competition is based on such factors as price, performance, reliability and
product quality. The Company believes that the reputation of PIC's engineering
department and the relationships it has established with its customers (having
been in business over 30 years) are important to its ability to compete
successfully.
PIC competes directly with a number of manufacturers, primarily in the United
States, certain of which have financial and other resources substantially
greater than PIC. In addition, such manufacturers generally have more extensive
facilities than those that are, or in the foreseeable future may become,
available to PIC. In this market, changing governmental policies can rapidly
create or eliminate areas of competition and market share. There is no assurance
that PIC will be able to maintain or further increase its market share.
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PATENTS, TRADEMARKS AND COPYRIGHTS
The Company does not have patents or patent applications pending on any of its
products, although it may file such patent applications in the future. The
Company attempts to protect its proprietary interests in its products by
entering into non-disclosure agreements with customers.
The Company has registered the trademarks "Polyphase" and "Overhill Farms" in
the United States Patent and Trademark Office.
REGULATION
The Food Group is subject to strict government regulation, particularly in the
health and environmental areas, by the United States Department of Agriculture
("USDA"), the Food and Drug Administration ("FDA"), Occupational Safety and
Health Organization ("OSHA") and the Environmental Protection Agency ("EPA").
The Food Group anticipates increased regulation by the USDA and FDA concerning
food processing and storage. The Company's food processing facilities are
subject to on-site examination, inspection and regulation by the USDA.
Compliance with the current applicable federal, state and local environmental
regulations has not had, and the Company does not believe that in the future
such compliance will have, a material effect on its financial position, results
of operations, expenditures or competitive position. During 1997, the Company
implemented a Hazard Analysis Critical Point Plan to ensure proper handling of
all food items.
The Transformer Group and the Forestry Group are required to comply with
various governmental regulations and requirements concerning the discharge of
materials into the environment or otherwise relating to the protection of the
environment. Compliance with the current applicable federal, state and local
environmental regulations has not had, and the Company does not believe that in
the future such compliance will have, a material effect on its financial
position, results of operations, expenditures or competitive position.
The Company takes all reasonable precautions to ensure that its operations,
processing plants and facilities operate in a safe, sanitary and
environmentally-sound manner. However, events beyond the control of the
Company, such as the adoption by the government of more stringent environmental
regulations could adversely affect its operations. Management believes that the
Company is in substantial compliance with all applicable laws and regulations
relating to the operations of facilities.
EMPLOYEES
As of September 30, 1998, the Company had approximately 925 employees as
follows: approximately 710 full-time employees in the Food Group; 150 full-time
employees in the Forestry Group; 60 full-time employees in the Transformer
Group; and 5 full-time employees in the corporate office. All subsidiaries
presently provide group health plans for their domestic employees and pay a
portion of the costs associated with such plans. TTI also maintains a profit
sharing plan for its employees.
SAFE HARBOR STATEMENT
The nature of the Company's operations, and the environment in which it
operates, subjects the Company to changing economic, competitive, regulatory
and technological conditions, risks and uncertainties. In connection with the
"safe harbor" provisions of the Private Securities Litigation Reform Act of
1995, the Company notes the following factors which, among others, could cause
future results to differ materially from the forward-looking statements,
expectations and assumptions expressed or implied herein. Forward looking
statements contained in this document include, but are not limited to Year 2000
issues (particularly with regard to the Company's business partners and
suppliers), the amount of future capital expenditures, and the possible uses of
proceeds from any future borrowings under the Company's currently effective
credit facilities. Factors which could cause results to differ include, but are
not limited to: changes in the Company's business environment, including
actions of competitors and changes in customer preferences; changes in
governmental laws and regulations, including income taxes; market demand for new
and existing products; and raw material pricing.
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ITEM 2. DESCRIPTION OF PROPERTY.
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CORPORATE HEADQUARTERS
The Company leases an approximately 4,000 square foot facility which serves as
the corporate headquarters. The office space is located at 4800 Broadway, Suite
A, Addison, Texas 75001 and is leased at a basic rent of $4,100 per month. The
lease which began in February 1998 has a five year term with an option to buy
out the last two years for a nominal amount.
FOOD GROUP
Overhill leases three manufacturing facilities in the Los Angeles, California
area. Plant No.1 is located in Inglewood, California and has 39,000 square feet
of manufacturing area. Plants No. 2 and No. 3 are located in Vernon, California
and have 49,000 and 27,000 square feet of manufacturing area, respectively. In
addition to the manufacturing facilities, Overhill also leases two dry goods
warehouses of 13,500 and 11,500 square feet, a 7,700 square foot frozen storage
facility in Inglewood, California and a 7,900 square foot office in Culver City,
California. While Overhill believes that the existing facilities are adequate
to meet its requirements in the foreseeable future, the Company is currently
reviewing the cost effectiveness of consolidating some manufacturing and
administrative functions.
FORESTRY GROUP
TTI owns three buildings in Lufkin, Texas, two buildings in Jasper, Texas, a
building in Cleveland, Texas and leases a building in Atlanta, Texas. The
largest building in Lufkin has 38,500 square feet, which is used for
administrative offices, showroom, parts sales and shop area. The remaining
buildings have 3,600 and 4,200 square feet, respectively. The Jasper, Cleveland
and Atlanta buildings have approximately 10,000, 6,700 and 7,500 square feet
respectively which are used for sales offices, part sales and shop areas. TTI
also leases six buildings on 68 acres in Bon Weir, Texas for a sawmill
operation. The sawmill is leased at a basic rent of $19,000, per month, which
includes certain equipment, with an option to purchase the land, buildings and
equipment for $1,525,000 in March 2000.
TRANSFORMER GROUP
PIC's domestic transformer and filter manufacturing operations are housed in a
44,000 square foot, leased, single-story facility in Fort Washington,
Pennsylvania, located about 30 miles from Philadelphia. The lease expires in
May 2001. PIC's foreign manufacturing operations are based in an 8,400 square
foot building in Port-au-Prince, Haiti, which is rented by PIC on a month-to-
month basis. Management believes that these facilities are in suitable
condition and are adequate for PIC's needs in the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS.
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During fiscal 1997, five substantially identical complaints were filed in the
United States District Court for the District of Nevada against the Company and
certain of its officers and directors. The plaintiffs' complaints each sought
certification as a class action and asserted liability based on alleged
misrepresentations that resulted in the market price of the Company's stock
being artificially inflated. The defendants filed motions to dismiss in each of
the lawsuits. Without certifying the cases as class actions, the District Court
consolidated the cases into a single action. The District Court, in June 1998,
dismissed the complaint in the consolidated action and ordered that the
plaintiffs replead such complaints. The plaintiffs then filed a motion for
reconsideration of the Court's ruling. The defendants opposed the motion for
reconsideration. The Court has not ruled upon plaintiff's motion; however, the
plaintiffs have not filed an amended complaint. Consequently, it cannot be
determined at this time whether the dismissal of the complaint will lead to a
dismissal of the consolidated action. Management believes (based on advice of
legal counsel) that such litigation will be resolved without material effect on
the Company's financial condition, results of operations or cash flows.
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The Company and its subsidiaries are involved in certain legal actions and
claims arising in the ordinary course of business. Management believes (based
on advice of legal counsel) that such litigation and claims will be resolved
without material effect on the Company's financial condition, results of
operations or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
----------------------------------------------------
No matters were submitted during the fourth quarter of the fiscal year covered
by this report to a vote of security holders, through the solicitation of
proxies or otherwise.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
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The Common stock is listed on the American Stock Exchange, Inc. under the symbol
"PLY." The following table sets forth the range of high and low sales prices
for the Common stock on the American Stock Exchange for the periods indicated:
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<CAPTION>
Fiscal 1998 High Low
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Quarter from October 1, 1997
to December 31, 1997 $ 1.8750 $ 0.7500
Quarter from January 1, 1998
to March 31, 1998 (2) $ 1.0625 $ 0.5000
Quarter from April 1, 1998
to June 30, 1998 $ 1.1875 $ 0.6250
Quarter from July 1, 1998
to September 30, 1998 $ 0.7500 $ 0.3125
Fiscal 1997 High Low
----------- --------- ----------
Quarter from October 1, 1996
to December 31, 1996 $ 7.4375 $ 3.8750
Quarter from January 1, 1997
to March 31, 1997 (1) $ 5.5000 $ 3.8125
Quarter from April 1, 1997
to June 30, 1997 (1) $ 2.6250 $ 1.2500
Quarter from July 1, 1997
to September 30, 1997 $ 2.5000 $ 0.8750
Fiscal 1996 High Low
----------- --------- ----------
Quarter from October 1, 1995
to December 31, 1995 $ 4.7500 $ 3.1250
Quarter from January 1, 1996
to March 31, 1996 $ 4.3750 $ 2.7500
Quarter from April 1, 1996
to June 30, 1996 $ 4.2500 $ 3.0625
Quarter from July 1, 1996
to September 30, 1996 $ 7.2500 $ 1.8750
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</TABLE>
(1) On February 3, 1997, the Company agreed with the American Stock Exchange,
Inc. to temporarily halt trading of its Common stock pending the filing of its
annual report on Form 10-K for the fiscal year ended September 30, 1996. On
June 16, 1997 the Form 10-K and the Forms 10-Q for the quarters ended December
31, 1996 and March 31, 1997, were filed and trading resumed on June 17, 1997.
(2) On January 14, 1998, trading in the Company's stock was temporarily halted
pending the Company's filing of its Annual Report on Form 10-K for the fiscal
year ended September 30, 1997. The stock resumed trading on February 23, 1998.
9
<PAGE>
The Company has never paid cash dividends on its common stock and does not
anticipate doing so in the foreseeable future. Rather, the Company has
determined to utilize any earnings in the expansion of its business. Such
policy is, within the limitations and restrictions described below, subject to
change based on current industry and market conditions, as well as other factors
beyond the control of the Company.
The Company is restricted from paying dividends on its common stock pursuant to
the indenture (the "1999 Indenture") executed in connection with the issuance of
$4,000,000 of original principal amount of 12% Senior Convertible Debentures due
July 1, 1999 (the "1999 Bonds"). In general, the 1999 Indenture prohibits the
Company from paying or making within any 12-month period dividends or
distributions on its common stock having a value in excess of 50% of the
consolidated net income of the Company, unless each holder of the 1999 Bonds
receives an amount equal to its pro rata portion of the dividend or distribution
(on an as-converted into common stock basis). See "Management's Discussion and
Analysis of Financial Condition and Results of Operations-Liquidity and Capital
Resources."
As of September 30, 1998, the Company estimates that there were approximately
4,200 beneficial owners of the Company's common stock, represented by 217
holders of record.
RECENT SALES OF UNREGISTERED EQUITY SECURITIES
In November 1995, the Company sold in a private transaction with Infinity
Investors, Ltd. ("Infinity") for $2,500,000 cash, 250,000 shares of Series A-3
Preferred Stock having an aggregate redemption value of $2,500,000 and
convertible into Common stock as provided in the Certificate of Designations for
the Series A-3 Preferred Stock. During the year ended September 30, 1998, the
Company issued 197,586 shares of common stock in partial satisfaction of
Infinity's conversion rights.
In August 1997, the Company sold in a private transaction with Black Sea
Investments, Ltd. ("Black Sea") for net proceeds of approximately $734,000 cash,
7,500 shares of Series F - 6% Convertible Preferred Stock having an aggregate
redemption value of $750,000 and convertible into Common stock at a variable
rate equal to 75% of the average closing market price for the Company's common
stock for the previous five trading days prior to conversion. During the year
ended September 30, 1998, the Company issued a total of 1,008,355 shares of
common stock in satisfaction of Black Sea's conversion rights.
The shares of Preferred Stock described above were not registered under the
Securities Act of 1933, as amended (the "Securities Act"), and were issued by
the Company in reliance on exemptions to the Securities Act. With respect to
the shares of Series A-3 Preferred Stock issued to Infinity, such shares were
issued pursuant to the exemption provided by Section 4(2) of the Securities Act.
Infinity was in compliance with the necessary requirements of Section 4(2) to
receive such exemption. Of the shares of Series A-3 Preferred Stock that were
issued, no such shares were issued to any party other than Infinity.
With respect to the shares of Series F - 6% Convertible Stock issued to Black
Sea, such shares were issued pursuant to the exemption provided by Regulation S
of the Securities Act. Black Sea is a non United States person as that term is
defined in the Securities Act. Of the shares of the Series F - 6% Convertible
Stock that were issued, no such shares were issued to any party other than Black
Sea.
In December 1997, in connection with the refinancing of certain indebtedness to
Merrill Lynch World Income Fund, Inc. and Convertible Holdings, Inc.
(collectively "Merrill Lynch") the Company issued warrants covering a total of
420,000 shares of the Company's Common stock. The warrants issued to Merrill
Lynch covered 210,000 shares exercisable at $.01 per share (the "Penny
Warrants") and an additional 210,000 shares exercisable at $1.125 per share.
The Penny Warrants were exercised and 210,000 shares of Common stock were issued
in May 1998. The shares of common stock issued to Merrill Lynch were not
registered under the Securities Act, and were issued pursuant to the exemption
provided by Section 4(2) of the Securities Act. Merrill Lynch was in compliance
with the necessary requirements of Section 4(2) to receive such exemption.
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ITEM 6. SELECTED FINANCIAL DATA
-----------------------
The following table sets forth selected financial data for the Company for each
of the last five fiscal years. This information should be read in conjunction
with Management's Discussion and Analysis of Financial Condition and Results of
Operations and the Consolidated Financial Statements and Notes included
elsewhere herein.
<TABLE>
<CAPTION>
Fiscal Year Ended September 30
- -----------------------------------------------------------------------------------------------------------------------
(Thousands of Dollars Except Per Share Data)
Income Statement Data: 1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $ 146,231 $ 151,949 $ 149,541 $ 102,035 $ 24,970
Operating Income 7,685 6,584 6,665 6,752 355
Earnings (Loss) Before
Extraordinary Items and
Cumulative Effect of Change
in Accounting Principle 287 (18,825) (242) 3,286 (1,384)
Net Income (Loss) $ (329) $ (18,825) $ (242) $ 3,286 $ (1,017)
=========== =========== =========== =========== ==========
Income (Loss) per Common Share - Basic and Diluted
Before Cumulative Effect of
Extraordinary Item and Change
in Accounting Principle $ .01 $ (1.41) $ (.03) $ .26 $ (.28)
Extraordinary Items (.04) - - - .01
Cumulative Effect of
Accounting Change - - - - .06
----------- ----------- ----------- ----------- ----------
Net Income (Loss) $ (.03) $ (1.41) $ (.03) $ .26 $ (.21)
=========== =========== =========== =========== ==========
Weighted Average Common
and Common Equivalent
Shares Outstanding - Basic
and Diluted 14,552,462 13,632,357 13,722,552 12,745,701 4,881,454
As of September 30
- -----------------------------------------------------------------------------------------------------------------------
(Thousands of Dollars)
Balance Sheet Data: 1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total Assets $ 81,545 $ 72,149 $94,179 $88,159 $37,975
Long-Term Debt 29,221 23,272 - 27,230 5,259
Total Liabilities 73,745 62,748 68,991 66,335 23,618
Accumulated Deficit (21,200) (20,717) (1,488) (1,095) (4,381)
Stockholders' Equity 6,601 7,402 23,998 21,137 14,357
</TABLE>
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<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-----------------------------------------------------------------------
OF OPERATION.
-------------
Statements contained in this Form 10-K that are not historical facts, including,
but not limited to, any projections contained herein, are forward-looking
statements and involve a number of risks and uncertainties. The actual results
of the future events described in such forward-looking statements in this Form
10-K could differ materially from those stated in such forward-looking
statements. Among the factors that could cause actual results to differ
materially are: adverse economic conditions, industry competition and other
competitive factors, government regulation and possible future litigation.
Fiscal Year Ended September 30, 1998 Compared to Fiscal Year Ended September 30,
1997
For the year ended September 30, 1998 the Company's revenues decreased
$5,718,000 (4%), to $146,231,000 from $151,949,000 for the year ended September
30, 1997. On a consolidated basis gross margins increased from 16.71% to 17.68%
during the period, resulting in an increase in operating income. Operating
income for the year ended September 30, 1998 increased $1,101,000 (17%) to
$7,685,000 from $6,584,000 during the comparable period. The Company attributes
the higher gross margins to the elimination of lower margin business and
improved purchasing of raw materials and inventory. Operating income improved
primarily from improved gross margins and the reduction of salaries and other
general and administrative expenses at the corporate level.
For the year ended September 30, 1998, the Company's interest expense increased
$1,692,000 (24%) to $8,872,000 from $7,180,000 in fiscal 1997. The increase in
interest is primarily due to additional borrowings and increased charges on the
Company's indebtedness to Mr. Harold Estes.
For the year ended September 30, 1998, the Company recorded a tax expense of
$57,000 primarily related to state tax liabilities. The benefit in 1997
resulted primarily from the statutory tax benefit of the $18.7 million loss by
the Company, reduced by the valuation allowance relating to the portion of the
tax benefits that the Company was not able to utilize through carryback of such
losses to prior years.
Net income before extraordinary items for the year ended September 30, 1998
increased to $287,000 from a net loss of $18,825,000 in fiscal 1997. Net income
for the period included a one time gain of $988,000 from the sale of the
Company's corporate headquarters in December 1997. Net income was adversely
affected by an extraordinary expense of $616,000, relating to the early
extinguishment of debt associated with the refinancing of certain indebtedness
by Overhill Farms.
The Food Group's revenues decreased $2,828,000 (3%) to $93,349,000 from
$96,177,000 in fiscal 1997. The decrease in revenue is primarily due to the
intentional paring of lower margin business and the aggressive bidding by
competitors, which if met, would have reduced profitability below minimum
requirements. During the year, the Company worked closely with American
Airlines and Jenny Craig to improve product selection and quality resulting in
increased sales to those customers of $0.9 and $1.1 million respectively. The
food service segment revenues decreased primarily because of decisions to forego
sales due to profitability considerations. Carl's Jr., Jack in the Box, and Koo
Koo Roo continue to be key food service customers while Panda Express and
Denny's, new in fiscal 1998, expect to be significant accounts in the near
future. Gross margins improved during the year due primarily to selectivity of
sales, reduction in manufacturing expenses from capital investments and
improvements in purchases of raw materials. The Company anticipates continued
gross margin improvements in the future. Operating expenses increased primarily
from higher general and administrative costs, professional fees and amortization
associated with the refinancing of debt. Net income decreased primarily from
increased interest and amortization expenses.
The Forestry Group's revenues decreased $4,153,000 (8%) to $48,049,000 from
$52,202,000 in fiscal 1997. The decrease in revenue is primarily attributable to
drier weather conditions in East Texas, reducing demand for new equipment.
Gross margins increased due to a change in the sales mix from new equipment to
used equipment sales and parts and service. Management anticipates revenues
will continue to decline slightly in fiscal 1999 while gross margins will remain
firm. Operating expenses increased $843,000 during the fiscal year resulting in
a $420,000 (9%) decrease in operating income for the year ended September 30,
1998. The
12
<PAGE>
operating expense increase resulted from TTI's investment in a controlling
interest of two forestry products businesses. In the third quarter of fiscal
1998, Timberjack arranged the purchase of the rights to harvest 94,500 tons of
raw timber from the U.S. Forestry Service. The timber was cut in late spring and
early summer and will be processed at a sawmill the Company leased in Bon Weir,
Texas. The sawmill is located in six main buildings on 68 acres which serves as
storage for raw materials and finished goods. For the year ended September 30,
1998 these forestry products businesses contributed revenues of approximately
$3.0 million and a net loss of approximately $170,000. Management believes this
operation will be profitable in fiscal 1999 and provide the Company with
diversification within the forestry industry.
The Transformer Group's sales increased $1,262,000 (35%) to $4,833,000 in fiscal
1998 from $3,570,000 in fiscal 1997. Operating income increased $118,000 (176%)
to $51,000 in fiscal 1998 from a $67,000 loss in fiscal 1998. Despite higher
gross margins, increased selling, general and administrative costs during the
year had an adverse impact on operating income. The Company anticipates that
revenues and operating income for the Transformer Group will not increase
significantly as the industry is being affected by technical innovations in
alternative sources of electro-mechanical devices.
Fiscal Year Ended September 30, 1997 Compared to Fiscal Year Ended September 30,
1996
For the year ended September 30, 1997 the Company's revenues increased
$2,408,000 (1%), to $151,949,000 from $149,541,000 in fiscal 1996. Operating
income for the year ended September 30, 1997 decreased $81,000 (1%) to
$6,584,000 from $6,665,000 in fiscal 1996. Net loss attributable to common
stockholders for the year ended September 30, 1997 was $19,229,000, a decrease
of $18,837,000 from the net loss of $392,000 in fiscal 1996.
Revenues from the Forestry Group increased substantially as that industry
continued to recover from a slump in timber prices experienced in 1995 and 1996.
This revenue increase more than offset the revenue reductions resulting from
the disposal of the computer operations and the slight decrease in revenues of
the Food Group. Selling general and administrative expenses on a consolidated
basis decreased $3,210,000 primarily due to the disposal of the computer
operations in July 1996. Operating income on a consolidated basis remained flat
for fiscal 1997 as compared to fiscal 1996, primarily due to slightly lower
gross margins in the Food segment.
For the year ended September 30, 1997, the Company had nonrecurring charges to
income of $18,452,000, consisting of $14,838,000 from the Company's writeoff of
its related party receivable from Stadium Partners and $3,614,000 in losses
relating to the disposal of its remaining interest in the computer operations.
The advances made to PLY Stadium Partners Inc. ("Stadium Partners"), a private
investment firm headed by Mr. Paul A. Tanner, former Chairman and Chief
Executive Officer of the Company, during fiscal 1997, 1996 and 1995 were deemed
uncollectible, as the project could not secure long term financing on the land
or otherwise gain the support required to construct the stadium. The Company is
pursuing the recovery of at least a portion of its loans to Stadium Partners
through the guarantees of the principals. Amounts due the Company consisted of
convertible debt, cash advances and amounts accrued in 1996 for management fees,
services and interest. The Company recorded a reserve for amounts due the
Company for management fees, services, and interest totaling $3,340,000 in
fiscal 1996.
During fiscal 1997, the purchaser of the Computer Group elected to discontinue
that company's efforts to effect a public registration of DataTell's stock, thus
precluding the Company from making a distribution of the stock to its
shareholders; additionally, purchase price adjustments of $87,000 resulted in
the elimination of the note receivable set up in the prior year. The purchaser
also elected not to further pursue the operation of MCC, and, since the Company
had been unsuccessful in its attempts to recover MCC's assets, the amount due
under the $951,000 note receivable set up in the prior year was determined not
to be realizable. The Company, in response to these actions by DataTell, made
the decision to further reduce its involvement in computer-related businesses
and entered into a new agreement with the controlling shareholder to dispose of
its remaining direct ownership of DataTell. The notes and certain other assets
were exchanged with the same unrelated third party for $200,000 cash and
preferred stock convertible into a 3% equity interest in DataTell. This
transaction resulted in a loss of $2,576,000, which in addition to the
$1,038,000 loss on notes receivable described above
13
<PAGE>
resulted in a total loss of $3,614,000 being charged to operations during fiscal
1997 relating to the disposal of its remaining interest in the computer
operations.
The Company does not expect there to be any significant ongoing liabilities from
either the stadium or computer operations and intends to focus its direction on
expanding through acquisitions in its two remaining core businesses.
The Company's interest expense increased $790,000 to $7,180,000 (12%) for the
year ended September 30, 1997 as compared to $6,390,000 for the prior year. The
increase was primarily due to the increased rate charged by Rice Partners, LP on
the subordinated debt at Overhill. The rate increased from 13% to a default
rate of 15% beginning January 1997 and continued through December 1997, at which
time the Company refinanced the debt. The Company also incurred additional
interest at 16% on the second lien note on the Company's corporate headquarters
building beginning in January 1997. See "Liquidity and Capital Resources."
The Company recognized a tax benefit of approximately $654,000 for the year
ended September 30, 1997 as compared to tax expense of $1,594,000 for the year
ended September 30, 1996. The benefit in 1997 resulted primarily from the
statutory tax benefit of the $18.7 million loss by the Company, reduced by the
valuation allowance relating to the portion of the tax benefits that the Company
was not able to utilize through carryback of such losses to prior years.
The Company incurred a noncash charge for warrant accretion of $811,000 for the
year ended September 30, 1997, as compared to $503,000 for the year ended
September 30, 1996. The charge consisted of warrant accretion to fair market
value in anticipation of the redemption in connection with the refinancing of
the Rice debt in December 1997. See "Liquidity and Capital Resources."
Sales in the Food Group decreased $2,594,000 (2%) to $96,177,000 in fiscal 1997
from $98,771,000 in 1996. Increased competitive pressure, particularly in the
airline segment, resulted in a decline in gross profits to $14,696,000 or 15.3%
as compared to $16,098,000 or 16.3% in the previous fiscal year. During the
period, management implemented programs to restore margins to historical levels,
primarily through more aggressive raw materials purchasing procedures, increased
account profitability reviews, customer price adjustments where possible and the
further implementation of manufacturing cost reduction procedures, including a
significant reduction in inventory levels, especially in the area of finished
goods.
Sales in the Forestry Group increased $17,955,000 (52%) to $52,202,000 in fiscal
1997 from $34,247,000 in fiscal 1996. Operating income increased $1,243,000
(41%) to $4,282,000 in fiscal 1997 from $3,039,000 in fiscal 1996. Increased
revenues were primarily due to increased demand for new equipment in East Texas
as the lumber prices stabilized in fiscal 1997 and large operators resumed
making capital expenditures. Overall gross profit margin rates decreased in
fiscal 1997 due largely to a change in the sales mix, from used to new
equipment. During the year, sales of new units increased substantially and the
number of used units, which are traditionally sold at higher margins, decreased.
Operating income increased primarily as a result of higher sales volume, offset
by an increase in selling, general and administrative expenses associated with
the new facility in Lufkin, an additional sales office and a larger operations
staff.
The Transformer Group's sales increased $21,000 (1%) to $3,570,000 in fiscal
1997 from $3,549,000 in fiscal 1996. Operating income decreased $144,000 (187%)
primarily due to higher general and administrative costs during the year.
14
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Principal sources of liquidity for the Company are cash flow from operations,
cash balances and additional financing capacity. The Company's cash and cash
equivalents decreased $640,000 to $424,000 at September 30, 1998, compared to
$1,064,000 at September 30, 1997.
The Company used $8,229,000 cash in operations in fiscal 1998, as compared to
cash generated of $6,514,000 in fiscal 1997. The decrease in cash flow from
operations results primarily from an $11.6 million increase in the Company's
inventories. Approximately $5.4 million of the increase was inventory located
at TTI's sawmill operation consisting of raw timber ($4.0 million) and finished
goods ($1.4 million). Additionally, TTI's distribution operations increased
equipment and parts inventory by $3.8 million for the year ended September 30,
1998. The remaining inventory increases were at Overhill.
The Company's investing activities for the year ended September 30, 1998
resulted in a use of cash of approximately $2,508,000, as compared to a use of
cash of $4,750,000 for the year ended September 30, 1997. The Company's use of
cash in fiscal 1998 was primarily an increase in notes receivable generated by
TTI and capital expenditures at Overhill. During fiscal 1997, the Company's
use of cash consisted primarily of advances to Stadium Partners.
The Company's financing activities for the year ended September 30, 1998
resulted in cash provided of $10,096,000, compared to cash used of $981,000 in
fiscal 1997. In December 1997, the Company completed the refinancing of a
portion of Overhill Farms debt. The refinancing included repayment of existing
term debt with Finova, the repayment of the Rice subordinated debentures and the
payment of certain Corporate obligations. In August 1998, TTI completed the
refinancing by NationsBank of its previous credit facility with Comerica. See
below for a description of the terms and payments of refinancing.
The Company in August 1997, through its subsidiary Dallas Parkway Properties,
Incorporated ("DPPI"), whose principal asset was the corporate office building,
borrowed $2.8 million on a first mortgage note payable to National Operating,
L.P. The note, collateralized by the office building and guaranteed by the
Company, was payable monthly, interest only at 14% per annum through July 1,
1999, with all remaining interest and principal, together with an "exit fee" of
$56,000, due and payable on August 1, 1999. The Company sold DPPI effective
December 1, 1997, with the buyer assuming the debt on the corporate office
building. The Company was released from its guarantee and realized a gain of
approximately $988,000 on the sale.
During 1995, the Company, through Overhill, entered into a financing arrangement
which provided a senior credit facility of $18.0 million with Finova Capital
Corporation ("Finova") and a subordinated debt placement of $13.0 million with
Rice Partners II, L.P. ("Rice"). These funds were used to provide financing for
the acquisition of the operating assets of IBM Foods, Inc.
The senior credit facility included a revolving line of credit limited to the
lesser of $12.0 million, or an amount determined by a defined borrowing base
(based upon eligible receivables and inventory), and two term loans in initial
principal amounts totaling $6.0 million. At September 30, 1998, approximately
$10.0 million was outstanding under the line of credit, which bears interest at
the Citibank base rate plus 1.5% (approximately 10.0% at September 30, 1998).
The senior credit facility contains various covenants which include without
limitation, a restriction on Overhill's capital expenditures, specified debt to
net worth ratios, specified levels of net worth and a limitation on the ability
of the Company to realize monies, including dividends, management and consulting
fees, from Overhill to $250,000 per annum. The term loans were repaid in
December 1997 as described below.
On December 4, 1997, the Company, with Overhill as the borrower and the Company
as guarantor, obtained a $24.175 million term loan from The Long Horizons Fund,
LP ("Long Horizons"). The note is payable monthly, interest-only at prime plus
4% through April 1999 and thereafter provides for principal amortization of
$250,000 per month, plus interest, until a final payment of approximately
$19.675 million is due in December 2000. During the term of the loan, Overhill
is required to pay, on a quarterly basis, annual loan servicing fees totaling
$180,000, $300,000 and $440,000 for the first, second and third years of the
loan, respectively. The lender also received commitment and closing fees
totaling approximately $1.7 million. In
15
<PAGE>
the event the loan is paid in full prior to maturity, the principal amounts due
under the loan are to be reduced by $500,000 if the loan is repaid in full
during the second year of the loan. Long Horizons was also issued stock warrants
which entitle Long Horizons to immediately acquire, at a nominal price of $.01
per share, 30% of the outstanding stock of Overhill, of which 25% (5/6 of the
total shares under warrant) could be repurchased by the Company for $2,000,000
during the two-year period following the date of the agreement. In June 1998, in
connection with amending certain covenants and restrictions, the percentage of
Overhill that the Company can repurchase for $2,000,000 was reduced to 20% from
25%. The loan is collateralized by all the outstanding stock of Overhill owned
by the Company as well as certain assets of Overhill.
Upon closing of the loan in December 1997, certain payments were made and other
obligations restructured as follows:
Merrill Lynch was paid in full all amounts due for principal and interest under
the 1997 bonds (approximately $1.6 million). Additionally, a partial payment of
$2.8 million in principal, plus accrued interest of approximately $200,000, was
made on the 1999 Bonds. The conversion price of the remaining $1.2 million
principal amount of the 1999 Bonds was reduced to $3.00 per share (from $5.65
per share), subject to further adjustment as provided by the Indenture. Merrill
Lynch was also granted warrants to purchase 420,000 shares of the Company's
Common stock, exercisable over a five-year period, with certain registration
rights. The warrants are exercisable into 210,000 shares at $.01 per share and
210,000 shares at $1.125 per share, the market price on the date of grant; the
exercise prices are subject to adjustment to prevent dilution of the holders'
interests.
Finova was paid approximately $1.7 million, representing payment in full of Term
Loans A and B. Finova also entered into an Intercreditor Agreement with Long
Horizons and extended the revolving line of credit until December 2000 at
substantially the same terms and conditions.
Rice was paid all principal ($13.0 million) plus accrued interest and expenses
totaling approximately $362,000 under the subordinated debt facility. Rice also
received approximately $2.0 million as payment for the warrants and legal
expenses in connection with the litigation. The Company also agreed to pay Rice
an additional $2.0 million if Overhill were sold during the first six months, or
$750,000 ($2.0 million if to certain identified parties) during the second six
months, following the date of the agreement. These payments were provided for
under a Compromise and Settlement Agreement With Mutual Release and resulted in
the dismissal of all litigation between the Company and Rice. For the quarter
ended December 31, 1997 the Company recorded a non-cash extraordinary charge to
income of approximately $616,000, resulting from the early extinguishment of the
Rice debt. The financing also provided the Company with approximately $900,000
in working capital.
As of September 30, 1998, the Company has a note payable outstanding to Mr.
Harold Estes, former owner of Texas Timberjack, Inc. (TTI), in the amount of
$16.3 million due October 6, 1998. In December 1998, the Company entered into
an agreement with Mr. Estes to modify and extend the note payable to December
15, 1999 at an interest rate of 9.75% per annum, effective as of October 6,
1998. In connection with the modification, the Company agreed to assign to Mr.
Estes any interest it may have or subsequently obtain with respect to 2,000,000
shares of the Company's common stock owned by the Pyrenees Group, a private
investment firm owned in part by Paul A. Tanner, former Chairman and Chief
Executive Officer of Polyphase, and held by Mr. Estes as secondary collateral.
The Company currently expects to obtain the rights to 2,000,000 shares owned by
Pyrenees in connection with the enforcement of Pyrenees' guarantee of certain
related party receivables written off in prior years. Mr. Estes has no recourse
to any of the assets or capital stock of the Company or any of its other
subsidiaries other than its ownership interest in TTI.
In August 1998, Timberjack obtained an $8.0 million revolving line of credit and
a $4.0 million term note ("the facility") with NationsBank of Texas, N.A.
("NationsBank") to replace a previously maintained a line of credit with
Comerica Bank-Texas ("Comerica"). The line of credit expires in March 1999 and
amounts advanced under the line of credit bear interest at prime less .25%
(approximately 8.0% at September 30, 1998), and are collateralized by
substantially all of TTI's assets. Availability under the line as of September
30, 1998, after giving effect to base limitations, amounted to approximately
$5.8 million ($2.2 million is outstanding at September 30, 1998). The three year
term note has a fixed interest rate of 8.3%, is due in monthly installments
16
<PAGE>
of $111,111 plus accrued interest, and will mature in August 2001. The facility
agreement contains various covenants related to receivables, capital
expenditures, inventories, debt ratios, contingent liabilities and payment of
dividends. Furthermore, the terms of the facility generally prohibit loans or
advances from TTI to the Company, but permit the payment of taxes. The Company
has guaranteed all obligations under the TTI facility.
In connection with TTI's participation in the forestry related investments,
TTI's majority-owned subsidiaries, Southern Forest Products LLC and Wood Forest
Products LLC, collectively obtained an $8.0 million revolving line of credit
with NationsBank. The line of credit expires in April 2000 and amounts advanced
under the line of credit bear interest at prime (approximately 8.25% at
September 30, 1998), and are collateralized by substantially all of the assets
of the forestry subsidiaries. Availability under the line as of September 30,
1998, after giving effect to base limitations, amounted to approximately $1.5
million.
The Company guaranteed the repayment of the Lehman loan on behalf of Stadium
Partners. The guarantee is only effective, in certain circumstances or upon
the occurrence of certain events. A foreclosure sale was conducted on or about
July 15, 1998. Notwithstanding such foreclosure action, the Company, based on
the advice of legal counsel, does not believe that it will incur any significant
liability as a result of this guarantee. As a result, the Company believes the
existence of such guarantee will not have a material adverse effect on the
Company's financial condition, results of operations or cash flows.
The Company believes that the funds available to it from operations and existing
capital resources will be adequate for its capital requirements for the next
twelve months.
YEAR 2000
The Company has initiated a Year 2000 program to identify and address issues
associated with the ability of its business systems and equipment to properly
recognize the Year 2000. The purpose of this effort is to avoid interruption of
the operations of the Company as a result of the century change that will occur
on January 1, 2000. The Company's program includes review of its software
systems, review of its operating systems, upgrade or retirement of non-compliant
hardware and contacting key suppliers to assess their Year 2000 readiness.
The Food Group is completing the installation of a new integrated accounting,
inventory, sales and purchasing system to replace the existing manual and
computer systems supporting operations. The system software and hardware has
been certified by the vendor to be Year 2000 compliant and has been implemented
as a parallel system. The Forestry Group has reviewed its existing software and
is the process of completing an upgrade modification. The corporate office's
hardware and software systems are in the process of upgrading for obsolescence,
which complements the Year 2000 Project. Each group will retire or replace its
existing hardware as deemed necessary and should be completely tested and on
line by June 1999.
The Company intends to begin the second phase of its Year 2000 compliance
project in late January. The Company's subsidiaries will contact key vendors to
access their Year 2000 readiness and evaluate non-compliance on the Company's
future business.
Despite efforts to address the Year 2000 problem, there can be no guarantee that
critical suppliers or entities on which the Company relies will be converted on
a timely basis. The Company believes that based upon preliminary findings that
most vendors are performing internal Year 2000 projects similar to the Company's
and that non compliant vendors will offer alternative measures for time
sensitive products. Contingency plans for obtaining goods and services from non
compliant vendors will be addressed on a case by case basis.
To date, the Company has had no material expenditures for direct Year 2000
compliance procedures. The Company believes that neither the cost of its
planned upgrade and modification program nor a failure to timely complete such
program, will have a material adverse effect on the Company's financial
condition, results of operations or cash flows.
17
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
-----------------------------------------------------------
The Company does not own, nor does it have an interest in any market risk
sensitive investments. See Item 1 "Description of Business".
ITEM 8. FINANCIAL STATEMENTS.
---------------------
See Index to Consolidated Financial Statements included in Item 14.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
---------------------------------------------------------------
FINANCIAL DISCLOSURE.
---------------------
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
---------------------------------------------------
The information required in response to this Item 10 is incorporated herein by
reference to the Company's proxy statement to be filed with the Securities and
Exchange Commission pursuant to Regulation 14A, not later than 120 days after
the end of the fiscal year covered by this report.
ITEM 11. EXECUTIVE COMPENSATION.
------------------------
The information required in response to this Item 11 is incorporated herein by
reference to the Company's proxy statement to be filed with the Securities and
Exchange Commission pursuant to Regulation 14A, no later than 120 days after the
end of the fiscal year covered by this report.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
---------------------------------------------------------------
The information required in response to this Item 12 is incorporated herein by
reference to the Company's proxy statement to be filed with the Securities and
Exchange Commission pursuant to Regulation 14A, not later than 120 days after
the end of the fiscal year by this report.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
-----------------------------------------------
The information required in response to this Item 13 is incorporated herein by
reference to the Company's proxy statement to be filed with the Securities and
Exchange Commission pursuant to Regulation 14A, not later than 120 days after
the end of the fiscal year by this report.
18
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K.
--------------------------------------------------------------
(a) 1. and 2. Financial Statements and Financial Statement Schedule.
1. The following consolidated financial statements of Polyphase Corporation
and subsidiaries, included in the annual report of the registrant to its
shareholders for the year ended September 30, 1998, are included in Item 8:
<TABLE>
<CAPTION>
<S> <C>
Report of Independent Auditors F-2
Consolidated Balance Sheets-September 30, 1998 and 1997 F-3
Consolidated Statements of Operations-Years ended September 30, 1998, 1997 and 1996 F-5
Consolidated Statements of Stockholders' Equity-Years ended
September 30, 1998, 1997 and 1996 F-7
Consolidated Statements of Cash Flows-Years ended September 30, 1998, 1997, and 1996 F-9
Notes to Consolidated Financial Statements F-12
2. The following consolidated financial statement schedule of Polyphase
Corporation and subsidiaries is included in item 14(a):
Schedule I - Condensed Financial Information of Registrant F-42
</TABLE>
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under
the related instructions or are inapplicable and therefore have been omitted.
3. Exhibits
3.1 Articles of Incorporation of Polyphase Corporation, as amended
(incorporated by reference from Exhibits 4.1 and Exhibits 4.3 through
4.8 to the Company's registration statement on Form S-8 [No. 33-82008],
filed with the Commission on July 27, 1994 [the "1994 Form S-8"])
3.2 Bylaws of Polyphase Corporation (incorporated by reference from
Exhibit 4.2 to the 1994 Form S-8)
4.1 Certificate of Designation relating to the Series A-2 Preferred
Stock (incorporated by reference from Exhibit 4.9 to the Company's
Registration Statement on Form SB-2 [No. 33-85334] filed with the
Commission on October 19, 1994 [the "Form SB-2"])
4.2 Certificate of Designation relating to the Series A-3 Preferred Stock
(incorporated by reference from Exhibit 4.2 to the Company's Annual
Report on Form 10-K for the year ended September 30, 1995 [the "1995
Form 10-K"])
+10.1 Stock Option Agreement for Paul A. Tanner (incorporated by reference
from Exhibit 4.12 to the 1994 Form S-8)
19
<PAGE>
+10.2 Stock Option Agreement for Michael F. Buck (incorporated by reference
from Exhibit 4.13 to the 1994 Form S-8)
+10.3 Stock Option Agreement for Don E. McMillen (incorporated by reference
from Exhibit 4.14 to the 1994 Form S-8)
+10.4 Stock Option Agreement for George R. Schrader (incorporated by
reference from Exhibit 4.15 to the 1994 Form S-8)
+10.5 Stock Option Agreement for James Rudis (incorporated by reference from
Exhibit 10.5 to the Company's Form 8-B, filed with the Commission on
August 27, 1994 [the "Form 8-B"])
+10.6 Stock Option Agreement for William E. Shatley (incorporated by
reference from Exhibit 10.6 to the Form 8-B)
+10.7 Employment Agreement, dated as of November 1, 1993, between Harold
Estes and Texas Timberjack, Inc. (incorporated by reference from
Exhibit 2 to the Company's Form 8-K dated June 24, 1994 [the "1994 Form
8-K"])
10.8 Pledge Agreement, dated as of June 24, 1994, between Polyphase
Corporation and Harold Estes (incorporated by reference from Exhibit
10.10 to the Form 8-B)
10.9 Security Agreement, dated as of June 24, 1994, between Texas
Timberjack, Inc. and Harold Estes (incorporated by reference from
Exhibit 10.11 to the Form 8-B)
10.10 Stock Option Agreement, dated as of October 21, 1992, between Polyphase
Corporation and the Pyrenees Group (incorporated by reference from
Exhibit 10.12 to the Form 8-B)
10.11 Deed of Trust Note in the amount of $1,000,000, dated May 25, 1994, by
Polyphase Corporation in favor of Comerica Bank-Texas (incorporated by
reference from Exhibit 10.4 to the Company's Form 10-Q for the quarter
ended June 30, 1994 [the "1994 Form 10-Q"])
10.12 Deed of Trust (With Security Agreement and Assignment of Rents), dated
May 25, 1994, covering real property in Dallas County, Texas between
Polyphase Corporation and Comerica Bank-Texas (incorporated by
reference from Exhibit 10.3 to the 1994 Form 10-Q)
10.13 Letter Agreement, dated May 25, 1994, between Polyphase Corporation and
Comerica Bank -Texas (incorporated by reference from Exhibit 10.4 to
the 1994 Form 10-Q)
10.14 Securities Purchase Agreement, dated as of July 5, 1994, by and among
Polyphase Corporation, Merrill Lynch World Income Fund, Inc., and
Convertible Holdings, Inc. (incorporated by reference from Exhibit
10.16 to the Form 8-B)
10.15 Registration Rights Agreement, dated as of July 5, 1994, among
Polyphase Corporation, Merrill Lynch World Income Fund, Inc., and
Convertible Holdings, Inc. (incorporated by reference from Exhibit
10.17 to the Form 8-B)
10.16 Indenture, dated as of July 5, 1994, from Polyphase Corporation to IBJ
Schroder Bank & Trust Company (incorporated by reference from Exhibit
10.18 to the Form 8-B)
10.17 Form of 12% Senior Convertible Debenture No. 1, payable to Bridge Rope
& Co. or registered assigns (incorporated by reference from Exhibit
10.19 to the Form 8-B)
10.18 Form of 12% Senior Convertible Debenture No. 2, payable to Vault & Co.
or registered assigns (incorporated by reference from Exhibit 10.20 to
the Form 8-B)
20
<PAGE>
10.19 Asset Purchase Agreement among Champ Computer Systems, Inc., Liberty
United Trust and Polyphase Corporation, dated March 23, 1994
(incorporated by reference from Exhibit 10.25 to the Form SB-2)
10.20 Stock Purchase Agreement among PC Repair of Florida, Inc., Gene H.
Thurston, Jr. and Polyphase Corporation, dated February 15, 1994
(incorporated by reference from Exhibit 10.26 to the Form SB-2)
10.21 Agreement and Plan of Reorganization between the Shareholders of Micro
Configurations, Inc. and Polyphase Corporation, dated July 1, 1994
(incorporated by reference from Exhibit 10.27 to the Form SB-2)
10.22 Credit Agreement, dated August 29, 1994, between Texas Timberjack, Inc.
and Comerica Bank-Texas (incorporated by reference from Exhibit 10.28
to the Form SB-2)
10.23 Guaranty, dated August 29, 1994, from Polyphase Corporation to Comerica
Bank-Texas (incorporated by reference from Exhibit 10.29 to the Form
SB-2)
10.24 Deed of Trust, dated as of August 30, 1994, from Texas Timberjack, Inc.
to J. Patrick Faubion, Trustee (incorporated by reference from Exhibit
10.30 to the Form SB-2)
10.25 Security Agreement, dated as of August 29, 1994, between Texas
Timberjack, Inc. and Comerica Bank-Texas (incorporated by reference
from Exhibit 10.31 to the Form SB-2)
10.26 Fluctuating Rate Line of Credit Note from Texas Timberjack, Inc., as
maker, to Comerica Bank-Texas, dated August 29, 1994 (incorporated by
reference from Exhibit 10.32 to the Form SB-2)
10.27 First Amendment to Credit Agreement dated September 1, 1995, between
Texas Timberjack, Inc. and Comerica Bank-Texas (incorporated by
reference from Exhibit 10.27 to the 1995 Form 10-K)
10.28 Fluctuating Rate Line of Credit Note from Texas Timberjack, Inc., as
maker, to Comerica Bank-Texas, dated September 1, 1995 (incorporated by
reference from Exhibit 10.28 to the 1995 Form 10-K)
10.29 Promissory Note in the amount of $2,000,000, from Pyrenees Group, as
maker, to Polyphase Corporation, dated November 1, 1995, related to the
exercise of options on Series D Preferred Stock (incorporated by
reference from Exhibit 10.29 to the 1995 Form 10-K)
10.30 Security Agreement, dated as of November 1, 1995, between Pyrenees
Group and Polyphase Corporation (incorporated by reference from Exhibit
10.30 to the 1995 Form 10-K)
10.31 Promissory Note in the amount of $2,000,872, from Paul A. Tanner, as
maker, to Polyphase Corporation, dated December 8, 1995 (incorporated
by reference from Exhibit 10.31 to the 1995 Form 10-K)
10.32 Convertible Preferred Stock Purchase Agreement, dated as of November
10, 1995, by and between Polyphase Corporation and Infinity Investors,
Limited (incorporated by reference from Exhibit 10.32 to the 1995 Form
10-K)
10.33 Securities Purchase Agreement, dated as of December 1, 1995, by and
among Polyphase Corporation, Merrill Lynch World Income Fund, Inc., and
Convertible Holdings, Inc. (incorporated by reference from Exhibit
10.33 to the 1995 Form 10-K)
10.34 Registration Rights Agreement, dated as of December 1, 1995, among
Polyphase Corporation, Merrill Lynch World Income Fund, Inc. and
Convertible Holdings, Inc. (incorporated by reference from Exhibit
10.34 to the 1995 Form 10-K)
21
<PAGE>
10.35 Indenture, dated as of December 1, 1995, from Polyphase Corporation to
IBJ Schroder Bank & Trust Company (incorporated by reference from
Exhibit 10.35 to the 1995 Form 10-K)
10.36 Form of 12% Senior Convertible Debenture No. 1, dated December 1, 1995
payable to Bridge Rope & Co. or registered assigns (incorporated by
reference from Exhibit 10.36 to the 1995 Form 10-K)
10.37 Form of 12% Senior Convertible Debenture No. 2, dated December 1, 1995
payable to Kane & Co. or registered assigns (incorporated by reference
from Exhibit 10.37 to the 1995 Form 10-K)
10.38 Renewal Promissory Note in the amount of $12,842,916, dated December
31, 1996, payable by Polyphase Corporation to Harold Estes
(incorporated by reference from Exhibit 10.41 to the Company's Annual
Report on Form 10-K for the year ended September 30, 1996 [the "1996
Form 10-K"])
10.39 Amended Pledge Agreement, dated as of December 31, 1996, between
Polyphase Corporation and Harold Estes (incorporated by reference from
Exhibit 10.42 to the 1996 Form 10-K)
10.40 Amended Security Agreement, dated as of December 31, 1996, between
Texas Timberjack, Inc. and Harold Estes (incorporated by reference from
Exhibit 10.43 to the 1996 Form 10-K)
10.41 Stock Purchase Agreement among Letronix Acquisition Corp. and Polyphase
Corporation dated June 28, 1996 (incorporated by reference from Exhibit
10.44 to the 1996 Form 10-K)
10.42 Security and Pledge Agreement, dated June 28, 1996 by and between
Letronix Acquisition Corp. and Polyphase Corporation (incorporated by
reference from Exhibit 10.45 to the 1996 Form 10-K)
10.43 Secured Promissory Note, dated June 28, 1996 by and between Letronix
Acquisition Corp. and Polyphase Corporation (incorporated by reference
from Exhibit 10.46 to the 1996 Form 10-K)
10.44 Security Agreement, dated July 1, 1996 by and between Letronix
Acquisition Corp. and Polyphase Corporation (incorporated by reference
from Exhibit 10.47 to the 1996 Form 10-K)
10.45 Promissory Note, dated July 1, 1996 by and between Letronix Acquisition
Corp. and Polyphase Corporation (incorporated by reference from Exhibit
10.48 to the 1996 Form 10-K)
10.46 Stock Purchase Agreement among Letronix Acquisition Corp. and Polyphase
Corporation dated July 1, 1996 (incorporated by reference from Exhibit
10.49 to the 1996 Form 10-K)
+10.47 Stock Option Agreement for Paul A. Tanner dated July 23, 1996
(incorporated by reference from Exhibit 10.50 to the 1996 Form 10-K)
+10.48 Stock Option Agreement for James Rudis dated July 23, 1996
(incorporated by reference from Exhibit 10.51 to the 1996 Form 10-K)
+10.49 Stock Option Agreement for William E. Shatley dated July 23, 1996
(incorporated by reference from Exhibit 10.52 to the 1996 Form 10-K)
+10.50 Stock Option Agreement for Michael F. Buck dated July 23, 1996
(incorporated by reference from Exhibit 10.53 to the 1996 Form 10-K)
+10.51 Stock Option Agreement for George R. Schrader dated July 23, 1996
(incorporated by reference from Exhibit 10.54 to the 1996 Form 10-K)
22
<PAGE>
+10.52 Stock Option Agreement for Paul A. Tanner, Jr. dated July 23, 1996
(incorporated by reference from Exhibit 10.55 to the 1996 Form 10-K)
10.53 Convertible Promissory Note, dated January 1, 1996 by and between PLY
Stadium Partners, Inc. and Polyphase Corporation (incorporated by
reference from Exhibit 10.53 to the Company's Annual Report on Form
10-K for the year ended September 30, 1997 [the "1997 Form 10-K"])
10.54 Master Loan Agreement, dated January 1, 1996 by and between Polyphase
Corporation and PLY Stadium Partners, Inc. (incorporated by reference
from Exhibit 10.54 to the 1997 Form 10-K)
10.55 Guaranty, dated January 1, 1996 by Paul A. Tanner to Polyphase
Corporation (incorporated by reference from Exhibit 10.55 to the 1997
Form 10-K)
10.56 Guaranty, dated January 1, 1996 by Pyrenees Group, Inc. to Polyphase
Corporation (incorporated by reference from Exhibit 10.56 to the 1997
Form 10-K)
10.57 Management Agreement, dated January 1, 1996 by and between PLY Stadium
Partners, Inc. and Polyphase Corporation (incorporated by reference
from Exhibit 10.57 to the 1997 Form 10-K)
10.58 Security Agreement, dated January 1, 1996, between Paul A. Tanner and
Polyphase Corporation (incorporated by reference from Exhibit 10.58 to
the 1997 Form 10-K)
10.59 Security Agreement, dated January 1, 1996, between Pyrenees Group,
Inc. and Polyphase Corporation (incorporated by reference from Exhibit
10.59 to the 1997 Form 10-K)
+10.60 Stock Option Agreement for David Weinreb dated January 17, 1997
(incorporated by reference from Exhibit 10.60 to the 1997 Form 10-K)
10.61 Amended Renewal Promissory Note in the amount of $14,341,256 dated
December 2, 1997, payable by Polyphase Corporation to Harold Estes
(incorporated by reference from Exhibit 10.61 to the 1997 Form 10-K)
10.62 Amended Pledge Agreement, dated as of December 2, 1997, between
Polyphase Corporation and Harold Estes (incorporated by reference from
Exhibit 10.62 to the 1997 Form 10-K)
10.63 Amended Security Agreement, dated as of December 2, 1997, between
Texas Timberjack, Inc. and Harold Estes (incorporated by reference
from Exhibit 10.63 to the 1997 Form 10-K)
10.64 Term Loan Agreement in the amount of $22,500,000, dated December 4,
1997, among Overhill Farms, Inc. as borrower, Polyphase Corporation as
guarantor and The Long Horizons, Fund, L.P. as lender (incorporated by
reference from Exhibit 10.64 to the 1997 Form 10-K)
10.65 Security Agreement, dated December 4, 1997, between Overhill Farms,
Inc. as grantor and The Long Horizons Fund, L.P. as lender
(incorporated by reference from Exhibit 10.65 to the 1997 Form 10-K)
10.66 Assignment for Security (Trademarks) dated December 4, 1997, between
Overhill Farms, Inc. as assignor and The Long Horizons Fund, L.P. as
assignee (incorporated by reference from Exhibit 10.66 to the 1997
Form 10-K)
10.67 Pledge and Security Agreement, dated December 4, 1997, among Polyphase
Corporation as the pledgor, in favor of The Long Horizons Fund, L.P.
as the lender and Overhill Farms, Inc. as the borrower (incorporated
by reference from Exhibit 10.67 to the 1997 Form 10-K)
23
<PAGE>
10.68 Registration Rights Agreement, dated December 4, 1997, between
Overhill Farms, Inc. and The Long Horizons Fund, L.P. (incorporated by
reference from Exhibit 10.68 to the 1997 Form 10-K)
10.69 Common Stock Purchase Warrant, dated December 4, 1997, between
Overhill Farms, Inc. and The Long Horizons Fund, L.P. (incorporated by
reference from Exhibit 10.69 to the 1997 Form 10-K)
10.70 Voting Rights Agreement, dated December 4, 1997, among Polyphase
Corporation, The Long Horizons Fund, L.P. and Overhill Farms, Inc.
(incorporated by reference from Exhibit 10.70 to the 1997 Form 10-K)
10.71 Supplemental Indenture, dated as of December 5, 1997, from Polyphase
Corporation to IBJ Schroder Bank & Trust Company (incorporated by
reference from Exhibit 10.71 to the 1997 Form 10-K)
10.72 Compromise Settlement Agreement with Mutual Release between Polyphase
Corporation and Rice Partners II, L.P. (incorporated by reference from
Exhibit 10.72 to the 1997 Form 10-K)
10.73 Stock Purchase Agreement between Letronix Acquisition Corp. and
Polyphase Corporation dated July 1, 1997 (incorporated by reference
from Exhibit 10.73 to the 1997 Form 10-K)
10.74 Certificate of Designation of Preferences of Series B Preferred Stock
of Letronix Acquisition Corporation dated July 2, 1997 (incorporated
by reference from Exhibit 10.74 to the 1997 Form 10-K)
10.75 Term Loan Agreement in the amount of $2,800,000, dated August 29,
1997, between Dallas Parkway Properties, Incorporated and National
Operating, L.P. (incorporated by reference from Exhibit 10.75 to the
1997 Form 10-K)
10.76 Warrant to Purchase 500,000 Shares of Common Shares of Polyphase
Corporation by Black Sea Investments, Ltd., dated August 29,1997
(incorporated by reference from Exhibit 10.76 to the 1997 Form 10-K)
10.77 Offshore Securities Subscription Agreement to purchase 7,500 Shares of
Series F 6% Convertible Preferred between Polyphase Corporation and
Black Sea Investments, Ltd., dated August 29,1997 (incorporated by
reference from Exhibit 10.77 to the 1997 Form 10-K)
10.78 Stock Exchange Agreement by and between Tollway Properties, Inc. and
Polyphase Corporation date as of December 1, 1997 (incorporated by
reference from Exhibit 10.78 to the 1997 Form 10-K)
10.79 Release and Settlement Agreement between Dallas Parkway Properties,
Incorporated and Polyphase Corporation dated as of December 1, 1997
(incorporated by reference from Exhibit 10.79 to the 1997 Form 10-K)
10.80 General Release between Dallas Parkway Properties, Incorporated and
National Operating, L.P. dated as of December 1, 1997 (incorporated by
reference from Exhibit 10.80 to the 1997 Form 10-K)
10.81** Common Stock Purchase Warrant, dated April 24, 1998, covering 105,000
shares issued to Merrill Lynch World Income Fund, Inc.
10.82** Common Stock Purchase Warrant, dated April 24, 1998,
covering 105,000 shares issued to Merrill Lynch Convertible Fund, Inc.
24
<PAGE>
10.83** Common Stock Purchase Warrant, dated April 24, 1998, covering 52,500
shares issued to Merrill Lynch Convertible Fund, Inc. (w-1)
10.84** Common Stock Purchase Warrant, dated April 24, 1998, covering 52,500
shares issued to Merrill Lynch Convertible Fund, Inc. (w-1a)
10.85** Common Stock Purchase Warrant, dated April 24, 1998, covering 52,500
shares issued to Merrill Lynch World Income Fund, Inc. (w-2)
10.86** Common Stock Purchase Warrant, dated April 24, 1998, covering 52,500
shares issued to Merrill Lynch World Income Fund, Inc. (w-2a)
10.87** Registration Rights Agreement, dated as of April 24, 1998, among
Polyphase Corporation, Merrill Lynch World Income Fund, Inc. and
Merrill Lynch Convertible Fund, Inc.
10.88** Guaranty, dated August 7, 1998 by Polyphase Corporation to
NationsBank
10.89** Loan Agreement in the amount of $12,000,000 dated August 7,
1998 between NationsBank, as lender and Texas Timberjack, as borrower.
10.90** Promissory Note in the amount of $4,000,000 dated August 7, 1998
between NationsBank, as lender, and Texas Timberjack, as borrower.
10.91** Promissory Note in the amount of $8,000,000 dated August 7, 1998
between NationsBank, as lender, and Texas Timberjack, as borrower.
10.92** Security Agreement dated August 7, 1998 by Texas Timberjack
to NationsBank
+10.93** Stock Option Agreement for Michael F. Buck, dated March 17, 1998
+10.94** Stock Option Agreement for George R. Schrader, dated March 17, 1998
21.1** Subsidiaries of the Registrant.
23.1** Consent of Ernst & Young LLP
27.1** Financial Data Schedule
--------------------------
+ Management contract or compensatory plan or arrangement.
** Filed herewith.
(b). Reports on Form 8-K
-------------------
No reports on Form 8-K were filed by the Registrant during the last quarter of
the Fiscal Year Ended September 30, 1998.
25
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
POLYPHASE CORPORATION
By: /s/ James Rudis December 22, 1998
---------------
James Rudis
Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
date indicated.
/s/ James Rudis December 22, 1998
- ----------------
James Rudis
Chief Executive Officer,
Chairman of the Board,
President and Director
(Principal Executive Officer)
/s/ William E. Shatley December 22, 1998
- -----------------------
William E. Shatley
Senior Vice President, Treasurer,
Chief Financial Officer and Director
(Principal Financial and
Accounting Officer)
/s/ George R. Schrader December 22, 1998
- -----------------------
George R. Schrader
Director
/s/ Michael F. Buck December 22, 1998
- --------------------
Michael F. Buck
Director
26
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Auditors F-2
Financial Statements:
- ---------------------
Consolidated Balance Sheets F-3
Consolidated Statements of Operations F-5
Consolidated Statements of Stockholders' Equity F-7
Consolidated Statements of Cash Flows F-9
Notes to Consolidated Financial Statements F-12
Financial Statement Schedule:
- -----------------------------
Schedule I - Condensed Financial Information of Registrant F-42
F-1
<PAGE>
Report of Independent Auditors
To the Board of Directors and Stockholders of
Polyphase Corporation
We have audited the accompanying consolidated balance sheets of Polyphase
Corporation and subsidiaries as of September 30, 1998 and 1997, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended September 30, 1998. Our audits also
include the financial statement schedule listed in the Index at Item 14(a).
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Polyphase
Corporation and subsidiaries at September 30, 1998 and 1997 and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended September 30, 1998 in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly, in all material respects the information set forth
therein.
ERNST & YOUNG LLP
December 18, 1998
Dallas, Texas
F-2
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
September 30,
--------------------------
1998 1997
----------- -----------
<S> <C> <C>
Current assets:
Cash $ 423,957 $ 1,064,259
Receivables, net of allowance for doubtful
accounts of $562,800 and $576,192
in 1998 and 1997, respectively:
Trade accounts 13,839,250 11,576,650
Current portion of sales contracts 3,879,420 5,770,626
Notes receivable 1,813,232 939,621
Inventories 34,568,628 23,002,020
Prepaid expenses and other 527,999 1,607,644
----------- -----------
Total current assets 55,052,486 43,960,820
----------- -----------
Property and equipment:
Land 432,000 765,000
Buildings and improvements 4,054,854 4,660,582
Machinery, equipment and other 9,490,827 8,953,076
----------- -----------
13,977,681 14,378,658
Accumulated depreciation 7,526,281 5,954,554
----------- -----------
6,451,400 8,424,104
----------- -----------
Other assets:
Noncurrent receivables:
Sales contracts 1,363,039 2,027,518
Related parties 670,655 522,597
Excess of cost over fair value of net assets acquired,
net of accumulated amortization of $3,183,743
and $2,370,455 in 1998 and 1997, respectively 13,414,996 14,228,284
Other intangible assets 2,494,754 1,197,139
Restricted cash 672,898 717,358
Other 1,425,147 1,071,629
----------- -----------
20,041,489 19,764,525
----------- -----------
Total Assets $81,545,375 $72,149,449
=========== ===========
</TABLE>
F-3
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
September 30,
-----------------------------
1998 1997
------------- -------------
<S> <C> <C>
Current liabilities:
Notes payable $ 14,409,681 $ 9,013,099
Accounts payable 6,085,703 7,775,022
Accrued expenses and other 3,514,685 2,251,035
Current maturities of long-term debt 3,533,333 5,720,000
------------ ------------
Total current liabilities 27,543,402 24,759,156
Long-term debt, less current maturities 29,220,972 23,272,280
Note payable and accrued interest to related party 16,307,405 13,998,916
Reserve for credit guarantees 672,898 717,358
------------ ------------
Total liabilities 73,744,677 62,747,710
Commitments and contingencies
Warrants to purchase common stock of subsidiary 1,200,000 2,000,000
Stockholders' equity:
Preferred stock, $.01 par value, authorized 50,000,000
shares, issued and outstanding, 115,000
and 132,500 in 1998 and 1997, respectively 1,150 1,325
Common stock, $.01 par value, authorized 100,000,000
shares, issued and outstanding, 15,080,050
and 13,664,109 in 1998 and 1997, respectively 150,800 136,641
Paid-in capital 28,623,811 28,955,695
Accumulated deficit (21,199,744) (20,716,603)
Notes receivable from related party (975,319) (975,319)
------------ ------------
Total stockholders' equity 6,600,698 7,401,739
------------ ------------
Total Liabilities and Stockholders' Equity $ 81,545,375 $ 72,149,449
============ ============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-4
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Years Ended
September 30,
-----------------------------------------------------------------
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Net revenues $ 146,230,922 $ 151,948,553 $ 149,540,785
Cost of sales 120,378,877 126,565,112 120,865,827
------------- ------------- -------------
Gross profit 25,852,045 25,383,441 28,674,958
Selling, general and administrative expenses 18,167,524 18,799,917 22,009,991
------------- ------------- -------------
Operating income 7,684,521 6,583,524 6,664,967
------------- ------------- -------------
Other income (expenses):
Loss on related party receivable - (14,838,456) -
Loss on investment in computer operations - (3,613,815) -
Gain on sale of assets 987,857 - 827,852
Interest expense (8,871,535) (7,179,973) (6,389,926)
Interest income and other 543,080 380,655 751,385
------------- ------------- -------------
Total other expenses (7,340,598) (25,251,589) (4,810,689)
------------- ------------- -------------
Income (loss) before income taxes,
warrant accretion and extraordinary item 343,923 (18,668,065) 1,854,278
Income tax (benefit) expense 56,575 (653,683) 1,593,542
------------- ------------- -------------
287,348 (18,014,382) 260,736
Accretion of warrants to purchase
common stock of subsidiary - 810,776 502,948
------------- ------------- -------------
Net income (loss) before
extraordinary item 287,348 (18,825,158) (242,212)
Extraordinary item:
Early extinguishment of debt (616,239) - -
------------- ------------- -------------
Net loss (328,891) (18,825,158) (242,212)
Dividends on preferred stock 154,250 403,750 150,000
------------- ------------- -------------
Net loss attributable to
common stockholders $ (483,141) $ (19,228,908) $ (392,212)
============= ============= =============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-5
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Years Ended
September 30,
----------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Per share data, basic and diluted:
Net income (loss) per common share:
Income (loss) before
extraordinary item $ .01 $ (1.41) $ (.03)
Extraordinary item (.04) - -
----------- ----------- -----------
Net loss per common share $ (.03) $ (1.41) $ (.03)
=========== =========== ===========
Weighted average shares outstanding,
basic and diluted 14,552,462 13,632,357 13,722,552
=========== =========== ===========
</TABLE>
F-6
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE YEARS ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
Preferred Stock Common Stock Paid-in Accumulated Notes
Shares Amount Shares Amount Capital Deficit Receivable Total
----------- ----------- ---------- ---------- ----------- ------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance,
September 30, 1995 - $ - 12,621,966 $ 126,220 $22,106,606 $ (1,095,483) $ - $21,137,343
Exercise of Series D
preferred stock options
by Pyrenees 200,000 2,000 1,998,000 (2,000,000)
Conversion of preferred
shares to common shares (200,000) (2,000) 500,000 5,000 (3,000)
Private placement of
Series A-3 preferred stock 250,000 2,500 2,497,500 2,500,000
Exercise of common
stock options 75,000 750 49,250 50,000
Payments on Pyrenees note 720,911 720,911
Stock issuance costs (17,642) (17,642)
Dividends on preferred
stock (150,000) (150,000)
Net loss for 1996 (242,212) (242,212)
----------- ----------- ---------- ---------- ----------- ------------- ------------ -----------
Balance,
September 30, 1996 250,000 2,500 13,196,966 131,970 26,630,714 (1,487,695) (1,279,089) 23,998,400
----------- ----------- ---------- ---------- ----------- ------------- ------------ -----------
Exercise of common stock
options 110,000 1,100 55,500 56,600
Preferred shares tendered
for exercise of options (125,000) (1,250) 357,143 3,571 197,679 200,000
Stock issuance costs (35,000) (35,000)
Payments on Pyrenees note 303,770 303,770
Stock option granted for
services 973,000 973,000
Private placement of
Series F preferred stock 7,500 75 983,802 983,877
Issuance of warrant 150,000 150,000
Dividends on preferred
stock (403,750) (403,750)
Net loss for 1997 (18,825,158) (18,825,158)
----------- ----------- ---------- ---------- ----------- ------------- ------------ -----------
Balance,
September 30, 1997 132,500 $ 1,325 13,664,109 $ 136,641 $28,955,695 $(20,716,603) $ (975,319) $ 7,401,739
----------- ----------- ---------- ---------- ----------- ------------- ------------ -----------
</TABLE>
F-7
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE YEARS ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
Preferred Stock Common Stock Paid-in Accumulated Notes
Shares Amount Shares Amount Capital Deficit Receivable Total
----------- ----------- ---------- ---------- ----------- ------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Conversion of preferred
shares
and accrued dividends to
common stock (17,500) (175) 1,205,941 12,059 10,616 22,500
Issuance of warrants 175,000 175,000
Exercise of stock purchase
warrants 210,000 2,100 2,100
Stock issuance costs (17,500) (17,500)
Settlement of stock option
cancellation (500,000) (500,000)
Dividends on preferred
stock (154,250) (154,250)
Net loss for 1998 (328,891) (328,891)
---------- ----------- ------------ ---------- ----------- ------------- ----------- ------------
Balance,
September 30, 1998 115,000 $ 1,150 15,080,050 $ 150,800 $28,623,811 $(21,199,744) $ (975,319) $ 6,600,698
========== =========== ============ ========== =========== ============= =========== ============
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements.
F-8
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended
September 30,
---------------------------------------------------
1998 1997 1996
--------------- --------------- -----------------
<S> <C> <C> <C>
Cash flow provided by (used in)
operating activities:
Net loss $ (328,891) $(18,825,158) $ (242,212)
Adjustments to reconcile net loss
to net cash provided by (used in) operating
activities:
Depreciation and amortization 4,270,728 3,968,100 3,417,137
Equity in the loss of
non-consolidated subsidiaries - - 22,437
Provision for doubtful accounts 151,171 57,088 58,094
Gain on sale of assets (987,857) - -
Loss on related party receivable - 14,838,456 3,340,000
Loss on disposition of computer segment - 3,613,815 -
Deferred income tax - 233,339 134,268
Accretion of warrants to purchase common
stock of subsidiary - 810,776 502,948
Recognition of deferred rent reductions - - (80,413)
Extraordinary item- early extinguishment
of debt 616,239 - -
Changes in:
Accounts and sales contracts receivable 238,128 625,847 (3,461,283)
Inventories (11,566,608) 5,025,759 (3,618,788)
Prepaid expenses and other 229,513 845,100 575,814
Accounts payable (1,689,319) (806,048) 1,414,236
Accrued expenses and other 838,150 (3,873,212) 712,401
-------------- ------------ ----------------
Net cash provided by (used in)
operating activities (8,228,746) 6,513,862 2,774,639
-------------- ------------ ----------------
Cash flows provided by (used in)
investing activities:
Capital expenditures, net (1,389,773) (758,054) (2,656,209)
Notes and other receivables (1,131,537) 1,070,691 242,967
Receivables from related parties 13,654 (5,062,365) (9,560,696)
Cash from the sale of subsidiaries - - 475,000
Change in operating assets and liabilities
due to sale of subsidiaries - - 1,687,124
-------------- ------------ ----------------
Net cash used in investing activities $ (2,507,656) $ (4,749,728) $ (9,811,814)
-------------- ------------ ----------------
</TABLE>
F-9
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended
September 30,
---------------------------------------------------------------------
1998 1997 1996
---------------- ------------------- -------------------
<S> <C> <C> <C>
Cash flows provided by (used in)
financing activities:
Net borrowings (principal payments) on
line of credit arrangements $ 3,041,139 $ (2,685,537) $ (1,293,837)
Net borrowings on other notes payable
and long-term debt 31,224,906 799,196 1,886,644
Proceeds from the issuance of
12% subordinated debentures - - 1,500,000
Principal payments on term notes (1,982,280) - -
Principal payments on convertible bonds (4,300,000) - -
Principal payments on
subordinated debentures (13,000,000) - -
Redemption of Overhill warrants (2,000,000) - -
Deferred financing costs (2,718,015) - -
Proceeds from private placements of
preferred stock - 733,877 2,500,000
Advances to related parties - - (1,153,000)
Exercise of common stock options
and warrants 2,100 56,600 50,000
Principal collections on Pyrenees
note receivable - 303,770 720,911
Dividends on preferred stock (154,250) (153,750) (150,000)
Common stock issuance costs (17,500) (35,000) (17,642)
-------------- ---------------- ----------------
Net cash provided by (used in)
financing activities 10,096,100 (980,844) 4,043,076
-------------- ---------------- ----------------
Net increase (decrease) in cash (640,302) 783,290 (2,994,099)
Cash at beginning of year 1,064,259 280,969 3,275,068
-------------- ---------------- ----------------
Cash at end of year $ 423,957 $ 1,064,259 $ 280,969
============== ================ ================
Supplemental schedule of cash flow information:
Cash paid during the year for:
Interest $ 5,433,057 $ 5,510,229 $ 4,354,072
Income taxes $ - $ 1,001,461 $ 75,000
</TABLE>
F-10
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Supplemental schedule of non-cash investing and financing activities:
In October 1996, an unrelated third party exercised an option to purchase
357,143 shares of common stock. As consideration, the Company received 125,000
shares of Series A-3 Preferred Stock having a redemption value of $1,250,000.
In November 1996, a former executive of the Company exercised options on 35,000
shares of common stock at $.01 per share. Such options were granted in
consideration for a consulting contract and were valued at $200,000.
In January 1997, an unrelated third party was granted an option on 200,000
shares of common stock, exercisable at $.01 per share, in exchange for a two
year consulting agreement valued at $973,000.
In August 1997, in connection with the sale of Series F 6% Preferred Stock to an
unrelated third party, the Company issued warrants to purchase 500,000 shares of
the Company's common stock, exercisable at $1.50 per share. The Company valued
the warrants at $150,000. Also in connection with the transaction, the Company
recorded a dividend of $250,000 representing the value assigned to the preferred
stock's discount feature (See Note 10).
In December 1997, in connection with the new Overhill Farms credit agreement,
warrants to purchase 30% of the common stock of Overhill at a nominal exercise
price were issued having an estimated fair value of $1,200,000 (See Notes 3
and 9).
In connection with the refinancing of certain indebtedness with Merrill Lynch,
the Company issued warrants to purchase 210,000 shares of the Company's common
stock exercisable at $.01 per share and 210,000 shares exercisable at $1.125 per
share. Such warrants were valued at $175,000.
In September 1998, the Company recorded a liability, together with a
corresponding charge to paid in capital, for $500,000 in connection with the
settlement of a lawsuit (See Note 10).
In September 1998, the Company issued common shares valued at $22,500 in payment
of accrued dividends (See Note 10).
The accompanying notes are an integral part
of these consolidated financial statements.
F-11
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. COMPANY AND ORGANIZATIONAL MATTERS
NATURE OF BUSINESS
Polyphase Corporation (the "Company" or "Polyphase") is a diversified holding
company that, through its subsidiaries, operates in three industry segments:
the food segment, the forestry segment and the transformer segment. The food
segment (the "Food Group"), which consists of the Company's wholly-owned
subsidiary Overhill Farms, Inc. ("Overhill"), produces high quality entrees,
plated meals, soups, sauces and poultry, meat and fish specialties. The
forestry segment (the "Forestry Group"), which consists of the Company's
wholly-owned subsidiary Texas Timberjack, Inc.("TTI") and TTI's majority-owned
subsidiaries Southern Forest Products LLC ("SFP")and Wood Forest Products LLC
("WFP"), distributes, leases and provides financing for industrial and
commercial timber equipment and is also engaged in certain related timber and
saw mill operations. The transformer segment (the "Transformer Group"), which
consists of the Company's wholly-owned subsidiary Polyphase Instrument Co.
("PIC"), manufactures and markets electronic transformers, inductors and
filters.
CORPORATE HISTORY AND ORGANIZATION
The Company was incorporated in New Jersey in 1963 under the name Kappa
Networks, Inc. Through a merger with a wholly-owned subsidiary in June 1991,
the Company reincorporated in Pennsylvania and formally changed its name to
Polyphase Corporation. A subsequent merger with a wholly-owned subsidiary in
June 1994 effected a change in the state of incorporation from Pennsylvania to
Nevada, together with certain changes to the Company's charter and bylaws.
These changes resulted in the authorization of 100,000,000 shares of $.01 par
value common stock and 50,000,000 shares of $.01 par value preferred stock
with rights and preferences as designated by the Board of Directors.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company, its
wholly-owned subsidiaries and its majority-owned subsidiaries. All material
intercompany accounts and transactions are eliminated. Certain prior year
amounts have been reclassified to conform to the 1998 presentation.
FISCAL YEAR
The Company and its subsidiaries' fiscal year, except for the Food Group, ends
on September 30. The Food Group utilizes a 52 - 53 week accounting period
which ends on the Sunday closest to September 30.
F-12
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company to concentrations
of credit risk consist primarily of receivables and demand deposits. Demand
deposits sometimes exceed the amount of insurance provided by the Federal
Deposit Insurance Corporation. The Company performs ongoing credit evaluations
of its customers' financial condition and generally requires no collateral
from its customers except as discussed below.
The Company's wholly-owned Forestry Group subsidiary, Texas Timberjack, Inc,
("TTI"), is a retailer of timber and logging equipment. TTI grants credit to
customers, substantially all of whom are located in East Texas or the western
portion of Louisiana, and which rely on the logging industry for their ability
to repay debt to TTI. Collateral is generally the equipment sold for amounts
due under installment sales contracts.
For the years ended September 30, 1998, 1997 and 1996, the Company had charges
to the allowance for doubtful accounts of $535,489, $317,145 and $134,367,
respectively.
FINANCIAL INSTRUMENTS
The fair value of financial instruments is determined by reference to market
data and by other valuation techniques as appropriate. Unless otherwise
disclosed, the fair value of financial instruments approximates their recorded
values.
INVENTORIES
Inventories of raw materials, work-in-process and finished goods for
manufacturing and assembly operations and food processing are stated at the
lower of cost or market as determined by the first-in, first-out (FIFO) method
and using the average cost method for raw timber and finished wood products.
Inventories of major units are valued at the lower of cost or market or, in
the case of repossessed and used units, net realizable value, based upon the
specific identification method.
CONCENTRATION OF SOURCES OF LABOR
The Food Group's total hourly and salaried work force consists of
approximately 710 employees. Approximately 77% of the Company's work force is
covered by collective bargaining agreements expiring in fiscal years 1999 and
2000. The Company has currently begun preliminary negotiations with
representatives of employees under collective bargaining agreements expiring
in fiscal 1999 and considers its union relations to be good.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed primarily
using the straight-line method for financial reporting purposes over the
estimated useful lives of the
F-13
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
assets. Useful lives generally range from five to thirty years. Leasehold
improvements are amortized over the lesser of the term of the lease or the
estimated useful life of the assets.
Repairs and maintenance costs are expensed, while additions and betterments
are capitalized. The cost and related accumulated depreciation of assets sold
or retired are eliminated from the accounts and any gains or losses are
reflected in earnings.
EXCESS OF COST OVER FAIR VALUE OF NET ASSETS ACQUIRED
The excess of cost over the fair value of net assets acquired (goodwill) at
the date of acquisition is amortized on a straight line basis over periods
generally ranging from 15-20 years. The Company determines the period to be
benefited by using qualitative measuring factors such as competition, demand
and obsolescence, as well as legal, regulatory and contractual provisions. In
addition, the Company evaluates the existence of goodwill impairment on the
basis of whether the goodwill is fully recoverable from projected,
undiscounted cash flows of the related business unit.
STOCK OPTIONS
The Company has elected to continue to follow Accounting Principles Board
Opinion No. 25 (APB 25), "Accounting for Stock Issued to Employees" and
related Interpretations in accounting for its employee stock options. The
Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 123 (SFAS 123), "Accounting for Stock Based
Compensation", which provides for either recognition or disclosure of a
hypothetical charge for the fair value of stock options granted. The Company
has provided the required SFAS 123 disclosures in Note 10.
REVENUE RECOGNITION
The Company generally recognizes revenue when products are shipped or services
are performed and provides for estimated returns and allowances at the time of
sale.
A significant amount of business in the Company's Forestry Group relates to
the sale of equipment through sales/finance contracts. Revenue is recognized
on these accounts using the installment method (See Note 4). Under the
installment method, the Company records at the point of sale both a sale and a
cost of sale for the total cost of the unit. Gross profit is initially
recorded in a deferred profit account to be recognized as proceeds are
received. These deferred profits are recorded as sales revenue as funds are
received, based on the relative percentage of transaction profit to the sales
price. Interest on the contract is recognized on a cash basis due to frequent
late payments and periodic repossessions.
F-14
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Key sales and income information for the Forestry Group for fiscal 1998, 1997
and 1996 are:
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Equipment sales total $ 35,459,912 $ 43,460,398 $ 28,210,292
Equipment sales financed 3,255,692 3,608,210 3,005,776
Income earned on installment basis 2,343,423 1,613,172 2,046,730
Interest income earned on installment notes 1,317,215 1,457,125 1,634,621
</TABLE>
INCOME TAXES
Deferred income taxes recorded using the liability method reflect the net tax
effects of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income
tax purposes.
INCOME (LOSS) PER SHARE
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings Per Share".
SFAS 128 replaced the calculation of primary and fully diluted earnings per
share with basic and diluted earnings per share. Unlike primary earnings per
share, basic earnings per share excludes any dilutive effects of options,
warrants and convertible securities. Diluted earnings per share is very
similar to the previously reported fully diluted earnings per share. All
earnings per share amounts for all periods have been presented, and where
appropriate, restated to conform to the SFAS 128 requirements.
Options to purchase 728,000 shares of common stock at a weighted average
exercise price of $1.58 per share, warrants to purchase 920,000 shares of
common stock at a weighted average exercise price of $1.07 per share, and
132,500 shares of preferred stock convertible into shares of common stock
based on various prices were outstanding during the year ended September 30,
1998. These equity securities were not included in the computation of diluted
earnings per share because the effect would be antidilutive.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from these estimates.
F-15
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. LIQUIDITY
As described in Note 1, the Company operates in three industry segments: the
Food Group, the Forestry Group and the Transformer Group. The majority of the
Company's net sales, operating profit and identifiable assets are in the Food
and Forestry Groups. The Company's corporate entity has no significant
operations and has historically been primarily dependent upon cash flows from
its Food and Forestry Groups to meet its ongoing liquidity requirements. As a
result of various restrictions in debt agreements that exist at the Food and
Forestry Group levels (See Notes 8 and 9), the Company is generally restricted
from receiving any dividends, loans or other advances from those subsidiaries
and is limited to management fees of $250,000 per year from Overhill.
As of September 30, 1998, the Company had a note payable outstanding to Mr.
Harold Estes, former owner of Texas Timberjack, Inc. (TTI), in the amount of
$16.3 million due October 6, 1998 (See Note 9). In December 1998, the
Company entered into an agreement with Mr. Estes to modify and extend the note
payable to December 15, 1999, at an interest rate of 9.75% per annum,
effective as of October 6, 1998. In connection with the modification, the
Company agreed to assign to Mr. Estes any interest it may have or subsequently
obtain with respect to 2,000,000 shares of the Company's common stock owned by
the Pyrenees Group, a private investment firm owned in part by Paul A. Tanner,
former Chairman and Chief Executive Officer of Polyphase, and held by Mr.
Estes as secondary collateral. Mr. Estes has no recourse to any of the assets
or capital stock of the Company or any of its other subsidiaries other than
its ownership interest in TTI.
As of September 30, 1998, the Company has senior convertible debentures
outstanding with a principal balance of $1.2 million, bearing interest at 12%
per annum, with all principal and accrued interest due and payable July 1,
1999. The Company currently intends to pursue the refinancing of this
obligation on a long-term basis prior to maturity, either through the existing
lender or otherwise. However, there can be no assurance that such
indebtedness can be refinanced. In the event an extension of this obligation
cannot be obtained, the Company plans to use corporate working capital and
funds received from its subsidiaries for management fees and federal income
taxes to satisfy this obligation.
On December 5, 1997, the Company's subsidiary, Overhill Farms, obtained a
$24.175 million, three-year term loan from The Long Horizons Fund, L.P. (Long
Horizons). The note requires interest-only payments monthly at prime plus 4%
through April 1999, and thereafter provides for principal amortization of
$250,000 per month, plus interest, until a final payment of approximately
$19,675,000 is due on December 5, 2000. In addition, under the terms of the
agreement, the Company granted stock warrants that entitle Long Horizons to
immediately acquire at $.01 per share, 30% of the common stock of Overhill, of
which 25% (5/6 of the total shares under warrant) could be repurchased by the
Company for $2,000,000 during the two-year period following the date of the
agreement. In June 1998, in connection with amending certain covenants and
restrictions, the percentage of Overhill that the Company can repurchase for
F-16
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
$2,000,000 was reduced to 20% from 25%. There are no assurances that the
Company will be able to repurchase the aforementioned shares.
During the fiscal year ended September 30, 1998, the Company violated several
financial covenants under Overhill's credit agreements. In June 1998, the
Company amended certain of these covenants and obtained waivers for all
previous defaults. As of September 30, 1998, the Company was in compliance
with all covenants under its credit facilities, with the exception of one
covenant with respect to a limitation on capital expenditures at Overhill.
Subsequent to September 30, 1998, the Company obtained a waiver for the
capital expenditure issue. Cross-default provisions are currently in effect
on certain of the Company's debt agreements. Based upon Overhill's operating
budget, the Company expects to be in compliance with all of its debt covenants
during fiscal 1999.
As discussed more fully in Note 13, the Company has guaranteed, in certain
circumstances, a loan from Lehman Brothers Holdings, Inc. ("Lehman") to a
Nevada partnership formed by an entity headed by Mr. Tanner, and Lehman, to
purchase a parcel of land in Las Vegas, Nevada. The Company, based on the
advice of legal counsel, does not believe that it will incur any significant
liability as a result of this guarantee.
The Company during fiscal 1998, undertook several initiatives in order to
reduce the costs of operating its corporate offices. In December 1997, the
Company sold its Dallas Parkway Properties, Incorporated subsidiary, whose
principal asset was the Company's corporate headquarters building, with the
buyer assuming the related debt of approximately $2.8 million. Additionally,
the Company relocated its corporate offices during the second quarter of
fiscal 1998 and reduced its cash flow requirements as a result of lower
occupancy expenses. In addition, the Company eliminated certain corporate
level positions to further reduce future corporate cash requirements.
4. SALES CONTRACTS RECEIVABLE
The Company's Forestry Group provides financing to customers on certain
equipment sales using installment sales contracts. The following is a summary
of the components of the Company's net investment in these contracts as of
September 30, 1998 and 1997 and the related deferred income based on the
installment method of income recognition.
<TABLE>
<CAPTION>
1998 1997
------------ -------------
<S> <C> <C>
Contracts outstanding $ 8,738,682 $ 11,749,849
Less deferred income (3,322,066) (3,834,107)
------------ ------------
5,416,616 7,915,742
Less allowance for doubtful accounts (174,157) (117,598)
------------ ------------
Net investment in sales contracts receivable $ 5,242,459 $ 7,798,144
============ ============
</TABLE>
F-17
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following is a summary of the maturities of the sales contracts receivable
and related deferred income:
<TABLE>
<CAPTION>
Contracts Deferred
Due September 30, Outstanding Income Net
- ----------------- ------------- ------------- -------------
<S> <C> <C> <C>
1999 $ 6,473,008 $ 2,529,302 $ 3,943,706
2000 1,908,353 676,397 1,231,956
2001 321,478 109,334 212,144
2002 35,843 7,033 28,810
------------- ------------- -------------
$ 8,738,682 $ 3,322,066 $ 5,416,616
============= ============= =============
</TABLE>
5. NOTES RECEIVABLE
The Forestry Group periodically makes advances under promissory notes to
certain unrelated individuals and corporations. These notes have interest
rates that range from 12% to 18%, are due within one year and are secured by a
variety of marketable collateral. Interest is accrued on notes receivable as
long as the Company believes the notes are collectible. The accrued interest
is added to the note and is shown as part of that balance in the accompanying
statements. Allowances are established periodically if, at the date of
valuation, management feels it is probable that a loss exists in the
portfolio. The allowance is established based upon payment history,
evaluation of the portfolio and the related expected credit risk.
The Company had $1,813,232 and $939,621 of short term notes receivable as of
September 30, 1998 and 1997, respectively, from unrelated corporations and
individuals, net of allowances of $208,743 and $277,092, respectively. The
loans are secured primarily by land, timber and equipment. At September 30,
1998, approximately $371,000 of such notes receivable were no longer accruing
interest. All notes receivable are due in less than one year.
6. INVENTORIES
Inventories are summarized as follows: September 30
---------------------------
1998 1997
------------- ------------
Finished goods $ 24,162,010 $ 19,241,149
Work-in-process 430,507 691,284
Raw materials 10,228,111 3,269,587
Inventory reserve (252,000) (200,000)
------------ ------------
Total $ 34,568,628 $ 23,002,020
============ ============
As of September 30, 1998, finished goods inventories are comprised of
approximately $5,576,000 in inventories at the Food Group, $16,745,000 in
timber and logging related
F-18
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
equipment, $1,198,000 in finished wood products and $642,000 in transformers.
As of September 30, 1998, raw materials inventories are comprised of
approximately $4,684,000 in inventories at the Food Group, $4,207,000 in
harvested but unprocessed timber and $1,338,000 in transformer parts.
7. OTHER INTANGIBLE ASSETS
Other intangible assets are summarized as follows:
<TABLE>
<CAPTION>
September 30,
-----------------------------
1998 1997
------------ ------------
<S> <C> <C>
Non-compete agreements (a) $ 700,000 $ 700,000
Deferred financing costs (b) 2,608,733 878,216
Consulting contract (c) 200,000 200,000
Other 322,132 421,733
------------ ------------
3,830,865 2,199,949
Less accumulated amortization (1,336,111) (1,002,810)
------------ ------------
$ 2,494,754 $ 1,197,139
============ ============
</TABLE>
(a) The Company has noncompete agreements with the seller and an officer of
Texas Timberjack, Inc.; such amounts are being amortized over the seven year
life of each agreement.
(b) The Company incurred certain legal, brokerage and other costs associated
with the financing of the initial acquisition of Overhill Farms and the
subsequent refinancing of debt in December 1997. These costs are being
amortized over periods of three to five years (See Note 8 regarding the write
off of certain costs associated with the initial acquisition financing).
(c) The Company granted a former executive options on 35,000 shares of common
stock at $.01 per share. The options were granted in consideration of a two
year consulting contract and were valued at $200,000 based on the fair market
value at the date of grant. The contract is being amortized over the two year
period.
8. NOTES PAYABLE
Notes payable consist of the following:
<TABLE>
<CAPTION>
September 30,
--------------------------------------
1998 1997
-------------- ----------------
<S> <C> <C>
Note payable to Ford Motor Credit Corporation (a) $ 979,451 $ 536,885
Note payable to Associates First Capital Corporation (b) 905,948 550,845
Note payable to Finova Capital Corporation (c) 9,959,425 7,875,369
Note payable to NationsBank (d) 2,200,000 -
Other notes payable 364,857 50,000
-------------- ----------------
$ 14,409,681 $ 9,013,099
============== ================
</TABLE>
F-19
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(a) TTI has a floor plan note with Ford Motor Credit Corporation. The floor
plan note accrues no interest provided the equipment financed under the note
is sold within a predetermined period, typically nine to twelve months from
the time TTI takes delivery of the equipment.
(b) TTI has a floor plan agreement with Associates First Capital Corporation
to finance equipment. The agreement accrues interest on an individual unit
basis with an average interest rate of prime plus .50% (approximately 8.75%
at September 30, 1998), and the equipment may be financed for up to one
year.
(c) In connection with its acquisition in 1995, the Company's Overhill Farms,
Inc. subsidiary ("Overhill") obtained a credit facility with Finova Capital
Corporation in the original amount of $18,000,000, consisting of a
$12,000,000 revolving line of credit and two term loans, A and B for
$2,000,000 and $4,000,000, respectively. Term Loans A and B were repaid in
December 1997 as described in Note 9. Borrowings under the revolving line of
credit are limited to the lesser of $12,000,000 or an amount determined by a
defined borrowing base which is based on eligible receivables and inventory.
Borrowings under the line of credit facility bear interest at the Citibank
base rate plus 1.5% (approximately 10.0% at September 30, 1998). This amount
is classified as a current liability in the consolidated balance sheets due
to a requirement for Overhill to maintain a blocked account in favor of the
lender for collections on all accounts receivable, which are immediately
applied to reduce borrowings under the line of credit. Overhill's revolving
line of credit requires the payment of an unused line fee of .25% per annum
and an annual facility fee of .50% per annum. The agreement with Finova
relating to this facility contains various covenants including without
limitation, Overhill's pledge to restrict capital expenditures to certain
agreed upon levels, maintain specified current and debt to net worth ratios
and specified levels of net worth. Additionally, the terms of the credit
facility prohibit loans, advances or dividends from Overhill to the Company
and limit management fees the Company may collect from Overhill to $250,000
per annum. The credit facility is collateralized by Overhill's receivables
and inventories and has been guaranteed by the Company. In December 1997,
the credit facility was extended for three years in connection with the Long
Horizons refinancing (See Note 9).
(d) TTI previously maintained a line of credit with Comerica Bank-Texas
("Comerica"). In August 1998, Timberjack obtained an $8.0 million revolving
line of credit with NationsBank of Texas, N.A. ("NationsBank") expiring in
March 1999 to replace its Comerica line. Amounts advanced under the line of
credit bear interest at prime less .25% (approximately 8.0% at September 30,
1998), and are collateralized by substantially all of TTI's assets. The line
of credit agreement contains various covenants related to receivables,
capital expenditures, inventories, debt ratios, contingent liabilities and
payment of dividends. Furthermore, the terms of the revolving line of credit
generally prohibit dividends, loans or advances from TTI to the Company, but
permit the payment of taxes. The Company has guaranteed all obligations
under the TTI revolving line of credit. Availability under the line as of
September 30, 1998, after giving effect to base limitations, amounted to
approximately $5.8 million. The Company intends to renew the revolving
credit facility upon maturity in March 1999.
F-20
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
WEIGHTED AVERAGE INTEREST RATE
The weighted average interest rate on short-term borrowings for the year ended
September 30, 1998 was 8.89%.
9. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
September 30,
-------------------------------
1998 1997
-------------- --------------
<S> <C> <C>
Note payable, due August 1, 1999,
collateralized by real estate $ - $ 2,650,000
Senior convertible debentures due July 1, 1999,
bearing interest at 12%, with interest payable
semi-annually in January and July (the "1999 Bonds") 1,200,000 4,000,000
Senior convertible debentures due December 1, 1997,
(the "1997 Bonds") - 1,500,000
Revolving credit agreement of TTI with Comerica
Bank-Texas, bearing interest at prime plus 0.5%
due March 1, 1998 - 5,600,000
Term Loan A payable to financial institution, with
interest at prime rate plus 2.5% - 1,066,676
Term Loan B payable to financial institution, with
interest at prime rate plus 2.5% - 915,604
Senior subordinated notes payable of Overhill due to
Rice Partners II, L.P. (Rice), bearing interest at 13.0% - 13,000,000
Senior subordinated notes payable of Overhill due to a
financial institution, bearing interest at prime plus 4.0%,
(12.25% at September 30, 1998) maturing on December
5, 2000, interest payable monthly, with $250,000 per
month principal payments beginning in May 1999
through maturity, net of discount of $866,667 23,308,333 -
</TABLE>
F-21
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C> <C>
Revolving credit agreements of TTI subsidiaries with a
financial institution, bearing interest at prime (8.25% at
September 30, 1998) collateralized by accounts
receivable, inventory and fixed assets. The facility is
guaranteed by TTI and expires in April 2000 4,357,083 -
Term loan of TTI in the amount of $4,000,000 payable to
a financial institution, bearing interest at 8.3%, due in
monthly installments of $111,111 plus accrued interest,
with maturity in August 2001 3,888,889 -
Other - 260,000
------------ ------------
32,754,305 28,992,280
Less current maturities (3,533,333) (5,720,000)
------------ ------------
Total long-term debt $ 29,220,972 $ 23,272,280
============ ============
</TABLE>
Maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
For the Years Ending
September 30,
---------------------------------
<S> <C>
1999 $ 3,533,333
2000 8,690,416
2001 21,397,223
-------------
Total 33,620,972
Less: unamortized debt discount (866,667)
-------------
$ 32,754,305
=============
</TABLE>
In December 1997, Overhill refinanced a certain portion of the existing debt.
The new financing amounted to a total facility of $24.2 million which is
structured as a three-year term loan maturing in December 2000. The note
requires interest-only payments at prime plus 4.0% (12.25% as of September 30,
1998) through April 1999, and thereafter provides for principal amortization
of $250,000 per month, plus interest, until a final payment of approximately
$19,675,000 is due on December 5, 2000. The agreement also requires Overhill
to pay on a quarterly basis, service fees totaling $180,000, $300,000 and
$440,000 for the first, second and third years of the loan respectively.
Under the terms of the agreement, the Company granted stock warrants that
entitle Long Horizons to immediately acquire at $.01 per share, 30% of the
common stock of Overhill, of which 25% (5/6 of the total shares under warrant)
could be repurchased by the Company for $2,000,000 during the two-year period
following the date of the agreement. In June 1998, in connection with
amending certain covenants and restrictions, the percentage of Overhill that
the Company can repurchase for $2,000,000 was reduced to 20%
F-22
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
from 25%. Additionally, the lender received fees totaling approximately $1.7
million in connection with this financing, of which $500,000 is refundable if
the loan is paid in full during the second year of the loan. As a result of
this transaction, Overhill repaid in full the $13.0 million subordinated
debentures and repurchased for approximately $2.0 million the warrants
previously held by Rice to purchase up to 22.5% of Overhill's common stock.
These payments to Rice resulted in the Company and Rice reaching a settlement
of their litigation. The Company also used a portion of the proceeds to repay
Term Loans A and B, the $1,500,000 senior convertible debentures and
$2,800,000 of principal of the $4,000,000 senior convertible debentures
described below. The early extinguishment of this indebtedness resulted in an
extraordinary charge to operations of approximately $616,000. The new credit
facility generally restricts loans, advances, dividends or transfers from
Overhill to the Company to $350,000 per year.
The 1999 Bonds are convertible at the option of the holder into shares of
common stock equal to the principal amount of each bond (or in $1,000
increments) divided by a $3.00 per share conversion price, subject to
adjustment in certain circumstances. These debentures prohibit the Company
from paying or making within any 12-month period dividends or distributions on
its Common Stock having a value in excess of 50% of the consolidated net
income of the Company, unless each holder of the senior convertible debentures
receives an amount equal to its pro rata portion of the dividend or
distribution (on an as-converted into common stock basis). Effective December
1, 1995, the Company entered into additional agreements with the holders of
the 12% senior convertible debentures, whereby the Company sold an additional
$1,500,000 of debentures on generally the same terms and conditions as those
previously issued (the "1997 Bonds"). In December 1997, the Company paid in
full all amounts due for principal and interest under the 1997 bonds.
Additionally, a partial payment of $2.8 million principal, plus accrued
interest, was made on the 1999 Bonds. As part of this partial payment, the
conversion price of the remaining $1.2 million principal amount of 1999 Bonds
was reduced to $3.00 per share (from $5.65 per share), subject to further
adjustment as provided by the Indenture and the holders were granted warrants
to purchase 420,000 shares of the Company's common stock, exercisable over a
five-year period, with certain registration rights. The warrants are
exercisable for 210,000 shares at $.01 per share (which were exercised during
fiscal 1998) and 210,000 shares at $1.125 per share, the market price of the
Company's Common Stock on the date of grant.
During January 1997, in connection with an advance made to Stadium Partners
(see Note 13), the Company borrowed $2.5 million on a 16% six month note,
collateralized by a second lien on the Company's corporate headquarters
building. When the Company was unable to make the principal payment when due,
the lender elected to post the real estate for foreclosure. Prior to the
foreclosure proceeding, the Company entered into two transactions described
below which enabled it to repay this loan as well as the unpaid balance of the
first mortgage payable to Comerica Bank-Texas in the amount of $773,000.
In August 1997, the Company issued a $2.8 million note payable bearing
interest at 14%, with a maturity date of August 1999. The proceeds were used
to repay debt outstanding on the Company's corporate headquarters building
which secures the note. At the same time, an entity related to this note
holder purchased $750,000 of Series F Preferred Stock and received warrants
F-23
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
covering 500,000 shares of the Company's common stock, exercisable at $1.50
per share, which approximated market at the date of issuance (See Note 10).
The Company has valued the warrants at $150,000 with such amount being
reflected as a debt discount. In addition, the Company recorded a non-cash
dividend of $250,000 representing the value assigned to the preferred stock's
discount feature (See Note 10). In December 1997, the Company sold the entity
whose principal asset was the corporate office building, in exchange for
nominal consideration plus the assumption of this note payable (See Notes 10
and 15).
NOTE PAYABLE AND ACCRUED INTEREST TO RELATED PARTY
In connection with the acquisition of TTI in June 1994, the Company recorded a
note to the seller (Mr. Harold Estes) in the amount of $9,737,719 with
interest at 8% due October 31, 1994 and collateralized by all the capital
stock of TTI. As of various maturity dates, the seller has entered into
subsequent agreements with the Company to modify and extend the term of the
note. As of September 30, 1998, the note had an unpaid balance (including
accrued interest) of $16,307,405, bearing interest at 16% per annum with a
maturity date of October 6, 1998. Upon maturity, the note, with a new
principal amount of $16,347,191, was further modified and extended to mature
December 15, 1999 at an interest rate of 9.75% per annum. In connection with
the modification, effective as of October 6, 1998, the Company agreed to
assign any interest it may have or subsequently obtain with respect to
2,000,000 shares of the Company's common stock owned by the Pyrenees Group
("Pyrenees"), a private investment firm controlled by Paul A. Tanner, the
Company's former Chairman and Chief Executive Officer, and held as secondary
collateral (See Notes 3, 10 and 12). Mr. Estes has no recourse to any of the
assets or capital stock of the Company or any of its other subsidiaries other
than its ownership interest in TTI.
10. STOCKHOLDERS' EQUITY
PREFERRED STOCK
The Company has 50,000,000 authorized shares of $.01 par value preferred
stock, with the rights and preferences as designated by the Board of
Directors, as follows:
Authorized Conversion
Series Shares Price
---------- ---------- ----------
A 375,000 $ .50
B 300,000 1.00
C 300,000 2.00
D 600,000 4.00
E 1,425,000 10.00
F 10,000 Variable
A-2 750,000 $ 5.00
A-3 750,000 Variable
A-5 750,000 $ 5.00
All shares of preferred stock referred to above generally have a redemption
value of $10 per
F-24
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
share, have a liquidation preference of $10 per share and are callable by the
Company at 105% of the redemption value.
Holders of the Series A-2 preferred shares are entitled to two votes per share
on all matters on which the holders of common stock have one vote per share.
Only Series A-2 and Series A-3 (described below) entitle holders of preferred
stock to voting rights.
During November 1995, the Company, in a transaction with an unrelated
corporation, sold 250,000 shares of Series A-3 preferred stock for $2,500,000
cash. The designations of the Series A-3 stock are similar to those of other
series of preferred stock, except that holders of the Series A-3 preferred
stock have voting rights (two votes for each preferred share held) and are
entitled to cumulative annual dividends of 12%. The conversion rate of the
Series A-3 preferred stock, originally $5.00 per share, was adjusted in
November 1997 (pursuant to the preferred stock designations) to the market
price of the Company's common stock immediately preceding the date of
conversion. Additionally, the designations were amended to permit payment of
dividends in common stock. Accordingly, based upon the market price of the
Company's common stock as of September 30, 1998, the holder of the Series A-3
preferred stock would have been entitled to approximately 3.4 million common
shares upon conversion of the preferred stock and accrued dividends.
Also during November 1995, the Company entered into an agreement with an
associate of the corporate purchaser of the Series A-3 preferred stock to
provide consulting services to the Company over a 36-month period.
Consideration for such services was the grant of options to purchase 357,143
shares of common stock at $3.50 per share (the fair market value at the date
of grant) plus hourly fees and expenses. The associate of the aforementioned
corporation subsequently exercised this stock option. The consideration for
the exercise of the option on 357,143 shares was the tender of 125,000 shares
of Series A-3 preferred stock having a redemption value of $1,250,000, which
had been assigned by the corporation to its associate.
During August 1997, the Company sold 7,500 shares of newly designated Series F
6% preferred stock for $750,000, less expenses. The designations for Series F
preferred stock provide for a redemption value of $100 per share, cumulative
annual dividends of 6%, payable quarterly, and for a conversion price equal to
75% of the average closing price of the Company's common stock for the five
trading days immediately preceding conversion. In connection with this
transaction, the Company recorded a non-cash dividend of $250,000,
representing the value assigned to the discount feature of the preferred
stock. During the year ended September 30, 1998, the holder converted all
7,500 shares of the Series F 6% preferred stock into a total of 1,008,355
shares of the Company's common stock.
STOCK OPTIONS
During July 1993 and March 1994, the Board of Directors granted to certain
officers and directors of the Company options to purchase shares of the
Company's common stock, of which 343,000 shares are outstanding, at option
prices of $.75 (293,000 shares) and $5.25 (50,000 shares) per share,
respectively, which prices were equal to the fair value at the date of grant.
The
F-25
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
expiration date of the July 1993 options (held by certain officers) was
extended to July 2003 by the Board of Directors in March 1998; the March 1994
options (held by a Director) expire in March 1999.
Under the terms of the 1994 Employee Stock Option Plan adopted by the Board of
Directors in March 1994, the Company has reserved a total of 1,000,000 shares
of its common stock for issuance to eligible employees of, and consultants to,
the Company. The Plan provides for the grant of both incentive stock options
(at exercise prices no less than fair value at the date of grant) and non-
qualified stock options (at exercise prices as determined by the Compensation
Committee of the Board of Directors), that such options may be exercisable as
determined by such Committee and that the Plan will expire ten years following
its adoption. As of September 30, 1998, options for 580,000 shares were
available for grant under the plan.
At September 30, 1998, options outstanding that were granted pursuant to the
Plan consist of a total of 385,000 shares, of which 305,000 were granted in
July 1996 at $2.00 per share to certain officers and directors and an
additional 80,000 shares of which were granted to certain directors in March
1998 at an exercise price of $.75 per share; such prices were equal to the
fair market value as of the date of grant.
In January 1997, an unrelated third party was granted an option to purchase
200,000 shares of the Company's common stock, exercisable at $.01 per share,
in exchange for a two-year consulting agreement. The contract was valued at
$973,000 based upon the trading value of the Company's common stock at the
date of grant. The option holder ceased performing services for the Company
during the year ended September 30, 1997; accordingly, the Company recognized
the entire amount associated with the consulting contract as an expense during
fiscal 1997. During the current year, the Company canceled these options and
refused to allow the holder to exercise them. This matter became the subject
of litigation which resulted in a judgment of $500,000 against the Company
which has been recorded as a liability as of September 30, 1998, with a
corresponding charge to paid-in capital. Subsequently, the Company entered
into a settlement agreement with the aforementioned unrelated third party
whereby the Company agreed to pay the judgment amount at a rate of $8,000
(including interest at 10% per annum) per month for eighteen months beginning
in October 1998 with a balloon payment of the remaining principal and interest
balances at the end of that period. In addition, as consideration for this
forbearance, the Company issued the unrelated third party 150,000 shares of
Polyphase common stock and agreed to issue up to an additional 150,000 shares
of Polyphase common stock.
In November 1996, a former executive of the Company was granted and exercised
options on 35,000 shares of common stock at $.01 per share. Such options were
granted in consideration for a consulting contract and were valued at
$200,000, with this amount being amortized over a two year period.
F-26
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A summary of changes in common stock options during the years ended September
30, 1998, is as follows:
Number of Exercise Weighted Avg.
Shares Price Exercise Price
----------- --------- --------------
Outstanding, September 30, 1996 1,285,143 $.75-5.25 $2.01
Granted 235,000 $.01 $.01
Exercised (467,143) $.01-3.50 $2.80
Canceled (30,000) $2.00 $2.00
----------
Outstanding, September 30, 1997 1,023,000 $.01-5.25 $1.41
Granted 80,000 $.75 $.75
Exercised - - -
Canceled (375,000) $.01-2.00 $.94
----------
Outstanding, September 30, 1998 728,000 $.75-5.25 $1.58
==========
Exercisable, September 30, 1998 728,000 $.75-5.25 $1.58
Exercisable, September 30, 1997 1,023,000 $.01-5.25 $1.41
Summarized information about stock options outstanding at September 30, 1998,
all of which are exercisable, is as follows:
Options Outstanding/ Weighted Average
Exercise Exercisable at Remaining
Price September 30, 1998 Contractual Life
---------- -------------------- ----------------
$ 0.75 373,000 Shares 5.82 Years
$ 2.00 305,000 Shares 7.75 Years
$ 5.25 50,000 Shares .50 Years
Proforma information regarding net income (loss) is required by SFAS No. 123,
and has been determined as if the Company had accounted for its employee stock
options under the fair value method specified by SFAS No. 123. The fair value
of options granted during the years ended September 30, 1998 was estimated at
the date of grant using the Black-Scholes option pricing model with the
following weighted-average assumptions for grants for the years ending
September 30, 1998, 1997 and 1996, respectively: risk free interest rate of
5.52%, 5.21% and 6.59%; no dividends expected to be declared; volatility
factor of 1.150, .994 and .994; and a weighted average expected life of five
years, six months, and five years. The effect of applying the fair value
method under SFAS No. 123 to the Company's stock-based awards would result in
a net loss during the years ended September 30, 1998 and 1997 that is not
materially different from amounts reported and a net loss during the year
ended September 30, 1996 of $763,942 ($0.06 per share).
F-27
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE PYRENEES OPTION
In October 1992, the Company's Board of Directors authorized the issuance of
options to purchase convertible preferred stock to the Pyrenees Group, a
private investment firm controlled by Paul A. Tanner, the Company's former
Chairman and Chief Executive Officer, or its assignees. The options are
summarized as follows:
Preferred Conversion Common
Series Shares Price Shares
--------- --------- ---------- ---------
A 125,000 $ .50 2,500,000
B 100,000 1.00 1,000,000
C 100,000 2.00 500,000
D 200,000 4.00 500,000
E 475,000 10.00 475,000
--------- ---------
1,000,000 4,975,000
========= =========
During fiscal 1994 and 1995 Pyrenees exercised and converted Series A, B, and
C Preferred Stock into common stock. In November, 1995, Pyrenees exercised
the Series D option through the issuance of a 7% recourse note in the amount
of $2,000,000, collateralized by the shares issued. During fiscal 1996 the
shares were converted to 500,000 shares of common stock. During the years
ended September 30, 1996 and 1997, principal payments of approximately
$721,000 and $304,000, respectively were made on the note. The Company
believes the remaining balance of $975,000 will be uncollectible and that it
will recover the 500,000 shares of common stock that secure this note. As
discussed in Note 13, the Company expects to recover these shares subsequent
to September 30, 1998 and will account for this recovery as an unexercised
stock option in accordance with Accounting Principles Board opinion No. 25,
"Accounting for Stock Issued to Employees". As such, the difference between
the note balance ($975,000) and the fair market value of the 500,000 shares
(approximately $218,500 at September 30, 1998) will be recorded as a reduction
in paid-in capital.
WARRANTS
As of September 30, 1997, the Company had recorded a liability for a warrant
to purchase common stock of the Company's Overhill subsidiary in the amount of
$2,000,000, which represents the price at which the warrants were repurchased
by the Company from the holder in December 1997. During 1997 and prior fiscal
years, the Company, because the holder had a "put" to the Company with respect
to the warrants, systematically provided for accretion in the estimated value
of the warrant by periodic charges to operations in an amount representing the
change in the estimated value of the warrant.
In connection with the financing provided by Long Horizons in December 1997
(see Note 9), the Company granted stock warrants that entitle Long Horizons
to immediately acquire at $.01 per share, 30% of the common stock of Overhill,
of which 25% (5/6 of the total shares under warrant) could be repurchased by
the Company for $2,000,000 during the two-year period following the date of
the agreement. In June 1998, in connection with amending certain covenants
and restrictions, the percentage of Overhill that the Company can repurchase
for
F-28
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
$2,000,000 was reduced to 20% from 25%. Such warrants were valued at
$1,200,000, which has been recorded as debt discount and is being amortized
over the term of the loan. Additionally, in connection with the Long Horizons
financing, an unrelated consultant was issued a warrant to purchase 1% of
Overhill's common stock, exercisable through December 3, 2000, at a purchase
price of $50,000.
In connection with the issuance of the Series F 6% Preferred Stock referred to
above and the $2.8 million note payable (see Note 9), the Company issued
warrants to purchase 500,000 shares of it common stock at $1.50 per share,
exercisable through September 2002. The warrants were valued at $150,000,
with such amount being reflected as debt discount.
In connection with the repayment and restructuring of the 1997 Bonds and 1999
Bonds in December 1997 (see Note 9), the Company issued to the holders
warrants totaling 420,000 shares of the Company's common stock. The warrants
cover 210,000 shares exercisable at $.01 per share, which were exercised in
May 1998, and an additional 210,000 shares exercisable at $1.125 per share,
exercisable through April 24, 2003. These warrants were valued at $175,000,
which is being amortized over the remaining term of the loan.
F-29
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. INCOME TAXES
Income tax expense (benefit) consists of the following:
For the Years Ended
September 30,
1998 1997 1996
----------- ------------- -------------
Current:
Federal $ - $ (1,126,891) $ 1,193,807
State 56,575 239,869 265,467
Deferred:
Federal - 168,278 115,233
State - 65,061 19,035
----------- ------------- -------------
Total income taxes $ 56,575 $ (653,683) $ 1,593,542
=========== ============= =============
The effective tax rate on earnings (loss) before income tax charges (benefits)
was different than the federal statutory tax rate. The following summary
reconciles the federal statutory tax rate with the actual effective rate:
For the Years Ended
September 30,
1998 1997 1996
-------- -------- --------
Effective statutory tax expense (benefit) rate 34.0% (34.0%) 34.0%
Increase (decrease) in effective tax rate
resulting from:
State taxes, net of federal tax benefit 16.4 (3.8) 9.2
Officer life insurance premiums,
amortization of goodwill, accretion
of stock warrants 81.0 2.9 12.5
Utilization of net operating losses - - (4.3)
Change in valuation allowance (87.8) 26.6 -
Sale of subsidiaries (9.7) 5.7 27.9
Other 5.7 (0.7) 6.6
Tax credits (23.2) - -
--------- -------- --------
Effective tax expense (benefit) rate 16.4% (3.3%) 85.9%
========= ======== ========
F-30
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The components of deferred tax balances as of September 30, 1998 and 1997 are
summarized as follows:
1998 1997
------------- -------------
Deferred tax assets:
Allowance for doubtful accounts $ 290,945 $ 1,915,501
Inventory 215,747 112,890
Accrued expenses 395,545 175,000
Capital loss carryforwards 240,318 596,243
Net operating loss carryforwards 4,865,745 3,267,780
AMT and other credit carryforwards 336,944 257,111
Other - 5,215
Stock options - 381,628
Fixed assets 54,098 -
------------- -------------
Total deferred tax assets 6,399,342 6,711,368
Valuation allowance (5,354,856) (5,233,603)
------------- -------------
Net deferred tax assets 1,044,486 1,477,765
------------- -------------
Deferred tax liabilities:
Prepaid expenses (120,938) (212,515)
Intangibles (681,916) (985,284)
Depreciation - (279,966)
Other (241,632) -
------------- -------------
Total deferred tax liabilities 1,044,486 (1,477,765)
------------- -------------
Net deferred tax assets $ - $ -
============= =============
The Company has net operating losses available for carryforward of
approximately $12,000,000, due to expire in 2012 and capital losses available
for carryforward of approximately $600,000. Additionally, the Company has
alternative minimum tax credit carryforwards of $177,278 which have no
expiration and general business credits of $159,666 which expire in 2012.
F-31
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. COMMITMENTS AND CONTINGENCIES
COMMITMENTS
Future minimum lease payments for all operating leases at September 30, 1998
are as follows:
For the Years Ending
September 30,
--------------------
1999 $ 1,676,274
2000 569,295
2001 202,659
2002 53,888
2003 16,096
------------
$ 2,518,212
============
Certain of the leases provide for renewal options for periods from 1998 to
2005 at substantially the same terms as the current leases.
Rent expense, including monthly equipment rentals, was approximately
$1,946,000, $1,847,000, and $1,510,000 for the years ended September 30, 1998,
1997, and 1996, respectively.
The Company's subsidiary, TTI relies on two suppliers for the majority of its
new units and parts. As of September 30, 1998, TTI had commitments to purchase
inventory amounting to $1,782,846.
TTI guarantees on behalf of various customers certain lines of credit with
banks and financial institutions. The portion of the credit lines guaranteed
ranges from zero to 100% on a customer-by-customer basis. At September 30,
1998, TTI's guarantees totaled $6,505,865. TTI receives a fee, in the form of
interest participation, on certain of the notes upon which it is contingently
liable. This fee is recognized as interest income and is usually held by the
institution to meet reserve requirements. Funds held in escrow by the lenders
amounting to $672,898 at September 30, 1998, are included in the consolidated
balance sheet as restricted cash and are fully offset by a reserve for credit
guarantees.
TTI has an interest in two unconsolidated partnerships. The total investment
in these partnerships at September 30, 1998 of $378,890 is included in other
assets. TTI guarantees the debt of these partnerships. The amount guaranteed
at September 30, 1998 of $321,920 is collateralized by accounts receivable,
inventory, equipment, buildings and real estate.
See Note 10 for a description of a judgment against the Company in the amount
of $500,000 plus certain expenses and the related settlement terms.
F-32
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONTINGENCIES
In January 1997, a suit was filed in District Court of Dallas County against
the Company by Rice Partners II, L.P., former subordinated debt holders of
Overhill Farms. In December 1997 in connection with the refinancing of
corporate debt, the Company and Rice Partners settled all litigation related
to this suit (See Note 9).
During fiscal 1997, five substantially identical complaints were filed in the
United States District Court for the District of Nevada against the Company
and certain of its officers and directors. The plaintiffs complaints each
sought certification as a class action and asserted liability based on alleged
misrepresentations that resulted in the market price of the Company's stock
being artificially inflated. The defendants filed motions to dismiss in each
of the lawsuits. Without certifying the cases as class actions, the District
Court consolidated the cases into a single action. The District Court, in June
1998, dismissed the complaint in the consolidated action and ordered that the
plaintiff's replead such complaints. The plaintiffs then filed a motion for
reconsideration of the Court's ruling. The defendants opposed the motion for
reconsideration. The Court has not ruled upon plaintiff's motion; however,
the plaintiffs have not filed an amended complaint. Consequently, it cannot be
determined at this time whether the dismissal of the complaint will lead to a
dismissal of the consolidated action. However, management believes (based on
advice of legal counsel) that this litigation will be resolved without
material effect on the Company's financial condition, results of operations or
cash flows.
The Company and its subsidiaries are involved in certain legal actions and
claims arising in the ordinary course of business. However, management
believes (based on advice of legal counsel) that such litigation and claims
will be resolved without material effect on the Company's financial condition,
results of operations or cash flows.
See Note 13 for a description of a guarantee of related party indebtedness.
13. RELATED PARTY TRANSACTIONS
On February 23, 1998, Mr. Paul A. Tanner resigned as Chief Executive Officer
and Chairman of the Company's Board of Directors. Mr. James Rudis, the
Company's President, was elected by the Board to assume the vacated positions.
Following the resignation, a reserve of approximately $165,000 was established
against all outstanding advances due from Mr. Tanner.
During fiscal years 1994 and 1995 a number of advances were made to Mr. Tanner
which aggregated approximately $2,000,000. In December 1995 the advances were
refinanced though the issuance to the Company of a 12% unsecured demand note
from Mr. Tanner. Also during the aforementioned periods the Company had made
non-interest bearing cash advances to the Pyrenees Group, a Company controlled
by Mr. Tanner, of approximately $1,500,000.
During January 1996, the Company reached an agreement to manage a project to
develop and build a multi-purpose sports facility in Las Vegas, Nevada. The
project was being developed by PLY Stadium Partners, Inc. ("Stadium
Partners"), a private investment firm headed by Mr.
F-33
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Tanner. The Company agreed to provide to Stadium Partners up to $4 million of
debt (1) convertible into a 14% economic interest in the project and (2)
guaranteed personally by Mr. Tanner and Pyrenees. As part of this agreement,
the aforementioned accounts receivable from Mr. Tanner and Pyrenees
(approximately $3.5 million), together with subsequent amounts advanced,
charged or accrued to or on behalf of Stadium Partners were considered as
components of the $4 million of convertible debt, bearing interest at 12.0%
and guaranteed personally by Mr. Tanner and Pyrenees. Through September 30,
1996, the Company advanced an additional $9,271,054, for an approximate total
of $13.3 million.
During the twelve months ended September 30, 1996, the Company accrued
management and service revenues of $2,550,000 and interest income of $790,000
related to the Company's activities with Stadium Partners, the collectibility
of which was dependent upon the success of the project and/or the guarantees
referred to above. As a result of the terms of the financing arrangements with
Lehman described below, Stadium Partners was precluded from making any
distributions until permanent project financing was secured or stadium suite
sales were made that were sufficient to repay the financing from Lehman. As a
consequence of Stadium Partners' inability to effect such sales or obtain such
financing by March 15, 1997, in order to make its payment to the Company on
such date, the Company established a reserve of $3.34 million as of September
30, 1996, which represented all income accrued in 1996.
On November 15, 1996, Stadium Partners, through a newly-formed partnership,
purchased 62 acres in Las Vegas for the development of the stadium and
adjacent convention facility. Financing was provided by Lehman Brothers
Holdings, Inc. ("Lehman") through a partnership, Nevada Stadium Partners
Limited Partnership ("Nevada Partnership") with Lehman receiving an equity
interest in the project.
The Company guaranteed the repayment of the Lehman loan on behalf of Stadium
Partners. The guarantee is only effective, in certain circumstances or upon
the occurrence of certain events. A foreclosure sale was conducted on or about
July 15, 1998. Notwithstanding such foreclosure action, the Company, based on
the advice of legal counsel, does not believe that it will incur any
significant liability as a result of this guarantee. As a result, the Company
believes the existence of such guarantee will not have a material adverse
effect on the Company's financial condition, results of operations or cash
flows.
The loan agreement with Lehman required certain prepayments by Nevada
Partnership, the first of which, in the amount of $5.0 million became due in
January 1997. This was paid primarily with funds advanced by the Company, of
which $2.4 million was obtained from an existing credit line and $2.5 million
was obtained from a six month term note, collateralized by the Company's
corporate office building. In connection with the loan transaction, the
Company entered into a consulting agreement with a principal of the lender,
whereby the Company granted such party an option to purchase 200,000 shares of
the Company's common stock at $.01 per share; this option was assigned a value
of $973,000 which was charged to expense during fiscal 1997.
The second prepayment requirement of $20.0 million became due in May 1997;
this payment was not made. As a result of the failure to make this payment,
another agreement was entered
F-34
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
into among the borrower, Lehman and the Company as of July 1, 1997. This
agreement generally provided forbearance by Lehman until September 30, 1997,
to allow additional time to raise the funds to make the principal payment. The
terms of the forbearance agreement were not met by the September deadline, and
the note matured unpaid in November 1997.
As a result of the above, the Company recorded a charge to earnings for the
year ended September 30, 1997, in the amount of $14.8 million, representing
all amounts remaining unpaid by Stadium Partners, net of the reserve
established in 1996. Amounts which may subsequently be recovered, if any,
will be recognized as income when collection is assured.
During April 1998, the Company filed suit against PLY Stadium Partners, Inc.,
and against Mr. Tanner and Pyrenees, the guarantors of the debt. As of
September 30, 1998, the amount ultimately recoverable as a result of this
litigation, if any, is not determinable. However, in enforcing these
guarantees, the Company expects either through judicial foreclosure or
otherwise, to obtain the rights to 2,000,000 shares of Polyphase common stock
owned by Pyrenees and held by Mr. Harold Estes as secondary collateral (See
Notes 3, 9 and 10).
Other assets include an insurance premium receivable from Mr. Harold Estes
representing insurance premiums paid by TTI on his behalf. As of September
30, 1998, the insurance premium receivable was $592,000.
In connection with the purchase of TTI, the Company acquired a note receivable
from an officer of TTI. The note is secured by marketable securities, is
payable within one year and bears interest at 3.96%. As of September 30, 1998
the balance outstanding was $335,380 and the note has been classified as a
related party receivable. Also included in related party receivables at
September 30, 1998 are approximately $335,275 in notes receivable from
employees of TTI subsidiaries payable within one year.
See Note 10 for discussion of options granted to the Pyrenees Group, a related
party.
See Note 9 for discussion of the note payable to Mr. Estes.
14. PROFIT SHARING PLAN
In 1986, prior to its acquisition by the Company, TTI adopted a profit sharing
plan. In order to participate in the plan, an employee must be at least 21
years of age, have been employed by TTI at least one year and be a full time
employee. Vesting begins in the third year of employment and increases each
year until full vesting is achieved in the seventh year. The plan is
administered by an independent third party. Trustees for the plan are the
president and controller of TTI. The maximum contribution is the lesser of
15% of eligible salaries or net income plus retained earnings. Profit sharing
expense for the years ended September 30, 1998, 1997 and 1996 was $353,000,
$298,000, and $264,000 respectively.
F-35
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. SALE OF SUBSIDIARIES
In December 1997, the Company sold Dallas Parkway Properties, Incorporated, a
subsidiary whose principal asset was the corporate office building, in
exchange for nominal consideration plus the assumption of a note payable for
$2.8 million. The Company realized a gain of approximately $988,000 on this
transaction.
In July 1996, the Company completed a transaction with an unrelated third
party to sell a controlling interest in the Company's computer subsidiaries.
The transaction was accomplished through the sale of 51% of a newly formed
subsidiary, PC Networx America, Inc. (PCNA), whose sole assets consisted of
the capital stock of Network America, Inc., PC Repair of Florida, Inc.,
Computer Systems Concepts and Register Mate, Inc. The consideration for this
sale amounted to $1,736,457 (subject to adjustments) consisting of $475,000 of
cash, $86,457 of notes receivable and $1,175,000 of preferred stock. At that
time it was the intention of the Company to publicly distribute to its
shareholders a dividend of 30% of the PCNA stock. In a related transaction
with the same party, the Company sold 100% of the stock of Micro
Configurations, Inc. (MCC) for a note receivable in the amount of $951,433
secured by the stock and assets of MCC. Subsequent to this transaction, PCNA's
name was changed to DataTell Solutions, Inc. ("DataTell").
During fiscal 1997, the purchaser and controlling shareholder of DataTell
elected to discontinue that company's efforts to effect a public registration
of DataTell's stock, thus precluding the Company from making a distribution of
the stock to its shareholders. Additionally, certain purchase price
adjustments resulted in the elimination of the note for $86,457. The
purchaser also elected not to further pursue the operation of MCC, and, since
the Company was unsuccessful in its attempts to recover MCC's assets, the
amount due under the $951,433 note was determined not to be realizable. The
balance of these notes, totaling $1,037,890, was charged to operations during
fiscal 1997.
The Company, during the latter part of fiscal 1997, having made the decision
to further reduce its involvement in computer-related businesses, entered into
a new agreement with the controlling shareholder of DataTell to dispose of its
remaining direct ownership of DataTell. In connection therewith, the Company
agreed to exchange its 49% interest in DataTell, together with the $1,175,000
of preferred stock referred to above, for cash of $200,000 and a new series of
the purchaser's preferred stock which carries certain rights to be exchanged
for DataTell stock. This transaction resulted in a loss of $2,575,925 and was
charged to operations during fiscal 1997.
16. SALE OF ASSETS
During the year ended September 30, 1996, TTI completed the sale of a parcel
of land in Lufkin, Texas which resulted in a gain of $875,000.
F-36
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17. ASSETS ACQUIRED
In March 1998, TTI obtained a majority interest in Wood Forest Products LLC
("Wood"), which subsequently acquired the rights to harvest timber from a
tract of land owned by the U.S. Forestry Service. Concurrently, the Company
obtained a majority interest in Southern Forest Products LLC ("Southern"),
whose primary purpose is to lease and operate a sawmill in East Texas. For
the year ended September 30, 1998, these forestry products business
contributed revenues of approximately $3.0 million and a net loss of
approximately $170,000.
18. INFORMATION BY INDUSTRY SEGMENT
The Company's industry segments are described below.
FOOD
The food segment produces high quality entrees, plated meals, soups, sauces
and poultry, meat and fish specialties primarily for customers in the airline,
restaurant and weight loss industries.
FORESTRY
The forestry segment sells, finances, and repairs timber and logging equipment
in East Texas and Western Louisiana and participates in other forestry-related
activities. Customers range from small logging operations to large integrated
paper mills.
TRANSFORMER
The transformer segment manufactures and sells custom designed transformer and
communication filters. Customers are primarily defense contractors or defense
contractor suppliers in the Mid-Atlantic and Northeastern regions of the
United States.
F-37
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
September 30, 1998
----------------------------------------------------------------
Food Forestry Transformer Total
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net Sales:
Sales to unaffiliated customers $ 93,348,856 $ 48,049,483 $ 4,832,583 $146,230,922
============ ============ ============ ============
Operating profit $ 4,976,930 $ 4,076,683 $ 51,099 $ 9,104,712
============ ============ ============
General corporate expenses (1,420,191)
Gain on sale of assets 987,857
Interest expense (8,871,535)
Interest income and other 543,080
Income before income taxes, warrant accretion ------------
and extraordinary item $ 343,923
============
Identifiable assets:
Segment assets $ 45,221,575 $ 50,082,526 $ 2,692,737 $ 97,996,838
============ ============ ============
Corporate assets (16,451,463)
------------
Total assets $ 81,545,375
============
Capital expenditures, net:
Segment $ 604,853 $ 680,299 $ 74,370 $ 1,359,522
============ ============ ============
Corporate 30,251
------------
Total capital expenditures, net $ 1,389,773
============
Depreciation and amortization:
Segment $ 3,041,237 $ 749,991 $ 91,916 $ 3,883,144
============ ============ =============
Corporate 387,584
------------
Total depreciation and amortization $ 4,270,728
============
</TABLE>
The Company's Food segment had sales to Jenny Craig, Inc. in fiscal 1998 which
comprised approximately 22% of consolidated sales. No other customer
accounted for more than 10% of the Company's sales in fiscal 1998.
F-38
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
September 30, 1997
----------------------------------------------------------------
Transformer
Food Forestry Manufacturing Total
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
Net Sales:
Sales to unaffiliated customers $ 96,176,505 $ 52,201,622 $ 3,570,426 $151,948,553
============ ============ ============= ============
Operating profit $ 4,953,194 $ 4,496,570 $ (67,224) $ 9,382,540
============ ============ =============
General corporate expenses (2,799,016)
Non-recurring charge related
to loss on related party receivable (14,838,456)
Interest expense (7,179,973)
Interest income and other 380,655
Loss on investment in computer operations (3,613,815)
------------
Loss before income taxes and warrant accretion $(18,668,065)
============
Identifiable assets:
Segment assets $ 35,565,596 $ 42,442,019 $ 2,807,683 $ 80,815,298
============ ============ =============
Corporate assets (8,665,849)
------------
Total assets $ 72,149,449
============
Capital expenditures:
Segment $ 507,825 $ 222,562 $ 27,667 $ 758,054
============ ============ =============
Corporate -
------------
Total capital expenditures $ 758,054
============
Depreciation and amortization:
Segment $ 2,045,568 $ 691,630 $ 67,137 $ 2,804,335
============ ============ =============
Corporate 1,163,765
------------
Total depreciation and amortization $ 3,968,100
============
</TABLE>
The Company's Food segment had sales to Jenny Craig, Inc. in fiscal 1997
which comprised approximately 20% of consolidated sales. No other customer
accounted for more than 10% of the Company's sales in fiscal 1997.
F-39
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
September 30, 1996
------------------------------------------------------------------------------------------
Computer
Sales and
Food Forestry Transformer Service and Other Total
------------ ------------ ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net Sales:
Sales to unaffiliated
customers $ 98,771,224 $ 34,247,283 $ 3,549,126 $ 10,398,177 $ 2,574,975 $149,540,785
============ ============ ============= ============= ============= ============
Operating profit (loss) $ 6,260,382 $ 3,039,922 $ 76,726 $ (1,530,277) $ (1,181,786) $ 6,664,967
Interest and other income 751,385
Interest expense (6,389,926)
Gain on sale of assets 827,852
------------
Income before income taxes and warrant
accretion $ 1,854,278
============
Identifiable assets:
Segment assets $ 38,746,696 $ 41,073,186 $ 3,305,280 $ - $ 11,053,359 $ 94,178,521
============ ============ ============= ============= ============= ============
Capital expenditures:
Segment $ 392,668 $ 2,159,674 $ 87,875 $ - $ 15,992 $ 2,656,209
============ ============ ============= ============= ============= ============
Depreciation and
amortization:
Segment $ 2,024,902 $ 611,070 $ 82,402 $ 229,659 $ 469,104 $ 3,417,137
============ ============ ============= ============= ============= ============
</TABLE>
The Company's Food segment had sales to Jenny Craig, Inc. in fiscal 1996
which comprised approximately 26% of consolidated sales. No other customer
accounted for more than 10% of the Company's sales in fiscal 1996.
COMPUTER SALES AND SERVICE
The computer sales and service segment assembled and sold personal computers
and provided systems setup and hardware maintenance services. Customers
serviced ranged from individuals to large corporations. Subsidiaries
included in the segment were Network America, Inc., in Tulsa, Oklahoma;
Letronix and Computer System Concepts in Queens, New York; PC Repair in
Sarasota, Florida and Micro Configurations Inc., in Brooklyn, New York.
Effective July 1, 1996, the Company sold 51% of its interests in the computer
operations. Effective July 1, 1997, the Company sold its remaining interests
in the computer operations. (See Note 15)
CORPORATE AND OTHER
The Corporate segment, prior to fiscal 1998, provided management and advisory
services to Stadium Partners, a privately owned development corporation
engaged in the development of a multi purpose sports facility in Las Vegas,
Nevada (See Note 13).
F-40
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
19. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
For the Year Ended September 30, 1998
-------------------------------------------------------
December 31 March 31 June 30 September 30
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Net revenues $ 37,392,317 $ 33,328,696 $ 37,272,305 $ 38,237,604
Gross profit 6,967,157 6,510,581 6,465,724 5,908,583
Operating income 2,370,671 1,910,474 1,671,876 1,731,500
Extraordinary item (616,239) - - -
Net income (loss) $ 881,571 $ (218,106) $ (675,037) $ (317,319)
============ ============ =========== =============
Net income (loss) per common share $ .06 $ (.02) $ (.05) $ (.02)
============ ============ =========== =============
</TABLE>
<TABLE>
<CAPTION>
For the Year Ended September 30, 1997
-------------------------------------------------------
December 31 March 31 June 30 September 30
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net revenues $ 36,165,789 $ 38,409,223 $ 38,478,729 $ 38,894,812
Gross profit 6,108,874 5,786,039 6,964,065 6,524,463
Operating income 1,485,204 1,974,853 2,224,511 898,956
Net income (loss) $ (67,237) $ (132,001) $ 277,111 $(18,903,031)
============= ============ ============ ============
Net income (loss) per common share $ (.01) $ (.01) $ .02 $ (1.41)
============= ============ ============ ============
</TABLE>
The Company's results for the quarter ending September 30, 1997 reflect a charge
to earnings in the amount of approximately $14.8 million, (before income
taxes), representing all amounts remaining unpaid by Stadium Partners, net of
the reserve established in fiscal 1996 (See Note 13), and a charge to earnings
in the amount of approximately $3.6 million (before income taxes), representing
the combined loss on disposal of the computer operations (See Note 15).
F-41
<PAGE>
POLYPHASE CORPORATION
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
SUMMARY BALANCE SHEETS
<TABLE>
<CAPTION>
September 30,
-------------------------
1998 1997
------------ ------------
<S> <C> <C>
Cash $ 5,874 $ 8,341
Prepaid expenses and other 20,000 381,616
----------- -----------
Total current assets 25,874 389,957
Property and equipment 48,902 1,758,267
Less-Accumulated depreciation (36,981) (223,563)
----------- -----------
11,921 1,534,704
Non current receivables:
Related parties, net of allowance for
doubtful accounts of $164,563 and $0 9,000 182,526
Deferred federal income taxes 767,789 1,068,160
Income tax receivable 5,202,507 4,727,964
Other assets (primarily investments
in subsidiaries) 19,359,090 22,911,479
----------- -----------
Total assets $25,376,181 $30,814,790
=========== ===========
Accounts payable $ 139,948 $ 494,980
Accrued expenses 793,013 610,917
Deferred income taxes 335,117 158,238
Current maturities of long term debt 1,200,000 1,500,000
----------- -----------
Total current liabilities 2,468,078 2,764,135
Long term debt, net - 6,650,000
Note payable and accrued
interest, related party 16,307,405 13,998,916
----------- -----------
Total liabilities 18,775,483 23,413,051
----------- -----------
Stockholders' equity:
Preferred stock 1,150 1,325
Common stock 150,800 136,641
Additional paid in capital 28,623,811 28,955,695
Retained earnings (deficit) (21,199,744) (20,716,603)
Note receivable (975,319) (975,319)
----------- -----------
Total stockholders' equity 6,600,698 7,401,739
----------- -----------
$25,376,181 $30,814,790
=========== ===========
</TABLE>
See note to condensed financial information of registrant.
F-42
<PAGE>
POLYPHASE CORPORATION
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
SUMMARY STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the Years Ended
September 30,
---------------------------------
1998 1997
------------ ------------
<S> <C> <C>
Net revenues $ - $ -
Cost of sales - -
------------ ------------
Gross Profit -
Selling general and administrative expenses 1,420,191 2,799,016
------------ ------------
Operating income (loss) (1,420,191) (2,799,016)
Other income (expense)
Gain on disposition of subsidiary (987,857) -
Loss on investment in computer operations - (3,613,815)
Loss on related party receivable - (14,838,456)
Interest expense 2,886,448 (2,480,808)
Interest income and other - 156,825
------------ ------------
Total other income (expense) (1,898,591) (20,776,254)
Loss before income taxes (3,318,782) (23,575,270)
Income taxes (benefit) (1,034,177) (2,746,436)
------------ ------------
(2,284,605) (20,828,834)
Equity in net income of subsidiaries 1,955,714 2,003,676
------------ ------------
Net income (loss) (328,891) (18,825,158)
Dividends on preferred stock 154,250 403,750
------------ ------------
Net income (loss) attributable
to common shareholders $ (483,141) $(19,228,908)
============ ============
</TABLE>
See note to condensed financial information of registrant.
F-43
<PAGE>
POLYPHASE CORPORATION
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
SUMMARY STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended
September 30,
----------------------------
1998 1997
------------- -------------
<S> <C> <C>
Cash flow provided by used by operating activities:
Net loss $ (328,891) $ (18,825,158)
Adjustments to reconcile net loss
to net cash provided by (used in) operating activities:
Depreciation and amortization 370,896 1,163,765
Equity in income of subsidiaries (1,955,901) (1,930,594)
Provision for doubtful accounts 164,563 -
Gain on sale of assets (987,857) -
Deferred income tax - (1,370,366)
Loss on related party receivable - 14,838,456
Loss on disposition of computer segment - 3,613,815
Increase (decrease) in, net of effects of acquisitions:
Prepaid expenses and other 355,014 2,497,299
Accounts payable and other (355,032) 148,875
Accrued expenses and other (243,404) 610,917
------------ -------------
Net cash provided by (used in) operating activities (2,980,612) 747,009
------------ -------------
Cash flows provided by (used in) investing activities:
Notes receivable from related parties 8,963 (5,089,928)
Capital expenditures (5,870) -
------------ -------------
Net cash provided by (used in) investing activities 3,093 (5,089,928)
------------ -------------
Cash flows provided by (used in) financing activities:
Net borrowings (payments) on notes payable 2,308,489 3,407,372
Advances from subsidiary 5,300,000 -
Payments on long term borrowing (4,300,000) -
Payment of deferred financing costs (163,787) -
Proceeds from private placement of preferred stock - 733,877
Exercise of common stock options and
warrants 2,100 56,600
Dividends on preferred stock (154,250) (153,750)
Principal collections on Pyrenees note - 303,770
Common stock issuance costs (17,500) (35,000)
------------ -------------
Net cash provided by financing activities 2,975,052 4,312,869
------------ -------------
Net increase (decrease) in cash (2,467) (30,050)
Cash - beginning of year 8,341 38,391
------------ -------------
Cash - end of year $ 5,874 $ 8,341
============ =============
</TABLE>
See note to condensed financial information of registrant.
F-44
<PAGE>
POLYPHASE CORPORATION
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
Note A - Basis of Presentation
In the parent company only financial statements, the Company's investment in
subsidiaries is stated at cost plus equity in undistributed earnings of
subsidiaries since the date of acquisition. The Company's share of net income
of its unconsolidated subsidiaries is included in consolidated income using the
equity method. The parent company only financial statements should be read in
conjunction with the Company's consolidated financial statements.
Due to subsidiary debt covenant and other restrictions, the Company's ability
to obtain funds from its subsidiaries is limited (See Note 3). In addition,
the parent company's ownership of Texas Timberjack is pledged as collateral
against the note payable to related party which is scheduled to mature in
December 1999 (See Notes 3 and 9). Additionally, the parent company has no
operating revenues and may be highly dependent on its subsidiaries for its
liquidity needs.
F-45
<PAGE>
EXHIBIT 10.81
[Penny Warrant]
- --------------------------------------------------------------------------------
Polyphase Corporation
Common Stock Purchase Warrant
Dated as of April 24, 1998
- --------------------------------------------------------------------------------
THIS WARRANT AND ANY SECURITIES ACQUIRED UPON EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES
LAW OF ANY STATE AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND
APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION TO THE
REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS. THIS WARRANT AND SUCH
SECURITIES MAY NOT BE SOLD, TRANSFERRED (OTHER THAN TO ACCREDITED INVESTORS) OR
OTHERWISE DISPOSED OF EXCEPT IN COMPLIANCE WITH THE CONDITIONS SPECIFIED IN THIS
WARRANT.
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
1. Exercise of Warrant......................................... 1
1.1. Manner of Exercise.......................................... 1
1.2. When Exercise Effective..................................... 1
1.3. Delivery of Stock Certificates, etc......................... 2
1.4. Company to Reaffirm Obligations............................. 2
1.5. Payment by Application of Shares Otherwise Issuable......... 2
1.6. Tax Basis................................................... 2
2. No Dilution or Impairment................................... 3
3. Consolidation, Merger, etc.................................. 3
3.1. Adjustments for Consolidation, Merger, Sale of Assets,
Reorganization, etc......................................... 3
4. Accountants' Report as to Adjustments....................... 4
5. Financial and Business Information.......................... 4
5.1. Quarterly Information....................................... 4
5.2. Annual Information.......................................... 5
5.3. Filings..................................................... 5
5.4. Notices of Corporate Action................................. 5
6. Registration of Common Stock................................ 6
7. Restrictions on Transfer.................................... 6
7.1. Restrictive Legends......................................... 6
7.2. Transfer to Comply With the Securities Act.................. 7
7.3. Termination of Restrictions................................. 7
8. Reservation of Stock, etc................................... 8
9. Registration and Transfer of Warrants, etc.................. 8
9.1. Warrant Register; Ownership of Warrants..................... 8
9.2. Transfer of Warrants........................................ 8
9.3. Replacement of Warrants..................................... 9
9.4. Adjustments To Warrant Quantity............................. 9
9.5. Fractional Shares........................................... 9
10. Definitions................................................. 9
11. Remedies; Specific Performance.............................. 12
i
<PAGE>
12. No Rights or Liabilities as Shareholder..................... 12
13. Notices..................................................... 12
14. Amendments.................................................. 12
15. Descriptive Headings, Etc................................... 12
16. GOVERNING LAW............................................... 13
17. Judicial Proceedings; Waiver of Jury........................ 13
18. Counterparts................................................ 13
ii
<PAGE>
POLYPHASE CORPORATION
Common Stock Purchase Warrant
Void After April 24, 2003
No. W-2
April 24, 1998
POLYPHASE CORPORATION (the "Company"), a Nevada corporation, for value
received, hereby certifies that MERRILL LYNCH WORLD INCOME FUND, INC., a
Maryland corporation, or registered assigns (the "Holder"), is entitled to
purchase from the Company one-hundred five thousand (105,000) duly authorized,
validly issued, fully paid and nonassessable shares of common stock, par value
$0.01 per share, of the Company (the "Common Stock") at the purchase price per
share of $.01, at any time or from time to time prior to 5:30 PM, Dallas time,
on April 24, 2003 (the "Expiration Date"), (the aggregate number of shares
entitled to be purchased by the Holder pursuant to this Warrant shall be the
"Warrant Quantity"), all subject to the terms, conditions and adjustments set
forth below in this Warrant.
This Warrant is one of several Warrants (the "Warrant," such term to
include any such warrants issued in substitution therefor) issued in connection
with the Indenture, dated as of July 5, 1994, by and among the Company and IBJ
Schroder Bank & Trust Company (as supplemented on December 5, 1997, the
"Indenture"). The Warrant originally so issued evidences the right to purchase
a number of shares of Common Stock equal to the Warrant Quantity. Certain
capitalized terms used in this Warrant are defined in Section 10; references to
an "Exhibit" are, unless otherwise specified, to one of the Exhibits attached to
this Warrant and references to a "Section" are, unless otherwise specified, to
one of the Sections of this Warrant.
1. Exercise of Warrant.
-------------------
1.1 Manner of Exercise. This Warrant may be exercised by the Holder,
------------------
in whole or part, during normal business hours on any Business Day, by surrender
of this Warrant to the Company at its principal office, accompanied by the Form
of Subscription in substantially the form attached as Exhibit A to this Warrant
(or a reasonable facsimile thereof) duly executed by the Holder and accompanied
by payment, in cash, by certified or official bank check payable to the order of
the Company, or in the manner provided in Section 1.5 (or by any combination of
such methods), in the amount obtained by multiplying (a) the number of shares of
-
Common Stock for up to but not exceeding 105,000 shares designated in such Form
of Subscription by (b) $.01, and such Holder shall thereupon be entitled to
-
receive such number of duly authorized, validly issued, fully paid and
nonassessable shares of Common Stock (or Other Securities).
1.2 When Exercise Effective. Each exercise of this Warrant shall be
-----------------------
deemed to have been effected immediately prior to the close of business on the
Business Day on which this Warrant shall have been surrendered to the Company as
provided in Section 1.1. At such time the
<PAGE>
Person or Persons in whose name or names any certificate or certificates for
shares of Common Stock (or Other Securities) shall be issuable upon such
exercise, as provided in Section 1.3, shall be deemed to have become the Holder
or Holders of record thereof.
1.3 Delivery of Stock Certificates, etc. As soon as practicable
-----------------------------------
after each exercise of this Warrant, and in no event later than 10 days, in
whole or in part, the Company at its expense (including the payment by it of any
applicable transfer taxes) will cause to be issued in the name of and delivered
to the Holder hereof or, subject to Section 7, as such Holder (upon payment by
such Holder of any applicable transfer taxes) may direct,
1.3 a certificate or certificates for the number of duly authorized,
validly issued, fully paid and nonassessable shares, including, if the Company
so elects, fractional shares of Common Stock (or Other Securities) to which
such Holder shall be entitled upon such exercise plus, at the discretion of the
Company, in lieu of any fractional share to which such Holder would otherwise be
entitled, cash in an amount equal to the same fraction of the Current Market
Price per share on the Business Day next preceding the date of such exercise,
and
1.3 in case such exercise is in part only, a new Warrant or Warrants
of like tenor, calling in the aggregate on the face or faces thereof for the
number of shares of Common Stock equal to the number of such shares called for
on the face of this Warrant minus the number of such shares designated by the
Holder upon such exercise as provided in Section 1.1.
1.4 Company to Reaffirm Obligations. The Company will, at the time
-------------------------------
of each exercise of this Warrant, upon the request of the Holder, acknowledge in
writing its continuing obligation to afford to such Holder all rights
(including, without limitation, any rights to registration of the shares of
Common Stock or Other Securities issued upon such exercise) to which such Holder
shall continue to be entitled after such exercise in accordance with the terms
of this Warrant, provided that if the Holder shall fail to make any such
request, such failure shall not affect the continuing obligation of the Company
to afford such rights to such Holder.
1.5 Payment by Application of Shares Otherwise Issuable. Upon any
---------------------------------------------------
exercise of this Warrant, the Holder may, at its option, instruct the Company,
by written notice accompanying the surrender of this Warrant at the time of such
exercise, to apply to the payment required by Section 1.1 such number of the
shares of Common Stock otherwise issuable to such Holder upon such exercise as
shall be specified in such notice, in which case an amount equal to the excess
of the aggregate Current Market Price of such specified number of shares on the
date of exercise over the portion of the payment required by Section 1.1
attributable to such shares shall be deemed to have been paid to the Company and
the number of shares issuable upon such exercise shall be reduced by such
specified number.
1.6 Tax Basis. The Company and the Holder shall mutually agree as to
---------
the tax basis and tax treatment of this Warrant for purposes of the Internal
Revenue Code of 1986, as amended (the "Code"), and the treatment of this Warrant
under the Code by each of the Company and the Holder shall be consistent with
such agreement.
2
<PAGE>
2. No Dilution or Impairment. The Company will not, by amendment of
-------------------------
its articles of incorporation or through any consolidation, merger,
reorganization, transfer of assets, dissolution, issue or sale of securities or
any other voluntary action, avoid or seek to avoid the observance or performance
of any of the terms of this Warrant, but will at all times in good faith assist
in the carrying out of all such terms and in the taking of all such action as
may be necessary or appropriate in order to protect the rights of the Holder
against dilution or other impairment. Without limiting the generality of the
foregoing, the Company (a) shall not permit the par value of any shares of stock
-
receivable upon the exercise of this Warrant to exceed the amount payable
therefor upon such exercise, (b) will take all such action as may be necessary
-
or appropriate in order that the Company may validly and legally issue fully
paid and nonassessable shares of stock, free from all taxes, liens, security
interests, encumbrances, preemptive rights and charges on the exercise of the
Warrants from time to time outstanding, (c) will not take any action which
-
results in any adjustment of the Warrant Quantity if the total number of shares
of Common Stock (or Other Securities) issuable after the action upon the
exercise of all of the Warrants would exceed the total number of shares of
Common Stock (or Other Securities) then authorized by the Company's articles of
incorporation and available and reserved for the purpose of issue upon such
exercise, and (d) will not issue any capital stock of any class which is
-
preferred as to dividends or as to the distribution of assets upon voluntary or
involuntary dissolution, liquidation or winding-up, unless the rights of the
holders thereof shall be limited to a fixed sum or percentage of par value or a
sum determined by reference to a formula based on a published index of interest
rates, an interest rate publicly announced by a financial institution or a
similar indicator of interest rates in respect of participation in dividends and
to a fixed sum or percentage of par value in any such distribution of assets.
3. Consolidation, Merger, etc.
--------------------------
3.1 Adjustments for Consolidation, Merger, Sale of Assets,
------------------------------------------------------
Reorganization, etc. In case the Company after the date hereof (a) shall
- -------------------
consolidate with or merge into any other Person and shall not be the continuing
or surviving corporation of such consolidation or merger, or (b) shall permit
any other Person to consolidate with or merge into the Company and the Company
shall be the continuing or surviving Person but, in connection with such
consolidation or merger, the Common Stock or Other Securities shall be changed
into or exchanged for stock or other securities of any other Person or cash or
any other property, or (c) shall transfer all or substantially all of its
properties or assets to any other Person, or (d) shall effect a capital
reorganization or reclassification resulting in the issue of Additional Shares
of Common Stock, then, and in the case of each such transaction, proper
provision shall be made so that, upon the basis and the terms and in the manner
provided in this Warrant, the Holder, upon the exercise hereof at any time after
the consummation of such transaction, shall be entitled to receive (at the
aggregate purchase price in effect at the time of such consummation for all
Common Stock or Other Securities issuable upon such exercise immediately prior
to such consummation), in lieu of the Common Stock or Other Securities issuable
upon such exercise prior to such consummation, the highest amount of securities,
cash or other property to which such Holder would actually have been entitled as
a shareholder upon such consummation if such Holder had exercised the rights
represented by this Warrant immediately prior thereto, provided that if a
--------
purchase, tender or exchange offer shall have been made to and accepted by the
holders of more than 50% of the outstanding shares of Common Stock, and if the
Holder so designates in a notice given to the Company on or before the date
immediately preceding the date of the consummation of such transaction, the
Holder shall be entitled to receive the highest amount
3
<PAGE>
of securities, cash or other property to which such Holder would actually have
been entitled as a shareholder if the Holder had exercised this Warrant prior to
the expiration of such purchase, tender or exchange offer and accepted such
offer.
4. Accountants' Report as to Adjustments. In each case of any
-------------------------------------
adjustment or readjustment in the shares of Common Stock (or Other Securities)
issuable upon the exercise of this Warrant, the Company at its expense will
promptly compute such adjustment or readjustment in accordance with the terms of
this Warrant and cause independent certified public accountants of recognized
national standing (which may be the regular auditors of the Company) selected by
the Company to verify such computation (other than any computation of the fair
value of property as determined in good faith by the Board of Directors of the
Company (if Holder objects to such determination, Holder may seek and receive,
at the Company's expense, third party appraisal, which shall be the exclusive
and binding determination to be used)) and prepare a report setting forth such
adjustment or readjustment and showing in reasonable detail the method of
calculation thereof and the facts upon which such adjustment or readjustment is
based, including a statement of (a) the consideration received or to be received
by the Company for any Additional Shares of Common Stock issued or sold or
deemed to have been issued, (b) the number of shares of Common Stock outstanding
or deemed to be outstanding, and (c) the Warrant Quantity in effect immediately
prior to such issue or sale and as adjusted and readjusted on account thereof.
The Company will forthwith mail a copy of each such report to each Holder of a
Warrant and will, upon the written request at any time of any Holder of a
Warrant, furnish to such Holder a like report setting forth the Warrant Quantity
at the time in effect and showing in reasonable detail how it was calculated.
The Company will also keep copies of all such reports at its principal office
and will cause the same to be available for inspection at such office during
normal business hours by any Holder of a Warrant or any prospective purchaser of
a Warrant designated by the Holder thereof.
5. Financial and Business Information.
----------------------------------
5.1 Quarterly Information. If during any period the Company (i) is
---------------------
not subject to the reporting requirements of Section 15(d) of the Exchange Act
and (ii) does not have securities registered under Section 12(b) or 12 (g) of
the Exchange Act, the Company will deliver to the Holder, as soon as practicable
after the end of each quarterly fiscal period in each fiscal year of the
Company, and in any event within 60 days thereafter, a copy of the unaudited
consolidated balance sheet as at the close of such quarter, and the related
unaudited consolidated statements of income, shareholders' equity and cash flow
of the Company and its subsidiaries for that portion of the fiscal year ending
as of the close of such quarter. Such financial statements shall be prepared by
the Company in accordance with generally accepted accounting principles, applied
on a consistent basis ("GAAP") (subject to normal year end adjustments and the
inclusion of footnotes) and accompanied by the certification of the Company's
chief executive officer or chief financial officer that, to the best of his
knowledge, such financial statements are complete and correct in all material
respects and fairly present in accordance with GAAP (subject to normal year end
adjustments and the inclusions of footnotes) the consolidated financial
position, the consolidated statements of income, shareholder equity and cash
flow of the Company and its subsidiaries as at the end of such quarter and for
such year-to-date period, as the case may be. If during any period the Company
either (i) is subject to the reporting requirements of Section 15(g) of the
Exchange Act or (ii) has securities registered under
4
<PAGE>
Section 12(b) or 12(g) of the Exchange Act, the Company shall be considered a
"Public Company" and need not provide the information required by this Section
5.1.
5.2 Annual Information. If during any period the Company is not a
------------------
Public Company, the Company will deliver to the Holder as soon as practicable
after the end of each fiscal year of the Company, and in any event within 120
days thereafter, one copy of:
(i) an audited consolidated balance sheet of the Company
and its subsidiaries as at the end of such year, and
(ii) audited consolidated statements of income,
shareholders' equity and cash flow of the Company and its subsidiaries
for such year;
setting forth in each case in comparative form the figures for the corresponding
periods in the previous fiscal year, all prepared in accordance with GAAP, and
which audited financial statements shall be accompanied by (i) a certification
of the chief executive officer or chief financial officer of the Company that,
to the best of his knowledge, all such financial statements are complete and
correct in all material respects and present fairly in accordance with GAAP the
consolidated financial position of the Company and its subsidiaries as at the
end of such fiscal year and for the period then ended, (ii) an opinion thereon
of the independent certified public accountants regularly retained by the
Company, or any other firm of independent certified public accountants of
recognized national standing selected by the Company, and (iii) a report of such
independent certified public accountants confirming any adjustments.
5.3 Filings. During any period when the Company is a Public Company,
-------
the Company will file on or before the required date all required regular or
periodic reports (pursuant to the Exchange Act) with the Commission and will
deliver to the Holder promptly upon their becoming available one copy of each
report, notice or proxy statement sent by the Company to its stockholders
generally, and of each regular or periodic report (pursuant to the Exchange Act)
and any registration statement, prospectus or written communication (other than
transmittal letters) (pursuant to the Securities Act), filed by the Company with
(i) the Commission or (ii) any securities exchange on which shares of Common
Stock (or Other Securities) are listed.
5.4 Notices of Corporate Action. In the event of
---------------------------
(a) any taking by the Company of a record of the holders of any
class of securities for the purpose of determining the holders thereof who
are entitled to receive any dividend (other than a regular periodic
dividend payable in cash out of earned surplus in an amount not exceeding
the amount of the immediately preceding cash dividend for such period) or
other distribution, or any right to subscribe for, purchase or otherwise
acquire any shares of stock of any class or any other securities or
property, or to receive any other right, or
(b) any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company or
any consolidation or merger involving the Company and any other Person, any
transaction or series of transactions in which more
5
<PAGE>
than 50% of the Voting Securities of the Company are transferred to another
Person or any transfer, sale or other disposition of all or substantially
all the assets of the Company to any other Person, or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company,
the Company will mail to the Holder a notice specifying (i) the date or expected
date on which any such record is to be taken for the purpose of such dividend,
distribution or right, and the amount and character of such dividend,
distribution or right, and (ii) the date or expected date on which any such
reorganization, reclassification, recapitalization, consolidation, merger,
transfer, dissolution, liquidation or winding-up is to take place and the time,
if any such time is to be fixed, as of which the holders of record of Common
Stock (or Other Securities) shall be entitled to exchange their shares of Common
Stock (or Other Securities) for the securities or other property deliverable
upon such reorganization, reclassification, recapitalization, consolidation,
merger, transfer, dissolution, sale, disposition, liquidation or winding-up.
Such notice shall be mailed at least 45 days prior to the date therein
specified.
6. Registration of Common Stock. The Company will use its best
----------------------------
efforts to register the shares of Common Stock (or Other Securities) issuable
upon exercise of this Warrant so that the Person exercising this Warrant
receives registered securities. In accordance with this Section 6, the Company
has entered into a Registration Rights Agreement, dated April 24, 1998, with
each of the Holders. Such Registration Rights Agreement provides for demand and
piggyback registration rights with respect to all such securities. If any
shares of Common Stock (or Other Securities) issuable upon exercise of this
Warrant require registration with or approval of any governmental authority
under any federal or state law (other than securities laws), the Company will,
at its expense and as expeditiously as possible, use its best efforts to cause
any shares of Common Stock (or Other Securities) to be duly registered or
approved, as the case may be. Immediately upon the exercise of this Warrant, or
any portion thereof, the Company will, at its expense, obtain promptly and
maintain the approval for listing on each such exchange, upon official notice of
issuance, the shares of Common Stock (or Other Securities) issuable upon
exercise of the then outstanding Warrants and maintain the listing of such
shares after their issuance.
7. Restrictions on Transfer.
------------------------
7.1 Restrictive Legends. Except as otherwise permitted by this
-------------------
Section 7, each Warrant (including each Warrant issued upon the transfer of any
Warrant) shall be stamped or otherwise imprinted with a legend in substantially
the following form:
"THIS WARRANT AND ANY SECURITIES ACQUIRED UPON EXERCISE OF THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR THE SECURITIES LAW OF ANY STATE AND MAY NOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF (OTHER THAN TO ACCREDITED INVESTORS)
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND
APPLICABLE STATE SECURITIES LAWS OR PURSUANT
6
<PAGE>
TO AN APPLICABLE EXEMPTION TO THE REGISTRATION REQUIREMENTS OF SUCH ACT AND
SUCH LAWS. THIS WARRANT AND SUCH SECURITIES MAY NOT BE SOLD, TRANSFERRED OR
OTHERWISE DISPOSED OF EXCEPT IN COMPLIANCE WITH THE CONDITIONS SPECIFIED IN
THIS WARRANT.
Except as otherwise permitted by this Section 7, each certificate for Common
Stock (or Other Securities) issued upon the exercise of any Warrant, and each
certificate issued upon the transfer of any such Common Stock (or Other
Securities), shall be stamped or otherwise imprinted with a legend in
substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES
LAW OF ANY STATE, AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF
(OTHER THAN TO ACCREDITED INVESTORS) EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS
OR PURSUANT TO AN APPLICABLE EXEMPTION TO THE REGISTRATION REQUIREMENTS OF
SUCH ACT AND SUCH LAWS. SUCH SECURITIES MAY NOT BE SOLD, TRANSFERRED OR
OTHERWISE DISPOSED OF EXCEPT IN COMPLIANCE WITH THE CONDITIONS SPECIFIED IN
CERTAIN COMMON STOCK PURCHASE WARRANTS ISSUED BY POLYPHASE CORPORATION,
PURSUANT TO THE COMMON STOCK PURCHASE WARRANT, DATED APRIL 24, 1998. A
COMPLETE AND CORRECT COPY OF THE FORM OF SUCH WARRANT IS AVAILABLE FOR
INSPECTION AT THE PRINCIPAL OFFICE OF POLYPHASE CORPORATION, OR AT THE
OFFICE OR AGENCY MAINTAINED BY POLYPHASE CORPORATION, AS PROVIDED IN SUCH
WARRANTS AND WILL BE FURNISHED TO THE HOLDER OF SUCH SECURITIES UPON
WRITTEN REQUEST AND WITHOUT CHARGE."
7.2 Transfer to Comply With the Securities Act. Restricted
------------------------------------------
Securities may not be sold, assigned, pledged, hypothecated, encumbered or in
any manner transferred or disposed of, in whole or in part (other than to
accredited investors), except in compliance with the provisions of the
Securities Act and state securities or Blue Sky laws and the terms and
conditions hereof.
7.3 Termination of Restrictions. The restrictions imposed by this
---------------------------
Section 7 on the transferability of Restricted Securities shall cease and
terminate as to any particular Restricted Securities (a) when a registration
statement with respect to the sale of such securities shall have been declared
effective under the Securities Act and such securities shall have been disposed
of in accordance with such registration statement, (b) when such securities are
sold pursuant to Rule 144 (or any similar provision then in force) under the
Securities Act, or (c) when, in the opinion of both counsel for the Holder and
counsel for the Company, such restrictions are not longer required or necessary
in order to protect the Company against a violation of the Securities Act upon
any sale or other disposition of such securities without registration
thereunder. Whenever such restrictions shall cease and terminate as to any
Restricted Securities, the Holder shall be entitled to receive from the
7
<PAGE>
Company, without expense, new securities of like tenor not bearing the
applicable legends required by Section 6.1.
8. Reservation of Stock, etc. The Company shall at all times
-------------------------
reserve and keep available, solely for issuance and delivery upon exercise of
the Warrants, the number of shares of Common Stock (or Other Securities) from
time to time issuable upon exercise of all Warrants at the time outstanding.
All shares of Common Stock (or Other Securities) issuable upon exercise of any
Warrants shall be duly authorized and, when issued upon such exercise, shall be
validly issued and, in the case of shares, fully paid and nonassessable with no
liability on the part of the holders thereof, and, in the case of all
securities, shall be free from all taxes, liens, security interests,
encumbrances, preemptive rights and charges. The transfer agent for the Common
Stock, which may be the Company ("Transfer Agent"), and every subsequent
Transfer Agent for any shares of the Company's capital stock issuable upon the
exercise of any of the purchase rights represented by this Warrant, are hereby
irrevocably authorized and directed at all times until the Expiration Date to
reserve such number of authorized and unissued shares as shall be requisite for
such purpose. The Company shall keep copies of this Warrant on file with the
Transfer Agent for the Common Stock and with every subsequent Transfer Agent for
any shares of the Company's capital stock issuable upon the exercise of the
rights of purchase represented by this Warrant. The Company shall supply such
Transfer Agent with duly executed stock certificates for such purpose. All
Warrant certificates surrendered upon the exercise of the rights thereby
evidenced shall be canceled, and such canceled Warrants shall constitute
sufficient evidence of the number of shares of stock which have been issued upon
the exercise of such Warrants. Subsequent to the Expiration Date, no shares of
stock need be reserved in respect of any unexercised Warrant.
9. Registration and Transfer of Warrants, etc.
------------------------------------------
9.1 Warrant Register; Ownership of Warrants. Each Warrant issued by
---------------------------------------
the Company shall be numbered and shall be registered in a warrant register (the
"Warrant Register") as it is issued and transferred, which Warrant Register
shall be maintained by the Company at its principal office or, at the Company's
election and expense, by a Warrant Agent or the Company's transfer agent. The
Company shall be entitled to treat the registered Holder of any Warrant on the
Warrant Register as the owner in fact thereof for all purposes and shall not be
bound to recognize any equitable or other claim to or interest in such Warrant
on the part of any other Person, and shall not be affected by any notice to the
contrary, except that, if and when any Warrant is properly assigned in blank,
the Company may (but shall not be obligated to) treat the bearer thereof as the
owner of such Warrant for all purposes. Subject to Section 9, a Warrant, if
properly assigned, may be exercised by a new holder without a new Warrant first
having been issued.
9.2 Transfer of Warrants. Subject to compliance with Section 7, if
--------------------
applicable, this Warrant and all rights hereunder are transferable in whole or
in part, without charge to the Holder hereof, upon surrender of this Warrant
with a properly executed Form of Assignment attached hereto as Exhibit B at the
principal office of the Company. Upon any partial transfer, the Company shall
at its expense issue and deliver to the Holder a new Warrant of like tenor, in
the name of the Holder, which shall be exercisable for such number of shares of
Common Stock with respect to which rights under this Warrant were not so
transferred.
8
<PAGE>
9.3 Replacement of Warrants. On receipt by the Company of evidence
-----------------------
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of this Warrant and, in the case of any such loss, theft or
destruction of this Warrant, on delivery of an indemnity agreement reasonably
satisfactory in form and amount to the Company or, in the case of any such
mutilation, on surrender of such Warrant to the Company at its principal office
and cancellation thereof, the Company at its expense shall execute and deliver,
in lieu thereof, a new Warrant of like tenor.
9.4 Adjustments To Warrant Quantity. Notwithstanding any adjustment
-------------------------------
in the Warrant Quantity or in the number or kind of shares of Common Stock (or
Other Securities) purchasable upon exercise of this Warrant, any Warrant
theretofore or thereafter issued may continue to express the same number and
kind of shares of Common Stock as are stated in this Warrant, as initially
issued.
9.5 Fractional Shares. Notwithstanding any adjustment pursuant to
-----------------
Section 3 in the number of shares of Common Stock covered by this Warrant or any
other provision of this Warrant, the Company may, but shall not be required to,
issue fractions of shares upon exercise of this Warrant or to distribute
certificates which evidence fractional shares. In lieu of fractional shares,
the Company shall may payment to the Holder, at the time of exercise of this
Warrant as herein provided, in an amount in cash equal to such fraction
multiplied by the Current Market Price of a share of Common Stock on the date of
Warrant exercise.
10. Definitions. As used herein, unless the context otherwise
-----------
requires, the following terms have the following respective meanings:
Additional Shares of Common Stock: All shares (including treasury
---------------------------------
shares) of Common Stock issued or sold by the Company after the date hereof,
whether or not subsequently reacquired or retired by the Company, other than
(a) shares issued upon the exercise of the Warrant,
(b) such additional number of shares as may become issuable upon
the exercise of the Warrant by reason of adjustments required pursuant to
anti-dilution provisions applicable to the Warrant as in effect on the date
hereof,
(c) shares, warrants, options and other securities issued at any
time to the Holder or any Affiliate thereof.
Affiliate: Any Person that directly or indirectly, through one or
---------
more intermediaries, controls, is controlled by, or is under common control
with, the applicable Person. For purposes of this definition "control" has the
meaning specified in Rule 12b-2 under the Exchange Act.
Business Day: Any day other than a Saturday or Sunday or a day on
------------
which commercial banking institutions in the City of New York are authorized by
law to be closed. Any reference to "days" (unless Business Days are specified)
shall mean calendar days.
Code: As defined in Section 1.6.
----
9
<PAGE>
Commission: The Securities and Exchange Commission or any other
----------
federal agency at the time administering the Securities Act.
Common Stock: As defined in the introduction to this Warrant, such
------------
term to include any stock into which such Common Stock shall have been changed
or any stock resulting from any reclassification of such Common Stock, and all
other stock of any class or classes (however designated) of the Company the
holders of which have the right, without limitation as to amount, either to all
or to a share of the balance of current dividends and liquidating dividends
after the payment of dividends and distributions on any shares entitled to a
preference.
Company: As defined in the introduction to this Warrant, such term to
-------
include any Person which shall succeed to or assume the obligations of the
Company hereunder in compliance with Section 3.
Convertible Securities: Any evidence of indebtedness, shares of stock
----------------------
(other than Common Stock) or other securities directly or indirectly convertible
into or exchangeable for Additional Shares of Common Stock.
Current Market Price: On any date specified herein, the average daily
--------------------
Market Price during the period of the most recent 20 days, ending on such date,
on which the national securities exchanges were open for trading, except that if
no Common Stock is then listed or admitted to trading on any national securities
exchange or quoted in the over-the-counter market, the Current Market Price
shall be the Market Price on such date.
Exchange Act: The Securities Exchange Act of 1934, or any similar
------------
federal statute, and the rules and regulations of the Commission thereunder, all
as the same shall be in effect at the time.
Expiration Date: As defined in the introduction to this Warrant.
---------------
Holder: As defined in the introduction to this Warrant.
------
Indenture: As defined in the introduction to the Warrant.
---------
Market Price: On any date specified herein, the amount per share of
------------
the Common Stock equal to (a) the last reported sale price of such Common Stock,
regular way, on such date or, in case no such sale takes place on such date, the
average of the closing bid and asked prices thereof, regular way, on such date,
in either case as officially reported on the principal national securities
exchange on which such Common Stock is then listed or admitted for trading, or
(b) if such Common Stock is not then listed or admitted for trading on any
national securities exchange but is designated as a national market system
security by the NASD, the last reported trading price of the Common Stock on
such date, or (c) if there shall have been no trading on such date or if the
Common Stock is not so designated, the average of the closing bid and asked
prices of the Common Stock on such date as shown by the NASD automated quotation
system, or (d) if neither a, b nor c is applicable, the higher of (x) the book
value thereof as determined by any firm of independent public accountants of
recognized standing selected by the Board of Directors of the Company as of
10
<PAGE>
the last day of any month ending within 60 days preceding the date as of which
the determination is to be made and (y) the fair value thereof (as of the date
which is within 20 days of the date as of which the determination is to be made)
determined in good faith by the Board of Directors of the Company (if Holder
objects to such determination, Holder may seek and receive, at the Company's
expense, third party appraisal, which shall be the exclusive and binding
determination to be used).
NASD: The National Association of Securities Dealers, Inc.
----
Options: Rights, options or warrants to subscribe for, purchase or
-------
otherwise acquire either Additional Shares of Common Stock or Convertible
Securities.
Other Securities. Any stock (other than Common Stock) and other
----------------
securities of the Company or any other Person (corporate or otherwise) which the
holders of the Warrants at any time shall be entitled to receive, or shall have
received, upon the exercise of the Warrants, in lieu of or in addition to Common
Stock, or which at any time shall be issuable or shall have been issued in
exchange for or in replacement of Common Stock or Other Securities pursuant to
Section 3 or otherwise.
Person: An individual, firm, partnership, corporation, professional
------
corporation, trust, joint venture, association, joint stock company, limited
liability company, unincorporated organization or any other entity or
organization, including a government or agency or political subdivision thereof,
and shall include any successor (by merger or otherwise) of such entity.
Restricted Securities: (a) any Warrants bearing the applicable legend
---------------------
set forth in Section 7.1, (b) any shares of Common Stock (or Other Securities)
issued or issuable upon the exercise of Warrants but only so long as they are
required to be evidenced by a certificate or certificates bearing the applicable
legend set forth in such Section, and (c) any shares of Common Stock (or Other
Securities) issued subsequent to the exercise of any of the Warrants as a
dividend or other distribution with respect to, or resulting from a subdivision
of the outstanding shares of Common Stock (or other Securities) into a greater
number of shares by reclassification, stock splits or otherwise, or in exchange
for or in replacement of the Common Stock (or Other Securities) issued upon such
exercise, but only so long as they are required to be evidenced by a certificate
or certificates bearing the applicable legend set forth in such Section.
Securities Act: The Securities Act of 1933, or any similar federal
--------------
statute, and the rules and regulations of the Commission thereunder, all as the
same shall be in effect at the time.
Voting Securities: Stock of any class or classes (or equivalent
-----------------
interests), if the holders of the stock of such class or classes (or equivalent
interests) are ordinarily, in the absence of contingencies, entitled to vote for
the election of the directors (or persons performing similar functions) of the
issuer, even though the right so to vote has been suspended by the happening of
such a contingency.
Warrant: As defined in the introduction to this Warrant.
-------
Warrant Quantity: As defined in the introduction to this Warrant.
----------------
11
<PAGE>
11. Remedies; Specific Performance. The Company stipulates that
------------------------------
there would be no adequate remedy at law to the Holder of this Warrant in the
event of any default or threatened default by the Company in the performance of
or compliance with any of the terms of this Warrant and accordingly, the Company
agrees that, in addition to any other remedy to which the Holder may be entitled
at law or in equity, the Holder shall be entitled to seek to compel specific
performance of the obligations of the Company under this Warrant, without the
posting of any bond, in accordance with the terms and conditions of this Warrant
in any court of the United States or any State thereof having jurisdiction, and
if any action should be brought in equity to enforce any of the provisions of
this Warrant, the Company shall not raise the defense that there is an adequate
remedy at law. Except as otherwise provided by law, a delay or omission by the
Holder hereto in exercising any right or remedy accruing upon any such breach
shall not impair the right or remedy or constitute a waiver of or acquiescence
in any such breach. No remedy shall be exclusive of any other remedy. All
available remedies shall be cumulative.
12. No Rights or Liabilities as Shareholder. Nothing contained in
---------------------------------------
this Warrant shall be construed as conferring upon the Holder hereof any rights
as a shareholder of the Company or as imposing any obligation on the Holder to
purchase any securities or as imposing any liabilities on the Holder as a
shareholder of the Company, whether such obligation or liabilities are asserted
by the Company or by creditors of the Company.
13. Notices. All notices and other communications (and deliveries)
-------
provided for or permitted hereunder shall be made in writing by hand delivery,
telecopier, any courier guaranteeing overnight delivery or first class
registered or certified mail, return receipt requested, postage prepaid,
addressed (a) if to the Company, to the attention of its Chief Financial Officer
at its principal office located at 4800 Broadway, Suite A, Dallas, Texas 75248
or such other address as may hereafter be designated in writing by the Company
to the Holder in accordance with the provisions of this Section, or (b) if to
the Holder, at its address as it appears in the Warrant Register.
All such notices and communications (and deliveries) shall be deemed
to have been duly given: at the time delivered by hand, if personally
delivered; when receipt is acknowledged or confirmed (by automatic confirmation
or otherwise), if telecopied; on the next Business Day, if timely delivered to a
courier guaranteeing overnight delivery; and five days after being deposited in
the mail, if sent first class or certified mail, return receipt requested,
postage prepaid; provided, that the exercise of any Warrant shall be effective
--------
in the manner provided in Section 1.
14. Amendments. This Warrant and any term hereof may not be amended,
----------
modified, supplemented or terminated, and waivers or consents to departures from
the provisions hereof may not be given, except by written instrument duly
executed by the party against which enforcement of such amendment, modification,
supplement, termination or consent to departure is sought.
15. Descriptive Headings, Etc. The headings in this Warrant are for
-------------------------
convenience of reference only and shall not limit or otherwise affect the
meaning of terms contained herein. Unless the context of this Warrant otherwise
requires: (1) words of any gender shall be deemed to include each other gender;
(2) words using the singular or plural number shall also include the plural or
singular number, respectively; (3) the words "hereof," "herein" and "hereunder"
and words of
12
<PAGE>
similar import when used in this Warrant shall refer to this Warrant as a whole
and not to any particular provision of this Warrant, and Section and paragraph
references are to the Sections and paragraphs of this Warrant unless otherwise
specified; (4) the word "including" and words of similar import when used in
this Warrant shall mean "including, without limitation," unless otherwise
specified; (5) "or" is not exclusive; and (6) provisions apply to successive
events and transactions.
16. GOVERNING LAW. This Warrant shall be governed by, and construed
-------------
in accordance with, the laws of the State of Texas (without giving effect to the
conflict of laws principles thereof).
17. Judicial Proceedings; Waiver of Jury. Any legal action, suit or
------------------------------------
proceeding brought against the Company with respect to this Warrant may be
brought in any federal court of Texas or any state court located in Dallas
County, State of Texas, and by execution and delivery of this Warrant, the
Company hereby irrevocably and unconditionally waives any claim (by way of
motion, as a defense or otherwise) of improper venue, that it is not subject
personally to the jurisdiction of such court, that such courts are an
inconvenient forum or that this Warrant or the subject matter may not be
enforced in or by such court. The Company irrevocably submits to the exclusive
jurisdiction of the aforementioned courts in such action, suit or proceeding.
The Company hereby irrevocably and unconditionally consents to the service of
process of any of the aforementioned courts in any such action, suit or
proceeding by the mailing of copies thereof by registered or certified mail,
postage prepaid, at its address set forth or provided for in Section 15 (with
copies of such process also being sent to the Company's counsel referred to in
such section), such service to become effective 10 days after such mailing.
Nothing herein contained shall be deemed to affect the right of any party to
serve process in any manner permitted by law or commence legal proceedings or
otherwise proceed against any other party in any other jurisdiction to enforce
judgments obtained in any action, suit or proceeding brought pursuant to this
Section. THE COMPANY HEREBY IRREVOCABLY WAIVES TRIAL BY JURY IN ANY ACTION,
SUIT OR PROCEEDING, WHETHER AT LAW OR EQUITY, BROUGHT BY IT OR THE HOLDER IN
CONNECTION WITH THIS WARRANT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
18. Counterparts. This Warrant may be executed in any number of
------------
counterparts, each of which shall be deemed an original, but all such
counterparts shall together constitute one and the same instrument.
13
<PAGE>
POLYPHASE CORPORATION
By:
--------------------------------------
Name:
-------------------------------
Title:
------------------------------
MERRILL LYNCH WORLD INCOME FUND, INC.
By:
--------------------------------
Name:
-------------------------
Title:
------------------------
14
<PAGE>
Exhibit A
---------
FORM OF SUBSCRIPTION
--------------------
[To be executed only upon exercise of Warrant]
To: POLYPHASE CORPORATION
The undersigned registered holder of the within Warrant hereby irrevocably
exercises such Warrant for, and purchases thereunder, _____ /*/ shares of Common
stock of POLYPHASE CORPORATION and herewith makes payment of $___________
therefor, and requests that the certificates for such shares be issued in the
name of, and delivered to ___________________________ whose address is
__________________________________________________.
Dated: _______________________________________
(Signature must conform in all respects
to the name of holder as specified on
the face of Warrant)
_______________________________________
(Street Address)
_______________________________________
(City) (State) (Zip Code)
_______________________
/*/ Insert here the number of shares called for on the face of this
Warrant (or in the case of a partial exercise, the portion thereof as to which
this Warrant is being exercised), in either case without making any adjustment
for Additional Shares of Common Stock or any other stock or other securities or
property or cash which, pursuant to the adjustment provisions of this Warrant,
may be delivered upon exercise. In the case of partial exercise, a new Warrant
or Warrants will be issued and delivered, representing the unexercised portion
of the Warrant, to the holder surrendering the Warrant.
15
<PAGE>
Exhibit B
---------
FORM OF ASSIGNMENT
------------------
[To be executed only upon assignment of Warrant]
For value received, the undersigned registered holder of the within Warrant
hereby sells, assigns and transfers unto ______________________ the right
represented by such Warrant to purchase _____/**/ shares of Common Stock of
POLYPHASE CORPORATION to which such Warrant relates, and appoints
________________ Attorney to make such transfer on the books of POLYPHASE
CORPORATION maintained for such purpose, with full power of substitution in the
premises.
Dated: _______________________________________
(Signature must conform in all respects
to the name of holder as specified on
the face of Warrant)
_______________________________________
(Street Address)
_______________________________________
(City) (State) (Zip Code)
Signed in the presence of:
__________________________________
_________________________
/**/ Insert here the number of shares called for on the face of this Warrant
(or in the case of a partial exercise, the portion thereof as to which this
Warrant is being exercised), in either case without making any adjustment for
Additional Shares of Common Stock or any other stock or other securities or
property or cash which, pursuant to the adjustment provisions of this Warrant,
may be delivered upon exercise. In the case of partial exercise, a new Warrant
or Warrants will be issued and delivered, representing the unexercised portion
of the Warrant, to the holder surrendering the Warrant.
16
<PAGE>
EXHIBIT 10.82
[Penny Warrant]
- --------------------------------------------------------------------------------
Polyphase Corporation
Common Stock Purchase Warrant
Dated as of April 24, 1998
- --------------------------------------------------------------------------------
THIS WARRANT AND ANY SECURITIES ACQUIRED UPON EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES
LAW OF ANY STATE AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND
APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION TO THE
REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS. THIS WARRANT AND SUCH
SECURITIES MAY NOT BE SOLD, TRANSFERRED (OTHER THAN TO ACCREDITED INVESTORS) OR
OTHERWISE DISPOSED OF EXCEPT IN COMPLIANCE WITH THE CONDITIONS SPECIFIED IN THIS
WARRANT.
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
1. Exercise of Warrant.................................... 1
1.1. Manner of Exercise..................................... 1
1.2. When Exercise Effective................................ 1
1.3. Delivery of Stock Certificates, etc.................... 2
1.4. Company to Reaffirm Obligations........................ 2
1.5. Payment by Application of Shares Otherwise Issuable.... 2
1.6. Tax Basis.............................................. 2
2. No Dilution or Impairment.............................. 3
3. Consolidation, Merger, etc............................. 3
3.1. Adjustments for Consolidation, Merger, Sale of Assets,
Reorganization, etc.................................... 3
4. Accountants' Report as to Adjustments.................. 4
5. Financial and Business Information..................... 4
5.1. Quarterly Information.................................. 4
5.2. Annual Information..................................... 5
5.3. Filings................................................ 5
5.4. Notices of Corporate Action............................ 5
6. Registration of Common Stock........................... 6
7. Restrictions on Transfer............................... 6
7.1. Restrictive Legends.................................... 6
7.2. Transfer to Comply With the Securities Act............. 7
7.3. Termination of Restrictions............................ 7
8. Reservation of Stock, etc.............................. 8
9. Registration and Transfer of Warrants, etc............. 8
9.1. Warrant Register; Ownership of Warrants................ 8
9.2. Transfer of Warrants................................... 8
9.3. Replacement of Warrants................................ 9
9.4. Adjustments To Warrant Quantity........................ 9
9.5. Fractional Shares...................................... 9
10. Definitions............................................ 9
11. Remedies; Specific Performance.........................12
i
<PAGE>
12. No Rights or Liabilities as Shareholder.................12
13. Notices.................................................12
14. Amendments..............................................12
15. Descriptive Headings, Etc...............................12
16. GOVERNING LAW...........................................13
17. Judicial Proceedings; Waiver of Jury....................13
18. Counterparts............................................13
ii
<PAGE>
POLYPHASE CORPORATION
Common Stock Purchase Warrant
Void After April 24, 2003
No. W-1
April 24, 1998
POLYPHASE CORPORATION (the "Company"), a Nevada corporation, for value
received, hereby certifies that MERRILL LYNCH CONVERTIBLE FUND, INC., a Maryland
corporation, or registered assigns (the "Holder"), is entitled to purchase from
the Company one-hundred five thousand (105,000) duly authorized, validly issued,
fully paid and nonassessable shares of common stock, par value $0.01 per share,
of the Company (the "Common Stock") at the purchase price per share of $.01, at
any time or from time to time prior to 5:30 PM, Dallas time, on April 24, 2003
(the "Expiration Date"), (the aggregate number of shares entitled to be
purchased by the Holder pursuant to this Warrant shall be the "Warrant
Quantity"), all subject to the terms, conditions and adjustments set forth below
in this Warrant.
This Warrant is one of several Warrants (the "Warrant," such term to
include any such warrants issued in substitution therefor) issued in connection
with the Indenture, dated as of July 5, 1994, by and among the Company and IBJ
Schroder Bank & Trust Company (as supplemented on December 5, 1997, the
"Indenture"). The Warrant originally so issued evidences the right to purchase
a number of shares of Common Stock equal to the Warrant Quantity. Certain
capitalized terms used in this Warrant are defined in Section 10; references to
an "Exhibit" are, unless otherwise specified, to one of the Exhibits attached to
this Warrant and references to a "Section" are, unless otherwise specified, to
one of the Sections of this Warrant.
1. Exercise of Warrant.
-------------------
1.1 Manner of Exercise. This Warrant may be exercised by the Holder,
------------------
in whole or part, during normal business hours on any Business Day, by surrender
of this Warrant to the Company at its principal office, accompanied by the Form
of Subscription in substantially the form attached as Exhibit A to this Warrant
(or a reasonable facsimile thereof) duly executed by the Holder and accompanied
by payment, in cash, by certified or official bank check payable to the order of
the Company, or in the manner provided in Section 1.5 (or by any combination of
such methods), in the amount obtained by multiplying (a) the number of shares of
Common Stock for up to but not exceeding 105,000 shares designated in such Form
of Subscription by (b) $.01, and such Holder shall thereupon be entitled to
receive such number of duly authorized, validly issued, fully paid and
nonassessable shares of Common Stock (or Other Securities).
1.2 When Exercise Effective. Each exercise of this Warrant shall be
-----------------------
deemed to have been effected immediately prior to the close of business on the
Business Day on which this Warrant shall have been surrendered to the Company as
provided in Section 1.1. At such time the
<PAGE>
Person or Persons in whose name or names any certificate or certificates for
shares of Common Stock (or Other Securities) shall be issuable upon such
exercise, as provided in Section 1.3, shall be deemed to have become the Holder
or Holders of record thereof.
1.3 Delivery of Stock Certificates, etc. As soon as practicable
-----------------------------------
after each exercise of this Warrant, and in no event later than 10 days, in
whole or in part, the Company at its expense (including the payment by it of any
applicable transfer taxes) will cause to be issued in the name of and delivered
to the Holder hereof or, subject to Section 7, as such Holder (upon payment by
such Holder of any applicable transfer taxes) may direct,
1.3.1 a certificate or certificates for the number of duly authorized,
validly issued, fully paid and nonassessable shares, including, if the Company
so elects, fractional shares of Common Stock (or Other Securities) to which
such Holder shall be entitled upon such exercise plus, at the discretion of the
Company, in lieu of any fractional share to which such Holder would otherwise be
entitled, cash in an amount equal to the same fraction of the Current Market
Price per share on the Business Day next preceding the date of such exercise,
and
1.3.2 in case such exercise is in part only, a new Warrant or Warrants
of like tenor, calling in the aggregate on the face or faces thereof for the
number of shares of Common Stock equal to the number of such shares called for
on the face of this Warrant minus the number of such shares designated by the
Holder upon such exercise as provided in Section 1.1.
1.4 Company to Reaffirm Obligations. The Company will, at the time
-------------------------------
of each exercise of this Warrant, upon the request of the Holder, acknowledge in
writing its continuing obligation to afford to such Holder all rights
(including, without limitation, any rights to registration of the shares of
Common Stock or Other Securities issued upon such exercise) to which such Holder
shall continue to be entitled after such exercise in accordance with the terms
of this Warrant, provided that if the Holder shall fail to make any such
request, such failure shall not affect the continuing obligation of the Company
to afford such rights to such Holder.
1.5 Payment by Application of Shares Otherwise Issuable. Upon any
---------------------------------------------------
exercise of this Warrant, the Holder may, at its option, instruct the Company,
by written notice accompanying the surrender of this Warrant at the time of such
exercise, to apply to the payment required by Section 1.1 such number of the
shares of Common Stock otherwise issuable to such Holder upon such exercise as
shall be specified in such notice, in which case an amount equal to the excess
of the aggregate Current Market Price of such specified number of shares on the
date of exercise over the portion of the payment required by Section 1.1
attributable to such shares shall be deemed to have been paid to the Company and
the number of shares issuable upon such exercise shall be reduced by such
specified number.
1.6 Tax Basis. The Company and the Holder shall mutually agree as to
---------
the tax basis and tax treatment of this Warrant for purposes of the Internal
Revenue Code of 1986, as amended (the "Code"), and the treatment of this Warrant
under the Code by each of the Company and the Holder shall be consistent with
such agreement.
2
<PAGE>
2. No Dilution or Impairment. The Company will not, by amendment of
-------------------------
its articles of incorporation or through any consolidation, merger,
reorganization, transfer of assets, dissolution, issue or sale of securities or
any other voluntary action, avoid or seek to avoid the observance or performance
of any of the terms of this Warrant, but will at all times in good faith assist
in the carrying out of all such terms and in the taking of all such action as
may be necessary or appropriate in order to protect the rights of the Holder
against dilution or other impairment. Without limiting the generality of the
foregoing, the Company (a) shall not permit the par value of any shares of stock
receivable upon the exercise of this Warrant to exceed the amount payable
therefor upon such exercise, (b) will take all such action as may be necessary
or appropriate in order that the Company may validly and legally issue fully
paid and nonassessable shares of stock, free from all taxes, liens, security
interests, encumbrances, preemptive rights and charges on the exercise of the
Warrants from time to time outstanding, (c) will not take any action which
results in any adjustment of the Warrant Quantity if the total number of shares
of Common Stock (or Other Securities) issuable after the action upon the
exercise of all of the Warrants would exceed the total number of shares of
Common Stock (or Other Securities) then authorized by the Company's articles of
incorporation and available and reserved for the purpose of issue upon such
exercise, and (d) will not issue any capital stock of any class which is
preferred as to dividends or as to the distribution of assets upon voluntary or
involuntary dissolution, liquidation or winding-up, unless the rights of the
holders thereof shall be limited to a fixed sum or percentage of par value or a
sum determined by reference to a formula based on a published index of interest
rates, an interest rate publicly announced by a financial institution or a
similar indicator of interest rates in respect of participation in dividends and
to a fixed sum or percentage of par value in any such distribution of assets.
3. Consolidation, Merger, etc.
--------------------------
3.1 Adjustments for Consolidation, Merger, Sale of Assets,
-----------------------------------------------------
Reorganization, etc. In case the Company after the date hereof (a) shall
- -------------------
consolidate with or merge into any other Person and shall not be the continuing
or surviving corporation of such consolidation or merger, or (b) shall permit
any other Person to consolidate with or merge into the Company and the Company
shall be the continuing or surviving Person but, in connection with such
consolidation or merger, the Common Stock or Other Securities shall be changed
into or exchanged for stock or other securities of any other Person or cash or
any other property, or (c) shall transfer all or substantially all of its
properties or assets to any other Person, or (d) shall effect a capital
reorganization or reclassification resulting in the issue of Additional Shares
of Common Stock, then, and in the case of each such transaction, proper
provision shall be made so that, upon the basis and the terms and in the manner
provided in this Warrant, the Holder, upon the exercise hereof at any time after
the consummation of such transaction, shall be entitled to receive (at the
aggregate purchase price in effect at the time of such consummation for all
Common Stock or Other Securities issuable upon such exercise immediately prior
to such consummation), in lieu of the Common Stock or Other Securities issuable
upon such exercise prior to such consummation, the highest amount of securities,
cash or other property to which such Holder would actually have been entitled as
a shareholder upon such consummation if such Holder had exercised the rights
represented by this Warrant immediately prior thereto, provided that if a
purchase, tender or exchange offer shall have been made to and accepted by the
holders of more than 50% of the outstanding shares of Common Stock, and if the
Holder so designates in a notice given to the Company on or before the date
immediately preceding the date of the consummation of such transaction, the
Holder shall be entitled to receive the highest amount of
3
<PAGE>
securities, cash or other property to which such Holder would actually have been
entitled as a shareholder if the Holder had exercised this Warrant prior to the
expiration of such purchase, tender or exchange offer and accepted such offer.
4. Accountants' Report as to Adjustments. In each case of any
-------------------------------------
adjustment or readjustment in the shares of Common Stock (or Other Securities)
issuable upon the exercise of this Warrant, the Company at its expense will
promptly compute such adjustment or readjustment in accordance with the terms of
this Warrant and cause independent certified public accountants of recognized
national standing (which may be the regular auditors of the Company) selected by
the Company to verify such computation (other than any computation of the fair
value of property as determined in good faith by the Board of Directors of the
Company (if Holder objects to such determination, Holder may seek and receive,
at the Company's expense, third party appraisal, which shall be the exclusive
and binding determination to be used)) and prepare a report setting forth such
adjustment or readjustment and showing in reasonable detail the method of
calculation thereof and the facts upon which such adjustment or readjustment is
based, including a statement of (a) the consideration received or to be received
by the Company for any Additional Shares of Common Stock issued or sold or
deemed to have been issued, (b) the number of shares of Common Stock outstanding
or deemed to be outstanding, and (c) the Warrant Quantity in effect immediately
prior to such issue or sale and as adjusted and readjusted on account thereof.
The Company will forthwith mail a copy of each such report to each Holder of a
Warrant and will, upon the written request at any time of any Holder of a
Warrant, furnish to such Holder a like report setting forth the Warrant Quantity
at the time in effect and showing in reasonable detail how it was calculated.
The Company will also keep copies of all such reports at its principal office
and will cause the same to be available for inspection at such office during
normal business hours by any Holder of a Warrant or any prospective purchaser of
a Warrant designated by the Holder thereof.
5. Financial and Business Information.
----------------------------------
5.1 Quarterly Information. If during any period the Company (i) is
---------------------
not subject to the reporting requirements of Section 15(d) of the Exchange Act
and (ii) does not have securities registered under Section 12(b) or 12 (g) of
the Exchange Act, the Company will deliver to the Holder, as soon as practicable
after the end of each quarterly fiscal period in each fiscal year of the
Company, and in any event within 60 days thereafter, a copy of the unaudited
consolidated balance sheet as at the close of such quarter, and the related
unaudited consolidated statements of income, shareholders' equity and cash flow
of the Company and its subsidiaries for that portion of the fiscal year ending
as of the close of such quarter. Such financial statements shall be prepared by
the Company in accordance with generally accepted accounting principles, applied
on a consistent basis ("GAAP") (subject to normal year end adjustments and the
inclusion of footnotes) and accompanied by the certification of the Company's
chief executive officer or chief financial officer that, to the best of his
knowledge, such financial statements are complete and correct in all material
respects and fairly present in accordance with GAAP (subject to normal year end
adjustments and the inclusions of footnotes) the consolidated financial
position, the consolidated statements of income, shareholder equity and cash
flow of the Company and its subsidiaries as at the end of such quarter and for
such year-to-date period, as the case may be. If during any period the Company
either (i) is subject to the reporting requirements of Section 15(g) of the
Exchange Act or (ii) has securities registered under
4
<PAGE>
Section 12(b) or 12(g) of the Exchange Act, the Company shall be considered a
"Public Company" and need not provide the information required by this Section
5.1.
5.2 Annual Information. If during any period the Company is not a
------------------
Public Company, the Company will deliver to the Holder as soon as practicable
after the end of each fiscal year of the Company, and in any event within 120
days thereafter, one copy of:
(i) an audited consolidated balance sheet of the Company and
its subsidiaries as at the end of such year, and
(ii) audited consolidated statements of income,
shareholders' equity and cash flow of the Company and its subsidiaries
for such year;
setting forth in each case in comparative form the figures for the corresponding
periods in the previous fiscal year, all prepared in accordance with GAAP, and
which audited financial statements shall be accompanied by (i) a certification
of the chief executive officer or chief financial officer of the Company that,
to the best of his knowledge, all such financial statements are complete and
correct in all material respects and present fairly in accordance with GAAP the
consolidated financial position of the Company and its subsidiaries as at the
end of such fiscal year and for the period then ended, (ii) an opinion thereon
of the independent certified public accountants regularly retained by the
Company, or any other firm of independent certified public accountants of
recognized national standing selected by the Company, and (iii) a report of such
independent certified public accountants confirming any adjustments.
5.3 Filings. During any period when the Company is a Public Company,
-------
the Company will file on or before the required date all required regular or
periodic reports (pursuant to the Exchange Act) with the Commission and will
deliver to the Holder promptly upon their becoming available one copy of each
report, notice or proxy statement sent by the Company to its stockholders
generally, and of each regular or periodic report (pursuant to the Exchange Act)
and any registration statement, prospectus or written communication (other than
transmittal letters) (pursuant to the Securities Act), filed by the Company with
(i) the Commission or (ii) any securities exchange on which shares of Common
Stock (or Other Securities) are listed.
5.4 Notices of Corporate Action. In the event of
---------------------------
(a) any taking by the Company of a record of the holders of any
class of securities for the purpose of determining the holders thereof who
are entitled to receive any dividend (other than a regular periodic
dividend payable in cash out of earned surplus in an amount not exceeding
the amount of the immediately preceding cash dividend for such period) or
other distribution, or any right to subscribe for, purchase or otherwise
acquire any shares of stock of any class or any other securities or
property, or to receive any other right, or
(b) any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company or
any consolidation or merger involving the Company and any other Person, any
transaction or series of transactions in which more
5
<PAGE>
than 50% of the Voting Securities of the Company are transferred to another
Person or any transfer, sale or other disposition of all or substantially
all the assets of the Company to any other Person, or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company,
the Company will mail to the Holder a notice specifying (i) the date or expected
date on which any such record is to be taken for the purpose of such dividend,
distribution or right, and the amount and character of such dividend,
distribution or right, and (ii) the date or expected date on which any such
reorganization, reclassification, recapitalization, consolidation, merger,
transfer, dissolution, liquidation or winding-up is to take place and the time,
if any such time is to be fixed, as of which the holders of record of Common
Stock (or Other Securities) shall be entitled to exchange their shares of Common
Stock (or Other Securities) for the securities or other property deliverable
upon such reorganization, reclassification, recapitalization, consolidation,
merger, transfer, dissolution, sale, disposition, liquidation or winding-up.
Such notice shall be mailed at least 45 days prior to the date therein
specified.
6. Registration of Common Stock. The Company will use its best
----------------------------
efforts to register the shares of Common Stock (or Other Securities) issuable
upon exercise of this Warrant so that the Person exercising this Warrant
receives registered securities. In accordance with this Section 6, the Company
has entered into a Registration Rights Agreement, dated April 24, 1998, with
each of the Holders. Such Registration Rights Agreement provides for demand and
piggyback registration rights with respect to all such securities. If any
shares of Common Stock (or Other Securities) issuable upon exercise of this
Warrant require registration with or approval of any governmental authority
under any federal or state law (other than securities laws), the Company will,
at its expense and as expeditiously as possible, use its best efforts to cause
any shares of Common Stock (or Other Securities) to be duly registered or
approved, as the case may be. Immediately upon the exercise of this Warrant, or
any portion thereof, the Company will, at its expense, obtain promptly and
maintain the approval for listing on each such exchange, upon official notice of
issuance, the shares of Common Stock (or Other Securities) issuable upon
exercise of the then outstanding Warrants and maintain the listing of such
shares after their issuance.
7. Restrictions on Transfer.
------------------------
7.1 Restrictive Legends. Except as otherwise permitted by this
-------------------
Section 7, each Warrant (including each Warrant issued upon the transfer of any
Warrant) shall be stamped or otherwise imprinted with a legend in substantially
the following form:
"THIS WARRANT AND ANY SECURITIES ACQUIRED UPON EXERCISE OF THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR THE SECURITIES LAW OF ANY STATE AND MAY NOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF (OTHER THAN TO ACCREDITED INVESTORS)
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND
APPLICABLE STATE SECURITIES LAWS OR PURSUANT
6
<PAGE>
TO AN APPLICABLE EXEMPTION TO THE REGISTRATION REQUIREMENTS OF SUCH ACT AND
SUCH LAWS. THIS WARRANT AND SUCH SECURITIES MAY NOT BE SOLD, TRANSFERRED OR
OTHERWISE DISPOSED OF EXCEPT IN COMPLIANCE WITH THE CONDITIONS SPECIFIED IN
THIS WARRANT.
Except as otherwise permitted by this Section 7, each certificate for Common
Stock (or Other Securities) issued upon the exercise of any Warrant, and each
certificate issued upon the transfer of any such Common Stock (or Other
Securities), shall be stamped or otherwise imprinted with a legend in
substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES
LAW OF ANY STATE, AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF
(OTHER THAN TO ACCREDITED INVESTORS) EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS
OR PURSUANT TO AN APPLICABLE EXEMPTION TO THE REGISTRATION REQUIREMENTS OF
SUCH ACT AND SUCH LAWS. SUCH SECURITIES MAY NOT BE SOLD, TRANSFERRED OR
OTHERWISE DISPOSED OF EXCEPT IN COMPLIANCE WITH THE CONDITIONS SPECIFIED IN
CERTAIN COMMON STOCK PURCHASE WARRANTS ISSUED BY POLYPHASE CORPORATION,
PURSUANT TO THE COMMON STOCK PURCHASE WARRANT, DATED APRIL 24, 1998. A
COMPLETE AND CORRECT COPY OF THE FORM OF SUCH WARRANT IS AVAILABLE FOR
INSPECTION AT THE PRINCIPAL OFFICE OF POLYPHASE CORPORATION, OR AT THE
OFFICE OR AGENCY MAINTAINED BY POLYPHASE CORPORATION, AS PROVIDED IN SUCH
WARRANTS AND WILL BE FURNISHED TO THE HOLDER OF SUCH SECURITIES UPON
WRITTEN REQUEST AND WITHOUT CHARGE."
7.2 Transfer to Comply With the Securities Act. Restricted
------------------------------------------
Securities may not be sold, assigned, pledged, hypothecated, encumbered or in
any manner transferred or disposed of, in whole or in part (other than to
accredited investors), except in compliance with the provisions of the
Securities Act and state securities or Blue Sky laws and the terms and
conditions hereof.
7.3 Termination of Restrictions. The restrictions imposed by this
---------------------------
Section 7 on the transferability of Restricted Securities shall cease and
terminate as to any particular Restricted Securities (a) when a registration
statement with respect to the sale of such securities shall have been declared
effective under the Securities Act and such securities shall have been disposed
of in accordance with such registration statement, (b) when such securities are
sold pursuant to Rule 144 (or any similar provision then in force) under the
Securities Act, or (c) when, in the opinion of both counsel for the Holder and
counsel for the Company, such restrictions are not longer required or necessary
in order to protect the Company against a violation of the Securities Act upon
any sale or other disposition of such securities without registration
thereunder. Whenever such restrictions shall cease and terminate as to any
Restricted Securities, the Holder shall be entitled to receive from the
7
<PAGE>
Company, without expense, new securities of like tenor not bearing the
applicable legends required by Section 6.1.
8. Reservation of Stock, etc. The Company shall at all times
-------------------------
reserve and keep available, solely for issuance and delivery upon exercise of
the Warrants, the number of shares of Common Stock (or Other Securities) from
time to time issuable upon exercise of all Warrants at the time outstanding.
All shares of Common Stock (or Other Securities) issuable upon exercise of any
Warrants shall be duly authorized and, when issued upon such exercise, shall be
validly issued and, in the case of shares, fully paid and nonassessable with no
liability on the part of the holders thereof, and, in the case of all
securities, shall be free from all taxes, liens, security interests,
encumbrances, preemptive rights and charges. The transfer agent for the Common
Stock, which may be the Company ("Transfer Agent"), and every subsequent
Transfer Agent for any shares of the Company's capital stock issuable upon the
exercise of any of the purchase rights represented by this Warrant, are hereby
irrevocably authorized and directed at all times until the Expiration Date to
reserve such number of authorized and unissued shares as shall be requisite for
such purpose. The Company shall keep copies of this Warrant on file with the
Transfer Agent for the Common Stock and with every subsequent Transfer Agent for
any shares of the Company's capital stock issuable upon the exercise of the
rights of purchase represented by this Warrant. The Company shall supply such
Transfer Agent with duly executed stock certificates for such purpose. All
Warrant certificates surrendered upon the exercise of the rights thereby
evidenced shall be canceled, and such canceled Warrants shall constitute
sufficient evidence of the number of shares of stock which have been issued upon
the exercise of such Warrants. Subsequent to the Expiration Date, no shares of
stock need be reserved in respect of any unexercised Warrant.
9. Registration and Transfer of Warrants, etc.
------------------------------------------
9.1 Warrant Register; Ownership of Warrants. Each Warrant issued by
---------------------------------------
the Company shall be numbered and shall be registered in a warrant register (the
"Warrant Register") as it is issued and transferred, which Warrant Register
shall be maintained by the Company at its principal office or, at the Company's
election and expense, by a Warrant Agent or the Company's transfer agent. The
Company shall be entitled to treat the registered Holder of any Warrant on the
Warrant Register as the owner in fact thereof for all purposes and shall not be
bound to recognize any equitable or other claim to or interest in such Warrant
on the part of any other Person, and shall not be affected by any notice to the
contrary, except that, if and when any Warrant is properly assigned in blank,
the Company may (but shall not be obligated to) treat the bearer thereof as the
owner of such Warrant for all purposes. Subject to Section 9, a Warrant, if
properly assigned, may be exercised by a new holder without a new Warrant first
having been issued.
9.2 Transfer of Warrants. Subject to compliance with Section 7, if
--------------------
applicable, this Warrant and all rights hereunder are transferable in whole or
in part, without charge to the Holder hereof, upon surrender of this Warrant
with a properly executed Form of Assignment attached hereto as Exhibit B at the
principal office of the Company. Upon any partial transfer, the Company shall
at its expense issue and deliver to the Holder a new Warrant of like tenor, in
the name of the Holder, which shall be exercisable for such number of shares of
Common Stock with respect to which rights under this Warrant were not so
transferred.
8
<PAGE>
9.3 Replacement of Warrants. On receipt by the Company of evidence
-----------------------
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of this Warrant and, in the case of any such loss, theft or
destruction of this Warrant, on delivery of an indemnity agreement reasonably
satisfactory in form and amount to the Company or, in the case of any such
mutilation, on surrender of such Warrant to the Company at its principal office
and cancellation thereof, the Company at its expense shall execute and deliver,
in lieu thereof, a new Warrant of like tenor.
9.4 Adjustments To Warrant Quantity. Notwithstanding any adjustment
-------------------------------
in the Warrant Quantity or in the number or kind of shares of Common Stock (or
Other Securities) purchasable upon exercise of this Warrant, any Warrant
theretofore or thereafter issued may continue to express the same number and
kind of shares of Common Stock as are stated in this Warrant, as initially
issued.
9.5 Fractional Shares. Notwithstanding any adjustment pursuant to
-----------------
Section 3 in the number of shares of Common Stock covered by this Warrant or any
other provision of this Warrant, the Company may, but shall not be required to,
issue fractions of shares upon exercise of this Warrant or to distribute
certificates which evidence fractional shares. In lieu of fractional shares,
the Company shall may payment to the Holder, at the time of exercise of this
Warrant as herein provided, in an amount in cash equal to such fraction
multiplied by the Current Market Price of a share of Common Stock on the date of
Warrant exercise.
10. Definitions. As used herein, unless the context otherwise
-----------
requires, the following terms have the following respective meanings:
Additional Shares of Common Stock: All shares (including treasury
---------------------------------
shares) of Common Stock issued or sold by the Company after the date hereof,
whether or not subsequently reacquired or retired by the Company, other than
(a) shares issued upon the exercise of the Warrant,
(b) such additional number of shares as may become issuable upon
the exercise of the Warrant by reason of adjustments required pursuant to
anti-dilution provisions applicable to the Warrant as in effect on the date
hereof,
(c) shares, warrants, options and other securities issued at any
time to the Holder or any Affiliate thereof.
Affiliate: Any Person that directly or indirectly, through one or
---------
more intermediaries, controls, is controlled by, or is under common control
with, the applicable Person. For purposes of this definition "control" has the
meaning specified in Rule 12b-2 under the Exchange Act.
Business Day: Any day other than a Saturday or Sunday or a day on
------------
which commercial banking institutions in the City of New York are authorized by
law to be closed. Any reference to "days" (unless Business Days are specified)
shall mean calendar days.
Code: As defined in Section 1.6.
----
9
<PAGE>
Commission: The Securities and Exchange Commission or any other
----------
federal agency at the time administering the Securities Act.
Common Stock: As defined in the introduction to this Warrant, such
------------
term to include any stock into which such Common Stock shall have been changed
or any stock resulting from any reclassification of such Common Stock, and all
other stock of any class or classes (however designated) of the Company the
holders of which have the right, without limitation as to amount, either to all
or to a share of the balance of current dividends and liquidating dividends
after the payment of dividends and distributions on any shares entitled to a
preference.
Company: As defined in the introduction to this Warrant, such term to
-------
include any Person which shall succeed to or assume the obligations of the
Company hereunder in compliance with Section 3.
Convertible Securities: Any evidence of indebtedness, shares of stock
----------------------
(other than Common Stock) or other securities directly or indirectly convertible
into or exchangeable for Additional Shares of Common Stock.
Current Market Price: On any date specified herein, the average daily
--------------------
Market Price during the period of the most recent 20 days, ending on such date,
on which the national securities exchanges were open for trading, except that if
no Common Stock is then listed or admitted to trading on any national securities
exchange or quoted in the over-the-counter market, the Current Market Price
shall be the Market Price on such date.
Exchange Act: The Securities Exchange Act of 1934, or any similar
------------
federal statute, and the rules and regulations of the Commission thereunder, all
as the same shall be in effect at the time.
Expiration Date: As defined in the introduction to this Warrant.
---------------
Holder: As defined in the introduction to this Warrant.
------
Indenture: As defined in the introduction to the Warrant.
---------
Market Price: On any date specified herein, the amount per share of
------------
the Common Stock equal to (a) the last reported sale price of such Common Stock,
regular way, on such date or, in case no such sale takes place on such date, the
average of the closing bid and asked prices thereof, regular way, on such date,
in either case as officially reported on the principal national securities
exchange on which such Common Stock is then listed or admitted for trading, or
(b) if such Common Stock is not then listed or admitted for trading on any
national securities exchange but is designated as a national market system
security by the NASD, the last reported trading price of the Common Stock on
such date, or (c) if there shall have been no trading on such date or if the
Common Stock is not so designated, the average of the closing bid and asked
prices of the Common Stock on such date as shown by the NASD automated quotation
system, or (d) if neither a, b nor c is applicable, the higher of (x) the book
value thereof as determined by any firm of independent public accountants of
recognized standing selected by the Board of Directors of the Company as of the
last day of any
10
<PAGE>
month ending within 60 days preceding the date as of which the determination is
to be made and (y) the fair value thereof (as of the date which is within 20
days of the date as of which the determination is to be made) determined in good
faith by the Board of Directors of the Company (if Holder objects to such
determination, Holder may seek and receive, at the Company's expense, third
party appraisal, which shall be the exclusive and binding determination to be
used).
NASD: The National Association of Securities Dealers, Inc.
----
Options: Rights, options or warrants to subscribe for, purchase or
-------
otherwise acquire either Additional Shares of Common Stock or Convertible
Securities.
Other Securities. Any stock (other than Common Stock) and other
----------------
securities of the Company or any other Person (corporate or otherwise) which the
holders of the Warrants at any time shall be entitled to receive, or shall have
received, upon the exercise of the Warrants, in lieu of or in addition to Common
Stock, or which at any time shall be issuable or shall have been issued in
exchange for or in replacement of Common Stock or Other Securities pursuant to
Section 3 or otherwise.
Person: An individual, firm, partnership, corporation, professional
------
corporation, trust, joint venture, association, joint stock company, limited
liability company, unincorporated organization or any other entity or
organization, including a government or agency or political subdivision thereof,
and shall include any successor (by merger or otherwise) of such entity.
Restricted Securities: (a) any Warrants bearing the applicable legend
---------------------
set forth in Section 7.1, (b) any shares of Common Stock (or Other Securities)
issued or issuable upon the exercise of Warrants but only so long as they are
required to be evidenced by a certificate or certificates bearing the applicable
legend set forth in such Section, and (c) any shares of Common Stock (or Other
Securities) issued subsequent to the exercise of any of the Warrants as a
dividend or other distribution with respect to, or resulting from a subdivision
of the outstanding shares of Common Stock (or other Securities) into a greater
number of shares by reclassification, stock splits or otherwise, or in exchange
for or in replacement of the Common Stock (or Other Securities) issued upon such
exercise, but only so long as they are required to be evidenced by a certificate
or certificates bearing the applicable legend set forth in such Section.
Securities Act: The Securities Act of 1933, or any similar federal
--------------
statute, and the rules and regulations of the Commission thereunder, all as the
same shall be in effect at the time.
Voting Securities: Stock of any class or classes (or equivalent
-----------------
interests), if the holders of the stock of such class or classes (or equivalent
interests) are ordinarily, in the absence of contingencies, entitled to vote for
the election of the directors (or persons performing similar functions) of the
issuer, even though the right so to vote has been suspended by the happening of
such a contingency.
Warrant: As defined in the introduction to this Warrant.
-------
Warrant Quantity: As defined in the introduction to this Warrant.
----------------
11
<PAGE>
11. Remedies; Specific Performance. The Company stipulates that
------------------------------
there would be no adequate remedy at law to the Holder of this Warrant in the
event of any default or threatened default by the Company in the performance of
or compliance with any of the terms of this Warrant and accordingly, the Company
agrees that, in addition to any other remedy to which the Holder may be entitled
at law or in equity, the Holder shall be entitled to seek to compel specific
performance of the obligations of the Company under this Warrant, without the
posting of any bond, in accordance with the terms and conditions of this Warrant
in any court of the United States or any State thereof having jurisdiction, and
if any action should be brought in equity to enforce any of the provisions of
this Warrant, the Company shall not raise the defense that there is an adequate
remedy at law. Except as otherwise provided by law, a delay or omission by the
Holder hereto in exercising any right or remedy accruing upon any such breach
shall not impair the right or remedy or constitute a waiver of or acquiescence
in any such breach. No remedy shall be exclusive of any other remedy. All
available remedies shall be cumulative.
12. No Rights or Liabilities as Shareholder. Nothing contained in
---------------------------------------
this Warrant shall be construed as conferring upon the Holder hereof any rights
as a shareholder of the Company or as imposing any obligation on the Holder to
purchase any securities or as imposing any liabilities on the Holder as a
shareholder of the Company, whether such obligation or liabilities are asserted
by the Company or by creditors of the Company.
13. Notices. All notices and other communications (and deliveries)
-------
provided for or permitted hereunder shall be made in writing by hand delivery,
telecopier, any courier guaranteeing overnight delivery or first class
registered or certified mail, return receipt requested, postage prepaid,
addressed (a) if to the Company, to the attention of its Chief Financial Officer
at its principal office located at 4800 Broadway, Suite A, Dallas, Texas 75248
or such other address as may hereafter be designated in writing by the Company
to the Holder in accordance with the provisions of this Section, or (b) if to
the Holder, at its address as it appears in the Warrant Register.
All such notices and communications (and deliveries) shall be deemed
to have been duly given: at the time delivered by hand, if personally
delivered; when receipt is acknowledged or confirmed (by automatic confirmation
or otherwise), if telecopied; on the next Business Day, if timely delivered to a
courier guaranteeing overnight delivery; and five days after being deposited in
the mail, if sent first class or certified mail, return receipt requested,
postage prepaid; provided, that the exercise of any Warrant shall be effective
in the manner provided in Section 1.
14. Amendments. This Warrant and any term hereof may not be amended,
----------
modified, supplemented or terminated, and waivers or consents to departures from
the provisions hereof may not be given, except by written instrument duly
executed by the party against which enforcement of such amendment, modification,
supplement, termination or consent to departure is sought.
15. Descriptive Headings, Etc. The headings in this Warrant are for
-------------------------
convenience of reference only and shall not limit or otherwise affect the
meaning of terms contained herein. Unless the context of this Warrant otherwise
requires: (1) words of any gender shall be deemed to include each other gender;
(2) words using the singular or plural number shall also include the plural or
singular number, respectively; (3) the words "hereof," "herein" and "hereunder"
and words of similar
12
<PAGE>
import when used in this Warrant shall refer to this Warrant as a whole and not
to any particular provision of this Warrant, and Section and paragraph
references are to the Sections and paragraphs of this Warrant unless otherwise
specified; (4) the word "including" and words of similar import when used in
this Warrant shall mean "including, without limitation," unless otherwise
specified; (5) "or" is not exclusive; and (6) provisions apply to successive
events and transactions.
16. GOVERNING LAW. This Warrant shall be governed by, and construed
-------------
in accordance with, the laws of the State of Texas (without giving effect to the
conflict of laws principles thereof).
17. Judicial Proceedings; Waiver of Jury. Any legal action, suit or
------------------------------------
proceeding brought against the Company with respect to this Warrant may be
brought in any federal court of Texas or any state court located in Dallas
County, State of Texas, and by execution and delivery of this Warrant, the
Company hereby irrevocably and unconditionally waives any claim (by way of
motion, as a defense or otherwise) of improper venue, that it is not subject
personally to the jurisdiction of such court, that such courts are an
inconvenient forum or that this Warrant or the subject matter may not be
enforced in or by such court. The Company irrevocably submits to the exclusive
jurisdiction of the aforementioned courts in such action, suit or proceeding.
The Company hereby irrevocably and unconditionally consents to the service of
process of any of the aforementioned courts in any such action, suit or
proceeding by the mailing of copies thereof by registered or certified mail,
postage prepaid, at its address set forth or provided for in Section 15 (with
copies of such process also being sent to the Company's counsel referred to in
such section), such service to become effective 10 days after such mailing.
Nothing herein contained shall be deemed to affect the right of any party to
serve process in any manner permitted by law or commence legal proceedings or
otherwise proceed against any other party in any other jurisdiction to enforce
judgments obtained in any action, suit or proceeding brought pursuant to this
Section. THE COMPANY HEREBY IRREVOCABLY WAIVES TRIAL BY JURY IN ANY ACTION,
SUIT OR PROCEEDING, WHETHER AT LAW OR EQUITY, BROUGHT BY IT OR THE HOLDER IN
CONNECTION WITH THIS WARRANT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
18. Counterparts. This Warrant may be executed in any number of
------------
counterparts, each of which shall be deemed an original, but all such
counterparts shall together constitute one and the same instrument.
13
<PAGE>
POLYPHASE CORPORATION
By:
----------------------------------
Name:
---------------------------
Title:
--------------------------
MERRILL LYNCH CONVERTIBLE FUND, INC.
By:
-----------------------------------
Name:
----------------------------
Title:
---------------------------
14
<PAGE>
Exhibit A
---------
FORM OF SUBSCRIPTION
--------------------
[To be executed only upon exercise of Warrant]
To: POLYPHASE CORPORATION
The undersigned registered holder of the within Warrant hereby irrevocably
exercises such Warrant for, and purchases thereunder, _____/*/ shares of Common
stock of POLYPHASE CORPORATION and herewith makes payment of $___________
therefor, and requests that the certificates for such shares be issued in the
name of, and delivered to ___________________________ whose address is
__________________________________________________.
Dated:
---------------------------------------
(Signature must conform in all respects
to the name of holder as specified on
the face of Warrant)
---------------------------------------
(Street Address)
---------------------------------------
(City) (State) (Zip Code)
- -------------------
/*/ Insert here the number of shares called for on the face of this Warrant (or
in the case of a partial exercise, the portion thereof as to which this Warrant
is being exercised), in either case without making any adjustment for Additional
Shares of Common Stock or any other stock or other securities or property or
cash which, pursuant to the adjustment provisions of this Warrant, may be
delivered upon exercise. In the case of partial exercise, a new Warrant or
Warrants will be issued and delivered, representing the unexercised portion of
the Warrant, to the holder surrendering the Warrant.
15
<PAGE>
Exhibit B
---------
FORM OF ASSIGNMENT
------------------
[To be executed only upon assignment of Warrant]
For value received, the undersigned registered holder of the within Warrant
hereby sells, assigns and transfers unto ______________________ the right
represented by such Warrant to purchase _____/**/ shares of Common Stock of
POLYPHASE CORPORATION to which such Warrant relates, and appoints
________________ Attorney to make such transfer on the books of POLYPHASE
CORPORATION maintained for such purpose, with full power of substitution in the
premises.
Dated:
-----------------------------------
(Signature must conform in all
respects to the name of holder as
specified on the face of Warrant)
-----------------------------------
(Street Address)
-----------------------------------
(City) (State) (Zip Code)
Signed in the presence of:
- -----------------------------------
- -------------------
/**/ Insert here the number of shares called for on the face of this Warrant
(or in the case of a partial exercise, the portion thereof as to which this
Warrant is being exercised), in either case without making any adjustment for
Additional Shares of Common Stock or any other stock or other securities or
property or cash which, pursuant to the adjustment provisions of this Warrant,
may be delivered upon exercise. In the case of partial exercise, a new Warrant
or Warrants will be issued and delivered, representing the unexercised portion
of the Warrant, to the holder surrendering the Warrant.
16
<PAGE>
Exhibit 10.83
[Market Warrant]
- --------------------------------------------------------------------------------
Polyphase Corporation
Common Stock Purchase Warrant
Dated as of April 24, 1998
- --------------------------------------------------------------------------------
THIS WARRANT AND ANY SECURITIES ACQUIRED UPON EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES
LAW OF ANY STATE AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND
APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION TO THE
REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS. THIS WARRANT AND SUCH
SECURITIES MAY NOT BE SOLD, TRANSFERRED (OTHER THAN TO ACCREDITED INVESTORS) OR
OTHERWISE DISPOSED OF EXCEPT IN COMPLIANCE WITH THE CONDITIONS SPECIFIED IN THIS
WARRANT.
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. Exercise of Warrant................................................... 1
1.1. Manner of Exercise.................................................... 1
1.2. When Exercise Effective............................................... 2
1.3. Delivery of Stock Certificates, etc................................... 2
1.4. Company to Reaffirm Obligations....................................... 2
1.5. Payment by Application of Shares Otherwise Issuable................... 2
1.6. Tax Basis. 2
2. Adjustment of Common Stock Issuable Upon Exercise..................... 3
2.1. General; Warrant Quantity............................................. 3
2.2. Adjustment of Warrant Quantity........................................ 3
2.2.1 Issuance of Additional Shares of Common Stock......................... 3
2.2.2 Extraordinary Dividends and Distributions............................. 3
2.3. Treatment of Options and Convertible Securities....................... 4
2.4. Treatment of Stock Dividends, Stock Splits, etc....................... 6
2.5. Computation of Consideration.......................................... 6
2.6. Adjustments for Combinations, etc..................................... 7
2.7. Dilution in Case of Other Securities.................................. 7
2.8. Minimum Adjustment of Warrant Quantity................................ 8
2.9. Abandoned Dividend or Distribution.................................... 8
2.10. Stock Options, Warrants and Convertible Securities.................... 8
3. Consolidation, Merger, etc............................................ 8
3.1. Adjustments for Consolidation, Merger, Sale of Assets,
Reorganization, etc................................................... 8
3.2. Assumption of Obligations............................................. 9
4. Other Dilutive Events................................................. 9
5. No Dilution or Impairment............................................. 10
6. Accountants' Report as to Adjustments................................. 10
7. Financial and Business Information.................................... 11
7.1. Quarterly Information................................................. 11
7.2. Annual Information.................................................... 11
7.3. Filings............................................................... 12
7.4. Notices of Corporate Action........................................... 12
8. Registration of Common Stock.......................................... 12
</TABLE>
i
<PAGE>
9. Restrictions on Transfer................... 13
9.1. Restrictive Legends........................ 13
9.2. Transfer to Comply With the Securities Act. 14
9.3. Termination of Restrictions................ 14
10. Reservation of Stock, etc.................. 14
11. Registration and Transfer of Warrants, etc. 15
11.1. Warrant Register; Ownership of Warrants.... 15
11.2. Transfer of Warrants....................... 15
11.3. Bond and Warrant Repurchase Option......... 15
11.4. Replacement of Warrants.................... 15
11.5. Adjustments To Warrant Quantity............ 15
11.6. Fractional Shares.......................... 16
12. Definitions................................ 16
13. Remedies; Specific Performance............. 18
14. No Rights or Liabilities as Shareholder.... 19
15. Notices.................................... 19
16. Amendments................................. 19
17. Descriptive Headings, Etc.................. 19
18. GOVERNING LAW.............................. 20
19. Judicial Proceedings; Waiver of Jury....... 20
20. Counterparts............................... 20
ii
<PAGE>
POLYPHASE CORPORATION
Common Stock Purchase Warrant
Void After April 24, 2003
No. W-1
April 24, 1998
POLYPHASE CORPORATION (the "Company"), a Nevada corporation, for value
received, hereby certifies that MERRILL LYNCH CONVERTIBLE FUND, INC., a Maryland
Corporation, or registered assigns (the "Holder"), is entitled to purchase from
the Company fifty-two thousand five hundred (52,500) duly authorized, validly
issued, fully paid and nonassessable shares of common stock, par value $0.01 per
share, of the Company (the "Common Stock") at the purchase price per share of
$1.125 (the market price of the Common Stock on December 3, 1997), at any time
or from time to time prior to 5:30 PM, Dallas time, on April 24, 2003 (the
Expiration Date"), (the aggregate number of shares entitled to be purchased by
the Holder pursuant to this Warrant shall be the "Warrant Quantity"), all
subject to the terms, conditions and adjustments set forth below in this
Warrant.
This Warrant is one of several Warrants (the "Warrant," such term to
include any such warrants issued in substitution therefor) issued in connection
with the Indenture, dated as of July 5, 1994, by and among the Company and IBJ
Schroder Bank & Trust Company (as supplemented on December 5, 1997, the
"Indenture"). The Warrant originally so issued evidences the right to purchase
a number of shares of Common Stock equal to the Warrant Quantity, subject to
adjustment as provided herein. Certain capitalized terms used in this Warrant
are defined in Section 12; references to an "Exhibit" are, unless otherwise
specified, to one of the Exhibits attached to this Warrant and references to a
"Section" are, unless otherwise specified, to one of the Sections of this
Warrant.
1. Exercise of Warrant.
-------------------
1.1. Manner of Exercise. This Warrant may be exercised by the Holder,
------------------
in whole or part, during normal business hours on any Business Day, by surrender
of this Warrant to the Company at its principal office, accompanied by the Form
of Subscription in substantially the form attached as Exhibit A to this Warrant
(or a reasonable facsimile thereof) duly executed by the Holder and accompanied
by payment, in cash, by certified or official bank check payable to the order of
the Company, or in the manner provided in Section 1.5 (or by any combination of
such methods), in the amount obtained by multiplying (a) the number of shares of
-
Common Stock for up to but not exceeding 52,500 shares (adjusted as provided in
Sections 2 through 4) designated in such Form of Subscription by (b) $1.125, and
-
such Holder shall thereupon be entitled to receive such number of duly
authorized, validly issued, fully paid and nonassessable shares of Common Stock
(or Other Securities).
<PAGE>
1.2. When Exercise Effective. Each exercise of this Warrant shall be
-----------------------
deemed to have been effected immediately prior to the close of business on the
Business Day on which this Warrant shall have been surrendered to the Company as
provided in Section 1.1. At such time the Person or Persons in whose name or
names any certificate or certificates for shares of Common Stock (or Other
Securities) shall be issuable upon such exercise, as provided in Section 1.3,
shall be deemed to have become the Holder or Holders of record thereof.
1.3. Delivery of Stock Certificates, etc. As soon as practicable
------------------------------------
after each exercise of this Warrant, and in no event later than 10 days, in
whole or in part, the Company at its expense (including the payment by it of any
applicable transfer taxes) will cause to be issued in the name of and delivered
to the Holder hereof or, subject to Section 9, as such Holder (upon payment by
such Holder of any applicable transfer taxes) may direct,
1.3.1 a certificate or certificates for the number of duly
authorized, validly issued, fully paid and nonassessable shares, including, if
the Company so elects, fractional shares of Common Stock (or Other Securities)
to which such Holder shall be entitled upon such exercise plus, at the
discretion of the Company, in lieu of any fractional share to which such Holder
would otherwise be entitled, cash in an amount equal to the same fraction of the
Current Market Price per share on the Business Day next preceding the date of
such exercise, and
1.3.2 in case such exercise is in part only, a new Warrant or
Warrants of like tenor, calling in the aggregate on the face or faces thereof
for the number of shares of Common Stock equal (without giving effect to any
adjustment thereof) to the number of such shares called for on the face of this
Warrant minus the number of such shares designated by the Holder upon such
exercise as provided in Section 1.1.
1.4. Company to Reaffirm Obligations. The Company will, at the time
-------------------------------
of each exercise of this Warrant, upon the request of the Holder, acknowledge in
writing its continuing obligation to afford to such Holder all rights
(including, without limitation, any rights to registration of the shares of
Common Stock or Other Securities issued upon such exercise) to which such Holder
shall continue to be entitled after such exercise in accordance with the terms
of this Warrant, provided that if the Holder shall fail to make any such
request, such failure shall not affect the continuing obligation of the Company
to afford such rights to such Holder.
1.5. Payment by Application of Shares Otherwise Issuable. Upon any
---------------------------------------------------
exercise of this Warrant, the Holder may, at its option, instruct the Company,
by written notice accompanying the surrender of this Warrant at the time of such
exercise, to apply to the payment required by Section 1.1 such number of the
shares of Common Stock otherwise issuable to such Holder upon such exercise as
shall be specified in such notice, in which case an amount equal to the excess
of the aggregate Current Market Price of such specified number of shares on the
date of exercise over the portion of the payment required by Section 1.1
attributable to such shares shall be deemed to have been paid to the Company and
the number of shares issuable upon such exercise shall be reduced by such
specified number.
1.6. Tax Basis. The Company and the Holder shall mutually agree as to
---------
the tax basis and tax treatment of this Warrant for purposes of the Internal
Revenue Code of 1986, as
2
<PAGE>
amended (the "Code"), and the treatment of this Warrant under the Code by each
of the Company and the Holder shall be consistent with such agreement.
2. Adjustment of Common Stock Issuable Upon Exercise.
-------------------------------------------------
2.1. General; Warrant Quantity. This Warrant initially evidences the
-------------------------
right to purchase a number of shares of Common Stock equal to the Warrant
Quantity, subject to adjustment as provided in this Section 2.
2.2. Adjustment of Warrant Quantity.
------------------------------
2.2.1 Issuance of Additional Shares of Common Stock. Except as
---------------------------------------------
provided in Section 2.10 of this Warrant, in case the Company at any time or
from time to time after the date hereof shall issue or sell Additional Shares of
Common Stock (including Additional Shares of Common Stock deemed to be issued
pursuant to Section 2.3 or 2.4) without consideration or for a consideration per
share less than the Current Market Price in effect immediately prior to such
issue or sale, then, and in each such case, subject to Section 2.8, the Warrant
Quantity shall be increased, concurrently with such issue or sale, to an amount
determined by multiplying the Warrant Quantity by a fraction
(a) the numerator of which shall be the number of shares of
Common Stock outstanding immediately after such issue of sale, provided
--------
that, for the purposes of this Section 2.2.1, (x) immediately after any
-
Additional Shares of Common Stock are deemed to have been issued pursuant
to Section 2.3 or 2.4, such Additional Shares shall be deemed to be
outstanding, and (y) treasury shares shall not be deemed to be outstanding,
-
and
(b) the denominator of which shall be (i) the number of shares
-
of-Common Stock outstanding immediately prior to such issue or sale plus
(ii) the number of shares of Common Stock which the aggregate
--
consideration received by the Company for the total number of such
Additional Shares of Common Stock so issued or sold would purchase at such
Current Market Price.
2.2.2 Extraordinary Dividends and Distributions. In case the Company
at any time or from time to time after the date hereof shall declare, order, pay
or make a dividend or other distribution (including, without limitation, any
distribution of other or additional stock or other securities or property or
Options by way of dividend or spin-off, reclassification, recapitalization or
similar corporate rearrangement) on the Common Stock other than (a) a dividend
-
payable in Additional Shares of Common Stock or (b) a regularly scheduled cash
-
dividend payable out of consolidated earnings or earned surplus, determined in
accordance with generally accepted accounting principles, then, in each such
case, subject to Section 2.8, the Warrant Quantity in effect immediately prior
to the close of business on the record date fixed for the determination of
holders of any class of securities entitled to receive such dividend or
distribution shall be increased, effective as of the close of business on such
record date, to an amount determined by multiplying such Warrant Quantity by a
fraction.
3
<PAGE>
(x) the numerator of which shall be the Current Market Price in
effect on such record date or, if the Common Stock trades on an ex-dividend
basis, on the date prior to the commencement of ex-dividend trading, and
(y) the denominator of which shall be such Current Market Price,
less the amount of such dividend or distribution (as determined in good
faith by the Board of Directors of the Company) applicable to one share of
Common Stock,
provided that, in the event that the amount of such dividend as so determined is
- --------
equal to or greater than 10% of such Current Market Price or in the event that
such fraction is greater than 10/9, in lieu of the foregoing adjustment,
adequate provision shall be made so that the Holder of this Warrant shall
receive a pro rata share of such dividend based upon the maximum number of
shares of Common Stock at the time issuable to such Holder.
2.3. Treatment of Options and Convertible Securities. Except as
-----------------------------------------------
provided in Section 2.10 of this Warrant, in case the Company at any time or
from time to time after the date hereof shall issue, sell, grant or assume, or
shall fix a record date for the determination of holders of any class of
securities entitled to receive, any Options or Convertible Securities (whether
or not the rights thereof are immediately exercisable) then, and in each such
case, the maximum number of Additional Shares of Common Stock (as set forth in
the instrument relating thereto, without regard to any provisions contained
therein for a subsequent adjustment of such number) issuable upon the exercise
of such Options or, in the case of Convertible Securities and Options therefor,
the conversion or exchange of such Convertible Securities, shall be deemed to be
Additional Shares of Common Stock issued as of the time of such issue, sale,
grant or assumption or, in case such a record date shall have been fixed, as of
the close of business on such record date (or, if the record date relates to the
Common Stock and the Common Stock trades on an ex-dividend basis, on the date
prior to the commencement of ex-dividend trading), provided that such Additional
--------
Shares of Common Stock shall not be deemed to have been issued unless the
consideration per share (determined pursuant to Section 2.5) of such shares
would be less than the Current Market Price in effect on the date of and
immediately prior to such issue, sale, grant or assumption or immediately prior
to the close of business on such record date (or, if the record date relates to
the Common Stock and the Common Stock trades on an ex-dividend basis, on the
date prior to the commencement of ex-dividend trading), as the case may be, and
provided, further that in any such case in which Additional Shares of Common
- -------- -------
Stock shall not be deemed to have been issued
(a) whether or not the Additional Shares of Common Stock
underlying such Options or Convertible Securities are deemed to be issued,
no further adjustment of the Warrant Quantity shall be made upon the
subsequent issue or sale of Convertible Securities or shares of Common
Stock upon the exercise of such Options or the conversion or exchange of
such Convertible Securities, except in the case of any such Options or
Convertible Securities which contain provisions requiring an adjustment,
subsequent to the date of the issue or sale thereof, of the number of
Additional Shares of Common Stock issuable upon the exercise of such
Options or the conversion or exchange of such Convertible Securities by
reason of (x) a change of control of the Company, (y) the acquisition by
- -
any Person or group of Persons of any specified number or percentage of the
Voting Securities of the Company or (z) any similar event or occurrence,
-
each such case to be deemed hereunder to involve a
4
<PAGE>
separate issuance of Additional Shares of Common Stock, Options or
Convertible Securities, as the case may be;
(b) if such Options or Convertible Securities by their terms
provide, with the passage of time or otherwise, for any increase in the
consideration payable to the Company, or decrease in the number of
Additional Shares of Common Stock issuable, upon the exercise, conversion
or exchange thereof (by change of rate or otherwise), the Warrant Quantity
computed upon the original issue, sale, grant or assumption thereof (or
upon the occurrence of the record date, or date prior to the commencement
of ex-dividend trading, as the case may be, with respect thereto), and any
subsequent adjustments based thereon, shall, upon any such increase or
decrease becoming effective, be recomputed to reflect such increase or
decrease insofar as it affects such Options, or the rights of conversion or
exchange under such Convertible Securities, which are outstanding at such
time;
(c) upon the expiration (or purchase by the Company and
cancellation or retirement) of any such Options which shall not have been
exercised or the expiration of any rights of conversion or exchange under
any such Convertible Securities which (or purchase by the Company and
cancellation or retirement of any such Convertible Securities the rights of
conversion or exchange under which) shall not have been exercised, the
Warrant Quantity computed upon the original issue, sale, grant or
assumption thereof (or upon the occurrence of the record date, or date
prior to the commencement of ex-dividend trading, as the case may be, with
respect thereto), and any subsequent adjustments based thereon, shall, upon
such expiration (or such cancellation or retirement, as the case may be),
be recomputed as if:
(i) in the case of Options for Common Stock or Convertible
Securities, the only Additional Shares of Common Stock issued or sold
were the Additional Shares of Common Stock, if any, actually issued or
sold upon the exercise of such Options or the conversion or exchange
of such Convertible Securities and the consideration received therefor
was the consideration actually received by the Company for the issue,
sale, grant or assumption of all such Options, whether or not
exercised, plus the consideration actually received by the Company
upon such exercise, or for the issue or sale of all such Convertible
Securities which were actually converted or exchanged, plus the
additional consideration, if any, actually received by the Company
upon such conversion or exchange, and
(ii) in the case of Options for Convertible Securities, only
the Convertible Securities, if any, actually issued or sold upon the
exercise of such Options were issued at the time of the issue or sale,
grant or assumption of such Options, and the consideration received by
the Company for the Additional Shares of Common Stock deemed to have
then been issued was the consideration actually received by the
Company for the issue, sale , grant or assumption of all such Options,
whether or not exercised, plus the consideration deemed to have been
received by the Company (pursuant to Section 2.5) upon the issue or
sale of such Convertible Securities with respect to which such Options
were actually exercised;
5
<PAGE>
(d) no readjustment pursuant to subdivision (b) or (c) above
shall have the effect of decreasing the Warrant Quantity by an amount in
excess of the amount of the adjustment thereof originally made in respect
of the issue, sale, grant or assumption of such Options or Convertible
Securities; and
(e) in the case of any such Options which expire by their terms
not more than 30 days after the date of issue, sale, grant or assumption
thereof, no adjustment of the Warrant Quantity shall be made until the
expiration or exercise of all such Options, whereupon such adjustment shall
be made in the manner provided in subdivision (c) above; provided however
that if any Warrant is exercised within such 30-day period, any adjustment
made upon expiration or exercise of all such Options shall be made
retroactively to the date such Warrant was exercised and the Company shall
deliver to the person to whom the shares of Common Stock (or Other
Securities) were issued upon such Warrant exercise, without requiring any
additional consideration, the additional securities issuable as a result of
such retroactive adjustment.
2.4. Treatment of Stock Dividends, Stock Splits, etc. In case the
-----------------------------------------------
Company at any time or from time to time after the date hereof shall declare or
pay any dividend on the Common Stock payable in Common Stock, or shall effect a
subdivision of the outstanding shares of Common Stock into a greater number of
shares of Common Stock (by reclassification or otherwise than by payment of a
dividend in Common Stock), then, and in each such case, Additional Shares of
Common Stock shall be deemed to have been issued (a) in the case of any such
-
dividend, immediately after the close of business on the record date for the
determination of holders of any class of securities entitled to receive such
dividend, or (b) in the case of any such subdivision, at the close of business
-
on the day immediately prior to the day upon which such corporate action becomes
effective.
2.5. Computation of Consideration. For the purposes of this Section
----------------------------
2,
(a) the consideration for the issue or sale of any Additional
Shares of Common Stock shall, irrespective of the accounting treatment of
such consideration,
(i) insofar as it consists of cash, be computed at the net
amount of cash received by the Company, without deducting any expenses
paid or incurred by the Company or any commissions or compensations
paid or concessions or discounts allowed to underwriters, dealers or
others performing similar services in connection with such issue or
sale,
(ii) insofar as it consists of property (including
securities) other than cash, be computed at the fair value thereof at
the time of such issue or sale, as determined in good faith by the
Board of Directors of the Company (if Holder objects to such
determination, Holder may seek and receive, at the Company's expense,
third party appraisal, which shall be the exclusive and binding
determination to be used) and
(iii) in case Additional Shares of Common Stock are issued
or sold together with other stock or securities or other assets of the
Company for a consideration which covers both, be the portion of such
consideration so received,
6
<PAGE>
computed as provided in clauses (i) and (ii) above, allocable to such
Additional Shares of Common Stock, all as determined in good faith by
the Board of Directors of the Company (if Holder objects to such
determination, Holder may seek and receive, at the Company's expense,
third party appraisal, which shall be the exclusive and binding
determination to be used);
(b) Additional Shares of Common Stock deemed to have been issued
pursuant to Section 2.3, relating to Options and Convertible Securities,
shall be deemed to have been issued for a consideration per share
determined by dividing
(i) the total amount, if any, received and receivable by the
Company as consideration for the issue, sale, grant or assumption of
the Options or Convertible Securities in question, plus the minimum
aggregate amount of additional consideration (as set forth in the
instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such consideration to
protect against dilution) payable to the Company upon the exercise in
full of such Options or the conversion or exchange of such Convertible
Securities or, in the case of Options for Convertible Securities, the
exercise of such Options for Convertible Securities and the conversion
or exchange of such Convertible Securities, in each case computing
such consideration as provided in the foregoing subdivision (a),
by
(ii) the maximum number of shares of Common Stock (as set
forth in the instruments relating thereto, without regard to any
provision contained therein for a subsequent adjustment of such number
to protect against dilution) issuable upon the exercise of such
Options or the conversion or exchange of such Convertible Securities;
and
(c) Additional Shares of Common Stock deemed to have been issued
pursuant to Section 2.4 relating to stock dividends, stock splits, etc.,
shall be deemed to have been issued for no consideration.
2.6. Adjustments for Combinations, etc. In case the outstanding shares
----------------------------------
of Common Stock shall be combined or consolidated, by reclassification or
otherwise, into a lesser number of shares of Common Stock, the Warrant Quantity
in effect immediately prior to such combination or consolidation shall,
concurrently with the effectiveness of such combination or consolidation, be
proportionately decreased.
2.7. Dilution in Case of Other Securities. In case any Other
Securities shall be issued or sold or shall become subject to issue or sale upon
the conversion or exchange of any stock (or Other Securities) of the Company (or
any issuer of Other Securities or any other Person referred to in Section 3) or
to subscription, purchase or other acquisition pursuant to any Options issued or
granted by the Company (or any such other issuer or Person) for a consideration
such as to dilute, on a basis consistent with the standards established in the
other provisions of this Section 2, the purchase rights granted by this Warrant,
then, and in each such case, the computations, adjustments
7
<PAGE>
and readjustments provided for in this Section 2 with respect to the Warrant
Quantity shall be made as nearly as possible in the manner so provided and
applied to determine the amount of Other Securities from time to time receivable
upon the exercise of the Warrant, so as to protect the Holder against the effect
of such dilution.
2.8. Minimum Adjustment of Warrant Quantity. If the amount of any
---------------------------------------
adjustment of the Warrant Quantity required pursuant to this Section 2 would be
less than one tenth (1/10) of one percent (1%) of the Warrant Quantity in effect
at the time such adjustment is otherwise so required to be made, such amount
shall be carried forward and adjustment with respect thereto made at the time of
and together with any subsequent adjustment which, together with such amount and
any other amount or amounts so carried forward, shall aggregate at least one
tenth (1/10) of one percent (1%) of such Warrant Quantity. All calculations
under this Warrant shall be made to the nearest one-hundredth of a share.
2.9. Abandoned Dividend or Distribution. If the Company shall take a
----------------------------------
record of the holders of its Common Stock for the purpose of entitling them to
receive a dividend or other distribution (which results in an adjustment to the
Warrant Quantity under the terms of this Warrant) and shall, thereafter, and
before such dividend or distribution is paid or delivered to shareholders
entitled thereto, legally abandon its plan to pay or deliver such dividend or
distribution, then any adjustment made to the Warrant Quantity by reason of the
taking of such record shall be reversed, and any subsequent adjustments, based
thereon, shall be recomputed.
2.10. Stock Options, Warrants and Convertible Securities. The
--------------------------------------------------
adjustment provisions of this Section 2 do not and will not operate to affect
any adjustment of any shares of Common Stock granted to employees of the Company
through stock options issued pursuant to any Company Stock Option Plan of the
Company in effect as of the date hereof; the provisions of this Section 2 shall
not affect any (i) warrants granting the right to purchase shares of Common
Stock outstanding as of the date hereof or (ii) securities convertible into
shares of Common Stock existing or in effect as of the date hereof. Exhibit C,
attached hereto, contains a complete schedule of all stock options or awards
that have been issued pursuant to any Company Stock Option Plan and any warrants
or convertible securities issued as of the date hereof. All other options,
warrants, convertible securities or other debt or equity instruments of the
Company existing as of the date hereof or issued at any time hereafter shall be
subject to the adjustment provisions of this Section 2.
3. Consolidation, Merger, etc.
--------------------------
3.1. Adjustments for Consolidation, Merger, Sale of Assets,
------------------------------------------------------
Reorganization, etc.
- --------------------
In case the Company after the date hereof (a) shall consolidate with
or merge into any other Person and shall not be the continuing or surviving
corporation of such consolidation or merger, or (b) shall permit any other
Person to consolidate with or merge into the Company and the Company shall be
the continuing or surviving Person but, in connection with such consolidation or
merger, the Common Stock or Other Securities shall be changed into or exchanged
for stock or other securities of any other Person or cash or any other property,
or (c) shall transfer all or substantially all of its properties or assets to
any other Person, or (d) shall effect a capital reorganization or
reclassification resulting in the issue of Additional Shares of Common Stock for
which adjustment in the Warrant Quantity is provided in Section 2.2.1 or 2.2.2,
then, and in the case of each such transaction, proper provision
8
<PAGE>
shall be made so that, upon the basis and the terms and in the manner provided
in this Warrant, the Holder, upon the exercise hereof at any time after the
consummation of such transaction, shall be entitled to receive (at the aggregate
purchase price in effect at the time of such consummation for all Common Stock
or Other Securities issuable upon such exercise immediately prior to such
consummation), in lieu of the Common Stock or Other Securities issuable upon
such exercise prior to such consummation, the highest amount of securities, cash
or other property to which such Holder would actually have been entitled as a
shareholder upon such consummation if such Holder had exercised the rights
represented by this Warrant immediately prior thereto, subject to adjustments
(subsequent to such consummation) as nearly equivalent as possible to the
adjustments provided for in Sections 2 through 4, provided that if a purchase,
--------
tender or exchange offer shall have been made to and accepted by the holders of
more than 50% of the outstanding shares of Common Stock, and if the Holder so
designates in a notice given to the Company on or before the date immediately
preceding the date of the consummation of such transaction, the Holder shall be
entitled to receive the highest amount of securities, cash or other property to
which such Holder would actually have been entitled as a shareholder if the
Holder had exercised this Warrant prior to the expiration of such purchase,
tender or exchange offer and accepted such offer, subject to adjustments (from
and after the consummation of such purchase, tender or exchange offer) as nearly
equivalent as possible to the adjustments provided for in Sections 2 through 4.
3.2. Assumption of Obligations. Notwithstanding anything contained in
-------------------------
the Warrant or in the Indenture to the contrary, the Company will not effect any
of the transactions described in clauses (a) through (d) of Section 3.1 unless,
prior to the consummation thereof, each Person (other than the Company) which
may be required to deliver any stock, securities, cash or property upon the
exercise of this Warrant as provided herein shall assume, by written instrument
delivered to, and reasonably satisfactory to, the Holder, (a) the obligations of
-
the Company under this Warrant (and if the Company shall survive the
consummation of such transaction, such assumption shall be in addition to, and
shall not release the Company from, any continuing obligations of the Company
under this Warrant) and (b) the obligation to deliver to such Holder such shares
-
of stock, securities, cash or property as, in accordance with the foregoing
provisions of this Section 3, such Holder may be entitled to receive, and such
Person shall have similarly delivered to such Holder an opinion of counsel for
such Person, which counsel shall be reasonably satisfactory to such Holder,
stating that this Warrant shall thereafter continue in full force and effect and
the terms hereof (including, without limitation, all of the provisions of this
Section 3) shall be applicable to the stock, securities, cash or property which
such Person may be required to deliver upon any exercise of this Warrant or the
exercise of any rights pursuant hereto. Nothing in this Section 3 shall be
deemed to authorize the Company to enter into any transaction not otherwise
permitted by the Indenture.
4. Other Dilutive Events. In case any event shall occur as to which
---------------------
the provisions of Section 2 or Section 3 are not strictly applicable but the
failure to make any adjustment would not fairly protect the purchase rights
represented by this Warrant in accordance with the essential intent and
principles of such Sections, then in each such case the Company shall appoint a
firm of independent certified public accountants of recognized national standing
(which may be the regular auditors of the Company), which shall give their
opinion upon the adjustment, if any, on a basis consistent with the essential
intent and principles established in Sections 2 and 3, necessary to preserve,
without dilution, the purchase rights represented by this Warrant. Upon receipt
of such
9
<PAGE>
opinion, the Company will promptly mail a copy thereof to the Holder and
shall make the adjustments described therein.
5. No Dilution or Impairment. The Company will not, by amendment of
--------------------------
its articles of incorporation or through any consolidation, merger,
reorganization, transfer of assets, dissolution, issue or sale of securities or
any other voluntary action, avoid or seek to avoid the observance or performance
of any of the terms of this Warrant, but will at all times in good faith assist
in the carrying out of all such terms and in the taking of all such action as
may be necessary or appropriate in order to protect the rights of the Holder
against dilution or other impairment.Without limiting the generality of the
foregoing, the Company (a) shall not permit the par value of any shares of stock
-
receivable upon the exercise of this Warrant to exceed the amount payable
therefor upon such exercise, (b) will take all such action as may be necessary
-
or appropriate in order that the Company may validly and legally issue fully
paid and nonassessable shares of stock, free from all taxes, liens, security
interests, encumbrances, preemptive rights and charges on the exercise of the
Warrants from time to time outstanding, (c) will not take any action which
-
results in any adjustment of the Warrant Quantity if the total number of shares
of Common Stock (or Other Securities) issuable after the action upon the
exercise of all of the Warrants would exceed the total number of shares of
Common Stock (or Other Securities) then authorized by the Company's articles of
incorporation and available and reserved for the purpose of issue upon such
exercise, and (d) will not issue any capital stock of any class which is
-
preferred as to dividends or as to the distribution of assets upon voluntary or
involuntary dissolution, liquidation or winding-up, unless the rights of the
holders thereof shall be limited to a fixed sum or percentage of par value or a
sum determined by reference to a formula based on a published index of interest
rates, an interest rate publicly announced by a financial institution or a
similar indicator of interest rates in respect of participation in dividends and
to a fixed sum or percentage of par value in any such distribution of assets.
6. Accountants' Report as to Adjustments. In each case of any
-------------------------------------
adjustment or readjustment in the shares of Common Stock (or Other Securities)
issuable upon the exercise of this Warrant, the Company at its expense will
promptly compute such adjustment or readjustment in accordance with the terms of
this Warrant and cause independent certified public accountants of recognized
national standing (which may be the regular auditors of the Company) selected by
the Company to verify such computation (other than any computation of the fair
value of property as determined in good faith by the Board of Directors of the
Company (if Holder objects to such determination, Holder may seek and receive,
at the Company's expense third party appraisal, which shall be the exclusive and
binding determination to be used)) and prepare a report setting forth such
adjustment or readjustment and showing in reasonable detail the method of
calculation thereof and the facts upon which such adjustment or readjustment is
based, including a statement of (a) the consideration received or to be received
-
by the Company for any Additional Shares of Common Stock issued or sold or
deemed to have been issued, (b) the number of shares of Common Stock outstanding
-
or deemed to be outstanding, and (c) the Warrant Quantity in effect immediately
-
prior to such issue or sale and as adjusted and readjusted (if required by
Section 2) on account thereof. The Company will forthwith mail a copy of each
such report to each Holder of a Warrant and will, upon the written request at
any time of any Holder of a Warrant, furnish to such Holder a like report
setting forth the Warrant Quantity at the time in effect and showing in
reasonable detail how it was calculated. The Company will also keep copies of
all such reports at its principal office and will cause
10
<PAGE>
the same to be available for inspection at such office during normal business
hours by any Holder of a Warrant or any prospective purchaser of a Warrant
designated by the Holder thereof.
7. Financial and Business Information.
----------------------------------
7.1. Quarterly Information. If during any period the Company (i) is
---------------------
not subject to the reporting requirements of Section 15(d) of the Exchange Act
and (ii) does not have securities registered under Section 12(b) or 12 (g) of
the Exchange Act, the Company will deliver to the Holder, as soon as practicable
after the end of each quarterly fiscal period in each fiscal year of the
Company, and in any event within 60 days thereafter, a copy of the unaudited
consolidated balance sheet as at the close of such quarter, and the related
unaudited consolidated statements of income, shareholders' equity and cash flow
of the Company and its subsidiaries for that portion of the fiscal year ending
as of the close of such quarter. Such financial statements shall be prepared by
the Company in accordance with generally accepted accounting principles, applied
on a consistent basis ("GAAP") (subject to normal year end adjustments and the
inclusion of footnotes) and accompanied by the certification of the Company's
chief executive officer or chief financial officer that, to the best of his
knowledge, such financial statements are complete and correct in all material
respects and fairly present in accordance with GAAP (subject to normal year end
adjustments and the inclusions of footnotes) the consolidated financial
position, the consolidated statements of income, shareholder equity and cash
flow of the Company and its subsidiaries as at the end of such quarter and for
such year-to-date period, as the case may be. If during any period the Company
either (i) is subject to the reporting requirements of Section 15(g) of the
Exchange Act or (ii) has securities registered under Section 12(b) or 12(g) of
the Exchange Act, the Company shall be considered a "Public Company" and need
not provide the information required by this Section 7.1.
7.2. Annual Information. If during any period the Company is not a
-------------------
Public Company, the Company will deliver to the Holder as soon as practicable
after the end of each fiscal year of the Company, and in any event within 120
days thereafter, one copy of:
(i) an audited consolidated balance sheet of the Company
and its subsidiaries as at the end of such year, and
(ii) audited consolidated statements of income,
shareholders' equity and cash flow of the Company and its subsidiaries
for such year;
setting forth in each case in comparative form the figures for the corresponding
periods in the previous fiscal year, all prepared in accordance with GAAP, and
which audited financial statements shall be accompanied by (i) a certification
of the chief executive officer or chief financial officer of the Company that,
to the best of his knowledge, all such financial statements are complete and
correct in all material respects and present fairly in accordance with GAAP the
consolidated financial position of the Company and its subsidiaries as at the
end of such fiscal year and for the period then ended, (ii) an opinion thereon
of the independent certified public accountants regularly retained by the
Company, or any other firm of independent certified public accountants of
recognized national standing selected by the Company, and (iii) a report of such
independent certified public accountants confirming any adjustment make pursuant
to Section 2 during such year.
11
<PAGE>
7.3. Filings. During any period when the Company is a Public Company,
-------
the Company will file on or before the required date all required regular or
periodic reports (pursuant to the Exchange Act) with the Commission and will
deliver to the Holder promptly upon their becoming available one copy of each
report, notice or proxy statement sent by the Company to its stockholders
generally, and of each regular or periodic report (pursuant to the Exchange Act)
and any registration statement, prospectus or written communication (other than
transmittal letters) (pursuant to the Securities Act), filed by the Company with
(i) the Commission or (ii) any securities exchange on which shares of Common
Stock (or Other Securities) are listed.
7.4. Notices of Corporate Action. In the event of
---------------------------
(a) any taking by the Company of a record of the holders of any
class of securities for the purpose of determining the holders thereof who
are entitled to receive any dividend (other than a regular periodic
dividend payable in cash out of earned surplus in an amount not exceeding
the amount of the immediately preceding cash dividend for such period) or
other distribution, or any right to subscribe for, purchase or otherwise
acquire any shares of stock of any class or any other securities or
property, or to receive any other right, or
(b) any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company or
any consolidation or merger involving the Company and any other Person, any
transaction or series of transactions in which more than 50% of the Voting
Securities of the Company are transferred to another Person or any
transfer, sale or other disposition of all or substantially all the assets
of the Company to any other Person, or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company,
the Company will mail to the Holder a notice specifying (i) the date or expected
date on which any such record is to be taken for the purpose of such dividend,
distribution or right, and the amount and character of such dividend,
distribution or right, and (ii) the date or expected date on which any such
reorganization, reclassification, recapitalization, consolidation, merger,
transfer, dissolution, liquidation or winding-up is to take place and the time,
if any such time is to be fixed, as of which the holders of record of Common
Stock (or Other Securities) shall be entitled to exchange their shares of Common
Stock (or Other Securities) for the securities or other property deliverable
upon such reorganization, reclassification, recapitalization, consolidation,
merger, transfer, dissolution, sale, disposition, liquidation or winding-up.
Such notice shall be mailed at least 45 days prior to the date therein
specified.
8. Registration of Common Stock. The Company will use its best
efforts to register the shares of Common Stock (or Other Securities) issuable
upon exercise of this Warrant so that the Person exercising this Warrant
receives registered securities. In accordance with this Section 8, the Company
has entered into a Registration Rights Agreement, dated April 24, 1998, with
each of the Holders. Such Registration Rights Agreement provides for demand and
piggyback registration rights with respect to all such securities. If any shares
of Common Stock (or Other Securities)
12
<PAGE>
issuable upon exercise of this Warrant require registration with or approval of
any governmental authority under any federal or state law (other than securities
laws), the Company will, at its expense and as expeditiously as possible, use
its best efforts to cause such shares of Common Stock (or Other Securities) to
be duly registered or approved, as the case may be. Immediately upon the
exercise of this Warrant, or any portion thereof, the Company will, at its
expense, obtain promptly and maintain the approval for listing on each such
exchange, upon official notice of issuance, the shares of Common Stock issuable
upon exercise of the then outstanding Warrants and maintain the listing of such
shares after their issuance.
9. Restrictions on Transfer.
------------------------
9.1. Restrictive Legends. Except as otherwise permitted by this
-------------------
Section 9, each Warrant (including each Warrant issued upon the transfer of any
Warrant) shall be stamped or otherwise imprinted with a legend in substantially
the following form:
"THIS WARRANT AND ANY SECURITIES ACQUIRED UPON EXERCISE OF THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR THE SECURITIES LAW OF ANY STATE AND MAY NOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF (OTHER THAN TO ACCREDITED INVESTORS)
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND
APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION TO
THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS. THIS WARRANT AND
SUCH SECURITIES MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF
EXCEPT IN COMPLIANCE WITH THE CONDITIONS SPECIFIED IN THIS WARRANT.
Except as otherwise permitted by this Section 9, each certificate for Common
Stock (or Other Securities) issued upon the exercise of any Warrant, and each
certificate issued upon the transfer of any such Common Stock (or Other
Securities), shall be stamped or otherwise imprinted with a legend in
substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES
LAW OF ANY STATE, AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF
(OTHER THAN TO ACCREDITED INVESTORS) EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS
OR PURSUANT TO AN APPLICABLE EXEMPTION TO THE REGISTRATION REQUIREMENTS OF
SUCH ACT AND SUCH LAWS. SUCH SECURITIES MAY NOT BE SOLD, TRANSFERRED OR
OTHERWISE DISPOSED OF EXCEPT IN COMPLIANCE WITH THE CONDITIONS SPECIFIED IN
CERTAIN COMMON STOCK PURCHASE WARRANTS ISSUED BY POLYPHASE CORPORATION,
PURSUANT TO THE COMMON STOCK PURCHASE WARRANT, DATED APRIL 24, 1998. A
13
<PAGE>
COMPLETE AND CORRECT COPY OF THE FORM OF SUCH WARRANT IS AVAILABLE FOR
INSPECTION AT THE PRINCIPAL OFFICE OF POLYPHASE CORPORATION, OR AT THE
OFFICE OR AGENCY MAINTAINED BY POLYPHASE CORPORATION, AS PROVIDED IN SUCH
WARRANTS AND WILL BE FURNISHED TO THE HOLDER OF SUCH SECURITIES UPON
WRITTEN REQUEST AND WITHOUT CHARGE."
9.2. Transfer to Comply With the Securities Act. Restricted
------------------------------------------
Securities may not be sold, assigned, pledged, hypothecated, encumbered or in
any manner transferred or disposed of, in whole or in part (other than to
accredited investors), except in compliance with the provisions of the
Securities Act and state securities or Blue Sky laws and the terms and
conditions hereof.
9.3. Termination of Restrictions. The restrictions imposed by this
---------------------------
Section 9 on the transferability of Restricted Securities shall cease and
terminate as to any particular Restricted Securities (a) when a registration
statement with respect to the sale of such securities shall have been declared
effective under the Securities Act and such securities shall have been disposed
of in accordance with such registration statement, (b) when such securities are
sold pursuant to Rule 144 (or any similar provision then in force) under the
Securities Act, or (c) when, in the opinion of both counsel for the Holder and
counsel for the Company, such restrictions are not longer required or necessary
in order to protect the Company against a violation of the Securities Act upon
any sale or other disposition of such securities without registration
thereunder. Whenever such restrictions shall cease and terminate as to any
Restricted Securities, the Holder shall be entitled to receive from the Company,
without expense, new securities of like tenor not bearing the applicable legends
required by Section 9.1.
10. Reservation of Stock, etc. The Company shall at all times reserve
-------------------------
and keep available, solely for issuance and delivery upon exercise of the
Warrants, the number of shares of Common Stock (or Other Securities) from time
to time issuable upon exercise of all Warrants at the time outstanding. All
shares of Common Stock (or Other Securities) issuable upon exercise of any
Warrants shall be duly authorized and, when issued upon such exercise, shall be
validly issued and, in the case of shares, fully paid and nonassessable with no
liability on the part of the holders thereof, and, in the case of all
securities, shall be free from all taxes, liens, security interests,
encumbrances, preemptive rights and charges. The transfer agent for the Common
Stock, which may be the Company ("Transfer Agent"), and every subsequent
Transfer Agent for any shares of the Company's capital stock issuable upon the
exercise of any of the purchase rights represented by this Warrant, are hereby
irrevocably authorized and directed at all times until the Expiration Date to
reserve such number of authorized and unissued shares as shall be requisite for
such purpose. The Company shall keep copies of this Warrant on file with the
Transfer Agent for the Common Stock and with every subsequent Transfer Agent for
any shares of the Company's capital stock issuable upon the exercise of the
rights of purchase represented by this Warrant. The Company shall supply such
Transfer Agent with duly executed stock certificates for such purpose. All
Warrant certificates surrendered upon the exercise of the rights thereby
evidenced shall be canceled, and such canceled Warrants shall constitute
sufficient evidence of the number of shares of stock which have been issued upon
the exercise of such Warrants. Subsequent to the Expiration Date, no shares of
stock need be reserved in respect of any unexercised Warrant.
14
<PAGE>
11. Registration and Transfer of Warrants, etc.
-------------------------------------------
11.1. Warrant Register; Ownership of Warrants. Each Warrant issued by
---------------------------------------
the Company shall be numbered and shall be registered in a warrant register (the
"Warrant Register") as it is issued and transferred, which Warrant Register
shall be maintained by the Company at its principal office or, at the Company's
election and expense, by a Warrant Agent or the Company's transfer agent. The
Company shall be entitled to treat the registered Holder of any Warrant on the
Warrant Register as the owner in fact thereof for all purposes and shall not be
bound to recognize any equitable or other claim to or interest in such Warrant
on the part of any other Person, and shall not be affected by any notice to the
contrary, except that, if and when any Warrant is properly assigned in blank,
the Company may (but shall not be obligated to) treat the bearer thereof as the
owner of such Warrant for all purposes. Subject to Section 9, a Warrant, if
properly assigned, may be exercised by a new holder without a new Warrant first
having been issued.
11.2. Transfer of Warrants. Subject to compliance with Section 9, if
--------------------
applicable, this Warrant and all rights hereunder are transferable in whole or
in part, without charge to the Holder hereof, upon surrender of this Warrant
with a properly executed Form of Assignment attached hereto as Exhibit B at the
principal office of the Company. Upon any partial transfer, the Company shall at
its expense issue and deliver to the Holder a new Warrant of like tenor, in the
name of the Holder, which shall be exercisable for such number of shares of
Common Stock with respect to which rights under this Warrant were not so
transferred.
11.3. Bond and Warrant Repurchase Option. Upon delivery to the Holder
----------------------------------
of the Warrants contemplated by this Agreement, the Holder hereby grants to the
Company an option to repurchase the remaining Bonds, issued pursuant to the
Indenture, dated as of July 5, 1994 among the Company and IBJ Schroder Bank and
Trust Company (the "Bonds"), held by it at par plus interest accrued thereon
through the date of repurchase, such repurchase to occur no later than September
5, 1998. Provided that the Company exercises its option to repurchase the
remaining Bonds as noted above and completes such repurchase, it is granted an
option to repurchase, concurrently with the exercise of its Bond repurchase
right, this Warrant to the extent it relates to 50,000 shares of Common Stock
for $525 from the Holder. Until such option expires, the Holder shall be
obligated to retain this Warrant to the extent it relates to 52,500 shares of
Common Stock.
11.4. Replacement of Warrants. On receipt by the Company of evidence
-----------------------
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of this Warrant and, in the case of any such loss, theft or
destruction of this Warrant, on delivery of an indemnity agreement reasonably
satisfactory in form and amount to the Company or, in the case of any such
mutilation, on surrender of such Warrant to the Company at its principal office
and cancellation thereof, the Company at its expense shall execute and deliver,
in lieu thereof, a new Warrant of like tenor.
11.5. Adjustments To Warrant Quantity. Notwithstanding any adjustment
-------------------------------
in the Warrant Quantity or in the number or kind of shares of Common Stock (or
Other Securities) purchasable upon exercise of this Warrant, any Warrant
theretofore or thereafter issued may continue to express the same number and
kind of shares of Common Stock as are stated in this Warrant, as initially
issued.
15
<PAGE>
11.6. Fractional Shares. Notwithstanding any adjustment pursuant to
-----------------
Section 2 in the number of shares of Common Stock covered by this Warrant or any
other provision of this Warrant, the Company may, but shall not be required to,
issue fractions of shares upon exercise of this Warrant or to distribute
certificates which evidence fractional shares. In lieu of fractional shares, the
Company shall may payment to the Holder, at the time of exercise of this Warrant
as herein provided, in an amount in cash equal to such fraction multiplied by
the Current Market Price of a share of Common Stock on the date of Warrant
exercise.
12. Definitions. As used herein, unless the context otherwise
-----------
requires, the following terms have the following respective meanings:
Additional Shares of Common Stock: All shares (including treasury
---------------------------------
shares) of Common Stock issued or sold (or, pursuant to Section 2.3 or 2.4,
deemed to be issued) by the Company after the date hereof, whether or not
subsequently reacquired or retired by the Company, other than
(a) shares issued upon the exercise of the Warrant,
(b) such additional number of shares as may become issuable upon
the exercise of the Warrant by reason of adjustments required pursuant to
anti-dilution provisions applicable to the Warrant as in effect on the date
hereof,
(c) shares, warrants, options and other securities issued at any
time to the Holder or any Affiliate thereof.
Affiliate: Any Person that directly or indirectly, through one or
---------
more intermediaries, controls, is controlled by, or is under common control
with, the applicable Person. For purposes of this definition "control" has the
meaning specified in Rule 12b-2 under the Exchange Act.
Business Day: Any day other than a Saturday or Sunday or a day on
------------
which commercial banking institutions in the City of New York are authorized by
law to be closed. Any reference to "days" (unless Business Days are specified)
shall mean calendar days.
Code: As defined in Section 1.6.
----
Commission: The Securities and Exchange Commission or any other
----------
federal agency at the time administering the Securities Act.
Common Stock: As defined in the introduction to this Warrant, such
------------
term to include any stock into which such Common Stock shall have been changed
or any stock resulting from any reclassification of such Common Stock, and all
other stock of any class or classes (however designated) of the Company the
holders of which have the right, without limitation as to amount, either to all
or to a share of the balance of current dividends and liquidating dividends
after the payment of dividends and distributions on any shares entitled to a
preference.
16
<PAGE>
Company: As defined in the introduction to this Warrant, such term to
-------
include any Person which shall succeed to or assume the obligations of the
Company hereunder in compliance with Section 3.
Convertible Securities: Any evidence of indebtedness, shares of stock
----------------------
(other than Common Stock) or other securities directly or indirectly convertible
into or exchangeable for Additional Shares of Common Stock.
Current Market Price: On any date specified herein, the average daily
--------------------
Market Price during the period of the most recent 20 days, ending on such date,
on which the national securities exchanges were open for trading, except that if
no Common Stock is then listed or admitted to trading on any national securities
exchange or quoted in the over-the-counter market, the Current Market Price
shall be the Market Price on such date.
Exchange Act: The Securities Exchange Act of 1934, or any similar
------------
federal statute, and the rules and regulations of the Commission thereunder, all
as the same shall be in effect at the time.
Expiration Date: As defined in the introduction to this Warrant.
---------------
Holder: As defined in the introduction to this Warrant.
------
Indenture: As defined in the introduction to the Warrant.
---------
Market Price: On any date specified herein, the amount per share of
------------
the Common Stock equal to (a) the last reported sale price of such Common Stock,
regular way, on such date or, in case no such sale takes place on such date, the
average of the closing bid and asked prices thereof, regular way, on such date,
in either case as officially reported on the principal national securities
exchange on which such Common Stock is then listed or admitted for trading, or
(b) if such Common Stock is not then listed or admitted for trading on any
national securities exchange but is designated as a national market system
security by the NASD, the last reported trading price of the Common Stock on
such date, or (c) if there shall have been no trading on such date or if the
Common Stock is not so designated, the average of the closing bid and asked
prices of the Common Stock on such date as shown by the NASD automated quotation
system, or (d) if neither a, b nor c is applicable, the higher of (x) the book
value thereof as determined by any firm of independent public accountants of
recognized standing selected by the Board of Directors of the Company as of the
last day of any month ending within 60 days preceding the date as of which the
determination is to be made and (y) the fair value thereof (as of the date which
is within 20 days of the date as of which the determination is to be made)
determined in good faith by the Board of Directors of the Company (if Holder
objects to such determination, Holder may seek and receive, at the Company's
expense, third party appraisal, which shall be the exclusive and binding
determination to be used).
NASD: The National Association of Securities Dealers, Inc.
----
Options: Rights, options or warrants to subscribe for, purchase or
-------
otherwise acquire either Additional Shares of Common Stock or Convertible
Securities.
17
<PAGE>
Other Securities. Any stock (other than Common Stock) and other
----------------
securities of the Company or any other Person (corporate or otherwise) which the
holders of the Warrants at any time shall be entitled to receive, or shall have
received, upon the exercise of the Warrants, in lieu of or in addition to Common
Stock, or which at any time shall be issuable or shall have been issued in
exchange for or in replacement of Common Stock or Other Securities pursuant to
Section 3 or otherwise.
Person: An individual, firm, partnership, corporation, professional
------
corporation, trust, joint venture, association, joint stock company, limited
liability company, unincorporated organization or any other entity or
organization, including a government or agency or political subdivision thereof,
and shall include any successor (by merger or otherwise) of such entity.
Restricted Securities: (a) any Warrants bearing the applicable legend
---------------------
set forth in Section 9.1, (b) any shares of Common Stock (or Other Securities)
issued or issuable upon the exercise of Warrants but only so long as they are
required to be evidenced by a certificate or certificates bearing the applicable
legend set forth in such Section, and (c) any shares of Common Stock (or Other
Securities) issued subsequent to the exercise of any of the Warrants as a
dividend or other distribution with respect to, or resulting from a subdivision
of the outstanding shares of Common Stock (or other Securities) into a greater
number of shares by reclassification, stock splits or otherwise, or in exchange
for or in replacement of the Common Stock (or Other Securities) issued upon such
exercise, but only so long as they are required to be evidenced by a certificate
or certificates bearing the applicable legend set forth in such Section.
Securities Act: The Securities Act of 1933, or any similar federal
--------------
statute, and the rules and regulations of the Commission thereunder, all as the
same shall be in effect at the time.
Voting Securities: Stock of any class or classes (or equivalent
-----------------
interests), if the holders of the stock of such class or classes (or equivalent
interests) are ordinarily, in the absence of contingencies, entitled to vote for
the election of the directors (or persons performing similar functions) of the
issuer, even though the right so to vote has been suspended by the happening of
such a contingency.
Warrant: As defined in the introduction to this Warrant.
-------
Warrant Quantity: As defined in the introduction to this Warrant.
----------------
13. Remedies; Specific Performance. The Company stipulates that there
------------------------------
would be no adequate remedy at law to the Holder of this Warrant in the event of
any default or threatened default by the Company in the performance of or
compliance with any of the terms of this Warrant and accordingly, the Company
agrees that, in addition to any other remedy to which the Holder may be entitled
at law or in equity, the Holder shall be entitled to seek to compel specific
performance of the obligations of the Company under this Warrant, without the
posting of any bond, in accordance with the terms and conditions of this Warrant
in any court of the United States or any State thereof having jurisdiction, and
if any action should be brought in equity to enforce any of the provisions of
this Warrant, the Company shall not raise the defense that there is an adequate
remedy at law. Except as otherwise provided by law, a delay or omission by the
Holder hereto in exercising any right or
18
<PAGE>
remedy accruing upon any such breach shall not impair the right or remedy or
constitute a waiver of or acquiescence in any such breach. No remedy shall be
exclusive of any other remedy. All available remedies shall be cumulative.
14. No Rights or Liabilities as Shareholder. Nothing contained in
---------------------------------------
this Warrant shall be construed as conferring upon the Holder hereof any rights
as a shareholder of the Company or as imposing any obligation on the Holder to
purchase any securities or as imposing any liabilities on the Holder as a
shareholder of the Company, whether such obligation or liabilities are asserted
by the Company or by creditors of the Company.
15. Notices. All notices and other communications (and deliveries)
-------
provided for or permitted hereunder shall be made in writing by hand delivery,
telecopier, any courier guaranteeing overnight delivery or first class
registered or certified mail, return receipt requested, postage prepaid,
addressed (a) if to the Company, to the attention of its Chief Financial Officer
at its principal office located at 4800 Broadway, Suite A, Dallas, Texas 75248
or such other address as may hereafter be designated in writing by the Company
to the Holder in accordance with the provisions of this Section, or (b) if to
the Holder, at its address as it appears in the Warrant Register.
All such notices and communications (and deliveries) shall be deemed
to have been duly given: at the time delivered by hand, if personally
delivered; when receipt is acknowledged or confirmed (by automatic confirmation
or otherwise), if telecopied; on the next Business Day, if timely delivered to a
courier guaranteeing overnight delivery; and five days after being deposited in
the mail, if sent first class or certified mail, return receipt requested,
postage prepaid; provided, that the exercise of any Warrant shall be effective
--------
in the manner provided in Section 1.
16. Amendments. This Warrant and any term hereof may not be amended,
----------
modified, supplemented or terminated, and waivers or consents to departures from
the provisions hereof may not be given, except by written instrument duly
executed by the party against which enforcement of such amendment, modification,
supplement, termination or consent to departure is sought.
17. Descriptive Headings, Etc. The headings in this Warrant are for
-------------------------
convenience of reference only and shall not limit or otherwise affect the
meaning of terms contained herein. Unless the context of this Warrant otherwise
requires: (1) words of any gender shall be deemed to include each other gender;
(2) words using the singular or plural number shall also include the plural or
singular number, respectively; (3) the words "hereof," "herein" and "hereunder"
and words of similar import when used in this Warrant shall refer to this
Warrant as a whole and not to any particular provision of this Warrant, and
Section and paragraph references are to the Sections and paragraphs of this
Warrant unless otherwise specified; (4) the word "including" and words of
similar import when used in this Warrant shall mean "including, without
limitation," unless otherwise specified; (5) "or" is not exclusive; and (6)
provisions apply to successive events and transactions.
18. GOVERNING LAW. This Warrant shall be governed by, and construed
--------------
in accordance with, the laws of the State of Texas (without giving effect to the
conflict of laws principles thereof).
19
<PAGE>
19. Judicial Proceedings; Waiver of Jury. Any legal action, suit or
------------------------------------
proceeding brought against the Company with respect to this Warrant may be
brought in any federal court of Texas or any state court located in Dallas
County, State of Texas, and by execution and delivery of this Warrant, the
Company hereby irrevocably and unconditionally waives any claim (by way of
motion, as a defense or otherwise) of improper venue, that it is not subject
personally to the jurisdiction of such court, that such courts are an
inconvenient forum or that this Warrant or the subject matter may not be
enforced in or by such court. The Company irrevocably submits to the exclusive
jurisdiction of the aforementioned courts in such action, suit or proceeding.
The Company hereby irrevocably and unconditionally consents to the service of
process of any of the aforementioned courts in any such action, suit or
proceeding by the mailing of copies thereof by registered or certified mail,
postage prepaid, at its address set forth or provided for in Section 15 (with
copies of such process also being sent to the Company's counsel referred to in
such section), such service to become effective 10 days after such mailing.
Nothing herein contained shall be deemed to affect the right of any party to
serve process in any manner permitted by law or commence legal proceedings or
otherwise proceed against any other party in any other jurisdiction to enforce
judgments obtained in any action, suit or proceeding brought pursuant to this
Section. THE COMPANY HEREBY IRREVOCABLY WAIVES TRIAL BY JURY IN ANY ACTION, SUIT
OR PROCEEDING, WHETHER AT LAW OR EQUITY, BROUGHT BY IT OR THE HOLDER IN
CONNECTION WITH THIS WARRANT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
20. Counterparts. This Warrant may be executed in any number of
------------
counterparts, each of which shall be deemed an original, but all such
counterparts shall together constitute one and the same instrument.
POLYPHASE CORPORATION
By:__________________________
Name:________________________
Title:_______________________
MERILL LYNCH CONVERTIBLE FUND, INC.
By:_________________________________
Name:
Title:
20
<PAGE>
Exhibit A
---------
FORM OF SUBSCRIPTION
--------------------
[To be executed only upon exercise of Warrant]
To: POLYPHASE CORPORATION
The undersigned registered holder of the within Warrant hereby irrevocably
exercises such Warrant for, and purchases thereunder, _____* shares of Common
stock of POLYPHASE CORPORATION and herewith makes payment of $___________
therefor, and requests that the certificates for such shares be issued in the
name of, and delivered to ___________________________ whose address is
__________________________________________________.
Dated:
Dated:
___________________________________________
(Signature must conform in all respects to
the name of holder as specified on the face
of Warrant)
___________________________________________
(Street Address)
___________________________________________
(City) (State) (Zip Code)
__________________________
*Insert here the number of shares called for on the face of this Warrant (or
in the case of a partial exercise, the portion thereof as to which this Warrant
is being exercised), in either case without making any adjustment for Additional
Shares of Common Stock or any other stock or other securities or property or
cash which, pursuant to the adjustment provisions of this Warrant, may be
delivered upon exercise. In the case of partial exercise, a new Warrant or
Warrants will be issued and delivered, representing the unexercised portion of
the Warrant, to the holder surrendering the Warrant.
21
<PAGE>
Exhibit B
---------
FORM OF ASSIGNMENT
------------------
[To be executed only upon assignment of Warrant]
For value received, the undersigned registered holder of the within Warrant
hereby sells, assigns and transfers unto ______________________ the right
represented by such Warrant to purchase _____** shares of Common Stock of
POLYPHASE CORPORATION to which such Warrant relates, and appoints
________________ Attorney to make such transfer on the books of POLYPHASE
CORPORATION maintained for such purpose, with full power of substitution in the
premises.
Dated:
__________________________________________
(Signature must conform in all respects to
the name of holder as specified on the face
of Warrant)
__________________________________________
(Street Address)
__________________________________________
(City) (State) (Zip Code)
Signed in the presence of:
_______________________________
______________________
** Insert here the number of shares called for on the face of this Warrant
(or in the case of a partial exercise, the portion thereof as to which this
Warrant is being exercised), in either case without making any adjustment for
Additional Shares of Common Stock or any other stock or other securities or
property or cash which, pursuant to the adjustment provisions of this Warrant,
may be delivered upon exercise. In the case of partial exercise, a new Warrant
or Warrants will be issued and delivered, representing the unexercised portion
of the Warrant, to the holder surrendering the Warrant.
22
<PAGE>
Exhibit C
---------
1. As of April 24, 1998, there are Stock Options to purchase 585,000
shares of Polyphase Corporation's Common Stock outstanding and exercisable under
Polyphase Corporation's 1994 Employee Stock Option Plan.
2. As of April 24, 1998, James R. Rudis holds outstanding and exercisable
Stock Options to purchase 146,500 shares of Polyphase Common Stock.
3. As of April 24, 1998, William Shatley holds outstanding and exercisable
Stock Options to purchase 146,500 shares of Polyphase Common Stock.
4. As of April 24, 1998, George Schrader holds outstanding and exercisable
Stock Options to purchase 50,000 shares of Polyphase Common Stock.
5. As of April 24, 1998, Black Sea Investments, Ltd., holds outstanding
and exercisable warrants to purchase 500,000 shares of Polyphase Corporation's
Common Stock.
6. As of April 24, 1998, Infinity Investors Limited, holds shares of
Polyphase Corporation's Convertible Preferred Stock which are convertible into
an aggregate value of $1,250,000 of Polyphase Corporation's Common Stock.
7. As of April 24, 1998, Merrill Lynch holds an aggregate value of
$1,200,000 face amount of Polyphase Corporation's Convertible Debentures which
are convertible at $3.00 per share into 400,000 shares of Polyphase
Corporation's Common Stock.
23
<PAGE>
Exhibit 10.84
[Market Warrant]
- -------------------------------------------------------------------------------
Polyphase Corporation
Common Stock Purchase Warrant
Dated as of April 24, 1998
- -------------------------------------------------------------------------------
THIS WARRANT AND ANY SECURITIES ACQUIRED UPON EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES
LAW OF ANY STATE AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND
APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION TO THE
REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS. THIS WARRANT AND SUCH
SECURITIES MAY NOT BE SOLD, TRANSFERRED (OTHER THAN TO ACCREDITED INVESTORS) OR
OTHERWISE DISPOSED OF EXCEPT IN COMPLIANCE WITH THE CONDITIONS SPECIFIED IN THIS
WARRANT.
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. Exercise of Warrant................................................... 1
1.1. Manner of Exercise.................................................... 1
1.2. When Exercise Effective............................................... 2
1.3. Delivery of Stock Certificates, etc................................... 2
1.4. Company to Reaffirm Obligations....................................... 2
1.5. Payment by Application of Shares Otherwise Issuable................... 2
1.6. Tax Basis. 2
2. Adjustment of Common Stock Issuable Upon Exercise..................... 3
2.1. General; Warrant Quantity............................................. 3
2.2. Adjustment of Warrant Quantity........................................ 3
2.2.1 Issuance of Additional Shares of Common Stock......................... 3
2.2.2 Extraordinary Dividends and Distributions............................. 3
2.3. Treatment of Options and Convertible Securities....................... 4
2.4. Treatment of Stock Dividends, Stock Splits, etc....................... 6
2.5. Computation of Consideration.......................................... 6
2.6. Adjustments for Combinations, etc..................................... 7
2.7. Dilution in Case of Other Securities.................................. 7
2.8. Minimum Adjustment of Warrant Quantity................................ 8
2.9. Abandoned Dividend or Distribution.................................... 8
2.10. Stock Options, Warrants and Convertible Securities.................... 8
3. Consolidation, Merger, etc............................................ 8
3.1. Adjustments for Consolidation, Merger, Sale of Assets,
Reorganization, etc.................................................. 8
3.2. Assumption of Obligations............................................. 9
4. Other Dilutive Events................................................. 9
5. No Dilution or Impairment............................................. 10
6. Accountants' Report as to Adjustments................................. 10
7. Financial and Business Information.................................... 11
7.1. Quarterly Information................................................. 11
7.2. Annual Information.................................................... 11
7.3. Filings............................................................... 12
7.4. Notices of Corporate Action........................................... 12
8. Registration of Common Stock.......................................... 12
</TABLE>
i
<PAGE>
9. Restrictions on Transfer................... 13
9.1. Restrictive Legends........................ 13
9.2. Transfer to Comply With the Securities Act. 14
9.3. Termination of Restrictions................ 14
10. Reservation of Stock, etc.................. 14
11. Registration and Transfer of Warrants, etc. 15
11.1. Warrant Register; Ownership of Warrants.... 15
11.2. Transfer of Warrants....................... 15
11.3. Bond and Warrant Repurchase Option......... 15
11.4. Replacement of Warrants.................... 15
11.5. Adjustments To Warrant Quantity............ 15
11.6. Fractional Shares.......................... 16
12. Definitions................................ 16
13. Remedies; Specific Performance............. 18
14. No Rights or Liabilities as Shareholder.... 19
15. Notices.................................... 19
16. Amendments................................. 19
17. Descriptive Headings, Etc.................. 19
18. GOVERNING LAW.............................. 20
19. Judicial Proceedings; Waiver of Jury....... 20
20. Counterparts............................... 20
ii
<PAGE>
POLYPHASE CORPORATION
Common Stock Purchase Warrant
Void After April 24, 2003
No. W-1(a)
April 24, 1998
POLYPHASE CORPORATION (the "Company"), a Nevada corporation, for value
received, hereby certifies that MERRILL LYNCH CONVERTIBLE FUND, INC., a Maryland
Corporation, or registered assigns (the "Holder"), is entitled to purchase from
the Company fifty-two thousand five hundred (52,500) duly authorized, validly
issued, fully paid and nonassessable shares of common stock, par value $0.01 per
share, of the Company (the "Common Stock") at the purchase price per share of
$1.125 (the market price of the Common Stock on December 3, 1997), at any time
or from time to time prior to 5:30 PM, Dallas time, on April 24, 2003 (the
"Expiration Date"), (the aggregate number of shares entitled to be purchased by
the Holder pursuant to this Warrant shall be the "Warrant Quantity"), all
subject to the terms, conditions and adjustments set forth below in this
Warrant.
This Warrant is one of several Warrants (the "Warrant," such term to
include any such warrants issued in substitution therefor) issued in connection
with the Indenture, dated as of July 5, 1994, by and among the Company and IBJ
Schroder Bank & Trust Company (as supplemented on December 5, 1997, the
"Indenture"). The Warrant originally so issued evidences the right to purchase
a number of shares of Common Stock equal to the Warrant Quantity, subject to
adjustment as provided herein. Certain capitalized terms used in this Warrant
are defined in Section 12; references to an "Exhibit" are, unless otherwise
specified, to one of the Exhibits attached to this Warrant and references to a
"Section" are, unless otherwise specified, to one of the Sections of this
Warrant.
1. Exercise of Warrant.
-------------------
1.1. Manner of Exercise. This Warrant may be exercised by the Holder,
------------------
in whole or part, during normal business hours on any Business Day, by surrender
of this Warrant to the Company at its principal office, accompanied by the Form
of Subscription in substantially the form attached as Exhibit A to this Warrant
(or a reasonable facsimile thereof) duly executed by the Holder and accompanied
by payment, in cash, by certified or official bank check payable to the order of
the Company, or in the manner provided in Section 1.5 (or by any combination of
such methods), in the amount obtained by multiplying (a) the number of shares of
-
Common Stock for up to but not exceeding 52,500 shares (adjusted as provided in
Sections 2 through 4) designated in such Form of Subscription by (b) $1.125, and
-
such Holder shall thereupon be entitled to receive such number of duly
authorized, validly issued, fully paid and nonassessable shares of Common Stock
(or Other Securities).
<PAGE>
1.2. When Exercise Effective. Each exercise of this Warrant shall be
-----------------------
deemed to have been effected immediately prior to the close of business on the
Business Day on which this Warrant shall have been surrendered to the Company as
provided in Section 1.1. At such time the Person or Persons in whose name or
names any certificate or certificates for shares of Common Stock (or Other
Securities) shall be issuable upon such exercise, as provided in Section 1.3,
shall be deemed to have become the Holder or Holders of record thereof.
1.3. Delivery of Stock Certificates, etc. As soon as practicable
------------------------------------
after each exercise of this Warrant, and in no event later than 10 days, in
whole or in part, the Company at its expense (including the payment by it of any
applicable transfer taxes) will cause to be issued in the name of and delivered
to the Holder hereof or, subject to Section 9, as such Holder (upon payment by
such Holder of any applicable transfer taxes) may direct,
1.3.1 a certificate or certificates for the number of duly
authorized, validly issued, fully paid and nonassessable shares, including, if
the Company so elects, fractional shares of Common Stock (or Other Securities)
to which such Holder shall be entitled upon such exercise plus, at the
discretion of the Company, in lieu of any fractional share to which such Holder
would otherwise be entitled, cash in an amount equal to the same fraction of the
Current Market Price per share on the Business Day next preceding the date of
such exercise, and
1.3.2 in case such exercise is in part only, a new Warrant or
Warrants of like tenor, calling in the aggregate on the face or faces thereof
for the number of shares of Common Stock equal (without giving effect to any
adjustment thereof) to the number of such shares called for on the face of this
Warrant minus the number of such shares designated by the Holder upon such
exercise as provided in Section 1.1.
1.4. Company to Reaffirm Obligations. The Company will, at the time
-------------------------------
of each exercise of this Warrant, upon the request of the Holder, acknowledge in
writing its continuing obligation to afford to such Holder all rights
(including, without limitation, any rights to registration of the shares of
Common Stock or Other Securities issued upon such exercise) to which such Holder
shall continue to be entitled after such exercise in accordance with the terms
of this Warrant, provided that if the Holder shall fail to make any such
request, such failure shall not affect the continuing obligation of the Company
to afford such rights to such Holder.
1.5. Payment by Application of Shares Otherwise Issuable. Upon any
---------------------------------------------------
exercise of this Warrant, the Holder may, at its option, instruct the Company,
by written notice accompanying the surrender of this Warrant at the time of such
exercise, to apply to the payment required by Section 1.1 such number of the
shares of Common Stock otherwise issuable to such Holder upon such exercise as
shall be specified in such notice, in which case an amount equal to the excess
of the aggregate Current Market Price of such specified number of shares on the
date of exercise over the portion of the payment required by Section 1.1
attributable to such shares shall be deemed to have been paid to the Company and
the number of shares issuable upon such exercise shall be reduced by such
specified number.
1.6. Tax Basis. The Company and the Holder shall mutually agree as to
---------
the tax basis and tax treatment of this Warrant for purposes of the Internal
Revenue Code of 1986 as
2
<PAGE>
amended (the "Code"), and the treatment of this Warrant under the Code by each
of the Company and the Holder shall be consistent with such agreement.
2. Adjustment of Common Stock Issuable Upon Exercise.
-------------------------------------------------
2.1. General; Warrant Quantity. This Warrant initially evidences the
--------------------------
right to purchase a number of shares of Common Stock equal to the Warrant
Quantity, subject to adjustment as provided in this Section 2.
2.2. Adjustment of Warrant Quantity.
------------------------------
2.2.1 Issuance of Additional Shares of Common Stock. Except as
---------------------------------------------
provided in Section 2.10 of this Warrant, in case the Company at any time or
from time to time after the date hereof shall issue or sell Additional Shares of
Common Stock (including Additional Shares of Common Stock deemed to be issued
pursuant to Section 2.3 or 2.4) without consideration or for a consideration per
share less than the Current Market Price in effect immediately prior to such
issue or sale, then, and in each such case, subject to Section 2.8, the Warrant
Quantity shall be increased, concurrently with such issue or sale, to an amount
determined by multiplying the Warrant Quantity by a fraction
(a) the numerator of which shall be the number of shares of
Common Stock outstanding immediately after such issue of sale, provided
--------
that, for the purposes of this Section 2.2.1, (x) immediately after any
-
Additional Shares of Common Stock are deemed to have been issued pursuant
to Section 2.3 or 2.4, such Additional Shares shall be deemed to be
outstanding, and (y) treasury shares shall not be deemed to be outstanding,
-
and
(b) the denominator of which shall be (i) the number of shares of
-
Common Stock outstanding immediately prior to such issue or sale plus (ii)
--
the number of shares of Common Stock which the aggregate consideration
received by the Company for the total number of such Additional Shares of
Common Stock so issued or sold would purchase at such Current Market Price.
2.2.2 Extraordinary Dividends and Distributions. In case the Company
-----------------------------------------
at any time or from time to time after the date hereof shall declare, order, pay
or make a dividend or other distribution (including, without limitation, any
distribution of other or additional stock or other securities or property or
Options by way of dividend or spin-off, reclassification, recapitalization or
similar corporate rearrangement) on the Common Stock other than (a) a dividend
-
payable in Additional Shares of Common Stock or (b) a regularly scheduled cash
-
dividend payable out of consolidated earnings or earned surplus, determined in
accordance with generally accepted accounting principles, then, in each such
case, subject to Section 2.8, the Warrant Quantity in effect immediately prior
to the close of business on the record date fixed for the determination of
holders of any class of securities entitled to receive such dividend or
distribution shall be increased, effective as of the close of business on such
record date, to an amount determined by multiplying such Warrant Quantity by a
fraction.
3
<PAGE>
(x) the numerator of which shall be the Current Market Price in
effect on such record date or, if the Common Stock trades on an ex-dividend
basis, on the date prior to the commencement of ex-dividend trading, and
(y) the denominator of which shall be such Current Market Price,
less the amount of such dividend or distribution (as determined in good
faith by the Board of Directors of the Company) applicable to one share of
Common Stock,
provided that, in the event that the amount of such dividend as so determined is
- --------
equal to or greater than 10% of such Current Market Price or in the event that
such fraction is greater than 10/9, in lieu of the foregoing adjustment,
adequate provision shall be made so that the Holder of this Warrant shall
receive a pro rata share of such dividend based upon the maximum number of
shares of Common Stock at the time issuable to such Holder.
2.3. Treatment of Options and Convertible Securities. Except as
provided in Section 2.10 of this Warrant, in case the Company at any time or
from time to time after the date hereof shall issue, sell, grant or assume, or
shall fix a record date for the determination of holders of any class of
securities entitled to receive, any Options or Convertible Securities (whether
or not the rights thereof are immediately exercisable) then, and in each such
case, the maximum number of Additional Shares of Common Stock (as set forth in
the instrument relating thereto, without regard to any provisions contained
therein for a subsequent adjustment of such number) issuable upon the exercise
of such Options or, in the case of Convertible Securities and Options therefor,
the conversion or exchange of such Convertible Securities, shall be deemed to be
Additional Shares of Common Stock issued as of the time of such issue, sale,
grant or assumption or, in case such a record date shall have been fixed, as of
the close of business on such record date (or, if the record date relates to the
Common Stock and the Common Stock trades on an ex-dividend basis, on the date
prior to the commencement of ex-dividend trading), provided that such Additional
--------
Shares of Common Stock shall not be deemed to have been issued unless the
consideration per share (determined pursuant to Section 2.5) of such shares
would be less than the Current Market Price in effect on the date of and
immediately prior to such issue, sale, grant or assumption or immediately prior
to the close of business on such record date (or, if the record date relates to
the Common Stock and the Common Stock trades on an ex-dividend basis, on the
date prior to the commencement of ex-dividend trading), as the case may be, and
provided, further that in any such case in which Additional Shares of Common
- -------- -------
Stock shall not be deemed to have been issued
(a) whether or not the Additional Shares of Common Stock
underlying such Options or Convertible Securities are deemed to be issued,
no further adjustment of the Warrant Quantity shall be made upon the
subsequent issue or sale of Convertible Securities or shares of Common
Stock upon the exercise of such Options or the conversion or exchange of
such Convertible Securities, except in the case of any such Options or
Convertible Securities which contain provisions requiring an adjustment,
subsequent to the date of the issue or sale thereof, of the number of
Additional Shares of Common Stock issuable upon the exercise of such
Options or the conversion or exchange of such Convertible Securities by
reason of (x) a change of control of the Company, (y) the acquisition by
- -
any Person or group of Persons of any specified number or percentage of the
Voting Securities of the Company or (z) any similar event or occurrence,
-
each such case to be deemed hereunder to involve a
4
<PAGE>
separate issuance of Additional Shares of Common Stock, Options or Convertible
Securities, as the case may be;
(b) if such Options or Convertible Securities by their terms
provide, with the passage of time or otherwise, for any increase in the
consideration payable to the Company, or decrease in the number of
Additional Shares of Common Stock issuable, upon the exercise, conversion
or exchange thereof (by change of rate or otherwise), the Warrant Quantity
computed upon the original issue, sale, grant or assumption thereof (or
upon the occurrence of the record date, or date prior to the commencement
of ex-dividend trading, as the case may be, with respect thereto), and any
subsequent adjustments based thereon, shall, upon any such increase or
decrease becoming effective, be recomputed to reflect such increase or
decrease insofar as it affects such Options, or the rights of conversion or
exchange under such Convertible Securities, which are outstanding at such
time;
(c) upon the expiration (or purchase by the Company and
cancellation or retirement) of any such Options which shall not have been
exercised or the expiration of any rights of conversion or exchange under
any such Convertible Securities which (or purchase by the Company and
cancellation or retirement of any such Convertible Securities the rights of
conversion or exchange under which) shall not have been exercised, the
Warrant Quantity computed upon the original issue, sale, grant or
assumption thereof (or upon the occurrence of the record date, or date
prior to the commencement of ex-dividend trading, as the case may be, with
respect thereto), and any subsequent adjustments based thereon, shall, upon
such expiration (or such cancellation or retirement, as the case may be),
be recomputed as if:
(i) in the case of Options for Common Stock or Convertible
Securities, the only Additional Shares of Common Stock issued or sold
were the Additional Shares of Common Stock, if any, actually issued or
sold upon the exercise of such Options or the conversion or exchange
of such Convertible Securities and the consideration received therefor
was the consideration actually received by the Company for the issue,
sale, grant or assumption of all such Options, whether or not
exercised, plus the consideration actually received by the Company
upon such exercise, or for the issue or sale of all such Convertible
Securities which were actually converted or exchanged, plus the
additional consideration, if any, actually received by the Company
upon such conversion or exchange, and
(ii) in the case of Options for Convertible Securities, only
the Convertible Securities, if any, actually issued or sold upon the
exercise of such Options were issued at the time of the issue or sale,
grant or assumption of such Options, and the consideration received by
the Company for the Additional Shares of Common Stock deemed to have
then been issued was the consideration actually received by the
Company for the issue, sale , grant or assumption of all such Options,
whether or not exercised, plus the consideration deemed to have been
received by the Company (pursuant to Section 2.5) upon the issue or
sale of such Convertible Securities with respect to which such Options
were actually exercised;
5
<PAGE>
(d) no readjustment pursuant to subdivision (b) or (c) above
shall have the effect of decreasing the Warrant Quantity by an amount in
excess of the amount of the adjustment thereof originally made in respect
of the issue, sale, grant or assumption of such Options or Convertible
Securities; and
(e) in the case of any such Options which expire by their terms
not more than 30 days after the date of issue, sale, grant or assumption
thereof, no adjustment of the Warrant Quantity shall be made until the
expiration or exercise of all such Options, whereupon such adjustment shall
be made in the manner provided in subdivision (c) above; provided however
that if any Warrant is exercised within such 30-day period, any adjustment
made upon expiration or exercise of all such Options shall be made
retroactively to the date such Warrant was exercised and the Company shall
deliver to the person to whom the shares of Common Stock (or Other
Securities) were issued upon such Warrant exercise, without requiring any
additional consideration, the additional securities issuable as a result of
such retroactive adjustment.
2.4. Treatment of Stock Dividends, Stock Splits, etc. In case the
-----------------------------------------------
Company at any time or from time to time after the date hereof shall declare or
pay any dividend on the Common Stock payable in Common Stock, or shall effect a
subdivision of the outstanding shares of Common Stock into a greater number of
shares of Common Stock (by reclassification or otherwise than by payment of a
dividend in Common Stock), then, and in each such case, Additional Shares of
Common Stock shall be deemed to have been issued (a) in the case of any such
-
dividend, immediately after the close of business on the record date for the
determination of holders of any class of securities entitled to receive such
dividend, or (b) in the case of any such subdivision, at the close of business
-
on the day immediately prior to the day upon which such corporate action becomes
effective.
2.5. Computation of Consideration. For the purposes of this
----------------------------
Section 2,
(a) the consideration for the issue or sale of any Additional
Shares of Common Stock shall, irrespective of the accounting treatment of
such consideration,
(i) insofar as it consists of cash, be computed at the net
amount of cash received by the Company, without deducting any expenses
paid or incurred by the Company or any commissions or compensations
paid or concessions or discounts allowed to underwriters, dealers or
others performing similar services in connection with such issue or
sale,
(ii) insofar as it consists of property (including
securities) other than cash, be computed at the fair value thereof at
the time of such issue or sale, as determined in good faith by the
Board of Directors of the Company (if Holder objects to such
determination, Holder may seek and receive, at the Company's expense,
third party appraisal, which shall be the exclusive and binding
determination to be used) and
(iii) in case Additional Shares of Common Stock are issued
or sold together with other stock or securities or other assets of the
Company for a consideration which covers both, be the portion of such
consideration so received,
6
<PAGE>
computed as provided in clauses (i) and (ii) above, allocable to such
Additional Shares of Common Stock, all as determined in good faith by
the Board of Directors of the Company (if Holder objects to such
determination, Holder may seek and receive, at the Company's expense,
third party appraisal, which shall be the exclusive and binding
determination to be used);
(b) Additional Shares of Common Stock deemed to have been issued
pursuant to Section 2.3, relating to Options and Convertible Securities,
shall be deemed to have been issued for a consideration per share
determined by dividing
(i) the total amount, if any, received and receivable by the
Company as consideration for the issue, sale, grant or assumption of
the Options or Convertible Securities in question, plus the minimum
aggregate amount of additional consideration (as set forth in the
instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such consideration to
protect against dilution) payable to the Company upon the exercise in
full of such Options or the conversion or exchange of such Convertible
Securities or, in the case of Options for Convertible Securities, the
exercise of such Options for Convertible Securities and the conversion
or exchange of such Convertible Securities, in each case computing
such consideration as provided in the foregoing subdivision (a),
by
(ii) the maximum number of shares of Common Stock (as set
forth in the instruments relating thereto, without regard to any
provision contained therein for a subsequent adjustment of such number
to protect against dilution) issuable upon the exercise of such
Options or the conversion or exchange of such Convertible Securities;
and
(c) Additional Shares of Common Stock deemed to have been issued
pursuant to Section 2.4 relating to stock dividends, stock splits, etc.,
shall be deemed to have been issued for no consideration.
2.6. Adjustments for Combinations, etc. In case the outstanding
----------------------------------
shares of Common Stock shall be combined or consolidated, by reclassification or
otherwise, into a lesser number of shares of Common Stock, the Warrant Quantity
in effect immediately prior to such combination or consolidation shall,
concurrently with the effectiveness of such combination or consolidation, be
proportionately decreased.
2.7. Dilution in Case of Other Securities. In case any Other
------------------------------------
Securities shall be issued or sold or shall become subject to issue or sale upon
the conversion or exchange of any stock (or Other Securities) of the Company (or
any issuer of Other Securities or any other Person referred to in Section 3) or
to subscription, purchase or other acquisition pursuant to any Options issued or
granted by the Company (or any such other issuer or Person) for a consideration
such as to dilute, on a basis consistent with the standards established in the
other provisions of this Section 2, the purchase rights granted by this Warrant,
then, and in each such case, the computations, adjustments
7
<PAGE>
and readjustments provided for in this Section 2 with respect to the Warrant
Quantity shall be made as nearly as possible in the manner so provided and
applied to determine the amount of Other Securities from time to time receivable
upon the exercise of the Warrant, so as to protect the Holder against the effect
of such dilution.
2.8. Minimum Adjustment of Warrant Quantity. If the amount of any
--------------------------------------
adjustment of the Warrant Quantity required pursuant to this Section 2 would be
less than one tenth (1/10) of one percent (1%) of the Warrant Quantity in effect
at the time such adjustment is otherwise so required to be made, such amount
shall be carried forward and adjustment with respect thereto made at the time of
and together with any subsequent adjustment which, together with such amount and
any other amount or amounts so carried forward, shall aggregate at least one
tenth (1/10) of one percent (1%) of such Warrant Quantity. All calculations
under this Warrant shall be made to the nearest one-hundredth of a share.
2.9. Abandoned Dividend or Distribution. If the Company shall take a
----------------------------------
record of the holders of its Common Stock for the purpose of entitling them to
receive a dividend or other distribution (which results in an adjustment to the
Warrant Quantity under the terms of this Warrant) and shall, thereafter, and
before such dividend or distribution is paid or delivered to shareholders
entitled thereto, legally abandon its plan to pay or deliver such dividend or
distribution, then any adjustment made to the Warrant Quantity by reason of the
taking of such record shall be reversed, and any subsequent adjustments, based
thereon, shall be recomputed.
2.10. Stock Options, Warrants and Convertible Securities. The
--------------------------------------------------
adjustment provisions of this Section 2 do not and will not operate to affect
any adjustment of any shares of Common Stock granted to employees of the Company
through stock options issued pursuant to any Company Stock Option Plan of the
Company in effect as of the date hereof; the provisions of this Section 2 shall
not affect any (i) warrants granting the right to purchase shares of Common
Stock outstanding as of the date hereof or (ii) securities convertible into
shares of Common Stock existing or in effect as of the date hereof. Exhibit C,
attached hereto, contains a complete schedule of all stock options or awards
that have been issued pursuant to any Company Stock Option Plan and any warrants
or convertible securities issued as of the date hereof. All other options,
warrants, convertible securities or other debt or equity instruments of the
Company existing as of the date hereof or issued at any time hereafter shall be
subject to the adjustment provisions of this Section 2.
3. Consolidation, Merger, etc.
---------------------------
3.1. Adjustments for Consolidation, Merger, Sale of Assets,
------------------------------------------------------
Reorganization, etc.
- --------------------
In case the Company after the date hereof (a) shall consolidate with
or merge into any other Person and shall not be the continuing or surviving
corporation of such consolidation or merger, or (b) shall permit any other
Person to consolidate with or merge into the Company and the Company shall be
the continuing or surviving Person but, in connection with such consolidation or
merger, the Common Stock or Other Securities shall be changed into or exchanged
for stock or other securities of any other Person or cash or any other property,
or (c) shall transfer all or substantially all of its properties or assets to
any other Person, or (d) shall effect a capital reorganization or
reclassification resulting in the issue of Additional Shares of Common Stock for
which adjustment in the Warrant Quantity is provided in Section 2.2.1 or 2.2.2,
then, and in the case of each such transaction, proper provision
8
<PAGE>
shall be made so that, upon the basis and the terms and in the manner provided
in this Warrant, the Holder, upon the exercise hereof at any time after the
consummation of such transaction, shall be entitled to receive (at the aggregate
purchase price in effect at the time of such consummation for all Common Stock
or Other Securities issuable upon such exercise immediately prior to such
consummation), in lieu of the Common Stock or Other Securities issuable upon
such exercise prior to such consummation, the highest amount of securities, cash
or other property to which such Holder would actually have been entitled as a
shareholder upon such consummation if such Holder had exercised the rights
represented by this Warrant immediately prior thereto, subject to adjustments
(subsequent to such consummation) as nearly equivalent as possible to the
adjustments provided for in Sections 2 through 4, provided that if a purchase,
--------
tender or exchange offer shall have been made to and accepted by the holders of
more than 50% of the outstanding shares of Common Stock, and if the Holder so
designates in a notice given to the Company on or before the date immediately
preceding the date of the consummation of such transaction, the Holder shall be
entitled to receive the highest amount of securities, cash or other property to
which such Holder would actually have been entitled as a shareholder if the
Holder had exercised this Warrant prior to the expiration of such purchase,
tender or exchange offer and accepted such offer, subject to adjustments (from
and after the consummation of such purchase, tender or exchange offer) as nearly
equivalent as possible to the adjustments provided for in Sections 2 through 4.
3.2. Assumption of Obligations. Notwithstanding anything contained in
-------------------------
the Warrant or in the Indenture to the contrary, the Company will not effect any
of the transactions described in clauses (a) through (d) of Section 3.1 unless,
prior to the consummation thereof, each Person (other than the Company) which
may be required to deliver any stock, securities, cash or property upon the
exercise of this Warrant as provided herein shall assume, by written instrument
delivered to, and reasonably satisfactory to, the Holder, (a) the obligations of
-
the Company under this Warrant (and if the Company shall survive the
consummation of such transaction, such assumption shall be in addition to, and
shall not release the Company from, any continuing obligations of the Company
under this Warrant) and (b) the obligation to deliver to such Holder such shares
-
of stock, securities, cash or property as, in accordance with the foregoing
provisions of this Section 3, such Holder may be entitled to receive, and such
Person shall have similarly delivered to such Holder an opinion of counsel for
such Person, which counsel shall be reasonably satisfactory to such Holder,
stating that this Warrant shall thereafter continue in full force and effect and
the terms hereof (including, without limitation, all of the provisions of this
Section 3) shall be applicable to the stock, securities, cash or property which
such Person may be required to deliver upon any exercise of this Warrant or the
exercise of any rights pursuant hereto. Nothing in this Section 3 shall be
deemed to authorize the Company to enter into any transaction not otherwise
permitted by the Indenture.
4. Other Dilutive Events. In case any event shall occur as to which
---------------------
the provisions of Section 2 or Section 3 are not strictly applicable but the
failure to make any adjustment would not fairly protect the purchase rights
represented by this Warrant in accordance with the essential intent and
principles of such Sections, then in each such case the Company shall appoint a
firm of independent certified public accountants of recognized national standing
(which may be the regular auditors of the Company), which shall give their
opinion upon the adjustment, if any, on a basis consistent with the essential
intent and principles established in Sections 2 and 3, necessary to preserve,
without dilution, the purchase rights represented by this Warrant. Upon receipt
of such
9
<PAGE>
opinion, the Company will promptly mail a copy thereof to the Holder and
shall make the adjustments described therein.
5. No Dilution or Impairment. The Company will not, by amendment of
-------------------------
its articles of incorporation or through any consolidation, merger,
reorganization, transfer of assets, dissolution, issue or sale of securities or
any other voluntary action, avoid or seek to avoid the observance or performance
of any of the terms of this Warrant, but will at all times in good faith assist
in the carrying out of all such terms and in the taking of all such action as
may be necessary or appropriate in order to protect the rights of the Holder
against dilution or other impairment. Without limiting the generality of the
foregoing, the Company (a) shall not permit the par value of any shares of stock
-
receivable upon the exercise of this Warrant to exceed the amount payable
therefor upon such exercise, (b) will take all such action as may be necessary
-
or appropriate in order that the Company may validly and legally issue fully
paid and nonassessable shares of stock, free from all taxes, liens, security
interests, encumbrances, preemptive rights and charges on the exercise of the
Warrants from time to time outstanding, (c) will not take any action which
-
results in any adjustment of the Warrant Quantity if the total number of shares
of Common Stock (or Other Securities) issuable after the action upon the
exercise of all of the Warrants would exceed the total number of shares of
Common Stock (or Other Securities) then authorized by the Company's articles of
incorporation and available and reserved for the purpose of issue upon such
exercise, and (d) will not issue any capital stock of any class which is
-
preferred as to dividends or as to the distribution of assets upon voluntary or
involuntary dissolution, liquidation or winding-up, unless the rights of the
holders thereof shall be limited to a fixed sum or percentage of par value or a
sum determined by reference to a formula based on a published index of interest
rates, an interest rate publicly announced by a financial institution or a
similar indicator of interest rates in respect of participation in dividends and
to a fixed sum or percentage of par value in any such distribution of assets.
6. Accountants' Report as to Adjustments. In each case of any
-------------------------------------
adjustment or readjustment in the shares of-Common Stock (or Other Securities)
issuable upon the exercise of this Warrant, the Company at its expense will
promptly compute such adjustment or readjustment in accordance with the terms of
this Warrant and cause independent certified public accountants of recognized
national standing (which may be the regular auditors of the Company) selected by
the Company to verify such computation (other than any computation of the fair
value of property as determined in good faith by the Board of Directors of the
Company (if Holder objects to such determination, Holder may seek and receive,
at the Company's expense third party appraisal, which shall be the exclusive and
binding determination to be used)) and prepare a report setting forth such
adjustment or readjustment and showing in reasonable detail the method of
calculation thereof and the facts upon which such adjustment or readjustment is
based, including a statement of (a) the consideration received or to be received
-
by the Company for any Additional Shares of Common Stock issued or sold or
deemed to have been issued, (b) the number of shares of Common Stock outstanding
-
or deemed to be outstanding, and (c) the Warrant Quantity in effect immediately
-
prior to such issue or sale and as adjusted and readjusted (if required by
Section 2) on account thereof. The Company will forthwith mail a copy of each
such report to each Holder of a Warrant and will, upon the written request at
any time of any Holder of a Warrant, furnish to such Holder a like report
setting forth the Warrant Quantity at the time in effect and showing in
reasonable detail how it was calculated. The Company will also keep copies of
all such reports at its principal office and will cause
10
<PAGE>
the same to be available for inspection at such office during normal business
hours by any Holder of a Warrant or any prospective purchaser of a Warrant
designated by the Holder thereof.
7. Financial and Business Information.
----------------------------------
7.1. Quarterly Information. If during any period the Company (i) is
---------------------
not subject to the reporting requirements of Section 15(d) of the Exchange Act
and (ii) does not have securities registered under Section 12(b) or 12 (g) of
the Exchange Act, the Company will deliver to the Holder, as soon as practicable
after the end of each quarterly fiscal period in each fiscal year of the
Company, and in any event within 60 days thereafter, a copy of the unaudited
consolidated balance sheet as at the close of such quarter, and the related
unaudited consolidated statements of income, shareholders' equity and cash flow
of the Company and its subsidiaries for that portion of the fiscal year ending
as of the close of such quarter. Such financial statements shall be prepared by
the Company in accordance with generally accepted accounting principles, applied
on a consistent basis ("GAAP") (subject to normal year end adjustments and the
inclusion of footnotes) and accompanied by the certification of the Company's
chief executive officer or chief financial officer that, to the best of his
knowledge, such financial statements are complete and correct in all material
respects and fairly present in accordance with GAAP (subject to normal year end
adjustments and the inclusions of footnotes) the consolidated financial
position, the consolidated statements of income, shareholder equity and cash
flow of the Company and its subsidiaries as at the end of such quarter and for
such year-to-date period, as the case may be. If during any period the Company
either (i) is subject to the reporting requirements of Section 15(g) of the
Exchange Act or (ii) has securities registered under Section 12(b) or 12(g) of
the Exchange Act, the Company shall be considered a "Public Company" and need
not provide the information required by this Section 7.1.
7.2. Annual Information. If during any period the Company is not a
------------------
Public Company, the Company will deliver to the Holder as soon as practicable
after the end of each fiscal year of the Company, and in any event within 120
days thereafter, one copy of:
(i) an audited consolidated balance sheet of the Company
and its subsidiaries as at the end of such year, and
(ii) audited consolidated statements of income,
shareholders' equity and cash flow of the Company and its subsidiaries
for such year;
setting forth in each case in comparative form the figures for the corresponding
periods in the previous fiscal year, all prepared in accordance with GAAP, and
which audited financial statements shall be accompanied by (i) a certification
of the chief executive officer or chief financial officer of the Company that,
to the best of his knowledge, all such financial statements are complete and
correct in all material respects and present fairly in accordance with GAAP the
consolidated financial position of the Company and its subsidiaries as at the
end of such fiscal year and for the period then ended, (ii) an opinion thereon
of the independent certified public accountants regularly retained by the
Company, or any other firm of independent certified public accountants of
recognized national standing selected by the Company, and (iii) a report of such
independent certified public accountants confirming any adjustment make pursuant
to Section 2 during such year.
11
<PAGE>
7.3. Filings. During any period when the Company is a Public Company,
-------
the Company will file on or before the required date all required regular or
periodic reports (pursuant to the Exchange Act) with the Commission and will
deliver to the Holder promptly upon their becoming available one copy of each
report, notice or proxy statement sent by the Company to its stockholders
generally, and of each regular or periodic report (pursuant to the Exchange Act)
and any registration statement, prospectus or written communication (other than
transmittal letters) (pursuant to the Securities Act), filed by the Company with
(i) the Commission or (ii) any securities exchange on which shares of Common
Stock (or Other Securities) are listed.
7.4. Notices of Corporate Action. In the event of
---------------------------
(a) any taking by the Company of a record of the holders of any
class of securities for the purpose of determining the holders thereof who
are entitled to receive any dividend (other than a regular periodic
dividend payable in cash out of earned surplus in an amount not exceeding
the amount of the immediately preceding cash dividend for such period) or
other distribution, or any right to subscribe for, purchase or otherwise
acquire any shares of stock of any class or any other securities or
property, or to receive any other right, or
(b) any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company or
any consolidation or merger involving the Company and any other Person, any
transaction or series of transactions in which more than 50% of the Voting
Securities of the Company are transferred to another Person or any
transfer, sale or other disposition of all or substantially all the assets
of the Company to any other Person, or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company,
the Company will mail to the Holder a notice specifying (i) the date or expected
date on which any such record is to be taken for the purpose of such dividend,
distribution or right, and the amount and character of such dividend,
distribution or right, and (ii) the date or expected date on which any such
reorganization, reclassification, recapitalization, consolidation, merger,
transfer, dissolution, liquidation or winding-up is to take place and the time,
if any such time is to be fixed, as of which the holders of record of Common
Stock (or Other Securities) shall be entitled to exchange their shares of Common
Stock (or Other Securities) for the securities or other property deliverable
upon such reorganization, reclassification, recapitalization, consolidation,
merger, transfer, dissolution, sale, disposition, liquidation or winding-up.
Such notice shall be mailed at least 45 days prior to the date therein
specified.
8. Registration of Common Stock. The Company will use its best
----------------------------
efforts to register the shares of Common Stock (or Other Securities) issuable
upon exercise of this Warrant so that the Person exercising this Warrant
receives registered securities. In accordance with this Section 8, the Company
has entered into a Registration Rights Agreement, dated April 24, 1998, with
each of the Holders. Such Registration Rights Agreement provides for demand and
piggyback registration rights with respect to all such securities. If any shares
of Common Stock (or Other Securities)
12
<PAGE>
issuable upon exercise of this Warrant require registration with or approval of
any governmental authority under any federal or state law (other than securities
laws), the Company will, at its expense and as expeditiously as possible, use
its best efforts to cause such shares of Common Stock (or Other Securities) to
be duly registered or approved, as the case may be. Immediately upon the
exercise of this Warrant, or any portion thereof, the Company will, at its
expense, obtain promptly and maintain the approval for listing on each such
exchange, upon official notice of issuance, the shares of Common Stock issuable
upon exercise of the then outstanding Warrants and maintain the listing of such
shares after their issuance.
9. Restrictions on Transfer.
------------------------
9.1. Restrictive Legends. Except as otherwise permitted by this
-------------------
Section 9, each Warrant (including each Warrant issued upon the transfer of any
Warrant) shall be stamped or otherwise imprinted with a legend in substantially
the following form:
"THIS WARRANT AND ANY SECURITIES ACQUIRED UPON EXERCISE OF THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR THE SECURITIES LAW OF ANY STATE AND MAY NOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF (OTHER THAN TO ACCREDITED INVESTORS)
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND
APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION TO
THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS. THIS WARRANT AND
SUCH SECURITIES MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF
EXCEPT IN COMPLIANCE WITH THE CONDITIONS SPECIFIED IN THIS WARRANT.
Except as otherwise permitted by this Section 9, each certificate for Common
Stock (or Other Securities) issued upon the exercise of any Warrant, and each
certificate issued upon the transfer of any such Common Stock (or Other
Securities), shall be stamped or otherwise imprinted with a legend in
substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES
LAW OF ANY STATE, AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF
(OTHER THAN TO ACCREDITED INVESTORS) EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS
OR PURSUANT TO AN APPLICABLE EXEMPTION TO THE REGISTRATION REQUIREMENTS OF
SUCH ACT AND SUCH LAWS. SUCH SECURITIES MAY NOT BE SOLD, TRANSFERRED OR
OTHERWISE DISPOSED OF EXCEPT IN COMPLIANCE WITH THE CONDITIONS SPECIFIED IN
CERTAIN COMMON STOCK PURCHASE WARRANTS ISSUED BY POLYPHASE CORPORATION,
PURSUANT TO THE COMMON STOCK PURCHASE WARRANT, DATED APRIL 24, 1998. A
13
<PAGE>
COMPLETE AND CORRECT COPY OF THE FORM OF SUCH WARRANT IS AVAILABLE FOR
INSPECTION AT THE PRINCIPAL OFFICE OF POLYPHASE CORPORATION, OR AT THE
OFFICE OR AGENCY MAINTAINED BY POLYPHASE CORPORATION, AS PROVIDED IN SUCH
WARRANTS AND WILL BE FURNISHED TO THE HOLDER OF SUCH SECURITIES UPON
WRITTEN REQUEST AND WITHOUT CHARGE."
9.2. Transfer to Comply With the Securities Act. Restricted
------------------------------------------
Securities may not be sold, assigned, pledged, hypothecated, encumbered or in
any manner transferred or disposed of, in whole or in part (other than to
accredited investors), except in compliance with the provisions of the
Securities Act and state securities or Blue Sky laws and the terms and
conditions hereof.
9.3. Termination of Restrictions. The restrictions imposed by this
---------------------------
Section 9 on the transferability of Restricted Securities shall cease and
terminate as to any particular Restricted Securities (a) when a registration
statement with respect to the sale of such securities shall have been declared
effective under the Securities Act and such securities shall have been disposed
of in accordance with such registration statement, (b) when such securities are
sold pursuant to Rule 144 (or any similar provision then in force) under the
Securities Act, or (c) when, in the opinion of both counsel for the Holder and
counsel for the Company, such restrictions are not longer required or necessary
in order to protect the Company against a violation of the Securities Act upon
any sale or other disposition of such securities without registration
thereunder. Whenever such restrictions shall cease and terminate as to any
Restricted Securities, the Holder shall be entitled to receive from the Company,
without expense, new securities of like tenor not bearing the applicable legends
required by Section 9.1.
10. Reservation of Stock, etc. The Company shall at all times reserve
-------------------------
and keep available, solely for issuance and delivery upon exercise of the
Warrants, the number of shares of Common Stock (or Other Securities) from time
to time issuable upon exercise of all Warrants at the time outstanding. All
shares of Common Stock (or Other Securities) issuable upon exercise of any
Warrants shall be duly authorized and, when issued upon such exercise, shall be
validly issued and, in the case of shares, fully paid and nonassessable with no
liability on the part of the holders thereof, and, in the case of all
securities, shall be free from all taxes, liens, security interests,
encumbrances, preemptive rights and charges. The transfer agent for the Common
Stock, which may be the Company ("Transfer Agent"), and every subsequent
Transfer Agent for any shares of the Company's capital stock issuable upon the
exercise of any of the purchase rights represented by this Warrant, are hereby
irrevocably authorized and directed at all times until the Expiration Date to
reserve such number of authorized and unissued shares as shall be requisite for
such purpose. The Company shall keep copies of this Warrant on file with the
Transfer Agent for the Common Stock and with every subsequent Transfer Agent for
any shares of the Company's capital stock issuable upon the exercise of the
rights of purchase represented by this Warrant. The Company shall supply such
Transfer Agent with duly executed stock certificates for such purpose. All
Warrant certificates surrendered upon the exercise of the rights thereby
evidenced shall be canceled, and such canceled Warrants shall constitute
sufficient evidence of the number of shares of stock which have been issued upon
the exercise of such Warrants. Subsequent to the Expiration Date, no shares of
stock need be reserved in respect of any unexercised Warrant.
14
<PAGE>
11. Registration and Transfer of Warrants, etc.
-------------------------------------------
11.1. Warrant Register; Ownership of Warrants. Each Warrant issued by
---------------------------------------
the Company shall be numbered and shall be registered in a warrant register (the
"Warrant Register") as it is issued and transferred, which Warrant Register
shall be maintained by the Company at its principal office or, at the Company's
election and expense, by a Warrant Agent or the Company's transfer agent. The
Company shall be entitled to treat the registered Holder of any Warrant on the
Warrant Register as the owner in fact thereof for all purposes and shall not be
bound to recognize any equitable or other claim to or interest in such Warrant
on the part of any other Person, and shall not be affected by any notice to the
contrary, except that, if and when any Warrant is properly assigned in blank,
the Company may (but shall not be obligated to) treat the bearer thereof as the
owner of such Warrant for all purposes. Subject to Section 9, a Warrant, if
properly assigned, may be exercised by a new holder without a new Warrant first
having been issued.
11.2. Transfer of Warrants. Subject to compliance with Section 9, if
--------------------
applicable, this Warrant and all rights hereunder are transferable in whole or
in part, without charge to the Holder hereof, upon surrender of this Warrant
with a properly executed Form of Assignment attached hereto as Exhibit B at the
principal office of the Company. Upon any partial transfer, the Company shall at
its expense issue and deliver to the Holder a new Warrant of like tenor, in the
name of the Holder, which shall be exercisable for such number of shares of
Common Stock with respect to which rights under this Warrant were not so
transferred.
11.3. Bond and Warrant Repurchase Option. Upon delivery to the Holder
----------------------------------
of the Warrants contemplated by this Agreement, the Holder hereby grants to the
Company an option to repurchase the remaining Bonds, issued pursuant to the
Indenture, dated as of July 5, 1994 among the Company and IBJ Schroder Bank and
Trust Company (the "Bonds"), held by it at par plus interest accrued thereon
through the date of repurchase, such repurchase to occur no later than September
5, 1998. Provided that the Company exercises its option to repurchase the
remaining Bonds as noted above and completes such repurchase, it is granted an
option to repurchase, concurrently with the exercise of its Bond repurchase
right, this Warrant to the extent it relates to 50,000 shares of Common Stock
for $525 from the Holder. Until such option expires, the Holder shall be
obligated to retain this Warrant to the extent it relates to 52,500 shares of
Common Stock.
11.4. Replacement of Warrants. On receipt by the Company of evidence
-----------------------
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of this Warrant and, in the case of any such loss, theft or
destruction of this Warrant, on delivery of an indemnity agreement reasonably
satisfactory in form and amount to the Company or, in the case of any such
mutilation, on surrender of such Warrant to the Company at its principal office
and cancellation thereof, the Company at its expense shall execute and deliver,
in lieu thereof, a new Warrant of like tenor.
11.5. Adjustments To Warrant Quantity. Notwithstanding any adjustment
-------------------------------
in the Warrant Quantity or in the number or kind of shares of Common Stock (or
Other Securities) purchasable upon exercise of this Warrant, any Warrant
theretofore or thereafter issued may continue to express the same number and
kind of shares of Common Stock as are stated in this Warrant, as initially
issued.
15
<PAGE>
11.6. Fractional Shares. Notwithstanding any adjustment pursuant to
-----------------
Section 2 in the number of shares of Common Stock covered by this Warrant or any
other provision of this Warrant, the Company may, but shall not be required to,
issue fractions of shares upon exercise of this Warrant or to distribute
certificates which evidence fractional shares. In lieu of fractional shares, the
Company shall may payment to the Holder, at the time of exercise of this Warrant
as herein provided, in an amount in cash equal to such fraction multiplied by
the Current Market Price of a share of Common Stock on the date of Warrant
exercise.
12. Definitions. As used herein, unless the context otherwise
------------
requires, the following terms have the following respective meanings:
Additional Shares of Common Stock: All shares (including treasury
---------------------------------
shares) of Common Stock issued or sold (or, pursuant to Section 2.3 or 2.4,
deemed to be issued) by the Company after the date hereof, whether or not
subsequently reacquired or retired by the Company, other than
(a) shares issued upon the exercise of the Warrant,
(b) such additional number of shares as may become issuable upon
the exercise of the Warrant by reason of adjustments required pursuant to
anti-dilution provisions applicable to the Warrant as in effect on the date
hereof,
(c) shares, warrants, options and other securities issued at any
time to the Holder or any Affiliate thereof.
Affiliate: Any Person that directly or indirectly, through one or
---------
more intermediaries, controls, is controlled by, or is under common control
with, the applicable Person. For purposes of this definition "control" has the
meaning specified in Rule 12b-2 under the Exchange Act.
Business Day: Any day other than a Saturday or Sunday or a day on
------------
which commercial banking institutions in the City of New York are authorized by
law to be closed. Any reference to "days" (unless Business Days are specified)
shall mean calendar days.
Code: As defined in Section 1.6.
----
Commission: The Securities and Exchange Commission or any other
----------
federal agency at the time administering the Securities Act.
Common Stock: As defined in the introduction to this Warrant, such
------------
term to include any stock into which such Common Stock shall have been changed
or any stock resulting from any reclassification of such Common Stock, and all
other stock of any class or classes (however designated) of the Company the
holders of which have the right, without limitation as to amount, either to all
or to a share of the balance of current dividends and liquidating dividends
after the payment of dividends and distributions on any shares entitled to a
preference.
16
<PAGE>
Company: As defined in the introduction to this Warrant, such term to
-------
include any Person which shall succeed to or assume the obligations of the
Company hereunder in compliance with Section 3.
Convertible Securities: Any evidence of indebtedness, shares of stock
----------------------
(other than Common Stock) or other securities directly or indirectly convertible
into or exchangeable for Additional Shares of Common Stock.
Current Market Price: On any date specified herein, the average daily
--------------------
Market Price during the period of the most recent 20 days, ending on such date,
on which the national securities exchanges were open for trading, except that if
no Common Stock is then listed or admitted to trading on any national securities
exchange or quoted in the over-the-counter market, the Current Market Price
shall be the Market Price on such date.
Exchange Act: The Securities Exchange Act of 1934, or any similar
------------
federal statute, and the rules and regulations of the Commission thereunder, all
as the same shall be in effect at the time.
Expiration Date: As defined in the introduction to this Warrant.
---------------
Holder: As defined in the introduction to this Warrant.
------
Indenture: As defined in the introduction to the Warrant.
---------
Market Price: On any date specified herein, the amount per share of
------------
the Common Stock equal to (a) the last reported sale price of such Common Stock,
regular way, on such date or, in case no such sale takes place on such date, the
average of the closing bid and asked prices thereof, regular way, on such date,
in either case as officially reported on the principal national securities
exchange on which such Common Stock is then listed or admitted for trading, or
(b) if such Common Stock is not then listed or admitted for trading on any
national securities exchange but is designated as a national market system
security by the NASD, the last reported trading price of the Common Stock on
such date, or (c) if there shall have been no trading on such date or if the
Common Stock is not so designated, the average of the closing bid and asked
prices of the Common Stock on such date as shown by the NASD automated quotation
system, or (d) if neither a, b nor c is applicable, the higher of (x) the book
value thereof as determined by any firm of independent public accountants of
recognized standing selected by the Board of Directors of the Company as of the
last day of any month ending within 60 days preceding the date as of which the
determination is to be made and (y) the fair value thereof (as of the date which
is within 20 days of the date as of which the determination is to be made)
determined in good faith by the Board of Directors of the Company (if Holder
objects to such determination, Holder may seek and receive, at the Company's
expense, third party appraisal, which shall be the exclusive and binding
determination to be used).
NASD: The National Association of Securities Dealers, Inc.
----
Options: Rights, options or warrants to subscribe for, purchase or
-------
otherwise acquire either Additional Shares of Common Stock or Convertible
Securities.
17
<PAGE>
Other Securities. Any stock (other than Common Stock) and other
----------------
securities of the Company or any other Person (corporate or otherwise) which the
holders of the Warrants at any time shall be entitled to receive, or shall have
received, upon the exercise of the Warrants, in lieu of or in addition to Common
Stock, or which at any time shall be issuable or shall have been issued in
exchange for or in replacement of Common Stock or Other Securities pursuant to
Section 3 or otherwise.
Person: An individual, firm, partnership, corporation, professional
------
corporation, trust, joint venture, association, joint stock company, limited
liability company, unincorporated organization or any other entity or
organization, including a government or agency or political subdivision thereof,
and shall include any successor (by merger or otherwise) of such entity.
Restricted Securities: (a) any Warrants bearing the applicable legend
---------------------
set forth in Section 9.1, (b) any shares of Common Stock (or Other Securities)
issued or issuable upon the exercise of Warrants but only so long as they are
required to be evidenced by a certificate or certificates bearing the applicable
legend set forth in such Section, and (c) any shares of Common Stock (or Other
Securities) issued subsequent to the exercise of any of the Warrants as a
dividend or other distribution with respect to, or resulting from a subdivision
of the outstanding shares of Common Stock (or other Securities) into a greater
number of shares by reclassification, stock splits or otherwise, or in exchange
for or in replacement of the Common Stock (or Other Securities) issued upon such
exercise, but only so long as they are required to be evidenced by a certificate
or certificates bearing the applicable legend set forth in such Section.
Securities Act: The Securities Act of 1933, or any similar federal
--------------
statute, and the rules and regulations of the Commission thereunder, all as the
same shall be in effect at the time.
Voting Securities: Stock of any class or classes (or equivalent
-----------------
interests), if the holders of the stock of such class or classes (or equivalent
interests) are ordinarily, in the absence of contingencies, entitled to vote for
the election of the directors (or persons performing similar functions) of the
issuer, even though the right so to vote has been suspended by the happening of
such a contingency.
Warrant: As defined in the introduction to this Warrant.
-------
Warrant Quantity: As defined in the introduction to this Warrant.
----------------
13. Remedies; Specific Performance. The Company stipulates that there
------------------------------
would be no adequate remedy at law to the Holder of this Warrant in the event of
any default or threatened default by the Company in the performance of or
compliance with any of the terms of this Warrant and accordingly, the Company
agrees that, in addition to any other remedy to which the Holder may be entitled
at law or in equity, the Holder shall be entitled to seek to compel specific
performance of the obligations of the Company under this Warrant, without the
posting of any bond, in accordance with the terms and conditions of this Warrant
in any court of the United States or any State thereof having jurisdiction, and
if any action should be brought in equity to enforce any of the provisions of
this Warrant, the Company shall not raise the defense that there is an adequate
remedy at law. Except as otherwise provided by law, a delay or omission by the
Holder hereto in exercising any right or
18
<PAGE>
remedy accruing upon any such breach shall not impair the right or remedy or
constitute a waiver of or acquiescence in any such breach. No remedy shall be
exclusive of any other remedy. All available remedies shall be cumulative.
14. No Rights or Liabilities as Shareholder. Nothing contained in
---------------------------------------
this Warrant shall be construed as conferring upon the Holder hereof any rights
as a shareholder of the Company or as imposing any obligation on the Holder to
purchase any securities or as imposing any liabilities on the Holder as a
shareholder of the Company, whether such obligation or liabilities are asserted
by the Company or by creditors of the Company.
15. Notices. All notices and other communications (and deliveries)
-------
provided for or permitted hereunder shall be made in writing by hand delivery,
telecopier, any courier guaranteeing overnight delivery or first class
registered or certified mail, return receipt requested, postage prepaid,
addressed (a) if to the Company, to the attention of its Chief Financial Officer
at its principal office located at 4800 Broadway, Suite A, Dallas, Texas 75248
or such other address as may hereafter be designated in writing by the Company
to the Holder in accordance with the provisions of this Section, or (b) if to
the Holder, at its address as it appears in the Warrant Register.
All such notices and communications (and deliveries) shall be deemed
to have been duly given: at the time delivered by hand, if personally
delivered; when receipt is acknowledged or confirmed (by automatic confirmation
or otherwise), if telecopied; on the next Business Day, if timely delivered to a
courier guaranteeing overnight delivery; and five days after being deposited in
the mail, if sent first class or certified mail, return receipt requested,
postage prepaid; provided, that the exercise of any Warrant shall be effective
--------
in the manner provided in Section 1.
16. Amendments. This Warrant and any term hereof may not be amended,
----------
modified, supplemented or terminated, and waivers or consents to departures from
the provisions hereof may not be given, except by written instrument duly
executed by the party against which enforcement of such amendment, modification,
supplement, termination or consent to departure is sought.
17. Descriptive Headings, Etc. The headings in this Warrant are for
-------------------------
convenience of reference only and shall not limit or otherwise affect the
meaning of terms contained herein. Unless the context of this Warrant otherwise
requires: (1) words of any gender shall be deemed to include each other gender;
(2) words using the singular or plural number shall also include the plural or
singular number, respectively; (3) the words "hereof," "herein" and "hereunder"
and words of similar import when used in this Warrant shall refer to this
Warrant as a whole and not to any particular provision of this Warrant, and
Section and paragraph references are to the Sections and paragraphs of this
Warrant unless otherwise specified; (4) the word "including" and words of
similar import when used in this Warrant shall mean "including, without
limitation," unless otherwise specified; (5) "or" is not exclusive; and (6)
provisions apply to successive events and transactions.
18. GOVERNING LAW. This Warrant shall be governed by, and construed
-------------
in accordance with, the laws of the State of Texas (without giving effect to the
conflict of laws principles thereof).
19
<PAGE>
19. Judicial Proceedings; Waiver of Jury. Any legal action, suit or
------------------------------------
proceeding brought against the Company with respect to this Warrant may be
brought in any federal court of Texas or any state court located in Dallas
County, State of Texas, and by execution and delivery of this Warrant, the
Company hereby irrevocably and unconditionally waives any claim (by way of
motion, as a defense or otherwise) of improper venue, that it is not subject
personally to the jurisdiction of such court, that such courts are an
inconvenient forum or that this Warrant or the subject matter may not be
enforced in or by such court. The Company irrevocably submits to the exclusive
jurisdiction of the aforementioned courts in such action, suit or proceeding.
The Company hereby irrevocably and unconditionally consents to the service of
process of any of the aforementioned courts in any such action, suit or
proceeding by the mailing of copies thereof by registered or certified mail,
postage prepaid, at its address set forth or provided for in Section 15 (with
copies of such process also being sent to the Company's counsel referred to in
such section), such service to become effective 10 days after such mailing.
Nothing herein contained shall be deemed to affect the right of any party to
serve process in any manner permitted by law or commence legal proceedings or
otherwise proceed against any other party in any other jurisdiction to enforce
judgments obtained in any action, suit or proceeding brought pursuant to this
Section. THE COMPANY HEREBY IRREVOCABLY WAIVES TRIAL BY JURY IN ANY ACTION, SUIT
OR PROCEEDING, WHETHER AT LAW OR EQUITY, BROUGHT BY IT OR THE HOLDER IN
CONNECTION WITH THIS WARRANT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
20. Counterparts. This Warrant may be executed in any number of
------------
counterparts, each of which shall be deemed an original, but all such
counterparts shall together constitute one and the same instrument.
POLYPHASE CORPORATION
By:____________________________
Name:__________________________
Title:_________________________
MERILL LYNCH CONVERTIBLE FUND, INC.
By:________________________________
Name:
Title:
20
<PAGE>
Exhibit A
---------
FORM OF SUBSCRIPTION
--------------------
[To be executed only upon exercise of Warrant]
To: POLYPHASE CORPORATION
The undersigned registered holder of the within Warrant hereby irrevocably
exercises such Warrant for, and purchases thereunder, _____* shares of Common
stock of POLYPHASE CORPORATION and herewith makes payment of $___________
therefor, and requests that the certificates for such shares be issued in the
name of, and delivered to ___________________________ whose address is
__________________________________________________.
Dated:
____________________________________________
(Signature must conform in all respects to
the name of holder as specified on the face
of Warrant)
__________________________________________
(Street Address)
__________________________________________
(City) (State) (Zip Code)
____________________________
*Insert here the number of shares called for on the face of this Warrant
(or in the case of a partial exercise, the portion thereof as to which this
Warrant is being exercised), in either case without making any adjustment for
Additional Shares of Common Stock or any other stock or other securities or
property or cash which, pursuant to the adjustment provisions of this Warrant,
may be delivered upon exercise. In the case of partial exercise, a new Warrant
or Warrants will be issued and delivered, representing the unexercised portion
of the Warrant, to the holder surrendering the Warrant.
21
<PAGE>
Exhibit B
---------
FORM OF ASSIGNMENT
------------------
[To be executed only upon assignment of Warrant]
For value received, the undersigned registered holder of the within Warrant
hereby sells, assigns and transfers unto ______________________ the right
represented by such Warrant to purchase _____** shares of Common Stock of
POLYPHASE CORPORATION to which such Warrant relates, and appoints
________________ Attorney to make such transfer on the books of POLYPHASE
CORPORATION maintained for such purpose, with full power of substitution in the
premises.
Dated:
__________________________________________
(Signature must conform in all respects to
the name of holder as specified on the face
of Warrant)
__________________________________________
(Street Address)
__________________________________________
(City) (State) (Zip Code)
Signed in the presence of:
____________________________
____________________________
** Insert here the number of shares called for on the face of this Warrant
(or in the case of a partial exercise, the portion thereof as to which this
Warrant is being exercised), in either case without making any adjustment for
Additional Shares of Common Stock or any other stock or other securities or
property or cash which, pursuant to the adjustment provisions of this Warrant,
may be delivered upon exercise. In the case of partial exercise, a new Warrant
or Warrants will be issued and delivered, representing the unexercised portion
of the Warrant, to the holder surrendering the Warrant.
22
<PAGE>
Exhibit C
---------
1. As of April 24, 1998, there are Stock Options to purchase 585,000
shares of Polyphase Corporation's Common Stock outstanding and exercisable under
Polyphase Corporation's 1994 Employee Stock Option Plan.
2. As of April 24, 1998, James R. Rudis holds outstanding and exercisable
Stock Options to purchase 146,500 shares of Polyphase Common Stock.
3. As of April 24, 1998, William Shatley holds outstanding and exercisable
Stock Options to purchase 146,500 shares of Polyphase Common Stock.
4. As of April 24, 1998, George Schrader holds outstanding and exercisable
Stock Options to purchase 50,000 shares of Polyphase Common Stock.
5. As of April 24, 1998, Black Sea Investments, Ltd., holds outstanding
and exercisable warrants to purchase 500,000 shares of Polyphase Corporation's
Common Stock.
6. As of April 24, 1998, Infinity Investors Limited, holds shares of
Polyphase Corporation's Convertible Preferred Stock which are convertible into
an aggregate value of $1,250,000 of Polyphase Corporation's Common Stock.
7. As of April 24, 1998, Merrill Lynch holds an aggregate value of
$1,200,000 face amount of Polyphase Corporation's Convertible Debentures which
are convertible at $3.00 per share into 400,000 shares of Polyphase
Corporation's Common Stock.
23
<PAGE>
Exhibit 10.85
[Market Warrant]
- --------------------------------------------------------------------------------
Polyphase Corporation
Common Stock Purchase Warrant
Dated as of April 24, 1998
- --------------------------------------------------------------------------------
THIS WARRANT AND ANY SECURITIES ACQUIRED UPON EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES
LAW OF ANY STATE AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND
APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION TO THE
REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS. THIS WARRANT AND SUCH
SECURITIES MAY NOT BE SOLD, TRANSFERRED (OTHER THAN TO ACCREDITED INVESTORS) OR
OTHERWISE DISPOSED OF EXCEPT IN COMPLIANCE WITH THE CONDITIONS SPECIFIED IN THIS
WARRANT.
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
1. Exercise of Warrant................................................... 1
1.1. Manner of Exercise.................................................... 1
1.2. When Exercise Effective............................................... 2
1.3. Delivery of Stock Certificates, etc................................... 2
1.4. Company to Reaffirm Obligations....................................... 2
1.5. Payment by Application of Shares Otherwise Issuable................... 2
1.6. Tax Basis. 2
2. Adjustment of Common Stock Issuable Upon Exercise..................... 3
2.1. General; Warrant Quantity............................................. 3
2.2. Adjustment of Warrant Quantity........................................ 3
2.2.1 Issuance of Additional Shares of Common Stock......................... 3
2.2.2 Extraordinary Dividends and Distributions............................. 3
2.3. Treatment of Options and Convertible Securities....................... 4
2.4. Treatment of Stock Dividends, Stock Splits, etc....................... 6
2.5. Computation of Consideration.......................................... 6
2.6. Adjustments for Combinations, etc..................................... 7
2.7. Dilution in Case of Other Securities.................................. 7
2.8. Minimum Adjustment of Warrant Quantity................................ 8
2.9. Abandoned Dividend or Distribution.................................... 8
2.10. Stock Options, Warrants and Convertible Securities.................... 8
3. Consolidation, Merger, etc............................................ 8
3.1. Adjustments for Consolidation, Merger, Sale of Assets,
Reorganization, etc................................................... 8
3.2. Assumption of Obligations............................................. 9
4. Other Dilutive Events................................................. 9
5. No Dilution or Impairment............................................. 10
6. Accountants' Report as to Adjustments................................. 10
7. Financial and Business Information.................................... 11
7.1. Quarterly Information................................................. 11
7.2. Annual Information.................................................... 11
7.3. Filings............................................................... 12
7.4. Notices of Corporate Action........................................... 12
8. Registration of Common Stock.......................................... 12
i
<PAGE>
9. Restrictions on Transfer..................... 13
9.1. Restrictive Legends.......................... 13
9.2. Transfer to Comply With the Securities Act... 14
9.3. Termination of Restrictions.................. 14
10. Reservation of Stock, etc................... 14
11. Registration and Transfer of Warrants, etc.. 15
11.1. Warrant Register; Ownership of Warrants.... 15
11.2. Transfer of Warrants....................... 15
11.3. Bond and Warrant Repurchase Option......... 15
11.4. Replacement of Warrants.................... 15
11.5. Adjustments To Warrant Quantity............ 15
11.6. Fractional Shares.......................... 16
12. Definitions................................ 16
13. Remedies; Specific Performance............. 18
14. No Rights or Liabilities as Shareholder.... 19
15. Notices.................................... 19
16. Amendments................................. 19
17. Descriptive Headings, Etc.................. 19
18. GOVERNING LAW.............................. 20
19. Judicial Proceedings; Waiver of Jury....... 20
20. Counterparts............................... 20
ii
<PAGE>
POLYPHASE CORPORATION
Common Stock Purchase Warrant
Void After April 24, 2003
No. W-2
April 24, 1998
POLYPHASE CORPORATION (the "Company"), a Nevada corporation, for value
received, hereby certifies that MERRILL LYNCH WORLD INCOME FUND, INC., a
Maryland Corporation, or registered assigns (the "Holder"), is entitled to
purchase from the Company fifty-two thousand five hundred (52,500) duly
authorized, validly issued, fully paid and nonassessable shares of common stock,
par value $0.01 per share, of the Company (the "Common Stock") at the purchase
price per share of $1.125 (the market price of the Common Stock on December 3,
1997), at any time or from time to time prior to 5:30 PM, Dallas time, on April
24, 2003 (the "Expiration Date"), (the aggregate number of shares entitled to be
purchased by the Holder pursuant to this Warrant shall be the "Warrant
Quantity"), all subject to the terms, conditions and adjustments set forth below
in this Warrant.
This Warrant is one of several Warrants (the "Warrant," such term to
include any such warrants issued in substitution therefor) issued in connection
with the Indenture, dated as of July 5, 1994, by and among the Company and IBJ
Schroder Bank & Trust Company (as supplemented on December 5, 1997, the
"Indenture"). The Warrant originally so issued evidences the right to purchase
a number of shares of Common Stock equal to the Warrant Quantity, subject to
adjustment as provided herein. Certain capitalized terms used in this Warrant
are defined in Section 12; references to an "Exhibit" are, unless otherwise
specified, to one of the Exhibits attached to this Warrant and references to a
"Section" are, unless otherwise specified, to one of the Sections of this
Warrant.
1. Exercise of Warrant.
-------------------
1.1. Manner of Exercise. This Warrant may be exercised by the Holder,
------------------
in whole or part, during normal business hours on any Business Day, by surrender
of this Warrant to the Company at its principal office, accompanied by the Form
of Subscription in substantially the form attached as Exhibit A to this Warrant
(or a reasonable facsimile thereof) duly executed by the Holder and accompanied
by payment, in cash, by certified or official bank check payable to the order of
the Company, or in the manner provided in Section 1.5 (or by any combination of
such methods), in the amount obtained by multiplying (a) the number of shares of
Common Stock for up to but not exceeding 52,500 shares (adjusted as provided in
Sections 2 through 4) designated in such Form of Subscription by (b) $1.125, and
such Holder shall thereupon be entitled to receive such number of duly
authorized, validly issued, fully paid and nonassessable shares of Common Stock
(or Other Securities).
<PAGE>
1.2. When Exercise Effective. Each exercise of this Warrant shall be
-----------------------
deemed to have been effected immediately prior to the close of business on the
Business Day on which this Warrant shall have been surrendered to the Company as
provided in Section 1.1. At such time the Person or Persons in whose name or
names any certificate or certificates for shares of Common Stock (or Other
Securities) shall be issuable upon such exercise, as provided in Section 1.3,
shall be deemed to have become the Holder or Holders of record thereof.
1.3. Delivery of Stock Certificates, etc. As soon as practicable
-----------------------------------
after each exercise of this Warrant, and in no event later than 10 days, in
whole or in part, the Company at its expense (including the payment by it of any
applicable transfer taxes) will cause to be issued in the name of and delivered
to the Holder hereof or, subject to Section 9, as such Holder (upon payment by
such Holder of any applicable transfer taxes) may direct,
1.3.1 a certificate or certificates for the number of duly
authorized, validly issued, fully paid and nonassessable shares, including, if
the Company so elects, fractional shares of Common Stock (or Other Securities)
to which such Holder shall be entitled upon such exercise plus, at the
discretion of the Company, in lieu of any fractional share to which such Holder
would otherwise be entitled, cash in an amount equal to the same fraction of the
Current Market Price per share on the Business Day next preceding the date of
such exercise, and
1.3.2 in case such exercise is in part only, a new Warrant or
Warrants of like tenor, calling in the aggregate on the face or faces thereof
for the number of shares of Common Stock equal (without giving effect to any
adjustment thereof) to the number of such shares called for on the face of this
Warrant minus the number of such shares designated by the Holder upon such
exercise as provided in Section 1.1.
1.4. Company to Reaffirm Obligations. The Company will, at the time
-------------------------------
of each exercise of this Warrant, upon the request of the Holder, acknowledge in
writing its continuing obligation to afford to such Holder all rights
(including, without limitation, any rights to registration of the shares of
Common Stock or Other Securities issued upon such exercise) to which such Holder
shall continue to be entitled after such exercise in accordance with the terms
of this Warrant, provided that if the Holder shall fail to make any such
--------
request, such failure shall not affect the continuing obligation of the Company
to afford such rights to such Holder.
1.5. Payment by Application of Shares Otherwise Issuable. Upon any
---------------------------------------------------
exercise of this Warrant, the Holder may, at its option, instruct the Company,
by written notice accompanying the surrender of this Warrant at the time of such
exercise, to apply to the payment required by Section 1.1 such number of the
shares of Common Stock otherwise issuable to such Holder upon such exercise as
shall be specified in such notice, in which case an amount equal to the excess
of the aggregate Current Market Price of such specified number of shares on the
date of exercise over the portion of the payment required by Section 1.1
attributable to such shares shall be deemed to have been paid to the Company and
the number of shares issuable upon such exercise shall be reduced by such
specified number.
1.6. Tax Basis. The Company and the Holder shall mutually agree as to
the tax basis and tax treatment of this Warrant for purposes of the Internal
Revenue Code of 1986, as
2
<PAGE>
amended (the "Code"), and the treatment of this Warrant under the Code by each
of the Company and the Holder shall be consistent with such agreement.
2. Adjustment of Common Stock Issuable Upon Exercise.
-------------------------------------------------
2.1. General; Warrant Quantity. This Warrant initially evidences the
-------------------------
right to purchase a number of shares of Common Stock equal to the Warrant
Quantity, subject to adjustment as provided in this Section 2.
2.2. Adjustment of Warrant Quantity.
------------------------------
2.2.1 Issuance of Additional Shares of Common Stock. Except as
---------------------------------------------
provided in Section 2.10 of this Warrant, in case the Company at any time or
from time to time after the date hereof shall issue or sell Additional Shares of
Common Stock (including Additional Shares of Common Stock deemed to be issued
pursuant to Section 2.3 or 2.4) without consideration or for a consideration per
share less than the Current Market Price in effect immediately prior to such
issue or sale, then, and in each such case, subject to Section 2.8, the Warrant
Quantity shall be increased, concurrently with such issue or sale, to an amount
determined by multiplying the Warrant Quantity by a fraction
(a) the numerator of which shall be the number of shares of
Common Stock outstanding immediately after such issue of sale, provided
--------
that, for the purposes of this Section 2.2.1, (x) immediately after any
-
Additional Shares of Common Stock are deemed to have been issued pursuant
to Section 2.3 or 2.4, such Additional Shares shall be deemed to be
outstanding, and (y) treasury shares shall not be deemed to be outstanding,
-
and
(b) the denominator of which shall be (i) the number of shares of
-
Common Stock outstanding immediately prior to such issue or sale plus (ii)
--
the number of shares of Common Stock which the aggregate consideration
received by the Company for the total number of such Additional Shares of
Common Stock so issued or sold would purchase at such Current Market Price.
2.2.2 Extraordinary Dividends and Distributions. In case the Company
-----------------------------------------
at any time or from time to time after the date hereof shall declare, order, pay
or make a dividend or other distribution (including, without limitation, any
distribution of other or additional stock or other securities or property or
Options by way of dividend or spin-off, reclassification, recapitalization or
similar corporate rearrangement) on the Common Stock other than (a) a dividend
-
payable in Additional Shares of Common Stock or (b) a regularly scheduled cash
-
dividend payable out of consolidated earnings or earned surplus, determined in
accordance with generally accepted accounting principles, then, in each such
case, subject to Section 2.8, the Warrant Quantity in effect immediately prior
to the close of business on the record date fixed for the determination of
holders of any class of securities entitled to receive such dividend or
distribution shall be increased, effective as of the close of business on such
record date, to an amount determined by multiplying such Warrant Quantity by a
fraction.
3
<PAGE>
(x) the numerator of which shall be the Current Market Price in
effect on such record date or, if the Common Stock trades on an ex-dividend
basis, on the date prior to the commencement of ex-dividend trading, and
(y) the denominator of which shall be such Current Market Price,
less the amount of such dividend or distribution (as determined in good
faith by the Board of Directors of the Company) applicable to one share of
Common Stock,
provided that, in the event that the amount of such dividend as so determined is
- --------
equal to or greater than 10% of such Current Market Price or in the event that
such fraction is greater than 10/9, in lieu of the foregoing adjustment,
adequate provision shall be made so that the Holder of this Warrant shall
receive a pro rata share of such dividend based upon the maximum number of
shares of Common Stock at the time issuable to such Holder.
2.3. Treatment of Options and Convertible Securities. Except as
-----------------------------------------------
provided in Section 2.10 of this Warrant, in case the Company at any time or
from time to time after the date hereof shall issue, sell, grant or assume, or
shall fix a record date for the determination of holders of any class of
securities entitled to receive, any Options or Convertible Securities (whether
or not the rights thereof are immediately exercisable) then, and in each such
case, the maximum number of Additional Shares of Common Stock (as set forth in
the instrument relating thereto, without regard to any provisions contained
therein for a subsequent adjustment of such number) issuable upon the exercise
of such Options or, in the case of Convertible Securities and Options therefor,
the conversion or exchange of such Convertible Securities, shall be deemed to be
Additional Shares of Common Stock issued as of the time of such issue, sale,
grant or assumption or, in case such a record date shall have been fixed, as of
the close of business on such record date (or, if the record date relates to the
Common Stock and the Common Stock trades on an ex-dividend basis, on the date
prior to the commencement of ex-dividend trading), provided that such Additional
--------
Shares of Common Stock shall not be deemed to have been issued unless the
consideration per share (determined pursuant to Section 2.5) of such shares
would be less than the Current Market Price in effect on the date of and
immediately prior to such issue, sale, grant or assumption or immediately prior
to the close of business on such record date (or, if the record date relates to
the Common Stock and the Common Stock trades on an ex-dividend basis, on the
date prior to the commencement of ex-dividend trading), as the case may be, and
provided, further that in any such case in which Additional Shares of Common
- -------- -------
Stock shall not be deemed to have been issued
(a) whether or not the Additional Shares of Common Stock
underlying such Options or Convertible Securities are deemed to be issued,
no further adjustment of the Warrant Quantity shall be made upon the
subsequent issue or sale of Convertible Securities or shares of Common
Stock upon the exercise of such Options or the conversion or exchange of
such Convertible Securities, except in the case of any such Options or
Convertible Securities which contain provisions requiring an adjustment,
subsequent to the date of the issue or sale thereof, of the number of
Additional Shares of Common Stock issuable upon the exercise of such
Options or the conversion or exchange of such Convertible Securities by
reason of (x) a change of control of the Company, (y) the acquisition by
- -
any Person or group of Persons of any specified number or percentage of the
Voting Securities of the Company or (z) any similar event or occurrence,
-
each such case to be deemed hereunder to involve a
4
<PAGE>
separate issuance of Additional Shares of Common Stock, Options or Convertible
Securities, as the case may be;
(b) if such Options or Convertible Securities by their terms
provide, with the passage of time or otherwise, for any increase in the
consideration payable to the Company, or decrease in the number of
Additional Shares of Common Stock issuable, upon the exercise, conversion
or exchange thereof (by change of rate or otherwise), the Warrant Quantity
computed upon the original issue, sale, grant or assumption thereof (or
upon the occurrence of the record date, or date prior to the commencement
of ex-dividend trading, as the case may be, with respect thereto), and any
subsequent adjustments based thereon, shall, upon any such increase or
decrease becoming effective, be recomputed to reflect such increase or
decrease insofar as it affects such Options, or the rights of conversion or
exchange under such Convertible Securities, which are outstanding at such
time;
(c) upon the expiration (or purchase by the Company and
cancellation or retirement) of any such Options which shall not have been
exercised or the expiration of any rights of conversion or exchange under
any such Convertible Securities which (or purchase by the Company and
cancellation or retirement of any such Convertible Securities the rights of
conversion or exchange under which) shall not have been exercised, the
Warrant Quantity computed upon the original issue, sale, grant or
assumption thereof (or upon the occurrence of the record date, or date
prior to the commencement of ex-dividend trading, as the case may be, with
respect thereto), and any subsequent adjustments based thereon, shall, upon
such expiration (or such cancellation or retirement, as the case may be),
be recomputed as if:
(i) in the case of Options for Common Stock or Convertible
Securities, the only Additional Shares of Common Stock issued or sold
were the Additional Shares of Common Stock, if any, actually issued or
sold upon the exercise of such Options or the conversion or exchange
of such Convertible Securities and the consideration received therefor
was the consideration actually received by the Company for the issue,
sale, grant or assumption of all such Options, whether or not
exercised, plus the consideration actually received by the Company
upon such exercise, or for the issue or sale of all such Convertible
Securities which were actually converted or exchanged, plus the
additional consideration, if any, actually received by the Company
upon such conversion or exchange, and
(ii) in the case of Options for Convertible Securities, only
the Convertible Securities, if any, actually issued or sold upon the
exercise of such Options were issued at the time of the issue or sale,
grant or assumption of such Options, and the consideration received by
the Company for the Additional Shares of Common Stock deemed to have
then been issued was the consideration actually received by the
Company for the issue, sale , grant or assumption of all such Options,
whether or not exercised, plus the consideration deemed to have been
received by the Company (pursuant to Section 2.5) upon the issue or
sale of such Convertible Securities with respect to which such Options
were actually exercised;
5
<PAGE>
(d) no readjustment pursuant to subdivision (b) or (c) above
shall have the effect of decreasing the Warrant Quantity by an amount in
excess of the amount of the adjustment thereof originally made in respect
of the issue, sale, grant or assumption of such Options or Convertible
Securities; and
(e) in the case of any such Options which expire by their terms
not more than 30 days after the date of issue, sale, grant or assumption
thereof, no adjustment of the Warrant Quantity shall be made until the
expiration or exercise of all such Options, whereupon such adjustment shall
be made in the manner provided in subdivision (c) above; provided however
that if any Warrant is exercised within such 30-day period, any adjustment
made upon expiration or exercise of all such Options shall be made
retroactively to the date such Warrant was exercised and the Company shall
deliver to the person to whom the shares of Common Stock (or Other
Securities) were issued upon such Warrant exercise, without requiring any
additional consideration, the additional securities issuable as a result of
such retroactive adjustment.
2.4. Treatment of Stock Dividends, Stock Splits, etc. In case the
-----------------------------------------------
Company at any time or from time to time after the date hereof shall declare or
pay any dividend on the Common Stock payable in Common Stock, or shall effect a
subdivision of the outstanding shares of Common Stock into a greater number of
shares of Common Stock (by reclassification or otherwise than by payment of a
dividend in Common Stock), then, and in each such case, Additional Shares of
Common Stock shall be deemed to have been issued (a) in the case of any such
-
dividend, immediately after the close of business on the record date for the
determination of holders of any class of securities entitled to receive such
dividend, or (b) in the case of any such subdivision, at the close of business
-
on the day immediately prior to the day upon which such corporate action becomes
effective.
2.5. Computation of Consideration. For the purposes of this Section
----------------------------
2,
(a) the consideration for the issue or sale of any Additional
Shares of Common Stock shall, irrespective of the accounting treatment of
such consideration,
(i) insofar as it consists of cash, be computed at the net
amount of cash received by the Company, without deducting any expenses
paid or incurred by the Company or any commissions or compensations
paid or concessions or discounts allowed to underwriters, dealers or
others performing similar services in connection with such issue or
sale,
(ii) insofar as it consists of property (including
securities) other than cash, be computed at the fair value thereof at
the time of such issue or sale, as determined in good faith by the
Board of Directors of the Company (if Holder objects to such
determination, Holder may seek and receive, at the Company's expense,
third party appraisal, which shall be the exclusive and binding
determination to be used) and
(iii) in case Additional Shares of Common Stock are issued
or sold together with other stock or securities or other assets of the
Company for a consideration which covers both, be the portion of such
consideration so received,
6
<PAGE>
computed as provided in clauses (i) and (ii) above, allocable to such
Additional Shares of Common Stock, all as determined in good faith by
the Board of Directors of the Company (if Holder objects to such
determination, Holder may seek and receive, at the Company's expense,
third party appraisal, which shall be the exclusive and binding
determination to be used);
(b) Additional Shares of Common Stock deemed to have been issued
pursuant to Section 2.3, relating to Options and Convertible Securities,
shall be deemed to have been issued for a consideration per share
determined by dividing
(i) the total amount, if any, received and receivable by the
Company as consideration for the issue, sale, grant or assumption of
the Options or Convertible Securities in question, plus the minimum
aggregate amount of additional consideration (as set forth in the
instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such consideration to
protect against dilution) payable to the Company upon the exercise in
full of such Options or the conversion or exchange of such Convertible
Securities or, in the case of Options for Convertible Securities, the
exercise of such Options for Convertible Securities and the conversion
or exchange of such Convertible Securities, in each case computing
such consideration as provided in the foregoing subdivision (a),
by
(ii) the maximum number of shares of Common Stock (as set
forth in the instruments relating thereto, without regard to any
provision contained therein for a subsequent adjustment of such number
to protect against dilution) issuable upon the exercise of such
Options or the conversion or exchange of such Convertible Securities;
and
(c) Additional Shares of Common Stock deemed to have been issued
pursuant to Section 2.4 relating to stock dividends, stock splits, etc.,
shall be deemed to have been issued for no consideration.
2.6. Adjustments for Combinations, etc. In case the outstanding
---------------------------------
shares of Common Stock shall be combined or consolidated, by reclassification or
otherwise, into a lesser number of shares of Common Stock, the Warrant Quantity
in effect immediately prior to such combination or consolidation shall,
concurrently with the effectiveness of such combination or consolidation, be
proportionately decreased.
2.7. Dilution in Case of Other Securities. In case any Other
Securities shall be issued or sold or shall become subject to issue or sale upon
the conversion or exchange of any stock (or Other Securities) of the Company (or
any issuer of Other Securities or any other Person referred to in Section 3) or
to subscription, purchase or other acquisition pursuant to any Options issued or
granted by the Company (or any such other issuer or Person) for a consideration
such as to dilute, on a basis consistent with the standards established in the
other provisions of this Section 2, the purchase rights granted by this Warrant,
then, and in each such case, the computations, adjustments
7
<PAGE>
and readjustments provided for in this Section 2 with respect to the Warrant
Quantity shall be made as nearly as possible in the manner so provided and
applied to determine the amount of Other Securities from time to time receivable
upon the exercise of the Warrant, so as to protect the Holder against the effect
of such dilution.
2.8. Minimum Adjustment of Warrant Quantity. If the amount of any
--------------------------------------
adjustment of the Warrant Quantity required pursuant to this Section 2 would be
less than one tenth (1/10) of one percent (1%) of the Warrant Quantity in effect
at the time such adjustment is otherwise so required to be made, such amount
shall be carried forward and adjustment with respect thereto made at the time of
and together with any subsequent adjustment which, together with such amount and
any other amount or amounts so carried forward, shall aggregate at least one
tenth (1/10) of one percent (1%) of such Warrant Quantity. All calculations
under this Warrant shall be made to the nearest one-hundredth of a share.
2.9. Abandoned Dividend or Distribution. If the Company shall take a
----------------------------------
record of the holders of its Common Stock for the purpose of entitling them to
receive a dividend or other distribution (which results in an adjustment to the
Warrant Quantity under the terms of this Warrant) and shall, thereafter, and
before such dividend or distribution is paid or delivered to shareholders
entitled thereto, legally abandon its plan to pay or deliver such dividend or
distribution, then any adjustment made to the Warrant Quantity by reason of the
taking of such record shall be reversed, and any subsequent adjustments, based
thereon, shall be recomputed.
2.10. Stock Options, Warrants and Convertible Securities. The
--------------------------------------------------
adjustment provisions of this Section 2 do not and will not operate to affect
any adjustment of any shares of Common Stock granted to employees of the Company
through stock options issued pursuant to any Company Stock Option Plan of the
Company in effect as of the date hereof; the provisions of this Section 2 shall
not affect any (i) warrants granting the right to purchase shares of Common
Stock outstanding as of the date hereof or (ii) securities convertible into
shares of Common Stock existing or in effect as of the date hereof. Exhibit C,
attached hereto, contains a complete schedule of all stock options or awards
that have been issued pursuant to any Company Stock Option Plan and any warrants
or convertible securities issued as of the date hereof. All other options,
warrants, convertible securities or other debt or equity instruments of the
Company existing as of the date hereof or issued at any time hereafter shall be
subject to the adjustment provisions of this Section 2.
3. Consolidation, Merger, etc.
---------------------------
3.1. Adjustments for Consolidation, Merger, Sale of Assets,
------------------------------------------------------
Reorganization, etc.
- --------------------
In case the Company after the date hereof (a) shall consolidate with
or merge into any other Person and shall not be the continuing or surviving
corporation of such consolidation or merger, or (b) shall permit any other
Person to consolidate with or merge into the Company and the Company shall be
the continuing or surviving Person but, in connection with such consolidation or
merger, the Common Stock or Other Securities shall be changed into or exchanged
for stock or other securities of any other Person or cash or any other property,
or (c) shall transfer all or substantially all of its properties or assets to
any other Person, or (d) shall effect a capital reorganization or
reclassification resulting in the issue of Additional Shares of Common Stock for
which adjustment in the Warrant Quantity is provided in Section 2.2.1 or 2.2.2,
then, and in the case of each such transaction, proper provision
8
<PAGE>
shall be made so that, upon the basis and the terms and in the manner provided
in this Warrant, the Holder, upon the exercise hereof at any time after the
consummation of such transaction, shall be entitled to receive (at the aggregate
purchase price in effect at the time of such consummation for all Common Stock
or Other Securities issuable upon such exercise immediately prior to such
consummation), in lieu of the Common Stock or Other Securities issuable upon
such exercise prior to such consummation, the highest amount of securities, cash
or other property to which such Holder would actually have been entitled as a
shareholder upon such consummation if such Holder had exercised the rights
represented by this Warrant immediately prior thereto, subject to adjustments
(subsequent to such consummation) as nearly equivalent as possible to the
adjustments provided for in Sections 2 through 4, provided that if a purchase,
--------
tender or exchange offer shall have been made to and accepted by the holders of
more than 50% of the outstanding shares of Common Stock, and if the Holder so
designates in a notice given to the Company on or before the date immediately
preceding the date of the consummation of such transaction, the Holder shall be
entitled to receive the highest amount of securities, cash or other property to
which such Holder would actually have been entitled as a shareholder if the
Holder had exercised this Warrant prior to the expiration of such purchase,
tender or exchange offer and accepted such offer, subject to adjustments (from
and after the consummation of such purchase, tender or exchange offer) as nearly
equivalent as possible to the adjustments provided for in Sections 2 through 4.
3.2. Assumption of Obligations. Notwithstanding anything contained in
-------------------------
the Warrant or in the Indenture to the contrary, the Company will not effect any
of the transactions described in clauses (a) through (d) of Section 3.1 unless,
prior to the consummation thereof, each Person (other than the Company) which
may be required to deliver any stock, securities, cash or property upon the
exercise of this Warrant as provided herein shall assume, by written instrument
delivered to, and reasonably satisfactory to, the Holder, (a) the obligations of
the Company under this Warrant (and if the Company shall survive the
consummation of such transaction, such assumption shall be in addition to, and
shall not release the Company from, any continuing obligations of the Company
under this Warrant) and (b) the obligation to deliver to such Holder such shares
of stock, securities, cash or property as, in accordance with the foregoing
provisions of this Section 3, such Holder may be entitled to receive, and such
Person shall have similarly delivered to such Holder an opinion of counsel for
such Person, which counsel shall be reasonably satisfactory to such Holder,
stating that this Warrant shall thereafter continue in full force and effect and
the terms hereof (including, without limitation, all of the provisions of this
Section 3) shall be applicable to the stock, securities, cash or property which
such Person may be required to deliver upon any exercise of this Warrant or the
exercise of any rights pursuant hereto. Nothing in this Section 3 shall be
deemed to authorize the Company to enter into any transaction not otherwise
permitted by the Indenture.
4. Other Dilutive Events. In case any event shall occur as to which
---------------------
the provisions of Section 2 or Section 3 are not strictly applicable but the
failure to make any adjustment would not fairly protect the purchase rights
represented by this Warrant in accordance with the essential intent and
principles of such Sections, then in each such case the Company shall appoint a
firm of independent certified public accountants of recognized national standing
(which may be the regular auditors of the Company), which shall give their
opinion upon the adjustment, if any, on a basis consistent with the essential
intent and principles established in Sections 2 and 3, necessary to preserve,
without dilution, the purchase rights represented by this Warrant. Upon receipt
of such
9
<PAGE>
opinion, the Company will promptly mail a copy thereof to the Holder and shall
make the adjustments described therein.
5. No Dilution or Impairment. The Company will not, by amendment of
-------------------------
its articles of incorporation or through any consolidation, merger,
reorganization, transfer of assets, dissolution, issue or sale of securities or
any other voluntary action, avoid or seek to avoid the observance or performance
of any of the terms of this Warrant, but will at all times in good faith assist
in the carrying out of all such terms and in the taking of all such action as
may be necessary or appropriate in order to protect the rights of the Holder
against dilution or other impairment. Without limiting the generality of the
foregoing, the Company (a) shall not permit the par value of any shares of stock
-
receivable upon the exercise of this Warrant to exceed the amount payable
therefor upon such exercise, (b) will take all such action as may be necessary
-
or appropriate in order that the Company may validly and legally issue fully
paid and nonassessable shares of stock, free from all taxes, liens, security
interests, encumbrances, preemptive rights and charges on the exercise of the
Warrants from time to time outstanding, (c) will not take any action which
-
results in any adjustment of the Warrant Quantity if the total number of shares
of Common Stock (or Other Securities) issuable after the action upon the
exercise of all of the Warrants would exceed the total number of shares of
Common Stock (or Other Securities) then authorized by the Company's articles of
incorporation and available and reserved for the purpose of issue upon such
exercise, and (d) will not issue any capital stock of any class which is
-
preferred as to dividends or as to the distribution of assets upon voluntary or
involuntary dissolution, liquidation or winding-up, unless the rights of the
holders thereof shall be limited to a fixed sum or percentage of par value or a
sum determined by reference to a formula based on a published index of interest
rates, an interest rate publicly announced by a financial institution or a
similar indicator of interest rates in respect of participation in dividends and
to a fixed sum or percentage of par value in any such distribution of assets.
6. Accountants' Report as to Adjustments. In each case of any
-------------------------------------
adjustment or readjustment in the shares of Common Stock (or Other Securities)
issuable upon the exercise of this Warrant, the Company at its expense will
promptly compute such adjustment or readjustment in accordance with the terms of
this Warrant and cause independent certified public accountants of recognized
national standing (which may be the regular auditors of the Company) selected by
the Company to verify such computation (other than any computation of the fair
value of property as determined in good faith by the Board of Directors of the
Company (if Holder objects to such determination, Holder may seek and receive,
at the Company's expense third party appraisal, which shall be the exclusive and
binding determination to be used)) and prepare a report setting forth such
adjustment or readjustment and showing in reasonable detail the method of
calculation thereof and the facts upon which such adjustment or readjustment is
based, including a statement of (a) the consideration received or to be received
-
by the Company for any Additional Shares of Common Stock issued or sold or
deemed to have been issued, (b) the number of shares of Common Stock outstanding
-
or deemed to be outstanding, and (c) the Warrant Quantity in effect immediately
-
prior to such issue or sale and as adjusted and readjusted (if required by
Section 2) on account thereof. The Company will forthwith mail a copy of each
such report to each Holder of a Warrant and will, upon the written request at
any time of any Holder of a Warrant, furnish to such Holder a like report
setting forth the Warrant Quantity at the time in effect and showing in
reasonable detail how it was calculated. The Company will also keep copies of
all such reports at its principal office and will cause
10
<PAGE>
the same to be available for inspection at such office during normal business
hours by any Holder of a Warrant or any prospective purchaser of a Warrant
designated by the Holder thereof.
7. Financial and Business Information.
----------------------------------
7.1. Quarterly Information. If during any period the Company (i) is
---------------------
not subject to the reporting requirements of Section 15(d) of the Exchange Act
and (ii) does not have securities registered under Section 12(b) or 12 (g) of
the Exchange Act, the Company will deliver to the Holder, as soon as practicable
after the end of each quarterly fiscal period in each fiscal year of the
Company, and in any event within 60 days thereafter, a copy of the unaudited
consolidated balance sheet as at the close of such quarter, and the related
unaudited consolidated statements of income, shareholders' equity and cash flow
of the Company and its subsidiaries for that portion of the fiscal year ending
as of the close of such quarter. Such financial statements shall be prepared by
the Company in accordance with generally accepted accounting principles, applied
on a consistent basis ("GAAP") (subject to normal year end adjustments and the
inclusion of footnotes) and accompanied by the certification of the Company's
chief executive officer or chief financial officer that, to the best of his
knowledge, such financial statements are complete and correct in all material
respects and fairly present in accordance with GAAP (subject to normal year end
adjustments and the inclusions of footnotes) the consolidated financial
position, the consolidated statements of income, shareholder equity and cash
flow of the Company and its subsidiaries as at the end of such quarter and for
such year-to-date period, as the case may be. If during any period the Company
either (i) is subject to the reporting requirements of Section 15(g) of the
Exchange Act or (ii) has securities registered under Section 12(b) or 12(g) of
the Exchange Act, the Company shall be considered a "Public Company" and need
not provide the information required by this Section 7.1.
7.2. Annual Information. If during any period the Company is not a
------------------
Public Company, the Company will deliver to the Holder as soon as practicable
after the end of each fiscal year of the Company, and in any event within 120
days thereafter, one copy of:
(i) an audited consolidated balance sheet of the Company and
its subsidiaries as at the end of such year, and
(ii) audited consolidated statements of income,
shareholders' equity and cash flow of the Company and its subsidiaries
for such year;
setting forth in each case in comparative form the figures for the corresponding
periods in the previous fiscal year, all prepared in accordance with GAAP, and
which audited financial statements shall be accompanied by (i) a certification
of the chief executive officer or chief financial officer of the Company that,
to the best of his knowledge, all such financial statements are complete and
correct in all material respects and present fairly in accordance with GAAP the
consolidated financial position of the Company and its subsidiaries as at the
end of such fiscal year and for the period then ended, (ii) an opinion thereon
of the independent certified public accountants regularly retained by the
Company, or any other firm of independent certified public accountants of
recognized national standing selected by the Company, and (iii) a report of such
independent certified public accountants confirming any adjustment make pursuant
to Section 2 during such year.
11
<PAGE>
7.3. Filings. During any period when the Company is a Public Company,
-------
the Company will file on or before the required date all required regular or
periodic reports (pursuant to the Exchange Act) with the Commission and will
deliver to the Holder promptly upon their becoming available one copy of each
report, notice or proxy statement sent by the Company to its stockholders
generally, and of each regular or periodic report (pursuant to the Exchange Act)
and any registration statement, prospectus or written communication (other than
transmittal letters) (pursuant to the Securities Act), filed by the Company with
(i) the Commission or (ii) any securities exchange on which shares of Common
Stock (or Other Securities) are listed.
7.4. Notices of Corporate Action. In the event of
---------------------------
(a) any taking by the Company of a record of the holders of any
class of securities for the purpose of determining the holders thereof who
are entitled to receive any dividend (other than a regular periodic
dividend payable in cash out of earned surplus in an amount not exceeding
the amount of the immediately preceding cash dividend for such period) or
other distribution, or any right to subscribe for, purchase or otherwise
acquire any shares of stock of any class or any other securities or
property, or to receive any other right, or
(b) any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company or
any consolidation or merger involving the Company and any other Person, any
transaction or series of transactions in which more than 50% of the Voting
Securities of the Company are transferred to another Person or any
transfer, sale or other disposition of all or substantially all the assets
of the Company to any other Person, or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company,
the Company will mail to the Holder a notice specifying (i) the date or expected
date on which any such record is to be taken for the purpose of such dividend,
distribution or right, and the amount and character of such dividend,
distribution or right, and (ii) the date or expected date on which any such
reorganization, reclassification, recapitalization, consolidation, merger,
transfer, dissolution, liquidation or winding-up is to take place and the time,
if any such time is to be fixed, as of which the holders of record of Common
Stock (or Other Securities) shall be entitled to exchange their shares of Common
Stock (or Other Securities) for the securities or other property deliverable
upon such reorganization, reclassification, recapitalization, consolidation,
merger, transfer, dissolution, sale, disposition, liquidation or winding-up.
Such notice shall be mailed at least 45 days prior to the date therein
specified.
8. Registration of Common Stock. The Company will use its best
efforts to register the shares of Common Stock (or Other Securities) issuable
upon exercise of this Warrant so that the Person exercising this Warrant
receives registered securities. In accordance with this Section 8, the Company
has entered into a Registration Rights Agreement, dated April 24, 1998, with
each of the Holders. Such Registration Rights Agreement provides for demand and
piggyback registration rights with respect to all such securities. If any shares
of Common Stock (or Other Securities)
12
<PAGE>
issuable upon exercise of this Warrant require registration with or approval of
any governmental authority under any federal or state law (other than securities
laws), the Company will, at its expense and as expeditiously as possible, use
its best efforts to cause such shares of Common Stock (or Other Securities) to
be duly registered or approved, as the case may be. Immediately upon the
exercise of this Warrant, or any portion thereof, the Company will, at its
expense, obtain promptly and maintain the approval for listing on each such
exchange, upon official notice of issuance, the shares of Common Stock issuable
upon exercise of the then outstanding Warrants and maintain the listing of such
shares after their issuance.
9. Restrictions on Transfer.
------------------------
9.1. Restrictive Legends. Except as otherwise permitted by this
-------------------
Section 9, each Warrant (including each Warrant issued upon the transfer of any
Warrant) shall be stamped or otherwise imprinted with a legend in substantially
the following form:
"THIS WARRANT AND ANY SECURITIES ACQUIRED UPON EXERCISE OF THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR THE SECURITIES LAW OF ANY STATE AND MAY NOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF (OTHER THAN TO ACCREDITED INVESTORS)
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND
APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION TO
THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS. THIS WARRANT AND
SUCH SECURITIES MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF
EXCEPT IN COMPLIANCE WITH THE CONDITIONS SPECIFIED IN THIS WARRANT.
Except as otherwise permitted by this Section 9, each certificate for Common
Stock (or Other Securities) issued upon the exercise of any Warrant, and each
certificate issued upon the transfer of any such Common Stock (or Other
Securities), shall be stamped or otherwise imprinted with a legend in
substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES
LAW OF ANY STATE, AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF
(OTHER THAN TO ACCREDITED INVESTORS) EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS
OR PURSUANT TO AN APPLICABLE EXEMPTION TO THE REGISTRATION REQUIREMENTS OF
SUCH ACT AND SUCH LAWS. SUCH SECURITIES MAY NOT BE SOLD, TRANSFERRED OR
OTHERWISE DISPOSED OF EXCEPT IN COMPLIANCE WITH THE CONDITIONS SPECIFIED IN
CERTAIN COMMON STOCK PURCHASE WARRANTS ISSUED BY POLYPHASE CORPORATION,
PURSUANT TO THE COMMON STOCK PURCHASE WARRANT, DATED APRIL 24, 1998. A
13
<PAGE>
COMPLETE AND CORRECT COPY OF THE FORM OF SUCH WARRANT IS AVAILABLE FOR
INSPECTION AT THE PRINCIPAL OFFICE OF POLYPHASE CORPORATION, OR AT THE
OFFICE OR AGENCY MAINTAINED BY POLYPHASE CORPORATION, AS PROVIDED IN SUCH
WARRANTS AND WILL BE FURNISHED TO THE HOLDER OF SUCH SECURITIES UPON
WRITTEN REQUEST AND WITHOUT CHARGE."
9.2. Transfer to Comply With the Securities Act. Restricted
------------------------------------------
Securities may not be sold, assigned, pledged, hypothecated, encumbered or in
any manner transferred or disposed of, in whole or in part (other than to
accredited investors), except in compliance with the provisions of the
Securities Act and state securities or Blue Sky laws and the terms and
conditions hereof.
9.3. Termination of Restrictions. The restrictions imposed by this
---------------------------
Section 9 on the transferability of Restricted Securities shall cease and
terminate as to any particular Restricted Securities (a) when a registration
statement with respect to the sale of such securities shall have been declared
effective under the Securities Act and such securities shall have been disposed
of in accordance with such registration statement, (b) when such securities are
sold pursuant to Rule 144 (or any similar provision then in force) under the
Securities Act, or (c) when, in the opinion of both counsel for the Holder and
counsel for the Company, such restrictions are not longer required or necessary
in order to protect the Company against a violation of the Securities Act upon
any sale or other disposition of such securities without registration
thereunder. Whenever such restrictions shall cease and terminate as to any
Restricted Securities, the Holder shall be entitled to receive from the Company,
without expense, new securities of like tenor not bearing the applicable legends
required by Section 9.1.
10. Reservation of Stock, etc. The Company shall at all times reserve
-------------------------
and keep available, solely for issuance and delivery upon exercise of the
Warrants, the number of shares of Common Stock (or Other Securities) from time
to time issuable upon exercise of all Warrants at the time outstanding. All
shares of Common Stock (or Other Securities) issuable upon exercise of any
Warrants shall be duly authorized and, when issued upon such exercise, shall be
validly issued and, in the case of shares, fully paid and nonassessable with no
liability on the part of the holders thereof, and, in the case of all
securities, shall be free from all taxes, liens, security interests,
encumbrances, preemptive rights and charges. The transfer agent for the Common
Stock, which may be the Company ("Transfer Agent"), and every subsequent
Transfer Agent for any shares of the Company's capital stock issuable upon the
exercise of any of the purchase rights represented by this Warrant, are hereby
irrevocably authorized and directed at all times until the Expiration Date to
reserve such number of authorized and unissued shares as shall be requisite for
such purpose. The Company shall keep copies of this Warrant on file with the
Transfer Agent for the Common Stock and with every subsequent Transfer Agent for
any shares of the Company's capital stock issuable upon the exercise of the
rights of purchase represented by this Warrant. The Company shall supply such
Transfer Agent with duly executed stock certificates for such purpose. All
Warrant certificates surrendered upon the exercise of the rights thereby
evidenced shall be canceled, and such canceled Warrants shall constitute
sufficient evidence of the number of shares of stock which have been issued upon
the exercise of such Warrants. Subsequent to the Expiration Date, no shares of
stock need be reserved in respect of any unexercised Warrant.
14
<PAGE>
11. Registration and Transfer of Warrants, etc.
-------------------------------------------
11.1. Warrant Register; Ownership of Warrants. Each Warrant issued by
---------------------------------------
the Company shall be numbered and shall be registered in a warrant register (the
"Warrant Register") as it is issued and transferred, which Warrant Register
shall be maintained by the Company at its principal office or, at the Company's
election and expense, by a Warrant Agent or the Company's transfer agent. The
Company shall be entitled to treat the registered Holder of any Warrant on the
Warrant Register as the owner in fact thereof for all purposes and shall not be
bound to recognize any equitable or other claim to or interest in such Warrant
on the part of any other Person, and shall not be affected by any notice to the
contrary, except that, if and when any Warrant is properly assigned in blank,
the Company may (but shall not be obligated to) treat the bearer thereof as the
owner of such Warrant for all purposes. Subject to Section 9, a Warrant, if
properly assigned, may be exercised by a new holder without a new Warrant first
having been issued.
11.2. Transfer of Warrants. Subject to compliance with Section 9, if
--------------------
applicable, this Warrant and all rights hereunder are transferable in whole or
in part, without charge to the Holder hereof, upon surrender of this Warrant
with a properly executed Form of Assignment attached hereto as Exhibit B at the
principal office of the Company. Upon any partial transfer, the Company shall at
its expense issue and deliver to the Holder a new Warrant of like tenor, in the
name of the Holder, which shall be exercisable for such number of shares of
Common Stock with respect to which rights under this Warrant were not so
transferred.
11.3. Bond and Warrant Repurchase Option. Upon delivery to the Holder
----------------------------------
of the Warrants contemplated by this Agreement, the Holder hereby grants to the
Company an option to repurchase the remaining Bonds, issued pursuant to the
Indenture, dated as of July 5, 1994 among the Company and IBJ Schroder Bank and
Trust Company (the "Bonds"), held by it at par plus interest accrued thereon
through the date of repurchase, such repurchase to occur no later than September
5, 1998. Provided that the Company exercises its option to repurchase the
remaining Bonds as noted above and completes such repurchase, it is granted an
option to repurchase, concurrently with the exercise of its Bond repurchase
right, this Warrant to the extent it relates to 50,000 shares of Common Stock
for $525 from the Holder. Until such option expires, the Holder shall be
obligated to retain this Warrant to the extent it relates to 52,500 shares of
Common Stock.
11.4. Replacement of Warrants. On receipt by the Company of evidence
-----------------------
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of this Warrant and, in the case of any such loss, theft or
destruction of this Warrant, on delivery of an indemnity agreement reasonably
satisfactory in form and amount to the Company or, in the case of any such
mutilation, on surrender of such Warrant to the Company at its principal office
and cancellation thereof, the Company at its expense shall execute and deliver,
in lieu thereof, a new Warrant of like tenor.
11.5. Adjustments To Warrant Quantity. Notwithstanding any adjustment
-------------------------------
in the Warrant Quantity or in the number or kind of shares of Common Stock (or
Other Securities) purchasable upon exercise of this Warrant, any Warrant
theretofore or thereafter issued may continue to express the same number and
kind of shares of Common Stock as are stated in this Warrant, as initially
issued.
15
<PAGE>
11.6. Fractional Shares. Notwithstanding any adjustment pursuant to
-----------------
Section 2 in the number of shares of Common Stock covered by this Warrant or any
other provision of this Warrant, the Company may, but shall not be required to,
issue fractions of shares upon exercise of this Warrant or to distribute
certificates which evidence fractional shares. In lieu of fractional shares, the
Company shall may payment to the Holder, at the time of exercise of this Warrant
as herein provided, in an amount in cash equal to such fraction multiplied by
the Current Market Price of a share of Common Stock on the date of Warrant
exercise.
12. Definitions. As used herein, unless the context otherwise
-----------
requires, the following terms have the following respective meanings:
Additional Shares of Common Stock: All shares (including treasury
---------------------------------
shares) of Common Stock issued or sold (or, pursuant to Section 2.3 or 2.4,
deemed to be issued) by the Company after the date hereof, whether or not
subsequently reacquired or retired by the Company, other than
(a) shares issued upon the exercise of the Warrant,
(b) such additional number of shares as may become issuable upon
the exercise of the Warrant by reason of adjustments required pursuant to
anti-dilution provisions applicable to the Warrant as in effect on the date
hereof,
(c) shares, warrants, options and other securities issued at any
time to the Holder or any Affiliate thereof.
Affiliate: Any Person that directly or indirectly, through one or
---------
more intermediaries, controls, is controlled by, or is under common control
with, the applicable Person. For purposes of this definition "control" has the
meaning specified in Rule 12b-2 under the Exchange Act.
Business Day: Any day other than a Saturday or Sunday or a day on
------------
which commercial banking institutions in the City of New York are authorized by
law to be closed. Any reference to "days" (unless Business Days are specified)
shall mean calendar days.
Code: As defined in Section 1.6.
----
Commission: The Securities and Exchange Commission or any other
----------
federal agency at the time administering the Securities Act.
Common Stock: As defined in the introduction to this Warrant, such
------------
term to include any stock into which such Common Stock shall have been changed
or any stock resulting from any reclassification of such Common Stock, and all
other stock of any class or classes (however designated) of the Company the
holders of which have the right, without limitation as to amount, either to all
or to a share of the balance of current dividends and liquidating dividends
after the payment of dividends and distributions on any shares entitled to a
preference.
16
<PAGE>
Company: As defined in the introduction to this Warrant, such term to
-------
include any Person which shall succeed to or assume the obligations of the
Company hereunder in compliance with Section 3.
Convertible Securities: Any evidence of indebtedness, shares of stock
----------------------
(other than Common Stock) or other securities directly or indirectly convertible
into or exchangeable for Additional Shares of Common Stock.
Current Market Price: On any date specified herein, the average daily
--------------------
Market Price during the period of the most recent 20 days, ending on such date,
on which the national securities exchanges were open for trading, except that if
no Common Stock is then listed or admitted to trading on any national securities
exchange or quoted in the over-the-counter market, the Current Market Price
shall be the Market Price on such date.
Exchange Act: The Securities Exchange Act of 1934, or any similar
------------
federal statute, and the rules and regulations of the Commission thereunder, all
as the same shall be in effect at the time.
Expiration Date: As defined in the introduction to this Warrant.
---------------
Holder: As defined in the introduction to this Warrant.
------
Indenture: As defined in the introduction to the Warrant.
---------
Market Price: On any date specified herein, the amount per share of
------------
the Common Stock equal to (a) the last reported sale price of such Common Stock,
regular way, on such date or, in case no such sale takes place on such date, the
average of the closing bid and asked prices thereof, regular way, on such date,
in either case as officially reported on the principal national securities
exchange on which such Common Stock is then listed or admitted for trading, or
(b) if such Common Stock is not then listed or admitted for trading on any
national securities exchange but is designated as a national market system
security by the NASD, the last reported trading price of the Common Stock on
such date, or (c) if there shall have been no trading on such date or if the
Common Stock is not so designated, the average of the closing bid and asked
prices of the Common Stock on such date as shown by the NASD automated quotation
system, or (d) if neither a, b nor c is applicable, the higher of (x) the book
value thereof as determined by any firm of independent public accountants of
recognized standing selected by the Board of Directors of the Company as of the
last day of any month ending within 60 days preceding the date as of which the
determination is to be made and (y) the fair value thereof (as of the date which
is within 20 days of the date as of which the determination is to be made)
determined in good faith by the Board of Directors of the Company (if Holder
objects to such determination, Holder may seek and receive, at the Company's
expense, third party appraisal, which shall be the exclusive and binding
determination to be used).
NASD: The National Association of Securities Dealers, Inc.
----
Options: Rights, options or warrants to subscribe for, purchase or
-------
otherwise acquire either Additional Shares of Common Stock or Convertible
Securities.
17
<PAGE>
Other Securities. Any stock (other than Common Stock) and other
----------------
securities of the Company or any other Person (corporate or otherwise) which the
holders of the Warrants at any time shall be entitled to receive, or shall have
received, upon the exercise of the Warrants, in lieu of or in addition to Common
Stock, or which at any time shall be issuable or shall have been issued in
exchange for or in replacement of Common Stock or Other Securities pursuant to
Section 3 or otherwise.
Person: An individual, firm, partnership, corporation, professional
------
corporation, trust, joint venture, association, joint stock company, limited
liability company, unincorporated organization or any other entity or
organization, including a government or agency or political subdivision thereof,
and shall include any successor (by merger or otherwise) of such entity.
Restricted Securities: (a) any Warrants bearing the applicable legend
---------------------
set forth in Section 9.1, (b) any shares of Common Stock (or Other Securities)
issued or issuable upon the exercise of Warrants but only so long as they are
required to be evidenced by a certificate or certificates bearing the applicable
legend set forth in such Section, and (c) any shares of Common Stock (or Other
Securities) issued subsequent to the exercise of any of the Warrants as a
dividend or other distribution with respect to, or resulting from a subdivision
of the outstanding shares of Common Stock (or other Securities) into a greater
number of shares by reclassification, stock splits or otherwise, or in exchange
for or in replacement of the Common Stock (or Other Securities) issued upon such
exercise, but only so long as they are required to be evidenced by a certificate
or certificates bearing the applicable legend set forth in such Section.
Securities Act: The Securities Act of 1933, or any similar federal
--------------
statute, and the rules and regulations of the Commission thereunder, all as the
same shall be in effect at the time.
Voting Securities: Stock of any class or classes (or equivalent
-----------------
interests), if the holders of the stock of such class or classes (or equivalent
interests) are ordinarily, in the absence of contingencies, entitled to vote for
the election of the directors (or persons performing similar functions) of the
issuer, even though the right so to vote has been suspended by the happening of
such a contingency.
Warrant: As defined in the introduction to this Warrant.
-------
Warrant Quantity: As defined in the introduction to this Warrant.
----------------
13. Remedies; Specific Performance. The Company stipulates that there
------------------------------
would be no adequate remedy at law to the Holder of this Warrant in the event of
any default or threatened default by the Company in the performance of or
compliance with any of the terms of this Warrant and accordingly, the Company
agrees that, in addition to any other remedy to which the Holder may be entitled
at law or in equity, the Holder shall be entitled to seek to compel specific
performance of the obligations of the Company under this Warrant, without the
posting of any bond, in accordance with the terms and conditions of this Warrant
in any court of the United States or any State thereof having jurisdiction, and
if any action should be brought in equity to enforce any of the provisions of
this Warrant, the Company shall not raise the defense that there is an adequate
remedy at law. Except as otherwise provided by law, a delay or omission by the
Holder hereto in exercising any right or
18
<PAGE>
remedy accruing upon any such breach shall not impair the right or remedy or
constitute a waiver of or acquiescence in any such breach. No remedy shall be
exclusive of any other remedy. All available remedies shall be cumulative.
14. No Rights or Liabilities as Shareholder. Nothing contained in
---------------------------------------
this Warrant shall be construed as conferring upon the Holder hereof any rights
as a shareholder of the Company or as imposing any obligation on the Holder to
purchase any securities or as imposing any liabilities on the Holder as a
shareholder of the Company, whether such obligation or liabilities are asserted
by the Company or by creditors of the Company.
15. Notices. All notices and other communications (and deliveries)
-------
provided for or permitted hereunder shall be made in writing by hand delivery,
telecopier, any courier guaranteeing overnight delivery or first class
registered or certified mail, return receipt requested, postage prepaid,
addressed (a) if to the Company, to the attention of its Chief Financial Officer
at its principal office located at 4800 Broadway, Suite A, Dallas, Texas 75248
or such other address as may hereafter be designated in writing by the Company
to the Holder in accordance with the provisions of this Section, or (b) if to
the Holder, at its address as it appears in the Warrant Register.
All such notices and communications (and deliveries) shall be deemed
to have been duly given: at the time delivered by hand, if personally
delivered; when receipt is acknowledged or confirmed (by automatic confirmation
or otherwise), if telecopied; on the next Business Day, if timely delivered to a
courier guaranteeing overnight delivery; and five days after being deposited in
the mail, if sent first class or certified mail, return receipt requested,
postage prepaid; provided, that the exercise of any Warrant shall be effective
--------
in the manner provided in Section 1.
16. Amendments. This Warrant and any term hereof may not be amended,
----------
modified, supplemented or terminated, and waivers or consents to departures from
the provisions hereof may not be given, except by written instrument duly
executed by the party against which enforcement of such amendment, modification,
supplement, termination or consent to departure is sought.
17. Descriptive Headings, Etc. The headings in this Warrant are for
-------------------------
convenience of reference only and shall not limit or otherwise affect the
meaning of terms contained herein. Unless the context of this Warrant otherwise
requires: (1) words of any gender shall be deemed to include each other gender;
(2) words using the singular or plural number shall also include the plural or
singular number, respectively; (3) the words "hereof," "herein" and "hereunder"
and words of similar import when used in this Warrant shall refer to this
Warrant as a whole and not to any particular provision of this Warrant, and
Section and paragraph references are to the Sections and paragraphs of this
Warrant unless otherwise specified; (4) the word "including" and words of
similar import when used in this Warrant shall mean "including, without
limitation," unless otherwise specified; (5) "or" is not exclusive; and (6)
provisions apply to successive events and transactions.
18. GOVERNING LAW. This Warrant shall be governed by, and construed
-------------
in accordance with, the laws of the State of Texas (without giving effect to the
conflict of laws principles thereof).
19
<PAGE>
19. Judicial Proceedings; Waiver of Jury. Any legal action, suit or
------------------------------------
proceeding brought against the Company with respect to this Warrant may be
brought in any federal court of Texas or any state court located in Dallas
County, State of Texas, and by execution and delivery of this Warrant, the
Company hereby irrevocably and unconditionally waives any claim (by way of
motion, as a defense or otherwise) of improper venue, that it is not subject
personally to the jurisdiction of such court, that such courts are an
inconvenient forum or that this Warrant or the subject matter may not be
enforced in or by such court. The Company irrevocably submits to the exclusive
jurisdiction of the aforementioned courts in such action, suit or proceeding.
The Company hereby irrevocably and unconditionally consents to the service of
process of any of the aforementioned courts in any such action, suit or
proceeding by the mailing of copies thereof by registered or certified mail,
postage prepaid, at its address set forth or provided for in Section 15 (with
copies of such process also being sent to the Company's counsel referred to in
such section), such service to become effective 10 days after such mailing.
Nothing herein contained shall be deemed to affect the right of any party to
serve process in any manner permitted by law or commence legal proceedings or
otherwise proceed against any other party in any other jurisdiction to enforce
judgments obtained in any action, suit or proceeding brought pursuant to this
Section. THE COMPANY HEREBY IRREVOCABLY WAIVES TRIAL BY JURY IN ANY ACTION, SUIT
OR PROCEEDING, WHETHER AT LAW OR EQUITY, BROUGHT BY IT OR THE HOLDER IN
CONNECTION WITH THIS WARRANT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
20. Counterparts. This Warrant may be executed in any number of
------------
counterparts, each of which shall be deemed an original, but all such
counterparts shall together constitute one and the same instrument.
POLYPHASE CORPORATION
By:__________________________
Name:________________________
Title:_______________________
MERRILL LYNCH WORLD INCOME FUND, INC.
By:____________________________
Name:
Title:
20
<PAGE>
Exhibit A
---------
FORM OF SUBSCRIPTION
--------------------
[To be executed only upon exercise of Warrant]
To: POLYPHASE CORPORATION
The undersigned registered holder of the within Warrant hereby irrevocably
exercises such Warrant for, and purchases thereunder, _____* shares of Common
stock of POLYPHASE CORPORATION and herewith makes payment of $___________
therefor, and requests that the certificates for such shares be issued in the
name of, and delivered to ___________________________ whose address is
__________________________________________________.
Dated:
___________________________________________
(Signature must conform in all respects to
the name of holder as specified on the face
of Warrant)
___________________________________________
(Street Address)
___________________________________________
(City) (State) (Zip Code)
______________________________
*Insert here the number of shares called for on the face of this Warrant (or
in the case of a partial exercise, the portion thereof as to which this Warrant
is being exercised), in either case without making any adjustment for Additional
Shares of Common Stock or any other stock or other securities or property or
cash which, pursuant to the adjustment provisions of this Warrant, may be
delivered upon exercise. In the case of partial exercise, a new Warrant or
Warrants will be issued and delivered, representing the unexercised portion of
the Warrant, to the holder surrendering the Warrant.
21
<PAGE>
Exhibit B
---------
FORM OF ASSIGNMENT
------------------
[To be executed only upon assignment of Warrant]
For value received, the undersigned registered holder of the within Warrant
hereby sells, assigns and transfers unto ______________________ the right
represented by such Warrant to purchase _____** shares of Common Stock of
POLYPHASE CORPORATION to which such Warrant relates, and appoints
________________ Attorney to make such transfer on the books of POLYPHASE
CORPORATION maintained for such purpose, with full power of substitution in the
premises.
Dated:
__________________________________________
(Signature must conform in all respects to
the name of holder as specified on the face
of Warrant)
__________________________________________
(Street Address)
__________________________________________
(City) (State) (Zip Code)
Signed in the presence of:
_______________________________
____________________
** Insert here the number of shares called for on the face of this Warrant
(or in the case of a partial exercise, the portion thereof as to which this
Warrant is being exercised), in either case without making any adjustment for
Additional Shares of Common Stock or any other stock or other securities or
property or cash which, pursuant to the adjustment provisions of this Warrant,
may be delivered upon exercise. In the case of partial exercise, a new Warrant
or Warrants will be issued and delivered, representing the unexercised portion
of the Warrant, to the holder surrendering the Warrant.
22
<PAGE>
Exhibit C
---------
1. As of April 24, 1998, there are Stock Options to purchase 585,000
shares of Polyphase Corporation's Common Stock outstanding and exercisable under
Polyphase Corporation's 1994 Employee Stock Option Plan.
2. As of April 24, 1998, James R. Rudis holds outstanding and exercisable
Stock Options to purchase 146,500 shares of Polyphase Common Stock.
3. As of April 24, 1998, William Shatley holds outstanding and exercisable
Stock Options to purchase 146,500 shares of Polyphase Common Stock.
4. As of April 24, 1998, George Schrader holds outstanding and exercisable
Stock Options to purchase 50,000 shares of Polyphase Common Stock.
5. As of April 24, 1998, Black Sea Investments, Ltd., holds outstanding
and exercisable warrants to purchase 500,000 shares of Polyphase Corporation's
Common Stock.
6. As of April 24, 1998, Infinity Investors Limited, holds shares of
Polyphase Corporation's Convertible Preferred Stock which are convertible into
an aggregate value of $1,250,000 of Polyphase Corporation's Common Stock.
7. As of April 24, 1998, Merrill Lynch holds an aggregate value of
$1,200,000 face amount of Polyphase Corporation's Convertible Debentures which
are convertible at $3.00 per share into 400,000 shares of Polyphase
Corporation's Common Stock.
23
<PAGE>
EXHIBIT 10.86
[Market Warrant]
-------------------------------------------------------------------------------
Polyphase Corporation
Common Stock Purchase Warrant
Dated as of April 24, 1998
- --------------------------------------------------------------------------------
THIS WARRANT AND ANY SECURITIES ACQUIRED UPON EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES
LAW OF ANY STATE AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND
APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION TO THE
REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS. THIS WARRANT AND SUCH
SECURITIES MAY NOT BE SOLD, TRANSFERRED (OTHER THAN TO ACCREDITED INVESTORS) OR
OTHERWISE DISPOSED OF EXCEPT IN COMPLIANCE WITH THE CONDITIONS SPECIFIED IN THIS
WARRANT.
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
<S> <C> <C>
Page
----
1. Exercise of Warrant................................................... 1
1.1. Manner of Exercise.................................................... 1
1.2. When Exercise Effective............................................... 2
1.3. Delivery of Stock Certificates, etc................................... 2
1.4. Company to Reaffirm Obligations....................................... 2
1.5. Payment by Application of Shares Otherwise Issuable................... 2
1.6. Tax Basis............................................................. 2
2. Adjustment of Common Stock Issuable Upon Exercise..................... 3
2.1. General; Warrant Quantity............................................. 3
2.2. Adjustment of Warrant Quantity........................................ 3
2.2.1 Issuance of Additional Shares of Common Stock......................... 3
2.2.2 Extraordinary Dividends and Distributions............................. 3
2.3. Treatment of Options and Convertible Securities....................... 4
2.4. Treatment of Stock Dividends, Stock Splits, etc....................... 6
2.5. Computation of Consideration.......................................... 6
2.6. Adjustments for Combinations, etc..................................... 7
2.7. Dilution in Case of Other Securities.................................. 7
2.8. Minimum Adjustment of Warrant Quantity................................ 8
2.9. Abandoned Dividend or Distribution.................................... 8
2.10. Stock Options, Warrants and Convertible Securities.................... 8
3. Consolidation, Merger, etc............................................ 8
3.1. Adjustments for Consolidation, Merger, Sale of Assets, Reorganization,
etc................................................................... 8
3.2. Assumption of Obligations............................................. 9
4. Other Dilutive Events................................................. 9
5. No Dilution or Impairment............................................ 10
6. Accountants' Report as to Adjustments................................ 10
7. Financial and Business Information................................... 11
7.1. Quarterly Information................................................ 11
7.2. Annual Information................................................... 11
7.3. Filings.............................................................. 12
7.4. Notices of Corporate Action.......................................... 12
8. Registration of Common Stock......................................... 12
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
9. Restrictions on Transfer................................................. 13
9.1. Restrictive Legends...................................................... 13
9.2. Transfer to Comply With the Securities Act............................... 14
9.3. Termination of Restrictions.............................................. 14
10. Reservation of Stock, etc................................................ 14
11. Registration and Transfer of Warrants, etc............................... 15
11.1. Warrant Register; Ownership of Warrants.................................. 15
11.2. Transfer of Warrants..................................................... 15
11.3. Bond and Warrant Repurchase Option....................................... 15
11.4. Replacement of Warrants.................................................. 15
11.5. Adjustments To Warrant Quantity.......................................... 15
11.6. Fractional Shares........................................................ 16
12. Definitions.............................................................. 16
13. Remedies; Specific Performance........................................... 18
14. No Rights or Liabilities as Shareholder.................................. 19
15. Notices.................................................................. 19
16. Amendments............................................................... 19
17. Descriptive Headings, Etc................................................ 19
18. GOVERNING LAW............................................................ 20
19. Judicial Proceedings; Waiver of Jury..................................... 20
20. Counterparts............................................................. 20
</TABLE>
ii
<PAGE>
POLYPHASE CORPORATION
Common Stock Purchase Warrant
Void After April 24, 2003
No. W-2(a) April 24, 1998
POLYPHASE CORPORATION (the "Company"), a Nevada corporation, for value
received, hereby certifies that MERRILL LYNCH WORLD INCOME FUND, INC., a
Maryland Corporation, or registered assigns (the "Holder"), is entitled to
purchase from the Company fifty-two thousand five hundred (52,500) duly
authorized, validly issued, fully paid and nonassessable shares of common stock,
par value $0.01 per share, of the Company (the "Common Stock") at the purchase
price per share of $1.125 (the market price of the Common Stock on December 3,
1997), at any time or from time to time prior to 5:30 PM, Dallas time, on April
24, 2003 (the "Expiration Date"), (the aggregate number of shares entitled to be
purchased by the Holder pursuant to this Warrant shall be the "Warrant
Quantity"), all subject to the terms, conditions and adjustments set forth below
in this Warrant.
This Warrant is one of several Warrants (the "Warrant," such term to
include any such warrants issued in substitution therefor) issued in connection
with the Indenture, dated as of July 5, 1994, by and among the Company and IBJ
Schroder Bank & Trust Company (as supplemented on December 5, 1997, the
"Indenture"). The Warrant originally so issued evidences the right to purchase
a number of shares of Common Stock equal to the Warrant Quantity, subject to
adjustment as provided herein. Certain capitalized terms used in this Warrant
are defined in Section 12; references to an "Exhibit" are, unless otherwise
specified, to one of the Exhibits attached to this Warrant and references to a
"Section" are, unless otherwise specified, to one of the Sections of this
Warrant.
1. Exercise of Warrant.
-------------------
1.1. Manner of Exercise. This Warrant may be exercised by the Holder,
------------------
in whole or part, during normal business hours on any Business Day, by surrender
of this Warrant to the Company at its principal office, accompanied by the Form
of Subscription in substantially the form attached as Exhibit A to this Warrant
(or a reasonable facsimile thereof) duly executed by the Holder and accompanied
by payment, in cash, by certified or official bank check payable to the order of
the Company, or in the manner provided in Section 1.5 (or by any combination of
such methods), in the amount obtained by multiplying (a) the number of shares of
-
Common Stock for up to but not exceeding 52,500 shares (adjusted as provided in
Sections 2 through 4) designated in such Form of Subscription by (b) $1.125, and
-
such Holder shall thereupon be entitled to receive such number of duly
authorized, validly issued, fully paid and nonassessable shares of Common Stock
(or Other Securities).
<PAGE>
1.2. When Exercise Effective. Each exercise of this Warrant shall
-----------------------
be deemed to have been effected immediately prior to the close of business on
the Business Day on which this Warrant shall have been surrendered to the
Company as provided in Section 1.1. At such time the Person or Persons in whose
name or names any certificate or certificates for shares of Common Stock (or
Other Securities) shall be issuable upon such exercise, as provided in Section
1.3, shall be deemed to have become the Holder or Holders of record thereof.
1.3. Delivery of Stock Certificates, etc. As soon as practicable
-----------------------------------
after each exercise of this Warrant, and in no event later than 10 days, in
whole or in part, the Company at its expense (including the payment by it of any
applicable transfer taxes) will cause to be issued in the name of and delivered
to the Holder hereof or, subject to Section 9, as such Holder (upon payment by
such Holder of any applicable transfer taxes) may direct,
1.3.1 a certificate or certificates for the number of duly authorized,
validly issued, fully paid and nonassessable shares, including, if the Company
so elects, fractional shares of Common Stock (or Other Securities) to which such
Holder shall be entitled upon such exercise plus, at the discretion of the
Company, in lieu of any fractional share to which such Holder would otherwise be
entitled, cash in an amount equal to the same fraction of the Current Market
Price per share on the Business Day next preceding the date of such exercise,
and
1.3.2 in case such exercise is in part only, a new Warrant or Warrants
of like tenor, calling in the aggregate on the face or faces thereof for the
number of shares of Common Stock equal (without giving effect to any adjustment
thereof) to the number of such shares called for on the face of this Warrant
minus the number of such shares designated by the Holder upon such exercise as
provided in Section 1.1.
1.4. Company to Reaffirm Obligations. The Company will, at the time
-------------------------------
of each exercise of this Warrant, upon the request of the Holder, acknowledge in
writing its continuing obligation to afford to such Holder all rights
(including, without limitation, any rights to registration of the shares of
Common Stock or Other Securities issued upon such exercise) to which such Holder
shall continue to be entitled after such exercise in accordance with the terms
of this Warrant, provided that if the Holder shall fail to make any such
--------
request, such failure shall not affect the continuing obligation of the Company
to afford such rights to such Holder.
1.5. Payment by Application of Shares Otherwise Issuable. Upon any
---------------------------------------------------
exercise of this Warrant, the Holder may, at its option, instruct the Company,
by written notice accompanying the surrender of this Warrant at the time of such
exercise, to apply to the payment required by Section 1.1 such number of the
shares of Common Stock otherwise issuable to such Holder upon such exercise as
shall be specified in such notice, in which case an amount equal to the excess
of the aggregate Current Market Price of such specified number of shares on the
date of exercise over the portion of the payment required by Section 1.1
attributable to such shares shall be deemed to have been paid to the Company and
the number of shares issuable upon such exercise shall be reduced by such
specified number.
1.6. Tax Basis. The Company and the Holder shall mutually agree as
---------
to the tax basis and tax treatment of this Warrant for purposes of the Internal
Revenue Code of 1986,
2
<PAGE>
as amended (the "Code"), and the treatment of this Warrant under the Code
by each of the Company and the Holder shall be consistent with such agreement.
2. Adjustment of Common Stock Issuable Upon Exercise.
-------------------------------------------------
2.1. General; Warrant Quantity. This Warrant initially evidences
-------------------------
the right to purchase a number of shares of Common Stock equal to the Warrant
Quantity, subject to adjustment as provided in this Section 2.
2.2. Adjustment of Warrant Quantity.
------------------------------
2.2.1 Issuance of Additional Shares of Common Stock. Except as
---------------------------------------------
provided in Section 2.10 of this Warrant, in case the Company at any time or
from time to time after the date hereof shall issue or sell Additional Shares of
Common Stock (including Additional Shares of Common Stock deemed to be issued
pursuant to Section 2.3 or 2.4) without consideration or for a consideration per
share less than the Current Market Price in effect immediately prior to such
issue or sale, then, and in each such case, subject to Section 2.8, the Warrant
Quantity shall be increased, concurrently with such issue or sale, to an amount
determined by multiplying the Warrant Quantity by a fraction
(a) the numerator of which shall be the number of shares of
Common Stock outstanding immediately after such issue of sale, provided
--------
that, for the purposes of this Section 2.2.1, (x) immediately after any
-
Additional Shares of Common Stock are deemed to have been issued pursuant
to Section 2.3 or 2.4, such Additional Shares shall be deemed to be
outstanding, and (y) treasury shares shall not be deemed to be outstanding,
-
and
(b) the denominator of which shall be (i) the number of shares of
-
Common Stock outstanding immediately prior to such issue or sale plus (ii)
--
the number of shares of Common Stock which the aggregate consideration
received by the Company for the total number of such Additional Shares of
Common Stock so issued or sold would purchase at such Current Market Price.
2.2.2 Extraordinary Dividends and Distributions. In case the Company
-----------------------------------------
at any time or from time to time after the date hereof shall declare, order, pay
or make a dividend or other distribution (including, without limitation, any
distribution of other or additional stock or other securities or property or
Options by way of dividend or spin-off, reclassification, recapitalization or
similar corporate rearrangement) on the Common Stock other than (a) a dividend
-
payable in Additional Shares of Common Stock or (b) a regularly scheduled cash
-
dividend payable out of consolidated earnings or earned surplus, determined in
accordance with generally accepted accounting principles, then, in each such
case, subject to Section 2.8, the Warrant Quantity in effect immediately prior
to the close of business on the record date fixed for the determination of
holders of any class of securities entitled to receive such dividend or
distribution shall be increased, effective as of the close of business on such
record date, to an amount determined by multiplying such Warrant Quantity by a
fraction.
3
<PAGE>
(x) the numerator of which shall be the Current Market Price in
effect on such record date or, if the Common Stock trades on an ex-dividend
basis, on the date prior to the commencement of ex-dividend trading, and
(y) the denominator of which shall be such Current Market Price,
less the amount of such dividend or distribution (as determined in good
faith by the Board of Directors of the Company) applicable to one share of
Common Stock,
provided that, in the event that the amount of such dividend as so determined is
- --------
equal to or greater than 10% of such Current Market Price or in the event that
such fraction is greater than 10/9, in lieu of the foregoing adjustment,
adequate provision shall be made so that the Holder of this Warrant shall
receive a pro rata share of such dividend based upon the maximum number of
shares of Common Stock at the time issuable to such Holder.
2.3. Treatment of Options and Convertible Securities. Except as
-----------------------------------------------
provided in Section 2.10 of this Warrant, in case the Company at any time or
from time to time after the date hereof shall issue, sell, grant or assume, or
shall fix a record date for the determination of holders of any class of
securities entitled to receive, any Options or Convertible Securities (whether
or not the rights thereof are immediately exercisable) then, and in each such
case, the maximum number of Additional Shares of Common Stock (as set forth in
the instrument relating thereto, without regard to any provisions contained
therein for a subsequent adjustment of such number) issuable upon the exercise
of such Options or, in the case of Convertible Securities and Options therefor,
the conversion or exchange of such Convertible Securities, shall be deemed to be
Additional Shares of Common Stock issued as of the time of such issue, sale,
grant or assumption or, in case such a record date shall have been fixed, as of
the close of business on such record date (or, if the record date relates to the
Common Stock and the Common Stock trades on an ex-dividend basis, on the date
prior to the commencement of ex-dividend trading), provided that such Additional
--------
Shares of Common Stock shall not be deemed to have been issued unless the
consideration per share (determined pursuant to Section 2.5) of such shares
would be less than the Current Market Price in effect on the date of and
immediately prior to such issue, sale, grant or assumption or immediately prior
to the close of business on such record date (or, if the record date relates to
the Common Stock and the Common Stock trades on an ex-dividend basis, on the
date prior to the commencement of ex-dividend trading), as the case may be, and
provided, further that in any such case in which Additional Shares of Common
- -------- -------
Stock shall not be deemed to have been issued
(a) whether or not the Additional Shares of Common Stock
underlying such Options or Convertible Securities are deemed to be issued,
no further adjustment of the Warrant Quantity shall be made upon the
subsequent issue or sale of Convertible Securities or shares of Common
Stock upon the exercise of such Options or the conversion or exchange of
such Convertible Securities, except in the case of any such Options or
Convertible Securities which contain provisions requiring an adjustment,
subsequent to the date of the issue or sale thereof, of the number of
Additional Shares of Common Stock issuable upon the exercise of such
Options or the conversion or exchange of such Convertible Securities by
reason of (x) a change of control of the Company, (y) the acquisition by
- -
any Person or group of Persons of any specified number or percentage of the
Voting Securities of the Company or (z) any similar event or occurrence,
-
each such case to be deemed hereunder to involve a
4
<PAGE>
separate issuance of Additional Shares of Common Stock, Options or Convertible
Securities, as the case may be;
(b) if such Options or Convertible Securities by their terms
provide, with the passage of time or otherwise, for any increase in the
consideration payable to the Company, or decrease in the number of
Additional Shares of Common Stock issuable, upon the exercise, conversion
or exchange thereof (by change of rate or otherwise), the Warrant Quantity
computed upon the original issue, sale, grant or assumption thereof (or
upon the occurrence of the record date, or date prior to the commencement
of ex-dividend trading, as the case may be, with respect thereto), and any
subsequent adjustments based thereon, shall, upon any such increase or
decrease becoming effective, be recomputed to reflect such increase or
decrease insofar as it affects such Options, or the rights of conversion or
exchange under such Convertible Securities, which are outstanding at such
time;
(c) upon the expiration (or purchase by the Company and
cancellation or retirement) of any such Options which shall not have been
exercised or the expiration of any rights of conversion or exchange under
any such Convertible Securities which (or purchase by the Company and
cancellation or retirement of any such Convertible Securities the rights of
conversion or exchange under which) shall not have been exercised, the
Warrant Quantity computed upon the original issue, sale, grant or
assumption thereof (or upon the occurrence of the record date, or date
prior to the commencement of ex-dividend trading, as the case may be, with
respect thereto), and any subsequent adjustments based thereon, shall, upon
such expiration (or such cancellation or retirement, as the case may be),
be recomputed as if:
(i) in the case of Options for Common Stock or Convertible
Securities, the only Additional Shares of Common Stock issued or sold
were the Additional Shares of Common Stock, if any, actually issued or
sold upon the exercise of such Options or the conversion or exchange
of such Convertible Securities and the consideration received therefor
was the consideration actually received by the Company for the issue,
sale, grant or assumption of all such Options, whether or not
exercised, plus the consideration actually received by the Company
upon such exercise, or for the issue or sale of all such Convertible
Securities which were actually converted or exchanged, plus the
additional consideration, if any, actually received by the Company
upon such conversion or exchange, and
(ii) in the case of Options for Convertible Securities, only
the Convertible Securities, if any, actually issued or sold upon the
exercise of such Options were issued at the time of the issue or sale,
grant or assumption of such Options, and the consideration received by
the Company for the Additional Shares of Common Stock deemed to have
then been issued was the consideration actually received by the
Company for the issue, sale , grant or assumption of all such Options,
whether or not exercised, plus the consideration deemed to have been
received by the Company (pursuant to Section 2.5) upon the issue or
sale of such Convertible Securities with respect to which such Options
were actually exercised;
5
<PAGE>
(d) no readjustment pursuant to subdivision (b) or (c) above
shall have the effect of decreasing the Warrant Quantity by an amount in
excess of the amount of the adjustment thereof originally made in respect
of the issue, sale, grant or assumption of such Options or Convertible
Securities; and
(e) in the case of any such Options which expire by their terms
not more than 30 days after the date of issue, sale, grant or assumption
thereof, no adjustment of the Warrant Quantity shall be made until the
expiration or exercise of all such Options, whereupon such adjustment shall
be made in the manner provided in subdivision (c) above; provided however
that if any Warrant is exercised within such 30-day period, any adjustment
made upon expiration or exercise of all such Options shall be made
retroactively to the date such Warrant was exercised and the Company shall
deliver to the person to whom the shares of Common Stock (or Other
Securities) were issued upon such Warrant exercise, without requiring any
additional consideration, the additional securities issuable as a result of
such retroactive adjustment.
2.4. Treatment of Stock Dividends, Stock Splits, etc. In case the
------------------------------------------------
Company at any time or from time to time after the date hereof shall declare or
pay any dividend on the Common Stock payable in Common Stock, or shall effect a
subdivision of the outstanding shares of Common Stock into a greater number of
shares of Common Stock (by reclassification or otherwise than by payment of a
dividend in Common Stock), then, and in each such case, Additional Shares of
Common Stock shall be deemed to have been issued (a) in the case of any such
-
dividend, immediately after the close of business on the record date for the
determination of holders of any class of securities entitled to receive such
dividend, or (b) in the case of any such subdivision, at the close of business
-
on the day immediately prior to the day upon which such corporate action becomes
effective.
2.5. Computation of Consideration. For the purposes of this Section
----------------------------
2,
(a) the consideration for the issue or sale of any Additional
Shares of Common Stock shall, irrespective of the accounting treatment of
such consideration,
(i) insofar as it consists of cash, be computed at the net
amount of cash received by the Company, without deducting any expenses
paid or incurred by the Company or any commissions or compensations
paid or concessions or discounts allowed to underwriters, dealers or
others performing similar services in connection with such issue or
sale,
(ii) insofar as it consists of property (including
securities) other than cash, be computed at the fair value thereof at
the time of such issue or sale, as determined in good faith by the
Board of Directors of the Company (if Holder objects to such
determination, Holder may seek and receive, at the Company"s expense,
third party appraisal, which shall be the exclusive and binding
determination to be used) and
(iii) in case Additional Shares of Common Stock are issued
or sold together with other stock or securities or other assets of the
Company for a consideration which covers both, be the portion of such
consideration so received,
6
<PAGE>
computed as provided in clauses (i) and (ii) above, allocable to such
Additional Shares of Common Stock, all as determined in good faith by
the Board of Directors of the Company (if Holder objects to such
determination, Holder may seek and receive, at the Company"s expense,
third party appraisal, which shall be the exclusive and binding
determination to be used);
(b) Additional Shares of Common Stock deemed to have been issued
pursuant to Section 2.3, relating to Options and Convertible Securities,
shall be deemed to have been issued for a consideration per share
determined by dividing
(i) the total amount, if any, received and receivable by the
Company as consideration for the issue, sale, grant or assumption of
the Options or Convertible Securities in question, plus the minimum
aggregate amount of additional consideration (as set forth in the
instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such consideration to
protect against dilution) payable to the Company upon the exercise in
full of such Options or the conversion or exchange of such Convertible
Securities or, in the case of Options for Convertible Securities, the
exercise of such Options for Convertible Securities and the conversion
or exchange of such Convertible Securities, in each case computing
such consideration as provided in the foregoing subdivision (a),
by
(ii) the maximum number of shares of Common Stock (as set
forth in the instruments relating thereto, without regard to any
provision contained therein for a subsequent adjustment of such number
to protect against dilution) issuable upon the exercise of such
Options or the conversion or exchange of such Convertible Securities;
and
(c) Additional Shares of Common Stock deemed to have been issued
pursuant to Section 2.4 relating to stock dividends, stock splits, etc.,
shall be deemed to have been issued for no consideration.
2.6. Adjustments for Combinations, etc. In case the outstanding
----------------------------------
shares of Common Stock shall be combined or consolidated, by reclassification or
otherwise, into a lesser number of shares of Common Stock, the Warrant Quantity
in effect immediately prior to such combination or consolidation shall,
concurrently with the effectiveness of such combination or consolidation, be
proportionately decreased.
2.7. Dilution in Case of Other Securities. In case any Other
------------------------------------
Securities shall be issued or sold or shall become subject to issue or sale upon
the conversion or exchange of any stock (or Other Securities) of the Company (or
any issuer of Other Securities or any other Person referred to in Section 3) or
to subscription, purchase or other acquisition pursuant to any Options issued or
granted by the Company (or any such other issuer or Person) for a consideration
such as to dilute, on a basis consistent with the standards established in the
other provisions of this Section 2, the purchase rights granted by this Warrant,
then, and in each such case, the computations, adjustments
7
<PAGE>
and readjustments provided for in this Section 2 with respect to the Warrant
Quantity shall be made as nearly as possible in the manner so provided and
applied to determine the amount of Other Securities from time to time receivable
upon the exercise of the Warrant, so as to protect the Holder against the effect
of such dilution.
2.8. Minimum Adjustment of Warrant Quantity. If the amount of any
--------------------------------------
adjustment of the Warrant Quantity required pursuant to this Section 2 would be
less than one tenth (1/10) of one percent (1%) of the Warrant Quantity in effect
at the time such adjustment is otherwise so required to be made, such amount
shall be carried forward and adjustment with respect thereto made at the time of
and together with any subsequent adjustment which, together with such amount and
any other amount or amounts so carried forward, shall aggregate at least one
tenth (1/10) of one percent (1%) of such Warrant Quantity. All calculations
under this Warrant shall be made to the nearest one-hundredth of a share.
2.9. Abandoned Dividend or Distribution. If the Company shall take
----------------------------------
a record of the holders of its Common Stock for the purpose of entitling them to
receive a dividend or other distribution (which results in an adjustment to the
Warrant Quantity under the terms of this Warrant) and shall, thereafter, and
before such dividend or distribution is paid or delivered to shareholders
entitled thereto, legally abandon its plan to pay or deliver such dividend or
distribution, then any adjustment made to the Warrant Quantity by reason of the
taking of such record shall be reversed, and any subsequent adjustments, based
thereon, shall be recomputed.
2.10. Stock Options, Warrants and Convertible Securities. The
--------------------------------------------------
adjustment provisions of this Section 2 do not and will not operate to affect
any adjustment of any shares of Common Stock granted to employees of the Company
through stock options issued pursuant to any Company Stock Option Plan of the
Company in effect as of the date hereof; the provisions of this Section 2 shall
not affect any (i) warrants granting the right to purchase shares of Common
Stock outstanding as of the date hereof or (ii) securities convertible into
shares of Common Stock existing or in effect as of the date hereof. Exhibit C,
attached hereto, contains a complete schedule of all stock options or awards
that have been issued pursuant to any Company Stock Option Plan and any warrants
or convertible securities issued as of the date hereof. All other options,
warrants, convertible securities or other debt or equity instruments of the
Company existing as of the date hereof or issued at any time hereafter shall be
subject to the adjustment provisions of this Section 2.
3. Consolidation, Merger, etc.
---------------------------
3.1. Adjustments for Consolidation, Merger, Sale of Assets,
------------------------------------------------------
Reorganization, etc. In case the Company after the date hereof (a) shall
- --------------------
consolidate with or merge into any other Person and shall not be the continuing
or surviving corporation of such consolidation or merger, or (b) shall permit
any other Person to consolidate with or merge into the Company and the Company
shall be the continuing or surviving Person but, in connection with such
consolidation or merger, the Common Stock or Other Securities shall be changed
into or exchanged for stock or other securities of any other Person or cash or
any other property, or (c) shall transfer all or substantially all of its
properties or assets to any other Person, or (d) shall effect a capital
reorganization or reclassification resulting in the issue of Additional Shares
of Common Stock for which adjustment in the Warrant Quantity is provided in
Section 2.2.1 or 2.2.2, then, and in the case of each such transaction, proper
provision
8
<PAGE>
shall be made so that, upon the basis and the terms and in the manner
provided in this Warrant, the Holder, upon the exercise hereof at any time after
the consummation of such transaction, shall be entitled to receive (at the
aggregate purchase price in effect at the time of such consummation for all
Common Stock or Other Securities issuable upon such exercise immediately prior
to such consummation), in lieu of the Common Stock or Other Securities issuable
upon such exercise prior to such consummation, the highest amount of securities,
cash or other property to which such Holder would actually have been entitled as
a shareholder upon such consummation if such Holder had exercised the rights
represented by this Warrant immediately prior thereto, subject to adjustments
(subsequent to such consummation) as nearly equivalent as possible to the
adjustments provided for in Sections 2 through 4, provided that if a purchase,
--------
tender or exchange offer shall have been made to and accepted by the holders of
more than 50% of the outstanding shares of Common Stock, and if the Holder so
designates in a notice given to the Company on or before the date immediately
preceding the date of the consummation of such transaction, the Holder shall be
entitled to receive the highest amount of securities, cash or other property to
which such Holder would actually have been entitled as a shareholder if the
Holder had exercised this Warrant prior to the expiration of such purchase,
tender or exchange offer and accepted such offer, subject to adjustments (from
and after the consummation of such purchase, tender or exchange offer) as nearly
equivalent as possible to the adjustments provided for in Sections 2 through 4.
3.2 Assumption of Obligations. Notwithstanding anything contained in
-------------------------
the Warrant or in the Indenture to the contrary, the Company will not effect any
of the transactions described in clauses (a) through (d) of Section 3.1 unless,
prior to the consummation thereof, each Person (other than the Company) which
may be required to deliver any stock, securities, cash or property upon the
exercise of this Warrant as provided herein shall assume, by written instrument
delivered to, and reasonably satisfactory to, the Holder, (a) the obligations of
-
the Company under this Warrant (and if the Company shall survive the
consummation of such transaction, such assumption shall be in addition to, and
shall not release the Company from, any continuing obligations of the Company
under this Warrant) and (b) the obligation to deliver to such Holder such shares
-
of stock, securities, cash or property as, in accordance with the foregoing
provisions of this Section 3, such Holder may be entitled to receive, and such
Person shall have similarly delivered to such Holder an opinion of counsel for
such Person, which counsel shall be reasonably satisfactory to such Holder,
stating that this Warrant shall thereafter continue in full force and effect and
the terms hereof (including, without limitation, all of the provisions of this
Section 3) shall be applicable to the stock, securities, cash or property which
such Person may be required to deliver upon any exercise of this Warrant or the
exercise of any rights pursuant hereto. Nothing in this Section 3 shall be
deemed to authorize the Company to enter into any transaction not otherwise
permitted by the Indenture.
4. Other Dilutive Events. In case any event shall occur as to which
---------------------
the provisions of Section 2 or Section 3 are not strictly applicable but the
failure to make any adjustment would not fairly protect the purchase rights
represented by this Warrant in accordance with the essential intent and
principles of such Sections, then in each such case the Company shall appoint a
firm of independent certified public accountants of recognized national standing
(which may be the regular auditors of the Company), which shall give their
opinion upon the adjustment, if any, on a basis consistent with the essential
intent and principles established in Sections 2 and 3, necessary to preserve,
without dilution, the purchase rights represented by this Warrant. Upon receipt
of such
9
<PAGE>
opinion, the Company will promptly mail a copy thereof to the Holder and shall
make the adjustments described therein.
5. No Dilution or Impairment. The Company will not, by amendment of
-------------------------
its articles of incorporation or through any consolidation, merger,
reorganization, transfer of assets, dissolution, issue or sale of securities or
any other voluntary action, avoid or seek to avoid the observance or performance
of any of the terms of this Warrant, but will at all times in good faith assist
in the carrying out of all such terms and in the taking of all such action as
may be necessary or appropriate in order to protect the rights of the Holder
against dilution or other impairment. Without limiting the generality of the
foregoing, the Company (a) shall not permit the par value of any shares of stock
-
receivable upon the exercise of this Warrant to exceed the amount payable
therefor upon such exercise, (b) will take all such action as may be necessary
-
or appropriate in order that the Company may validly and legally issue fully
paid and nonassessable shares of stock, free from all taxes, liens, security
interests, encumbrances, preemptive rights and charges on the exercise of the
Warrants from time to time outstanding, (c) will not take any action which
-
results in any adjustment of the Warrant Quantity if the total number of shares
of Common Stock (or Other Securities) issuable after the action upon the
exercise of all of the Warrants would exceed the total number of shares of
Common Stock (or Other Securities) then authorized by the Company's articles of
incorporation and available and reserved for the purpose of issue upon such
exercise, and (d) will not issue any capital stock of any class which is
-
preferred as to dividends or as to the distribution of assets upon voluntary or
involuntary dissolution, liquidation or winding-up, unless the rights of the
holders thereof shall be limited to a fixed sum or percentage of par value or a
sum determined by reference to a formula based on a published index of interest
rates, an interest rate publicly announced by a financial institution or a
similar indicator of interest rates in respect of participation in dividends and
to a fixed sum or percentage of par value in any such distribution of assets.
6. Accountants' Report as to Adjustments. In each case of any
-------------------------------------
adjustment or readjustment in the shares of Common Stock (or Other Securities)
issuable upon the exercise of this Warrant, the Company at its expense will
promptly compute such adjustment or readjustment in accordance with the terms of
this Warrant and cause independent certified public accountants of recognized
national standing (which may be the regular auditors of the Company) selected by
the Company to verify such computation (other than any computation of the fair
value of property as determined in good faith by the Board of Directors of the
Company (if Holder objects to such determination, Holder may seek and receive,
at the Company's expense third party appraisal, which shall be the exclusive and
binding determination to be used)) and prepare a report setting forth such
adjustment or readjustment and showing in reasonable detail the method of
calculation thereof and the facts upon which such adjustment or readjustment is
based, including a statement of (a) the consideration received or to be received
-
by the Company for any Additional Shares of Common Stock issued or sold or
deemed to have been issued, (b) the number of shares of Common Stock outstanding
-
or deemed to be outstanding, and (c) the Warrant Quantity in effect immediately
-
prior to such issue or sale and as adjusted and readjusted (if required by
Section 2) on account thereof. The Company will forthwith mail a copy of each
such report to each Holder of a Warrant and will, upon the written request at
any time of any Holder of a Warrant, furnish to such Holder a like report
setting forth the Warrant Quantity at the time in effect and showing in
reasonable detail how it was calculated. The Company will also keep copies of
all such reports at its principal office and will cause
10
<PAGE>
the same to be available for inspection at such office during normal business
hours by any Holder of a Warrant or any prospective purchaser of a Warrant
designated by the Holder thereof.
7. Financial and Business Information.
----------------------------------
7.1 Quarterly Information. If during any period the Company (i) is
---------------------
not subject to the reporting requirements of Section 15(d) of the Exchange Act
and (ii) does not have securities registered under Section 12(b) or 12 (g) of
the Exchange Act, the Company will deliver to the Holder, as soon as practicable
after the end of each quarterly fiscal period in each fiscal year of the
Company, and in any event within 60 days thereafter, a copy of the unaudited
consolidated balance sheet as at the close of such quarter, and the related
unaudited consolidated statements of income, shareholders' equity and cash flow
of the Company and its subsidiaries for that portion of the fiscal year ending
as of the close of such quarter. Such financial statements shall be prepared by
the Company in accordance with generally accepted accounting principles, applied
on a consistent basis ("GAAP") (subject to normal year end adjustments and the
inclusion of footnotes) and accompanied by the certification of the Company's
chief executive officer or chief financial officer that, to the best of his
knowledge, such financial statements are complete and correct in all material
respects and fairly present in accordance with GAAP (subject to normal year end
adjustments and the inclusions of footnotes) the consolidated financial
position, the consolidated statements of income, shareholder equity and cash
flow of the Company and its subsidiaries as at the end of such quarter and for
such year-to-date period, as the case may be. If during any period the Company
either (i) is subject to the reporting requirements of Section 15(g) of the
Exchange Act or (ii) has securities registered under Section 12(b) or 12(g) of
the Exchange Act, the Company shall be considered a "Public Company" and need
not provide the information required by this Section 7.1.
7.2 Annual Information. If during any period the Company is not a
------------------
Public Company, the Company will deliver to the Holder as soon as practicable
after the end of each fiscal year of the Company, and in any event within 120
days thereafter, one copy of:
(i) an audited consolidated balance sheet of the Company and
its subsidiaries as at the end of such year, and
(ii) audited consolidated statements of income,
shareholders' equity and cash flow of the Company and its subsidiaries
for such year;
setting forth in each case in comparative form the figures for the corresponding
periods in the previous fiscal year, all prepared in accordance with GAAP, and
which audited financial statements shall be accompanied by (i) a certification
of the chief executive officer or chief financial officer of the Company that,
to the best of his knowledge, all such financial statements are complete and
correct in all material respects and present fairly in accordance with GAAP the
consolidated financial position of the Company and its subsidiaries as at the
end of such fiscal year and for the period then ended, (ii) an opinion thereon
of the independent certified public accountants regularly retained by the
Company, or any other firm of independent certified public accountants of
recognized national standing selected by the Company, and (iii) a report of such
independent certified public accountants confirming any adjustment make pursuant
to Section 2 during such year.
11
<PAGE>
7.3 Filings. During any period when the Company is a Public Company,
-------
the Company will file on or before the required date all required regular or
periodic reports (pursuant to the Exchange Act) with the Commission and will
deliver to the Holder promptly upon their becoming available one copy of each
report, notice or proxy statement sent by the Company to its stockholders
generally, and of each regular or periodic report (pursuant to the Exchange Act)
and any registration statement, prospectus or written communication (other than
transmittal letters) (pursuant to the Securities Act), filed by the Company with
(i) the Commission or (ii) any securities exchange on which shares of Common
Stock (or Other Securities) are listed.
7.4 Notices of Corporate Action. In the event of
---------------------------
(a) any taking by the Company of a record of the holders of any
class of securities for the purpose of determining the holders thereof who
are entitled to receive any dividend (other than a regular periodic
dividend payable in cash out of earned surplus in an amount not exceeding
the amount of the immediately preceding cash dividend for such period) or
other distribution, or any right to subscribe for, purchase or otherwise
acquire any shares of stock of any class or any other securities or
property, or to receive any other right, or
(b) any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company or
any consolidation or merger involving the Company and any other Person, any
transaction or series of transactions in which more than 50% of the Voting
Securities of the Company are transferred to another Person or any
transfer, sale or other disposition of all or substantially all the assets
of the Company to any other Person, or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company,
the Company will mail to the Holder a notice specifying (i) the date or expected
date on which any such record is to be taken for the purpose of such dividend,
distribution or right, and the amount and character of such dividend,
distribution or right, and (ii) the date or expected date on which any such
reorganization, reclassification, recapitalization, consolidation, merger,
transfer, dissolution, liquidation or winding-up is to take place and the time,
if any such time is to be fixed, as of which the holders of record of Common
Stock (or Other Securities) shall be entitled to exchange their shares of Common
Stock (or Other Securities) for the securities or other property deliverable
upon such reorganization, reclassification, recapitalization, consolidation,
merger, transfer, dissolution, sale, disposition, liquidation or winding-up.
Such notice shall be mailed at least 45 days prior to the date therein
specified.
8. Registration of Common Stock. The Company will use its best
----------------------------
efforts to register the shares of Common Stock (or Other Securities) issuable
upon exercise of this Warrant so that the Person exercising this Warrant
receives registered securities. In accordance with this Section 8, the Company
has entered into a Registration Rights Agreement, dated April 24, 1998, with
each of the Holders. Such Registration Rights Agreement provides for demand and
piggyback registration rights with respect to all such securities. If any
shares of Common Stock (or Other Securities)
12
<PAGE>
issuable upon exercise of this Warrant require registration with or approval of
any governmental authority under any federal or state law (other than securities
laws), the Company will, at its expense and as expeditiously as possible, use
its best efforts to cause such shares of Common Stock (or Other Securities) to
be duly registered or approved, as the case may be. Immediately upon the
exercise of this Warrant, or any portion thereof, the Company will, at its
expense, obtain promptly and maintain the approval for listing on each such
exchange, upon official notice of issuance, the shares of Common Stock issuable
upon exercise of the then outstanding Warrants and maintain the listing of such
shares after their issuance.
9. Restrictions on Transfer.
------------------------
9.1 Restrictive Legends. Except as otherwise permitted by this
-------------------
Section 9, each Warrant (including each Warrant issued upon the transfer of any
Warrant) shall be stamped or otherwise imprinted with a legend in substantially
the following form:
"THIS WARRANT AND ANY SECURITIES ACQUIRED UPON EXERCISE OF THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR THE SECURITIES LAW OF ANY STATE AND MAY NOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF (OTHER THAN TO ACCREDITED INVESTORS)
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND
APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION TO
THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS. THIS WARRANT AND
SUCH SECURITIES MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF
EXCEPT IN COMPLIANCE WITH THE CONDITIONS SPECIFIED IN THIS WARRANT.
Except as otherwise permitted by this Section 9, each certificate for Common
Stock (or Other Securities) issued upon the exercise of any Warrant, and each
certificate issued upon the transfer of any such Common Stock (or Other
Securities), shall be stamped or otherwise imprinted with a legend in
substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES
LAW OF ANY STATE, AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF
(OTHER THAN TO ACCREDITED INVESTORS) EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS
OR PURSUANT TO AN APPLICABLE EXEMPTION TO THE REGISTRATION REQUIREMENTS OF
SUCH ACT AND SUCH LAWS. SUCH SECURITIES MAY NOT BE SOLD, TRANSFERRED OR
OTHERWISE DISPOSED OF EXCEPT IN COMPLIANCE WITH THE CONDITIONS SPECIFIED IN
CERTAIN COMMON STOCK PURCHASE WARRANTS ISSUED BY POLYPHASE CORPORATION,
PURSUANT TO THE COMMON STOCK PURCHASE WARRANT, DATED APRIL 24, 1998. A
13
<PAGE>
COMPLETE AND CORRECT COPY OF THE FORM OF SUCH WARRANT IS AVAILABLE FOR
INSPECTION AT THE PRINCIPAL OFFICE OF POLYPHASE CORPORATION, OR AT THE
OFFICE OR AGENCY MAINTAINED BY POLYPHASE CORPORATION, AS PROVIDED IN SUCH
WARRANTS AND WILL BE FURNISHED TO THE HOLDER OF SUCH SECURITIES UPON
WRITTEN REQUEST AND WITHOUT CHARGE."
9.2 Transfer to Comply With the Securities Act. Restricted
------------------------------------------
Securities may not be sold, assigned, pledged, hypothecated, encumbered or in
any manner transferred or disposed of, in whole or in part (other than to
accredited investors), except in compliance with the provisions of the
Securities Act and state securities or Blue Sky laws and the terms and
conditions hereof.
9.3 Termination of Restrictions. The restrictions imposed by this
---------------------------
Section 9 on the transferability of Restricted Securities shall cease and
terminate as to any particular Restricted Securities (a) when a registration
statement with respect to the sale of such securities shall have been declared
effective under the Securities Act and such securities shall have been disposed
of in accordance with such registration statement, (b) when such securities are
sold pursuant to Rule 144 (or any similar provision then in force) under the
Securities Act, or (c) when, in the opinion of both counsel for the Holder and
counsel for the Company, such restrictions are not longer required or necessary
in order to protect the Company against a violation of the Securities Act upon
any sale or other disposition of such securities without registration
thereunder. Whenever such restrictions shall cease and terminate as to any
Restricted Securities, the Holder shall be entitled to receive from the Company,
without expense, new securities of like tenor not bearing the applicable legends
required by Section 9.1.
10. Reservation of Stock, etc. The Company shall at all times
--------------------------
reserve and keep available, solely for issuance and delivery upon exercise of
the Warrants, the number of shares of Common Stock (or Other Securities) from
time to time issuable upon exercise of all Warrants at the time outstanding.
All shares of Common Stock (or Other Securities) issuable upon exercise of any
Warrants shall be duly authorized and, when issued upon such exercise, shall be
validly issued and, in the case of shares, fully paid and nonassessable with no
liability on the part of the holders thereof, and, in the case of all
securities, shall be free from all taxes, liens, security interests,
encumbrances, preemptive rights and charges. The transfer agent for the Common
Stock, which may be the Company ("Transfer Agent"), and every subsequent
Transfer Agent for any shares of the Company's capital stock issuable upon the
exercise of any of the purchase rights represented by this Warrant, are hereby
irrevocably authorized and directed at all times until the Expiration Date to
reserve such number of authorized and unissued shares as shall be requisite for
such purpose. The Company shall keep copies of this Warrant on file with the
Transfer Agent for the Common Stock and with every subsequent Transfer Agent for
any shares of the Company's capital stock issuable upon the exercise of the
rights of purchase represented by this Warrant. The Company shall supply such
Transfer Agent with duly executed stock certificates for such purpose. All
Warrant certificates surrendered upon the exercise of the rights thereby
evidenced shall be canceled, and such canceled Warrants shall constitute
sufficient evidence of the number of shares of stock which have been issued upon
the exercise of such Warrants. Subsequent to the Expiration Date, no shares of
stock need be reserved in respect of any unexercised Warrant.
14
<PAGE>
11. Registration and Transfer of Warrants, etc.
-------------------------------------------
11.1 Warrant Register; Ownership of Warrants. Each Warrant issued by
---------------------------------------
the Company shall be numbered and shall be registered in a warrant register (the
"Warrant Register") as it is issued and transferred, which Warrant Register
shall be maintained by the Company at its principal office or, at the Company's
election and expense, by a Warrant Agent or the Company's transfer agent. The
Company shall be entitled to treat the registered Holder of any Warrant on the
Warrant Register as the owner in fact thereof for all purposes and shall not be
bound to recognize any equitable or other claim to or interest in such Warrant
on the part of any other Person, and shall not be affected by any notice to the
contrary, except that, if and when any Warrant is properly assigned in blank,
the Company may (but shall not be obligated to) treat the bearer thereof as the
owner of such Warrant for all purposes. Subject to Section 9, a Warrant, if
properly assigned, may be exercised by a new holder without a new Warrant first
having been issued.
11.2 Transfer of Warrants. Subject to compliance with Section 9, if
--------------------
applicable, this Warrant and all rights hereunder are transferable in whole or
in part, without charge to the Holder hereof, upon surrender of this Warrant
with a properly executed Form of Assignment attached hereto as Exhibit B at the
principal office of the Company. Upon any partial transfer, the Company shall
at its expense issue and deliver to the Holder a new Warrant of like tenor, in
the name of the Holder, which shall be exercisable for such number of shares of
Common Stock with respect to which rights under this Warrant were not so
transferred.
11.3 Bond and Warrant Repurchase Option. Upon delivery to the Holder
----------------------------------
of the Warrants contemplated by this Agreement, the Holder hereby grants to the
Company an option to repurchase the remaining Bonds, issued pursuant to the
Indenture, dated as of July 5, 1994 among the Company and IBJ Schroder Bank and
Trust Company (the "Bonds"), held by it at par plus interest accrued thereon
through the date of repurchase, such repurchase to occur no later than September
5, 1998. Provided that the Company exercises its option to repurchase the
remaining Bonds as noted above and completes such repurchase, it is granted an
option to repurchase, concurrently with the exercise of its Bond repurchase
right, this Warrant to the extent it relates to 50,000 shares of Common Stock
for $525 from the Holder. Until such option expires, the Holder shall be
obligated to retain this Warrant to the extent it relates to 52,500 shares of
Common Stock.
11.4 Replacement of Warrants. On receipt by the Company of evidence
-----------------------
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of this Warrant and, in the case of any such loss, theft or
destruction of this Warrant, on delivery of an indemnity agreement reasonably
satisfactory in form and amount to the Company or, in the case of any such
mutilation, on surrender of such Warrant to the Company at its principal office
and cancellation thereof, the Company at its expense shall execute and deliver,
in lieu thereof, a new Warrant of like tenor.
11.5 Adjustments To Warrant Quantity. Notwithstanding any adjustment
-------------------------------
in the Warrant Quantity or in the number or kind of shares of Common Stock (or
Other Securities) purchasable upon exercise of this Warrant, any Warrant
theretofore or thereafter issued may continue to express the same number and
kind of shares of Common Stock as are stated in this Warrant, as initially
issued.
15
<PAGE>
11.6 Fractional Shares. Notwithstanding any adjustment pursuant to
-----------------
Section 2 in the number of shares of Common Stock covered by this Warrant or any
other provision of this Warrant, the Company may, but shall not be required to,
issue fractions of shares upon exercise of this Warrant or to distribute
certificates which evidence fractional shares. In lieu of fractional shares,
the Company shall may payment to the Holder, at the time of exercise of this
Warrant as herein provided, in an amount in cash equal to such fraction
multiplied by the Current Market Price of a share of Common Stock on the date of
Warrant exercise.
12. Definitions. As used herein, unless the context otherwise
-----------
requires, the following terms have the following respective meanings:
Additional Shares of Common Stock: All shares (including treasury
---------------------------------
shares) of Common Stock issued or sold (or, pursuant to Section 2.3 or 2.4,
deemed to be issued) by the Company after the date hereof, whether or not
subsequently reacquired or retired by the Company, other than
(a) shares issued upon the exercise of the Warrant,
(b) such additional number of shares as may become issuable upon
the exercise of the Warrant by reason of adjustments required pursuant to
anti-dilution provisions applicable to the Warrant as in effect on the date
hereof,
(c) shares, warrants, options and other securities issued at any
time to the Holder or any Affiliate thereof.
Affiliate: Any Person that directly or indirectly, through one or
---------
more intermediaries, controls, is controlled by, or is under common control
with, the applicable Person. For purposes of this definition "control" has the
meaning specified in Rule 12b-2 under the Exchange Act.
Business Day: Any day other than a Saturday or Sunday or a day on
------------
which commercial banking institutions in the City of New York are authorized by
law to be closed. Any reference to "days" (unless Business Days are specified)
shall mean calendar days.
Code: As defined in Section 1.6.
----
Commission: The Securities and Exchange Commission or any other
----------
federal agency at the time administering the Securities Act.
Common Stock: As defined in the introduction to this Warrant, such
------------
term to include any stock into which such Common Stock shall have been changed
or any stock resulting from any reclassification of such Common Stock, and all
other stock of any class or classes (however designated) of the Company the
holders of which have the right, without limitation as to amount, either to all
or to a share of the balance of current dividends and liquidating dividends
after the payment of dividends and distributions on any shares entitled to a
preference.
16
<PAGE>
Company: As defined in the introduction to this Warrant, such term to
-------
include any Person which shall succeed to or assume the obligations of the
Company hereunder in compliance with Section 3.
Convertible Securities: Any evidence of indebtedness, shares of stock
----------------------
(other than Common Stock) or other securities directly or indirectly convertible
into or exchangeable for Additional Shares of Common Stock.
Current Market Price: On any date specified herein, the average daily
--------------------
Market Price during the period of the most recent 20 days, ending on such date,
on which the national securities exchanges were open for trading, except that if
no Common Stock is then listed or admitted to trading on any national securities
exchange or quoted in the over-the-counter market, the Current Market Price
shall be the Market Price on such date.
Exchange Act: The Securities Exchange Act of 1934, or any similar
------------
federal statute, and the rules and regulations of the Commission thereunder, all
as the same shall be in effect at the time.
Expiration Date: As defined in the introduction to this Warrant.
---------------
Holder: As defined in the introduction to this Warrant.
------
Indenture: As defined in the introduction to the Warrant.
---------
Market Price: On any date specified herein, the amount per share of
------------
the Common Stock equal to (a) the last reported sale price of such Common Stock,
regular way, on such date or, in case no such sale takes place on such date, the
average of the closing bid and asked prices thereof, regular way, on such date,
in either case as officially reported on the principal national securities
exchange on which such Common Stock is then listed or admitted for trading, or
(b) if such Common Stock is not then listed or admitted for trading on any
national securities exchange but is designated as a national market system
security by the NASD, the last reported trading price of the Common Stock on
such date, or (c) if there shall have been no trading on such date or if the
Common Stock is not so designated, the average of the closing bid and asked
prices of the Common Stock on such date as shown by the NASD automated quotation
system, or (d) if neither a, b nor c is applicable, the higher of (x) the book
value thereof as determined by any firm of independent public accountants of
recognized standing selected by the Board of Directors of the Company as of the
last day of any month ending within 60 days preceding the date as of which the
determination is to be made and (y) the fair value thereof (as of the date which
is within 20 days of the date as of which the determination is to be made)
determined in good faith by the Board of Directors of the Company (if Holder
objects to such determination, Holder may seek and receive, at the Company's
expense, third party appraisal, which shall be the exclusive and binding
determination to be used).
NASD: The National Association of Securities Dealers, Inc.
----
Options: Rights, options or warrants to subscribe for, purchase or
-------
otherwise acquire either Additional Shares of Common Stock or Convertible
Securities.
17
<PAGE>
Other Securities. Any stock (other than Common Stock) and other
----------------
securities of the Company or any other Person (corporate or otherwise) which the
holders of the Warrants at any time shall be entitled to receive, or shall have
received, upon the exercise of the Warrants, in lieu of or in addition to Common
Stock, or which at any time shall be issuable or shall have been issued in
exchange for or in replacement of Common Stock or Other Securities pursuant to
Section 3 or otherwise.
Person: An individual, firm, partnership, corporation, professional
------
corporation, trust, joint venture, association, joint stock company, limited
liability company, unincorporated organization or any other entity or
organization, including a government or agency or political subdivision thereof,
and shall include any successor (by merger or otherwise) of such entity.
Restricted Securities: (a) any Warrants bearing the applicable legend
---------------------
set forth in Section 9.1, (b) any shares of Common Stock (or Other Securities)
issued or issuable upon the exercise of Warrants but only so long as they are
required to be evidenced by a certificate or certificates bearing the applicable
legend set forth in such Section, and (c) any shares of Common Stock (or Other
Securities) issued subsequent to the exercise of any of the Warrants as a
dividend or other distribution with respect to, or resulting from a subdivision
of the outstanding shares of Common Stock (or other Securities) into a greater
number of shares by reclassification, stock splits or otherwise, or in exchange
for or in replacement of the Common Stock (or Other Securities) issued upon such
exercise, but only so long as they are required to be evidenced by a certificate
or certificates bearing the applicable legend set forth in such Section.
Securities Act: The Securities Act of 1933, or any similar federal
--------------
statute, and the rules and regulations of the Commission thereunder, all as the
same shall be in effect at the time.
Voting Securities: Stock of any class or classes (or equivalent
-----------------
interests), if the holders of the stock of such class or classes (or equivalent
interests) are ordinarily, in the absence of contingencies, entitled to vote for
the election of the directors (or persons performing similar functions) of the
issuer, even though the right so to vote has been suspended by the happening of
such a contingency.
Warrant: As defined in the introduction to this Warrant.
-------
Warrant Quantity: As defined in the introduction to this Warrant.
----------------
13. Remedies; Specific Performance. The Company stipulates that
------------------------------
there would be no adequate remedy at law to the Holder of this Warrant in the
event of any default or threatened default by the Company in the performance of
or compliance with any of the terms of this Warrant and accordingly, the Company
agrees that, in addition to any other remedy to which the Holder may be entitled
at law or in equity, the Holder shall be entitled to seek to compel specific
performance of the obligations of the Company under this Warrant, without the
posting of any bond, in accordance with the terms and conditions of this Warrant
in any court of the United States or any State thereof having jurisdiction, and
if any action should be brought in equity to enforce any of the provisions of
this Warrant, the Company shall not raise the defense that there is an adequate
remedy at law. Except as otherwise provided by law, a delay or omission by the
Holder hereto in exercising any right or
18
<PAGE>
remedy accruing upon any such breach shall not impair the right or remedy or
constitute a waiver of or acquiescence in any such breach. No remedy shall be
exclusive of any other remedy. All available remedies shall be cumulative.
14. No Rights or Liabilities as Shareholder. Nothing contained in
---------------------------------------
this Warrant shall be construed as conferring upon the Holder hereof any rights
as a shareholder of the Company or as imposing any obligation on the Holder to
purchase any securities or as imposing any liabilities on the Holder as a
shareholder of the Company, whether such obligation or liabilities are asserted
by the Company or by creditors of the Company.
15. Notices. All notices and other communications (and deliveries)
-------
provided for or permitted hereunder shall be made in writing by hand delivery,
telecopier, any courier guaranteeing overnight delivery or first class
registered or certified mail, return receipt requested, postage prepaid,
addressed (a) if to the Company, to the attention of its Chief Financial Officer
at its principal office located at 4800 Broadway, Suite A, Dallas, Texas 75248
or such other address as may hereafter be designated in writing by the Company
to the Holder in accordance with the provisions of this Section, or (b) if to
the Holder, at its address as it appears in the Warrant Register.
All such notices and communications (and deliveries) shall be deemed
to have been duly given: at the time delivered by hand, if personally
delivered; when receipt is acknowledged or confirmed (by automatic confirmation
or otherwise), if telecopied; on the next Business Day, if timely delivered to a
courier guaranteeing overnight delivery; and five days after being deposited in
the mail, if sent first class or certified mail, return receipt requested,
postage prepaid; provided, that the exercise of any Warrant shall be effective
--------
in the manner provided in Section 1.
16. Amendments. This Warrant and any term hereof may not be amended,
----------
modified, supplemented or terminated, and waivers or consents to departures from
the provisions hereof may not be given, except by written instrument duly
executed by the party against which enforcement of such amendment, modification,
supplement, termination or consent to departure is sought.
17. Descriptive Headings, Etc. The headings in this Warrant are for
--------------------------
convenience of reference only and shall not limit or otherwise affect the
meaning of terms contained herein. Unless the context of this Warrant otherwise
requires: (1) words of any gender shall be deemed to include each other gender;
(2) words using the singular or plural number shall also include the plural or
singular number, respectively; (3) the words "hereof," "herein" and "hereunder"
and words of similar import when used in this Warrant shall refer to this
Warrant as a whole and not to any particular provision of this Warrant, and
Section and paragraph references are to the Sections and paragraphs of this
Warrant unless otherwise specified; (4) the word "including" and words of
similar import when used in this Warrant shall mean "including, without
limitation," unless otherwise specified; (5) "or" is not exclusive; and (6)
provisions apply to successive events and transactions.
18. GOVERNING LAW. This Warrant shall be governed by, and construed
-------------
in accordance with, the laws of the State of Texas (without giving effect to the
conflict of laws principles thereof).
19
<PAGE>
19. Judicial Proceedings; Waiver of Jury. Any legal action, suit or
------------------------------------
proceeding brought against the Company with respect to this Warrant may be
brought in any federal court of Texas or any state court located in Dallas
County, State of Texas, and by execution and delivery of this Warrant, the
Company hereby irrevocably and unconditionally waives any claim (by way of
motion, as a defense or otherwise) of improper venue, that it is not subject
personally to the jurisdiction of such court, that such courts are an
inconvenient forum or that this Warrant or the subject matter may not be
enforced in or by such court. The Company irrevocably submits to the exclusive
jurisdiction of the aforementioned courts in such action, suit or proceeding.
The Company hereby irrevocably and unconditionally consents to the service of
process of any of the aforementioned courts in any such action, suit or
proceeding by the mailing of copies thereof by registered or certified mail,
postage prepaid, at its address set forth or provided for in Section 15 (with
copies of such process also being sent to the Company's counsel referred to in
such section), such service to become effective 10 days after such mailing.
Nothing herein contained shall be deemed to affect the right of any party to
serve process in any manner permitted by law or commence legal proceedings or
otherwise proceed against any other party in any other jurisdiction to enforce
judgments obtained in any action, suit or proceeding brought pursuant to this
Section. THE COMPANY HEREBY IRREVOCABLY WAIVES TRIAL BY JURY IN ANY ACTION,
SUIT OR PROCEEDING, WHETHER AT LAW OR EQUITY, BROUGHT BY IT OR THE HOLDER IN
CONNECTION WITH THIS WARRANT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
20. Counterparts. This Warrant may be executed in any number of
------------
counterparts, each of which shall be deemed an original, but all such
counterparts shall together constitute one and the same instrument.
POLYPHASE CORPORATION
By:
---------------------------
Name:
-------------------------
Title:
------------------------
MERILL LYNCH WORLD INCOME FUND, INC.
By:
---------------------------
Name:
Title:
20
<PAGE>
Exhibit A
---------
FORM OF SUBSCRIPTION
--------------------
[To be executed only upon exercise of Warrant]
To: POLYPHASE CORPORATION
The undersigned registered holder of the within Warrant hereby irrevocably
exercises such Warrant for, and purchases thereunder, _____* shares of Common
stock of POLYPHASE CORPORATION and herewith makes payment of $___________
therefor, and requests that the certificates for such shares be issued in the
name of, and delivered to ___________________________ whose address is
__________________________________________________.
Dated:
---------------------------------
(Signature must conform in all
respects to the name of holder as
specified on the face of Warrant)
---------------------------------
(Street Address)
---------------------------------
(City) (State) (Zip Code)
- -----------------------
*Insert here the number of shares called for on the face of this Warrant
(or in the case of a partial exercise, the portion thereof as to which this
Warrant is being exercised), in either case without making any adjustment for
Additional Shares of Common Stock or any other stock or other securities or
property or cash which, pursuant to the adjustment provisions of this Warrant,
may be delivered upon exercise. In the case of partial exercise, a new Warrant
or Warrants will be issued and delivered, representing the unexercised portion
of the Warrant, to the holder surrendering the Warrant.
21
<PAGE>
Exhibit B
---------
FORM OF ASSIGNMENT
------------------
[To be executed only upon assignment of Warrant]
For value received, the undersigned registered holder of the within Warrant
hereby sells, assigns and transfers unto ______________________ the right
represented by such Warrant to purchase _____** shares of Common Stock of
POLYPHASE CORPORATION to which such Warrant relates, and appoints
________________ Attorney to make such transfer on the books of POLYPHASE
CORPORATION maintained for such purpose, with full power of substitution in the
premises.
Dated:
---------------------------------
(Signature must conform in all
respects to the name of holder as
specified on the face of Warrant)
---------------------------------
(Street Address)
---------------------------------
(City) (State) (Zip Code)
Signed in the presence of:
- ---------------------------
- ---------------------------
**Insert here the number of shares called for on the face of this Warrant
(or in the case of a partial exercise, the portion thereof as to which this
Warrant is being exercised), in either case without making any adjustment for
Additional Shares of Common Stock or any other stock or other securities or
property or cash which, pursuant to the adjustment provisions of this Warrant,
may be delivered upon exercise. In the case of partial exercise, a new Warrant
or Warrants will be issued and delivered, representing the unexercised portion
of the Warrant, to the holder surrendering the Warrant.
22
<PAGE>
Exhibit C
---------
1. As of April 24, 1998, there are Stock Options to purchase 585,000
shares of Polyphase Corporation's Common Stock outstanding and exercisable under
Polyphase Corporation's 1994 Employee Stock Option Plan.
2. As of April 24, 1998, James R. Rudis holds outstanding and exercisable
Stock Options to purchase 146,500 shares of Polyphase Common Stock.
3. As of April 24, 1998, William Shatley holds outstanding and
exercisable Stock Options to purchase 146,500 shares of Polyphase Common Stock.
4. As of April 24, 1998, George Schrader holds outstanding and
exercisable Stock Options to purchase 50,000 shares of Polyphase Common Stock.
5. As of April 24, 1998, Black Sea Investments, Ltd., holds outstanding
and exercisable warrants to purchase 500,000 shares of Polyphase Corporation's
Common Stock.
6. As of April 24, 1998, Infinity Investors Limited, holds shares of
Polyphase Corporation's Convertible Preferred Stock which are convertible into
an aggregate value of $1,250,000 of Polyphase Corporation's Common Stock.
7. As of April 24, 1998, Merrill Lynch holds an aggregate value of
$1,200,000 face amount of Polyphase Corporation's Convertible Debentures which
are convertible at $3.00 per share into 400,000 shares of Polyphase
Corporation's Common Stock.
23
<PAGE>
EXHIBIT 10.87
- --------------------------------------------------------------------------------
REGISTRATION RIGHTS AGREEMENT
among
POLYPHASE CORPORATION,
MERRILL LYNCH WORLD INCOME FUND, INC.
and
MERRILL LYNCH CONVERTIBLE FUND, INC.
----------------------------------------
Dated as of April 24, 1998
________________________________________
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
1. Background........................................................ 1
2. Registration Under Securities Act, etc............................ 1
2.1 Registration on Request...................................... 1
2.2 Incidental Registration...................................... 4
2.3 Registration Procedures...................................... 5
2.4 Underwritten Offerings....................................... 9
2.5 Preparation; Reasonable Investigation........................ 10
2.6 Indemnification.............................................. 10
3. Definitions....................................................... 13
4. Rule 144 and Rule 144A............................................ 15
5. Amendments and Waivers............................................ 15
6. Nominees for Beneficial Owners.................................... 15
7. Notices........................................................... 16
8. Assignment........................................................ 16
9. Calculation of Percentage Interests of Registrable Securities..... 16
10. No Inconsistent Agreements........................................ 17
11. Remedies.......................................................... 17
12. Severability...................................................... 17
13. Entire Agreement.................................................. 17
14. Descriptive Headings.............................................. 17
15. Governing Law..................................................... 17
16. Counterparts...................................................... 17
i
<PAGE>
REGISTRATION RIGHTS AGREEMENT, dated as of April 24, 1998, by and among
POLYPHASE CORPORATION, a Nevada corporation (the "Company"), MERRILL LYNCH WORLD
INCOME FUND, INC., a Maryland corporation, and MERRILL LYNCH CONVERTIBLE FUND,
INC., a Maryland corporation (together, the "Holders").
1. Background.
----------
(a) Pursuant to an Indenture, dated as of July 5, 1994 between the
Company and IBJ Schroder Bank & Trust Company, as trustee (the "Indenture") and
a Supplemental Indenture to the Indenture (the "Supplemental Indenture"), dated
as of December 5, 1997 (the Indenture and the Supplemental Indenture shall be
collectively referred to herein as the "Indenture"), the Company has agreed to
issue to the Holders warrants to purchase 210,000 shares of its common stock,
par value $0.01 (the "Common Stock") at an exercise price of $.01 per share and
warrants to purchase an additional 210,000 shares (including additional shares
of Common Stock that may be issued pursuant to adjustments to the terms of the
conversion of the Warrants) of the Company"s Common Stock at an exercise price
of $1.125 per share (all 420,000 warrants shall be collectively referred to
herein as the "Warrants"). Capitalized terms used herein but not otherwise
defined shall have the meaning given therein Section 3.
---------
(b) As an inducement to the Holders to enter into the Indenture and in
satisfaction of a condition to the obligations of the Company under the
Indenture, the Company has agreed to register the Warrants and the shares of
Common Stock issuable upon exercise of the Warrants upon the terms and subject
to the conditions contained herein.
2. Registration Under Securities Act, etc.
--------------------------------------
2.1 Registration on Request.
-----------------------
(a) Request. At any time, or from time to time, upon written request
-------
of one or more holders (the "Initiating Holders") of Registerable Securities
representing not less than 50% of the Registrable Securities that the Company
effect the registration under the Securities Act of all or part of such
Initiating Holders' Registrable Securities, the Company promptly will give
written notice of such requested registration to all registered holders of
Registrable Securities, and thereupon the Company will use its best efforts to
effect, at the earliest possible date, the registration under the Securities
Act, including by means of a shelf registration on Form S-3 (or any successor
form) pursuant to Rule 415 under the Securities Act if so requested in such
request (but only if the Company is then eligible to use such a shelf
registration and if Form S-3 (or such successor form) is then available to the
Company, the Company hereby agreeing to use its best efforts to become and
remain eligible to use Form S-3 (or such successor form)) or any other form of
registration statement pursuant to such Rule, of
(i) the Registrable Securities that the Company has been so
requested to register by such Initiating Holders, and
(ii) all other Registrable Securities that the Company has been
requested to register by the holders thereof (such holders together with
the Initiating Holders
1
<PAGE>
hereinafter are referred to as the "Selling Holders") by written request
given to the Company within 30 days after the giving of such written notice
by the Company, all to the extent requisite to permit the disposition of
the Registrable Securities (in accordance with the methods of disposition
thereof intended by the Selling Holders) so to be registered.
(b) Registration of Other Securities. Whenever the Company shall
--------------------------------
effect a registration pursuant to this SECTION 2.1 in connection with an
-----------
underwritten offering by one or more holders of Registrable Securities, no
securities other than Registrable Securities shall be included among the
securities covered by such registration unless (a) the managing underwriter of
such offering shall have advised each Selling Holder of Registrable Securities
to be covered by such registration in writing that the inclusion of such other
securities would not adversely affect such offering or (b) the Selling Holders
of not less than 50% of all Registrable Securities to be covered by such
registration shall have consented in writing to the inclusion of such other
securities.
(c) Registration Statement Form. Registrations under this SECTION 2.1
--------------------------- -----------
shall be on such appropriate registration form of the Commission (i) as shall be
reasonably selected by the Company and as shall be reasonably acceptable to the
holders of more than 50% of the Registrable Securities so to be registered and
(ii) as shall permit the disposition of such Registrable Securities in
accordance with the method or methods of disposition intended by such holders.
The Company agrees to include in any such registration statement all information
that holders of Registrable Securities being registered shall reasonably
request.
(d) Effective Registration Statement. A registration requested
--------------------------------
pursuant to this SECTION 2.1 shall not be deemed to have been effected (i)
-----------
unless a registration statement with respect thereto has become effective and
remained effective in compliance with the provisions of the Securities Act with
respect to the disposition of all Registrable Securities covered by such
registration statement until such time as all of such Registrable Securities
have been disposed of in accordance with the intended methods of disposition by
the seller or sellers thereof set forth in such registration statement;
provided, that except with respect to any registration statement on Form S-3 (or
- --------
any successor or similar form) or any other form of registration statement filed
pursuant to Rule 415 under the Securities Act, such period need not exceed 120
days (which period shall be increased by the cumulative duration of all Blackout
Periods), (ii) with respect to any Selling Holder, if after it has become
effective, such registration is interfered with by any stop order, injunction or
other order or requirement of the Commission or other governmental agency or
court for any reason not attributable to such Selling Holder, or (iii) with
respect to any Selling Holder, if the conditions to closing specified in the
purchase agreement or underwriting agreement, if any, entered into in connection
with such registration are not satisfied or waived, other than by reason of a
failure on the part of such Selling Holder.
(e) Selection of Underwriters. The underwriter or underwriters of
-------------------------
each underwritten offering of the Registrable Securities by one or more holders
of Registrable Securities in connection with a registration requested pursuant
to this SECTION 2.1 shall be reasonably selected by the Company and shall be
-----------
reasonably acceptable to the Selling Holders of at least 50% of the Registrable
Securities to be included in such registration.
2
<PAGE>
(f) Priority in Requested Registration. If the managing underwriter
----------------------------------
of any underwritten offering pursuant to this SECTION 2.1 shall advise the
-----------
Company in writing (and the Company shall so notify, in writing accompanied by a
copy of such advice, each Selling Holder of Registrable Securities requesting
registration of such advice) that, in its opinion, the number or principal
amount of securities requested to be included in such registration exceeds the
number or principal amount that can be sold in such offering within a price
range acceptable to the Selling Holders of more than 50% of the Registrable
Securities requested to be included in such registration, the Company, except as
provided in the following sentence, will include in such registration, to the
extent of the number or principal amount and type that the Company is so advised
can be sold in such offering, Registrable Securities requested to be included in
such registration, pro rata among the Selling Holders requesting such
registration on the basis of the estimated gross proceeds from the sale thereof.
In connection with any registration as to which the provisions of the preceding
sentence of this clause (f) apply, no securities other than Registrable
Securities shall be covered by such registration. If the total number of
Registrable Securities requested to be included as provided in such registration
cannot be included as provided in the next preceding sentence, holders of
Registrable Securities requesting registration thereof pursuant to this SECTION
-------
2.1, representing not less than 15% of the Registrable Securities with respect
- ---
to which registration has been requested and constituting not less than 50% of
the Initiating Holders, shall have the right to withdraw the request for
registration by giving written notice to the Company within 20 days after
receipt of such notice from the Company and, in the event of such withdrawal,
such requested registration shall not be counted for purposes of the requested
registrations to which holders of Registrable Securities are entitled pursuant
to this SECTION 2.1.
-----------
(g) Limitations on Registration on Request. The Company will not be
--------------------------------------
required to (i) effect, in the aggregate, more than two registrations pursuant
to this SECTION 2.1, or (ii) effect a registration pursuant to this SECTION 2.1
----------- -----------
within the twelve-month period occurring immediately subsequent to the
effectiveness (within the meaning of SECTION 2.1(D)) of a registration statement
--------------
filed pursuant to this SECTION 2.1.
-----------
(h) Limitations, Conditions and Qualifications to Obligations Under
---------------------------------------------------------------
Registration Covenants. If, prior to the effectiveness of any registration
- ----------------------
statement otherwise required to be prepared and filed by the Company pursuant to
this SECTION 2.1, the Board of Directors of the Company determines in good faith
-----------
either (i) that the sale of the Registrable Securities pursuant to such
registration statement would require disclosure of material non-public
information, the disclosure of which would have a material adverse effect on the
Company (an "Information Blackout") or (ii) that the Company is required,
pursuant to the Exchange Act, to prepare financial statements in connection with
a material acquisition or other event (a "Financial Statement Blackout"), and in
either such case shall furnish to each holder of Registrable Securities a
certificate regarding such determination, then the Company's obligation to
effect such registration hereunder shall be deferred for a period not to extend
beyond the earliest of (x) the date upon which such material information is
disclosed to the public or ceases to be material, in the case of an Information
Blackout, or the date on which the preparation of such financial statements is
complete, in the case of a Financial Statement Blackout, (y) 90 days after the
Company's Board of Directors makes such good faith determination and (z) the
date on which the Company files or is required to file (whichever first occurs)
with the Commission its next periodic report on Form 10-K or Form 10-Q (or any
successor form) under the Exchange Act, in the case of an Information Blackout,
or the first date on
3
<PAGE>
which the Company is required to file with the Commission a report on Form
10-K, Form 10-Q or Form 8-K under the Exchange Act that includes such financial
statements, in the case of a Financial Statement Blackout (a "Blackout Period");
provided, that if any such registration statement is effective, the Company may,
upon written notice of an Information Blackout or a Financial Statement
Blackout, as the case may be, to each holder of Registrable Securities, suspend
sales of Registrable Securities pursuant to such registration statement for the
Blackout Period; provided, further, that the cumulative duration of all Blackout
Periods shall not in any event exceed 90 days during any twelve-month period. If
the Company shall postpone the filing of a registration statement pursuant to
the preceding provisions of this paragraph, holders of Registrable Securities
with respect to which registration has been requested and constituting not less
than 15% of the Registrable Securities with respect to which registration has
been requested and constituting not less than 50% of the Initiating Holders,
shall have the right to withdraw the request for registration by giving written
notice to the Company within 30 days after receipt of the notice of postponement
and, in the event of such withdrawal, such requested registration shall not be
counted for purposes of the requested registrations to which holders of
Registrable Securities are entitled pursuant to this SECTION 2.1.
-----------
(i) Expenses. The Company will pay all Registration Expenses in
--------
connection with the registrations requested pursuant to this SECTION 2.1.
-----------
2.2 Incidental Registration.
-----------------------
(a) Right to Include Registrable Securities. If the Company at any
---------------------------------------
time proposes to register any of its securities under the Securities Act by
registration on Forms S-1, S-2 or S-3 or any successor or similar form(s)
(except registrations on such Forms or similar form(s) solely for registration
of securities in connection with an employee benefit plan or dividend
reinvestment plan or a merger or consolidation, or solely with respect to any
securities to be exchanged for partnership interests and except for
registrations pursuant to SECTION 2.1), whether or not for sale for its own
------------
account, it will each such time give prompt written notice to all registered
holders of Registerable Securities of its intention to do so and of such
holders' rights under this SECTION 2.2. Upon the written request of any such
-----------
holder (each, a "Requesting Holder") made as promptly as practicable and in any
event within 30 days after the receipt of any such notice (20 days if the
Company states in such written notice or gives telephonic notice to all
registered holders of Registrable Securities, with written confirmation to
follow promptly thereafter, stating that (i) such registration will be on Form
S-3 and (ii) such shorter period of time is required because of a planned filing
date) (which request shall specify the Registrable Securities intended to be
disposed of by such Requesting Holder), the Company will use its best efforts to
effect the registration under the Securities Act of all Registrable Securities
that the Company has been so requested to register by the Requesting Holders
thereof to the extent requisite to permit the disposition thereof in accordance
with the method or methods of disposition intended by such holders; provided,
--------
however, that if, at any time after giving written notice of its intention to
- -------
register any securities and prior to the effective date of the registration
statement filed in connection with such registration, the Company shall
determine for any reason not to register or to delay registration of such
securities, the Company may, at its election, give written notice of such
determination to each holder of Registrable Securities and (i) in the case of a
determination not to register, shall be relieved of its obligation to register
any Registrable Securities in connection with such registration (but not from
any obligation of the Company to pay the Registration Expenses in connection
therewith), without prejudice, however, to
4
<PAGE>
the rights of any holder or holders of Registrable Securities entitled to do so
to cause such registration to be effected as a registration under SECTION 2.1,
-----------
and (ii) in the case of a determination to delay registering, shall be permitted
to delay registering any Registrable Securities, for the same period as the
delay in registering such other securities. No registration effected under this
SECTION 2.2 shall relieve the Company of its obligation to effect any
- -----------
registration upon request under SECTION 2.1.
-----------
(b) Priority in Incidental Registrations. If (i) a registration
------------------------------------
pursuant to this SECTION 2.2 involves an underwritten offering of the securities
-----------
so being registered, whether or not for sale for the account of the Company, to
be distributed (on a firm commitment basis) by or through one or more
underwriters of recognized standing under underwriting terms appropriate for
such a transaction, (ii) the Registrable Securities requested to be registered
in such registration pursuant to SECTION 2.2(A) for sale for the account of
--------------
holders of Registrable Securities are not also to be included in such
underwritten offering (because the Company has not been requested so to include
such Registrable Securities pursuant to SECTION 2.4(B)) and (iii) the managing
--------------
underwriter of such underwritten offering shall inform the Company by letter of
its opinion that the number or principal amount or type of Registrable
Securities requested to be included in such registration exceeds the number or
principal amount or type that can be sold in (or during the time of) such
offering, and the Company has so advised the Requesting Holders in writing with
a copy of such opinion, then the Company will include in such registration, to
the extent of the number or principal amount and type that the Company is so
advised can be sold in (or during the time of) such offering, the securities
proposed by the Company to be sold for its own account and such Registrable
Securities requested to be included in such registration pursuant to this
SECTION 2.2, pro rata among the Company and each of the Requesting Holders on
- -----------
the basis of the estimated gross proceeds from the sale thereof.
(c) Expenses. The Company will pay all Registration Expenses in
--------
connection with any registration effected pursuant to this SECTION 2.2.
-----------
2.3 Registration Procedures. If and whenever the Company is required
------------------------
to use its best efforts to effect the registration of any Registrable Securities
under the Securities Act as provided in SECTIONS 2.1 and 2.2, the Company will,
------------ ---
as expeditiously as possible:
(i) prepare and (as soon as possible but in any event no later
than 60 days after the end of the period within which requests for
registration may be given to the Company pursuant to SECTION 2.1(A) or
--------------
2.2(A), as applicable) file with the Commission the requisite registration
------
statement to effect such registration and thereafter use its best efforts
to cause such registration statement to become effective; provided,
--------
however, that the Company may discontinue any registration of its
-------
securities that are not Registrable Securities (and, under the
circumstances specified in SECTION 2.2(A), its securities that are
--------------
Registrable Securities) at any time prior to the effective date of the
registration statement relating thereto;
(ii) prepare and file with the Commission such amendments,
supplements and post-effective amendments to such registration statement
and the prospectus used in connection therewith as may be necessary to keep
such registration statement effective and to comply with the provisions of
the Securities Act with respect to the disposition of all securities
covered by such registration statement until such time as all of
Registrable
5
<PAGE>
Securities covered by such registration statement have been disposed
of in accordance with the intended methods of disposition by the
seller or sellers thereof set forth in such registration statement;
provided, that except with respect to any such registration statement on
--------
Form S-3 (or any successor or similar form) or any other form of
registration statement filed pursuant to Rule 415 under the Securities Act,
such period need not exceed 120 days (which period shall be increased by
the cumulative duration of all Blackout Periods); provided further, that
-------- -------
the Company shall (y) use its best efforts to keep any such registration
statement on Form S-3 or such other form continuously effective for a
period of at least three years (which period shall be increased by the
cumulative duration of all Blackout Periods) after the effective date of
such registration statement (or such shorter period terminating on the date
when all Registrable Securities have been disposed of) and (z) prepare and
file with the Commission, within 30 days following receipt by the Company
from any holder of Registrable Securities of written notice that such
holder wishes to include in such registration any Registrable Securities or
additional Registrable Securities, such amendments, supplements and post-
effective amendments to such registration statement and the related
prospectus as is necessary to effect the registration under the Securities
Act of such Registrable Securities and to permit the disposition thereof in
accordance with the method of disposition intended by such holder;
(iii) furnish to each seller of Registrable Securities covered
by such registration statement, such number of conformed copies of such
registration statement and of each such amendment, supplement and post-
effective amendment thereto (in each case including all exhibits), such
number of copies of the prospectus contained in such registration statement
(including each preliminary prospectus and any summary prospectus) and any
other prospectus filed under Rule 424 under the Securities Act, in
conformity with the requirements of the Securities Act, and such other
documents, as such seller may reasonably request;
(iv) use its best efforts (x) to register or qualify all
Registrable Securities and other securities covered by such registration
statement under such other securities or blue sky laws of such states,
possessions and territories of the United States of America where an
exemption is not available and as each seller of Registrable Securities
covered by such registration statement shall reasonably request, (y) to
keep such registration or qualification in effect for so long as such
registration statement remains in effect, and (z) to take any other action
that may be reasonably necessary or advisable to enable such seller to
consummate the disposition in such jurisdictions of the securities to be
sold by such seller, except that the Company shall not for any such purpose
be required to qualify generally to do business as a foreign corporation in
any jurisdiction wherein it would not be but for the requirements of this
subdivision (iv) be obligated to be so qualified or to consent to general
service of process in any such jurisdiction;
(v) use its best efforts to cause all Registrable Securities
covered by such registration statement to be registered with or approved by
such other federal, state or local governmental agencies or authorities as
may be necessary in the opinion of counsel to the Company, to the seller or
sellers of Registrable Securities or to the underwriters to enable the
seller or sellers thereof to consummate the disposition of such Registrable
Securities in accordance with the method or methods of disposition intended
by such seller or sellers;
6
<PAGE>
(vi) furnish to each seller of Registrable Securities, and each
such seller's underwriters, if any, a signed counterpart of
(x) an opinion of counsel for the Company (which counsel
shall be reasonably satisfactory to the holders of at least 50%
of the Registrable Securities covered by such registration
statement), dated the effective date of such registration
statement and, if applicable, the date of the closing under the
underwriting agreement, reasonably satisfactory in form and
substance to such seller, and
(y) a "comfort" letter, dated the effective date of such
registration statement and, if applicable, the date of the
closing under the underwriting agreement, signed by the
independent public accountants who have certified the Company's
financial statements included or incorporated by reference in
such registration statement,
covering substantially the same matters with respect to such registration
statement (and the prospectus included therein) and, in the case of the
accountants' comfort letter, with respect to events subsequent to the date
of such financial statements, as are customarily covered in opinions of
issuer's counsel and in accountants' comfort letters delivered to the
underwriters in underwritten public offerings of securities and, in the
case of the accountants' comfort letter, such other financial matters, and,
in the case of the legal opinion, such other legal matters, as the sellers
of the Registrable Securities covered by such registration statement, or
the underwriters, if any, may reasonably request;
(vii) promptly notify each seller of Registrable Securities
covered by such registration statement, at any time when a prospectus
relating thereto is required to be delivered under the Securities Act, upon
discovery that, or upon the happening of any event as a result of which,
the prospectus included in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances under
which they were made, and at the request of any such seller promptly
prepare and furnish to it a reasonable number of copies of a supplement to
or an amendment of such prospectus as may be necessary so that, as
thereafter delivered to the purchasers of such securities, such prospectus
shall not include an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances under
which they were made;
(viii) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make available to
its security holders, as soon as reasonably practicable, an earnings
statement covering the period of at least twelve months, but not more than
eighteen months, beginning with the first full calendar month after the
effective date of such registration statement, which earnings statement
shall satisfy the provisions of Section 11(a) of the Securities Act and
Rule 158 promulgated thereunder, and furnish to each such seller of
Registrable Securities at least five business days prior to the filing
thereof a copy of any amendment, supplement or post-effective amendment to
such
7
<PAGE>
registration statement or prospectus and shall not file any thereof to
which any such seller shall have reasonably objected on the grounds that
such amendment, supplement or post-effective amendment does not comply in
all material respects with the requirements of the Securities Act;
(ix) provide and cause to be maintained a transfer agent and
registrar (which, in the case of the Warrants, may be the Company) for all
Registrable Securities covered by such registration statement from and
after a date not later than the effective date of such registration
statement;
(x) use its best efforts to list all Registrable Securities
covered by such registration statement on any national securities exchange
or national market system on which Registrable Securities of the same class
and, if applicable, series, covered by such registration statement are then
listed or, if such securities are not so listed, on the principal national
securities exchange or national market system on which the Common Stock is
then listed;
(xi) enter into such agreements and take such other actions as
any seller of Registrable Securities covered by such registration statement
or any underwriter shall reasonably request in order to effect, expedite or
facilitate the disposition of such Registrable Securities in accordance
with the method or methods of distribution intended by the Selling Holders
thereof;
(xii) not later than the effective date of such registration
statement, provide a CUSIP number for all Registrable Securities and
provide the applicable transfer agent or trustee with printed certificates
for the Registrable Securities that are in a form eligible for deposit with
the Depositary Trust Company;
(xiii) in the event of the issuance of any stop order suspending
the effectiveness of such registration statement, or of any order
suspending or preventing the use of any related prospectus or suspending
the qualification of any Registrable Securities for sale in any
jurisdiction, promptly notify each holder of Registrable Securities in
writing of such occurrence and use its best efforts promptly to obtain the
withdrawal of such order; and
(xiv) promptly notify each seller of Registrable Securities
covered by such registration statement (i) when such registration statement
or any post-effective amendment thereto has become effective under the
Securities Act and each applicable state law and (ii) of any request by the
Commission or any other federal or state governmental authority for
amendments or supplements to a registration statement or the related
prospectus or for additional information.
Each holder of Registrable Securities agrees by acquisition of such
Registrable Securities that, upon receipt of any notice from the Company of the
happening of any event of any kind described in subdivision (vii) of this
SECTION 2.3, such holder will forthwith discontinue such holder's disposition of
- -----------
Registrable Securities pursuant to the registration statement relating to such
Registrable Securities until such holder's receipt of the copies of the
supplemented or amended prospectus contemplated by subdivision (vii) of this
SECTION 2.3 and, if so directed by the Company, will deliver to the
- -----------
8
<PAGE>
Company (at the Company's expense) all copies, other than permanent file copies,
then in such holder's possession of the prospectus relating to such Registrable
Securities current at the time of receipt of such notice.
2.4 Underwritten Offerings.
----------------------
(a) Requested Underwritten Offerings. If requested by the
--------------------------------
underwriters for any underwritten offerings by holders of Registrable Securities
pursuant to a registration requested under SECTION 2.1, the Company will enter
-----------
into an underwriting agreement with such underwriters for such offering, such
agreement to be reasonably satisfactory in substance and form to each such
holder and the underwriters and to contain such representations and warranties
by the Company and such other terms as are generally prevailing in agreements of
that type, including, without limitation, indemnities to the effect and to the
extent provided in SECTION 2.6. Such holders of Registrable Securities to be
-----------
sold by such underwriters shall be parties to such underwriting agreement and
may, at their option, require that any or all of the representations and
warranties by, and the other agreements on the part of, the Company to and for
the benefit of such underwriters shall also be made to and for the benefit of
such holders of Registrable Securities and that any or all of the conditions
precedent to the obligations of such underwriters under such underwriting
agreement be conditions precedent to the obligations of such holders of
Registrable Securities. Any such holder of Registrable Securities shall not be
required to make any representations or warranties to or agreements with the
Company or the underwriters other than representations, warranties or agreements
regarding such holder, such holder's Registrable Securities and such holder's
intended method of distribution or any other representations required by
applicable law.
(b) Incidental Underwritten Offerings. If the Company at any time
---------------------------------
proposes to register any of its securities under the Securities Act as
contemplated by SECTION 2.2 and such securities are to be distributed by or
-----------
through one or more underwriters, the Company will, if requested by any
Requesting Holder of Registrable Securities, use its best efforts to arrange for
such underwriters to include all the Registrable Securities to be offered and
sold by such Requesting Holder among the securities of the Company to be
distributed by such underwriters. The holders of Registrable Securities to be
distributed by such underwriters shall be parties to the underwriting agreement
between the Company and such underwriters and may, at their option, require that
any or all of the representations and warranties by, and the other agreements on
the part of, the Company to and for the benefit of such underwriters shall also
be made to and for the benefit of such holders of Registrable Securities and
that any or all of the conditions precedent to the obligations of such
underwriters under such underwriting agreement be conditions precedent to the
obligations of such holders of Registrable Securities. Any such Requesting
Holder of Registrable Securities shall not be required to make any
representations or warranties to or agreements with the Company or the
underwriters other than representations, warranties or agreements regarding such
Requesting Holder, such Requesting Holder's Registrable Securities and such
Requesting Holder's intended method of distribution or any other representations
required by applicable law.
2.5 Preparation; Reasonable Investigation. In connection with the
-------------------------------------
preparation and filing of each registration statement under the Securities Act
pursuant to this Agreement, the Company will (i) give the holders of Registrable
Securities registered or to be registered under such registration statement,
their underwriters, if any, and their respective counsel and accountants the
9
<PAGE>
opportunity to participate in the preparation of such registration statement,
each prospectus included therein or filed with the Commission, and each
amendment, supplement or post-effective amendment thereto, (ii) prior to the
filing of any document that is to be incorporated by reference into any such
registration statement or prospectus (after initial filing of the registration
statement), promptly provide copies of such document to the holders of
Registrable Securities covered by such registration statement and to the
managing underwriters, if any, (iii) make the Company's representatives
available for discussion of any such document referred to in the preceding
clauses (i) or (ii) and make such changes in such document (other than any
exhibits thereto) prior to the filing thereof as such selling holders or
underwriters may reasonably request and (iv) give each of them such access to
its books and records and such opportunities to discuss the business of the
Company with its officers and the independent public accountants who have
certified its financial statements as shall be necessary, in the opinion of such
holders' and such underwriters' respective counsel, to conduct a reasonable
investigation within the meaning of the Securities Act.
2.6 Indemnification.
---------------
(a) Indemnification by the Company. The Company will, and hereby
------------------------------
does, indemnify and hold harmless, in the case of any registration statement
filed pursuant to SECTION 2.1 or 2.2, each seller of any Registrable Securities
----------- ---
covered by such registration statement and each other Person who participates as
an underwriter in the offering or sale of securities of the Company covered by
such registration statement and each other Person, if any, who controls such
seller or any such underwriter within the meaning of the Securities Act, and
their respective directors, officers and partners, against any losses, claims,
damages or liabilities, joint or several, to which such seller, underwriter or
controlling person or any such director, officer or partner may become subject
under the Securities Act or otherwise, including, without limitation, the fees
and expenses of legal counsel, insofar as such losses, claims, damages or
liabilities (or actions or proceedings, whether commenced or threatened, in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any registration statement
under which such securities were registered under the Securities Act, any
preliminary prospectus, final prospectus or summary prospectus contained
therein, or any amendment, supplement or post-effective amendment thereto, or
any omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
the Company will reimburse each such seller, underwriter and controlling person
and each such director, officer and partner for any legal or any other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, liability, action or proceeding; provided, that the Company
--------
shall not be liable in any such case to the extent that any such loss, claim,
damage, liability (or action or proceeding in respect thereof) or expense arises
out of or is based upon an untrue statement or alleged untrue statement or
omission or alleged omission made in such registration statement, preliminary
prospectus, final prospectus, summary prospectus, amendment, supplement or post-
effective amendment in reliance upon and in conformity with written information
furnished to the Company through an instrument duly executed by or on behalf of
such seller or underwriter, as the case may be, specifically stating that it is
for use in the preparation thereof; and provided, further, that the Company
-------- -------
shall not be liable to any Person who participates as an underwriter in the
offering or sale of Registrable Securities or any other Person, if any, who
controls such underwriter within the meaning of the Securities Act, in any such
case to the extent that any such loss, claim, damage, liability (or action or
proceeding in respect thereof) or expense arises out of such Person's failure to
10
<PAGE>
send or give a copy of the final prospectus, as the same may be then
supplemented or amended, to the Person asserting an untrue statement or alleged
untrue statement or omission or alleged omission at or prior to the written
confirmation of the sale of Registrable Securities to such Person if such
statement or omission was corrected in such final prospectus. Such indemnity
shall remain in full force and effect regardless of any investigation made by or
on behalf of any such seller, underwriter or controlling Person or any such
director, officer or partner and shall survive the transfer of such securities
by such seller.
(b) Indemnification by the Sellers. As a condition to including any
------------------------------
Registrable Securities in any registration statement, the Company shall have
received an undertaking satisfactory to it from the prospective seller of such
Registrable Securities, to indemnify and hold harmless (in the same manner and
to the same extent as set forth in subdivision (a) of this SECTION 2.6) the
-----------
Company, and each director of the Company, each officer of the Company and each
other Person, if any, who participates as an underwriter in the offering or sale
of such securities and each other Person, if any, who controls the Company or
any such underwriter within the meaning of the Securities Act, with respect to
any untrue statement or alleged untrue statement of any material fact contained
in any registration statement under which such securities were registered under
the Securities Act, any preliminary prospectus, final prospectus or summary
prospectus contained therein, or any amendment or supplement thereto, or any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, if
such statement or alleged statement or omission or alleged omission was made in
reliance upon and in conformity with written information furnished to the
Company through an instrument duly executed by such seller specifically stating
that it is for use in the preparation of such registration statement,
preliminary prospectus, final prospectus, summary prospectus, amendment or
supplement; provided, however, that the liability of such indemnifying party
-------- -------
under this SECTION 2.6(B) shall be limited to the amount of proceeds received by
--------------
such indemnifying party in the offering giving rise to such liability. Such
indemnity shall remain in full force and effect, regardless of any investigation
made by or on behalf of the Company or any such director, officer or controlling
Person and shall survive the transfer of such securities by such seller.
(c) Notices of Claims, etc. Promptly after receipt by an indemnified
----------------------
party of notice of the commencement of any action or proceeding involving a
claim referred to in the preceding subdivisions of this SECTION 2.6, such
-----------
indemnified party will, if a claim in respect thereof is to be made against an
indemnifying party, give written notice to the latter of the commencement of
such action; provided, however, that the failure of any indemnified party to
-------- -------
give notice as provided herein shall not relieve the indemnifying party of its
obligations under the preceding subdivisions of this SECTION 2.6, except to the
-----------
extent that the indemnifying party is actually prejudiced by such failure to
give notice. In case any such action is brought against an indemnified party,
the indemnifying party shall be entitled to participate in and, unless in such
indemnified party's reasonable judgment a conflict of interest between such
indemnified and indemnifying parties may exist in respect of such claim, to
assume the defense thereof, jointly with any other indemnifying party similarly
notified to the extent that it may wish, with counsel reasonably satisfactory to
such indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party shall not be liable to such indemnified party for any legal
or other expenses subsequently incurred by the latter in connection with the
defense thereof other than reasonable costs of investigation. If, in the
reasonable judgment of any indemnified party, a conflict of interest may
11
<PAGE>
exist between such Person and the indemnifying party with respect to such claim,
the indemnifying party shall not have the right to assume the defense of such
claim on behalf of such Person if such Person notifies the indemnifying party in
writing that such Person elects to employ separate counsel at the expense of the
indemnifying party. An indemnifying party that is not entitled to, or elects not
to, assume the defense of a claim will not be obligated to pay the fees and
expenses of more than one counsel for all parties indemnified by such
indemnifying party with respect to such claim, unless in the reasonable judgment
of any indemnified party a conflict of interest may exist between such
indemnified party and any other of such indemnified parties with respect to such
claim, in which event the indemnifying party shall be obligated to pay the fees
and expenses of such additional counsel or counsels. No indemnifying party shall
be liable for any settlement of any action or proceeding effected without its
written consent. No indemnifying party shall, without the consent of the
indemnified party, consent to entry of any judgment or enter into any settlement
that does not include as an unconditional term thereof the giving by the
claimant or plaintiff to such indemnified party of a release from all liability
in respect to such claim or litigation or that requires action other than the
payment of money by the indemnifying party.
(d) Contribution. If the indemnification provided for in this SECTION
------------ -------
2.6 shall for any reason be held by a court to be unavailable to an indemnified
- ---
party under subparagraph (a) or (b) hereof in respect of any loss, claim, damage
or liability, or any action or proceeding in respect thereof, then, in lieu of
the amount paid or payable under subparagraph (a) or (b) hereof, the indemnified
party and the indemnifying party under subparagraph (a) or (b) hereof shall
contribute to the aggregate losses, claims, damages and liabilities (including
legal or other expenses reasonably incurred in connection with investigating or
defending the same), (i) in such proportion as is appropriate to reflect the
relative fault of the indemnified party and the indemnifying party that resulted
in such loss, claim, damage or liability, or action or proceeding in respect
thereof, with respect to the statements or omissions that resulted in such loss,
claim, damage or liability, or action or proceeding in respect thereof, as well
as any other relevant equitable considerations or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as shall be appropriate to reflect the relative benefits received by
the indemnified party and the indemnifying party from the offering of the
securities covered by such registration statement. Notwithstanding the
provisions of this SECTION 2.6(D), no seller of Registrable Securities shall be
--------------
required to contribute any amount in excess of the amount by which the proceeds
received by such Person in the offering giving rise to such indemnification
exceeds the amount which such Person has otherwise been required to pay in
respect of such losses, claims, damages or liabilities. No Person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any Person who was not
guilty of such fraudulent misrepresentation. Such prospective sellers'
obligations to contribute as provided in this subparagraph (d) are several and
not joint. In addition, no Person shall be obligated to contribute hereunder
any amounts in payment for any settlement of any action or claim effected
without such Person's consent, which consent shall not be unreasonably withheld.
(e) Other Indemnification. Indemnification and contribution similar
---------------------
to that specified in the preceding subdivisions of this SECTION 2.6 (with
-----------
appropriate modifications) shall be given by the Company and each seller of
Registrable Securities with respect to any required registration or other
qualification of securities under any federal or state law or regulation of any
governmental authority other than the Securities Act.
12
<PAGE>
(f) Indemnification Payments. The indemnification and contribution
------------------------
required by this SECTION 2.6 shall be made by periodic payments of the amount
-----------
thereof during the course of the investigation or defense, as and when bills are
received or expense, loss, damage or liability is incurred.
3. Definitions. As used herein, unless the context otherwise requires, the
-----------
following terms have the following respective meanings:
"Blackout Period" is defined in SECTION 2.1.
--------------- -----------
"Commission" means the Securities and Exchange Commission or any other
----------
federal agency at the time administering the Securities Act.
"Warrant Shares" means the shares of Common Stock issued or issuable upon
--------------
the exercise of the Warrants and any other additional securities that may be
issued pursuant to adjustments to the terms of the exercise of the Warrants.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, or
------------
any similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time. Reference to a
particular section of the Securities Exchange Act of 1934, as amended, shall
include a reference to the comparable section, if any, of any such similar
federal statute.
"Initiating Holder" is defined in SECTION 2.1.
----------------- -----------
"Person" means any individual, corporation, partnership, trust, estate,
------
incorporated or unincorporated association, joint venture, joint stock company,
government (or an agency or political subdivision thereof) or other entity of
any kind.
"Registrable Securities" means the Warrant Shares and all Related
----------------------
Registrable Securities. As to any particular Registrable Securities, once
issued such securities shall cease to be Registrable Securities when (a) a
registration statement with respect to the sale of such securities shall have
become effective under the Securities Act and such securities shall have been
disposed of in accordance with such registration statement, (b) they shall have
been sold to the public as permitted by Rule 144 (or any successor provision)
under the Securities Act, (c) they shall have been otherwise transferred, new
certificates for them not bearing a legend restricting further transfer shall
have been delivered by the Company and subsequent distribution of them shall not
require registration or qualification of them under the Securities Act or any
similar state law then in force or (d) they shall have ceased to be outstanding.
All references to percentages of Registrable Securities shall be calculated
pursuant to SECTION 9.
---------
"Registration Expenses" means all expenses incident to the Company's
---------------------
performance of or compliance with SECTION 2, including, without limitation, all
---------
registration, filing, NASD, listing and rating agency fees, all fees and
expenses of complying with securities or blue sky laws, all word processing,
duplicating and printing expenses, messenger and delivery expenses, the fees and
disbursements of counsel for the Company and of its independent public
accountants, including the
13
<PAGE>
expenses of any special audit or "cold comfort" letters required by or incident
to such performance and compliance, and any fees and disbursements of
underwriters customarily paid by issuers or sellers of securities (excluding any
underwriting discounts or commissions with respect to the Registrable
Securities); provided that, with respect to an underwritten offering, if counsel
for the underwriter requests that the Selling Holders be represented by counsel,
"Registration Expenses" shall include the reasonable fees and disbursements of
one counsel to the Selling Holders (selected by the Selling Holders holding at
least 50% of the Registrable Securities covered by such registration); provided,
--------
further, that in the event the Company shall, in accordance with SECTION 2.1(H)
- ------- --------------
or SECTION 2.2(A), not register any securities with respect to which it had
--------------
given written notice of its intention to so register to holders of Registrable
Securities, notwithstanding anything to the contrary in the foregoing, all of
the costs incurred by Requesting Holders in connection with such registration
shall be deemed Registration Expenses.
"Related Registrable Securities" means with respect to Warrant Shares, any
------------------------------
securities of the Company issued or issuable with respect to any Warrant Shares
by way of a dividend or stock split or in connection with a combination of
shares, recapitalization, merger, consolidation or other reorganization or
otherwise.
"Securities Act" means the Securities Act of 1933, as amended, or any
--------------
similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time. References to a
particular section of the Securities Act of 1933 shall include a reference to
the comparable section, if any, of any such similar federal statute.
"Selling Holder" is defined in SECTION 2.1.
-------------- -----------
"Trust Indenture Act" means the Trust Indenture Act of 1939, as amended, or
-------------------
any similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time. References to a
particular section of the Trust Indenture Act shall include a reference to the
comparable section, if any, of any such similar federal statute.
4. Rule 144 and Rule 144A. The Company shall take all actions necessary
----------------------
or reasonably requested by any holder of Registrable Securities to enable
holders of Registrable Securities to sell such securities without registration
under the Securities Act within the limitation of the exemptions provided by (a)
Rule 144 under the Securities Act, as such Rule may be amended from time to
time, (b) Rule 144A under the Securities Act, as such Rule may be amended from
time to time, and (c) any similar rules or regulations hereafter adopted by the
Commission, including, without limiting the generality of the foregoing, filing
on a timely basis all reports required to be filed by the Exchange Act (or, if
the Company is not required to file such reports, making publicly available, at
the request of any holder of Registrable Securities, other information necessary
to enable such holder to sell such securities pursuant to such rule); provided
--------
that this provision will not prohibit the Company from ceasing to be registered
pursuant to Section 12 of the Exchange Act. Upon the request of any holder of
Registrable Securities, the Company will deliver to such holder a written
statement as to whether it has complied with such requirements.
5. Amendments and Waivers. This Agreement may be amended with the consent
----------------------
of the Company and the Company may take any action herein prohibited, or omit to
perform any act herein
14
<PAGE>
required to be performed by it, only if the Company shall have obtained the
written consent to such amendment, action or omission to act, of the holder or
holders of at least 50% of the Registrable Securities affected by such
amendment, action or omission to act. Each holder of any Registrable Securities
at the time or thereafter outstanding shall be bound by any consent authorized
by this SECTION 5, whether or not such Registrable Securities shall have been
---------
marked to indicate such consent.
6. Nominees for Beneficial Owners. In the event that any Registrable
------------------------------
Securities are held by a nominee for the beneficial owner thereof, the
beneficial owner thereof may, at its election in writing delivered to the
Company, be treated as the holder and as the registered holder of such
Registrable Securities for purposes of any request or other action by any holder
or holders of Registrable Securities pursuant to this Agreement or any
determination of any number or percentage of Registrable Securities held by any
holder or holders of Registrable Securities contemplated by this Agreement. If
the beneficial owner of any Registrable Securities so elects, the Company may
require assurances reasonably satisfactory to it of such owner's beneficial
ownership of such Registrable Securities. The Company acknowledges that the
Warrants being acquired by each Holder pursuant to the Indenture are initially
being registered in the name of a nominee for such Holder, and agrees that each
Holder shall be treated as the holder and the registered holder of the Warrants
so acquired by it for all purposes of this Agreement.
7. Notices. All notices, demands and other communications provided for or
-------
permitted hereunder shall be made in writing and shall be by registered or
certified first-class mail, return receipt requested, telex, telegram,
telecopier, courier service or personal delivery:
(a) if to the Holders, addressed to them in the manner set forth in
the Indenture, or at such other address as they shall have furnished to the
Company in writing;
(b) if to any other holder of Registrable Securities, at the address
that such holder shall have furnished to the Company in writing, or, until any
such other holder so furnishes to the Company an address, then to and at the
address of the last holder of such Registrable Securities who has furnished an
address to the Company; or
(c) if to the Company, addressed to it in the manner set forth in the
Indenture, or at such other address as the Company shall have furnished to each
holder of Registrable Securities at the time outstanding.
All such notices and communications shall be deemed to have been duly
given: when delivered by hand, if personally delivered; three business days
after being deposited in the mail, postage prepaid, if mailed; when answered
back, if telexed; and when receipt is confirmed, if telecopied.
8. Assignment. This Agreement shall be binding upon and inure to the
----------
benefit of and be enforceable by the parties hereto and, with respect to the
Company, its respective successors and assigns and, with respect to each Holder,
its successors and assigns, including any holder of any Registrable Securities,
subject to the provisions respecting the minimum numbers of percentages of
shares of Registrable Securities required in order to be entitled to certain
rights, or take certain
15
<PAGE>
actions, contained herein. The Holders named in the
first paragraph of this Agreement (and not any other holder of Registrable
Securities or any other Person other than a successor of either such Holder)
shall be permitted, in connection with a transfer or disposition of Registrable
Securities, to impose conditions or constraints on the ability of the
transferee, as a holder of Registrable Securities, to request a registration
pursuant to Section 2.1 and shall provide the Company with copies of such
conditions or constraints and the identity of such transferees.
9. Calculation of Percentage Interests of Registrable Securities. For
-------------------------------------------------------------
purposes of this Agreement, all references to a percentage of the Registrable
Securities shall be calculated based upon the number of shares of the
Registrable Securities with respect to which such calculation is required to be
made, assuming the conversion of all Warrants included in such Registrable
Securities into Warrant Shares at their given exercise price. If there is more
than one type of Registrable Security, appropriate adjustments will be made to
reflect the relative value of each type of Registrable Security.
10. No Inconsistent Agreements. The Company will not hereafter enter into
--------------------------
any agreement with respect to its securities that is inconsistent or conflicts
with this Agreement or the rights granted to the holders of Registrable
Securities in this Agreement.
11. Remedies. Each holder of Registrable Securities, in addition to being
--------
entitled to exercise all rights granted by law, including recovery of damages,
will be entitled to specific performance of its rights under this Agreement.
The Company agrees that monetary damages would not be adequate compensation for
any loss incurred by any holder of Registrable Securities by reason of a breach
by the Company of the provisions of this Agreement and that each such holder
would sustain irreparable harm, and hereby agrees to waive the defense in any
action for specific performance that a remedy at law would be adequate.
12. Severability. In the event that any one or more of the provisions
------------
contained herein, or the application thereof in any circumstances, is held
invalid, illegal or unenforceable in any jurisdiction, in any respect and for
any reason, the validity, legality and enforceability of any such provision in
every other respect, and in any other jurisdiction, and of the remaining
provisions contained herein shall not be in any way impaired thereby, it being
intended that all of the rights and privileges of the Holders shall be
enforceable to the fullest extent permitted by law.
13. Entire Agreement. This Agreement, together with the Indenture and the
----------------
Warrants is intended by the parties as a final expression of their agreement and
intended to be a complete and exclusive statement of the agreement and
understanding of the parties hereto in respect of the subject matter contained
herein or therein. There are no restrictions, promises, warranties or
undertakings, other than those set forth or referred to herein or therein. This
Agreement, the Indenture and the Warrants supersede all prior agreements and
understandings between the parties hereto with respect to such subject matter.
14. Descriptive Headings. The descriptive headings of the several sections
--------------------
and paragraphs of this Agreement are inserted for reference only and shall not
limit or otherwise affect the meaning hereof.
16
<PAGE>
15. Governing Law. This Agreement shall be construed and enforced in
-------------
accordance with, and the rights of the parties shall be governed by, the laws of
the State of Texas applicable to agreements made and to be performed entirely
within such State.
16. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed an original, but all such
counterparts shall together constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
and delivered by their respective officers thereunto duly authorized as of the
date first above written.
COMPANY:
POLYPHASE CORPORATION
By:
-------------------------------------------
Name:
-----------------------------------------
Title:
----------------------------------------
HOLDERS:
MERRILL LYNCH WORLD INCOME FUND, INC.
By:
-------------------------------------------
Name:
-----------------------------------------
Title:
----------------------------------------
MERRILL LYNCH CONVERTIBLE FUND, INC.
By:
-------------------------------------------
Name:
-----------------------------------------
Title:
----------------------------------------
<PAGE>
EXHIBIT 10.88
Date: August 7, 1998
CONTINUING AND UNCONDITIONAL GUARANTY
BANK: GUARANTOR:
NationsBank, N.A.
Banking Center: Polyphase Corporation
4800 Broadway, Suite A
415 South First Street Dallas, Texas 75248
P. O. Drawer 10
Lufkin, Texas 75901
Dallas County
Angelina County
(Street address including county) (Name and street address, including county)
================================================================================
"BORROWER": TEXAS TIMBERJACK, INC.
1. GUARANTY. FOR VALUE RECEIVED, and to induce NationsBank, N.A. ("Bank") to
make loans or advances or to extend credit or other financial accommodations or
benefits, with or without security, to or for the account of Borrower, the
undersigned "Guarantor", hereby irrevocably and unconditionally guarantees to
Bank the full and prompt payment when due, whether by acceleration or otherwise,
of any and all Liabilities (as hereinafter defined) of Borrower to Bank. This
Guaranty is continuing and unlimited as to the amount, and is cumulative to and
does not supersede any other guaranties.
Guarantor further unconditionally guarantees the faithful, prompt and complete
compliance by Borrower with all Obligations (as hereinafter defined). The
undertakings of Guarantor hereunder are independent of the Liabilities and
Obligations of Borrower and a separate action or actions for payment, damages or
performance may be brought or prosecuted against Guarantor, whether or not an
action is brought against Borrower or to realize upon the security for the
Liabilities and/or Obligations, whether or not Borrower is joined in any such
action or actions, and whether or not notice is given or demand is made upon
Borrower.
Bank shall not be required to proceed first against Borrower, or any other
person, or entity, whether primarily or secondarily liable, or against any
collateral held by it, before resorting to Guarantor for payment, and Guarantor
shall not be entitled to assert as a defense to the enforceability of the
Guaranty any defense of Borrower with respect to any Liabilities or Obligations.
2. PARAGRAPH HEADINGS, GOVERNING LAW AND BINDING EFFECT. Guarantor agrees that
the paragraph headings in this Guaranty are for convenience only and that they
will not limit any of the provisions of this Guaranty. Guarantor further agrees
that this Guaranty shall be deemed to have been made in the State of Texas at
Bank's address indicated at the beginning of this Guaranty and shall be governed
by, and construed in accordance with, the laws of the State of Texas, and is
performable in the City and County of Texas at Bank's address indicated at the
beginning of this Guaranty. In any litigation in connection with or to enforce
this Guaranty or any other Loan Documents, Guarantor, and each of them,
irrevocably consent to and confer personal jurisdiction on the courts of the
State of Texas or the United States courts located within the State of Texas.
Nothing contained herein shall, however, prevent Bank from bringing any action
or exercising any rights within any other state or jurisdiction or from
obtaining personal jurisdiction by any other means available by applicable law.
This Guaranty is binding upon Guarantor, his, their or its executors,
administrators, successors or assigns, and shall inure to the benefit of Bank,
its successors, indorsees or assigns. Anyone executing this Guaranty shall be
bound by the terms hereof without regard to execution by anyone else.
3. DEFINITIONS.
A. "Guarantor" shall mean Guarantor or any one or more of them.
B. "Liability" or "Liabilities" shall mean without limitation, all
liabilities, indebtedness, and obligations of Borrower to Bank, arising under
that promissory note dated August 7, 1998, executed by Borrower, payable to the
order of Bank, in the principal amount of $8,000,000.00, maturing March 31,
1999, and promissory note dated August 7, 1998, executed by Borrower, payable to
the order of Bank, in the principal amount of $4,000,000.00, maturing August 7,
2001, (or either of said notes) including but not limited to all extensions or
renewals thereof, and all sums payable under or by virtue thereof, including
without limitation, all amounts of principal and interest, all expenses
(including reasonable attorney's fees and cost of collection) incurred in the
collection thereof or the enforcement of rights thereunder
C. "Loan Documents" shall mean all deeds to secure debt, deeds of trust,
mortgages, security agreements and other documents securing payment of the
Liabilities and all notes and other agreements, documents, and instruments
evidencing or relating to the Liabilities and Obligations.
D. "Obligation" or "Obligations" shall mean all terms, conditions, covenants,
agreements and undertakings of Borrower and/or Guarantor under all notes and
other documents evidencing the Liabilities, and under all deeds to secure debt,
deeds of trust, mortgages, security agreements and other agreements, documents
and instruments executed in connection with the Liabilities or related thereto.
4. WAIVERS BY GUARANTOR. Guarantor waives notice of acceptance of this
Guaranty, notice of any Liabilities or Obligations to which it may apply,
presentment, demand for payment, protest, notice of dishonor or nonpayment
NationsBank Continuing and Unconditional Guaranty
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of any Liabilities, notice of intent to accelerate, notice of acceleration, and
notice of any suit or the taking of other action by Bank against Borrower,
Guarantor or any other person, any applicable statute of limitations and any
other notice to any party liable on any Loan Document (including Guarantor).
Each Guarantor also hereby waives any claim, right or remedy which such
Guarantor may now have or hereafter acquire against Borrower that arises
hereunder and/or from the performance by any other Guarantor hereunder
including, without limitation, any claim, remedy or right of subrogation,
reimbursement, exoneration, contribution, indemnification, or participation in
any claim, right or remedy of Bank against Borrower or against any security
which Bank now has or hereafter acquires, whether or not such claim, right or
remedy arises in equity, under contract, by statute, under common law or
otherwise.
Guarantor also waives the benefits of any provision of law requiring that Bank
exhaust any right or remedy, or take any action, against Borrower, any
Guarantor, any other person and/or property including but not limited to the
provisions of the Texas Civil Practice and Remedies Code (S)17.001, Texas Rules
of Civil Procedure Rule 31 and the Texas Business and Commerce Code Chapter 34,
as amended, or otherwise.
Bank may at any time and from time to time (whether before or after revocation
or termination of this Guaranty) without notice to Guarantor (except as required
by law), without incurring responsibility to Guarantor, without impairing,
releasing or otherwise affecting the Obligations of Guarantor, in whole or in
part, and without the indorsement or execution by Guarantor of any additional
consent, waiver or guaranty: (a) change the manner, place or terms of payment,
or change or extend the time of or renew, or change any interest rate or alter
any Liability or Obligation or installment thereof, or any security therefor;
(b) loan additional monies or extend additional credit to Borrower, with or
without security, thereby creating new Liabilities or Obligations the payment or
performance of which shall be guaranteed hereunder, and the Guaranty herein made
shall apply to the Liabilities and Obligations as so changed, extended,
surrendered, realized upon or otherwise altered; (c) sell, exchange, release,
surrender, realize upon or otherwise deal with in any manner and in any order
any property at any time pledged or mortgaged to secure the Liabilities or
Obligations and any offset there against; (d) exercise or refrain from
exercising any rights against Borrower or others (including Guarantor) or act or
refrain from acting in any other manner; (e) settle or compromise any Liability
or Obligation or any security therefor and subordinate the payment of all or any
part thereof to the payment of any Liability or Obligation of any other parties
primarily or secondarily liable on any of the Liabilities or Obligations; (f)
release or compromise any Liability of Guarantor hereunder or any Liability or
Obligation of any other parties primarily or secondarily liable on any of the
Liabilities or Obligations; or (g) apply any sums from any sources to any
Liability without regard to any Liabilities remaining unpaid.
5. SUBORDINATION. Upon demand of Bank, Guarantor agrees that it will not
demand, take or receive from Borrower, by set-off or in any other manner,
payment of any debt, now and at any time or times hereafter owing by Borrower to
Guarantor unless and until all the Liabilities and Obligations shall have been
fully paid and performed, and any security interest, liens or encumbrances which
Guarantor now has and from time to time hereafter may have upon any of the
assets of Borrower shall be made subordinate, junior and inferior and postponed
in priority, operation and effect to any security interest of Bank in such
assets.
6. WAIVERS BY BANK. No delay on the part of Bank in exercising any of its
options, powers or rights, and no partial or single exercise thereof, shall
constitute a waiver thereof. No waiver of any of its rights hereunder, and no
modification or amendment of this Guaranty, shall be deemed to be made by Bank
unless the same shall be in writing, duly signed on behalf of Bank; and each
such waiver, if any, shall apply only with respect to the specific instance
involved, and shall in no way impair the rights of Bank or the obligations of
Guarantor to Bank in any other respect at any other time.
7. TERMINATION. This Guaranty shall be binding on each Guarantor until written
notice of revocation signed by such Guarantor or written notice of the death of
such Guarantor shall have been received by Bank, notwithstanding change in name,
location, composition or structure of, or the dissolution, termination or
increase, decrease or change in personnel, owners or partners of Borrower, or
any one or more of Guarantors. No notice of revocation or termination hereof
shall affect in any manner rights arising under this Guaranty with respect to
Liabilities or Obligations that shall have been committed, created, contracted,
assumed or incurred prior to receipt of such written notice pursuant to any
agreement entered into by Bank prior to receipt of such notice. The sole effect
of such notice of revocation or termination hereof shall be to exclude from this
Guaranty, Liabilities or Obligations thereafter arising that are unconnected
with Liabilities or Obligations theretofore arising or transactions entered into
theretofore.
In the event of the death of a Guarantor, the liability of the estate of the
deceased Guarantor shall continue in full force and effect as to (i) the
Liabilities existing at the date of death, and any renewals or extensions
thereof, and (ii) loans or advances made to or for the account of Borrower after
the date of death of the deceased Guarantor pursuant to a commitment made by
Bank to Borrower prior to the date of such death. As to all surviving
Guarantors, this Guaranty shall continue in full force and effect after the
death of a Guarantor, not only as to the Liabilities existing at that time, but
also as to Liabilities thereafter incurred by Borrower to Bank.
8. PARTIAL INVALIDITY AND/OR ENFORCEABILITY OF GUARANTY. The unenforceability
or invalidity of any provision of this Guaranty shall not affect the
enforceability or validity of any other provision herein and the invalidity or
unenforceability of any provision of any Loan Document as it may apply to any
person or circumstance shall not affect the enforceability or validity of such
provision as it may apply to other persons or circumstances.
In the event Bank is required to relinquish or return the payments, the
collateral or the proceeds thereof, in whole or in part, which had been
previously applied to or retained for application against any Liability, by
reason of a proceeding arising under the Bankruptcy Code, or for any other
reason, this Guaranty shall automatically continue to be effective
notwithstanding any previous cancellation or release effected by Bank.
9. CHANGE OF STATUS. Guarantor will not become a party to a merger or
consolidation with any other company, except where all covenants under this
Guaranty are assumed by the surviving entity. Further, Guarantor may not change
its legal structure, unless all covenants under this Guaranty are assumed by the
new or surviving entity. Guarantor further agrees that this Guaranty shall be
binding, legal and enforceable against Guarantor in the event
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Texas [Commercial]
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Borrower changes its name, status or type of entity.
10. FINANCIAL AND OTHER INFORMATION. Guarantor agrees to furnish to Bank any
and all financial information and any other information regarding Guarantor
and/or collateral requested in writing by Bank within ten (10) days of the date
of the request. Guarantor has made an independent investigation of the
financial condition and affairs of Borrower prior to entering into this
Guaranty, and Guarantor will continue to make such investigation; and in
entering into this Guaranty Guarantor has not relied upon any representation of
Bank as to the financial condition, operation or creditworthiness of Borrower.
Guarantor further agrees that Bank shall have no duty or responsibility now or
hereafter to make any investigation or appraisal of Borrower on behalf of
Guarantor or to provide Guarantor with any credit or other information which may
come to its attention now or hereafter.
11. NOTICES. Notice shall be deemed reasonable if mailed postage prepaid at
least five (5) days before the related action to the address of Guarantor or
Bank, at their respective addresses indicated at the beginning of this Guaranty,
or to such other address as any party may designate by written notice to the
other party. Each notice, request and demand shall be deemed given or made, if
sent by mail, upon the earlier of the date of receipt or five (5) days after
deposit in the U.S. Mail, first class postage prepaid, or if sent by any other
means, upon delivery.
12. GUARANTOR DUTIES. Guarantor shall upon notice or demand by Bank promptly
and with due diligence pay all Liabilities and perform and satisfy all
Obligations for the benefit of Bank in the event of (a) the occurrence of any
default under any Loan Documents; (b) the failure of any Borrower or Guarantor
to perform any obligation or pay any liability or indebtedness of any Borrower
or Guarantor to Bank, or to any affiliate of Bank, whether under any Note,
Guaranty, or any other agreement, now or hereafter existing, as and when due
(whether upon demand, at maturity or by acceleration); (c) the failure of any
Borrower or Guarantor to pay or perform any other liability, obligation or
indebtedness of any Borrower or Guarantor to any other party; (d) the death of
any Borrower or Guarantor (if an individual); (e) the resignation or withdrawal
of any partner or a material owner/Guarantor of Borrower, as determined by Bank
in its sole discretion; (f) the commencement of a proceeding against any
Borrower or Guarantor for dissolution or liquidation, the voluntary or
involuntary termination or dissolution of any Borrower or Guarantor or the
merger or consolidation of any Borrower or Guarantor with or into another
entity; (g) the insolvency, or the business failure of, or the appointment of a
custodian, trustee, liquidator or receiver for or of any of the property of, or
the assignment for the benefit of creditors by, or the filing of a petition
under bankruptcy, insolvency or debtor's relief law or the filing of a petition
for any adjustment of indebtedness, composition or extension by or against any
Borrower or Guarantor; (h) the sole determination by Bank that any
representation or warranty to Bank in any Loan Document or otherwise to Bank was
untrue or materially misleading when made; (i) the failure of Guarantor or
Borrower to timely deliver such financial statements including tax returns and
all schedules, or other statements of condition or other information, as Bank
shall request from time to time; (j) the entry of a judgment against Borrower or
Guarantor which Bank deems to be of a material nature in the sole discretion of
Bank; (k) the seizure or forfeiture of any of Borrower or Guarantor's property,
or the issuance of any writ of possession, garnishment or attachment, or any
turnover order; (l) the sole determination by Bank that Guarantor or Borrower
jointly or severally, has suffered a material adverse change in its financial
condition; (m) the determination by Bank that for any reason it is insecure; (n)
any lien or additional security interest being placed upon any collateral which
is security for any Loan Document; or (o) the failure of Borrower's business to
comply with any law or regulation controlling the operation of Borrower's
business.
13. REMEDIES. Upon the failure of Guarantor to fulfill its duty to pay all
Liabilities and perform and satisfy all Obligations as required hereunder, Bank
shall have all of the remedies of a creditor and, to the extent applicable, of a
secured party, under all applicable law, and without limiting the generality of
the foregoing, Bank may, at its option and without notice or demand: (a)
declare any Liability due and payable at once; (b) take possession of any
collateral pledged by Borrower or Guarantor wherever located, and sell, resell,
assign, transfer and deliver all or any part of said collateral of Borrower or
Guarantor at any public or private sale or otherwise dispose of any or all of
the collateral in its then condition, for cash or on credit or for future
delivery, and in connection therewith Bank may impose reasonable conditions upon
any such sale, and Bank, unless prohibited by law the provisions of which cannot
be waived, may purchase all or any part of said collateral to be sold, free from
and discharged of all trusts, claims, rights or redemption and equities of
Borrower or Guarantor whatsoever; Guarantor acknowledges and agrees that the
sale of any collateral through any nationally recognized broker-dealer,
investment banker or any other method common in the securities industry shall be
deemed a commercially reasonable sale under the Uniform Commercial Code or any
other equivalent statute or federal law, and expressly waives notice thereof
except as provided herein; and (c) set-off against any or all liabilities of
Guarantor all money owed by Bank or any of its agents or affiliates in any
capacity to Guarantor whether or not due, and also set-off against all other
Liabilities of Guarantor to Bank all money owed by Bank in any capacity to
Guarantor, and if exercised by Bank, Bank shall be deemed to have exercised such
right of set-off and to have made a charge against any such money immediately
upon the occurrence of such default although made or entered on the books
subsequent thereto.
Bank shall have a properly perfected security interest in all of Guarantor's
funds on deposit with Bank to secure the balance of any Liabilities and/or
Obligations that Guarantor may now or in the future owe Bank. Bank is granted a
contractual right of set-off and will not be liable for dishonoring checks or
withdrawals where the exercise of Bank's contractual right of set-off or
security interest results in insufficient funds in Guarantor's account. As
authorized by law, Guarantor grants to Bank this contractual right of set-off
and security interest in all property of Guarantor now or at anytime hereafter
in the possession of Bank, including but not limited to any joint account,
special account, account by the entireties, tenancy in common, and all dividends
and distributions now or hereafter in the possession or control of Bank.
14. ATTORNEY FEES, COST AND EXPENSES. Guarantor shall pay all costs of
collection and reasonable attorney's fees, including reasonable attorney's fees
in connection with any suit, mediation or arbitration proceeding, out of Court
payment agreement, trial, appeal, bankruptcy proceedings or otherwise, incurred
or paid by Bank in enforcing the payment of any Liability or defending this
agreement.
15. COLLATERAL. Bank at all times and from time to time shall have the right
to require Guarantor to deliver to Bank collateral satisfactory to Bank to
secure Guarantor's undertakings hereunder and/or the Liabilities of Guarantor
hereunder.
NationsBank Continuing and Unconditional Guaranty
Texas [Commercial]
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<PAGE>
16. PRESERVATION OF PROPERTY. Bank shall not be bound to take any steps
necessary to preserve any rights in any property pledged as collateral to Bank
to secure Borrower and/or Guarantor's Liabilities and Obligations as against
prior parties who may be liable in connection therewith, and Borrower and
Guarantor hereby agree to take any such steps. Bank, nevertheless, at any time,
may (a) take any action it deems appropriate for the care or preservation of
such property or of any rights of Borrower and/or Guarantor or Bank therein; (b)
demand, sue for, collect or receive any money or property at any time due,
payable or receivable on account of or in exchange for any property pledged as
collateral, to Bank to secure Borrower and/or Guarantor's Liabilities to Bank;
(c) compromise and settle with any person liable on such property; or (d) extend
the time of payment or otherwise change the terms of the Loan Documents as to
any party liable on the Loan Documents, all without notice to, without incurring
responsibility to, and without affecting any of the Obligations or Liabilities
of Guarantor.
17. ARBITRATION. ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE PARTIES HERETO
INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO THIS
INSTRUMENT, AGREEMENT OR DOCUMENT OR ANY RELATED INSTRUMENTS, AGREEMENTS OR
DOCUMENTS, INCLUDING ANY CLAIM BASED ON OR ARISING FROM AN ALLEGED TORT, SHALL
BE DETERMINED BY BINDING ARBITRATION IN ACCORDANCE WITH THE FEDERAL ARBITRATION
ACT (OR IF NOT APPLICABLE, THE APPLICABLE STATE LAW), THE RULES OF PRACTICE AND
PROCEDURE FOR THE ARBITRATION OF COMMERCIAL DISPUTES OF J.A.M.S./ENDISPUTE OR
ANY SUCCESSOR THEREOF ("J.A.M.S."), AND THE "SPECIAL RULES" SET FORTH BELOW. IN
THE EVENT OF ANY INCONSISTENCY, THE SPECIAL RULES SHALL CONTROL. JUDGMENT UPON
ANY ARBITRATION AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. ANY
PARTY TO THIS INSTRUMENT, AGREEMENT OR DOCUMENT MAY BRING AN ACTION, INCLUDING A
SUMMARY OR EXPEDITED PROCEEDING, TO COMPEL ARBITRATION OF ANY CONTROVERSY OR
CLAIM TO WHICH THIS AGREEMENT APPLIES IN ANY COURT HAVING JURISDICTION OVER SUCH
ACTION.
A. SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED IN THE COUNTY OF ANY
-------------
BORROWER'S DOMICILE, OR IF THERE IS REAL OR PERSONAL PROPERTY COLLATERAL, IN THE
COUNTY WHERE SUCH REAL OR PERSONAL PROPERTY IS LOCATED AT THE TIME OF THE
EXECUTION OF THIS INSTRUMENT, AGREEMENT OR DOCUMENT AND ADMINISTERED BY J.A.M.S.
WHO WILL APPOINT AN ARBITRATOR; IF J.A.M.S. IS UNABLE OR LEGALLY PRECLUDED FROM
ADMINISTERING THE ARBITRATION, THEN THE AMERICAN ARBITRATION ASSOCIATION WILL
SERVE. ALL ARBITRATION HEARINGS WILL BE COMMENCED WITHIN 90 DAYS OF THE DEMAND
FOR ARBITRATION; FURTHER, THE ARBITRATOR SHALL ONLY, UPON A SHOWING OF CAUSE, BE
PERMITTED TO EXTEND THE COMMENCEMENT OF SUCH HEARING FOR UP TO AN ADDITIONAL 60
DAYS.
B. RESERVATION OF RIGHTS. NOTHING IN THIS ARBITRATION PROVISION SHALL BE
---------------------
DEEMED TO (I) LIMIT THE APPLICABILITY OF ANY OTHERWISE APPLICABLE STATUTES OF
LIMITATION OR REPOSE AND ANY WAIVERS CONTAINED IN THIS INSTRUMENT, AGREEMENT OR
DOCUMENT; OR (II) BE A WAIVER BY BANK OF THE PROTECTION AFFORDED TO IT BY 12
U.S.C. SEC. 91 OR ANY SUBSTANTIALLY EQUIVALENT STATE LAW; OR (III) LIMIT THE
RIGHT OF BANK HERETO (A) TO EXERCISE SELF HELP REMEDIES SUCH AS (BUT NOT LIMITED
TO) SETOFF, OR (B) TO FORECLOSE AGAINST ANY REAL OR PERSONAL PROPERTY
COLLATERAL, OR (C) TO OBTAIN FROM A COURT PROVISIONAL OR ANCILLARY REMEDIES SUCH
AS (BUT NOT LIMITED TO) INJUNCTIVE RELIEF, WRIT OF POSSESSION OR THE APPOINTMENT
OF A RECEIVER. BANK MAY EXERCISE SUCH SELF HELP RIGHTS, FORECLOSE UPON SUCH
PROPERTY, OR OBTAIN SUCH PROVISIONAL OR ANCILLARY REMEDIES BEFORE, DURING OR
AFTER THE PENDENCY OF ANY ARBITRATION PROCEEDING BROUGHT PURSUANT TO THIS
INSTRUMENT, AGREEMENT OR DOCUMENT. NEITHER THIS EXERCISE OF SELF HELP REMEDIES
NOR THE INSTITUTION OR MAINTENANCE OF AN ACTION FOR FORECLOSURE OR PROVISIONAL
OR ANCILLARY REMEDIES SHALL CONSTITUTE A WAIVER OF THE RIGHT OF ANY PARTY,
INCLUDING THE CLAIMANT IN ANY SUCH ACTION, TO ARBITRATE THE MERITS OF THE
CONTROVERSY OR CLAIM OCCASIONING RESORT TO SUCH REMEDIES.
18. CONTROLLING DOCUMENT. To the extent that this Continuing and Unconditional
Guaranty conflicts with or is in any way incompatible with any other Loan
Document concerning this Obligation, any promissory note shall control over any
other document, and if such promissory note does not address an issue, then each
other document shall control to the extent that it deals most specifically with
an issue.
19. RATIFICATION OF LOAN AGREEMENT. Guarantor represents to Lender that
Guarantor has reviewed and approved the Loan Agreement being entered into by
Lender and Debtor with respect to the Indebtedness guaranteed hereby, and
Guarantor expressly ratifies the terms of that Loan Agreement.
20. NOTICE OF FINAL AGREEMENT.
THIS WRITTEN CONTINUING AND UNCONDITIONAL GUARANTY REPRESENTS THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
IN WITNESS WHEREOF, the undersigned has caused this Guaranty to be executed on
this 7th day of August, 1998.
NationsBank, N.A. GUARANTOR:
By:________________________ POLYPHASE CORPORATION
Stacy Irwin, Vice President
By__________________________________
Name________________________________
Title_______________________________
NationsBank Continuing and Unconditional Guaranty
Texas [Commercial]
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<PAGE>
STATE OF TEXAS
COUNTY OF DALLAS
This instrument was acknowledged before me on August 7, 1998, by
_______________________________, _______________________________ ,
______________________________ of Polyphase Corporation, a Nevada corporation,
on behalf of said corporation.
_______________________________________
(Seal) Notary Public in and for the
State of Texas
Printed Name___________________________
My Commission Expires__________________
<PAGE>
Exhibit 10.89
Date: August 7, 1998
LOAN AGREEMENT
This Loan Agreement (the "Agreement") dated as of August 7, 1998, by and
between NationsBank, N.A., a national banking association ("Bank") and the
Borrower described below.
In consideration of the Loan or Loans described below and the mutual
covenants and agreements contained herein, and intending to be legally bound
hereby, Bank and Borrower agree as follows:
1. DEFINITIONS AND REFERENCE TERMS. In addition to any other terms
-------------------------------
defined herein, the following terms shall have the meaning set forth with
respect thereto:
A. BORROWER: Texas Timberjack, Inc., a Texas corporation
B. BORROWER'S ADDRESS:
Route 15, Box 9475
Lufkin, Texas 75901
C. CURRENT ASSETS. Current Assets means the aggregate amount of all
of Borrower's assets which would, in accordance with GAAP, properly be defined
as current assets.
D. CURRENT LIABILITIES. Current Liabilities means the aggregate
amount of all current liabilities as determined in accordance with GAAP, but in
any event shall include all liabilities except those having a maturity date
which is more than one year from the date as of which such computation is being
made.
E. HAZARDOUS MATERIALS. Hazardous Materials include all materials
defined as hazardous materials or substances under any local, state or federal
environmental laws, rules or regulations, and petroleum, petroleum products,
oil and asbestos.
F. LOAN. Any loan described in Section 2 hereof.
G. LOAN DOCUMENTS. Loan Documents means this Loan Agreement and any
and all promissory notes executed by Borrower in favor of Bank and all other
documents, instruments, guarantees, certificates and agreements executed and/or
delivered by Borrower, any guarantor or third party in connection with any
Loan.
H. AFFILIATE. With respect to Polyphase Corporation, "affiliate"
shall include any of its subsidiaries (other than Borrower), any person or
corporation owning 5% or more of any class of its stock, any corporation or
other legal entity controlled by Polyphase Corporation or under common control
with Polyphase Corporation, and any officer or director of Polyphase
Corporation, Borrower, or any affiliate of Polyphase.
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<PAGE>
I. ACCOUNTING TERMS. All accounting terms not specifically defined
or specified herein shall have the meanings generally attributed to such terms
under generally accepted accounting principles ("GAAP"), as in effect from time
to time, consistently applied, with respect to the financial statements
referenced in Section 3.H. hereof.
2. LOANS.
-----
A. LOAN. Bank hereby agrees to make (or has made) one or more
loans to Borrower in the aggregate principal face amount of $12,000,000.00.
The obligation to repay the loans is evidenced by a promissory note or notes
dated July __, 1998 (the promissory note or notes together with any and all
renewals, extensions or rearrangements thereof being hereafter collectively
referred to as the "Note") having a maturity date, repayment terms and interest
rate as set forth in the Note.
i . [X] REVOLVING CREDIT FEATURE. The Loan provides for a
revolving line of credit (the "Line") under which Borrower may from time to
time, borrow, repay and re-borrow funds.
ii. OMITTED]
iii. BORROWING BASE. The Line is subject to the Borrowing Base
Agreement attached hereto as Exhibit "A" and by reference made a part hereof.
3. REPRESENTATIONS AND WARRANTIES. Borrower hereby represents and
------------------------------
warrants to Bank as follows:
A. GOOD STANDING. Borrower is a corporation duly organized, validly
existing and in good standing under the laws of Texas and has the power and
authority to own its property and to carry on its business in each jurisdiction
in which Borrower does business.
B. AUTHORITY AND COMPLIANCE. Borrower has full power and authority
to execute and deliver the Loan Documents and to incur and perform the
obligations provided for therein, all of which have been duly authorized by all
proper and necessary action of the appropriate governing body of Borrower. No
consent or approval of any public authority or other third party is required as
a condition to the validity of any Loan Document, and Borrower is in compliance
with all laws and regulatory requirements to which it is subject.
C. BINDING AGREEMENT. This Agreement and the other Loan Documents
executed by Borrower constitute valid and legally binding obligations of
Borrower, enforceable in accordance with their terms.
D. LITIGATION. There is no proceeding involving Borrower pending
or, to the knowledge of Borrower, threatened before any court or governmental
authority, agency or arbitration authority, except as disclosed to Bank in
writing and acknowledged by Bank prior to the date of this
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<PAGE>
Agreement.
E. NO CONFLICTING AGREEMENTS. There is no charter, bylaw, stock
provision, partnership agreement or other document pertaining to the
organization, power or authority of Borrower and no provision of any existing
agreement, mortgage, indenture or contract binding on Borrower or affecting its
property, which would conflict with or in any way prevent the execution,
delivery or carrying out of the terms of this Agreement and the other Loan
Documents.
F. OWNERSHIP OF ASSETS. Borrower has good title to its assets, and
its assets are free and clear of liens, except those granted to Bank and as
disclosed to Bank in writing prior to the date of this Agreement.
G. TAXES. All taxes and assessments due and payable by Borrower
have been paid or are being contested in good faith by appropriate proceedings
and the Borrower has filed all tax returns which it is required to file.
H. FINANCIAL STATEMENTS. The financial statements of Borrower
heretofore delivered to Bank have been prepared in accordance with GAAP applied
on a consistent basis throughout the period involved and fairly present
Borrower's financial condition as of the date or dates thereof, and there has
been no material adverse change in Borrower's financial condition or operations
since September 30, 1997. All factual information furnished by Borrower to
Bank in connection with this Agreement and the other Loan Documents is and will
be accurate and complete on the date as of which such information is delivered
to Bank and is not and will not be incomplete by the omission of any material
fact necessary to make such information not misleading.
I. PLACE OF BUSINESS. Borrower's chief executive office is located
at
Route 15, Box 9475
Lufkin, Texas 75901
J. ENVIRONMENTAL The conduct of Borrower's business operations
and the condition of Borrower's property does not and will not violate any
federal laws, rules or ordinances for environmental protection, regulations of
the Environmental Protection Agency, any applicable local or state law, rule,
regulation or rule of common law or any judicial interpretation thereof relating
primarily to the environment or Hazardous Materials.
K. CONTINUATION OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties made under this Agreement shall be deemed to be
made at and as of the date hereof and at and as of the date of any advance under
any Loan.
4. AFFIRMATIVE COVENANTS. Until full payment and performance of all
---------------------
obligations of Borrower under the Loan Documents, Borrower will, unless Bank
consents otherwise in writing (and without limiting any requirement of any other
Loan Document):
A. FINANCIAL CONDITION. Maintain Borrower's financial condition as
follows,
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<PAGE>
determined in accordance with GAAP applied on a consistent basis throughout the
period involved except to the extent modified by the following definitions:
i. Maintain a ratio of "Funded Debt" to "EBITDA" of not less than 2.5
for the 12-month period consisting of the Borrower's previous four fiscal
quarters. "Funded Debt" shall include all of the Borrower's funded bank
debt (not including its obligations to vendors under floor plans).
"EBITDA" means earnings before interest, taxes, depreciation, and
amortization.
B. FINANCIAL STATEMENTS AND OTHER INFORMATION. Maintain a system of
accounting satisfactory to Bank and in accordance with GAAP applied on a
consistent basis throughout the period involved, permit Bank's officers or
authorized representatives to visit and inspect Borrower's books of account and
other records at such reasonable times and as often as Bank may desire, and pay
the reasonable fees and disbursements of any accountants or other agents of Bank
selected by Bank for the foregoing purposes. Unless written notice of another
location is given to Bank, Borrower's books and records will be located at
Borrower's chief executive office set forth above. All financial statements
called for below shall be prepared in form and content acceptable to Bank and
by independent certified public accountants acceptable to Bank.
In addition, Borrower will:
i. Furnish to Bank audited financial statements of Borrower
(including a balance sheet and profit and loss statement) for each fiscal year
of Borrower, within 120 days after the close of each such fiscal year.
ii. Furnish to Bank financial statements (including a balance sheet
and profit and loss statement) of Borrower for each quarter of each fiscal year
of Borrower, within 45 days after the close of each such period.
iii. Furnish to Bank audited financial statements of Polyphase
Corporation for each fiscal year of Polyphase Corporation, within 120 days after
the close of each such fiscal year.
iv. Furnish to Bank copies of all 10-Ks, 10-Qs, and all other
material public filings made by Polyphase Corporation with the Securities and
Exchange Commission and with any other state or federal agency within 30 days
after filing with such agency.
v. [Omitted].
vi. Furnish to Bank a compliance certificate for (and executed by an
authorized representative of) Borrower concurrently with and dated as of the
date of delivery of each of the financial statements as required in paragraphs i
and ii above, containing (a) a certification that the financial statements of
even date are true and correct and that the Borrower is not in default under the
terms of this Agreement, and (b) computations and conclusions, in such detail as
Bank may request, with respect to compliance with this Agreement, and the other
Loan Documents, including computations of all quantitative covenants, including
the ration required by Paragraph 4.A.i. of this
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<PAGE>
Agreement.
vii. Furnish to Bank promptly such additional information, reports and
statements respecting the business operations and financial condition of
Borrower and Polyphase Corporation, respectively, from time to time, as Bank may
reasonably request including but not limited to (with respect to Borrower)
monthly statements of receivables aging, listings of receivables and sales
contracts, listing of inventory, and a borrowing base certificate, each of which
shall be delivered to the Bank within 45 days of the end of the month.
C. INSURANCE. Maintain insurance with responsible insurance
companies on such of its properties, in such amounts and against such risks as
is customarily maintained by similar businesses operating in the same vicinity,
specifically to include fire and extended coverage insurance covering all
assets, workers compensation insurance and liability insurance, all to be with
such companies and in such amounts as are satisfactory to Bank and providing
for at least 30 days prior notice to Bank of any cancellation thereof.
Satisfactory evidence of such insurance will be supplied to Bank prior to
funding under the Loan(s) and 30 days prior to each policy renewal.
D. EXISTENCE AND COMPLIANCE. Maintain its existence, good standing
and qualification to do business, where required and comply with all laws,
regulations and governmental requirements including, without limitation,
environmental laws applicable to it or to any of its property, business
operations and transactions.
E. ADVERSE CONDITIONS OR EVENTS. Promptly advise Bank in writing of
(i) any condition, event or act which comes to its attention that would or might
materially adversely affect Borrower's financial condition or operations or
Bank's rights under the Loan Documents, (ii) any litigation filed by or against
Borrower not fully covered by insurance, (iii) any event that has occurred that
would constitute an event of default under any Loan Documents and (iv) any
uninsured or partially uninsured loss through fire, theft, liability or property
damage in excess of an aggregate of $50,000.00.
F. TAXES AND OTHER OBLIGATIONS. Pay all of its taxes, assessments
and other obligations, including, but not limited to taxes, costs or other
expenses arising out of this transaction, as the same become due and payable,
except to the extent the same are being contested in good faith by appropriate
proceedings in a diligent manner.
G. MAINTENANCE. Maintain all of its tangible property in good
condition and repair and make all necessary replacements thereof, and preserve
and maintain all licenses, trademarks, privileges, permits, franchises,
certificates and the like necessary for the operation of its business.
H. ENVIRONMENTAL . Immediately advise Bank in writing of (i) any
and all enforcement, cleanup, remedial, removal, or other governmental or
regulatory actions instituted, completed or threatened pursuant to any
applicable federal, state, or local laws, ordinances or regulations relating to
any Hazardous Materials affecting Borrower's business operations; and (ii) all
claims made or threatened by any third party against Borrower relating to
damages, contribution,
-5-
<PAGE>
cost recovery, compensation, loss or injury resulting from any Hazardous
Materials. Borrower shall immediately notify Bank of any remedial action taken
by Borrower with respect to Borrower's business operations. Borrower will not
use or permit any other party to use any Hazardous Materials At any of
Borrower's places of business or at any other property owned by Borrower except
such materials as are incidental to Borrower's normal course of business,
maintenance and repairs and which are handled in compliance with all applicable
environmental laws. Borrower agrees to permit Bank, its agents, contractors and
employees to enter and inspect any of Borrower's places of business or any other
property of Borrower at any reasonable times upon three (3) days prior notice
for the purposes of conducting an environmental investigation and audit
(including taking physical samples) to insure that Borrower is complying with
this covenant and Borrower shall reimburse Bank on demand for the costs of any
such environmental investigation and audit. Borrower shall provide Bank, its
agents, contractors, employees and representatives with access to and copies of
any and all data and documents relating to or dealing with any Hazardous
Materials used, generated, manufactured, stored or disposed of by Borrower's
business operations within five (5) days of the request therefore.
I. YEAR 2000 COMPLIANCE. Will promptly notify the Bank in the event
the Borrower discovers or determines that any computer application (including
those of its suppliers and vendors) that is material to its or any of its
affiliates' business and operations will not be Year 2000 complaint on a timely
basis, except to the extent that such failure could not reasonably be expected
to have a Material Adverse Effect.
5. NEGATIVE COVENANTS. Until full payment and performance of all
------------------
obligations of Borrower under the Loan Documents, Borrower will not, without the
prior written consent of Bank (and without limiting any requirement of any other
Loan Documents):
A. CAPITAL EXPENDITURES. Make capital expenditures during each
fiscal year (including capitalized leases) exceeding $500,000. in the aggregate.
B. [OMITTED]
C. [OMITTED]
D. TRANSFER OF ASSETS OR CONTROL. Sell, lease, assign or otherwise
dispose of or transfer any assets, except in the normal course of its business,
or enter into any merger or consolidation, or transfer control or ownership of
the Borrower or form or acquire any subsidiary. Provided, that the transfer of
100% ownership of Borrower to Harold Estes would not require the prior approval
of the Bank.
E. LIENS. Except as permitted in this Paragraph 5.E., grant, suffer
or permit any contractual or noncontractual lien on or security interest in its
assets, except in favor of Bank, or fail to promptly pay when due all lawful
claims, whether for labor, materials or otherwise. Provided, that Borrower may
grant purchase money liens against specific inventory under floor plans with
vendors and arrangements previously disclosed in writing to Bank.
-6-
<PAGE>
F. EXTENSIONS OF CREDIT. Except as provided in this paragraph, make
or permit any subsidiary to make, any loan or advance to any person or entity,
or purchase or otherwise acquire, or permit any subsidiary to purchase or
otherwise acquire, any capital stock, assets, obligations, or other securities
of, make any capital contribution to, or otherwise invest in or acquire any
interest in any entity, or participate as a partner or joint venturer with any
person or entity, except for the purchase of direct obligations of the United
States or any agency thereof with maturities of less than one year. Borrower
may advance not more than an aggregate amount of $4,000,000.00 outside the
ordinary course of business (including advances to Wood Forest Products, L.L.C.,
Southern Forest Products, L.L.C. and all other ventures and equity investments).
In no event shall Borrower advance any funds to Polyphase Corporation or any of
its affiliates or to any officer or director of Borrower. The $4,000,000.00
limitation in this paragraph shall not be aggregated with the $10,000,000.00
limitation in the next paragraph.
G. BORROWINGS; CONTINGENT LIABILITIES. Create, incur, assume or
become liable in any manner for any indebtedness (for borrowed money, deferred
payment for the purchase of assets, lease payments, as surety or guarantor for
the debt for another, or otherwise) other than to Bank, except for normal trade
debts incurred in the ordinary course of Borrower's business.
Borrower shall incur no contingent liabilities except in the ordinary course of
its business under conditional sales contracts to Borrower's customers and
guarantees of direct loans to Borrower's customers for the purchase of equipment
from Borrower. Borrower's contingent liabilities in the ordinary course of
business shall not exceed $10,000,000.00 in the aggregate.
Borrower shall not in any manner become liable for any indebtedness (for
borrowed money, deferred payment for the purchase of assets, lease payments, as
surety or guarantor for the debt for another, or otherwise) of Polyphase
Corporation or any of its affiliates.
H. DIVIDENDS AND DISTRIBUTIONS. Make any distribution on any shares
of any class of its capital stock or apply any of its property or assets to the
purchase, redemption or other retirement of any shares of any class of capital
stock of Borrower exceeding an amount equal to that portion of the federal
income tax liability actually owing by Polyphase Corporation with respect to the
income of Borrower -- less any amounts owed by Polyphase Corporation to Borrower
- -- or in any way amend its capital structure. Provided, that if Bank calls
upon Polyphase Corporation to honor its guaranty of the Loan, it shall not be a
default under this Agreement if Borrower distributes money to Polyphase
Corporation, but only if all such distributions are paid by Polyphase
Corporation to Bank on account of Polyphase Corporation's guaranty of the Loan.
I. CHARACTER OF BUSINESS. Change the general character of business
as conducted at the date hereof, or engage in any type of business not
reasonably related to its business as presently conducted.
J. MANAGEMENT CHANGE. Make any substantial change in its present
executive or management personnel, including but not limited to any change in
the duties of Harold Estes.
-7-
<PAGE>
6. DEFAULT. Borrower shall be in default under this Agreement and under
-------
each of the other Loan Documents if:
(i) Borrower shall default in the payment of any amounts due and owing
under the Loan, if not cured within five 5 days after notice by
Bank; or
(ii) should Borrower fail to timely and properly observe, keep or perform
any term, covenant, agreement or condition in this Agreement or in
any Loan Document or in any other loan agreement, promissory note,
security agreement, deed of trust, deed to secure debt, mortgage,
assignment or other contract securing or evidencing payment of any
indebtedness of Borrower to Bank or any affiliate or subsidiary of
NationsBank Corporation, which default is not cured within 30 days
of notice by Bank; or
(iii) should Polyphase Corporation or any of its subsidiaries be the
subject any case or proceeding under Title 11, United States Code.
If Wood Forest Products, L.L.C., Southern Forest Products, L.L.C., or EBB
Farms should be in default under the terms of any loan by Bank to them, or to
any one or more of them, that shall not by itself be a default under the terms
of this Agreement. But such a default by Wood Forest Products, L.L.C., Southern
Forest Products, L.L.C., or EBB Farms shall excuse Bank from any obligation to
make advances under its line of credit to Borrower; and Borrower shall be in
default under this Agreement if Borrower fails to honor any guaranty in favor of
Bank with respect to Wood Forest Products, L.L.C. or Southern Forest Products,
L.L.C., or any other person or entity. Provided, that a default by EBB Farms on
a loan to Bank shall only excuse Bank from its obligation to make advances under
its line of credit to Borrower if the loan is one cross-collateralized with
loans from Bank to Wood Forest Products, L.L.C. or Southern Forest Products,
L.L.C.
7. REMEDIES UPON DEFAULT. If an event of default shall occur, Bank shall
---------------------
have all rights, powers and remedies available under each of the Loan Documents
as well as all rights and remedies available at law or in equity.
8. NOTICES. All notices, requests or demands which any party is required
-------
or may desire to give to any other party under any provision of this Agreement
must be in writing delivered to the other party at the following address:
Borrower: Texas Timberjack, Inc. Bank: NationsBank, N.A.
Route 15, Box 9475 415 South First Street
Lufkin, Texas 75901 P. O. Drawer 10
Attn: Mike Boatman Lufkin, Texas 75901
Fax. No. (409) 639-3673 Attn: Senior Commercial Loan
Officer
Fax No. (409) 639-8215
or to such other address as any party may designate by written notice to the
other party. Each such
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<PAGE>
notice, request and demand shall be deemed given or made as follows:
A. If sent by mail, upon the earlier of the date of receipt or five
(5) days after deposit in the U.S. Mail, first class postage prepaid;
B. If sent by any other means , upon delivery.
9. COSTS, EXPENSES AND ATTORNEYS' FEES. Borrower shall pay to Bank
-----------------------------------
immediately upon demand the full amount of all costs and expenses, including
reasonable attorneys' fees (to include outside counsel fees and all allocated
costs of Bank's in-house counsel if permitted by applicable law), incurred by
Bank in connection with (a) negotiation and preparation of this Agreement and
each of the Loan Documents, and (b) . all other costs and attorneys' fees
incurred by Bank for which Borrower is obligated to reimburse Bank in accordance
with the Terms of the Loan Documents.
10. MISCELLANEOUS. Borrower and Bank further covenant and agree as
-------------
follows, without limiting any requirement of any other Loan Document:
A. CUMULATIVE RIGHTS AND NO WAIVER. Each and every right granted to
Bank under any Loan Document, or allowed it by law or equity shall be cumulative
of each other and may be exercised in addition to any and all other rights of
Bank, and no delay in exercising any right shall operate as a waiver thereof,
nor shall any single or partial exercise by Bank of any right preclude any other
or future exercise thereof or the exercise of any other right. Borrower
expressly waives any presentment, demand, protest or other notice of any kind,
including but not limited to notice of intent to accelerate and notice of
acceleration. No notice to or demand on Borrower in any case shall, of itself,
entitle Borrower to any other or future notice or demand in similar or other
circumstances.
B. APPLICABLE LAW. This Loan Agreement and the rights and
obligations of the parties hereunder shall be deemed to have been made in the
State of Texas at Bank's address indicated at the beginning of this Loan
Agreement and shall be governed by, and construed in accordance with, the laws
of the State of Texas, and is performable in the City and County of Texas at the
Bank's address indicated at the beginning of this Loan Agreement.
C. AMENDMENT. No modification, consent, amendment or waiver of any
provision of this Loan Agreement, nor consent to any departure by Borrower
therefrom, shall be effective unless the same shall be in writing and signed by
an officer of Bank, and then shall be effective only in the specified instance
and for the purpose for which given. This Loan Agreement is binding upon
Borrower, its successors and assigns, and inures to the benefit of Bank, its
successors and assigns; however, no assignment or other transfer of Borrower's
rights or obligations hereunder shall be made or be effective without Bank's
prior written consent, nor shall it relieve Borrower of any obligations
hereunder. There is no third party beneficiary of this Loan Agreement.
D. DOCUMENTS. All documents, certificates and other items required
under this Loan Agreement to be executed and/or delivered to Bank shall be in
form and content satisfactory to Bank and its counsel.
-9-
<PAGE>
E. PARTIAL INVALIDITY. The unenforceability or invalidity of any
provision of this Loan Agreement shall not affect the enforceability or validity
of any other provision herein and the invalidity or unenforceability of any
provision of any Loan Document to any person or circumstance shall not affect
the enforceability or validity of such provision as it may apply to other
persons or circumstances.
F. INDEMNIFICATION. Notwithstanding anything to the contrary
contained in Section 10(G), Borrower shall indemnify, defend and hold Bank and
its successors and assigns harmless from and against any and all claims,
demands, suits, losses, damages, assessments, fines, penalties, costs or other
expenses (including reasonable attorneys' fees and court costs) arising from or
in any way related to any of the transactions contemplated hereby, including but
not limited to actual or threatened damage to the environment, agency costs of
investigation, personal injury or death, or property damage, due to a release or
alleged release of Hazardous Materials, arising from Borrower's business
operations, any other property owned by Borrower or in the surface or ground
water arising from Borrower's business operations, or gaseous emissions arising
from Borrower's business operations or any other condition existing or arising
from Borrower's business operations resulting from the use or existence of
Hazardous Materials, whether such claim proves to be true or false. Borrower
further agrees that its indemnity obligations shall include, but are not limited
to, liability for damages resulting from the personal injury or death of an
employee of the Borrower, regardless of whether the Borrower has paid the
employee under the workmen' s compensation laws of any state or other similar
federal or state legislation for the protection of employees. The term
"property damage" as used in this paragraph includes, but is not limited to,
damage to any real or personal property of the Borrower, the Bank, and of any
third parties. The Borrower's obligations under this paragraph shall survive
the repayment of the Loan and any deed in lieu of foreclosure or foreclosure of
any Deed to Secure Debt, Deed of Trust, Security Agreement or Mortgage securing
the Loan.
G. SURVIVABILITY. All covenants, agreements, representations and
warranties made herein or in the other Loan Documents shall survive the making
of the Loan and shall continue in full force and effect so long as the Loan is
outstanding or the obligation of the Bank to make any advances under the Line
shall not have expired.
H. CONTROLLING DOCUMENT. To the extent that this Agreement
conflicts with or is in any way incompatible with any other document related
specifically to the loan evidenced by this Agreement, this Agreement shall
control over any other such document, and if this Agreement does not address an
issue, then each other such document shall control to the extent that it deals
most specifically with an issue.
11. [OMITTED]
12. ARBITRATION. ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE PARTIES
-----------
HERETO INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO THIS
INSTRUMENT, AGREEMENT OR DOCUMENT OR ANY RELATED INSTRUMENTS, AGREEMENTS OR
DOCUMENTS, INCLUDING ANY CLAIM BASED ON OR ARISING FROM AN ALLEGED TORT, SHALL
BE DETERMINED BY
-10-
<PAGE>
BINDING ARBITRATION IN ACCORDANCE WITH THE FEDERAL ARBITRATION ACT (OR IF NOT
APPLICABLE, THE APPLICABLE STATE LAW), THE RULES OF PRACTICE AND PROCEDURE FOR
THE ARBITRATION OF COMMERCIAL DISPUTES OF J.A.M.S./ENDISPUTE OR ANY SUCCESSOR
THEREOF ("J.A.M.S."), AND THE "SPECIAL RULES" SET FORTH BELOW. IN THE EVENT OF
ANY INCONSISTENCY, THE SPECIAL RULES SHALL CONTROL. JUDGMENT UPON ANY
ARBITRATION AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. ANY PARTY TO
THIS INSTRUMENT, AGREEMENT OR DOCUMENT MAY BRING AN ACTION, INCLUDING A SUMMARY
OR EXPEDITED PROCEEDING, TO COMPEL ARBITRATION OF ANY CONTROVERSY OR CLAIM TO
WHICH THIS AGREEMENT APPLIES IN ANY COURT HAVING JURISDICTION OVER SUCH ACTION.
A. SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED IN THE COUNTY
-------------
OF ANY BORROWER'S DOMICILE AT THE TIME OF THE EXECUTION OF THIS INSTRUMENT,
AGREEMENT OR DOCUMENT AND ADMINISTERED BY J.A.M.S. WHO WILL APPOINT AN
ARBITRATOR; IF J.A.M.S. IS UNABLE OR LEGALLY PRECLUDED FROM ADMINISTERING THE
ARBITRATION, THEN THE AMERICAN ARBITRATION ASSOCIATION WILL SERVE. ALL
ARBITRATION HEARINGS WILL BE COMMENCED WITHIN 90 DAYS OF THE DEMAND FOR
ARBITRATION; FURTHER, THE ARBITRATOR SHALL ONLY, UPON A SHOWING OF CAUSE, BE
PERMITTED TO EXTEND THE COMMENCEMENT OF SUCH HEARING FOR UP TO AN ADDITIONAL 60
DAYS.
B. RESERVATION OF RIGHTS. NOTHING IN THIS ARBITRATION PROVISION
---------------------
SHALL BE DEEMED TO (I) LIMIT THE APPLICABILITY OF ANY OTHERWISE APPLICABLE
STATUTES OF LIMITATION OR REPOSE AND ANY WAIVERS CONTAINED IN THIS INSTRUMENT,
AGREEMENT OR DOCUMENT; OR (II) BE A WAIVER BY BANK OF THE PROTECTION AFFORDED TO
IT BY 12 U.S.C. SEC. 91 OR ANY SUBSTANTIALLY EQUIVALENT STATE LAW; OR (III)
LIMIT THE RIGHT OF BANK HERETO (A) TO EXERCISE SELF HELP REMEDIES SUCH AS (BUT
NOT LIMITED TO) SETOFF, OR (B) TO FORECLOSE AGAINST ANY REAL OR PERSONAL
PROPERTY COLLATERAL, OR (C) TO OBTAIN FROM A COURT PROVISIONAL OR ANCILLARY
REMEDIES SUCH AS (BUT NOT LIMITED TO) INJUNCTIVE RELIEF, WRIT OF POSSESSION OR
THE APPOINTMENT OF A RECEIVER. BANK MAY EXERCISE SUCH SELF HELP RIGHTS,
FORECLOSE UPON SUCH PROPERTY, OR OBTAIN SUCH PROVISIONAL OR ANCILLARY REMEDIES
BEFORE, DURING OR AFTER THE PENDENCY OF ANY ARBITRATION PROCEEDING BROUGHT
PURSUANT TO THIS INSTRUMENT, AGREEMENT OR DOCUMENT. BORROWER MAY LIKEWISE
ATTEMPT TO PREVENT ANY SUCH ACTION BY BANK. NEITHER THIS EXERCISE OF SELF HELP
REMEDIES NOR THE INSTITUTION OR MAINTENANCE OF AN ACTION FOR FORECLOSURE OR
PROVISIONAL OR ANCILLARY REMEDIES SHALL CONSTITUTE A WAIVER OF THE RIGHT OF ANY
PARTY, INCLUDING THE CLAIMANT IN ANY SUCH ACTION, TO ARBITRATE THE MERITS OF THE
CONTROVERSY OR CLAIM OCCASIONING RESORT TO SUCH REMEDIES.
13. NOTICE OF FINAL AGREEMENT. THIS WRITTEN LOAN AGREEMENT AND THE OTHER LOAN
------------------------- ----------------------------------------------
DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
- --------------------------------------------------------------------------
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS
- --------------------------------------------------------------------------------
OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
- ------------------------------------------------------------------------------
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly
-11-
<PAGE>
executed by their duly authorized representatives as of the date first above
written.
BORROWER: TEXAS TIMBERJACK, INC. BANK: NATIONSBANK, N.A.
By: ____________________________ By:______________________________
Name: Mike Boatman Name: Stacy Irwin
Title: Secretary Title: Vice President
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<PAGE>
EXHIBIT 10.90
PROMISSORY NOTE
Date August 7, 1998 Amount $4,000,000.00 Maturity Date August 7, 2001
================================================================================
Bank: Borrower:
NationsBank, N.A.
Banking Center:
415 South First Street Texas Timberjack, Inc.
P. O. Drawer 10 Route 15, Box 9475
Lufkin, Texas 75902 Lufkin, Texas 75901
Angelina County Angelina County
================================================================================
FOR VALUE RECEIVED, the undersigned Borrower unconditionally (and jointly and
severally, if more than one) promises to pay to the order of Bank, its
successors and assigns, without setoff, at its offices indicated at the
beginning of this Note, or at such other place as may be designated by Bank, the
principal amount of Four Million Dollars ($4,000,000.00), or so much thereof as
may be advanced from time to time in immediately available funds, together with
interest computed daily on the outstanding principal balance hereunder, at an
annual interest rate, and in accordance with the payment schedule, indicated
below.
1. RATE.
FIXED RATE. The Rate shall be fixed at eight and three tenths percent (8.3%)
per annum.
Notwithstanding any provision of this Note, Bank does not intend to charge and
Borrower shall not be required to pay any amount of interest or other charges in
excess of the maximum permitted by applicable law. Borrower agrees that during
the full term hereof, the maximum lawful interest rate for this Note as
determined under Texas law shall be the indicated rate ceiling as specified in
Article 5069-1.04 of VATS. Further, to the extent that any other lawful rate
ceiling exceeds the rate ceiling so determined then the higher rate ceiling
shall apply. Any payment in excess of such maximum shall be refunded to
Borrower or credited against principal, at the option of Bank.
2. ACCRUAL METHOD. Unless otherwise indicated, interest at the Rate set forth
above will be calculated on a basis of 365 or 366 days per year, as the case may
be.
3. RATE CHANGE DATE. [OMITTED]
4. PAYMENT SCHEDULE. All payments received hereunder shall be applied first to
the payment of any expense or charges payable hereunder or under any other loan
documents executed in connection with this Note, then to interest due and
payable, with the balance applied to principal, or in such other order as Bank
shall determine at its option.
PRINCIPAL PLUS ACCRUED INTEREST. Principal shall be paid in consecutive equal
installments of $111,111.11, plus accrued interest, payable monthly, commencing
on September 7, 1998, and continuing on the same day of each successive month
thereafter, with a final payment of all unpaid principal and accrued interest
due on August 7, 2001.
5. REVOLVING FEATURE. [OMITTED]
6. AUTOMATIC PAYMENT. [OMITTED]
7. WAIVERS, CONSENTS AND COVENANTS. Borrower, any indorser or guarantor
hereof, or any other party hereto (individually an "Obligor" and collectively
"Obligors") and each of them jointly and severally: (a) waive presentment,
demand, protest, notice of demand, notice of intent to accelerate, notice of
acceleration of maturity, notice of protest, notice of nonpayment, notice of
dishonor, and any other notice required to be given under the law to any Obligor
in connection with the delivery, acceptance, performance, default or enforcement
of this Note, any indorsement or guaranty of this Note, or any other documents
executed in connection with this Note or any other note or other loan documents
now or hereafter executed in connection with any obligation of Borrower to Bank
(the "Loan Documents"); (b) consent to all delays, extensions, renewals or other
modifications of this Note or the Loan Documents, or waivers of any term hereof
or of the Loan Documents, or release or discharge by Bank of any of Obligors, or
release, substitution or exchange of any security for the payment hereof, or the
failure to act on the part of Bank, or any indulgence shown by Bank (without
notice to or further assent from any of Obligors), and agree that no such
action, failure to act or failure to exercise any right or remedy by Bank shall
in any way affect or impair the obligations of any Obligors or be construed as a
waiver by Bank of, or otherwise affect, any of Bank's rights under this Note,
under any indorsement or guaranty of this Note or under any of the Loan
Documents; and (c) agree to pay, on demand, all costs and expenses of collection
or defense of this Note or of any indorsement or guaranty hereof and/or the
enforcement or defense of Bank's rights with respect to, or the administration,
supervision, preservation, or protection of, or realization upon, any property
securing payment hereof, including, without limitation, reasonable attorney's
fees, including fees related to any suit, mediation or arbitration proceeding,
out of court payment agreement, trial, appeal, bankruptcy proceedings or other
proceeding, in such amount as may be determined reasonable by any arbitrator or
court, whichever is applicable.
8. PREPAYMENTS. Prepayments may be made in whole or in part at any time on any
loan for which the Rate is based on the Prime Rate. All prepayments of
principal shall be applied in the inverse order of maturity, or in such other
order as Bank shall determine in its sole discretion. No prepayment of any
other loan shall be permitted without the prior written consent of Bank.
Notwithstanding such prohibition, if there is a prepayment of any such loan,
whether by consent of Bank, or because of acceleration or otherwise, Borrower
shall, within 15 days of any request by Bank, pay to Bank any loss or expense
which Bank may incur or sustain as a result of such prepayment. For the purposes
of calculating the amounts owed only, it shall be assumed that Bank actually
funded or committed to fund the loan through the purchase of an underlying
deposit in an amount and for a term comparable to the loan, and such
determination by Bank shall be conclusive, absent a manifest error in
computation.
NationsBank Promissory Note
Texas [Commercial] 2/96
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<PAGE>
9. EVENTS OF DEFAULT. The following are events of default hereunder: (a) the
failure to pay or perform any obligation, liability or indebtedness of any
Obligor to Bank, or to any affiliate or subsidiary of NationsBank Corporation,
whether under this Note or any Loan Documents, as and when due (whether upon
demand, at maturity or by acceleration); provided, that nothing herein shall
prohibit Borrower from contesting bona fide dispute with vendors; (b) the
failure to pay or perform any other obligation, liability or indebtedness of any
Obligor to any other party; (c) the death of any Obligor (if an individual); (d)
[omitted]; (e) the commencement of a proceeding against any Obligor for
dissolution or liquidation, the voluntary or involuntary termination or
dissolution of any Obligor or the merger or consolidation of any Obligor with or
into another entity; (f) the insolvency of, the business failure of, the
appointment of a custodian, trustee, liquidator or receiver for or for any of
the property of, the assignment for the benefit of creditors by, or the filing
of a petition under bankruptcy, insolvency or debtor's relief law or the filing
of a petition for any adjustment of indebtedness, composition or extension by or
against any Obligor; (g) the determination by Bank that any representation or
warranty made to Bank by any Obligor in any Loan Documents or otherwise is or
was, when it was made, untrue or materially misleading; (h) the failure of any
Obligor to timely deliver such financial statements, including tax returns,
other statements of condition or other information, as Bank shall request from
time to time; (i) the entry of a judgment against any Obligor which Bank deems
to be of a material nature, in Bank's sole discretion; (j) the seizure or
forfeiture of, or the issuance of any writ of possession, garnishment or
attachment, or any turnover order for any property of any Obligor; (k) the
determination by Bank that it is insecure for any reason; (l) the determination
by Bank that a material adverse change has occurred in the financial condition
of any Obligor; or (m) the failure of Borrower's business to comply with any law
or regulation controlling its operation.
10. REMEDIES UPON DEFAULT. Whenever there is a default under this Note (a) the
entire balance outstanding hereunder and all other obligations of any Obligor to
Bank (however acquired or evidenced) shall, at the option of Bank, become
immediately due and payable and any obligation of Bank to permit further
borrowing under this Note shall immediately cease and terminate, and/or (b) to
the extent permitted by law, the Rate of interest on the unpaid principal shall
be increased at Bank's discretion up to the maximum rate allowed by law, or if
none, 25% per annum (the "Default Rate"). The provisions herein for a Default
Rate shall not be deemed to extend the time for any payment hereunder or to
constitute a "grace period" giving Obligors a right to cure any default. At
Bank's option, any accrued and unpaid interest, fees or charges may, for
purposes of computing and accruing interest on a daily basis after the due date
of the Note or any installment thereof, be deemed to be a part of the principal
balance, and interest shall accrue on a daily compounded basis after such date
at the Default Rate provided in this Note until the entire outstanding balance
of principal and interest is paid in full. Upon a default under this Note, Bank
is hereby authorized at any time, at its option and without notice or demand, to
set off and charge against any deposit accounts of any Obligor (as well as any
money, instruments, securities, documents, chattel paper, credits, claims,
demands, income and any other property, rights and interests of any Obligor),
which at any time shall come into the possession or custody or under the control
of Bank or any of its agents, affiliates or correspondents, any and all
obligations due hereunder. Additionally, Bank shall have all rights and
remedies available under each of the Loan Documents, as well as all rights and
remedies available at law or in equity.
11. NON-WAIVER. The failure at any time of Bank to exercise any of its options
or any other rights hereunder shall not constitute a waiver thereof, nor shall
it be a bar to the exercise of any of its options or rights at a later date.
All rights and remedies of Bank shall be cumulative and may be pursued singly,
successively or together, at the option of Bank. The acceptance by Bank of any
partial payment shall not constitute a waiver of any default or of any of Bank's
rights under this Note. No waiver of any of its rights hereunder, and no
modification or amendment of this Note, shall be deemed to be made by Bank
unless the same shall be in writing, duly signed on behalf of Bank; each such
waiver shall apply only with respect to the specific instance involved, and
shall in no way impair the rights of Bank or the obligations of Obligors to Bank
in any other respect at any other time.
12. APPLICABLE LAW, VENUE AND JURISDICTION. Borrower agrees that this Note
shall be deemed to have been made in the State of Texas at Bank's address
indicated at the beginning of this Note and shall be governed by, and construed
in accordance with, the laws of the State of Texas and is performable in the
City and County of Texas indicated at the beginning of this Note. In any
litigation in connection with or to enforce this Note or any indorsement or
guaranty of this Note or any Loan Documents, Obligors, and each of them,
irrevocably consent to and confer personal jurisdiction on the courts of the
State of Texas or the United States courts located within the State of Texas.
Nothing contained herein shall, however, prevent Bank from bringing any action
or exercising any rights within any other state or jurisdiction or from
obtaining personal jurisdiction by any other means available under applicable
law.
13. PARTIAL INVALIDITY. The unenforceability or invalidity of any provision of
this Note shall not affect the enforceability or validity of any other provision
herein and the invalidity or unenforceability of any provision of this Note or
of the Loan Documents to any person or circumstance shall not affect the
enforceability or validity of such provision as it may apply to other persons or
circumstances.
14. BINDING EFFECT. This Note shall be binding upon and inure to the benefit
of Borrower, Obligors and Bank and their respective successors, assigns, heirs
and personal representatives, provided, however, that no obligations of Borrower
or Obligors hereunder can be assigned without prior written consent of Bank.
15. CONTROLLING DOCUMENT. [Omitted]
16. ARBITRATION. ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE PARTIES HERETO
INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO THIS
INSTRUMENT, AGREEMENT OR DOCUMENT OR ANY RELATED INSTRUMENTS, AGREEMENTS OR
DOCUMENTS, INCLUDING ANY CLAIM BASED ON OR ARISING FROM AN ALLEGED TORT, SHALL
BE DETERMINED BY BINDING ARBITRATION IN ACCORDANCE WITH THE FEDERAL ARBITRATION
ACT (OR IF NOT APPLICABLE, THE APPLICABLE STATE LAW), THE RULES OF PRACTICE AND
PROCEDURE FOR THE ARBITRATION OF COMMERCIAL DISPUTES OF J.A.M.S./ENDISPUTE OR
ANY SUCCESSOR THEREOF ("J.A.M.S."), AND THE "SPECIAL RULES" SET FORTH BELOW. IN
THE EVENT OF ANY INCONSISTENCY, THE SPECIAL RULES SHALL CONTROL. JUDGMENT UPON
ANY ARBITRATION AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. ANY
PARTY TO THIS INSTRUMENT, AGREEMENT OR DOCUMENT MAY BRING AN ACTION, INCLUDING A
SUMMARY OR EXPEDITED PROCEEDING, TO COMPEL ARBITRATION OF ANY CONTROVERSY OR
CLAIM TO WHICH THIS AGREEMENT APPLIES IN ANY COURT HAVING JURISDICTION OVER SUCH
ACTION.
A. SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED IN THE COUNTY OF ANY
-------------
BORROWER'S DOMICILE AT THE TIME OF THE EXECUTION OF THIS INSTRUMENT, AGREEMENT
OR DOCUMENT AND ADMINISTERED BY J.A.M.S. WHO WILL APPOINT AN ARBITRATOR; IF
J.A.M.S. IS UNABLE OR LEGALLY PRECLUDED FROM ADMINISTERING THE
NationsBank Promissory Note
Texas [Commercial] 2/96
-2-
<PAGE>
ARBITRATION, THEN THE AMERICAN ARBITRATION ASSOCIATION WILL SERVE. ALL
ARBITRATION HEARINGS WILL BE COMMENCED WITHIN 90 DAYS OF THE DEMAND FOR
ARBITRATION; FURTHER, THE ARBITRATOR SHALL ONLY, UPON A SHOWING OF CAUSE, BE
PERMITTED TO EXTEND THE COMMENCEMENT OF SUCH HEARING FOR UP TO AN ADDITIONAL 60
DAYS.
B. RESERVATION OF RIGHTS. NOTHING IN THIS ARBITRATION PROVISION SHALL BE
---------------------
DEEMED TO (I) LIMIT THE APPLICABILITY OF ANY OTHERWISE APPLICABLE STATUTES OF
LIMITATION OR REPOSE AND ANY WAIVERS CONTAINED IN THIS INSTRUMENT, AGREEMENT OR
DOCUMENT; OR (II) BE A WAIVER BY BANK OF THE PROTECTION AFFORDED TO IT BY 12
U.S.C. SEC. 91 OR ANY SUBSTANTIALLY EQUIVALENT STATE LAW; OR (III) LIMIT THE
RIGHT OF BANK HERETO (A) TO EXERCISE SELF HELP REMEDIES SUCH AS (BUT NOT LIMITED
TO) SETOFF, OR (B) TO FORECLOSE AGAINST ANY REAL OR PERSONAL PROPERTY
COLLATERAL, OR (C) TO OBTAIN FROM A COURT PROVISIONAL OR ANCILLARY REMEDIES SUCH
AS (BUT NOT LIMITED TO) INJUNCTIVE RELIEF, WRIT OF POSSESSION OR THE APPOINTMENT
OF A RECEIVER. BANK MAY EXERCISE SUCH SELF HELP RIGHTS, FORECLOSE UPON SUCH
PROPERTY, OR OBTAIN SUCH PROVISIONAL OR ANCILLARY REMEDIES BEFORE, DURING OR
AFTER THE PENDENCY OF ANY ARBITRATION PROCEEDING BROUGHT PURSUANT TO THIS
INSTRUMENT, AGREEMENT OR DOCUMENT. NEITHER THIS EXERCISE OF SELF HELP REMEDIES
NOR THE INSTITUTION OR MAINTENANCE OF AN ACTION FOR FORECLOSURE OR PROVISIONAL
OR ANCILLARY REMEDIES SHALL CONSTITUTE A WAIVER OF THE RIGHT OF ANY PARTY,
INCLUDING THE CLAIMANT IN ANY SUCH ACTION, TO ARBITRATE THE MERITS OF THE
CONTROVERSY OR CLAIM OCCASIONING RESORT TO SUCH REMEDIES.
BORROWER REPRESENTS TO BANK THAT THE PROCEEDS OF THIS LOAN ARE TO BE USED
PRIMARILY FOR BUSINESS, COMMERCIAL OR AGRICULTURAL PURPOSES. BORROWER
ACKNOWLEDGES HAVING READ AND UNDERSTOOD, AND AGREES TO BE BOUND BY, ALL TERMS
AND CONDITIONS OF THIS NOTE.
NOTICE OF FINAL AGREEMENT:
THIS WRITTEN PROMISSORY NOTE REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES,
AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT
ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN
THE PARTIES.
BANK: NATIONSBANK, N.A. BORROWER
By:__________________________________ TEXAS TIMBERJACK, INC.
_____________________________________ By________________________________
Print Name and Title Mike Boatman, its Secretary
NationsBank Promissory Note
Texas [Commercial] 2/96
-3-
<PAGE>
EXHIBIT 10.91
PROMISSORY NOTE
Date August 7, 1998 Amount $8,000,000.00 Maturity Date March 31, 1999
================================================================================
Bank: Borrower:
NationsBank, N.A.
Banking Center:
415 South First Street Texas Timberjack, Inc.
P. O. Drawer 10 Route 15, Box 9475
Lufkin, Texas 75902 Lufkin, Texas 75901
Angelina County Angelina County
================================================================================
FOR VALUE RECEIVED, the undersigned Borrower unconditionally (and jointly and
severally, if more than one) promises to pay to the order of Bank, its
successors and assigns, without setoff, at its offices indicated at the
beginning of this Note, or at such other place as may be designated by Bank, the
principal amount of Eight Million Dollars ($8,000,000.00), or so much thereof as
may be advanced from time to time in immediately available funds, together with
interest computed daily on the outstanding principal balance hereunder, at an
annual interest rate, and in accordance with the payment schedule, indicated
below.
1. RATE.
PRIME RATE. The Rate shall be the Prime Rate, less one quarter of one percent
(0.25%) per annum. The "Prime Rate" is the fluctuating rate of interest
established by Bank from time to time, at its discretion, whether or not such
rate shall be otherwise published. The Prime Rate is established by Bank as an
index and may or may not at any time be the best or lowest rate charged by Bank
on any loan.
Notwithstanding any provision of this Note, Bank does not intend to charge and
Borrower shall not be required to pay any amount of interest or other charges in
excess of the maximum permitted by applicable law. Borrower agrees that during
the full term hereof, the maximum lawful interest rate for this Note as
determined under Texas law shall be the indicated rate ceiling as specified in
Article 5069-1.04 of VATS. Further, to the extent that any other lawful rate
ceiling exceeds the rate ceiling so determined then the higher rate ceiling
shall apply. Any payment in excess of such maximum shall be refunded to
Borrower or credited against principal, at the option of Bank.
2. ACCRUAL METHOD. Unless otherwise indicated, interest at the Rate set forth
above will be calculated on a basis of a year of 365 or 366 days, as the case
may be.
3. RATE CHANGE DATE. Any Rate based on a fluctuating index or base rate will
change, unless otherwise provided, each time and as of the date that the index
or base rate changes.
In the event any index is discontinued, Bank shall substitute an index
determined by Bank to be comparable, in its sole discretion.
4. PAYMENT SCHEDULE. All payments received hereunder shall be applied first to
the payment of any expense or charges payable hereunder or under any other loan
documents executed in connection with this Note, then to interest due and
payable, with the balance applied to principal, or in such other order as Bank
shall determine at its option.
SINGLE PRINCIPAL PAYMENT. Principal shall be paid in full in a single payment
on March 31, 1999. Interest thereon shall be paid monthly, commencing on August
31, 1998, and on the last day of each successive month thereafter, with a final
payment of all unpaid interest at the stated maturity of this Note.
5. REVOLVING FEATURE.
Borrower may borrow, repay and reborrow hereunder at any time, up to a maximum
aggregate amount outstanding at any one time equal to the principal amount of
this Note, provided that Borrower is not in default under any provision of this
Note, any other documents executed in connection with this Note, or any other
note or other loan documents now or hereafter executed in connection with any
other obligation of Borrower to Bank, and provided that the borrowings hereunder
do not exceed any borrowing base or other limitation on borrowings by Borrower.
Bank shall incur no liability for its refusal to advance funds based upon its
determination that any conditions of such further advances have not been met.
Bank records of the amounts borrowed from time to time shall be conclusive proof
thereof.
6. AUTOMATIC PAYMENT. [OMITTED]
7. WAIVERS, CONSENTS AND COVENANTS. Borrower, any indorser or guarantor
hereof, or any other party hereto (individually an "Obligor" and collectively
"Obligors") and each of them jointly and severally: (a) waive presentment,
demand, protest, notice of demand, notice of intent to accelerate, notice of
acceleration of maturity, notice of protest, notice of nonpayment, notice of
dishonor, and any other notice required to be given under the law to any Obligor
in connection with the delivery, acceptance, performance, default or enforcement
of this Note, any indorsement or guaranty of this Note, or any other documents
executed in connection with this Note or any other note or other loan documents
now or hereafter executed in connection with any obligation of Borrower to Bank
(the "Loan Documents"); (b) consent to all delays, extensions, renewals or other
modifications of this Note or the Loan Documents, or waivers of any term hereof
or of the Loan Documents, or release or discharge by Bank of any of Obligors, or
release, substitution or exchange of any security for the payment hereof, or the
failure to act on the part of Bank, or any indulgence shown by Bank (without
notice to or further assent from any of Obligors), and agree that no such
action, failure to act or failure to exercise any right or remedy by Bank shall
in any way affect or impair the obligations of any Obligors or be construed as a
waiver by Bank of, or otherwise affect, any of Bank's rights under this Note,
under any indorsement or guaranty of this Note or under any of the Loan
Documents; and (c) agree to pay, on demand, all costs and expenses of collection
or defense of this Note or of any indorsement or guaranty
NationsBank Promissory Note
Texas [Commercial] 2/96
-1-
<PAGE>
hereof and/or the enforcement or defense of Bank's rights with respect to, or
the administration, supervision, preservation, or protection of, or realization
upon, any property securing payment hereof, including, without limitation,
reasonable attorney's fees, including fees related to any suit, mediation or
arbitration proceeding, out of court payment agreement, trial, appeal,
bankruptcy proceedings or other proceeding, in such amount as may be determined
reasonable by any arbitrator or court, whichever is applicable.
8. PREPAYMENTS. Prepayments may be made in whole or in part at any time on any
loan for which the Rate is based on the Prime Rate. All prepayments of
principal shall be applied in the inverse order of maturity, or in such other
order as Bank shall determine in its sole discretion. No prepayment of any
other loan shall be permitted without the prior written consent of Bank.
Notwithstanding such prohibition, if there is a prepayment of any such loan,
whether by consent of Bank, or because of acceleration or otherwise, Borrower
shall, within 15 days of any request by Bank, pay to Bank any loss or expense
which Bank may incur or sustain as a result of such prepayment. For the purposes
of calculating the amounts owed only, it shall be assumed that Bank actually
funded or committed to fund the loan through the purchase of an underlying
deposit in an amount and for a term comparable to the loan, and such
determination by Bank shall be conclusive, absent a manifest error in
computation.
9. EVENTS OF DEFAULT. The following are events of default hereunder: (a) the
failure to pay or perform any obligation, liability or indebtedness of any
Obligor to Bank, or to any affiliate or subsidiary of NationsBank Corporation,
whether under this Note or any Loan Documents, as and when due (whether upon
demand, at maturity or by acceleration); provided, that nothing herein shall
prohibit Borrower from contesting bona fide dispute with vendors; (b) the
failure to pay or perform any other obligation, liability or indebtedness of any
Obligor to any other party; (c) the death of any Obligor (if an individual); (d)
[omitted]; (e) the commencement of a proceeding against any Obligor for
dissolution or liquidation, the voluntary or involuntary termination or
dissolution of any Obligor or the merger or consolidation of any Obligor with or
into another entity; (f) the insolvency of, the business failure of, the
appointment of a custodian, trustee, liquidator or receiver for or for any of
the property of, the assignment for the benefit of creditors by, or the filing
of a petition under bankruptcy, insolvency or debtor's relief law or the filing
of a petition for any adjustment of indebtedness, composition or extension by or
against any Obligor; (g) the determination by Bank that any representation or
warranty made to Bank by any Obligor in any Loan Documents or otherwise is or
was, when it was made, untrue or materially misleading; (h) the failure of any
Obligor to timely deliver such financial statements, including tax returns,
other statements of condition or other information, as Bank shall request from
time to time; (i) the entry of a judgment against any Obligor which Bank deems
to be of a material nature, in Bank's sole discretion; (j) the seizure or
forfeiture of, or the issuance of any writ of possession, garnishment or
attachment, or any turnover order for any property of any Obligor; (k) the
determination by Bank that it is insecure for any reason; (l) the determination
by Bank that a material adverse change has occurred in the financial condition
of any Obligor; or (m) the failure of Borrower's business to comply with any law
or regulation controlling its operation.
10. REMEDIES UPON DEFAULT. Whenever there is a default under this Note (a) the
entire balance outstanding hereunder and all other obligations of any Obligor to
Bank (however acquired or evidenced) shall, at the option of Bank, become
immediately due and payable and any obligation of Bank to permit further
borrowing under this Note shall immediately cease and terminate, and/or (b) to
the extent permitted by law, the Rate of interest on the unpaid principal shall
be increased at Bank's discretion up to the maximum rate allowed by law, or if
none, 25% per annum (the "Default Rate"). The provisions herein for a Default
Rate shall not be deemed to extend the time for any payment hereunder or to
constitute a "grace period" giving Obligors a right to cure any default. At
Bank's option, any accrued and unpaid interest, fees or charges may, for
purposes of computing and accruing interest on a daily basis after the due date
of the Note or any installment thereof, be deemed to be a part of the principal
balance, and interest shall accrue on a daily compounded basis after such date
at the Default Rate provided in this Note until the entire outstanding balance
of principal and interest is paid in full. Upon a default under this Note, Bank
is hereby authorized at any time, at its option and without notice or demand, to
set off and charge against any deposit accounts of any Obligor (as well as any
money, instruments, securities, documents, chattel paper, credits, claims,
demands, income and any other property, rights and interests of any Obligor),
which at any time shall come into the possession or custody or under the control
of Bank or any of its agents, affiliates or correspondents, any and all
obligations due hereunder. Additionally, Bank shall have all rights and
remedies available under each of the Loan Documents, as well as all rights and
remedies available at law or in equity.
11. NON-WAIVER. The failure at any time of Bank to exercise any of its options
or any other rights hereunder shall not constitute a waiver thereof, nor shall
it be a bar to the exercise of any of its options or rights at a later date.
All rights and remedies of Bank shall be cumulative and may be pursued singly,
successively or together, at the option of Bank. The acceptance by Bank of any
partial payment shall not constitute a waiver of any default or of any of Bank's
rights under this Note. No waiver of any of its rights hereunder, and no
modification or amendment of this Note, shall be deemed to be made by Bank
unless the same shall be in writing, duly signed on behalf of Bank; each such
waiver shall apply only with respect to the specific instance involved, and
shall in no way impair the rights of Bank or the obligations of Obligors to Bank
in any other respect at any other time.
12. APPLICABLE LAW, VENUE AND JURISDICTION. Borrower agrees that this Note
shall be deemed to have been made in the State of Texas at Bank's address
indicated at the beginning of this Note and shall be governed by, and construed
in accordance with, the laws of the State of Texas and is performable in the
City and County of Texas indicated at the beginning of this Note. In any
litigation in connection with or to enforce this Note or any indorsement or
guaranty of this Note or any Loan Documents, Obligors, and each of them,
irrevocably consent to and confer personal jurisdiction on the courts of the
State of Texas or the United States courts located within the State of Texas.
Nothing contained herein shall, however, prevent Bank from bringing any action
or exercising any rights within any other state or jurisdiction or from
obtaining personal jurisdiction by any other means available under applicable
law.
13. PARTIAL INVALIDITY. The unenforceability or invalidity of any provision of
this Note shall not affect the enforceability or validity of any other provision
herein and the invalidity or unenforceability of any provision of this Note or
of the Loan Documents to any person or circumstance shall not affect the
enforceability or validity of such provision as it may apply to other persons or
circumstances.
14. BINDING EFFECT. This Note shall be binding upon and inure to the benefit
of Borrower, Obligors and Bank and their respective successors, assigns, heirs
and personal representatives, provided, however, that no obligations of Borrower
or Obligors hereunder can be assigned without prior written consent of Bank.
15. CONTROLLING DOCUMENT. [OMITTED]
NationsBank Promissory Note
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<PAGE>
16. ARBITRATION. ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE PARTIES HERETO
INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO THIS
INSTRUMENT, AGREEMENT OR DOCUMENT OR ANY RELATED INSTRUMENTS, AGREEMENTS OR
DOCUMENTS, INCLUDING ANY CLAIM BASED ON OR ARISING FROM AN ALLEGED TORT, SHALL
BE DETERMINED BY BINDING ARBITRATION IN ACCORDANCE WITH THE FEDERAL ARBITRATION
ACT (OR IF NOT APPLICABLE, THE APPLICABLE STATE LAW), THE RULES OF PRACTICE AND
PROCEDURE FOR THE ARBITRATION OF COMMERCIAL DISPUTES OF J.A.M.S./ENDISPUTE OR
ANY SUCCESSOR THEREOF ("J.A.M.S."), AND THE "SPECIAL RULES" SET FORTH BELOW. IN
THE EVENT OF ANY INCONSISTENCY, THE SPECIAL RULES SHALL CONTROL. JUDGMENT UPON
ANY ARBITRATION AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. ANY
PARTY TO THIS INSTRUMENT, AGREEMENT OR DOCUMENT MAY BRING AN ACTION, INCLUDING A
SUMMARY OR EXPEDITED PROCEEDING, TO COMPEL ARBITRATION OF ANY CONTROVERSY OR
CLAIM TO WHICH THIS AGREEMENT APPLIES IN ANY COURT HAVING JURISDICTION OVER SUCH
ACTION.
A. SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED IN THE COUNTY OF ANY
-------------
BORROWER'S DOMICILE AT THE TIME OF THE EXECUTION OF THIS INSTRUMENT, AGREEMENT
OR DOCUMENT AND ADMINISTERED BY J.A.M.S. WHO WILL APPOINT AN ARBITRATOR; IF
J.A.M.S. IS UNABLE OR LEGALLY PRECLUDED FROM ADMINISTERING THE ARBITRATION, THEN
THE AMERICAN ARBITRATION ASSOCIATION WILL SERVE. ALL ARBITRATION HEARINGS WILL
BE COMMENCED WITHIN 90 DAYS OF THE DEMAND FOR ARBITRATION; FURTHER, THE
ARBITRATOR SHALL ONLY, UPON A SHOWING OF CAUSE, BE PERMITTED TO EXTEND THE
COMMENCEMENT OF SUCH HEARING FOR UP TO AN ADDITIONAL 60 DAYS.
B. RESERVATION OF RIGHTS. NOTHING IN THIS ARBITRATION PROVISION SHALL BE
---------------------
DEEMED TO (I) LIMIT THE APPLICABILITY OF ANY OTHERWISE APPLICABLE STATUTES OF
LIMITATION OR REPOSE AND ANY WAIVERS CONTAINED IN THIS INSTRUMENT, AGREEMENT OR
DOCUMENT; OR (II) BE A WAIVER BY BANK OF THE PROTECTION AFFORDED TO IT BY 12
U.S.C. SEC. 91 OR ANY SUBSTANTIALLY EQUIVALENT STATE LAW; OR (III) LIMIT THE
RIGHT OF BANK HERETO (A) TO EXERCISE SELF HELP REMEDIES SUCH AS (BUT NOT LIMITED
TO) SETOFF, OR (B) TO FORECLOSE AGAINST ANY REAL OR PERSONAL PROPERTY
COLLATERAL, OR (C) TO OBTAIN FROM A COURT PROVISIONAL OR ANCILLARY REMEDIES SUCH
AS (BUT NOT LIMITED TO) INJUNCTIVE RELIEF, WRIT OF POSSESSION OR THE APPOINTMENT
OF A RECEIVER. BANK MAY EXERCISE SUCH SELF HELP RIGHTS, FORECLOSE UPON SUCH
PROPERTY, OR OBTAIN SUCH PROVISIONAL OR ANCILLARY REMEDIES BEFORE, DURING OR
AFTER THE PENDENCY OF ANY ARBITRATION PROCEEDING BROUGHT PURSUANT TO THIS
INSTRUMENT, AGREEMENT OR DOCUMENT. NEITHER THIS EXERCISE OF SELF HELP REMEDIES
NOR THE INSTITUTION OR MAINTENANCE OF AN ACTION FOR FORECLOSURE OR PROVISIONAL
OR ANCILLARY REMEDIES SHALL CONSTITUTE A WAIVER OF THE RIGHT OF ANY PARTY,
INCLUDING THE CLAIMANT IN ANY SUCH ACTION, TO ARBITRATE THE MERITS OF THE
CONTROVERSY OR CLAIM OCCASIONING RESORT TO SUCH REMEDIES.
BORROWER REPRESENTS TO BANK THAT THE PROCEEDS OF THIS LOAN ARE TO BE USED
PRIMARILY FOR BUSINESS, COMMERCIAL OR AGRICULTURAL PURPOSES. BORROWER
ACKNOWLEDGES HAVING READ AND UNDERSTOOD, AND AGREES TO BE BOUND BY, ALL TERMS
AND CONDITIONS OF THIS NOTE.
NOTICE OF FINAL AGREEMENT:
THIS WRITTEN PROMISSORY NOTE REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES,
AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT
ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN
THE PARTIES.
BANK: NATIONSBANK, N.A. BORROWER
By:__________________________________ TEXAS TIMBERJACK, INC.
_____________________________________ By________________________________
Print Name and Title Mike Boatman, its Secretary
NationsBank Promissory Note
Texas [Commercial] 2/96
-3-
<PAGE>
EXHIBIT 10.92
NationsBank, N.A. Date: August 7, 1998
SECURITY AGREEMENT
================================================================================
BANK/SECURED PARTY: DEBTOR(S)/PLEDGOR(S):
NationsBank, N.A.
Banking Center:
415 South First Street Texas Timberjack, Inc.
P. O. Drawer 10 Route 15, Box 9475
Lufkin, Texas 75901 Lufkin, Texas 75901
Angelina County Angelina County
(Street address including county) (Name and street address, including county)
================================================================================
Debtor/Pledgor is: [_] Individual [x] Corporation
[_] Partnership [_] Other______________
Address is Debtor's/Pledgor's: [_] Residence [x] Place of Business
[_] Chief Executive Office if more than one place of business
Collateral (hereinafter defined) is located at: [x] Debtor's/Pledgor's address
shown above [_] the following address:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
================================================================================
[THIS SECURITY AGREEMENT ("AGREEMENT") CONTAINS SOME PROVISIONS PRECEDED BY
BOXES. IF A BOX IS MARKED, THE PROVISION APPLIES TO THIS TRANSACTION. IF IT IS
NOT MARKED, THE PROVISION DOES NOT APPLY TO THIS TRANSACTION.]
1. SECURITY INTEREST. For good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, Debtor/Pledgor (hereinafter referred
to as "Debtor") assigns and grants to Bank (also known as "Secured Party"), a
security interest and lien in the Collateral (hereinafter defined) to secure the
payment and the performance of the Obligation (hereinafter defined).
2. COLLATERAL. A security interest is granted in the following collateral
described in this Item 2 (the "Collateral"):
A. TYPES OF COLLATERAL (check as applicable)
[x] ACCOUNTS: Any and all accounts and other rights of Debtor to the payment
for goods sold or leased or for services rendered whether or not earned by
performance, including, without limitation, contract rights, book debts, checks,
notes, drafts, instruments, chattel paper, acceptances, and any and all amounts
due to Debtor from a factor or other forms of obligations and receivables, now
existing or hereafter arising.
[x] INVENTORY:
[x] Blanket Lien: Any and all of Debtor's goods held as inventory, or
[_] Specific Inventory: Limited to any and all of Debtor's goods held as
inventory which are specifically described in the space below,
whether now owned or hereafter acquired, including without limitation, any and
all such goods held for sale or lease or being processed for sale or lease in
Debtor's business, as now or hereafter conducted, including all materials, goods
and work in process, finished goods and other tangible property held for sale or
lease or furnished or to be furnished under contracts of service or used or
consumed in Debtor's business, along with all documents (including documents of
title) covering such inventory including the following (attach schedule if
necessary):
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
[x] CHATTEL PAPER: Any and all writings that evidence both a monetary
obligation and a security interest in or a lease of specific goods, including
all notes and other instruments evidencing an obligation to pay for the goods.
[x] FIXTURES:
[x] Blanket Lien: any and all of Debtor's goods held as fixtures or
whether now existing or hereafter acquired. These goods are or will become
fixtures on the following described real estate in Liberty, County, Cass County,
Jasper County and Angelina County, Texas, more particularly described in the
Exhibit "A" attached hereto and made a part hereof. The record owners of the
Cass County real property are Lawson McKelvey and wife, Shirley McKelvey
B. SUBSTITUTIONS, PROCEEDS AND RELATED ITEMS. Any and all substitutes and
replacements for, accessions, attachments and other additions to, tools, parts
and equipment now or hereafter added to or used in connection with, and all cash
or non-cash proceeds and products of, the Collateral (including, without
limitation, all income, benefits and property receivable, received or
distributed which results from any of the Collateral, such as dividends payable
or distributable in cash, property or stock; insurance distributions of any kind
related to the Collateral, including, without limitation, returned premiums,
interest, premium and principal payments; redemption proceeds and subscription
rights; and shares or other proceeds of conversions or splits of any securities
in the Collateral); any and all choses in action and causes of action of Debtor,
whether now existing or hereafter arising, relating directly or indirectly to
the Collateral (whether arising in contract, tort or otherwise and whether or
not currently in litigation); all certificates of title, manufacturer's
statements of origin, other documents, accounts and chattel paper, whether now
existing or hereafter arising directly or indirectly from or related to the
Collateral; all warranties, wrapping, packaging, advertising and shipping
materials used or to be used in connection with
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or related to the Collateral; all of Debtor's books, records, data, plans,
manuals, computer software, computer tapes, computer systems, computer disks,
computer programs, source codes and object codes containing any information,
pertaining directly or indirectly to the Collateral and all rights of Debtor to
retrieve data and other information pertaining directly or indirectly to the
Collateral from third parties, whether now existing or hereafter arising; and
all returned, refused, stopped in transit, or repossessed Collateral, any of
which, if received by Debtor, upon request shall be delivered immediately to
Bank.
C. BALANCES AND OTHER PROPERTY. The balance of every deposit account of
Debtor maintained with Bank and any other claim of Debtor against Bank, now or
hereafter existing, liquidated or unliquidated, and all money, instruments,
securities, documents, chattel paper, credits, claims, demands, income, and any
other property, rights and interests of Debtor which at any time shall come into
the possession or custody or under the control of Bank or any of its agents or
affiliates for any purpose, and the proceeds of any thereof. Bank shall be
deemed to have possession of any of the Collateral in transit to or set apart
for it or any of its agents or affiliates.
3. DESCRIPTION OF OBLIGATION(S). The following obligations ("Obligation" or
"Obligations") are secured by this Agreement: (a) All debts, obligations,
liabilities and agreements of Debtor to Bank, now or hereafter existing, arising
directly or indirectly between Debtor and Bank whether absolute or contingent,
joint or several, secured or unsecured, due or not due, contractual or tortious,
liquidated or unliquidated, arising by operation of law or otherwise, and all
renewals, extensions or rearrangement of any of the above; (b) All costs
incurred by Bank to obtain, preserve, perfect and enforce this Agreement and
maintain, preserve, collect and realize upon the Collateral; (c) [Omitted]; (d)
All other costs and attorney's fees incurred by Bank, for which Debtor is
obligated to reimburse Bank in accordance with the terms of the Loan Documents
(hereinafter defined), together with interest at the maximum rate allowed by
law, or if none, 25% per annum; and (e) All amounts which may be owed to Bank
pursuant to all other Loan Documents executed between Bank and any other Debtor.
If Debtor is not the obligor of the Obligation, and in the event any amount paid
to Bank on any Obligation is subsequently recovered from Bank in or as a result
of any bankruptcy, insolvency or fraudulent conveyance proceeding, Debtor shall
be liable to Bank for the amounts so recovered up to the fair market value of
the Collateral whether or not the Collateral has been released or the security
interest terminated. In the event the Collateral has been released or the
security interest terminated, the fair market value of the Collateral shall be
determined, at Bank's option, as of the date the Collateral was released, the
security interest terminated, or said amounts were recovered.
4. DEBTOR'S WARRANTIES. Debtor hereby represents and warrants to Bank as
follows:
A. FINANCING STATEMENTS. Except as may be noted by schedule attached hereto
and incorporated herein by reference, no financing statement covering the
Collateral is or will be on file in any public office, except the financing
statements relating to this security interest, and no security interest, other
than the one herein created, has attached or been perfected in the Collateral or
any part thereof.
B. OWNERSHIP. Debtor owns, or will use the proceeds of any loans by Bank to
become the owner of, the Collateral free from any setoff, claim, restriction,
lien, security interest or encumbrance except liens for taxes not yet due and
the security interest hereunder.
C. FIXTURES AND ACCESSIONS. None of the Collateral is affixed to real estate
or is an accession to any goods, or will become a fixture or accession, except
as expressly set out herein.
D. CLAIMS OF DEBTORS ON THE COLLATERAL. All account debtors and other
obligors whose debts or obligations are part of the Collateral have no right to
setoffs, counterclaims or adjustments, and no defenses in connection therewith.
E. ENVIRONMENTAL COMPLIANCE. The conduct of Debtor's business operations and
the condition of Debtor's property does not and will not violate any federal
laws, rules or ordinances for environmental protection, regulations of the
Environmental Protection Agency and any applicable local or state law, rule,
regulation or rule of common law and any judicial interpretation thereof
relating primarily to the environment or any materials defined as hazardous
materials or substances under any local, state or federal environmental laws,
rules or regulations, and petroleum, petroleum products, oil and asbestos
("Hazardous Materials").
F. POWER AND AUTHORITY. Debtor has full power and authority to make this
Agreement, and all necessary consents and approvals of any persons, entities,
governmental or regulatory authorities and securities exchanges have been
obtained to effectuate the validity of this Agreement.
5. DEBTOR'S COVENANTS. Until full payment and performance of all of the
Obligation and termination or expiration of any obligation or commitment of Bank
to make advances or loans to Debtor, unless Bank otherwise consents in writing:
A. OBLIGATION AND THIS AGREEMENT. Debtor shall perform all of its agreements
herein and in any other agreements between it and Bank.
B. OWNERSHIP AND MAINTENANCE OF THE COLLATERAL. Debtor shall keep all
tangible Collateral in good condition. Debtor shall defend the Collateral
against all claims and demands of all persons at any time claiming any interest
therein adverse to Bank. Debtor shall keep the Collateral free from all liens
and security interests except those for taxes not yet due and the security
interest hereby created. Debtor shall furnish to Bank on or before February
15th of each year, proof of payment of ad valorem taxes payable on the
Collateral.
C. INSURANCE. Debtor shall insure the Collateral with responsible insurance
companies, in such amounts and against such risks as is customarily maintained
by similar businesses operating in the same vicinity, specifically to include
fire and extended coverage insurance covering all assets, workers compensation
insurance and liability insurance, all to be with such companies and in such
amounts as are satisfactory to Bank and providing for at least 30 days prior
notice to Bank of any cancellation thereof. All insurance policies shall be
written for the benefit of Debtor and Bank as their interests may appear,
payable to Bank as loss payee, or in other form satisfactory to Bank, and such
policies or certificates evidencing the same shall be furnished to Bank. Risk
of loss or damage is Debtor's to the extent of any deficiency in any effective
insurance coverage.
D. BANK'S COSTS. Debtor shall pay all costs necessary to obtain, preserve,
perfect, defend and enforce the security interest created by this Agreement,
collect the Obligation, and preserve, defend, enforce and collect the
Collateral, including but not limited to taxes,
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assessments, insurance premiums, repairs, rent, storage costs and expenses of
sales, legal expenses, reasonable attorney's fees and other fees or expenses for
which Debtor is obligated to reimburse Bank in accordance with the terms of the
Loan Documents. Whether the Collateral is or is not in Bank's possession, and
without any obligation to do so and without waiving Debtor's default for failure
to make any such payment, Bank at its option may pay any such costs and
expenses, discharge encumbrances on the Collateral, and pay for insurance of the
Collateral, and such payments shall be a part of the Obligation and bear
interest at the rate set out in the Obligation. Debtor agrees to reimburse Bank
on demand for any costs so incurred.
E. INFORMATION AND INSPECTION. Debtor shall (i) promptly furnish Bank any
information with respect to the Collateral requested by Bank; (ii) allow Bank or
its representatives to inspect the Collateral, at any time and wherever located,
and to inspect and copy, or furnish Bank or its representatives with copies of,
all records relating to the Collateral and the Obligation; (iii) promptly
furnish Bank or its representatives such information as Bank may request to
identify the Collateral, at the time and in the form requested by Bank; and (iv)
deliver upon request to Bank shipping and delivery receipts evidencing the
shipment of goods and invoices evidencing the receipt of, and the payment for,
the Collateral.
F. ADDITIONAL DOCUMENTS. Debtor shall sign and deliver any papers deemed
necessary or desirable in the judgment of Bank to obtain, maintain, and perfect
the security interest hereunder and to enable Bank to comply with any federal or
state law in order to obtain or perfect Bank's interest in the Collateral or to
obtain proceeds of the Collateral.
G. PARTIES LIABLE ON THE COLLATERAL. Debtor shall preserve the liability of
all obligors on any Collateral, shall preserve the priority of all security
therefor, and shall deliver to Bank the original certificates of title on all
motor vehicles or other titled vehicles constituting the Collateral. Bank shall
have no duty to preserve such liability or security, but may do so at the
expense of Debtor, without waiving Debtor's default.
H. RECORDS OF THE COLLATERAL. Debtor at all times shall maintain accurate
books and records covering the Collateral. Bank is hereby given the right to
audit the books and records of Debtor relating to the Collateral at any time and
from time to time. The amounts shown as owed to Debtor on Debtor's books and on
any assignment schedule will be the undisputed amounts owing and unpaid.
I. DISPOSITION OF THE COLLATERAL. If disposition of any Collateral gives rise
to an account, chattel paper or instrument, Debtor immediately shall notify
Bank, and upon request of Bank shall assign or indorse the same to Bank. No
Collateral may be sold, leased, manufactured, processed or otherwise disposed of
by Debtor in any manner without the prior written consent of Bank, except the
Collateral sold, leased, manufactured, processed or consumed in the ordinary
course of business.
J. ACCOUNTS. Each account held as Collateral will represent the valid and
legally enforceable obligation of third parties and shall not be evidenced by
any instrument or chattel paper.
K. NOTICE/LOCATION OF THE COLLATERAL. Debtor shall give Bank written notice
of each office of Debtor in which records of Debtor pertaining to accounts held
as Collateral are kept, and each location at which the Collateral is or will be
kept, and of any change of any such location. If no such notice is given, all
records of Debtor pertaining to the Collateral and all Collateral of Debtor are
and shall be kept at the address marked by Debtor above.
L. CHANGE OF NAME/STATUS AND NOTICE OF CHANGES. Without the written consent
of Bank, Debtor shall not change its name, change its corporate status, use any
trade name or engage in any business not reasonably related to its business as
presently conducted. Debtor shall notify Bank immediately of (i) any material
change in the Collateral, (ii) a change in Debtor's residence or location, (iii)
a change in any matter warranted or represented by Debtor in this Agreement, or
in any of the Loan Documents or furnished to Bank pursuant to this Agreement,
and (iv) the occurrence of an Event of Default (hereinafter defined).
M. USE AND REMOVAL OF THE COLLATERAL. Debtor shall not use the Collateral
illegally. Debtor shall not, unless previously indicated as a fixture, permit
the Collateral to be affixed to real or personal property without the prior
written consent of Bank. Debtor shall not permit any of the Collateral to be
removed from the locations specified herein without the prior written consent of
Bank, except for the sale of inventory in the ordinary course of business.
N. POSSESSION OF THE COLLATERAL. Debtor shall deliver all investment
securities and other instruments, documents and chattel paper which are part of
the Collateral and in Debtor's possession to Bank immediately, or if hereafter
acquired, immediately following acquisition, appropriately indorsed to Bank's
order, or with appropriate, duly executed powers. Debtor waives presentment,
notice of acceleration, demand, notice of dishonor, protest, and all other
notices with respect thereto.
O. CONSUMER CREDIT. If any Collateral or proceeds includes obligations of
third parties to Debtor, the transactions giving rise to the Collateral shall
conform in all respects to the applicable state or federal law including but not
limited to consumer credit law. Debtor shall hold harmless and indemnify Bank
against any cost, loss or expense arising from Debtor's breach of this covenant.
P. POWER OF ATTORNEY. Debtor appoints Bank and any officer thereof as
Debtor's attorney-in-fact with full power in Debtor's name and behalf to do
every act which Debtor is obligated to do or may be required to do hereunder;
however, nothing in this paragraph shall be construed to obligate Bank to take
any action hereunder nor shall Bank be liable to Debtor for failure to take any
action hereunder. This appointment shall be deemed a power coupled with an
interest and shall not be terminable as long as the Obligation is outstanding
and shall not terminate on the disability or incompetence of Debtor.
Q. WAIVERS BY DEBTOR. Debtor waives notice of the creation, advance,
increase, existence, extension or renewal of, and of any indulgence with respect
to, the Obligation; waives presentment, demand, notice of dishonor, and protest;
waives notice of the amount of the Obligation outstanding at any time, notice of
any change in financial condition of any person liable for the Obligation or any
part thereof, notice of any Event of Default, and all other notices respecting
the Obligation; and agrees that maturity of the Obligation and any part thereof
may be accelerated, extended or renewed one or more times by Bank in its
discretion, without notice to Debtor. Debtor waives any right to require that
any action be brought against any other person or to require that resort be had
to any other security or to any balance of any deposit account. Debtor further
waives any right of subrogation or to enforce any right of action against any
other Debtor until the Obligation is paid in full.
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R. OTHER PARTIES AND OTHER COLLATERAL. No renewal or extension of or any
other indulgence with respect to the Obligation or any part thereof, no release
of any security, no release of any person (including any maker, indorser,
guarantor or surety) liable on the Obligation, no delay in enforcement of
payment, and no delay or omission or lack of diligence or care in exercising any
right or power with respect to the Obligation or any security therefor or
guaranty thereof or under this Agreement shall in any manner impair or affect
the rights of Bank under the law, hereunder, or under any other agreement
pertaining to the Collateral. Bank need not file suit or assert a claim for
personal judgment against any person for any part of the Obligation or seek to
realize upon any other security for the Obligation, before foreclosing or
otherwise realizing upon the Collateral. Debtor waives any right to the benefit
of or to require or control application of any other security or proceeds
thereof, and agrees that Bank shall have no duty or obligation to Debtor to
apply to the Obligation any such other security or proceeds thereof.
S. COLLECTION AND SEGREGATION OF ACCOUNTS AND RIGHT TO NOTIFY. Bank hereby
authorizes Debtor to collect the Collateral, subject to the direction and
control of Bank, but Bank may, upon default, curtail or terminate said authority
at any time. Upon notice by Bank, whether oral or in writing, to Debtor, Debtor
shall forthwith upon receipt of all checks, drafts, cash, and other remittances
in payment of or on account of the Collateral, deposit the same in one or more
special accounts maintained with Bank over which Bank alone shall have the power
of withdrawal. The remittance of the proceeds of such Collateral shall not,
however, constitute payment or liquidation of such Collateral until Bank shall
receive good funds for such proceeds. Funds placed in such special accounts
shall be held by Bank as security for all Obligations secured hereunder. These
proceeds shall be deposited in precisely the form received, except for the
indorsement of Debtor where necessary to permit collection of items, which
indorsement Debtor agrees to make, and which indorsement Bank is also hereby
authorized, as attorney-in-fact, to make on behalf of Debtor. In the event Bank
has notified Debtor to make deposits to a special account, pending such deposit,
Debtor agrees that it will not commingle any such checks, drafts, cash or other
remittances with any funds or other property of Debtor, but will hold them
separate and apart therefrom, and upon an express trust for Bank until deposit
thereof is made in the special account. Bank will, from time to time, apply
the whole or any part of the Collateral funds on deposit in this special account
against such Obligations as are secured hereby as Bank may in its sole
discretion elect. At the sole election of Bank, any portion of said funds on
deposit in the special account which Bank shall elect not to apply to the
Obligations, may be paid over by Bank to Debtor. At any time, whether Debtor is
or is not in default hereunder, Bank may notify persons obligated on any
Collateral to make payments directly to Bank and Bank may take control of all
proceeds of any Collateral. Until Bank elects to exercise such rights, Debtor,
as agent of Bank, shall collect and enforce all payments owed on the Collateral.
T. COMPLIANCE WITH STATE AND FEDERAL LAWS. Debtor will maintain its
existence, good standing and qualification to do business, where required, and
comply with all laws, regulations and governmental requirements, including
without limitation, environmental laws applicable to it or any of its property,
business operations and transactions.
U. ENVIRONMENTAL COVENANTS. Debtor shall immediately advise Bank in writing
of (i) any and all enforcement, cleanup, remedial, removal, or other
governmental or regulatory actions instituted, completed or threatened pursuant
to any applicable federal, state, or local laws, ordinances or regulations
relating to any Hazardous Materials affecting Debtor's business operations; and
(ii) all claims made or threatened by any third party against Debtor relating to
damages, contribution, cost recovery, compensation, loss or injury resulting
from any Hazardous Materials. Debtor shall immediately notify Bank of any
remedial action taken by Debtor with respect to Debtor's business operations.
Debtor will not use or permit any other party to use any Hazardous Materials at
any of Debtor's places of business or at any other property owned by Debtor
except such materials as are incidental to Debtor's normal course of business,
maintenance and repairs and which are handled in compliance with all applicable
environmental laws. Debtor agrees to permit Bank, its agents, contractors and
employees to enter and inspect any of Debtor's places of business or any other
property of Debtor at any reasonable times upon three (3) days prior notice for
the purposes of conducting an environmental investigation and audit (including
taking physical samples) to insure that Debtor is complying with this covenant
and Debtor shall reimburse Bank on demand for the costs of any such
environmental investigation and audit. Debtor shall provide Bank, its agents,
contractors, employees and representatives with access to and copies of any and
all data and documents relating to or dealing with any Hazardous Materials used,
generated, manufactured, stored or disposed of by Debtor's business operations
within five (5) days of the request therefor.
6. RIGHTS AND POWERS OF BANK.
A. GENERAL. Bank, before or after default, without liability to Debtor may:
obtain from any person information regarding Debtor or Debtor's business, which
information any such person also may furnish without liability to Debtor;
require Debtor (after default) to give possession or control of any Collateral
to Bank; indorse as Debtor's agent any instruments, documents or chattel paper
in the Collateral or representing proceeds of the Collateral; contact account
debtors directly to verify information furnished by Debtor; take control of
proceeds, including stock received as dividends or by reason of stock splits;
release the Collateral in its possession to any Debtor, temporarily or
otherwise; require additional Collateral; reject as unsatisfactory any property
hereafter offered by Debtor as Collateral; set standards from time to time to
govern what may be used as after acquired Collateral; designate, from time to
time, a certain percent of the Collateral as the loan value and require Debtor
to maintain the Obligation at or below such figure; take control of funds
generated by the Collateral, such as cash dividends, interest and proceeds or
refunds from insurance, and use same to reduce any part of the Obligation and
exercise all other rights which an owner of such Collateral may exercise, except
the right to vote or dispose of the Collateral before an Event of Default; at
any time transfer any of the Collateral or evidence thereof into its own name or
that of its nominee; and demand, collect, convert, redeem, receipt for, settle,
compromise, adjust, sue for, foreclose or realize upon the Collateral, in its
own name or in the name of Debtor, as Bank may determine. Bank shall not be
liable for failure to collect any account or instruments, or for any act or
omission on the part of Bank, its officers, agents or employees, except for its
or their own willful misconduct or gross negligence. The foregoing rights and
powers of Bank will be in addition to, and not a limitation upon, any rights and
powers of Bank given by law, elsewhere in this Agreement, or otherwise. If
Debtor fails to maintain any required insurance, to the extent permitted by
applicable law Bank may (but is not obligated to) purchase single interest
insurance coverage for the Collateral which insurance may at Bank's option (i)
protect only Bank and not provide any remuneration or protection for Debtor
directly and (ii) provide coverage only after the Obligation has been declared
due as herein provided. The premiums for any such insurance purchased by Bank
shall be a part of the Obligation and shall bear interest as provided in 3(d)
hereof.
B. CONVERTIBLE COLLATERAL. Bank may present for conversion any Collateral
which is convertible into any other instrument or investment security or a
combination thereof with cash, but Bank shall not have any duty to present for
conversion any Collateral unless it shall have received from Debtor detailed
written instructions to that effect at a time reasonably far in advance of the
final conversion date to make such conversion possible.
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7. DEFAULT.
A. EVENT OF DEFAULT. An event of default ("Event of Default") shall occur if:
(i) there is a loss, theft, damage or destruction of any material portion of the
Collateral for which there is no insurance coverage or for which, in the opinion
of Bank, there is insufficient insurance coverage; (ii) Debtor or any other
obligor on all or part of the Obligation shall fail to timely and properly pay
or observe, keep or perform any term, covenant, agreement or condition in this
Agreement or in any other agreement between Debtor and Bank or between Bank and
any other obligor on the Obligation, including, but not limited to, any other
note or instrument, loan agreement, security agreement, deed of trust, mortgage,
promissory note, guaranty, certificate, assignment, instrument, document or
other agreement concerning or related to the Obligation (collectively, the "Loan
Documents"), taking into account any provisions therein for notice and
opportunity to cure; (iii) Debtor or such other obligor shall fail to timely and
properly pay or observe, keep or perform any term, covenant, agreement or
condition in any agreement between such party and any affiliate or subsidiary of
NationsBank Corporation; (iv) Debtor or such other obligor shall fail to timely
and properly pay or observe, keep or perform any term, covenant, agreement or
condition in any lease agreement between such party and any lessor pertaining to
premises at which any Collateral is located or stored; or (v) Debtor or such
other obligor abandons any leased premises at which any Collateral is located or
stored and the Collateral is either moved without the prior written consent of
Bank or the Collateral remains at the abandoned premises.
B. RIGHTS AND REMEDIES. If any Event of Default shall occur, then, in each
and every such case, Bank may, without presentment, demand, or protest; notice
of default, dishonor, demand, non-payment, or protest; notice of intent to
accelerate all or any part of the Obligation; notice of acceleration of all or
any part of the Obligation; or notice of any other kind, all of which Debtor
hereby expressly waives, (except for any notice required under this Agreement,
any other Loan Document or applicable law); at any time thereafter exercise
and/or enforce any of the following rights and remedies at Bank's option:
i. ACCELERATION. The Obligation shall, at Bank's option, become
immediately due and payable, and the obligation, if any, of Bank to permit
further borrowings under the Obligation shall at Bank's option immediately cease
and terminate.
ii. POSSESSION AND COLLECTION OF THE COLLATERAL. At its option: (a) take
possession or control of, store, lease, operate, manage, sell, or instruct any
Agent or Broker to sell or otherwise dispose of, all or any part of the
Collateral; (b) notify all parties under any account or contract right forming
all or any part of the Collateral to make any payments otherwise due to Debtor
directly to Bank; (c) in Bank's own name, or in the name of Debtor, demand,
collect, receive, sue for, and give receipts and releases for, any and all
amounts due under such accounts and contract rights; (d) indorse as the agent of
Debtor any check, note, chattel paper, documents, or instruments forming all or
any part of the Collateral; (e) make formal application for transfer to Bank (or
to any assignee of Bank or to any purchaser of any of the Collateral) of all of
Debtor's permits, licenses, approvals, agreements, and the like relating to the
Collateral or to Debtor's business; (f) take any other action which Bank deems
necessary or desirable to protect and realize upon its security interest in the
Collateral; and (g) in addition to the foregoing, and not in substitution
therefor, exercise any one or more of the rights and remedies exercisable by
Bank under any other provision of this Agreement, under any of the other Loan
Documents, or as provided by applicable law (including, without limitation, the
Uniform Commercial Code as in effect in Texas (hereinafter referred to as the
"UCC")). In taking possession of the Collateral Bank may enter Debtor's
premises and otherwise proceed without legal process, if this can be done
without breach of the peace. Debtor shall, upon Bank's demand, promptly make
the Collateral or other security available to Bank at a place designated by
Bank, which place shall be reasonably convenient to both parties.
Bank shall not be liable for, nor be prejudiced by, any loss, depreciation or
other damages to the Collateral, unless caused by Bank's willful and malicious
act. Bank shall have no duty to take any action to preserve or collect the
Collateral.
iii. RECEIVER. Obtain the appointment of a receiver for all or any of the
Collateral, Debtor hereby consenting to the appointment of such a receiver and
agreeing not to oppose any such appointment.
iv. RIGHT OF SET OFF. Without notice or demand to Debtor, set off and
apply against any and all of the Obligation any and all deposits (general or
special, time or demand, provisional or final) and any other indebtedness, at
any time held or owing by Bank or any of Bank's agents or affiliates to or for
the credit of the account of Debtor or any guarantor or indorser of Debtor's
Obligation.
Bank shall be entitled to immediate possession of all books and records
evidencing any Collateral or pertaining to chattel paper covered by this
Agreement and it or its representatives shall have the authority to enter upon
any premises upon which any of the same, or any Collateral, may be situated and
remove the same therefrom without liability. Bank may surrender any insurance
policies in the Collateral and receive the unearned premium thereon. Debtor
shall be entitled to any surplus and shall be liable to Bank for any deficiency.
The proceeds of any disposition after default available to satisfy the
Obligation shall be applied to the Obligation in such order and in such manner
as Bank in its discretion shall decide.
Debtor specifically understands and agrees that any sale by Bank of all or part
of the Collateral pursuant to the terms of this Agreement may be effected by
Bank at times and in manners which could result in the proceeds of such sale as
being significantly and materially less than might have been received if such
sale had occurred at different times or in different manners, and Debtor hereby
releases Bank and its officers and representatives from and against any and all
obligations and liabilities arising out of or related to the timing or manner of
any such sale.
If, in the opinion of Bank, there is any question that a public sale or
distribution of any Collateral will violate any state or federal securities law,
Bank may offer and sell such Collateral in a transaction exempt from
registration under federal securities law, and any such sale made in good faith
by Bank shall be deemed "commercially reasonable".
8. GENERAL.
A. PARTIES BOUND. Bank's rights hereunder shall inure to the benefit of its
successors and assigns. In the event of any assignment or transfer by Bank of
any of the Obligation or the Collateral, Bank thereafter shall be fully
discharged from any responsibility with respect to the Collateral so assigned or
transferred, but Bank shall retain all rights and powers hereby given with
respect to any of the Obligation or the Collateral not so assigned or
transferred. All representations, warranties and agreements of Debtor if more
than one are joint and several and all shall be binding upon the personal
representatives, heirs, successors and assigns of Debtor.
NationsBank Security Agreement
Texas [Commercial] 2/96
-5-
<PAGE>
B. WAIVER. No delay of Bank in exercising any power or right shall operate as
a waiver thereof; nor shall any single or partial exercise of any power or right
preclude other or further exercise thereof or the exercise of any other power or
right. No waiver by Bank of any right hereunder or of any default by Debtor
shall be binding upon Bank unless in writing, and no failure by Bank to exercise
any power or right hereunder or waiver of any default by Debtor shall operate as
a waiver of any other or further exercise of such right or power or of any
further default. Each right, power and remedy of Bank as provided for herein or
in any of the Loan Documents, or which shall now or hereafter exist at law or in
equity or by statute or otherwise, shall be cumulative and concurrent and shall
be in addition to every other such right, power or remedy. The exercise or
beginning of the exercise by Bank of any one or more of such rights, powers or
remedies shall not preclude the simultaneous or later exercise by Bank of any or
all other such rights, powers or remedies.
C. AGREEMENT CONTINUING. This Agreement shall constitute a continuing
agreement, applying to all future as well as existing transactions, whether or
not of the character contemplated at the date of this Agreement, and if all
transactions between Bank and Debtor shall be closed at any time, shall be
equally applicable to any new transactions thereafter. Provisions of this
Agreement, unless by their terms exclusive, shall be in addition to other
agreements between the parties. Time is of the essence of this Agreement.
D. DEFINITIONS. Unless the context indicates otherwise, definitions in the
UCC apply to words and phrases in this Agreement; if UCC definitions conflict,
Article 9 definitions apply.
E. NOTICES. Notice shall be deemed reasonable if mailed postage prepaid at
least five (5) days before the related action (or if the UCC elsewhere specifies
a longer period, such longer period) to the address of Debtor given above, or to
such other address as any party may designate by written notice to the other
party. Each notice, request and demand shall be deemed given or made, if sent
by mail, upon the earlier of the date of receipt or five (5) days after deposit
in the U.S. Mail, first class postage prepaid, or if sent by any other means,
upon delivery.
F. MODIFICATIONS. No provision hereof shall be modified or limited except by
a written agreement expressly referring hereto and to the provisions so modified
or limited and signed by Debtor and Bank. The provisions of the Agreement shall
not be modified or limited by course of conduct or usage of trade.
G. APPLICABLE LAW AND PARTIAL INVALIDITY. This Agreement has been delivered
in the State of Texas and shall be construed in accordance with the laws of that
State. Wherever possible each provision of this Agreement shall be interpreted
in such manner as to be effective and valid under applicable law, but if any
provision of this Agreement shall be prohibited by or invalid under applicable
law, such provision shall be ineffective to the extent of such prohibition or
invalidity, without invalidating the remainder of such provisions or the
remaining provisions of this Agreement. The invalidity or unenforceability of
any provision of any Loan Document to any person or circumstance shall not
affect the enforceability or validity of such provision as it may apply to other
persons or circumstances.
H. FINANCING STATEMENT. To the extent permitted by applicable law, a carbon,
photographic or other reproduction of this Agreement or any financing statement
covering the Collateral shall be sufficient as a financing statement.
I. ARBITRATION. ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE PARTIES HERETO
INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO THIS
INSTRUMENT, AGREEMENT OR DOCUMENT OR ANY RELATED INSTRUMENTS, AGREEMENTS OR
DOCUMENTS, INCLUDING ANY CLAIM BASED ON OR ARISING FROM AN ALLEGED TORT, SHALL
BE DETERMINED BY BINDING ARBITRATION IN ACCORDANCE WITH THE FEDERAL ARBITRATION
ACT (OR IF NOT APPLICABLE, THE APPLICABLE STATE LAW), THE RULES OF PRACTICE AND
PROCEDURE FOR THE ARBITRATION OF COMMERCIAL DISPUTES OF J.A.M.S./ENDISPUTE OR
ANY SUCCESSOR THEREOF ("J.A.M.S."), AND THE "SPECIAL RULES" SET FORTH BELOW. IN
THE EVENT OF ANY INCONSISTENCY, THE SPECIAL RULES SHALL CONTROL. JUDGMENT UPON
ANY ARBITRATION AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. ANY
PARTY TO THIS INSTRUMENT, AGREEMENT OR DOCUMENT MAY BRING AN ACTION, INCLUDING A
SUMMARY OR EXPEDITED PROCEEDING, TO COMPEL ARBITRATION OF ANY CONTROVERSY OR
CLAIM TO WHICH THIS AGREEMENT APPLIES IN ANY COURT HAVING JURISDICTION OVER SUCH
ACTION.
I. SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED IN THE COUNTY OF ANY
-------------
BORROWER'S DOMICILE AT THE TIME OF THE EXECUTION OF THIS INSTRUMENT, AGREEMENT
OR DOCUMENT AND ADMINISTERED BY J.A.M.S. WHO WILL APPOINT AN ARBITRATOR; IF
J.A.M.S. IS UNABLE OR LEGALLY PRECLUDED FROM ADMINISTERING THE ARBITRATION, THEN
THE AMERICAN ARBITRATION ASSOCIATION WILL SERVE. ALL ARBITRATION HEARINGS WILL
BE COMMENCED WITHIN 90 DAYS OF THE DEMAND FOR ARBITRATION; FURTHER, THE
ARBITRATOR SHALL ONLY, UPON A SHOWING OF CAUSE, BE PERMITTED TO EXTEND THE
COMMENCEMENT OF SUCH HEARING FOR UP TO AN ADDITIONAL 60 DAYS.
II. RESERVATION OF RIGHTS. NOTHING IN THIS ARBITRATION PROVISION SHALL BE
---------------------
DEEMED TO (I) LIMIT THE APPLICABILITY OF ANY OTHERWISE APPLICABLE STATUTES OF
LIMITATION OR REPOSE AND ANY WAIVERS CONTAINED IN THIS INSTRUMENT, AGREEMENT OR
DOCUMENT; OR (II) BE A WAIVER BY BANK OF THE PROTECTION AFFORDED TO IT BY 12
U.S.C. SEC. 91 OR ANY SUBSTANTIALLY EQUIVALENT STATE LAW; OR (III) LIMIT THE
RIGHT OF BANK HERETO (A) TO EXERCISE SELF HELP REMEDIES SUCH AS (BUT NOT
LIMITED TO) SETOFF, OR (B) TO FORECLOSE AGAINST ANY REAL OR PERSONAL PROPERTY
COLLATERAL, OR (C) TO OBTAIN FROM A COURT PROVISIONAL OR ANCILLARY REMEDIES SUCH
AS (BUT NOT LIMITED TO) INJUNCTIVE RELIEF, WRIT OF POSSESSION OR THE APPOINTMENT
OF A RECEIVER. BANK MAY EXERCISE SUCH SELF HELP RIGHTS, FORECLOSE UPON SUCH
PROPERTY, OR OBTAIN SUCH PROVISIONAL OR ANCILLARY REMEDIES BEFORE, DURING OR
AFTER THE PENDENCY OF ANY ARBITRATION PROCEEDING BROUGHT PURSUANT TO THIS
INSTRUMENT, AGREEMENT OR DOCUMENT. NEITHER THIS EXERCISE OF SELF HELP REMEDIES
NOR THE INSTITUTION OR MAINTENANCE OF AN ACTION FOR FORECLOSURE OR PROVISIONAL
OR
NationsBank Security Agreement
Texas [Commercial] 2/96
-6-
<PAGE>
ANCILLARY REMEDIES SHALL CONSTITUTE A WAIVER OF THE RIGHT OF ANY PARTY,
INCLUDING THE CLAIMANT IN ANY SUCH ACTION, TO ARBITRATE THE MERITS OF THE
CONTROVERSY OR CLAIM OCCASIONING RESORT TO SUCH REMEDIES.
J. ADDITIONAL PROVISIONS. [Omitted].
K. NOTICE OF FINAL AGREEMENT.
THIS WRITTEN SECURITY AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE
FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE
ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
IN WITNESS WHEREOF, the parties hereto have caused this Security Agreement to be
duly executed by their duly authorized representatives as of the date first
above written.
BANK/SECURED PARTY: DEBTOR(S)/PLEDGOR(S):
NATIONSBANK, N.A. TEXAS TIMBERJACK, INC.
By:______________________________ By_________________________________________
Mike Boatman, its Secretary
Name: Stacy Irwin
Title: Vice President
NationsBank Security Agreement
Texas [Commercial] 2/96
-7-
<PAGE>
EXHIBIT 10.93
NONINCENTIVE STOCK OPTION AGREEMENT FOR THE
1994 EMPLOYEE STOCK OPTION PLAN FOR
POLYPHASE CORPORATION
A Nonincentive Stock Option (the "Option") for a total of 30,000 shares of
Common Stock, par value $0.01 per share, of Polyphase Corporation (the
"Company") is hereby granted to
MICHAEL F. BUCK
(the "Optionee") at the price determined as provided in, and in all respects
subject to the terms, definitions and provisions of, the 1994 Employee Option
Plan for Polyphase Corporation (the "Plan"), which is incorporated herein by
reference.
1. Option Price. The option price is $.75 for each share.
------------
2. Exercise of Option. This Option shall be exercisable in accordance with
------------------
the provisions of the Plan as follows:
(i) Schedule of Rights to Exercise. This option shall be
------------------------------
exercisable, in whole or in part, immediately on the date of
grant.
(ii) Method of Exercise. This Option shall be exercisable by a
------------------
written notice which shall:
a. state the election to exercise the Option and the number of
shares in respect of which it is being exercised;
b. be signed by the person or persons entitled to exercise the
Option, and if the Option is being exercised by any person or
persons other than the Optionee, be accompanied by proof,
satisfactory to the Company, of the right of such person or
persons to exercise the Option; and
(iii) Payment. Payment of the purchase price of any shares with
-------
respect to which this Option is being exercised shall be by
cash, certified or bank cashier's check, money order, personal
check, with shares of Common Stock of the Company or by a
combination of the above delivered to the Company and their
exercise shall not be effective until such payment is made. If
the exercise price is paid in whole or in part with shares of
Common Stock of the Company, the value of the shares surrendered
shall be the Fair Market Value on the date received by the
Company. The certificate or certificates for shares of Common
Stock as to which the Option shall be exercised shall be
registered in the name of the person or persons exercising the
Option.
<PAGE>
(iv) Withholding. The Optionee shall make satisfactory arrangements
-----------
for the withholding of any amounts necessary for withholding in
accordance with applicable federal or state income tax laws.
(v) Restrictions on Exercise.
------------------------
(a) This Option may not be exercised if the issuance of the
shares upon such exercise would constitute a violation of any
applicable federal or state securities or other law or valid
regulation. As a condition to the exercise of this Option,
the Company may require the person exercising this Option to
make any arrangements and undertakings that may be required
by any applicable law or regulation.
(b) Shares issued upon exercise of this Option without
registration of such shares under the Securities Act of 1933,
as amended (the "Act"), shall be restricted securities
subject to the terms of Rule 144 under the Act. The
certificates representing any such shares shall bear an
appropriate legend restricting transfer and the transfer
agent of the Company shall be given stop transfer
instructions with respect to such shares.
(vi) Surrender of Option. Upon exercise of this Option in part, if
-------------------
requested by the Company, the Optionee shall deliver this Option
and any other written agreements executed by the Company and the
Optionee with respect to this Option to the Company who shall
endorse or cause to be endorsed thereon a notation of such
exercise and return all agreements to the Optionee.
3. Non-transferability of Option. This Option may not be transferred by the
-----------------------------
Optionee otherwise than by will or the laws of descent and distribution and
so long as an Optionee lives, only such Optionee or his guardian or legal
representative shall have the right to exercise this Option. The terms of
this option shall be binding upon the executors, administrators, heirs,
successors and assigns of the Optionee.
4. Term of Option. This Option may not be exercised after the expiration of
--------------
ten (10) years from the Date of Grant of this Option and is subject to
earlier termination as provided in the Plan. This Option may be exercised
during such term only in accordance with the Plan and the terms of this
Option.
5. Law Governing. THIS OPTION IS INTENDED TO BE PERFORMED IN THE STATE OF
-------------
TEXAS AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH AND GOVERNED
BY THE LAWS OF SUCH STATE.
2
<PAGE>
Date of Grant: March 17, 1998
POLYPHASE CORPORATION
By:
----------------------------
President
ATTEST:
- -----------------------
Secretary
Optionee acknowledges receipt of a copy of the Plan and represents that he is
familiar with the terms and provisions thereof, and hereby accepts this Option
subject to all the terms and provisions of the Plan. Optionee hereby agrees to
accept as binding, conclusive and final all decisions or interpretations of the
Committee (as defined in the Plan) upon any questions arising under the Plan.
------------------------------
Optionee
3
<PAGE>
EXHIBIT 10.94
NONINCENTIVE STOCK OPTION AGREEMENT FOR THE
1994 EMPLOYEE STOCK OPTION PLAN FOR
POLYPHASE CORPORATION
A Nonincentive Stock Option (the "Option") for a total of 50,000 shares of
Common Stock, par value $0.01 per share, of Polyphase Corporation (the
"Company") is hereby granted to
GEORGE R. SCHRADER
(the "Optionee") at the price determined as provided in, and in all respects
subject to the terms, definitions and provisions of, the 1994 Employee Option
Plan for Polyphase Corporation (the "Plan"), which is incorporated herein by
reference.
1. Option Price. The option price is $.75 for each share.
------------
2. Exercise of Option. This Option shall be exercisable in accordance with
------------------
the provisions of the Plan as follows:
(i) Schedule of Rights to Exercise. This option shall be
------------------------------
exercisable, in whole or in part, immediately on the date of
grant.
(ii) Method of Exercise. This Option shall be exercisable by a
------------------
written notice which shall:
a. state the election to exercise the Option and the number of
shares in respect of which it is being exercised;
b. be signed by the person or persons entitled to exercise the
Option, and if the Option is being exercised by any person or
persons other than the Optionee, be accompanied by proof,
satisfactory to the Company, of the right of such person or
persons to exercise the Option; and
(iii) Payment. Payment of the purchase price of any shares with
-------
respect to which this Option is being exercised shall be by
cash, certified or bank cashier's check, money order, personal
check, with shares of Common Stock of the Company or by a
combination of the above delivered to the Company and their
exercise shall not be effective until such payment is made. If
the exercise price is paid in whole or in part with shares of
Common Stock of the Company, the value of the shares surrendered
shall be the Fair Market Value on the date received by the
Company. The certificate or certificates for shares of Common
Stock as to which the Option shall be exercised shall be
registered in the name of the person or persons exercising the
Option.
<PAGE>
(iv) Withholding. The Optionee shall make satisfactory arrangements
-----------
for the withholding of any amounts necessary for withholding in
accordance with applicable federal or state income tax laws.
(v) Restrictions on Exercise.
------------------------
(a) This Option may not be exercised if the issuance of the
shares upon such exercise would constitute a violation of any
applicable federal or state securities or other law or valid
regulation. As a condition to the exercise of this Option,
the Company may require the person exercising this Option to
make any arrangements and undertakings that may be required
by any applicable law or regulation.
(b) Shares issued upon exercise of this Option without
registration of such shares under the Securities Act of 1933,
as amended (the "Act"), shall be restricted securities
subject to the terms of Rule 144 under the Act. The
certificates representing any such shares shall bear an
appropriate legend restricting transfer and the transfer
agent of the Company shall be given stop transfer
instructions with respect to such shares.
(vi) Surrender of Option. Upon exercise of this Option in part, if
-------------------
requested by the Company, the Optionee shall deliver this Option
and any other written agreements executed by the Company and the
Optionee with respect to this Option to the Company who shall
endorse or cause to be endorsed thereon a notation of such
exercise and return all agreements to the Optionee.
3. Non-transferability of Option. This Option may not be transferred by the
-----------------------------
Optionee otherwise than by will or the laws of descent and distribution and
so long as an Optionee lives, only such Optionee or his guardian or legal
representative shall have the right to exercise this Option. The terms of
this option shall be binding upon the executors, administrators, heirs,
successors and assigns of the Optionee.
4. Term of Option. This Option may not be exercised after the expiration of
--------------
ten (10) years from the Date of Grant of this Option and is subject to
earlier termination as provided in the Plan. This Option may be exercised
during such term only in accordance with the Plan and the terms of this
Option.
5. Law Governing. THIS OPTION IS INTENDED TO BE PERFORMED IN THE STATE OF
-------------
TEXAS AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH AND GOVERNED
BY THE LAWS OF SUCH STATE.
2
<PAGE>
Date of Grant: March 17, 1998
POLYPHASE CORPORATION
By:
----------------------
President
ATTEST:
- ------------------------
Secretary
Optionee acknowledges receipt of a copy of the Plan and represents that he is
familiar with the terms and provisions thereof, and hereby accepts this Option
subject to all the terms and provisions of the Plan. Optionee hereby agrees to
accept as binding, conclusive and final all decisions or interpretations of the
Committee (as defined in the Plan) upon any questions arising under the Plan.
-------------------------
Optionee
3
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
Polyphase Instrument Co.
Texas Timberjack, Inc.
Overhill Farms, Inc.
Phasenet, Incorporated
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-3 No. 33-85334) of Polyphase Corporation and in the related Prospectus and in
the Registration Statements (Form S-8 No. 333-03333, No. 33-82008 and No. 33-
72458) pertaining to the 1994 Stock Option Plan and various stock option
agreements of our report dated December __, 1998, with respect to the
consolidated financial statements and schedules of Polyphase Corporation
included in this Annual Report (Form 10-K) for the year ended September 30,
1998.
ERNST & YOUNG LLP
December 28, 1998
Dallas, Texas
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> SEP-30-1998
<CASH> 424
<SECURITIES> 0
<RECEIVABLES> 19,858
<ALLOWANCES> 563
<INVENTORY> 34,569
<CURRENT-ASSETS> 55,379
<PP&E> 13,978
<DEPRECIATION> 7,526
<TOTAL-ASSETS> 81,545
<CURRENT-LIABILITIES> 48,208
<BONDS> 24,864
<COMMON> 151
0
1
<OTHER-SE> 6,449
<TOTAL-LIABILITY-AND-EQUITY> 81,545
<SALES> 146,231
<TOTAL-REVENUES> 146,231
<CGS> 120,379
<TOTAL-COSTS> 120,379
<OTHER-EXPENSES> 18,168
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,872
<INCOME-PRETAX> 344
<INCOME-TAX> 57
<INCOME-CONTINUING> 287
<DISCONTINUED> 0
<EXTRAORDINARY> (616)
<CHANGES> 0
<NET-INCOME> (329)
<EPS-PRIMARY> ($.03)
<EPS-DILUTED> ($.03)
</TABLE>
