SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For Quarterly Period Ended June 30, 1995
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 1-11046
TOP SOURCE TECHNOLOGIES, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 84-1027821
(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification Number)
2000 PGA BLVD., SUITE 3200, PALM BEACH GARDENS, FLORIDA
33408
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (407)
775-5756
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at August 1, 1995
Common stock, $.001 par value
27,421,697 shares
TOP SOURCE TECHNOLOGIES, INC.
FORM 10-Q
INDEX
Page
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Balance Sheets as of June 30, 1995
(Unaudited) and September 30, 1994 . . . . . . . . . . . . . . . . 1
Consolidated Statements of Operations for the
Three and Nine Months Ended June 30, 1995 and 1994
(Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-3
Consolidated Statements of Cash Flows for the
Nine Months Ended June 30, 1995 and 1994
(Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Notes to Unaudited Interim Consolidated
Financial Statements . . . . . . . . . . . . . . . . . . . . . . 5-7
ITEM 2. Management's Discussion and Analysis of Interim
Financial Condition and Results of Operations . . . . . . 7-10
PART II - OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . 10
i
TOP SOURCE TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 1995 AND SEPTEMBER 30, 1994
(UNAUDITED)
JUNE 30, SEPTEMBER
ASSETS 1995 1994
CURRENT ASSETS: (RESTATED)
CASH AND CASH EQUIVALENTS 1,146,002 1,429,362
ACCOUNTS RECEIVABLE TRADE (NET OF ALLOWANCE OF
$88,135 AND $150,000 AT JUNE 30,1995 AND
SEPTEMBER 30, 1994, RESPECTIVELY) 3,379,169 3,363,560
ADVANCES TO OFFICERS 45,000 40,000
INVENTORIES 642,096 356,498
PREPAID EXPENSES 351,076 307,605
OTHER 116,326 262,875
------------ ------------
TOTAL CURRENT ASSETS 5,679,669 5,759,900
PROPERTY AND EQUIPMENT, NET 2,967,527 2,204,858
MANUFACTURING AND DISTRIBUTION RIGHTS AND PATENTS, NET 374,620 376,799
CAPITALIZED DATABASE, NET 2,758,402 2,916,527
INTANGIBLE ASSETS RELATING TO BUSINESSES ACQUIRED, NET 4,799,936 4,869,746
DEFERRED INCOME TAX ASSETS, NET 2,270,000 2,270,000
OTHER ASSETS, NET 836,653 82,125
------------ ------------
TOTAL ASSETS 19,686,807 18,479,955
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
ACCOUNTS PAYABLE 1,696,352 1,605,322
ACCRUED LIABILITIES 464,269 657,779
DEFERRED SERVICE REVENUE 350,000 624,642
NOTE PAYABLE-AFFILIATE --- 88,042
------------ ------------
TOTAL CURRENT LIABILITIES 2,510,621 2,975,785
SENIOR CONVERTIBLE NOTES 2,060,000 ---
------------ ------------
TOTAL LIABILITIES 4,570,621 2,975,785
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
PREFERRED STOCK-$.10 PAR VALUE, 5,000,000 SHARES
AUTHORIZED; NONE OUTSTANDING --- ---
COMMON STOCK-$.001 PAR VALUE, 50,000,000 SHARES
AUTHORIZED; 27,354,917 AND 26,716,395 SHARES ISSUED
JUNE 30 AND SEPTEMBER 30, RESPECTIVELY 27,355 26,716
ADDITIONAL PAID-IN CAPITAL 26,081,421 25,214,445
ACCUMULATED DEFICIT (10,860,805) (9,605,206)
TREASURY STOCK-AT COST; 87,534 SHARES (131,785) (131,785)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 15,116,186 15,504,170
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 19,686,807 18,479,955
============ ============
SEE ACCOMPANYING NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS.
TOP SOURCE TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30,
1995 AND 1994 (UNAUDITED)
1995 1994
------------ ------------
PRODUCT SALES 3,673,738 2,231,749
SERVICE REVENUE 1,238,822 1,703,185
OTHER --- ---
------------ ------------
NET SALES 4,912,560 3,934,934
COST OF PRODUCT SALES 2,233,218 1,348,400
COST OF SERVICES 1,155,417 1,349,992
OTHER --- ---
------------ ------------
COST OF SALES 3,388,635 2,698,392
------------ ------------
GROSS PROFIT 1,523,925 1,236,542
EXPENSES:
GENERAL AND ADMINISTRATIVE 1,456,372 1,207,980
SELLING AND MARKETING 502,811 285,507
PROFESSIONAL FEES 38,925 93,088
DEPRECIATION AND AMORTIZATION 111,549 115,956
RESEARCH AND DEVELOPMENT 12,362 33,969
------------ ------------
TOTAL EXPENSES 2,122,019 1,736,500
------------ ------------
LOSS FROM OPERATIONS (598,094) (499,958)
OTHER INCOME (EXPENSE):
INTEREST INCOME 9,964 18,475
INTEREST EXPENSE (16,481) ---
INTEREST EXPENSE-AFFILIATE --- (1,198)
OTHER INCOME, NET 207,305 ---
------------ ------------
NET OTHER INCOME 200,788 17,277
------------ ------------
NET LOSS BEFORE INCOME TAXES (397,306) (482,681)
INCOME TAX BENEFIT --- 188,232
------------ ------------
NET LOSS (397,306) (294,449)
============ ============
NET LOSS PER WEIGHTED AVERAGE COMMON SHARE
OUTSTANDING (0.01) (0.01)
============ ============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 27,255,444 26,255,980
============ ============
SEE ACCOMPANYING NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS.
TOP SOURCE TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE NINE MONTHS ENDED JUNE 30,
1995 AND 1994 (UNAUDITED)
1995 1994
------------ ------------
PRODUCT SALES 10,636,033 6,469,994
SERVICE REVENUE 4,070,038 5,128,811
OTHER --- 29,643
------------ ------------
NET SALES 14,706,071 11,628,448
------------ ------------
COST OF PRODUCT SALES 6,542,952 3,811,002
COST OF SERVICES 3,566,129 3,631,636
OTHER --- 9,771
------------ ------------
COST OF SALES 10,109,081 7,452,409
------------ ------------
GROSS PROFIT 4,596,990 4,176,039
EXPENSES:
GENERAL AND ADMINISTRATIVE 4,120,399 2,607,015
SELLING AND MARKETING 1,303,840 822,100
PROFESSIONAL FEES 209,694 310,108
DEPRECIATION AND AMORTIZATION 396,287 275,149
RESEARCH AND DEVELOPMENT 32,340 93,123
------------ ------------
TOTAL EXPENSES 6,062,560 4,107,495
------------ ------------
INCOME (LOSS) FROM OPERATIONS (1,465,570) 68,544
OTHER INCOME (EXPENSE):
INTEREST INCOME 37,621 22,839
INTEREST EXPENSE (18,908) (68,304)
INTEREST EXPENSE-AFFILIATE --- (9,202)
OTHER INCOME, NET 191,258 267,872
------------ ------------
NET OTHER INCOME 209,971 213,205
------------ ------------
NET INCOME (LOSS) BEFORE INCOME TAXES (1,255,599) 281,749
INCOME TAX BENEFIT --- 2,408,232
------------ ------------
NET INCOME (LOSS) (1,255,599) 2,689,981
============ ============
NET LOSS PER WEIGHTED AVERAGE COMMON SHARE
OUTSTANDING (0.05)
============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 27,193,954
============
NET INCOME PER COMMON AND COMMON
EQUIVALENT SHARE:
PRIMARY 0.10
============
FULLY DILUTED 0.10
COMMON AND COMMON EQUIVALENT SHARES: ============
PRIMARY 28,131,958
============
FULLY DILUTED 28,132,953
============
SEE ACCOMPANYING NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS.
TOP SOURCE TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED JUNE 30,
1995 AND 1994 (UNAUDITED)
1995 1994
OPERATING ACTIVITIES: ------------ ------------
NET INCOME (LOSS) (1,255,599) 2,689,981
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO
NET CASH USED IN OPERATING ACTIVITIES:
DEPRECIATION 685,584 322,867
AMORTIZATION 274,565 268,016
DISCOUNT AMORTIZATION --- 52,052
AMORTIZATION OF DEFERRED OFFICERS' COMPENSATION --- 13,950
DISPOSAL OF EQUIPMENT 34,846 45,151
DEFERRED INCOME TAXES --- (2,408,232)
ADVANCES TO OFFICERS (45,000) (100,000)
REPAYMENTS FROM OFFICER 40,000 100,000
INCREASE IN ACCOUNTS RECEIVABLE, NET (15,609) (1,062,945)
INCREASE IN INVENTORIES (285,598) (145,248)
INCREASE IN PREPAID EXPENSES (43,471) (120,597)
DECREASE (INCREASE) IN OTHER ASSETS 123,301 (208,634)
DECREASE IN ACCOUNTS PAYABLE AND ACCRUED LIABILITI (377,122) (172,482)
------------ ------------
NET CASH USED IN OPERATING ACTIVITIES (864,103) (726,121)
INVESTING ACTIVITIES:
PURCHASES OF PROPERTY AND EQUIPMENT, NET (1,567,099) (996,877)
ADDITIONS TO PATENT COSTS (41,732) (93,800)
INCREASE IN OTHER ASSETS (650,000) ---
PURCHASE OF BUSINESSES, NET --- (135,656)
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (2,258,831) (1,226,333)
FINANCING ACTIVITIES:
PROCEEDS FROM SALE OF COMMON STOCK, NET 867,616 4,567,009
PROCEEDS FROM BORROWINGS 4,460,000 600,000
REPAYMENTS OF BORROWINGS (2,488,042) (1,627,616)
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 2,839,574 3,539,393
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (283,360) 1,586,939
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,429,362 362,351
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD 1,146,002 1,949,290
============ ============
SEE ACCOMPANYING NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS.
TOP SOURCE TECHNOLOGIES, INC.
FORM 10-Q
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying financial statements of Top Source Technologies, Inc. (the
"Company") have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Form
10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included in the accompanying financial statements.
The consolidated financial statements include the accounts of the Company and
its subsidiaries. All significant intercompany accounts and transactions have
been eliminated. The results of operations of any interim period are not
necessarily indicative of the results of operations for the fiscal year. For
further information, refer to the financial statements and footnotes thereto
included in the Company's annual report on Form 10-K/A No. 2 Amendment for the
year ended September 30, 1994. Certain fiscal year 1994 amounts have been
reclassified to conform to current year presentation.
2. INVENTORIES
Inventories consisted of the following:
June 30 September 30
1995 1994
Raw materials $ 417,965 $ 292,211
Finished goods 224,131 64,287
$ 642,096 $ 356,498
3. INCOME TAXES
In February 1992, the Financial Accounting Standards Board adopted
Statement of Financial Accounting Standards ("SFAS") No. 109 "Accounting for
Income Taxes". The Company implemented SFAS No. 109 in fiscal 1994 by
accounting for the cumulative effect of the change in the period of adoption.
The cumulative effect upon adoption was not material. SFAS No. 109 changed the
method of computing deferred income taxes from a deferred method to a liability
method. Under the liability method, deferred income taxes are determined based
on temporary differences between the financial statement and tax bases of assets
and liabilities, using enacted tax rates in effect during the years in which the
differences are expected to reverse, and on available tax carryforwards. At
June 30, 1995, the Company's balance sheet reflected a deferred income
tax asset of $2,270,000 and had net operating loss carryforwards of
approximately $12,000,000 which may be used to offset future tax, if any. The
Company has recorded a deferred income tax benefit and related deferred income
tax asset based on the pre-tax loss in the first nine months of fiscal 1995. A
valuation allowance in the same amount has been established since the Company's
assessment of future taxable income is unchanged from September 30. 1994. The
Company has determined based on expected future taxable income, which can be
predicted with reasonable certainty, that it is more likely than not that the
net deferred tax assets at June 30, 1995 will be realized before the expiration
of the underlying net operating loss carryforwards which will begin expiring in
2001.
TOP SOURCE TECHNOLOGIES, INC.
FORM 10-Q
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
3. INCOME TAXES, CONT'D
The Company estimates future taxable income by projecting the results of
its business activities based on known factors existing at the current date.
The Company's estimate of future taxable income changed from the beginning of
fiscal 1994 due to: (1) greater certainty regarding the Company's OHSS units for
Jeep(R) Cherokee production installation (this application began in September
1993); (2) greater penetration in the Jeep(R) Grand Cherokee OHSS application
being attained; (3) the decision by Chrysler to convert its Toledo facility to
full utilization for Jeep(R) Cherokee production, thereby increasing the number
of units the Company would be supplying (previously the Toledo facility produced
not only Jeep(R) Cherokees but also other Chrysler models; and (4) progress,
during mid-fiscal year 1995, in gaining new vehicle applications for the OHSS.
4. SALE OF ENGINE FUEL ECONOMY EMISSIONS CONTROL REDUCTION SYSTEM TECHNOLOGY
("EFECS") TO ADRENALINE, INC.
On May 10, 1995, the Company entered into an agreement with Adrenaline,
Inc. ("Adrenaline"), the original inventor of the Engine Fuel Economy Emission
Control Reduction System ("EFECS") technology, to sell the proprietary
technology back to Adrenaline. Under the terms of the agreement the Company
assigned its interest in this technology in return for future royalties.
Beginning in December 31, 1996, the Company will receive an annual royalty equal
to the greater of (i)$50,000, or (ii) an amount based upon royalties received
from sublicensing and a percentage of Adrenaline's net sales derived from the
technology. After the Company receives $400,000 in cumulative royalty payments,
the Company will receive (i) 25% of any royalty income received by Adrenaline
from sublicensing and (ii) 2% of Adrenaline's net sales of the technology. This
technology is currently being tested by a major automotive company, and the
Company believes that this technology is viable. However, due to the contingent
nature of the agreement which enables Adrenaline to withhold royalty payments in
the event of a patent infringement suit brought against this technology, the
Company has not recorded any royalty receivables or income in its June 30, 1995
financial statements.
5. CORRECTION OF REVENUE RECOGNITION PROCEDURES FOR THE COMPANY'S OIL
ANALYSIS SEGMENT
Effective April 1, 1995, the Company changed its method of revenue
recognition for its oil analysis test kits (oil analysis service segment).
Previously, the Company recorded revenue from the advance billing of unprocessed
test kits mailed to customers to collect oil samples. After April 1, 1995, the
Company began correctly recognizing revenue at the time the oil analysis service
is rendered. Through the use of computer modeling techniques, creation of a new
software program to track test kits by identification numbers, and based on an
analytic review of the activity of major customers, the Company has determined
that retroactive application of this revised method to correct the accounting
error from using the previous method from the period October 1, 1993 through
September 30, 1994 would have resulted in a cumulative zero net change in net
income for the period. Due to the large number of samples processed, the
capabilities of the computer system during this period and the cost
prohibitive nature of manually reconstructing records, the effect on quarterly
financial reporting for this period ended September 30, 1994 is indeterminable.
Consequently, the Company has not restated quarterly financial results for
the period ended September 30, 1994. In order to reflect the change in
revenue recognition method, the caption in the liability section of the
Company's balance sheet at September 30, 1994 was changed from "Accrued Testing
Costs" to "Deferred Service Revenue". Advance billings for oil analysis
services will now be considered deferred revenue until such time as the oil
analysis is rendered.
TOP SOURCE TECHNOLOGIES, INC.
FORM 10-Q
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
5. CORRECTION OF REVENUE RECOGNITION PROCEDURES FOR THE COMPANY'S OIL
ANALYSIS SEGMENT, CONT'D
Application of the correct method of recording oil service revenue for the
period October 1, 1994 through June 30, 1995 results in an increase of
approximately $273,000 in revenue and net income of .01 per share over the
previous method. This increase is included in the year to date revenue and
income for the nine month period in the accompanying financial statements for
the period ended June 30, 1995. Approximately $110,000 and .00 per share of the
total increase in revenue and net income of $273,000 occurred in the Company's
current reporting period from April 1, 1995 to June 30, 1995, and is reflected
in the accompanying financial statements for the quarter ended June 30, 1995.
Since the quarterly impact of the retroactive application of this change is
indeterminable for the year ended September 30, 1994, the Company's Management's
Discussion and Analysis section (Item 2) relating to revenue, gross margin and
net income has been expanded to reflect operating performance with and without
this adjustment. After April 1, 1995, the Company implemented a new computer
order entry system to track samples from the time of mailing unprocessed kits
until the delivery sample results, and has instituted new internal control and
accounting procedures to ensure proper prospective accounting treatment.
6. LEGAL PROCEEDINGS
On April 20, 1994, the Company initiated a suit in U.S. District in
Atlanta, Georgia against Professional Service Industries, Inc.("PSI") for
failure to honor contractual obligations relating to oil testing samples sold
prior to the Company's purchase of PSI on July 16, 1993. On June 26, 1995, PSI
paid the Company $229,500, without any conditions attached, in anticipation of
the Company dismissing the lawsuit against PSI. The Company believes that the
amount received from PSI does not constitute an accord and satisfaction of the
amount which PSI owes to United Testing Group, Inc. ("UTG"). The Company
believes that PSI owes the Company an additional $444,648 plus interest and
legal fees. The Company's counsel believes that the Company's suit is with
merit.
The amount of $229,500 has been classified in the Company's financial
statements for the quarter ended June 30, 1995 as "Other Income." The Company
has not recorded any receivables or income related to the potential recovery of
additional amounts in this suit.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF INTERIM FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Total revenue for the three and nine month periods ended June 30, 1995,
including the adjustment for deferred service revenue (outlined in Note 5), was
$4,912,560 and 14,706,071, respectively, compared to $3,934,934 and $11,628,448,
respectively, for the same periods in 1994. Total revenue excluding deferred
service revenue for the three and nine month periods ended June 30, 1995 was
$4,802,560 and $14,432,440, respectively, compared to $3,934,934 and
$11,628,448, respectively, for the same period in 1994. The increase in revenue
for the three and nine month periods ended June 30, 1995 is attributable to an
increase of approximately 65% in product sales at the Company's Top Source
Automotive, Inc. subsidiary ("TSA") of the
TOP SOURCE TECHNOLOGIES, INC.
FORM 10-Q
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF INTERIM FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONT'D
RESULTS OF OPERATIONS, CONT'D
Overhead Sound Systems ("OHSS") for both periods offset by a decrease in oil
analysis sales at UTG of approximately $464,363 and $1,058,773 respectively,
including the adjustment for deferred revenue; and $574,363 and $1,332,404
excluding the adjustment.
The increase in the comparable sales volume of OHSS units is attributable
to an increased installation rate and sales of OHSS products for the Chrysler's
Jeep(R) Wrangler and Jeep(R) Cherokee vehicles as well as increased deliveries
to Chrysler Venezuela for Jeep(R) Cherokee and Jeep(R) Grand Cherokee
applications. The decrease in comparable sales volume for oil analysis
services at UTG is primarily attributable to the loss of several major oil
analysis customers. The Company is aggressively attempting to replace the lost
customers by offering expanded services to existing customers and by acquiring
new customers. There can be no assurances that these efforts will be successful.
In the third quarter of 1995, the rollout of OSAs paused due to technical
difficulties which the Company believes are now resolved. On August 11, 1995,
the rollout resumed with the shipment of the first redesigned unit. The Company
anticipates that the resumed rollout will be successful. However, the timing
and number of units to be deployed is indeterminable.
Gross profit margins, excluding the adjustment for deferred service revenue
for the three and nine months ended June 30, 1995, were 29.4% and 30.0%,
respectively, compared to 31.4% and 35.9% for the same period. The decrease in
margins below comparable levels in the prior year is attributable to a decline
in gross margins in oil analysis services partially offset by the increasing
volume of higher margin OHSS sales as a percentage of total sales.
Selling, general and administrative expenses and professional fees
("S,G,A") excluding OSA expenses for the three and nine months ended June 30,
1995 were $1,395,451 and $4,253,236, respectively, compared to $1,466,472 and
$3,459,868, respectively, for the same periods in 1994. The comparable OSA
expenses for the three and nine month periods ended June 30, 1995 were $602,657
and $1,380,697 compared to $120,103 and $279,355 for the same period in 1994.
The increased OSA expenses are attributable to an increase in personnel,
technical staff and development costs necessary to support the anticipated
rollout of the OSA units discussed above.
Depreciation and amortization increased 44.0% for the nine months ended
June 30, 1995, compared to the same period ended June 30, 1994. This increase
is due to the purchase of $1,567,099 in capital assets during the nine months
ended June 30, 1995. Depreciation expense includes $242,324 of depreciation
related to prototype OSA units. Depreciation and amortization of $563,862 was
allocated to cost of sales as it directly relates to the products and services
sold during the nine months ended June 30, 1995.
The decrease in research and development from $93,123 to $32,340 for the
nine months ended June 30, 1994 compared to the same period ended June 30, 1995,
respectively, is primarily attributable to the elimination of research and
development expenses related to the Acceleration Restraint Curve Safety Seat
("ARCS") technology.
TOP SOURCE TECHNOLOGIES, INC.
FORM 10-Q
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF INTERIM FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONT'D
RESULTS OF OPERATIONS, CONT'D
Interest expense decreased $49,396 for the nine months ended June 30, 1995
compared to the same period ended June 30, 1994 due to expensing, in 1994,
approximately $52,052 of interest relating to the unamortized discount on
certain notes payable that were paid prior to their maturity date.
Net income (loss) including the adjustment for deferred service revenue for
the three and nine months ended was $(397,306) and $(1,255,599), respectively,
compared to $(294,449) and $2,689,981, respectively. Net (loss) excluding the
adjustment for deferred service was $(507,306) and $(1,529,230).
The decrease in net income for the three month period ended June 30, 1995
compared to the same period in 1994 is attributable to a decline in
profitability for oil analysis services at UTG, increased expenses relating to
the rollout of OSA units, offset by increased profits at TSA and the recovery of
approximately $229,500 in connection with a lawsuit (see Note 6). The amount of
$229,500 has been classified as other income in the accompanying financial
statements. Subsequent to the end of the third quarter, senior management of
the Company concluded that reductions in operating costs from current levels
were necessary. The Company is currently in the process of reducing or
eliminating unnecessary expenses.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities was $(864,103) for the nine month
period ended June 30, 1995. This usage of cash is attributable to a net
operating loss excluding depreciation and amortization, of $295,450, a decrease
in accounts payable and accrued liabilities of $377,122 and an increase in
current assets of $191,531.
Net cash used in investing activities was $(2,258,831) of which $1,567,099
was used for purchases of equipment and $650,000 was a deposit made to the
manufacturer of the OSA units.
Net cash provided by financing activities was $2,839,574 which included net
proceeds from sales of common stock through exercise of stock options of
$867,616, and net proceeds of $1,971,958 from borrowings as discussed below.
The Company has bank financing from First Union National Bank of Florida,("the
Bank"). This credit facility consists of a line of credit of $750,000 for
working capital, and an additional line of credit of $4,500,000 to be used
exclusively for the purchase of OSAs. The entire facility bears interest at .85%
over the prime rate, is governed by specific financial covenants and ratios
limiting accessibility, and is secured by substantially all of the assets of the
company. The maximum utilization of the working capital line of credit occurred
in May 1995 in the amount of $550,000. This amount was subsequently repaid in
June 1995. At August 11, 1995, no amounts were outstanding on either line. On
August 3, 1995, the Bank, pending completion of appropriate documentation,
increased the company's working capital line from $750,000 to $1,500,000. The
Company believes the facility, which expires on January 31, 1996, will be
renewed.
TOP SOURCE TECHNOLOGIES, INC.
FORM 10-Q
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF INTERIM FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONT'D
LIQUIDITY AND CAPITAL RESOURCES, CONT'D
On June 9, 1995, the Company entered into an agreement with advisory
clients of Ganz Capital Management, Inc. ("Ganz") whereby the holders would
purchase $3,000,000 in convertible notes from the Company. In June 1995, the
Company issued $2,060,000 of nine per cent (9%) convertible notes maturing in
June 2000. After June 9, 1996, the notes can be prepaid by the Company without
penalty, and can be converted by the holders into fully registered shares of the
Company's common stock at a conversion price of $10 per share. The Company
anticipates issuing the remaining $940,000 in notes and receiving the proceeds
by September 1, 1995.
For the three month period ended June 30, 1995, the Company's cash flow
from operations was approximately breakeven. Based on current cash balances,
current bank lines, additional note proceeds and future cash flows from
operations, the Company believes it has sufficient cash flow to fund its
operations and finance the deployment of a substantial number of OSA units.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS
10.29 Note Purchase Agreement dated as of June 9, 1995
Regarding 9% Senior Subordinated Convertible Notes Due
June 9, 2000 by and among Top Source Technologies,
Inc., Purchasers and Ganz Capital Management, Inc.
10.30 Agreement by and between Top Source Technologies, Inc.,
dated May 10, 1995, Adrenaline, Inc. and Edward Van
Duyne (EFECS Technology)
B. REPORTS ON FORM 8-K
A Form 8-K was filed dated April 13, 1995 in connection with
updating other events.
No other reports on Form 8-K were filed during the quarter ended
June 30, 1995.
TOP SOURCE TECHNOLOGIES, INC.
FORM 10-Q
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TOP SOURCE TECHNOLOGIES, INC.
By: /s/ David Natan August 11, 1995
David Natan Date
Vice President and Chief
Financial Officer
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_________________________________________________________
NOTE PURCHASE AGREEMENT
DATED AS OF JUNE 9, 1995
REGARDING
9% SENIOR SUBORDINATED CONVERTIBLE NOTES
DUE JUNE 9, 2000
OF
TOP SOURCE TECHNOLOGIES, INC.
_________________________________________________________
TABLE OF CONTENTS
PAGE
SECTION 1. SALE AND PURCHASE OF NOTES . . . . . . . . . . . . . . . . . . 1
SECTION 2. THE CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 3. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY . . . . . . . . . 7
SECTION 5. REPRESENTATIONS OF THE PURCHASERS . . . . . . . . . . . . . . . 12
SECTION 6. PREPAYMENTS AND REPAYMENTS . . . . . . . . . . . . . . . . . . 14
SECTION 7. AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . 14
SECTION 8. NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 9. CONDITIONS TO PURCHASERS' OBLIGATIONS . . . . . . . . . . . . . 21
SECTION 10. SUBORDINATION . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 11. AMENDMENT; WAIVER; CONSENT . . . . . . . . . . . . . . . . 24
SECTION 12. EXCHANGE OF NOTES; CANCELLATION OF
SURRENDERED NOTES; REPLACEMENT . . . . . . . . . . . . . . . . 25
SECTION 13. DEFAULTS . . . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 14. REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 15. RESTRICTIONS ON TRANSFER . . . . . . . . . . . . . . . . . 27
SECTION 16. REGISTRATION RIGHTS . . . . . . . . . . . . . . . . . . . 28
SECTION 17. CONVERSION . . . . . . . . . . . . . . . . . . . . . . . . 31
SECTION 18. EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . 38
SECTION 19. APPOINTMENT OF AGENT . . . . . . . . . . . . . . . . . . . 39
SECTION 20. HOME OFFICE PAYMENTS . . . . . . . . . . . . . . . . . . . 40
SECTION 21. NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 22. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . 41
Exhibit A - Purchasers
Exhibit B - Form of Note
Exhibit C - Disclosure Schedules
Exhibit D - Form of Opinion of Counsel to the Company
Exhibit E - Form of Board of Directors Resolutions
Exhibit F - Definition of Accredited Investor
Exhibit G - Form of Purchaser Questionnaire
NOTE PURCHASE AGREEMENT, dated as of June 9, 1995, by and among Top
Source Technologies, Inc., a Delaware corporation (the "Company"), the
Purchasers listed on the signature pages of this Agreement and as set forth in
Exhibit A hereto (the "Purchasers"), and Ganz Capital Management, Inc., a
Delaware corporation (the "Agent"). Terms used herein and not otherwise defined
shall have the meanings set forth in Section 3 hereof.
W I T N E S S E T H:
In consideration of the mutual covenants and agreements set forth
herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
SECTION 1. SALE AND PURCHASE OF NOTES
(a) The Company agrees to sell to the Purchasers and, subject to the terms
and conditions hereof and in reliance upon the representations and warranties of
the Company contained herein or made pursuant hereto, the Purchasers severally
agree to purchase from the Company on the Closing Dates the Notes in the
aggregate principal amount set forth opposite each Purchaser's name in Exhibit A
hereto. The aggregate purchase price to be paid to the Company by the
Purchasers for such Notes is 100% of the principal amount of the Notes to be
purchased by the Purchasers.
(b) As used herein, "Notes" means an aggregate of up to $3,000,000
principal amount of the Company's 9% Senior Subordinated Convertible Notes Due
June 9, 2000 together with all Notes issued in exchange therefor or replacement
thereof. Each Note will be substantially in the form of the Note set forth as
Exhibit B hereto. Interest on the Notes shall accrue from the Closing Date and
shall be payable semi-annually in advance, commencing July 1, 1995 (which first
interest payment shall be for the period from and including the Closing Date
through and including June 30, 1995) at the interest rates and in the manner
specified in the form of Note attached hereto as Exhibit B.
SECTION 2. THE CLOSING
(a) Subject to the terms and conditions hereof, one or more of the
closings (the "Closing") of the purchase and sale of the Notes will take place
at the offices of Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, P.A.,
Citicorp Center, 153 East 53rd Street, 35th Floor, New York, New York 10022, at
10:00 A.M., New York time, on June 9, 1995 or such other time, place and date as
shall be mutually agreed to by the Company and the Purchasers. Such times and
dates are herein referred to as the "Closing Dates."
(b) Subject to the terms and conditions hereof, on the Closing Date(s) (i)
the Company will deliver to the Purchasers the Notes, substantially in the form
of Exhibit B hereto, payable to the Purchasers, and dated the initial Closing
Date, in the aggregate principal amount set forth opposite the Purchasers' names
in Exhibit A hereto, and (ii) upon the Purchasers' receipt thereof, the
Purchasers will deliver to the Company certified or official bank checks (or
wire transfers) in an amount equal to the purchase price for such Notes (as
specified in Section 1(a) hereof) payable to the order of the Company in federal
or other immediately available funds.
SECTION 3. DEFINITIONS
(a) For purposes of this Agreement and the Notes, the following
definitions shall apply (such definitions to be equally applicable to both the
singular and plural forms of the terms defined):
"Additional Common Stock" has the meaning set forth in Section 17.5(c)
hereof.
"Affiliate" shall have the meaning as determined pursuant to the
Securities Act but shall exclude wholly-owned Subsidiaries.
"Agent" means Ganz Capital Management, Inc., a Delaware corporation,
its successors and assigns.
"Agreement" means this Agreement (together with exhibits and
schedules) as from time to time assigned, supplemented or amended or as the
terms hereof may be waived.
"Board" or "Board of Directors" means, with respect to any Person
which is a corporation, a business trust or other entity, the board of
directors or other group, however designated, which is charged with legal
responsibility for the management of such Person, or any committee of such
board of directors or group, however designated, which is authorized to
exercise the power of such board or group in respect of the matter in
question.
"Business Day" means any day, other than a Saturday, Sunday or legal
holiday, on which banks in Miami, Florida are open for business.
"Change of Control Event" means the occurrence of any of the following
events:
(a) any Person beneficially owns (within the meaning of Rule 13d-3
under the Securities Exchange Act) 51% or more of the outstanding
Common Stock of the Company as reported to the Commission or
otherwise publicly disclosed; or
(b) the Company proceeds to acquire its Common Stock (or undertakes a
corporate reorganization or recapitalization or other action) if
the effect of such acquisition (or other action) would be to
reduce substantially or eliminate any public market for the
shares of the Company's Common Stock or to remove the Company
from registration with the Commission under the Securities
Exchange Act; or
(c) the Company is materially or completely liquidated or is the
subject of any voluntary or involuntary dissolution or winding-up
(and, in the case of any involuntary dissolution or winding up,
any action brought for such purpose is not dismissed within 30
days); or
(d) the sale, lease, transfer or other disposition of all or
substantially all of the consolidated assets of the Company and
its Subsidiaries in a single transaction or series of related
transactions; or
(e) there is a change in the majority composition of the senior
management or the Board of Directors of the Company.
"Closing" has the meaning set forth in Section 2 hereof.
"Closing Date" has the meaning set forth in Section 2 hereof.
"Closing Price" means the reported last sale price of a unit of a
security on a given day or, in case no such sale takes place on such day,
the average of the reported closing bid and asked prices, in each case on
the principal national securities exchange on which the security is listed
or admitted to trading, or, if the security is not listed or admitted to
trading on any national securities exchange, the closing sales price, or,
if there is no closing sales price, the average of the closing bid and
asked prices, in the over-the-counter market as reported by the National
Association of Securities Dealers Automated Quotation System ("NASDAQ"),
or, if not so reported, as reported by the National Quotation Bureau,
Incorporated, or any successor thereof, or, if not so reported, the average
of the closing bid and asked prices as furnished by any member of the
National Association of Securities Dealers, Inc. selected from time to time
by the Majority Shareholders for that purpose, or if no such prices are
furnished, the fair market value of the security as estimated by a
nationally recognized investment banking firm selected by the Majority
Shareholders, which estimate shall be prepared at the expense of the
Company; provided, however, that any determination of the "Closing Price"
of any security shall be based on the assumption that such security is
freely transferable without registration under the Securities Act and
without regard to any possible reduction in price that may be caused by the
sale of a large block of securities.
"Commission" means the Securities and Exchange Commission and any
other similar or successor agency of the federal government administering
the Securities Act or the Securities Exchange Act.
"Common Stock" means the Company's common stock, par value $.001 per
share, or other equivalent evidences of ownership of the corporation, the
holders of which are entitled to vote generally to elect the Board of
Directors of the Company.
"Company" means Top Source Technologies, Inc., a Delaware corporation,
its successors and assigns.
"Conversion Price" has the meaning set forth in Section 17.4 hereof.
"Current Conversion Price" has the meaning set forth in Section 17.4
hereof.
"Disclosure Material" has the meaning set forth in Section 4.5(a)
hereof.
"Distributions on Common Stock" has the meaning set forth in Section
17.5(b) hereof.
"Environmental Lien" has the meaning set forth in Section 7.6(a)
hereof.
"ERISA" has the meaning set forth in Section 4.8(a) hereof.
"Event of Default" has the meaning set forth in Section 13 hereof.
"Guaranty" means (i) any guaranty or endorsement of the payment or
performance of, or any contingent obligation in respect of, any
Indebtedness or other obligation of any other Person, (ii) any other
arrangement whereby credit is extended to one obligor on the basis of any
promise or undertaking of another Person (a) to pay the Indebtedness of
such obligor, (b) to purchase an obligation owed by such obligor, (c) to
purchase or lease assets under circumstances that would enable such obligor
to discharge one or more of its obligations or (d) to maintain the capital,
working capital, solvency or general financial condition of such obligor,
in each case whether or not such arrangement is disclosed in the balance
sheet of such other Person or is referred to in a footnote thereto and
(iii) any liability as a general partner of a partnership in respect of
Indebtedness or other obligations of such partnership; provided, however,
that the term "Guaranty" shall not include endorsements for collection or
deposit in the ordinary course of business.
"Indebtedness" of any Person means and includes, without duplication,
as of any date as of which the amount thereof is to be determined, (i) all
obligations of such Person to repay money borrowed (including, without
limitation, all notes payable and drafts accepted representing extensions
of credit, all obligations under letters of credit, all obligations
evidenced by bonds, debentures, notes or other similar instruments, all
interest rate swap or similar obligations and all obligations upon which
interest charges are customarily paid), (ii) all capitalized leases in
respect of which such Person is liable as lessee or as the guarantor of the
lessee (excluding capitalized leases for oil analysis units), (iii) all
monetary obligations which are secured by any Lien existing on property
owned by such Person whether or not the obligations secured thereby have
been incurred or assumed by such Person, (iv) all conditional sales
contracts and similar title retention debt instruments under which such
Person is obligated to make payments, (v) with respect to the Company and
its Subsidiaries, the value of all Preferred Stock of the Company or any
Subsidiary held by any person other than the Company or another Subsidiary,
which stock either (A) has a fixed maturity or redemption or repurchase
date on or before June 9, 2000 with respect to all or a part of such issue,
(B) provides for a dividend rate that can be adjusted or reset through an
auction or remarketing method or by a remarketing agent or underwriter on
or before June 9, 2000 or (C) is subject to redemption or repurchase (in
whole or in part) by the Company or any Subsidiary either (I) at the option
of the holder thereof (whether or not after a specified date or after the
happening of certain events or conditions), if such option could be
exercisable on or before June 9, 2000 or (II) automatically upon the
happening of specified events or conditions, if such events or conditions
could happen on or before June 9, 2000, (vi) all Guaranties by such Person
and (vii) all contractual obligations (whether absolute or contingent) of
such Person to repurchase goods sold or distributed, and the value of such
repurchase obligations at any time shall be the maximum amount which would
be payable if all then outstanding potential repurchase obligations became
due.
"Junior Indebtedness" means any Indebtedness which is not Senior
Indebtedness.
"Lien" means any mortgage, pledge, hypothecation, assignment, deposit
arrangement, encumbrance, lien (statutory or other), preference, priority
or other security interest of any kind or nature whatsoever (including,
without limitation, any conditional sale or other title retention
agreement, any financing lease having substantially the same effect as any
of the foregoing, any assignment or other conveyance of any right to
receive income and any assignment of receivables with recourse against the
assignor), any filing of a financing statement as debtor under the Uniform
Commercial Code or any similar statute and any agreement to give or make
any of the foregoing.
"Majority Noteholders" means the holder or holders, at the time, of at
least a majority in aggregate principal amount of the Notes then
outstanding.
"Majority Shareholders" means the holder or holders, at the time, of
Shares representing at least a majority of the sum of the Shares then
outstanding and the Shares then obtainable upon the exercise of all Notes
then outstanding.
"Maximum Lawful Rate" has the meaning set forth in Section 22.10
hereof.
"Note" or "Notes" has the meaning set forth in Section l(b) hereof.
"Payment Blockage Period" has the meaning set forth in Section 10.2
hereof.
"Permitted Liens" means (i) statutory Liens not yet delinquent, (ii)
such imperfections or irregularities of title, Liens, easements, charges or
encumbrances as do not materially detract from or interfere with the
present use of the properties or assets subject thereto or affected
thereby, otherwise impair present business operations at such properties,
or do not detract from the value of such properties and assets, taken as a
whole, (iii) Liens reflected in the Financial Statements or the notes
thereto, (iv) the rights of customers of the Company with respect to
inventory or work in progress under orders or contracts entered into by the
Company in the ordinary course of business, (v) mechanics', carriers',
workers', repairmen's, warehousemen's, or other similar Liens arising in
the ordinary course of business in respect of obligations not overdue or
which are being contested in good faith and covered by a bond in an amount
at least equal to the amount of the Lien, and (vi) deposits or pledges to
secure workmen's compensation, unemployment insurance, old age benefits or
other social security obligations in connection with, or to secure the
performance of, bids, tenders, trade contracts not for the payment of money
or leases, or to secure statutory obligations or surety or appeal bonds or
other pledges or deposits for purposes of like nature in the ordinary
course of business.
"Person" or "person" means an individual, corporation, partnership,
firm, association, joint venture, trust, unincorporated organization,
government, governmental body, agency, political subdivision or other
entity.
"Potential Default" means a condition or event which, with notice or
lapse of time or both, would constitute an Event of Default.
"Preferred Stock" means any class of the capital stock of a
corporation (whether or not convertible into any other class of capital
stock) which has any right, whether absolute or contingent, to receive
dividends or other distributions of the assets of such corporation
(including, without limitation, amounts payable in the event of the
voluntary or involuntary liquidation, dissolution or winding-up of such
corporation), which right is superior to the rights of another class of the
capital stock of such corporation.
"Proprietary Rights" means all (i) patents, patent applications,
patent disclosures and all related continuation, continuation-in-part,
divisional, reissue, reexamination, utility, model, certificate of
invention and design patents, patent applications, registrations and
applications for registrations, (ii) trademarks, service marks, trade
dress, logos, trade names and corporate names and registrations and
applications for registration thereof, (iii) copyrights and registrations
and applications for registration thereof, (iv) mask works and
registrations and applications for registration thereof, (v) computer
software, data and documentation, (vi) trade secrets and confidential
business information, whether patentable or unpatentable and whether or not
reduced to practice, know-how, manufacturing and production processes and
techniques, research and development information, copyrightable works,
financial, marketing and business data, pricing and cost information,
business and marketing plans and customer and supplier lists and
information, (vii) other proprietary rights relating to any of the
foregoing and (viii) copies and tangible embodiments thereof.
"Purchasers" means the persons who accept and agree to the terms
hereof as indicated by such persons' signatures on the execution page of
this Agreement, together with the persons' successors and assigns.
"Restricted Payment" means (i) every dividend or other distribution
paid, made or declared by the Company or any Subsidiary on or in respect of
any class of its capital stock, (ii) every payment in connection with the
redemption, purchase, retirement or other acquisition by or on behalf of
the Company or any Subsidiary of any shares of the Company's or a
Subsidiary's capital stock, whether or not owned by the Company or any
Subsidiary, (iii) any prepayments or repayments made on Junior Indebtedness
of the Company or a Subsidiary prior to its originally scheduled
amortization, and (iv) every payment by or on behalf of the Company or any
Subsidiary (whether as repayment or prepayment of principal or as interest
or otherwise) on or with respect to (A) any obligation to repay money
borrowed owing to or on behalf of any Affiliate of the Company or of any
Subsidiary or to any other holder of shares of the capital stock of the
Company or a Subsidiary, or (B) any management, consulting or similar
arrangement between the Company or a Subsidiary and any Affiliate (other
than employment agreements); provided, however, (a) that the restrictions
of the foregoing clauses (i) and (ii) shall not apply to any dividend,
distribution or other payment on or in respect of capital stock of the
Company to the extent payable in shares of the capital stock of the
Company, (b) that none of the foregoing clauses shall apply to any payments
to or from a wholly-owned Subsidiary to or from the Company, (c) that none
of the foregoing clauses shall apply to any payments, distributions or
other transfers or actions on or with respect to the Notes or involving the
holders of Notes under this Agreement, and (d) none of the foregoing shall
apply to up to an aggregate of $250,000 of personal loans or advances from
the Company to any of its officers, directors or employees.
"Rule 144" means (i) Rule 144 under the Securities Act as such rule is
in effect from time to time, (ii) Rule 144A under the Securities Act as
such Rule is in effect from time to time, and (iii) any successor rule,
regulation or law, as in effect from time to time.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules, regulations and interpretations thereunder.
"Securities Exchange Act" means the Securities Exchange Act of 1934,
as amended, and the rules, regulations and interpretations thereunder.
"Senior Indebtedness" has the meaning set forth in Section 10.7
hereof.
"Share" or "Shares" means shares of the Company's Common Stock, or
other securities, which can be obtained or have been obtained by a
conversion in whole or in part of any Note; "Shares" shall also include any
capital stock or other securities into which Shares are changed and any
capital stock or other securities resulting from or comprising a
reclassification, combination or subdivision of, or a stock dividend on,
any Shares.
"Shelf Registration Statement" has the meaning set forth in Section
16.1(a) hereof.
"Stated Rate" has the meaning set forth in Section 22.10 hereof.
"Subsidiary" means any corporation, association or other entity of
which more than 50% of the total voting power of shares of stock or other
equity interests entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees
thereof is, at the time as of which any determination is being made, owned
or controlled, directly or indirectly, by the Company or one or more of its
Subsidiaries, or both.
(b) For all purposes of this Agreement and the Notes, except as otherwise
expressly provided or unless the context otherwise requires:
(i) the words "herein", "hereof", "hereto" and "hereunder" and other
words of similar import refer to this Agreement (or if used therein, to the
Note) as a whole and not to any particular section or other subdivision;
(ii) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted accounting
principles consistently applied (except as otherwise provided herein);
(iii) all computations provided for herein, if any, shall be made
in accordance with generally accepted accounting principles consistently
applied (except as otherwise expressly provided herein);
(iv) any uses of the masculine, feminine or neuter gender shall also
be deemed to include any other gender, as appropriate;
(v) all references herein to actions by the Company or any
Subsidiary, such as to "sell," "transfer," "dispose of," etc., means such
action whether voluntary or involuntary, by operation of law or otherwise;
and
(vi) the exhibits and schedules to this Agreement shall be deemed a
part of this Agreement and any exhibit, schedule or annex to any Note shall
be deemed a part of such Note.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants as follows as of the date hereof and as
of the Closing Date:
4.1. Corporate Existence, Power and Authority.
(a) The Company and each Subsidiary is a corporation duly organized,
validly existing and in good standing under the laws of its state of
incorporation. The Company and each Subsidiary is duly qualified, licensed and
authorized to do business and is in good standing in each jurisdiction in which
it owns or leases any material property or in which the conduct of its business
requires it to so qualify or be licensed, except for such jurisdictions where
the failure to so qualify or be licensed would not have a material adverse
effect on the Company's assets, properties, liabilities, business, affairs,
results of operations, condition (financial or otherwise) or prospects on a
consolidated basis. The Company and each Subsidiary has all requisite corporate
power, authority and legal right to own or to hold under lease and to operate
the properties it owns or holds and to conduct its business as now being
conducted.
(b) The Company has all requisite power, authority and legal right to
execute, deliver, enter into, consummate and perform this Agreement and the
Notes, including, without limitation, the issuance by the Company of the Notes
and the Shares as contemplated herein and therein. The execution, delivery and
performance of this Agreement and the Notes, by the Company (including, without
limitation, the issuance by the Company of the Notes and the Shares as
contemplated herein and therein) have been duly authorized by all required
corporate and other actions. Sufficient shares of authorized, but unissued
Common Stock have been reserved for issuance upon conversion of the Notes. The
issuance of the Notes does not, and the issuance of the Shares upon conversion
of the Notes will not be subject to any preemptive right, right of first refusal
or any similar right. The Company has duly executed and delivered this
Agreement and the Notes and each constitutes, when duly executed and delivered
by the Agent and the Purchasers, the legal, valid and binding obligations of the
Company enforceable in accordance with their respective terms, subject to
bankruptcy, insolvency, reorganization, moratorium and other similar laws
relating to the rights of creditors generally.
4.2. Stock Ownership. The authorized capital stock of the Company consists
of 50,000,000 shares of Common Stock, $.001 par value per share, of which
27,327,080 shares are outstanding on a fully diluted basis. All outstanding
shares of Common Stock are duly authorized, validly issued and outstanding and
fully paid and non-assessable. Except as disclosed in Exhibit C hereto, there
are no outstanding options, warrants, rights, convertible securities or other
agreements or plans under which the Company may become obligated to issue, sell
or transfer shares of its capital stock or other securities.
4.3. Subsidiaries. The only Subsidiaries of the Company are those set
forth in Exhibit C hereto which are all wholly-owned by the Company. Neither
the Company nor any Subsidiary has any investments in any other Person, except
as disclosed in Exhibit C hereto. All outstanding capital stock of the
Subsidiaries has been duly authorized and validly issued and is fully paid and
non-assessable and, except as disclosed in Exhibit C hereto, is owned
beneficially and of record by the Company free and clear of all Liens, options
or claims of any kind. Except as disclosed in Exhibit C hereto, there are no
outstanding options, warrants, rights, convertible securities or other
agreements or plans under which any Subsidiary may become obligated to issue,
sell or transfer shares of its capital stock or other securities. Except as
disclosed in Exhibit C hereto, there are no restrictions (whether by agreement,
statute (other than the corporate laws of the applicable state of
incorporation), rule, regulation, order or otherwise) that may affect or limit
the ability of any Subsidiary to pay dividends to the Company of such
Subsidiary's earnings (as reported in financial statements prepared under
generally accepted accounting principles).
4.4. No Defaults or Conflicts. No Event of Default or Potential Default
has occurred and is continuing. Neither the Company nor any of the Subsidiaries
is in violation or default in any material respect (and is not in default in any
respect regarding any Indebtedness) under any material indenture, agreement or
instrument to which it is a party or by which it or its properties may be bound.
The execution, delivery and performance by the Company of this Agreement and the
Notes and any of the transactions contemplated hereby or thereby (including,
without limitation, the issuance of the Notes and the Shares as contemplated
herein) does not and will not (i) violate or conflict with, with or without the
giving of notice or the passage of time or both, any provision of (A) the
respective certificate of incorporation or by-laws of the Company or any of its
Subsidiaries or (B) any law, rule, regulation, order, judgment, writ,
injunction, decree, agreement, indenture or other instrument applicable to the
Company or any of its Subsidiaries or any of their respective properties, (ii)
result in the creation of any security interest or Lien upon any of the
Company's or any Subsidiary's properties, assets or revenues, (iii) require the
consent, waiver, approval, order or authorization of, or declaration,
registration, qualification or filing with, any Person (whether or not a
governmental authority and including, without limitation, any shareholder
approval) or (iv) cause anti-dilution clauses of any outstanding securities to
become operative or give rise to any preemptive rights. No such provision
referred to in the preceding clause (i) materially adversely affects or will
materially adversely affect the assets, properties, liabilities, business,
affairs, results of operations, condition (financial or otherwise) or prospects
of the Company on a consolidated basis or the ability of the Company to perform
this Agreement or the Notes or any of the transactions contemplated hereby or
thereby.<PAGE>
4.5. Disclosure Materials; Other Information.
(a) Attached hereto is the following material (the "Disclosure
Material"): (i) the Company's Amendment No. 2 to 1994 Annual Report on Form 10-
K/A for the fiscal year ended September 30, 1994, (ii) the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended March 31, 1995, (iii) the
Company's Definitive Proxy Statement in connection with its annual meeting of
stockholders held on March 15, 1995, (iv) Amendment No. 2 to the Company's
Registration Statement on Form S-3 (Reg. No. 33-89590) registering the resale of
up to 68,000 shares of Common Stock in connection with the exercise of certain
warrants, (v) the Company's Registration Statement pursuant to the Securities
Exchange Act on Form 8-A, (vi) the Company's Current Report pursuant to Section
13 or 15(d) of the Securities Exchange Act on Form 8-K, and (vii) a pro forma
consolidated balance sheet of the Company and the Subsidiaries, as of
December 31, 1994 and giving effect to the issuance of the Notes as contemplated
herein. The audited and unaudited financial statements referred to in the
preceding clauses (i) and (ii) fairly present the consolidated financial
condition of the Company as of the respective dates thereof and the consolidated
results of the operations of the Company for such periods and have been prepared
in accordance with generally accepted accounting principles consistently
applied, except that any such unaudited statements may omit notes and may be
subject to year-end adjustments. The Disclosure Material (other than item
(vii)) was prepared in accordance with the requirements of the Securities
Exchange Act and does not contain a misstatement of material fact or omit to
state a material fact in light of the circumstances (i) on the date such
documents were filed with the Commission, and (ii) except as set forth in
Exhibit C hereto, on the date hereof. All reports and amendments thereto
required to be filed by the Company under Sections 13, 14 or 15(d) of the
Securities Exchange Act have been filed and, for the period from December 31,
1993 up to and including the Closing Date, are included in the Disclosure
Material.
(b) There has been no material adverse change in the assets,
properties, liabilities, business, affairs, results of operations, condition
(financial or otherwise) or prospects of the Company on a consolidated
basis since December 31, 1994.
(c) Neither the Company nor any of the Subsidiaries is aware of any
material liabilities, contingent or otherwise, of the Company and the
Subsidiaries that have not been disclosed in the Disclosure Material.
(d) Except as set forth in Exhibit C hereto, nothing has come to the
attention of the Company or any of the Subsidiaries that would cause it to
believe that any of the Disclosure Material contained or contains a false or
misleading statement of a material fact or omits to state any material fact
necessary in order to make the statements made in such material, in light of the
circumstances under which they were made, not misleading.
(e) The Company does not have any material direct or contingent
liabilities, liabilities for taxes, long-term leases, or unusual forward or
long-term commitments as of the date of this Agreement which are not disclosed
by, provided for, or reserved against in the financial statements or referred to
in notes thereto, and at the date of this Agreement there are no material
unrealized or anticipated losses from any unfavorable commitments of the
Company.
4.6. Litigation. Except as disclosed in the Disclosure Material or in
Exhibit C hereto, there is no action, suit, proceeding, investigation or claim
pending or, to the best of the knowledge of the Company or the Subsidiaries,
threatened in law, equity or otherwise before any court, administrative agency
or arbitrator which either (i) questions the validity of this Agreement, the
Notes or the Shares or any action taken or to be taken pursuant hereto or
thereto, or (ii) might adversely affect the right, title or interest of the
Purchasers to the Notes or the Shares or (iii) might result in a material
adverse change in the assets, properties, liabilities, business, affairs,
results of operations, condition (financial or otherwise) or prospects of the
Company on a consolidated basis.
4.7. Taxes. Each of the Company and each Subsidiary has filed all federal,
state, local and other tax returns and reports, and any other material returns
and reports with any governmental authorities, required to be filed by it,
except where the failure to make a state or local filing would not have a
material adverse affect on such corporation. Each of the Company and each
Subsidiary has paid or caused to be paid all taxes (including interest and
penalties) that are due and payable, except those (i) which are being contested
by it in good faith by appropriate proceedings or (ii) which, the failure to pay
was by unintentional oversight or omission and such failure would not have a
material adverse effect on such corporation and in respect of both (i) and (ii)
adequate reserves are being maintained on its books in accordance with generally
accepted accounting principles consistently applied. Neither the Company nor
any Subsidiary has any material liabilities for taxes other than those incurred
in the ordinary course of business and in respect of which adequate reserves are
being maintained by it in accordance with generally accepted accounting
principles consistently applied.
4.8. ERISA.
(a) Each of the Company and each Subsidiary is in compliance in all
material respects with all applicable provisions of the Employee Retirement
Income Security Act of 1974, as amended, and the regulations and interpretations
thereunder (collectively "ERISA"). Neither the Company nor any Subsidiary has
engaged in any "prohibited transaction" which would subject it to a tax or
penalty on prohibited transactions imposed by ERISA or by the Internal Revenue
Code of 1986, as amended, and the regulations and interpretations thereunder.
Exhibit C hereto lists each "employee pension benefit plan" or "employee welfare
benefit plan" (as such terms are defined in ERISA) which the Company, any
Subsidiary or any of its respective Affiliates has established or maintained or
to which it has contributed, or which it is required to maintain or to which it
is required to contribute (including, without limitation, any multi-employer
plan). No material liability to the Pension Benefit Guaranty Corporation has
been or is expected to be incurred with respect to any such plan. There has
been no "reportable event", as defined in ERISA, with respect to any such plan,
and no event or condition exists which presents a material risk of termination
of any such plan by the Pension Benefit Guaranty Corporation.
(b) The present value of all accrued benefits under each plan
referred to in paragraph (a) above does not, as of the date hereof, exceed the
value of the respective net assets of each such plan applicable to such
benefits.
(c) The execution, delivery and performance of this Agreement and the
Notes and the consummation of the transactions contemplated hereby and thereby
(including, without limitation, the offer, issue and sale by the Company, and
the purchase by the Purchasers, of the Notes and the Shares) will not, to the
best of the knowledge and belief of the Company and the Subsidiaries, involve
any "prohibited transaction" within the meaning of ERISA or the Internal Revenue
Code of 1986, as amended, and the regulations and interpretations thereunder.
4.9. Legal Compliance.
(a) Except as set forth in Exhibit C hereto, each of the Company and
each Subsidiary has complied with all applicable laws, rules, regulations,
orders, licenses, judgments, writs, injunctions, decrees or demands, except to
the extent that failure to comply would not materially adversely affect the
assets, properties, liabilities, business, affairs, results of operations,
condition (financial or otherwise) or prospects of the Company on a consolidated
basis.
(b) There are no adverse orders, judgments, writs, injunctions,
decrees or demands of any court or administrative body, domestic or foreign, or
of any other governmental agency or instrumentality, domestic or foreign,
outstanding against the Company or any Subsidiary.
4.10. Permits, Licenses and Approvals. Each of the Company and each
Subsidiary possesses such franchises, licenses, permits, consents, approvals and
other authority (governmental or otherwise) from any Person as are necessary for
the conduct of its business as now being conducted and as proposed to be
conducted except where the failure to have such franchises, licenses, permits,
consents or approvals would have a material adverse effect on such corporation.
Neither the Company nor any Subsidiary is in default in any material respects
under any of such franchises, licenses, permits, consents, approvals or other
authority.
4.11. Status Under Certain Statutes. Neither the Company nor any
Subsidiary is: (i) a "public utility company" or a "holding company," or an
"affiliate" or a "subsidiary company" of a "holding company," or an "affiliate"
of such a "subsidiary company," as such terms are defined in the Public Utility
Holding Company Act of 1935, as amended, (ii) a "public utility" as defined in
the Federal Power Act, as amended, or (iii) an "investment company" or an
"affiliated person" thereof or an "affiliated person" of any such "affiliated
person," as such terms are defined in the Investment Company Act of 1940, as
amended.
4.12. Environmental Compliance. There is no substance or material
defined or designated as a hazardous or toxic waste, material or substance, or
other similar term, by any federal, state or local environmental statute,
regulation or ordinance on, about or in, in material violation of law, any
property, real or personal, in which the Company or any Subsidiary has any
interest except for the storage and transportation of used oil samples to be
handled and stored in connection with the normal operation of the Company's oil
analysis business. To the knowledge of the Company, after due inquiry, there is
no (and has not been any) off-site disposal or on-site disposal at any locations
currently or formerly owned or occupied by the Company or any Subsidiary as a
result of which disposal there would exist a risk that the Company or any
Subsidiary would incur a liability or obligation under federal, state or local
environmental or other laws, regulations or ordinances. Neither the Company nor
any Subsidiary nor, to the best of the knowledge of the Company and of its
Subsidiaries, any prior or present owner, operator, tenant, subtenant or invitee
of any of the real property (including improvements) owned by the Company or any
Subsidiary, or formerly owned by the Company or any Subsidiary, have (i) used,
installed, stored, spilled, released, transported, disposed of or discharged any
hazardous substances upon, into, beneath, from or affecting such real property
(including improvements) in material violation of law, or (ii) received any
verbal or written notice, citation, subpoena, summons, complaint or other
correspondence or communication from any person with respect to the presence of
hazardous substances upon, in, beneath, or emanating from or affecting any of
the real property (including improvements) currently or formerly owned or
occupied by the Company or any Subsidiary. Neither the Company nor any
Subsidiary has any knowledge of any intentional or unintentional, gradual or
sudden, release, disposal or discharge upon, into or beneath the real property
(including improvements) currently or formerly owned or occupied the Company or
any Subsidiary, that has caused or is causing soil or groundwater contamination
which under applicable environmental laws, regulations or ordinances could
require investigation or remediation or could otherwise create a material
liability or obligation on the part of the Company or any Subsidiary.
4.13. Indebtedness. Exhibit C hereto sets forth (i) the amount of all
Indebtedness of the Company or any Subsidiary outstanding on the Closing Date,
(ii) any Lien with respect to such Indebtedness and (iii) a description of each
instrument or agreement governing such Indebtedness. The Company has made
available to the Purchasers a complete and correct copy of each such instrument
or agreement (including all amendments, supplements or modifications thereto).
Except as disclosed in Exhibit C hereto, no default exists with respect to or
under any such Indebtedness or any instrument or agreement relating thereto.
4.14. Offering of Notes. Neither the Company nor any agent nor other
Person acting on its behalf, directly or indirectly, (i) offered any of the
Notes or any similar security of the Company (A) by any form of general
solicitation or general advertising (within the meaning of Regulation D under
the Securities Act) or (B) for sale to or solicited offers to buy any thereof
from, or otherwise approached or negotiated with respect thereto with, any
Person other than the Purchasers or not more than 10 other institutional
investors each of which the Company reasonably believed was an "accredited
investor" within the meaning of Regulation D under the Securities Act (as
defined in Exhibit F hereto) or (ii) has done or caused to be done (or has
omitted to do or to cause to be done) any act which act (or which omission)
would result in bringing the issuance or sale of the Notes or Shares within the
registration provisions of Section 5 of the Securities Act.
4.15. Solvency. After the Closing Date and after giving effect to the
sale of the Notes contemplated hereby and the receipt of the proceeds thereof by
the Company, the Company will not (i) be insolvent (either because its financial
condition is such that the sum of its debts is greater than the fair value of
its assets or because the fair salable value of its assets is less than the
amount required to pay its probable liability on existing debts as they mature),
(ii) have unreasonably small capital with which to engage in its business or
(iii) have incurred debts beyond its ability to pay as they become due.
4.16. Intellectual Property.
(a) Exhibit C hereto sets forth a complete and accurate list of all
of the Company's and the Subsidiaries' material Proprietary Rights. The Company
has taken all reasonable measures to protect the proprietary nature of each such
Proprietary Right, and to maintain in confidence all trade secrets and
confidential information that it owns or uses.
(b) To the knowledge of the Company, (i) no other Person has any
rights to any of the Proprietary Rights owned or used by the Company except
pursuant to agreements or licenses specified in Exhibit C hereto, (ii) no other
Person is infringing, violating or misappropriating any such Proprietary Right
that the Company and the Subsidiaries owns or uses, and (iii) no Proprietary
Right is subject to any outstanding order or claim.
4.17. Disclosure. Neither this Agreement nor any of the exhibits,
attachments, written statements, documents, certificates or other items prepared
for or supplied to the Purchasers by or on behalf of the Company with respect to
the transactions contemplated hereby contains any untrue statements of a
material fact or omits a material fact necessary to make each statement
contained herein or therein not misleading. There is no fact which the Company
or its executive officers have intentionally withheld from the Purchasers and of
which the Company, or any of its officers, directors or executive officers is
aware and which could reasonably be anticipated to have a material adverse
effect on the Company.
SECTION 5. REPRESENTATIONS OF THE PURCHASERS
Each Purchaser, severally and not jointly, represents and warrants, to the
Company as follows as of the Closing Date:
(a) The Purchaser has all requisite power, authority and legal right
to execute, deliver, enter into, consummate and perform this Agreement. The
execution, delivery and performance of this Agreement by the Purchaser have been
duly authorized by all required corporate, partnership or other actions. The
Purchaser has duly executed and delivered this Agreement, and this Agreement
constitutes the legal, valid and binding obligations of the Purchaser
enforceable against the Purchaser in accordance with its terms, subject to
bankruptcy, insolvency, reorganization, moratorium and other similar laws
relating to the rights of creditors generally. The Purchaser has properly
completed the form of Purchaser Questionnaire attached hereto as Exhibit G and
such completed Purchaser Questionnaire is true and complete in all material
respects.
(b) The Purchaser is capable of evaluating the risk of its investment
in the Notes being purchased by it and is able to bear the economic risk of such
investment, that it is purchasing the Notes to be purchased by it for its own
account, and that the Notes are being purchased by it for investment and not
with a present view to any distribution thereof (or the Shares). It is
understood that the disposition of the Purchaser's property shall at all times
be within the Purchaser's control. If the Purchaser should in the future decide
to dispose of any of its Notes or Shares, it is understood that it may do so
only in compliance with the Securities Act, applicable state securities laws and
this Agreement. The Purchaser represents that it is an "accredited investor" as
defined in Rule 501(a) under the Securities Act, as set forth in Exhibit F
hereto.
(c) The Purchaser has reviewed the risk factors set forth in the
Purchaser Questionnaire and because of the risk factors set forth in the
Purchaser Questionnaire recognizes that the acquisition of the Notes involves a
high degree of risk, including, without limitation, that transferability is
extremely limited and the Purchaser may not be able to liquidate an investment
in the event of an emergency. The Purchaser recognizes the highly speculative
nature of the acquisition of the Notes and is able to bear the economic risk
thereof.
(d) The Purchaser hereby acknowledges that it has been furnished the
Disclosure Materials and all other publicly available information regarding the
Company which the Purchaser had requested or desired to know; all other publicly
available documents which could be reasonably provided have been made available
for the Purchaser's inspection and review and the Purchaser has been afforded
the opportunity to ask questions of and receive answers from duly authorized
officers of the Company concerning the Company and the Notes and the Shares.
The Purchaser is not aware of any general solicitation in the offering of the
Notes by the Company and will immediately notify the Company if he becomes aware
of any such general solicitation.
(e) The Purchaser has reviewed the following legends:
(i) THE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT, OR THE SECURITIES LAWS OF ANY STATE AND ARE BEING OFFERED AND
SOLD IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF
THE SECURITIES ACT AND SUCH LAWS. THE SECURITIES HAVE NOT BEEN
APPROVED OR DISAPPROVED BY THE COMMISSION, ANY STATE SECURITIES
COMMISSION OR OTHER REGULATORY AUTHORITY, NOR HAVE ANY OF THE
FOREGOING AUTHORITIES PASSED UPON OR ENDORSED THE MERITS OF THE
TRANSACTION OR THE ACCURACY OR ADEQUACY OF THIS AGREEMENT. ANY
REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
(ii) THE SECURITIES ARE SUBJECT TO RESTRICTIONS ON
TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT
AS PERMITTED UNDER THE SECURITIES ACT, AND APPLICABLE STATE SECURITIES
LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. SUBSCRIBERS
SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS
OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.
(iii) FOR ALL PURCHASERS: THE SECURITIES HAVE NOT BEEN
REGISTERED UNDER THE FLORIDA SECURITIES AND INVESTOR PROTECTION ACT IN
RELIANCE UPON EXEMPTION PROVISIONS CONTAINED THEREIN. ANY SALE MADE
PURSUANT TO SUCH EXEMPTION PROVISIONS IS VOIDABLE BY THE PURCHASER
WITHIN THREE DAYS AFTER THE FIRST TENDER OF CONSIDERATION IS MADE BY
THE PURCHASER TO THE ISSUER, AN AGENT OF THE ISSUER OR AN ESCROW
AGENT. A WITHDRAWAL WITHIN SUCH THREE DAY PERIOD WILL BE WITHOUT ANY
FURTHER LIABILITY TO ANY PERSON. TO ACCOMPLISH THIS WITHDRAWAL, A
SUBSCRIBER NEED ONLY SEND A LETTER OR TELEGRAM TO THE COMPANY AT THE
ADDRESS SET FORTH IN THIS MEMORANDUM, INDICATING HIS INTENTION TO
WITHDRAW.
SUCH LETTER OR TELEGRAM SHOULD BE SENT AND POSTMARKED PRIOR TO
THE END OF THE AFOREMENTIONED THIRD BUSINESS DAY. IT IS ADVISABLE TO
SEND SUCH LETTER BY CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO
ENSURE THAT IT IS RECEIVED AND ALSO TO EVIDENCE THE TIME IT WAS
MAILED. IF THE REQUEST IS MADE ORALLY, IN PERSON OR BY THE TELEPHONE,
TO AN OFFICER OF THE COMPANY, A WRITTEN CONFIRMATION THAT THE REQUEST
HAS BEEN RECEIVED SHOULD BE REQUESTED.
THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY
AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND THE APPLICABLE STATE
SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM.
INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE
FINANCIAL RISKS INVOLVED FOR AN INDEFINITE PERIOD OF TIME.
(iv) FOR SALES IN CALIFORNIA: THE SECURITIES HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE
CALIFORNIA CORPORATIONS CODE BY REASON OF SPECIFIC EXEMPTIONS
THEREUNDER. THESE SECURITIES CANNOT BE SOLD, TRANSFERRED OR OTHERWISE
DISPOSED OF TO ANY PERSON OR ENTITY UNLESS SUBSEQUENTLY REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE CALIFORNIA
CORPORATIONS CODE, IF SUCH REGISTRATION IS REQUIRED.
SECURITIES HAVE BEEN SOLD IN FLORIDA.
(v) FOR SALES IN MARYLAND: THE SECURITIES HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE
MARYLAND SECURITIES ACT, BY REASON OF SPECIFIC EXEMPTIONS THEREUNDER.
THESE SECURITIES CANNOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF
TO ANY PERSON OR ENTITY UNLESS SUBSEQUENTLY REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR THE MARYLAND SECURITIES ACT, IF
SUCH REGISTRATION IS REQUIRED.
SECTION 6. PREPAYMENTS AND REPAYMENTS
6.1. Mandatory Prepayments. The Company agrees that it shall prepay in
full the aggregate principal amount of all Notes outstanding upon the occurrence
of any Change in Control Event; provided that such prepayment shall be subject
to the Purchasers' right to convert their Notes into Shares in accordance with
Section 17 hereof. Upon any prepayment of the principal amount of any Notes
pursuant to this Section 6.1, the Company shall also pay the holder or holders
of any such Notes any accrued and unpaid interest to the date of prepayment (or
repayment). The aggregate principal amount of each prepayment of Notes pursuant
to this Section 6.1 shall be allocated among all Notes at the time outstanding,
in proportion, as nearly as practicable, to the respective unpaid principal
amounts of such Notes.
6.2. Optional Prepayments. The Company may at any time after June 9, 1996,
prepay all or part of the principal amount of outstanding Notes at a price equal
to the sum of all accrued interest on the principal amount of the Notes to be
prepaid plus the aggregate principal amount of the Notes to be prepaid; provided
that such prepayments shall be in denominations of at least $100,000 or any
larger multiple of $10,000; and provided further, that such prepayment shall be
subject to the Purchasers' right to convert their Notes into Shares in
accordance with Section 17 hereof. The right of the Company to prepay Notes
pursuant to this Section 6.2 shall be conditioned upon its giving notice of
prepayment, signed by its President and Treasurer, to the holders of Notes not
less than ten (10) days and not more than sixty (60) days prior to the date upon
which the prepayment is to be made specifying (i) the registered holder of each
Note to be prepaid, (ii) the aggregate principal amount being prepaid, (iii) the
date of such prepayment, (iv) the accrued and unpaid interest (to but not
including the date upon which the prepayment is to be made) and (v) the
calculation of the amount of such prepayment. Notice of prepayment having been
so given, the aggregate principal amount of the Notes so specified in such
notice and all accrued and unpaid interest thereon shall become due and payable
on the specified prepayment date. If any prepayment (or repayment) pursuant to
this Section 6.2 does not repay in full the aggregate principal amount of all
Notes then outstanding, then the aggregate amount of such prepayment (or
repayment) of the principal amount of Notes shall be allocated among all Notes
at the time outstanding, in proportion, as nearly as practicable, to the
respective unpaid principal amounts of such Notes.
SECTION 7. AFFIRMATIVE COVENANTS
The Company covenants and agrees as follows:
7.1. Use of Proceeds.
(a) The Company will use the net proceeds realized from the sale of
the Notes for working capital purposes.
(b) No portion of such proceeds will be used for the purpose, whether
immediate, incidental or ultimate, of purchasing or carrying, within the meaning
of Regulation U of the Board of Governors of the Federal Reserve System, as
amended from time to time, any "margin stock" as defined in said Regulation U,
or any "margin stock" as defined in Regulation G of the Board of Governors of
the Federal Reserve System, as amended from time to time, or for the purpose of
purchasing, carrying or trading in securities within the meaning of Regulation T
of the Board of Governors of the Federal Reserve System, as amended from time to
time, or for the purpose of reducing or retiring any indebtedness which both (i)
was originally incurred to purchase any such margin stock or other securities
and (ii) was directly or indirectly secured by such margin stock or other
securities.
7.2. Financial Information. The Company shall deliver to the Agent:
(a) as soon as practicable, and in any event within one hundred
twenty (120) days after the close of each fiscal year of the Company, (i) a
consolidated and consolidating balance sheet of the Company and its Subsidiaries
as of the end of such fiscal year and (ii) consolidated and consolidating
statements of income, retained earnings and cash flows of the Company and its
Subsidiaries for such fiscal year, in each case setting forth in comparative
form the corresponding figures for the preceding fiscal year, all such balance
sheets and statements to be in reasonable detail and certified (except for the
consolidating information) without qualification by independent public
accountants of recognized national standing selected by the Company, and such
statements shall be accompanied by a management analysis of any material
differences between the results for such fiscal year and the corresponding
figures for such prior period and between such results and the historical
budgeted figures for such year;
(b) as soon as practicable, and in any event within fifty (50) days
after the close of each of the first three (3) fiscal quarters of the Company,
(i) a consolidated and consolidating balance sheet of the Company and its
Subsidiaries as of the end of such fiscal quarter and (ii) consolidated and
consolidating statements of income, retained earnings and cash flows of the
Company and its Subsidiaries for the portion of the fiscal year ended with the
end of such quarter, in each case to be in reasonable detail, certified by the
principal financial officer or the President of the Company and setting forth in
comparative form (except for the consolidating information) the corresponding
figures for the comparable period one year prior thereto (subject to normal
year-end adjustments) and the comparable figures included in the budget for such
quarter (as submitted or modified pursuant to paragraph (a) above), together
with a management analysis of any material differences between such results and
the corresponding figures for such prior period and between such results and the
historical budgeted figures;
(c) as soon as practicable, copies of any annual, special or interim
audit reports or management or comment letters with respect to the Company or
its Subsidiaries or their operations submitted to the Company by independent
public accountants;
(d) as soon as practicable, copies (i) of all financial statements,
proxy material or reports sent to the Company's or any Subsidiary's
stockholders, (ii) of any public or press releases and (iii) of all reports or
registration statements filed with the Commission pursuant to the Securities Act
or the Securities Exchange Act;
(e) as soon as practicable, such other financial and business data as
may reasonably be requested by the Agent.
7.3. Inspection. The Company shall permit the Agent and any authorized
representative of the Agent to visit and inspect any of the properties of the
Company and its Subsidiaries, to examine their respective books of account and
to discuss their business, affairs, finances and accounts with their officers,
all at such reasonable times and as often as may be reasonably requested;
provided, however, that nothing herein shall be construed as requiring the Agent
to perform such inspections and provided further that any such inspections may
be conditioned on the Agent executing a standard confidentiality request upon
the reasonable request of the Company.
7.4. Maintenance of Existing Properties and Franchises; Compliance with
Law; Taxes; Insurance; Payments of Senior Indebtedness. The Company shall, and
shall cause each Subsidiary to:
(a) maintain their respective corporate existence, rights and other
franchises in full force and effect; provided, that the Company may terminate
the corporate existence of any Subsidiary, or permit the termination or
abandonment of rights or other franchises, if in the opinion of the Company it
is no longer in the Company's best interests to maintain such existence, rights
or other franchises and such termination or abandonment will not be prejudicial
in any material respect to the holders of the Notes;
(b) maintain their Proprietary Rights in full force and effect and
maintain their respective tangible properties and assets in good repair, working
order and condition so far as necessary or advantageous to the proper carrying
on of their respective businesses;
(c) comply in all material respects with all applicable laws and with
all applicable orders, rules, rulings, certificates, licenses, regulations,
demands, judgments, writs, injunctions and decrees;
(d) pay promptly when due all taxes, fees, assessments and other
governmental charges imposed upon their respective properties, assets or income
and all claims or indebtedness (including, without limitation, materialmen's,
vendor's, workmen's and like claims) which might become a Lien upon such
properties or assets; provided, that payment of any such tax, fee, assessment,
charge, claim or indebtedness shall not be necessary so long as (i) the
applicability or validity thereof shall be contested in good faith by
appropriate proceedings and a reserve, if appropriate, shall have been
established with respect thereto and (ii) failure to make such payment will not
have a material adverse effect on the assets, properties, liabilities, business,
affairs, results of operations, condition (financial or otherwise) or prospects
of the Company on a consolidated basis;
(e) keep insured, by financially sound and reputable insurers, all
their respective properties of a character customarily insured by entities
similarly situated, against loss or damage of the kinds and in amounts
customarily insured against by such entities and with such deductibles or
coinsurance as is customary; and
(f) pay or cause to be paid when due all payments of principal,
interest or premium on Indebtedness and will not permit or suffer any event of
default with respect to any Indebtedness (as defined therein or in the
instrument under which the same is outstanding).
7.5. Notices. The Company shall give notice to the Agent and all holders
of Notes promptly after it learns (other than by notice from all of such
holders) of the existence of any of the following:
(a) any Event of Default or any Potential Default;
(b) any default under any other Indebtedness (or under any indenture,
mortgage or other agreement relating to any Indebtedness) which Indebtedness is
in an aggregate principal amount exceeding $25,000 (or the equivalent thereof in
other currencies) in respect of which the Company or any Subsidiary is liable;
(c) any action or proceeding which has been commenced or threatened
against the Company or any of its Subsidiaries and which, if adversely
determined, would have, individually or in the aggregate, a material adverse
effect on the assets, properties, liabilities, business, affairs, results of
operations, condition (financial or otherwise) or prospects of the Company and
its Subsidiaries on a consolidated basis or the ability of the Company to
perform its obligations under this Agreement or the Notes;
(d) any dispute which may exist between the Company or any of its
Subsidiaries and any governmental regulatory body which may, individually or in
the aggregate, materially adversely affect the normal business operations of the
Company or any of its Subsidiaries or the assets, properties, liabilities,
business, affairs, results of operations, condition (financial or otherwise) or
prospects of the Company and its Subsidiaries on a consolidated basis or the
ability of the Company to perform its obligations under this Agreement or the
Notes; and
(e) any (i) "reportable event' (as such term is defined in
Section 4043(b) of ERISA), (ii) "complete withdrawal" or "partial withdrawal"
(within the meaning of Sections 4203 and 4205 of ERISA) from a Multiemployer
Plan (as defined in Section 3(37) of ERISA) or (iii) "prohibited transaction"
(as such term is defined in Section 406 of ERISA and Section 4975 of the
Internal Revenue Code of 1986, as amended) in connection with any employee
benefit pension plan (as defined in Section 3(2) of ERISA), maintained or
contributed to (or required to be maintained or contributed to) by the Company,
any Subsidiary of the Company or any Affiliate of the Company (including,
without limitation, any multi-employer plan), or any trust created thereunder,
which in the case of clause (i), (ii) or (iii) may, either individually or in
the aggregate, result in a liability which would materially adversely affect the
assets, properties, liabilities, business, affairs, results of operations,
condition (financial or otherwise) or prospects of the Company and its
Subsidiaries on a consolidated basis or the ability of the Company to perform
its obligations under this Agreement or the Notes.
Such notice (i) with respect to (a) or (b), shall specify the nature and period
of existence of any such Potential Default, Event of Default or other default
and what the Company proposes to do with respect thereto and (ii) with respect
to (c), (d) or (e), shall specify the nature of any such matter referred to in
such clause, what action the Company or any Subsidiary proposes to take with
respect thereto and what action any other relevant Person is taking or proposes
to take with respect thereto.
7.6. Environmental Matters.
(a) The Company and each Subsidiary shall keep any real property
(including improvements) either owned or occupied by the Company or any
Subsidiary free and clear of any Liens imposed for failure to comply with any
environmental laws, regulations or ordinances (each, an "Environmental Lien");
provided, however, that so long as no Potential Default or Event of Default
shall occur and be continuing, the Company or any Subsidiary shall have the
right at its sole cost and expense, and acting in good faith, to contest, object
or appeal by appropriate legal proceeding the validity of any Environmental
Lien. The contest, objection or appeal with respect to the validity of an
Environmental Lien shall suspend the Company's obligation to eliminate such
Environmental Lien under this paragraph pending a final determination by
appropriate administrative or judicial authority of the legality, enforceability
or status of such Environmental Lien, provided that the following conditions are
satisfied: (i) contemporaneously with the commencement of such proceedings, the
Company shall give written notice thereof to the Agent; and (ii) if under
applicable law any real property or improvements thereon are subject to sale or
forfeiture for failure to satisfy the Environmental Lien prior to a final
determination of the legal proceedings, the Company must successfully move to
stay such sale, forfeiture or foreclosure pending final determination of the
Company's action; and (iii) the Company must, if requested, furnish to the Agent
and the holders of Notes a good and sufficient bond, surety, letter of credit or
other security satisfactory to the Agent equal to the amount (including any
interest and penalty) secured by the Environmental Lien.
(b) The Company shall defend, indemnify and hold harmless each holder
of Notes, the Agent and their respective employees, officers, directors, agents,
representatives and assigns, from and against any liabilities, obligations,
losses, damages, penalties, actions, judgments, suits and claims, joint or
several, and any costs, disbursements and expenses (including reasonable
attorneys' fees and expenses and reasonable costs of investigation) of whatever
kind or nature, known or unknown, contingent or otherwise, arising out of or in
any way related to (i) the presence, disposal, release, removal, discharge,
storage or transportation of any hazardous substances or wastes, upon, into,
from or affecting any real property (including improvements) owned or occupied
(or formerly owned or occupied) by the Company; and (ii) any judicial or
administrative action, suit or proceeding, actual or threatened, relating to
hazardous substances, or wastes, upon, in, from or affecting any real property
(including improvements) owned or occupied (or formerly owned or occupied) by
the Company; and (iii) any violation of any environmental law, regulation or
ordinance by the Company or any of its agents, tenants, subtenants or invitees;
and (iv) the imposition of any Environmental Lien for the recovery of costs
expended in the investigation, study or remediation of any environmental
liability of (or asserted against) the Company or any Subsidiary.
(c) To the extent that the Company is strictly liable without regard
to fault under any environmental law, regulation or ordinance, the Company's
obligation to the holders of Notes and the Agent under any of the
indemnification provisions of this Agreement shall likewise be strict without
regard to fault with respect to the violation of any environmental law,
regulation or ordinance which results in any liability to the Agent or the
holders of Notes.
7.7. Reservation of Shares. There have been reserved, and the Company
shall at all times keep reserved, out of its authorized Common Stock, a number
of shares of Common Stock sufficient to provide for the conversion of the then
outstanding Notes.
7.8. No Dilution or Impairment. The Company shall not, by amendment of its
certificate 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 Agreement or the Notes. The Company shall 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 holders of Notes against dilution or other impairment.
Without limiting the generality of the foregoing, the Company (a) shall not
permit the par value or the determined or stated capital of any shares of Common
Stock receivable upon the conversion of the Notes to exceed the amount payable
therefor upon such exercise, (b) shall 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 the Company's Common Stock, free from all
taxes, Liens and charges with respect to the issue thereof, upon the conversion
of the Notes from time to time outstanding, (c) shall not take any action which
results in any adjustment of the conversion price under the Notes if the total
number of shares of the Company's Common Stock (or other securities) issuable
after the action upon the conversion of all of the Notes would exceed the total
number of shares of Common Stock (or other securities) then authorized by the
Company's certificate of incorporation and available for the purpose of issue
upon such exercise and (d) shall not issue any capital stock of any class which
is preferred as to dividends or as to distribution of assets upon voluntary or
involuntary dissolution, liquidation or winding-up, unless the rights of the
holders thereof shall be limited, with respect to dividends, 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 similar indicator of interest rates and, with respect
to a distribution of assets, to a fixed sum or percentage of par value.
7.9. Listing of Shares. If any shares of the Company's Common Stock are
listed on any national securities exchange, then the Company will take such
action as may be necessary, from time to time, to list all outstanding Shares on
such exchange.
7.10. Securities Exchange Act Registration. The Company shall:
(a) Maintain effective a registration statement (containing such
information and documents as the Commission shall specify and otherwise
complying with the Securities Exchange Act) with respect to the Common Stock of
the Company under Section 12(b) or Section 12(g), whichever is applicable, of
the Securities Exchange Act and will file on time such information, documents
and reports as the Commission may require or prescribe for companies whose stock
has been registered pursuant to such Section 12(b) or Section 12(g), whichever
is applicable.
(b) Upon the request of the Agent or any holder of Notes or Shares,
make whatever other filings with the Commission, or otherwise make generally
available to the public such financial and other information, as the Agent or
any such holder may deem reasonably necessary or desirable in order to enable
such holder to be permitted to sell Shares pursuant to the provisions of Rule
144.
7.11. Maintenance of Public Market. The Company shall not proceed with
a program of acquisition of its own Common Stock, initiate a corporate
reorganization or recapitalization or authorize or consent to any action which
would have the effect of:
(a) removing the Company from registration with the Commission under
the Securities Exchange Act, or
(b) reducing substantially or eliminating the public market for
shares of Common Stock of the Company.
SECTION 8. NEGATIVE COVENANTS
The Company further covenants and agrees as follows:
8.1. Financial Restrictions.
(a) The Company shall not permit the ratio on the last day of any
fiscal quarter of its Indebtedness to equity to exceed 1.5 to 1.
(b) Neither the Company nor any Subsidiary will declare or make or
permit to be declared or made:
(i) any Restricted Payment; or
(ii) any investment in any corporation not theretofore
wholly-owned by the Company and/or a wholly-owned Subsidiary in which the
aggregate amount of all such investments outstanding at any one time
exceeds $100,000; provided that the Company or any wholly-owned Subsidiary
may incorporate and invest in additional wholly-owned Subsidiaries.
8.2. Merger, Sale of Assets, Dissolution, Etc. The Company shall not,
directly or indirectly, (a) enter into any merger, reorganization or
consolidation; or (b) transfer, sell, assign, lease, or otherwise dispose of all
or substantially all of its properties or assets; or (c) transfer, sell, assign,
discount, lease, or otherwise dispose of any of its notes or other instruments,
accounts receivable, or contract rights with or without recourse, except for
collection in the ordinary course of business, or any assets or properties
necessary or desirable for the proper conduct of its business; or (d) change the
nature of its business; or (e) enter into any arrangement, directly or
indirectly, with any Person whereby the Company shall sell or transfer any
property, real or personal, used or useful in its business, whether now owned or
hereafter acquired, and thereafter rent or lease such property which the Company
intends to use for substantially the same purpose or purposes as the property
being sold or transferred; or (f) wind up, liquidate, or dissolve itself or its
business; or (g) agree to effect any of the foregoing.
8.3. Limitations on Loans, Investments, and Advances. The Company shall
not, directly or indirectly, make or have outstanding a loan, Guarantee or
advance to or an investment in, or acquire all or a substantial part of the
assets or properties of, or own or acquire stock or other securities of, any
Person other than a wholly-owned Subsidiary, except (a) stock or other
securities received in settlement of a debt that was created in the ordinary
course of business, (b) travel advances in the ordinary course of business to
its officers and employees, (c) readily marketable securities issued by the
United States of America or a U.S. corporation with a rating of "AA" or better
from Standard & Poors, (d) certificates of deposit or repurchase agreements of
First Union Bank or of any other financial institution of comparable standing,
(e) up to $250,000 of personal loans or advances to officers, directors and
employees, (f) accounts receivables and other credit arrangements with non-
affiliated customers of the Company entered into at arms length in the ordinary
course of business or (g) Senior Indebtedness.
8.4. Regulation U. The Company shall not permit any part of the proceeds
of the loan or loans made pursuant to this Agreement to be used to purchase or
carry or to reduce or retire any loan incurred to purchase or carry any margin
stock (within the meaning of Regulation U of the Board of Governors of the
Federal Reserve System) or to extend credit to others for the purpose of
purchasing or carrying any such margin stock, or to be used for any other
purpose which violates, or which would be inconsistent with, the provisions of
Regulation U or other applicable regulation. The Company covenants that it is
not engaged and will not become engaged as one of its principal or important
activities in extending credit for the purpose of purchasing or carrying such
margin stock. If requested by the Agent, the Company shall furnish to such
holder in connection with any loan or loans hereunder, a statement in conformity
with the requirements of Federal Reserve Form U-1 referred to in said
regulation.
8.5. Changes in Governing Documents, Accounting Methods, Fiscal Year. The
Company shall not amend in any respect its charter or bylaws from that in
existence on the date of this Agreement or change its accounting methods or
practices, its depreciation or amortization policy or rates, or its fiscal year
end if the effect of such amendment would adversely affect the rights of the
holders of the Notes and Shares, except as required to comply with law or with
GAAP.<PAGE>
8.6. Permitted Indebtedness.
(a) Neither the Company nor any Subsidiary will create, incur, assume
or be or remain liable on any Indebtedness other than:
(i) Indebtedness represented by or incurred under the Notes and
this Agreement;
(ii) Indebtedness existing on the Closing Date and identified in
Exhibit C hereto;
(iii) Senior Indebtedness to the extent such Senior
Indebtedness does not result in a violation of Section 8.1 hereof;
(iv) Junior Indebtedness in excess of $500,000 unless all the
holders of such Junior Indebtedness execute one or more subordination
agreements in form and substance satisfactory to the Agent and such
Indebtedness does not result in a violation of Section 8.1 hereof; and
(v) Indebtedness incurred to prepay or repay in full the
remaining outstanding principal amount of Notes and all other amounts due
thereon or hereunder.
8.7. No Change in Business. Neither the Company nor any of its
Subsidiaries will change substantially the character of its business as
conducted on the Closing Date as described in the Disclosure Material.
8.8. Affiliate Loans and Guarantees. Except for the transactions
contemplated by this Agreement, neither the Company nor any Subsidiary may incur
or permit to exist any of the following:
(a) any obligation of the Company or of any Subsidiary to repay money
borrowed owing to (i) any officer, director, employee or shareholder of the
Company, or (ii) any officer, director, employee or shareholder of any
Subsidiary; or
(b) any obligation, to any Person, which obligation is assumed or
guaranteed by the Company or a Subsidiary and which is an obligation of (i) any
officer, director, employee or shareholder of the Company, (ii) any officer,
director, employee or shareholder of any Subsidiary.
8.9. Transactions with Affiliates. The Company will not, and will not
permit any Subsidiary to, directly or indirectly, enter into any transaction or
agreement (including, without limitation, the purchase, sale, distribution,
lease or exchange of any property or the rendering of any service) with any
Affiliate of the Company or of any Subsidiary, other than a wholly-owned
Subsidiary of the Company, on terms that are less favorable to the Company or
such Subsidiary, as the case may be, than those which might be obtained at the
time of such transaction from a Person who is not such an Affiliate.
8.10. Liens, Etc. The Company will not create or suffer to exist, or
permit any of its Subsidiaries to create or suffer to exist, any Lien upon or
with respect to any of its assets, properties or income, other than the
following:
(i) purchase money liens or purchase money security interests upon or
in any property acquired or held by the Company or any Subsidiary in the
ordinary course of business to secure the purchase price of such property
or to secure Indebtedness incurred and used solely for the purpose of
financing the acquisition of such property, provided that the principal
amount of Indebtedness secured by each such lien or interest in each item
of property shall not exceed the cost of the item subject thereto and that
any such lien or interest shall not apply to any other property, assets or
income of the Company or any Subsidiary;
(ii) Liens existing on such property at the time of its acquisition by
the Company or a Subsidiary (other than any such Lien created in
contemplation of such acquisition), provided that the aggregate principal
amount of Indebtedness secured by the Liens referred to in clause (i) above
and this clause (ii) shall not exceed $100,000 at any time outstanding;
(iii) Liens existing on the date hereof and disclosed in Exhibit C
hereto;
(iv) Permitted Liens; and
(v) Liens securing Senior Indebtedness.
8.11. Private Placement Status. Neither the Company nor any agent nor
other Person acting on the Company's behalf will do or cause to be done (or will
omit to do or to cause to be done) any act which act (or which omission) would
result in bringing the issuance or sale of the Notes or Shares within the
registration provisions of Section 5 of the Securities Act (other than in
accordance with a registration and qualification of Shares under Section 16
hereof).
SECTION 9. CONDITIONS TO PURCHASERS' OBLIGATIONS
The Purchasers' obligation to purchase the Notes hereunder is subject to
satisfaction of the following conditions at the Closing (any of which may be
waived by the Agent):
9.1. Accuracy of Representations and Warranties. The representations and
warranties of the Company herein or in any certificate or document delivered
pursuant hereto shall be correct and complete on and as of the Closing Date with
the same effect as though made on and as of the Closing Date (after giving
effect to the transactions contemplated by this Agreement).
9.2. Compliance with Agreements; No Defaults. The Company shall have
performed and complied in all material respects with all agreements, covenants
and conditions contained in this Agreement and the Notes and any other document
contemplated hereby or thereby which are required to be performed or complied
with by the Company on or before the Closing Date. On the Closing Date (after
giving effect to the transactions contemplated hereby), there shall be no Event
of Default or Potential Default.
9.3. Officers' Certificate. The Purchasers shall have received a
certificate dated the Closing Date and signed by the President and by the
Secretary or the Treasurer of the Company, to the effect that the conditions of
Sections 9.1, 9.2 and 9.5 hereof have been satisfied.
9.4. Proceedings. All corporate and other proceedings in connection with
the transactions contemplated by this Agreement and the Notes, and all documents
incident thereto, shall be in form and substance reasonably satisfactory to the
Purchasers and their counsel, and the Purchasers shall have received all such
originals or certified or other copies of such documents as the Purchasers or
their counsel may reasonably request.
9.5. Legality; Governmental and Other Authorization. The purchase of and
payment for the Notes shall not be prohibited by any law or governmental order,
rule, ruling, regulation, release, interpretation or opinion applicable to the
Purchasers and shall not subject the Purchasers to any penalty, tax, liability
or other onerous condition. Any necessary consents, approvals, licenses,
permits, orders and authorizations of, and any filings, registrations or
qualifications with, any governmental or administrative agency or other person,
with respect to the transactions contemplated by this Agreement and the Notes
shall have been obtained or made and shall be in full force and effect. The
Company shall have delivered to the Purchasers, upon their reasonable request
setting forth what is required, factual certificates or other evidence, in form
and substance reasonably satisfactory to the Purchasers and their counsel, to
enable the Purchasers to establish compliance with this condition.
9.6. Time of Purchase. The Closing shall not be later than 5:00 P.M., New
York time, on June 9, 1995.
9.7. No Change in Law, etc. No legislation, order, rule, ruling or
regulation shall have been proposed, enacted or made by or on behalf of any
governmental body, department or agency, and no investigation by any
governmental authority shall have been commenced or threatened, and no action,
suit or proceeding shall have been commenced before, and no decision shall have
been rendered by, any court, other governmental authority or arbitrator, which,
in any such case, in the Purchasers' reasonable judgment could materially
adversely affect, restrain, prevent or change the transactions contemplated by
this Agreement and the Notes (including without limitation the issuance of the
Notes hereunder and the issuance of Shares upon conversion of the Notes) or
materially and adversely affect the assets, properties, liabilities, business,
affairs, results of operations, condition (financial or otherwise) or prospects
of the Company on a consolidated basis.
9.8. Opinion of Counsel. The Purchasers shall have received an opinion
dated the Closing Date and addressed to the Purchasers of Cohen, Chernay,
Norris, Weinberger & Harris, counsel for the Company. Such opinion shall be in
form and substance satisfactory to the Purchasers and to the effect set forth in
Exhibit D hereto.
9.9. Other Documents and Opinions. The Purchasers shall have received such
other documents and opinions, in form and substance reasonably satisfactory to
the Purchasers and its counsel, relating to matters incident to the transactions
contemplated hereby as the Purchasers may reasonably request.
SECTION 10. SUBORDINATION
10.1. Agreement to Be Bound. All Notes shall, to the extent and in the
manner hereinafter set forth, be subordinated and subject in right of payment to
the prior payment in full of all Senior Indebtedness. Each holder of a Note,
whether upon original issue or upon transfer or assignment thereof, by its
acceptance hereof agrees that provisions contained in this Section 10 shall be
for the benefit of the holders of the Senior Indebtedness and may be enforced
directly by such holders.
10.2. Priority of Senior Indebtedness. No payment on account of
principal of, if any, or interest on the Notes shall be made, nor shall any
assets be applied to the purchase or other acquisition or retirement of the
Notes, for a period (the "Payment Blockage Period") of (i) sixty (60) days after
both of the following have occurred (A) either (1) the Company shall have
defaulted in paying principal or interest under any Senior Indebtedness or (2)
the principal amount of any Senior Indebtedness shall have been accelerated upon
an event of default thereunder and (B) written notice of such payment event of
default or of such acceleration shall have been given (by the Company or by the
holders of Senior Indebtedness) to the Agent, stating that clause (i) of this
Section 10.2 is therefore applicable; or (ii) thirty (30) days after both of the
following have occurred: (A) the Company shall have defaulted in the performance
of any financial covenant under any Senior Indebtedness and such default shall
have become an event of default thereunder and (B) written notice of such event
of default shall have been given (by the Company or by the holders of Senior
Indebtedness) to the Agent, stating that clause (ii) of this Section 10.2 is
therefore applicable; provided, that if a Payment Blockage Period arises under
the preceding clause (ii) and if (I) such event of default giving rise to such
Payment Blockage Period leads to an acceleration of such Senior Indebtedness as
referred to in the preceding clause (i) or (II) a payment default on interest or
principal of such Senior Indebtedness, as referred to in the preceding clause
(i) occurs during such Payment Blockage Period, then (in the case of either
subclause (I) or (II)) the number of days in any such resulting Payment Blockage
Period under clause (i) shall be reduced by the number of days which have
already elapsed in such Payment Blockage Period under clause (ii); provided,
further, that (x) any Payment Blockage Period arising as a result of clause
(i)(A)(l) above shall terminate immediately upon the payment of such defaulted
principal or interest (or if such payment is otherwise cured or waived or if
such Senior Indebtedness is no longer outstanding), (y) any Payment Blockage
Period arising as a result of clause (i)(A)(2) above shall terminate immediately
upon the payment in full of such accelerated Senior Indebtedness or the
rescission or annulment of such acceleration or if such Senior Indebtedness is
no longer outstanding and (z) any Payment Blockage Period arising as a result of
clause (ii) above shall terminate immediately when such event of default has
been cured or waived or if such Senior Indebtedness is no longer outstanding;
provided, further, that under no circumstances shall there be more than two (2)
Payment Blockage Periods in any three hundred sixty-five (365) consecutive day
period. As used in this paragraph, an "event of default" is an event of default
(x) as defined in any Senior Indebtedness or in the instrument under which the
same is outstanding and (y) which would permit the acceleration of such Senior
Indebtedness prior to its maturity.
10.3. Liquidation; Dissolution; Bankruptcy. Upon any payment or
distribution of assets of the Company (whether in cash, property or securities)
to creditors upon any dissolution or winding-up or total or partial liquidation
or reorganization of the Company, whether voluntary or involuntary or in any
bankruptcy, insolvency, receivership or similar proceeding regarding the
Company, all amounts due or to become due upon all Senior Indebtedness then
outstanding shall first be paid in full before the holders of the Notes shall be
entitled to receive any assets so paid or distributed in respect thereof;
provided, that with respect to the foregoing, the holders of Notes may receive
securities which are subordinate to (at least to the extent that the Notes are
subordinate to Senior Indebtedness pursuant to the terms hereof) and junior in
right of payment to the payment of all Senior Indebtedness then outstanding.
Upon any such dissolution or winding-up or liquidation, reorganization or other
proceeding, any payment or distribution of assets of the Company of any kind or
character, whether in cash, property or securities, to which the holders of the
Notes would be entitled, except for these provisions, shall be paid by the
Company or by any receiver, trustee in bankruptcy, liquidating trustee, agent or
other person making such payment or distribution directly to the holders of
Senior Indebtedness which was then outstanding (pro rata to each of such holders
on the basis of the respective amounts of Senior Indebtedness then held by such
holders or their representatives), to the extent necessary to pay all such
Senior Indebtedness which was then outstanding in full, after giving effect to
any concurrent payment or distribution to or for the holders of Senior
Indebtedness, before any payment or distribution is made to the holders of the
Notes.
10.4. No Prejudice or Impairment; Reinstatement.
(a) The holders of the Senior Indebtedness may, without in any way
affecting the subordination hereunder, at any time or from time to time and in
their absolute discretion, but subject to Section 8.1 hereof, change the manner,
place, time or other terms of payment of, or renew or alter, any Senior
Indebtedness, or amend, modify or supplement any agreement or instrument
governing or evidencing such Senior Indebtedness or any other document referred
to therein, or exercise or refrain from exercising any of their rights under the
Senior Indebtedness, including, without limitation, waiver of default
thereunder, all without notice to or assent from the holders of the Notes. The
absence of any notice to, or knowledge by, any holder of Notes of the existence
or occurrence of any of the matters or events set forth in this paragraph shall
not impair or otherwise affect the rights of the holders of Senior Indebtedness
against holders of Notes under the subordination provisions of this Section 10.
(b) The provisions of this Section 10 shall continue to be effective,
or be reinstated, as the case may be, if at any time any payment in respect of
any Senior Indebtedness is rescinded or must otherwise be restored or returned
by the holders of such Senior Indebtedness upon the occurrence of any event
described in Section 10.3 hereof, or upon or as a result of the appointment of a
receiver, intervenor or conservator of, or trustee or similar officer for, the
Company or any substantial part of its property, all as though such payment had
not been made.
10.5. Subrogation. Subject to the payment in full of all Senior
Indebtedness, the holders of the Notes shall be subrogated to the rights of the
holders of Senior Indebtedness to receive payments or distributions of assets of
the Company made on the Senior Indebtedness until the principal of, and interest
on (and any other amounts due with respect to) the Notes and all other amounts
due under this Agreement shall be paid in full. For the purposes of such
subrogation, no payments or distributions to the holders of Senior Indebtedness
of any cash, property or securities to which the holders of the Notes would be
entitled except for the provisions of this Section 10 shall, as among the
Company, its creditors other than the holders of Senior Indebtedness, and the
holders of Notes, be deemed to be a payment by the Company to or on account of
Senior Indebtedness, it being understood that these provisions in this
Section 10 are, and are intended, solely for the purpose of defining the
relative rights of the holders of the Notes, on the one hand, and the holders of
Senior Indebtedness, on the other hand.
10.6. Obligations Unaffected. Nothing contained in this Section 10 is
intended to or shall impair as among the Company, its creditors other than the
holders of Senior Indebtedness, and the holders of the Notes, the obligation of
the Company, which shall be absolute and unconditional, to pay to the holders of
the Notes the principal of, and interest on the Notes, as and when the same
shall become due and payable in accordance with their terms, or to affect the
relative rights of the holders of the Notes and creditors of the Company other
than the holders of Senior Indebtedness. Nothing herein shall prevent any
holder of the Notes from exercising any remedies otherwise permitted by
applicable law upon the occurrence of an Event of Default, subject to the
rights, if any, under these provisions of the holders of Senior Indebtedness,
and nothing herein shall prevent the conversion of the Notes (or any part
thereof) in accordance with their terms.
10.7. Definition of Senior Indebtedness. The term "Senior
Indebtedness" shall mean the principal of and interest on Indebtedness of the
Company secured by a first priority security interest in the assets and
properties of the Company which is received from a bank or other financial
institution having capital and surplus of $100,000,000 or more, whether such
Indebtedness is currently outstanding or hereafter incurred, and any renewals,
modifications, refundings or extensions of any such Indebtedness, unless under
the provisions of the instrument creating or evidencing any such Indebtedness,
or pursuant to which the same is outstanding, it is provided that such
Indebtedness is subordinate in right of payment to any other Indebtedness of the
Company (including, without limitation, the Notes); provided, that Senior
Indebtedness shall not include (i) any obligations under any provision of any
agreement or instrument regarding such Senior Indebtedness in respect of
penalties or additional interest charged on account of overdue payments of
principal, interest or other payments, (ii) any Indebtedness owing to any
Subsidiary or to any other Affiliate (of the Company or of any Subsidiary) or to
any other holder of shares of the Company's Common Stock or (iii) Indebtedness
incurred in violation of any limitation on Indebtedness in Sections 8.1 or 8.8
hereof.
SECTION 11. AMENDMENT; WAIVER; CONSENT
(a) This Agreement and the Notes may be amended (or any provision hereof
or thereof waived) only with the written consent of the Agent; provided,
however, that no such amendment or waiver shall (i) change the fixed maturity of
any Note, the rate or the time of payment of interest thereon, the principal
amount thereof, the prepayment provisions of Section 6 hereof, the currency in
which payments are to be made, the current conversion price of a Note or the
registration rights under Section 16 hereof, without the consent of the holder
of the Note or Share so affected or (ii) reduce the aforesaid percentage of
Notes the holders of which are required to consent to any such amendment or
waiver, without the consent of the holders of all the Notes then outstanding or
(iii) increase the percentage of the amount of the Notes, the holders of which
may declare the Notes to be due and payable under Section 13 hereof, without the
consent of the holders of all the Notes then outstanding.
(b) The Company agrees that the Agent and all holders of Notes or Shares
shall be notified by the Company in advance of any proposed amendment or waiver,
but failure to give such notice shall not in any way affect the validity of any
such amendment or waiver. In addition, promptly after obtaining the written
consent of the holders herein provided, the Company shall transmit a copy of any
amendment or waiver which has been adopted to the Agent and all holders of Notes
or Shares then outstanding, but failure to transmit copies shall not in any way
affect the validity of any such amendment or waiver.
(c) The Company and each holder of a Note or Share then or thereafter
outstanding shall be bound by any amendment or waiver effected in accordance
with the provisions of this Section 11, whether or not such Note or Share shall
have been marked to indicate such modification, but any Note or Share issued
thereafter shall bear a notation as to any such modification (but the failure to
bear any such notation shall not affect the validity of any such subsequently
issued Note or Share, which shall be enforceable in accordance with its terms
subject to any such modification).
SECTION 12. EXCHANGE OF NOTES; CANCELLATION OF
SURRENDERED NOTES; REPLACEMENT
(a) Subject to Section 15 hereof, at any time at the request of any holder
of one or more of the Notes to the Company at its principal executive office,
the Company at its expense (except for any transfer tax or any other tax arising
out of the exchange) will issue and deliver to or upon the order of the holder
in exchange therefor new Notes, in such denomination or denominations as such
holder may request (which must be in denominations of $10,000 or any larger
multiple of $10,000, plus one Note in a lesser denomination, if required), in
aggregate principal amount equal to the unpaid principal amount of the Note or
Notes surrendered and substantially in the form thereof, dated as of the date to
which interest has been paid on the Note or Notes surrendered (or, if no
interest has yet been so paid thereon, then dated the date of the Note or Notes
so surrendered) and payable to such person or persons or order as may be
designated by such holder. Any such new Note shall bear any notation required
by Section 15(b) hereof.
(b) All Notes or portions thereof which have been prepaid pursuant to
Section 6 hereof, shall be canceled by the Company and no Notes shall be issued
in lieu of the principal amount so prepaid.
(c) Any Note which is converted in whole or in part shall be canceled by
the Company. No new Notes shall be issued in lieu of any portion of such Note
which has been converted, and the Company shall issue a new Note or Notes with
respect to any nonconverted portion of such Note.
(d) Upon receipt of evidence satisfactory to the Company of the loss,
theft, destruction or mutilation of any Note and, in the case of any such loss,
theft or destruction, upon delivery of a lost security affidavit reasonably
satisfactory to the Company (if requested by the Company, or in the case of any
such mutilation, upon surrender of such Note which surrendered Note shall be
canceled by the Company, the Company will issue a new Note of like tenor in lieu
of such lost, stolen, destroyed or mutilated Note as if the lost, stolen,
destroyed or mutilated Note were then surrendered for exchange.
SECTION 13. DEFAULTS
(a) Any of the following shall constitute an "Event of Default":
(i) the Company defaults in the payment (whether or not such payment
is prohibited under Section 10 hereof) of (A) any part of the principal of
any Note, when the same shall become due and payable, whether at maturity
or at a date fixed for prepayment or by acceleration or otherwise or (B)
the interest on any Note, when the same shall become due and payable, and
such default in the payment of interest shall have continued for five (5)
days; or
(ii) the Company defaults in the performance of any of the covenants
contained in Sections 7.1(b), 7.5, 8.3, 8.5 or 8.11 hereof; or
(iii) the Company defaults in the performance of any other
agreement or covenant contained in this Agreement or the Notes and such
default shall not have been remedied within thirty (30) days after written
notice thereof shall have been given to the Company by any holder or
holders of the Notes (the Company to give forthwith to all other holders of
the Notes at the time outstanding written notice of the receipt of such
notice, specifying the default referred to therein); or
(iv) any representation or warranty by the Company herein or in any
certificate delivered by the Company pursuant hereto or thereto proves to
have been incorrect in any material respect when made; or
(v) an event of default occurs under any indenture(s) or
instrument(s) evidencing or under which there is at the time outstanding
any Indebtedness of the Company or any Subsidiary in an aggregate principal
amount of at least $25,000, which event of default allows the due date of
such Indebtedness to be accelerated; or
(vi) a final judgment or order which, either alone or together with
other final judgments or orders against the Company and its Subsidiaries,
exceeds an aggregate of $100,000 is rendered by a court of competent
jurisdiction against the Company or any Subsidiary and such judgment or
order shall have continued undischarged or unstayed for thirty (30) days
after entry thereof; or
(vii) the Company or any Subsidiary shall make an assignment for
the benefit of creditors, or shall admit in writing its inability to pay
its debts; or a receiver or trustee is appointed for the Company or any
Subsidiary or for all or substantially all of its assets and, if appointed
without its consent, such appointment is not discharged or stayed within
thirty (30) days; or proceedings under any law relating to bankruptcy,
insolvency or the reorganization or relief of debtors are instituted by or
against the Company or any Subsidiary, and, if contested by it, are not
dismissed or stayed within thirty (30) days; or any writ of attachment or
execution or any similar process is issued or levied against the Company or
any Subsidiary or any significant part of its property and is not released,
stayed, bonded or vacated within thirty (30) days after its issue levy; or
the Company or any Subsidiary takes corporate action in furtherance of any
of the foregoing.
(b) If an Event of Default occurs pursuant to any of clauses (i) through
(vi) of Section 13(a) hereof, then and in each such event the Agent or the
Majority Noteholders may at any time (unless all Events of Default shall
theretofore have been waived or remedied) at its or their option, by written
notice or notices to the Company, declare all the Notes to be due and payable.
Upon any such declaration or upon the occurrence of an Event of Default pursuant
to clause (vii) of Section 13(a) hereof (in which case no declaration is
required), all Notes shall forthwith immediately mature and become due and
payable, together with interest accrued thereon, all without presentment,
demand, protest or notice, all of which are hereby waived. However, if, at any
time after the principal of the Notes shall so become due and payable and prior
to the date of maturity stated in the Notes, all principal and interest on the
Notes (with interest at the rate specified in the Notes on any overdue principal
and, to the extent legally enforceable, on any overdue interest) shall be paid
by or for the account of the Company, then the Majority Noteholders, by written
notice or notices to the Company, may waive such Event of Default and its
consequences and rescind or annul such declaration, but no such waiver shall
extend to or affect any subsequent Event of Default or impair any right or
remedy resulting therefrom. If any holder of a Note shall give any notice or
take any other action with respect to a claimed default, the Company, forthwith
upon receipt of such notice or obtaining knowledge of such other action, will
give written notice thereof to all other holders of the Notes then outstanding,
describing such notice or other action and the nature of the claimed default.
SECTION 14. REMEDIES
(a) In case any one or more Events of Default shall occur and be
continuing, the holder of a Note or Share then outstanding may proceed to
protect and enforce the rights of such holder by an action at law, suit in
equity or other appropriate proceeding, whether for the specific performance of
any agreement contained herein or in such Note, or for an injunction against a
violation of any of the terms hereof or thereof, or in aid of the exercise of
any power granted hereby or thereby or by law or for any other remedy
(including, without limitation, damages).
(b) In case of a default in the payment of any principal of, or interest
on any Note, or default in the observance of any other agreement or covenant of
the Company in this Agreement or in a Note, the Company will pay to the holder
thereof or party thereto, in addition to any interest otherwise required, such
further amount as shall be sufficient to cover any and all costs and expenses of
enforcement and collection, including, without limitation, reasonable attorneys'
fees and expenses.
(c) No course of dealing and no delay on the part of any holder of any
Note or any Share or any party to this Agreement in exercising any rights or
remedies shall operate as a waiver thereof or otherwise prejudice such holder's
or party's rights. No right or remedy conferred hereby, or by any Note shall be
exclusive of any other right or remedy referred to herein or therein or
available at law, in equity, by statute or otherwise.
(d) The Purchasers shall, in addition to other remedies provided by law,
have the right and remedy to have the provisions of this Agreement specifically
enforced by any court having equity jurisdiction, it being acknowledged and
agreed that any breach or threatened breach of the provisions of this Agreement
will cause irreparable injury to the Purchasers and that money damages will not
provide an adequate remedy. Nothing contained herein shall be construed as
prohibiting the Purchasers from pursuing any other remedies available to the
Purchasers for such breach or threatened breach, including, without limitation,
the recovery of damages from the Company.
SECTION 15. RESTRICTIONS ON TRANSFER
(a) Each holder of a Note or Share by acceptance thereof agrees that it
will not sell or otherwise dispose of any Notes or Shares unless (i) such Notes
or Shares have been registered under the Securities Act and, to the extent
required, under any applicable state securities laws, or (ii) such Notes or
Shares are sold in accordance with the applicable requirements and limitations
of Rule 144 and any applicable state securities laws, or (iii) the Company has
been furnished with an opinion or opinions from counsel (which opinion(s), with
respect to the sale of the Shares pursuant to Rule 144, shall be provided by the
Company's counsel at the Company's cost within three business days of the
request therefor or the requirement of an opinion of counsel shall be deemed
waived) to the effect that registration under the Securities Act and any
applicable state securities laws is not required for the transfer as proposed
(which opinion may be conditioned upon the transferee's assuming the obligations
of a holder of Notes or Shares under this Section).
(b) The Company may endorse on all Notes and Share certificates a legend
stating or referring to the transfer restrictions contained in paragraph (a)
above; provided, that no such legend shall be endorsed on any Share certificates
which, when issued, are no longer subject to the restrictions of this Section
15; provided, further, that if a transfer is made pursuant to clause (i) or (ii)
of paragraph (a) and a legend is no longer required or if an opinion of counsel
provided pursuant to clause (iii) of paragraph (a) concludes that the legend is
no longer necessary, the Company will deliver upon transfer Notes or Share
certificates, as the case may be, without such legends.
SECTION 16. REGISTRATION RIGHTS
16.1. Shelf Registration.
(a) The Company shall use its best efforts to cause to be filed as
soon as reasonably practicable a registration statement pursuant to Rule 415
under the Securities Act (the "Shelf Registration Statement") as to the issuance
of Shares upon the conversion of all Notes and shall use its best efforts to
cause such Shelf Registration Statement to become effective as soon as
practicable thereafter. The Company shall use its best efforts to keep such
Shelf Registration Statement continuously effective until the earlier of
(i) three years following the date on which such Shelf Registration Statement
becomes effective under the Securities Act, or (ii) such time as no Shares
continue to be restricted securities (as defined in Rule 144); provided that the
Company shall not be deemed to have used its best efforts to keep the Shelf
Registration Statement effective during the applicable period if it voluntarily
takes any action under the Securities Act that would result in holders of Shares
not being able to receive registered Shares during that period unless (i) such
action is required under applicable law or (ii) such actions are taken by the
Company in good faith and for valid business reasons so long as the Company
properly thereafter complies with the requirements of Section 16.1(b) hereof, if
applicable.
(b) Upon the occurrence of any event that would cause the Shelf
Registration Statement (i) to contain a material misstatement or omission or
(ii) not to be effective and usable for the issuance of the Shares during the
period that such Shelf Registration Statement is required to be effective and
usable, the Company shall use best efforts to promptly file an amendment to the
Shelf Registration Statement or a document incorporated in the Shelf
Registration Statement by reference which would have the same effect as an
amendment thereto, in the case of clause (i), correcting any such misstatement
or omission, and in the case of either clause (i) or (ii), use its best efforts
to cause such amendment to be declared effective and such Shelf Registration
Statement to become usable as soon as practicable thereafter.
(c) If written notice that the Shelf Registration Statement has been
declared effective shall not have been given on or before October 31, 1995,
then, in each case, on the applicable date and thereafter the Company shall pay
additional interest on the Notes equal to the Delay Rate (as defined below).
Such additional interest shall cease to accrue on the date such Registration
Statements have been filed or declared effective, as applicable.
(d) In addition to the additional interest payments provided in
paragraph (c) above, if following the initial date of effectiveness of the Shelf
Registration Statement the Company notifies the Noteholders that the Shelf
Registration Statement is not usable and effective at a time when the aggregate
number of days for which the Shelf Registration Statement has not been usable
and effective exceeds 90 days (the date on which the 90 day limit is exceeded
being referred to as the "Event Date") then on the Event Date and thereafter
additional interest shall accrue on the Notes at the "Delay Rate" for each day
that the Shelf Registration Statement is not usable and effective. The "Delay
Rate" shall equal (i) one percent (1%) per annum for each of the first 30 days
after the Event Date on which the Shelf Registration Statement is not effective
and usable and (ii) three percent (3%) per annum for each day thereafter. The
foregoing time period shall be calculated without regard to whether the days
during which the Shelf Registration Statement is not usable and effective are
consecutive.<PAGE>
16.2. Piggyback Rights.
(a) If the Company shall at any time propose to file a registration
statement under the Securities Act for any underwritten sales of shares of the
Company's Common Stock (or any warrants, units, convertibles, rights or other
securities related or linked to any shares of the Company's Common Stock) on
behalf of the Company or otherwise, the Company shall give written notice of
such registration no later than thirty (30) days before its filing with the
Commission to the Agent and all holders of Notes or Shares; provided, that
registrations relating solely to securities to be issued by the Company in
connection with (a) any acquisition on Form S-4 or (b) any employee benefit plan
on Form S-8 (or successor forms) under the Securities Act shall not be subject
to this Section 16.2. If holders of Notes or Shares so request within thirty
(30) days, the Company shall include in any such registration the Shares held or
to be held upon conversion of Notes by such holders and requested to be included
in such registration. In the first registration to which this Section 16.2
applies, the holders of Notes or Shares desiring to participate in such
registration shall have the priority right over other selling shareholders to
include in such registration Shares representing at least one-third (1/3) of the
sum of (i) Shares then outstanding from previous conversion of Notes and (ii)
Shares then obtainable upon conversion of all Notes then outstanding. However,
the Company shall not be obligated to so include the Shares to the extent any
underwriter or underwriters of such securities being otherwise registered by the
Company shall determine in good faith that the inclusion of such Shares would
jeopardize the successful sale of such other securities proposed to be sold by
such underwriter or underwriters, in which case holders of Notes or Shares
desiring to participate in such registration shall be entitled to participate in
any such reduced number of Shares (if any) which may be included in such
registration (along with other holders of Company Common Stock exercising
piggyback rights with respect to such registration) in proportion to their
relative holdings of the Company's Common Stock (whether held directly or
through the right to obtain Shares upon the exercise of Notes held by such
holders). Holders of Notes or Shares desiring to participate in any
registration rights under this Section 16.2 shall be entitled to participate (as
among themselves) pro rata in proportion to their relative holdings of Shares
(whether such Shares are held directly or through the right to obtain such
Shares upon conversion of Notes held by such holders). The obligations and
rights of the Company and the holders under this Section 16.2 shall not affect
in any way their obligations and rights under Section 16.1 hereof. Holders of
Notes or Shares participating in any underwritten registration pursuant to this
Section 16.2 shall, upon the request of the underwriters, not sell any Notes or
Shares held by them for the period commencing seven (7) days before the
effective date of such registration statement and ninety (90) days after the
effective date of such registration statement without the written consent of the
underwriters managing such offering.
16.3. Expenses. Except as otherwise specifically provided in this
Section 16, the entire costs and expenses of registration and qualification
pursuant to Section 16.1 hereof and of any registration and qualification
pursuant to Section 16.2 hereof shall be borne by the Company. Such costs and
expenses shall include, without limitation, underwriting fees or commissions,
the fees and expenses of counsel for the Company and of its accountants, all
other costs, fees and expenses of the Company incident to the preparation,
printing and filing under the Securities Act of the registration statement and
all amendments and supplements thereto, the reasonable fees and expenses of a
special counsel to the holders of Notes or Shares relating to such registration
and qualification, the cost of furnishing copies of each preliminary prospectus,
each final prospectus and each amendment or supplement thereto to underwriters,
dealers and other purchasers of the Shares and the costs and expenses (including
fees and disbursements of counsel) incurred in connection with the qualification
of the Shares under the Blue Sky laws of various jurisdictions. The Company may
satisfy the requirements of this Section 16.3 with respect to legal fees by
causing its counsel (which shall be approved by the Agent) to also represent the
holders of the Notes or Shares, unless the Agent determines in its reasonable
discretion that separate counsel is required.<PAGE>
16.4. Procedures.
(a) In the case of each registration or qualification pursuant to
Section 16.1 or 16.2 hereof, the Company will keep the Agent and all holders of
Notes or Shares advised in writing as to the initiation of proceedings for such
registration and qualification and as to the completion thereof, and will advise
any such holder, upon request, of the progress of such proceedings.
(b) At the Company's expense, the Company will keep each registration
and qualification under Section 16.2 hereof effective (and in compliance with
the Securities Act) by such action as may be necessary or appropriate for a
period of one hundred twenty (120) days after the effective date of such
registration statement, including, without limitation, the filing of
post-effective amendments and supplements to any registration statement or
prospectus necessary to keep the registration statement current and the further
qualification under any applicable Blue Sky or other state securities laws to
permit such sale or distribution, all as requested by such holder or holders.
With respect to registrations under Sections 16.1 and 16.2 hereof, the Company
will immediately notify each holder on whose behalf Shares have been registered
pursuant to this Section 16, at any time when a prospectus relating thereto is
required to be delivered under the Securities Act, of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances then existing.
(c) The Company will furnish to each holder on whose behalf Shares
have been registered pursuant to Section 16.2 hereof a signed counterpart,
addressed to such holder, of (i) an opinion of counsel for the Company, dated
the effective date of such registration statement, and (ii) a so-called "cold
comfort" letter signed by the independent public accountants who have certified
the Company's financial statements included in such registration statement; such
opinion of counsel and accountants' letter shall be in the same form as provided
to the underwriters of such offering and shall cover substantially the same
matters with respect to such registration statement (and the prospectus included
therein) and, in the case of such accountants' 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' letters delivered to
underwriters in connection with underwritten public offerings of securities, or
shall be in such other form as is received by the underwriters in connection
with such registration.
(d) Without limiting any other provision hereof, in connection with
any registration of Shares under this Section 16, the Company will use its best
efforts to comply with the Securities Act, the Securities Exchange Act and all
applicable rules and regulations of the Commission, and will make generally
available to its securities holders, as soon as reasonably practicable, an
earnings statement covering a period of at least twelve (12) months, beginning
with the first month of the first fiscal quarter after the effective date of
such registration statement, which earnings statement shall satisfy the
provisions of Section 11(a) of the Securities Act.
(e) In connection with any registration of Shares under Section 16.2
hereof, the Company will, if requested by the underwriters for any Shares
included in such registration, enter into an underwriting agreement with such
underwriters for such offering, such agreement to contain such representations
and warranties by the Company and such other terms and provisions as are
customarily contained in underwriting agreements with respect to secondary
distributions, including, without limitation, provisions relating to
indemnification and contribution. The holders on whose behalf Shares are to be
distributed by such underwriters shall be parties to any such underwriting
agreement, and 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 Notes or Shares. Such
underwriting agreement shall also comply with Section 16.6 hereof.
(f) In connection with the preparation and filing of each
registration statement registering Shares under this Section 16, the Company
shall give the Agent and the underwriters participating in the registration, if
any, and their respective counsel and accountants, the opportunity to
participate in the preparation of such registration statement, each prospectus
included therein or filed with the Commission, and each amendment thereof or
supplement thereto, and will give each of them such access to its books and
records and such opportunities to discuss the business of the Company with its
officers, its counsel and the independent public accountants who have certified
its financial statements, as shall be necessary, in the opinion of the Agent or
such underwriters or their respective counsel, in order to conduct a reasonable
and diligent investigation within the meaning of the Securities Act.
16.5. Provision of Documents. The Company shall, at the expense of the
Company, furnish to each Person required to receive a prospectus under the
Securities Act, such number of registration statements, prospectuses, offering
circulars and other documents incident to any registration or qualification
referred to in this Section 16.
16.6. Indemnification. The Company will indemnify and hold harmless
each holder of Notes or Shares and any underwriter (as defined in the Securities
Act) for such holder and each person, if any, who controls the holder or
underwriter within the meaning of the Securities Act against any losses, claims,
damages or liabilities, joint or several, and expenses (including reasonable
attorneys' fees and expenses and reasonable costs of investigation) to which the
holder or underwriter or such controlling person may be subject, under the
Securities Act or otherwise, insofar as any thereof arise out of or are based
upon (a) any untrue statement or alleged untrue statement of a material fact
contained in (i) any registration statement under which such Shares were
registered under the Securities Act pursuant to Section 16.1 or 16.2 hereof, any
prospectus or preliminary prospectus contained therein, or any amendment or
supplement thereto, or (ii) any other document incident to the registration of
the Shares under the Securities Act or the qualification of the Shares under any
state securities laws applicable to the Company, or (b) the omission or alleged
omission to state in any item referred to in the preceding clause (a) a material
fact required to be stated therein or necessary to make the statements therein
not misleading or (c) any violation or alleged violation by the Company of the
Securities Act, the Securities Exchange Act or any other federal or state
securities law, rule or regulation applicable to the Company and relating to
action or inaction by the Company in connection with any such registration or
qualification, except insofar as such losses, claims, damages, liabilities or
expenses (a) arise out of or are based upon any untrue statement or alleged
untrue statement or omission or alleged omission based upon information
furnished to the Company in writing by such holder or by any underwriter for
such holder expressly for use therein (with respect to which information such
holder or underwriter shall so indemnify and hold harmless the Company, any
underwriter for the Company and each person, if any, who controls the Company or
such underwriter within the meaning of the Securities Act), (b) arise out of
such holder's failure to satisfy the prospectus delivery requirements of the
Securities Act, or (c) arise out of such holder's sale of the Shares in
violation of state securities laws in a state in which the selling holders did
not request qualification. The Company will enter into an underwriting
agreement with the underwriter or underwriters for any offering registered under
the Securities Act pursuant to Section 16.1 or 16.2 hereof and with the holders
of Notes or Shares selling Shares pursuant to such offering, and such
underwriting agreement shall contain customary provisions with respect to
indemnification and contribution which shall, at a minimum, provide the
indemnification set forth above.
SECTION 17. CONVERSION
17.1. Right to Convert. Each holder of a Note or Notes on or after
June 9, 1996 shall have the right, at its option, at any time on or before the
close of business on June 9, 2000 (except that, with respect to any Note or
portion of a Note that shall be called for redemption, such right shall commence
upon such notice of redemption if prior to June 9, 1996 and terminate at the
close of business on the date fixed for redemption of such Note or portion of a
Note or the business day preceding the date of redemption, unless the Company
shall default in payment due upon redemption thereof) to convert the principal
amount of any such Note and any accrued interest thereon into that number of
fully paid and nonassessable shares of Common Stock (as such shares shall then
be constituted) obtained by dividing the principal amount (and any accrued and
unpaid interest thereon) of the Note or portion thereof surrendered for
conversion by the conversion price in effect at such time, by surrender of the
Note so to be converted in whole or in part in the manner provided in
Section 17.9 hereof; provided, however, that in order to exercise such
conversion privilege, the holder must convert at least 20% of all Notes held by
him on the date of conversion. The initial conversion price is $10.00 per
Share. A holder of a Note is not entitled to any rights of a holder of Common
Stock until such holder has converted his Notes to Common Stock, and only to the
extent such Notes are deemed to have been converted to Common Stock under this
Section 17.
17.2. Exercise of Conversion Privilege. In order to exercise the
conversion privilege, the holder of any Note to be converted in whole or in part
shall surrender such Note, duly endorsed on the Note (or by letter), at the
principal executive office of the Company and shall give written notice of
conversion in the form provided on the Notes (or such other notice that is
acceptable to the Company) to the Company at such office that the holder elects
to convert such Note or the portion thereof specified in said notice. Such
notice shall also state the name or names (with address) in which the
certificate or certificates for shares of Common Stock that shall be issuable on
such conversion shall be issued, and shall be accompanied by transfer taxes, if
required pursuant to Section 17.5 hereof. Each Note surrendered for conversion
shall, unless the shares issuable on conversion are to be issued in the same
name as the registration of such Note, be duly endorsed by, or be accompanied by
instruments of transfer in form satisfactory to the Company duly executed by the
holder or his duly authorized attorney.
As promptly as practicable after the surrender of such Note and the
receipt of such notice and funds, if any, as aforesaid, the Company shall issue
and shall deliver at such office or agency to such holder, or on his written
order, a certificate or certificates for the number of full Shares issuable upon
the conversion of such Note or portion thereof in accordance with the provisions
of this Section 17 and a check or cash in respect of any fractional interest in
respect of a share of Common Stock arising upon such conversion, as provided in
Section 17.3 hereof. In case any Note of a denomination greater than $1,000
shall be surrendered for partial conversion, the Company shall execute and
deliver to or upon the written order of the holder of the Note so surrendered,
without charge to him, a new Note or Notes in authorized denominations in an
aggregate principal amount equal to the unconverted portion of the surrendered
Note.
Each conversion shall be deemed to have been effected on the date on
which such Note shall have been surrendered and such notice shall have been
received by the Company, as aforesaid, and the person in whose name any
certificate or certificates for shares of Common Stock shall be issuable upon
such conversion shall be deemed to have become on said date the holder of record
of the shares represented thereby; provided, however, that any such surrender on
any date when the stock transfer books of the Company shall be closed shall
constitute the person in whose name the certificates are to be issued as the
record holder thereof for all purposes on the next succeeding day on which such
stock transfer books are open, but such conversion shall be at the conversion
price in effect on the date upon which such Note shall have been surrendered.
17.3. Cash Payments in Lieu of Fractional Shares. No fractional shares
of Common Stock or scrip representing fractional shares shall be issued upon
conversion of Notes. If more than one Note shall be surrendered for conversion
at one time by the same holder, the number of full shares which shall be
issuable upon conversion shall be computed on the basis of the aggregate
principal amount of the Notes (or specified portions thereof to the extent
permitted hereby) so surrendered. If any fractional share of stock would be
issuable upon the conversion of any Note or Notes, the Company shall make an
adjustment therefor in cash at the current market value thereof. The current
market value of a share of Common Stock shall be the Closing Price on the first
business day immediately preceding the day on which the Notes (or specified
portions thereof) are deemed to have been converted.
17.4. Current Conversion Price. The term "conversion price" shall mean
initially $10.00 per Share, subject to adjustment. For purposes of this Section
17.4, the conversion price of $10.00 shall be deemed to have become effective at
the close of business on the Closing Date but shall be subject to adjustment as
set forth in Section 17.5 hereof. The term "current conversion price" as used
herein shall mean the conversion price, as the same may be adjusted from time to
time as hereinafter provided, in effect at any given time. In determining the
current conversion price, the result shall be expressed to the nearest $0.10,
but any such lesser amount shall be carried forward and shall be considered at
the time of and together with the next subsequent adjustment which, together
with any adjustments to be carried forward, shall amount to $0.10 per Share or
more.
17.5. Adjustment of Conversion price. The conversion price shall be
subject to adjustment, from time to time, as follows:
(a) Adjustments for Stock Dividends, Recapitalizations, Etc. In
case the Company shall, after the Closing Date, (i) pay a stock dividend or make
a distribution (on or in respect of any class of its capital stock) in shares of
its capital stock (whether shares of its Common Stock or of capital stock of any
other class), (ii) subdivide its outstanding shares of Common Stock, (iii)
combine its outstanding shares of Common Stock into a smaller number of shares,
or (iv) issue by reclassification of its shares of Common Stock any shares of
capital stock of the Company, then, in any such case, the current conversion
price in effect immediately prior to such action shall be adjusted to a price
such that if the holder of a Note were to convert such Note in full immediately
after such action, such holder would be entitled to receive the number of shares
of capital stock of the Company which he would have owned immediately following
such action had such Note been converted immediately prior thereto (with any
record date requirement being deemed to have been satisfied), and, in any such
case, such conversion price shall thereafter be subject to further adjustments
under this Section 17. An adjustment made pursuant to this subsection (a) shall
become effective retroactively on the record date in the case of a dividend or
distribution and shall become effective immediately after the effective date in
the case of a subdivision, combination or reclassification.
(b) Adjustments for Other Distributions. In case the Company shall,
after the Closing Date, fix a record date for the making of a distribution to
all holders of its Common Stock (including any such distribution made in
connection with a consolidation or merger in which the Company is the continuing
corporation) of (i) cash (whether or not payable out of earnings or surplus),
(ii) other assets (other than dividends payable in the Company's Common Stock),
(iii) evidences of indebtedness or other securities of the Company or of any
entity other than the Company (other than dividends payable in the Company's
Common Stock), or (iv) subscription rights, options or warrants to purchase any
of the foregoing assets or securities, whether or not such rights, options or
warrants are immediately exercisable (any such distribution under clause (i),
(ii), (iii) or (iv), hereinafter collectively referred to as "Distributions on
Common Stock"), the Company shall deliver to the holders of outstanding Notes
the Distribution on Common Stock to which they would have been entitled if they
had exercised all of the Notes held by them for the Company's Common Stock
immediately prior to the record date for the purpose of determining stockholders
entitled to receive such Distribution on Common Stock.
(c) Adjustments for Issuance of Additional Stock. Subject to the
exceptions referred to in Section 17.5(e) hereof and except as otherwise
provided for in Section 17.5(a) hereof, in case the Company shall at any time or
from time to time after the Closing Date issue any additional shares of its
Common Stock ("Additional Common Stock") for a consideration per share less than
the greater of (i) the then current Closing Price per share of the Company's
Common Stock or (ii) the current conversion price in effect, in each case,
immediately prior to the issuance of such Additional Common Stock, then, and
thereafter successively upon each such issuance, the current conversion price
shall forthwith be reduced to a price equal to the lesser of:
(A) the price determined by multiplying such current conversion
price by a fraction, of which:
(1) the numerator shall be (i) the number of shares of
the Company's Common Stock outstanding when the then current
conversion price became effective plus (ii) the number of shares of
the Company's Common Stock which the aggregate amount of
consideration, if any, received by the Company upon all issues of its
Common Stock since the current conversion price became effective
(including the consideration, if any, received for such Additional
Common Stock) would purchase at the then current Closing Price per
share of the Company's Common Stock, and
(2) the denominator shall be (i) the number of shares
of the Company's Common Stock outstanding when the current conversion
price became effective plus (ii) the number of shares of the Company's
Common Stock issued since the current conversion price became
effective (including the number of shares of such Additional Common
Stock); and
(B) the price determined by dividing (x) the aggregate
amount of consideration, if any, received by the Company upon all
issues of its Common Stock since the then current conversion price
became effective (including the consideration, if any, received for
such Additional Common Stock) by (y) the number of shares of Common
Stock of the Company issued since the then current conversion price
became effective (including the number of shares of such Additional
Common Stock);
provided, however, that such adjustment shall be made only if such adjustment
results in a current conversion price less than the current conversion price in
effect immediately prior to the issuance of such Additional Common Stock. The
Company may, but shall not be required to, make any adjustment of the current
conversion price if the amount of such adjustment shall be less than $0.10, but
any adjustment that would otherwise be required then to be made which is not so
made shall be carried forward and shall be made at the time of and together with
the next subsequent adjustment which, together with any adjustments so carried
forward, shall amount to not less than $0.10.
(d) Certain Rules in Applying the Adjustment for Additional Stock
Issuances. For purposes of any adjustment as provided in Section 17.5(c)
hereof, the following provisions shall also be applicable:
(1) Cash Consideration. In case of the issuance of Additional
Common Stock for cash, the consideration received by the Company therefor
shall be deemed to be the net cash proceeds received by the Company for
such Additional Common Stock after deducting any commissions or other
expenses paid or incurred by the Company for any underwriting of, or
otherwise in connection with the issuance of, such Additional Common Stock.
(2) Non-Cash Consideration. In case of the issuance (otherwise
than upon conversion or application of obligations or shares of stock of
the Company) of Additional Common Stock for a consideration other than
cash, or a consideration a part of which shall be other than cash, the
amount of the consideration other than cash so received or to be received
by the Company shall be deemed to be the value of such consideration at the
time of its receipt by the Company as determined in good faith by the Board
of Directors of the Company, provided, that where the non-cash
consideration consists of the cancellation, surrender or exchange of
outstanding obligations of the Company (or where such obligations are
otherwise converted into shares of the Company's Common Stock), the value
of the non-cash consideration shall be deemed to be the present value of
the amount, including principal and any accrued interest, as of the time of
the Company's receipt, of the obligations canceled, surrendered, satisfied,
exchanged or converted. If the Company receives consideration, part or all
of which consists of publicly traded securities, the value of such non-cash
consideration shall be the aggregate Closing Price of such securities as of
the close of the day immediately preceding the date of their receipt by the
Company net of commissions, taxes and other fees to be paid upon transfer
from the subscriber of the Common Stock.
(3) Options, Warrants, Convertibles, Etc. In case of the
issuance (other than by way of a Distribution on Common Stock covered by
Section 17.5(b) hereof), whether by distribution or sale to holders of its
Common Stock or to others, by the Company of (i) any security that is
convertible into the Company's Common Stock or (ii) any rights, options,
stock appreciation rights or benefits tied to the value of the Common Stock
or warrants to purchase the Company's Common Stock, if inclusion thereof
would result in a current conversion price lower than if excluded, the
Company shall be deemed to have issued, for the consideration described
below, the number of shares of the Company's Common Stock into which such
convertible security may be converted when first convertible, or the number
of shares of the Company's Common Stock deliverable upon the exercise of
such rights, options or warrants when first exercisable, as the case may be
(and such shares shall be deemed to be Additional Common Stock for purposes
of Section 17.5(c) hereof). The consideration deemed to be received by the
Company at the time of the issuance of such convertible securities or such
rights, options or warrants shall be the consideration so received
determined as provided in Section 17.5(d)(1) and (2) hereof after deducting
any commissions or other expenses paid or incurred by the Company for any
underwriting of, or otherwise in connection with, the issuance of such
convertible securities or rights, options or warrants, plus (x) any
consideration or adjustment payment to be received by the Company in
connection with such conversion or, as applicable, (y) the aggregate price
at which shares of the Company's Common Stock are to be delivered upon the
exercise of such rights, options or warrants when first exercisable (or, if
no price is specified and such shares are to be delivered at an option
price related to the market value of the subject Common Stock, an aggregate
option price bearing the same relation to the market value of the subject
Common Stock at the time such rights, options or warrants were granted).
If, subsequently, (1) such number of shares into which such convertible
security is convertible, or which are deliverable upon the exercise of such
rights, options or warrants, is increased or (2) the conversion or exercise
price of such convertible security, rights, options or warrants is
decreased, then the calculations under the preceding two sentences (and any
resulting adjustment to the current conversion price under 17.5(c) hereof)
with respect to such convertible security, rights, options or warrants, as
the case may be, shall be recalculated as of the time of such issuance but
giving effect to such changes (but any such recalculation shall not result
in the current conversion price being higher than that which would be
calculated without regard to such issuance).
(4) Number of Shares Outstanding. The number of shares of the
Company's Common Stock as at the time outstanding shall exclude all shares
of the Company's Common Stock then owned or held by or for the account of
the Company but shall include the aggregate number of shares of the
Company's Common Stock at the time deliverable in respect of the
convertible securities, rights, options, stock appreciation rights and
warrants referred to in Section 17.5(d)(3) hereof.
(e) Exclusions from the Adjustment for Additional Stock Issuance. No
adjustment of the current conversion price under Section 17.5(c) hereof shall be
made as a result of or in connection with:
(1) the issuance of Shares upon the conversion of the Notes; or
(2) the issuance of Common Stock of the Company to officers and
employees of the Company and Subsidiaries, or the grant to, or the exercise
by, any such persons of options to purchase Common Stock of the Company;
provided, that any such issuance or grant shall be pursuant to the
Company's 1993 Stock Option Plan and 1990 Stock Plan duly adopted by the
Company's Board of Directors and the Company's shareholders and such
exercise price for any such Common Stock shall be (a) at least the Closing
Price at the time of the grant of such option for options (as defined in
such option plans) granted after June 9, 1995 and (b) at least the then
existing exercise prices for any Options issued and outstanding on or prior
to June 9, 1995; provided, further, that if any shares of the Company's
Common Stock are issued or obtainable under such plan in violation of the
foregoing restrictions, there shall be an adjustment as provided in Section
17.5(c) hereof with respect to such violation.
To the extent that the issuance (or deemed issuance) of the Company's Common
Stock shall not result in any adjustment of the current conversion price
pursuant to the provisions of this Section 17.5(e), then such Common Stock shall
not be taken into account for purposes of determining any adjustment under
Section 17.5(c) hereof.
(f) Accountants' Certification. Whenever the current conversion
price is adjusted as provided in this Section 17.5, the Company will promptly
obtain an officer's certificate of its Chief Financial Officer setting forth the
current conversion price as so adjusted, the computation of such adjustment and
a brief statement of the facts accounting for such adjustment, and will mail to
the Agent and the holders of the Notes a copy of such certificate. The Agent
shall be entitled to review such certificate and propose any modifications
thereto prior to its distribution to the holders of the Notes. In the event of
any dispute between the Agent and the Company over a conversion price
adjustment, the two parties shall submit the matter to the Company's independent
accountants for resolution.
(g) Antidilution Adjustments under other Securities. Without
limiting any other rights available hereunder to the holders of Notes, if there
is an antidilution adjustment (x) under any security which is convertible into
Common Stock of the Company whether issued prior to or after the date hereof or
(y) under any rights, options or warrants to purchase Common Stock of the
Company whether issued prior to or after the date hereof (except for the Notes
and except as stated in Section 17.5(e) hereof) which (in the case of clause (x)
or (y)) results in a reduction in the exercise or purchase price with respect to
such security or rights or results in an increase in the number of shares
obtainable under such security or rights, then an adjustment shall be made under
this Section 17.5(g) to the current conversion price hereunder. Any such
adjustment under this Section 17.5(g) shall be whichever of the following
results in a lower current conversion price: (A) a reduction in the current
conversion price equal to the percentage reduction in such exercise or purchase
price with respect to such security or rights or (B) a reduction in the current
conversion price which will result in the same percentage increase in the number
of Shares available hereunder as the percentage increase in the number of shares
available under such security or rights. Any such adjustment under this Section
17.5(g) shall only be made if it would result in a lower current conversion
price than that which would be determined pursuant to any other antidilution
adjustment otherwise required hereunder as a result of the event or circumstance
which triggered the adjustment to the securities or rights described in clause
(x) or (y) above (and if any such adjustment is so made under this Section
17.5(g), then such other antidilution adjustment otherwise required hereunder
shall not be made as a result of such event or circumstance).
(h) Other Adjustments. Without limiting any provisions of this
Section 17.5 or any other provisions of this Agreement, in case any event shall
occur as to which any of the provisions of this Section 17.5 are not strictly
applicable but the failure to make any adjustment would not fairly protect the
conversion rights represented by the Notes in accordance with the essential
intent and principles of this Section 17.5, then, in each such case, the Company
shall appoint a firm of independent public accountants of recognized national
standing selected by the Board of Directors of the Company (who 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 this Section 17.5, necessary to preserve, without
dilution, the conversion rights represented by the Notes. Upon receipt of such
opinion, the Company will promptly mail copies thereof to the holders of the
Notes and shall make the adjustments described therein.
(i) Meaning of "Issuance". References in this Agreement to
"issuance" of stock by the Company include issuances by the Company of
previously unissued shares and issuances, sales or other transfers by the
Company of treasury stock.
(j) Participation in Rights Offerings. In the event the Company
shall effect an offering of Common Stock or other stock pro rata among its
stockholders, the holder shall be entitled, at the holder's option, regardless
of whether the Note is otherwise then convertible, in lieu of the adjustments
set forth herein, to elect to participate in each and every such offering as
though the Notes had been converted and the holder was, at the time of any such
rights offering, then a holder of that number of shares of Common Stock to which
the holder is then entitled on the exercise hereof.
(k) Participation in Stock Dispositions. In the event that the
Company shall offer, approve, accept or recommend an offering, sale, transfer,
redemption, cancellation or other disposition of Common Stock (including,
without limitation, by way of any merger, capital reorganization, or
reclassification or recapitalization of the capital stock of the Company) to its
stockholders (other than in any offering described in subsection (a) above) or
in the event that the Company liquidates or dissolves following a sale or
transfer of all or substantially all of its assets to any entity, the Company
shall arrange as part of such offering or sale for the participation of the
holders, at the holders' option, regardless of whether the Note is otherwise
then convertible, with respect to including the Shares issuable upon conversion
hereof in such offering or sale upon substantially identical terms (after taking
into account the conversion price if the Note is to be so included).
(l) If (i) the Shelf Registration Statement shall not have been filed
as contemplated by Section 16.1(a) hereof, or (ii) the Company shall fail to
make timely filings under Section 7.10(a) hereto (including any extensions),
such that the aggregate number of days such filings are late (i.e., past the due
date, or extended due date, as applicable) exceeds 30 or any multiple thereof
(i.e. 30, 60, 90 etc.), in the case of (i) or (ii) the current conversion price
of the Notes shall be decreased $2.00 upon the occurrence of such event and each
time such event reoccurs.
17.6. Company's Consolidation or Merger. If the Company shall at any
time consolidate with or merge into another corporation (where the Company is or
is not the continuing corporation after such merger or consolidation), the
holder of a Note shall thereafter be entitled to receive, upon the conversion
thereof in whole or in part, the securities or other property to which (and upon
the same terms and with the same rights as) a holder of the number of Shares
then deliverable upon the conversion thereof would have been entitled upon such
consolidation or merger (subject to subsequent adjustments under Section 17.5
hereof), and the Company shall take such steps in connection with such
consolidation or merger as may be necessary to assure such holder that the
provisions of this Agreement shall thereafter be applicable in relation to any
securities or property thereafter deliverable upon the conversion of the Note,
including, but not limited to, obtaining a written acknowledgment from the
continuing corporation of its obligation to supply such securities or property
upon such conversion and to be so bound by the Notes and this Agreement. A
sale, transfer or lease of all or substantially all of the assets of the Company
to another person shall be deemed a consolidation or merger for the foregoing
purposes.
17.7. Notice to Noteholders.
In case at any time
(i) the Company shall take any action which would require an
adjustment in the current conversion price pursuant to Section 17.5(a),
(c), (g) or (h); or
(ii) the Company shall authorize the granting to the holders of its
Common Stock of any Distributions on Common Stock as set forth in Section
17.5(b); or
(iii) there shall be any capital reorganization or
reclassification of the Company's Common Stock (other than a change in par
value or from par value to no par value or from no par value to par value
of the Company's Common Stock), or any consolidation or merger to which the
Company is a party and for which approval of any stockholders of the
Company is required, or any sale, transfer or lease of all or substantially
all of the assets of the Company; or
(iv) there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Company;
then, in any one or more of said cases, the Company shall give written notice to
the holders of the Notes and the Agent, not less than twenty (20) days before
any record date or other date set for definitive action, of the date on which
such action, reorganization, reclassification, sale, transfer, lease,
consolidation, merger, dissolution, liquidation or winding-up shall take place,
as the case may be. Such notice shall also set forth such facts as shall
indicate the effect of any such action (to the extent such effect may be known
at the date of such notice) on the current conversion price and the kind and
amount of the shares and other securities and property deliverable upon
conversion of the Notes. Such notice shall also specify any date as of which
the holders of record of the Company's Common Stock shall be entitled to
exchange their Common Stock for securities or other property deliverable upon
any such reorganization, reclassification, sale, transfer, lease, consolidation,
merger, dissolution, liquidation or winding-up, as the case may be.
17.8. Specific Performance. The Company agrees and stipulates that the
remedies at law of a holder of a Note 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 Section 17 are not and will not be adequate and that, to the fullest
extent permitted by law, such terms may be specifically enforced by a decree for
the specific performance of any agreement contained herein or by an injunction
against a violation of any of the terms hereof or otherwise.
17.9. Taxes on Shares Issued. The issue of stock certificates on
conversions of Notes shall be made without charge to the converting Noteholder
for any tax in respect of the issue thereof. The Company shall not, however, be
required to pay any tax which may be payable in respect of any transfer involved
in the issue and delivery of stock in any name other than that of the holder of
any Note converted, and the Company shall not be required to issue or deliver
any such stock certificate unless and until the person or persons requesting the
issue thereof shall have paid to the Company the amount of such tax or shall
have established to the satisfaction of the Company that such tax has been paid.
The above provisions of this Section 17 shall similarly apply to successive
reclassifications, changes, consolidations, mergers, combinations, sales and
conveyances.
SECTION 18. EXPENSES
(a) Whether or not the transactions herein contemplated are consummated,
the Company will pay (i) the costs and expenses of the preparation and
production of this Agreement and the issuance of the Notes and the Shares and
the furnishing of all opinions by counsel for the Company, (ii) the fees and
disbursements of Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, P.A. in
connection with this Agreement, the Notes and the transactions contemplated
hereby and thereby (whether or not a Closing occurs hereunder and if a Closing
occurs the Company will make such payment on the Closing Date), and (iii) the
fees and disbursements of counsel to the Purchasers in connection with any amen-
dments to or modifications or waivers of any provisions of this Agreement or the
Notes or in connection with any other agreements between the Purchasers and the
Company.
(b) In addition to all other sums due hereunder or provided for in this
Agreement, the Company shall pay to the Purchasers or its agents, respectively,
an amount sufficient to indemnify such persons (net of any taxes on any
indemnity payments) against all reasonable costs and expenses (including
reasonable attorneys' fees and expenses and reasonable costs of investigation)
and damages and liabilities incurred by the Purchasers or its agents pursuant to
any investigation or proceeding against any or all of the Company, the
Purchasers, or their agents, arising out of or in connection with this Agreement
or the Notes (or any transaction contemplated hereby or thereby or any other
document or instrument executed herewith or therewith or pursuant hereto or
thereto), whether or not the transactions contemplated by this Agreement are
consummated, which investigation or proceeding requires the participation of the
Purchasers or its agents or is commenced or filed against the Purchasers or its
agents because of this Agreement or the Notes or any of the transactions
contemplated hereby or thereby (or any other document or instrument executed
herewith or therewith or pursuant hereto or thereto), other than any
investigation or proceeding in which it is finally determined that there was
gross negligence or willful misconduct on the part of the Purchasers or its
agents which was not taken by them in reliance upon any of the Company's
representations, warranties, covenants or agreements in this Agreement or the
Notes or in any other documents or instruments contemplated hereby or thereby or
executed herewith or therewith or pursuant hereto or thereto. The Company shall
assume the defense, and shall have its counsel represent the Purchasers and such
agents, in connection with investigating, defending or preparing to defend any
such action, suit, claim or proceeding (including any inquiry or investigation);
provided, however, that the Purchasers, or any such agent, shall have the right
(without releasing the Company from any of its obligations hereunder) to employ
its own counsel and either to direct its own defense or to participate in the
Company's defense, but the fees and expenses of such counsel shall be at the
expense of such person unless (i) the employment of such counsel shall have been
authorized in writing by the Company in connection with such defense or (ii) the
Company shall not have provided its counsel to take charge of such defense or
(iii) the Purchasers, or such agent of the Purchasers, shall have reasonably
concluded that there may be defenses available to it which are different from or
additional to those available to the Company, then in any of such events
referred to in clauses (i), (ii) or (iii) such counsel fees and expenses (but
only for one counsel for the Purchasers and its agents) shall be borne by the
Company. Any settlement of any such action, suit, claim or proceeding shall
require the consent of both the Company and such indemnified person (neither of
which shall unreasonably withhold its consent).
(c) The Company agrees to pay, or to cause to be paid, all documentary,
stamp and other similar taxes levied under the laws of the United States of
America or any state or local taxing authority thereof or therein in connection
with the issuance and sale of the Notes and the execution and delivery of this
Agreement and any other documents or instruments contemplated hereby or thereby
and any modification of any of the Notes, this Agreement or any such other
documents or instruments and will hold the Purchasers harmless without
limitation as to time against any and all liabilities with respect to all such
taxes.
(d) The obligations of the Company under this Section 18 shall survive the
Closing, the payment or cancellation of the Notes, the conversion of the Notes
and any termination of this Agreement.
SECTION 19. APPOINTMENT OF AGENT
19.1. Actions. The Purchasers hereby appoint the Agent as its agent
under and for purposes of this Agreement and the Notes. The Purchasers
authorize the Agent to act on behalf of the Purchasers under this Agreement, the
Notes and each other financing document and, in the absence of other written
instructions from the Majority Noteholders received from time to time by the
Agent (with respect to which the Agent agrees that it will comply, except as
otherwise provided in this Section 19 or as otherwise advised by counsel), to
exercise such powers hereunder and thereunder as are specifically delegated to
or required of the Agent by the terms hereof and thereof, together with such
powers as may be reasonably incidental thereto. The Purchasers hereby indemnify
(which indemnity shall survive any termination of this Agreement) the Agent, pro
rata according to the principal amount that such Purchaser's Note or Notes bears
to the aggregate amount of all outstanding Notes, from and against any and all
liabilities, obligations, losses, damages, claims, costs or expenses of any kind
or nature whatsoever which may at any time be imposed on, incurred by, or
asserted against, the Agent in any way relating to or arising out of this
Agreement, the Notes and any other financing document, including reasonable
attorneys' fees, and as to which the Agent is not reimbursed by the Company;
provided, however, that no Purchaser shall be liable for the payment of any
portion of such liabilities, obligations, losses, damages, claims, costs or
expenses which are determined by a court of competent jurisdiction in a final
proceeding to have resulted solely from the Agent's gross negligence or wilful
misconduct. The Agent shall not be required to take any action hereunder, under
the Notes or under any other financing document, or to prosecute or defend any
suit in respect of this Agreement, the Notes or any other financing document,
unless it is indemnified hereunder to its satisfaction. If any indemnity in
favor of the Agent shall be or become, in the Agent's determination, inadequate,
the Agent may call for additional indemnification from the Purchasers and cease
to do the acts indemnified against hereunder until such additional indemnity is
given.
19.2. Exculpation. Neither the Agent nor any of its directors,
officers, employees or agents shall be liable to any holder of a Note or Notes
for any action taken or omitted to be taken by it under this Agreement or any
other financing document, or in connection herewith or therewith, except for
their own wilful misconduct or gross negligence, nor responsible for any
recitals or warranties herein or therein, nor for the effectiveness,
enforceability, validity or due execution of this Agreement or any other
financing document, nor for the creation, perfection or priority of any Liens
purported to be created by any of the financing documents, or the validity,
genuineness, enforceability, existence, value or sufficiency of any collateral
security, nor to make any inquiry respective the performance by the Company of
its obligations hereunder or under any other financing document. Any such
inquiry which may be made by the Agent shall not obligate it to make any further
inquiry or to take any action. The Agent shall be entitled to rely upon advice
of counsel concerning legal matters and upon any notice, consent, certificate,
statement or writing which the Agent believes to be genuine and to have been
presented by a proper person. No provision of this Agreement shall require the
Agent to expend or risk its own funds or incur any liability. The Agent may
refuse to perform any duty or exercise any right or power unless it receives
indemnity satisfactory to it against any loss, liability or expense. The Agent
shall not be liable for interest on any money received by it except as the Agent
may agree in writing with the Company. Money held in trust by the Agent need
not be segregated from other funds except to the extent required by law. The
Agent shall have no responsibility for making any calculations hereunder,
including, without limitation, the amount of interest owing on the Notes. The
Agent may rely and shall be fully protected in relying upon any document
believed by it to be genuine and to have been signed or presented by the proper
person. The Agent need not investigate any fact or matter stated in the
document. Before the Agent acts or refrains from acting, it may require an
officers' certificate or an opinion of counsel or both. The Agent shall not be
liable for any action it takes or omits to take in good faith in reliance on
such officers' certificate or opinion of counsel. The Agent may consult with
counsel and the written advice of such counsel or any opinion of counsel shall
be full and complete authorization and protection from liability in respect of
any action taken, suffered or omitted by it hereunder in good faith and in
reliance thereon. The Agent shall not be liable for any action it takes or
omits to take in good faith which it believes to be authorized or within its
rights or powers conferred upon it by this Agreement. If an Event of Default
occurs and is continuing and if it is known to the Agent, the Agent shall mail
to holders of Notes a notice of the Event of Default within 10 days after it
occurs. An Event of Default shall not be considered known to the Agent unless
the Agent shall have received notice thereof, in accordance with this Agreement
from the Company, and in the absence of such notice the Agent may conclusively
assume there is no Event of Default. Except in the case of an Event of Default
in payment of principal or interest on any Note, the Agent may withhold the
notice if and so long as a committee of its officers in good faith determines
that withholding the notice is in the interests of holders of Notes.
19.3. Successor. The Agent may resign as such at any time upon at
least 30 days' prior notice to the Company and all holders of the Notes. If the
Agent at any time shall resign, the Majority Noteholders may appoint a holder of
the Notes as a successor Agent which shall thereupon become the Agent hereunder.
If no successor Agent shall have been so appointed by the Majority Noteholders,
and shall have accepted such appointment, within 30 days after the retiring
Agent's giving notice of resignation, then the retiring Agent may, on behalf of
the Purchasers, appoint a successor Agent, which shall be one of the holders of
the Notes or a commercial banking institution organized under the laws of the
U.S. (or any State thereof) or a U.S. branch or agency of a commercial banking
institution, and having a combined capital and surplus of at least $500,000,000.
Upon the acceptance of any appointment as Agent hereunder by a successor Agent,
such successor Agent shall be entitled to receive from the retiring Agent such
documents of transfer and assignment as such successor Agent may reasonably
request, and shall thereupon succeed to and become vested with all rights,
powers, privileges and duties of the retiring Agent, and the retiring Agent
shall be discharged from its duties and obligations under this Agreement. After
any retiring Agent's resignation hereunder as the Agent, the provisions of this
Section 19 shall inure to its benefit as to any actions taken or omitted to be
taken by it while it was the Agent under this Agreement.
SECTION 20. HOME OFFICE PAYMENTS
As long as the Purchasers or any payee named in the Notes delivered to the
Purchasers on the Closing Date, or any institutional holder which is a direct or
indirect transferee from the Purchasers or such payee, shall be the holder of
any Note, the Company will make payments (whether at maturity, upon mandatory or
optional prepayment, upon repurchase or otherwise) of principal, interest and
premium, if any, (i) by check payable to the order of the holder of any such
Note duly mailed or delivered to the Purchasers at its address specified in
Exhibit A hereto, or at such other address as the Purchasers or such other
holder may designate in writing, or (ii) if requested by the Purchasers or such
other holder, by wire transfer to the Purchasers's or such other holder's
account at any bank or trust company in the United States of America,
notwithstanding any contrary provision herein or in any Note with respect to the
place of payment. If the Purchaser has provided an address in Exhibit A hereto
for payments by wire transfer, then the Purchaser shall be deemed to have
requested wire transfer payments under the preceding clause (ii). All such
payments shall be made in federal or other immediately available funds.
SECTION 21. NOTICES
Unless otherwise expressly specified or permitted by the terms hereof, all
notices, requests, demands, consents and other communications hereunder or with
respect to any Note or Share shall be in writing and shall be delivered by hand
or shall be sent by telex or telecopy (confirmed by registered, certified or
overnight mail or courier, postage and delivery charges prepaid), to the
following addresses:
(a) if to the Purchasers, at the Purchasers's address as set forth in
Exhibit A hereto, or at such other address as may have been furnished to the
Company by the Purchasers in writing; or
(b) if to any other holder of a Note, at such address as the payee or
registered holder thereof shall have designated to the Company writing; or
(c) if to the Company, at Top Source Technologies, Inc., 2000 PGA
Boulevard, Suite 3200, Palm Beach Gardens, Florida 33408, attention: President,
or at such other address as may have been furnished in writing by the Company to
the Purchasers and to the other holders of Notes.
Whenever any notice is required to be given hereunder, such notice shall be
deemed given and such requirement satisfied only when such notice is delivered
or, if sent by telex or telecopier, when received, unless otherwise expressly
specified or permitted by the terms hereof.
SECTION 22. MISCELLANEOUS
22.1. Entire Agreement; Amendments. This Agreement and, upon the
Closing hereunder, the Notes and Shares issued hereunder, together with any
further agreements entered into by the Purchasers, the Agent and the Company at
the Closing, contain the entire agreement among the Purchasers, the Agent and
the Company, and supersede any prior oral or written agreements, commitments,
terms or understandings, regarding the subject matter hereof. The parties
hereto contemplate that there may be one or more Closings, each of which shall
be deemed to have taken place on the date of the initial Closing. At such
subsequent Closings the Company and the Agent may execute additional copies of
this Agreement and such copies shall be one and the same agreement, as all other
Agreements executed in connection with the transactions contemplated hereby.
22.2. Survival. All agreements, representations and warranties
contained in this Agreement, the Notes or any document or certificate delivered
pursuant hereto or thereto shall survive, and shall continue in effect
following, the execution and delivery of this Agreement, the closings hereunder
and thereunder, any investigation at any time made by the Purchasers or on its
behalf or by any other Person, the issuance, sale and delivery of the Notes and
the Shares, any disposition thereof and any payment or cancellation of the
Notes, and of the Shares and any disposition thereof except that Sections 4, 5,
7 and 8 (other than Sections 4.5, 4.15, 7.2, 7.8, 7.9, 7.10, 7.11, 8.6 and
8.11) shall terminate upon the payment in full or conversion of all outstanding
Notes and any other payments due hereunder and the remaining portions of this
Agreement shall terminate upon the sale of all the Shares. All statements
contained in any certificate or other document delivered by or on behalf of the
Company pursuant hereto shall constitute representations and warranties by the
Company hereunder.
22.3. Counterparts. This Agreement may be executed by the parties
hereto in separate counterparts, each of which when so executed and delivered
shall be an original, but all such counterparts shall together constitute one
and the same instrument, and all signatures need not appear on any one
counterpart.
22.4. Headings. The headings and captions in this Agreement and the
table of contents are for convenience of reference only and shall not define,
limit or otherwise affect any of the terms or provisions hereof.
22.5. Binding Effect, Benefit and Assignment. The terms of this
Agreement shall be binding upon, and inure to the benefit of, the parties and
their respective successors and permitted assigns whether so expressed or not.
The Company may not assign any of its obligations, duties or rights under this
Agreement, or under the Notes and Shares issued hereunder, except with the
Purchasers' consent. In addition to any assignment by operation of law, the
Purchasers may assign, in whole or in part, any or all of its rights (and/or
obligations) under this Agreement or under the Notes to any permitted transferee
of any or all of its Notes, and (unless such assignment expressly provides
otherwise) any such assignment shall not diminish the rights the Purchasers
would otherwise have under this Agreement or with respect to any remaining Notes
or Shares held by the Purchasers. It is agreed that nothing in this Agreement
or the Notes shall give the Company or any Subsidiary any rights against the
other; their respective agreements, representations, obligations and liabilities
herein or therein shall be for the sole benefit of, and solely enforceable by,
the Purchasers and holders of Notes or Shares (and their successors and
assigns). In the event that any Shares are sold either in a public offering
pursuant to a registration statement under Section 5 of the Securities Act or
pursuant to Rule 144, then the holders of such Shares shall no longer be
entitled to any benefits under this Agreement with respect to such Shares and
such Shares shall no longer be considered to be "Shares" for purposes of any
consent or waiver provision of this Agreement.
22.6. Severability. Any provision hereof or of the Notes which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof or thereof, and any such
prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction. To the extent
permitted by applicable law, the parties hereby waive any provision of law which
may render any provision hereof prohibited or unenforceable in any respect.
22.7. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Florida (other than any
conflict of laws rule which might result in the application of the laws of any
other jurisdiction).
22.8. Currency. All payments under this Agreement or the Notes shall
be made in lawful money of the United States of America.
22.9. Late Payments. If the Company fails to pay any amount due
hereunder or provided for in this Agreement or the Notes within twenty (20) days
after notice from the Purchasers demanding such payment, the Company agrees to
pay interest on any such overdue amount at the Default Rate (as defined in the
Notes) from the date of such notice from the Purchasers until such overdue
amount is paid in full; provided, that this Section 22.9 shall not apply to
overdue payments of principal, premium or interest, which overdue payments are
otherwise provided for in this Agreement and the Notes.
22.10. Maximum Interest. In no event shall the interest charged with
respect to the Notes or any other obligations of the Company exceed the maximum
amount permitted under the laws of the State of Florida or of any other
applicable jurisdiction. Notwithstanding anything to the contrary herein or
elsewhere, if at any time the rate of interest payable by the Company for the
account of any Purchaser hereunder or under any Note or other financing document
(the "Stated Rate") would exceed the highest rate of interest permitted under
any applicable law to be charged by such Purchaser to the Company (the "Maximum
Lawful Rate"), then for so long as the Maximum Lawful Rate would be so exceeded,
the rate of interest payable by the Company for the account of such Purchaser
shall be equal to the Maximum Lawful Rate; provided, that if at any time
thereafter the Stated Rate is less than the Maximum Lawful Rate, the Company
shall, to the extent permitted by law, continue to pay interest for the account
of such Purchaser at the Maximum Lawful Rate until such time as the total
interest received by such Purchaser from the Company is equal to the total
interest which such Purchaser would have received had the Stated Rate been (but
for the operation of this provision) the interest rate payable. Thereafter, the
interest rate payable by the Company for the account of such Purchaser shall be
the Stated Rate unless and until the Stated Rate again would exceed the Maximum
Lawful Rate, in which event this provision shall again apply. In no event shall
the total interest received by any Purchaser from the Company exceed the amount
which such Purchaser could lawfully have received from the Company had the
interest been calculated for the full term hereof at the Maximum Lawful Rate
with respect to such Purchaser and the Company, as the case may be. In
computing interest payable with reference to the Maximum Lawful Rate applicable
to any Purchaser, such interest shall be calculated at a daily rate equal to the
Maximum Lawful Rate divided by the number of days in the year in which such
calculation is made. If any Purchaser has received interest hereunder in excess
of the Maximum Lawful Rate with respect to such Purchaser and in respect of
loans made to the Company, such excess amount shall be applied to the reduction
of the principal balance of its loans made to the Company, as the case may be,
or to other amounts (other than interest) payable hereunder by the Company, as
the case may be, and if no such principal or other amounts are then outstanding,
such excess or part thereof remaining shall be paid to the Company.
* * *
IN WITNESS WHEREOF, the parties hereto have caused this Note Purchase
Agreement to be duly executed as of the date first above written.
TOP SOURCE TECHNOLOGIES, INC.
By:s/s James P. Samuels
Name: James P. Samuels
Title:Vice President Finance-CFO-Director
GANZ CAPITAL MANAGEMENT, INC., as Agent
and on behalf of the Purchasers
By:s/s Charles B. Ganz
Name: Charles B. Ganz
Title:President
THE PURCHASERS
Mrs. Lois England
Mr. Richard England
Joyce Gillman
Norman Broad
Pauline Ganz
Macks Family Foundation
Mr. & Mrs. Morton Macks
Dr. Arthur Gillman
Kane Investments
Richard Kane
Richard Slavin
Mr. Erwin Harvith
Mr. & Mrs. Arthur Horowitz
Mr. Morris Futernick
Mr. & Mrs. Richard Slavin
Mr. Richard Freundlich
Donald A. Kaplan
EXHIBIT A
PURCHASERS
Principal
Amount of
Notes to
Name and Address of Purchasers be Purchased
1. Mrs. Lois England $125,000
2832 Chain Bridge Rd Nw
Washington, D.C. 20016-3304
2. Mr. Richard England $125,000
2832 Chain Bridge Rd Nw
Washington, D.C. 20016-3304
3. Joyce Gillman $25,000
614 Melaleuca Lane
Miami, FL 33137
4. Norman Broad $20,000
201 S. Biscayne Blvd., Ste. 3000
Miami, FL 33131
5. Pauline Ganz $25,000
1501 N.E. 191 Street, 415
North Miami Beach, FL 33179
6. Macks Family Foundation $25,000
Mr. & Mrs. Morton Macks
4750 Owings Mills Blvd.
Owings Mills, MD 21117
7. Dr. Arthur Gillman $40,000
1535 N.E. 123 Street
North Miami, FL 33161
8. Kane Investments $25,000
Richard Kane
350 East 79th Street
New York, NY 10021-9208
9. Richard Slavin $25,000
15485 Eagle Nest Lane #100
Miami Lakes, FL 33014
10. Mr. Erwin Harvith $30,000
20290 Fairway Oaks Drive #244
Boca Raton, FL 33434
11. Mr. & Mrs. Arthur Horowitz $35,000
One Grove Isle. PH 2
Coconut Grove, FL 33133
12. Mr. Morris Futernick $35,000
Two Grove Isle, Apt. 1509
Coconut Grove, FL 33133
13. Mr. & Mrs. Richard Slavin $35,000
15485 Eagle Nest Drive #100
Miami Lakes, FL 33014
14. Mr. Richard Freundlich $35,000
480 Park Avenue, Apt. 9G
New York, NY 10022
15. Donald A. Kaplan $100,000
9999 N.E. 2nd Avenue, Ste. 306
Miami Shores, FL 33138
EXHIBIT B
FORM OF NOTE
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR UNDER ANY APPLICABLE REGULATION OF ANY STATE AND IS NOT TRANSFERABLE EXCEPT
UPON THE CONDITIONS SPECIFIED IN SECTION 15 OF THE NOTE PURCHASE AGREEMENT
REFERRED TO HEREIN.
TOP SOURCE TECHNOLOGIES, INC.
9% SENIOR SUBORDINATED CONVERTIBLE NOTE
DUE JUNE 9, 2000
DATED JUNE 9, 1995
MIAMI, FLORIDA
FOR VALUE RECEIVED, the undersigned Top Source Technologies, Inc., a
Delaware corporation (herein, together with any successor, referred to as the
"Company"), hereby promises to pay to ________
_______________________________________ or registered assigns, the principal sum
of ______________________ Dollars ($________) on __________ __, ____ with
interest (computed on the basis of the actual number of days elapsed over twelve
30-day months and a 360-day year) on the unpaid balance of such principal sum
from the date hereof at the interest rate of 9% per annum, payable semi-annually
on January 1 and July 1 of each year, commencing July 1, 1995 (which first
interest payment shall be for the period from and including the date hereof
through and including June 30, 1995), until the entire principal amount hereof
shall have become due and payable, whether at maturity or at a date fixed for
prepayment or by acceleration or declaration or otherwise, and at the Default
Rate on any overdue installment of principal (including any overdue prepayment
of principal) and on any overdue premium and (to the extent permitted by law) on
any overdue installment of interest until paid (whether or not any subordination
provision or other circumstance prevents such payment). The "Default Rate"
shall be a per annum interest rate equal to the greater of (x) 16% or (y) 6%
plus the rate announced from time to time by Citibank, N.A. as its prime rate
for short-term U.S. dollar commercial loans within the United States. If
any payment of interest due hereunder becomes due and payable on a day
which is not a Business Day (as defined in the Note Purchase Agreement referred
to below), the due date thereof shall be the next preceding day which is a
Business Day, and the interest payable on such next preceding Business Day shall
be the interest which would otherwise have been payable on the due date which
was not a Business Day.
Payments of principal and interest shall be made in lawful money of the
United States of America at the locations set forth in the Note Purchase
Agreement, or at such other place as a Purchaser (as defined in the Note
Purchase Agreement) shall have designated for such purpose in writing, and may
be paid by check mailed, or shall be made by wire transfer, all as provided in
the Note Purchase Agreement referred to below, to the address or account
designated by the holder hereof for such purpose.
This Note is one of a duly authorized issue of Notes issued pursuant to a
Note Purchase Agreement dated as of June 9, 1995 (the "Note Purchase Agreement")
between the Company and the Purchaser who are parties thereto. This Note is
subject to the provisions of and is entitled to the benefits of the Note
Purchase Agreement. The Note Purchase Agreement provides, inter alia, for
prepayments of principal upon the terms set forth therein. In addition, the
payment of the principal of, premium if any, and interest on this Note is
subordinated in right of payment to the prior payment in full of certain other
obligations of the Company to the extent and in the manner set forth in the Note
Purchase Agreement. This Note is also convertible into the Common Stock of the
Company on the terms and conditions set forth in the Note Purchase Agreement.
Each holder of this Note, by accepting the same, agrees to and shall be bound by
the provisions of the Note Purchase Agreement.
This Note is transferable only upon the terms and conditions specified in
the Note Purchase Agreement.
In case an Event of Default (as defined in the Note Purchase Agreement)
shall occur and be continuing, the principal of this Note may be declared due
and payable in the manner and with the effect provided in the Note Purchase
Agreement.
No reference herein to the Note Purchase Agreement and no provision hereof
or thereof shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal hereof and interest and
premium, if any, hereon at the respective times and places specified herein and
in the Note Purchase Agreement.
This Note shall be construed and enforced in accordance with and governed
by the internal laws of the State of Florida.
Subject to the provisions of Section 15 of the Note Purchase Agreement, the
Company may treat the person in whose name this Note is registered as the owner
and holder of this Note for the purpose of receiving payment of principal of,
premium, if any, and interest on this Note and for all other purposes
whatsoever, and the Company shall not be affected by any notice to the contrary
(except that the Company shall comply with the provisions of Section 12 of the
Note Purchase Agreement regarding the issuance of a new Note or Notes to
permitted transferees).
IN WITNESS WHEREOF, the undersigned has caused this Note to be executed and
issued on its behalf by its officer thereunto duly authorized.
TOP SOURCE TECHNOLOGIES, INC.
By:s/s James P. Samuels
Name:James P. Samuels
Title:Vice President Finance-CFO-Director
FORM OF CONVERSION NOTICE
(TO BE SIGNED ONLY ON CONVERSION OF THE NOTE)
To: Top Source Technologies, Inc.
The undersigned, the holder of the within Note, hereby irrevocably elects
to convert this Note for ________________ shares of Common Stock of Top Source
Technologies, Inc., a Delaware corporation, and requests that the certificates
for such shares be issued in the name of, and delivered to
, whose address is
.
Dated:
(Signature must conform to name of holder as
specified on the face of the Note)
EXHIBIT C
DISCLOSURE SCHEDULE
EXHIBIT D
FORM OF OPINION OF COUNSEL TO THE COMPANY
[LETTERHEAD OF COUNSEL TO THE BORROWER]
June 9, 1995
To the Purchasers of the Notes
Pursuant to that certain Note
Purchase Agreement
Gentlemen:
This letter is furnished to you pursuant to Section 9.8 of that certain
Note Purchase Agreement regarding 9% Senior Subordinated Notes due June 9, 2000,
dated of even date herewith (the "Purchase Agreement"), among Top Source
Technologies, Inc., a Delaware corporation (the "Borrower"), the Purchasers
listed on the signature page of the Purchase Agreement (the "Purchasers") and
Ganz Capital Management, Inc., as Agent (the "Agent"). Capitalized terms used
but not otherwise defined herein shall have the meanings ascribed to such terms
in the Purchase Agreement. We have acted as counsel for the Borrower in
connection with the preparation, negotiation, execution and delivery of the
Purchase Agreement and the Notes.
In connection with this opinion, we have examined originals, or copies
certified or otherwise identified to our satisfaction, as being true copies of
the following, each dated this date unless otherwise indicated:
(1) the following, collectively called the "Loan Documents":
(a) the Purchase Agreement;
(b) the Notes;
(c) any other documents delivered at the Closing by the Borrower
to the Purchasers pursuant to the Purchase Agreement; and
(d) representation letters of one or more unaccredited investors
and of Ganz
Capital Management, Inc. dated June 8, 1995.
(2) certificates of the Secretary of State of the States of Florida,
each dated June 8, 1995, attesting to the continued corporate existence and
good standing of the Borrower, respectively.
(3) A Secretary's Certificate dated June 8, 1995, from the secretary
of the Borrower as to (a) the articles of incorporation of the Borrower,
(b) the by-laws of the Borrower, (c) resolutions of the Board of Directors
of the Borrower, and (d) the officers and directors of the Borrower; and
(4) The corporate minutes of the Borrower.
In addition, we have examined the originals, or copies certified to our
satisfaction, of such other corporate records of the Borrower, certificates of
public officials and of officers of the Borrower, and agreements, instruments
and other documents, as we have deemed necessary as a basis for the opinions
expressed below. As to questions of fact material to such opinions, we have,
when relevant facts were not independently established by us, relied, to the
extent we deemed appropriate, upon certificates of the Borrower or its officers.
We have assumed the genuineness of all signatures and the authenticity of
all items submitted to us as originals, the legal capacity of natural persons,
and the conformity of originals of all items submitted to us as copies. In
making our examination of documents executed by entities other than the
Borrower, we have assumed that each such entity has the power, authority and
legal right to enter into and perform all of its obligations thereunder and we
have assumed the due authorization, execution and delivery of such documents by
each such entity.
We are qualified to practice law in the State of Florida and we do not
purport to be experts on any laws other than the laws of the State of Florida
and the Federal laws of the United States of America.
Based upon the foregoing and upon such investigation as we have deemed
necessary, we are of the following opinion:
1. The Borrower is a corporation duly organized, validly existing
and in good standing under the laws of its state of incorporation, with
perpetual corporate existence, and has all requisite corporate power and
authority to own and operate its property, to lease any property it leases
and to conduct its business. Except as set forth in Exhibit C to the
Purchase Agreement, to our knowledge, after due inquiry, the Borrower does
not have an equity interest in any other firm, partnership, association,
joint venture or other entity. The Borrower is duly qualified to transact
business as a foreign corporation and is in good standing under the laws of
each jurisdiction where the location of their properties or the character
of its operations makes such qualification necessary and where any such
failure to be so qualified or in good standing would have an adverse effect
on the Borrower.
2. The execution, delivery and performance by the Borrower of the
Loan Documents and the consummation by the Borrower of the transactions
contemplated thereby are within the Borrower's corporate powers, have been
duly authorized by all necessary corporate action and do not conflict with
or result in a breach of any of the terms or provisions of, or constitute a
default (or an event which with notice or lapse of time, or both, would
constitute a default) under, require a consent under, or result in the
creation or imposition of any lien, security interest, charge or
encumbrance upon any of the properties or assets of the Borrower pursuant
to the terms of any material agreement or instrument to which the Borrower
is a party or by which the Borrower may be bound or to which any of the
property or assets of the Borrower is subject, or violate the articles of
incorporation or by-laws of the Borrower or any license, permit, judgment,
decree, order, statute, rule or regulation applicable to the Borrower or
any of its properties or businesses.
3. To our knowledge, no default exists in the due performance or
observance of any term, covenant or condition of any material contracts,
agreements or instruments to which the Borrower is a party or by which the
Borrower is bound or to which any of its property is subject; such
contracts, agreements and instruments are in full force and effect in
accordance with their respective terms; and no other party to any thereof
has instituted or, to the best of our knowledge, after due inquiry,
threatened any action or proceeding wherein any Borrower would or might be
alleged to be in default thereunder.
4. Except as may arise under the Blue Sky laws of any state, no
authorization, approval, consent, waiver or other action or consideration
by, and no notice to or filing with, any governmental authority or
regulatory body or other Person is required for the due execution, delivery
and performance by the Borrower of the Loan Documents.
5. Assuming due authorization and power, where appropriate, and
execution and delivery by the Purchasers, the Loan Documents are legal,
valid and binding obligations of the Borrower enforceable against the
Borrower in accordance with their respective terms except as enforceability
may be limited by general equitable principles including the right of
specific performance and as may be limited under any applicable bankruptcy,
insolvency or reorganization or other laws generally affecting the
enforcement of creditors' rights from time to time in effect. Each of the
Loan Documents has been duly executed and delivered by the Borrower.
6. The authorized capital stock of the Borrower consists of
50,000,000 shares of Common Stock, par value $.001 per share and 5,000,000
shares of preferred stock, par value $.10 per share. As of the date
hereof, all of the shares of the Subsidiaries' Common Stock which are
issued and outstanding have been duly authorized and are validly issued and
fully paid and non-assessable and are held by the Borrower. To our
knowledge, after due inquiry, there are no outstanding options, warrants or
other rights requiring any Subsidiary to issue, and no commitments, plans
or arrangements of any Subsidiary to issue any shares of capital stock of
any Subsidiary or any securities convertible into or exchangeable for such
capital stock. There are no registration rights with respect to any
capital stock of the Borrower, except for the registration rights given to
the Purchasers pursuant to the Purchase Agreement and shares of Common
Stock included in Form S-3 Registration Statements filed by the Borrower
with the Securities and Exchange Commission.
7. The Common Stock issuable upon conversion of the Notes (the
"Conversion Shares") have been duly authorized and when issued upon
conversion of the Notes in accordance with their terms, will be validly
issued, fully paid and non-assessable. No holder of any of the Conversion
Shares will be subject to personal liability by reason of being such a
holder, and none of the Conversion Shares are subject to the preemptive
rights of any shareholder of the Borrower. A sufficient number of shares
of Common Stock have been duly reserved for issuance upon conversion of the
Notes.
8. There is no pending or to the best of our knowledge, after due
inquiry, overtly threatened action or proceeding against the Borrower
before any court, governmental agency or arbitrator which affects or
purports to affect the legality, validity, binding effect or enforceability
of the Loan Documents.
9. The sale by the Borrower of the Notes and the Conversion Shares
have been made in full compliance with Regulation D of the Securities Act
of 1933, as amended, and the rules and regulations thereunder and
applicable state securities laws assuming the accuracy of the
representations made by the Purchasers and that the Agent has taken no
action to impair such exemptions.
10. The Borrower is not an "investment company" or a company
"controlled" by an "investment company," within the meaning of the
Investment Company Act of 1940, as amended. The Borrower is not engaged in
the business of extending credit for the purpose of buying or carrying
margin stock (within the meaning of Regulation U of the Board of Governors
of the Federal Reserve System).
This opinion letter is being furnished to the Purchasers for their use and
the use of their counsel and may be relied upon only by the Purchasers and their
counsel. No other use or distribution of this opinion letter may be made
without our prior written consent.
Very truly yours,
/s/ COHEN, CHERNAY, NORRIS,
WEINBERGER & HARRIS
EXHIBIT E
RESOLUTIONS OF THE BOARD OF DIRECTORS OF TOP SOURCE TECHNOLOGIES, INC.
WHEREAS, there has been presented to the Board a form of Note Purchase
Agreement (the "Purchase Agreement"), among this Corporation, Ganz Capital
Management, Inc., as Agent, and the Purchasers listed on Exhibit A to the
Purchase Agreement (the "Purchasers"), providing for the purchase by the
Purchasers of certain Notes (as defined in the Purchase Agreement) from the
Corporation;
WHEREAS, the Board of Directors of the Corporation believes it is in the
best interests of the Corporation to obtain the financing described in the
Purchase Agreement;
NOW, THEREFORE, BE IT RESOLVED, that the President or any Vice President of
this Corporation, be, and each such officer hereby is, authorized, empowered and
directed to execute and deliver, in the name and on behalf of the Corporation,
an agreement substantially in the form of the Purchase Agreement presented to
this meeting, except for such changes, additions and deletions as to any or all
of the terms and provisions thereof as the officer executing the Purchase
Agreement on behalf of this Corporation shall deem proper, such execution by
such officer of the Purchase Agreement to be conclusive evidence that such
officer deems all of the terms and provisions thereof to be proper;
FURTHER RESOLVED, that the President or any Vice President of this
Corporation, be, and each such officer hereby is, authorized empowered and
directed to borrow, in the name and on behalf of the Corporation, the amounts
provided to be borrowed by the Corporation under the Purchase Agreement executed
by the Corporation pursuant to these resolutions, and to execute and deliver on
behalf of the Corporation the Notes evidencing such borrowings, substantially in
the forms presented at this meeting, except for such changes, additions and
deletions as to any or all of the terms and provisions thereof as the officer
executing the Notes on behalf of the Corporation shall deem proper, such
execution by such officer of the Notes to be conclusive evidence that such
officer deems all of the terms and provisions thereof to be proper;
FURTHER RESOLVED, that the President or any Vice President of this
Corporation, be, and each such officer hereby is, authorized, empowered and
directed to execute and deliver, in the name and on behalf of the Corporation,
any other documents required by the Purchase Agreement containing any or all of
the terms and provisions thereof as the officer executing the documents on
behalf of this Corporation shall deem proper, such execution by such officer of
the documents to be conclusive evidence that such officer deems all of the terms
and provisions thereof to be proper;
FURTHER RESOLVED, that the number of shares of the Common Stock (as defined
in the Purchase Agreement) required to be delivered upon the conversion of the
Notes, as adjusted by the terms thereof, be, and it hereby is, reserved and
authorized for issuance in accordance with the terms of the Notes, such shares,
upon the conversion of the Notes, being fully paid and non-assessable shares of
the Common Stock of this Corporation;
FURTHER RESOLVED, that, upon the conversion of the Notes in accordance with
the terms and conditions of the Purchase Agreement, the proper officers of the
Corporation be, and such offers hereby are, authorized, empowered and directed
to cause the transfer agent to issue certificates representing the shares of the
Common Stock to be issued in exchange therefor; and
FURTHER RESOLVED, that each and every officer of this Corporation be, and
each such officer hereby is, authorized in the name and on behalf of this
Corporation from time to time to take such actions and to execute and deliver
such certificates, instruments, notices and documents as may be required or as
such officer may deem necessary, advisable or proper in order to carry out and
perform the obligations of the Corporation under the Purchase Agreement, the
Notes and the other documents executed by the Corporation pursuant to these
resolutions, or under any other instrument or document executed pursuant to or
in connection with the Purchase Agreement; all such actions to be performed in
such manner, and all such certificates, instruments, notices and documents to be
executed and delivered in such form, as the officer performing or executing the
same shall approve, the performance or execution thereof by such officer to be
conclusive evidence of the approval thereof by such officer and by this Board of
Directors.
WHEREAS, the Board believes it to be in the best interests of the
Corporation and its stockholders for the Corporation to register the issuance of
Common Stock upon the conversion of the Notes (the "Offering");
WHEREAS, the officers of the Corporation intend to cause a registration
statement on Form S-3 (the "Registration Statement") to be prepared for the
purpose of registering the proposed distribution of Common Stock under the
Securities Act of 1933 (the "Securities Act");
WHEREAS, the Registration Statement will provide for the offering of up to
300,000 shares of Common Stock, subject to adjustment, upon conversion of the
Notes;
THEREFORE, BE IT RESOLVED, that the officers of the Corporation are hereby
authorized and directed to execute, in the name and on behalf of the
Corporation, and to file the Registration Statement (together with the exhibits
thereto) with the Securities and Exchange Commission (the "SEC") in accordance
with the Securities Act, as amended, and the rules and regulations promulgated
thereunder, with such additions, deletions or other modifications as such
officers, acting in their discretion, may determine to be necessary or
advisable, such determination to be conclusively evidenced by their execution
and filing of the Registration Statement;
RESOLVED FURTHER, that the proper officers of the Corporation be, and they
hereby are, authorized and directed to prepare, execute in the name and on
behalf of the Corporation, procure all necessary signatures and consents to, and
file with the SEC, any amendment(s) or post-effective amendment(s) to the
Registration Statement deemed by them necessary or advisable to effect the
registration under the Securities Act of the shares of Common Stock covered by
such Registration Statement (the "Shares"), their approval of any such
amendment(s) or post-effective amendment(s) to be conclusively evidenced by
their execution thereof; and to appear on behalf of the Corporation before the
SEC in connection with any matter relating to the Registration Statement and any
amendment(s) or post-effective amendment(s) thereto;
RESOLVED FURTHER, that the execution and delivery by the officers and
directors of the Corporation who are required by the SEC to execute the
Registration Statement and a power-of-attorney severally appointing the
President and Vice President and each of them to be Attorney-in-Fact and agent
with full power of substitution for each of such directors and officers and in
their name, place and stead, in any and all capacities to sign any amendment(s)
to the Registration Statement, including any post-effective amendment(s), to
file the same with the SEC and to perform all other acts necessary in connection
with any matter relating to the Registration Statement and any amendment(s) or
post-effective amendment(s) thereto be, and it hereby is, ratified, confirmed
and approved;
RESOLVED FURTHER, that the President be, and he hereby is, designated as
the Corporation's agent for service of process, and authorized to receive
communications and notices from the SEC with respect to the Registration
Statement, and, with power of attorney for the Corporation to exercise all
powers conferred upon such agents by the rules and regulations of the SEC;
RESOLVED FURTHER, that the proper officers of the Corporation be, and they
hereby are, authorized and empowered, in the name and on behalf of the
Corporation, to make or cause to be made, and to execute and deliver, all such
additional agreements, documents, instruments, certifications and statements,
including registering the securities under the Exchange Act on Form 8-A, if
required, and to do or cause to be done all such acts and things, and to take
all such steps, and to make all such payments and remittances, as any one or
more of such officers may at any time or times deem necessary or desirable in
connection with, or in furtherance of, the registration of the distribution of
the Shares under the Securities Act or Exchange Act and otherwise in order to
carry out the full intent and purposes of the foregoing resolutions;
RESOLVED FURTHER, that the proper officers of the Corporation be, and each
of them hereby is, authorized and directed, in the name and on behalf of the
Corporation, to take any and all action that he may deem necessary or advisable
in order to obtain a permit, register or qualify the Shares for issuance and
sale, request an exemption from registration of the Shares or to register or
obtain a license for the Corporation as a dealer or broker under the "blue sky"
or any other securities laws of such of the states of the United States of
America or other jurisdictions as such officer may deem advisable, and in
connection with such registration, permits, licenses, qualifications and
exemptions to execute, acknowledge, verify, deliver, file and publish all such
applications, reports, issuer's covenants, resolutions, irrevocable consents to
service of process, powers of attorney and other papers and instruments as may
be required under such laws or may be deemed by such officer to be useful or
advisable to be filed thereunder, and that this Board of Directors hereby adopts
the form of any and all resolutions required by any such state authority in
connection with any such applications, reports, issuer's covenants, irrevocable
AGREEMENT
This Agreement is made and entered into as of this 10th day
of May, 1995 (the "Effective Date") by and between TOP SOURCE TECHNOLOGIES,
INC., a Delaware corporation (a successor by merger to Top Source, Inc., a
Colorado corporation, "TOP SOURCE"), ADRENALINE, INC., a Delaware corporation
("ADRENALINE") and EDWARD VAN DUYNE ("VAN DUYNE").
WITNESSETH
WHEREAS, Massachusetts Institute of Technology ("MIT") previously
exclusively licensed to Top Source certain patents, patent applications and
rights as to which Van Duyne, the founder and an employee of Adrenaline, is
listed as an inventor (the "Initial Inventions"); and
WHEREAS, Top Source, Adrenaline and Van Duyne are parties to a Consulting
Agreement, dated September 7, 1990 (the "Consulting Agreement"), pursuant to
which patent applications listing Van Duyne as inventor or co-inventor pursuant
to United States patent laws may be filed by Top Source in various jurisdictions
(the "Additional Inventions"); and
WHEREAS, Top Source and Adrenaline are parties to a Royalty Agreement,
dated September 7, 1990 (the "1990 Royalty Agreement"), providing for payments
to Adrenaline in respect of the exploitation by Top Source of the Initial
Inventions and the Additional Inventions; and
WHEREAS, Top Source has agreed, pursuant to a Termination Agreement of even
date herewith by and between MIT and Top Source (the "Termination Agreement"),
to terminate its rights as the exclusive licensee of the Initial Inventions and
to permit MIT to assign such exclusive rights to Adrenaline; and
WHEREAS, MIT has agreed pursuant to a Patent License Agreement of even date
herewith by and between MIT and Adrenaline (the "Patent Agreement") to assign
the exclusive rights to the Initial Inventions to Adrenaline; and
WHEREAS, Top Source, Adrenaline and Van Duyne now desire to redefine and
restate their rights and obligations with respect to the Initial Inventions and
the Additional Inventions;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein the parties hereto agree as follows:
I. CONSULTING AGREEMENT.
A. GENERAL TERMINATION. Except as otherwise specifically set forth
below, the Consulting Agreement, including but not limited to (a) the non-
competition provisions set forth in Section 8 of the Consulting Agreement, (b)
the restrictions on solicitation set forth in Section 9 of the Consulting
Agreement, (c) any obligation that either Adrenaline or Van Duyne has or had to
assign Project Proprietary Information (as defined below) or Project Inventions
(as defined below) to Top Source under the Consulting Agreement, and (d) any
provision of the Consulting Agreement which by its terms is stated to survive
termination or expiration of the Consulting Agreement, is hereby terminated and
of no further force or effect as of the date hereof.
B. FEES AND EXPENSES OF ARTHUR D. LITTLE LABORATORIES, INC. Top
Source's obligation to pay all the fees and expenses of Arthur D. Little
Laboratories, Inc. ("ADL") for all services rendered prior to the date hereof in
connection with the Consulting Agreement and to indemnify Adrenaline and Van
Duyne from and against all such fees and expenses and any other claim or
liability to ADL shall survive the termination of the Consulting Agreement
provided for in Section I.A above.
C. CLAIMS RELATED TO INDEPENDENT CONTRACTOR STATUS. Adrenaline and
Van Duyne's obligation to hold Top Source harmless from any claims, losses and
liabilities related to the payment of all federal, state and local income taxes,
employment and disability insurance, Social Security and other similar taxes
with respect to any compensation provided by Top Source to Adrenaline, Van Duyne
and any other person employed or retained by Adrenaline under the Consulting
Agreement shall survive the termination of the Consulting Agreement provided for
in Section I.A above.
D. NONDISCLOSURE OBLIGATION. The Nondisclosure provisions set forth
in Subsections 5(A) and 5(B) of the Consulting Agreement shall survive the
termination of the Consulting Agreement provided for in Section I.A above;
provided, however, that the second sentence in Subsection 5(A) shall be deleted
in its entirety and, without limiting the generality of the foregoing deletion,
the definition of Proprietary Information set forth in Section 5(A) of the
Consulting Agreement shall be deemed to exclude both Project Proprietary
Information and Project Inventions; provided, further, that the obligations of
Adrenaline and Van Duyne contained in such subsection 5(B) of the Consulting
Agreement shall terminate five (5) years from the date hereof.
E. ASSIGNMENT OF PROPRIETARY INFORMATION.
1. Top Source hereby assigns to Adrenaline all of its right, title
and interest in and to all Project Proprietary Information and Project
Inventions including, without limitation, all Project Proprietary Information
and Project Inventions previously assigned to it under the terms of the
Consulting Agreement by either Adrenaline or Van Duyne, regardless of whether
Adrenaline and Van Duyne were or are in compliance with all of the terms of
Section 6 of the Consulting Agreement and regardless of whether such Project
Proprietary Information or Project Inventions would be considered work for hire
under the terms of the Consulting Agreement or applicable law.
2. Top Source agrees that, upon request of Adrenaline, it will
execute and deliver any and all documents or instruments and take any other
action which Adrenaline shall deem necessary to assign to and vest in
Adrenaline, to perfect copyright and patent protection with respect to, or to
protect Adrenaline's interest in, all of its rights and interests in and to such
Project Proprietary Information and Project Inventions. Adrenaline agrees to
pay the copyright and patent fees and other out of pocket expenses incurred by
Top Source for any assistance rendered to Adrenaline pursuant to the foregoing.
4. For purposes of this Agreement the following terms shall have the
meanings set forth below:
"Project Inventions" shall mean all inventions, discoveries, know-how,
technical information, improvements and other information relating to any aspect
of ignition and engine control systems which during the term of, prior to the
execution of or within one year after termination of, the Consulting Agreement
are made, conceived (whether or not reduced to practice) or become known to
Adrenaline or Van Duyne, to the extent not assigned to MIT and licensed to Top
Source pursuant to the License Agreement, dated September 7, 1990, by and
between Top Source and MIT, covering U.S. Patent Application Number 542,445,
"Variable Air/Fuel Ratio Engine Control System with Closed Loop Control around
Maximum Efficiency and Combination of Otto-Throttling", and related technology
(the "MIT License Agreement").
"Project Proprietary Information" shall mean all results of the
Services (as defined in the Consulting Agreement) and the Project (as defined in
the Consulting Agreement), including without limitation any and all information
developed by either Adrenaline or Van Duyne in performance of the Services.
F. INDEMNIFICATION. Top Source's obligation to indemnify Van Duyne,
Adrenaline and its directors, officers, employees, consultants and agents and
their respective successors, heirs and assigns (the "Indemnitees") as set forth
in Section 11 of the Consulting Agreement shall survive the termination of the
Consulting Agreement provided for in Section I.A above; provided, however, that
it is understood and agreed that such indemnification shall be limited to
product liability claims, suits, actions, demands or judgements arising out of
the actions specified in Section 11 of the Consulting Agreement to the extent
that such actions were or are taken by Top Source or by a licensee, affiliate or
agent of Top Source.
II. 1990 ROYALTY AGREEMENT.
A. GENERAL TERMINATION. Except as otherwise specifically set forth
below, the 1990 Royalty Agreement, including but not limited to any provision
thereof which by its terms is stated to survive termination or expiration of the
Royalty Agreement, is hereby terminated and of no further force or effect as of
the date hereof.
B. NONDISCLOSURE OBLIGATION. The Nondisclosure provisions set forth
in Subsections 6.1 and 6.2 of the 1990 Royalty Agreement shall survive the
termination of the Royalty Agreement provided for in Section II.A above;
provided, however, that the second sentence of Subsection 6.1 shall be deleted
in its entirety and, without limiting the generality of the foregoing deletion,
the definition of Proprietary Information set forth in Subsection 6.1 of the
Royalty Agreement shall be deemed to exclude Project Proprietary Information (as
defined in Section I.E.4 above), Project Inventions (as defined in Section I.E.4
above), Patent Rights (as defined in the 1990 Royalty Agreement) and Inventions
(as defined in the 1990 Royalty Agreement); provided, further, that the
obligations of Adrenaline contained in such Subsection 6.2 of the Royalty
Agreement shall terminate five (5) years after the date hereof.
III. 1995 ROYALTY AGREEMENT.
A. DEFINITIONS: For the purposes of this Agreement, the following
words and phrases shall have the following meanings:
1. "Patent Rights" shall mean the following patents:
a. M.I.T. Case No. 5217
U.S.P.N. 5,107,815
U.S.P.N. 5,067,460
"Variable Air/Fuel Ratio Engine Control System with Closed
Loop Control around Maximum Efficiency and Combination of
Otto-Diesel Throttling" by Edward A. Van Duyne
b. M.I.T. Case No. 5500
U.S.P.N. 5,197,448
"Dual Energy Ignition System" by Paul J. Porreca and Edward
A. Van Duyne
c. M.I.T. Case No. 5732
U.S.P.N. 5,323,748
"Adaptive Control System for Increasing Engine Efficiencies
and Reducing Emissions" by Douglas Foster and Edward A. Van
Duyne
4. "Licensed Process" shall mean any process, whether mathematical
or otherwise, which is covered by an issued, unexpired claim or a pending claim
contained in the Patent Rights.
5. "Licensed Product" shall mean any product or part thereof which:
(a) is covered in whole or in part by an issued, unexpired claim
or a pending claim contained in the Patent Rights in the country in which any
Licensed Product is made, used or sold; or
(b) is manufactured by using a process which is covered in whole
or in part by an issued, unexpired claim or a pending claim contained in the
Patent Rights in the country in which any Licensed Process is used or in which
such product or part thereof is used or sold.
6. "Net Sales" shall mean Adrenaline's actual gross receipts from
sales of Licensed Products and Licensed Processes produced hereunder less the
sum of the following:
(a) discounts allowed in amounts customary in the trade;
(b) sales, tariff duties and/or use taxes to the extent actually
paid by Adrenaline and any other governmental charges imposed upon the
production, importation, use or sale of such Licensed Products and Licensed
Processes to the extent actually paid by Adrenaline.
(c) outbound transportation prepaid or allowed to the extent
actually paid by Adrenaline, including insurance;
(d) amounts allowed or credited or returns;
(e) sales of Licensed Products or Licensed Processes intended
for use as demonstration models; and
(f) commissions paid by Adrenaline to individuals, whether they
be with independent sales agencies or regularly employed by Adrenaline, and cost
of collections to the extent actually paid by Adrenaline.
7. "Territory" shall mean worldwide.
B. ROYALTIES.
1. Adrenaline shall pay royalties to Top Source as follows:
(a) Until such time as Top Source has received an aggregate
royalty payment of $400,000 from Adrenaline under this Agreement, Adrenaline
shall pay Top Source an annual royalty in an amount equal to the greater of (i)
$50,000 or (ii) the product of (X) seventy percent (70%) of any royalty revenues
actually received by Adrenaline from sublicensing of the Patent Rights plus (Y)
three percent (3%) of Net Sales of the Licensed Products or Licensed Processes
sold by Adrenaline; provided, that if at any time the amount derived by
subtracting (X) the aggregate payments received by Top Source under this Section
III.B.1(a) from (Y) $400,000 (the "Minimum Royalty") is less than $50,000, then
the royalty payment that Top Source shall receive for such year shall be in an
amount equal to the amount of the Minimum Royalty. Adrenaline shall be
responsible for all costs associated with prosecuting or defending the Patent
Rights.
(b) For each year occurring after the year in which the
aggregate amount of Top Source's royalty payments received under Section
III.B.1(a) above first equals or exceeds $400,000, Adrenaline shall pay Top
Source an annual royalty payment equal to the product of (i) twenty-five percent
(25%) of any royalty revenues actually received by Adrenaline from the
sublicensing of the Patent Rights plus (ii) two percent (2%) of Net Sales of the
Licensed Products or Licensed Processes sold by Adrenaline.
(c) No multiple royalties shall be payable because any Licensed
Product, its manufacture, use, lease or sale are or shall be covered by more
than one patent application or Letters Patent covered by the Patent Rights.
(d) Royalty payments for each calendar year shall be due and
payable 60 days after December 31st of each year, beginning December 31, 1996.
(e) Royalty payments shall be paid in United States dollars in
Palm Beach Gardens, Florida or at such other place Top Source may reasonably
designate consistent with the laws and regulations controlling in any foreign
country. If any currency conversion shall be required in connection with the
payment of royalties hereunder, such conversion shall be made by using the
exchange rate prevailing at the Chase Manhattan Bank, N.A. on the last business
day of the calendar quarterly reporting period to which such royalty payments
relate. If the governmental regulations prevent remittances from a foreign
country with respect to sales made in that country, Adrenaline's obligation to
pay royalties on sales in that country shall be suspended until such remittances
are possible; provided, however, that if Adrenaline is paid interest on such
funds during the time Adrenaline's obligation to pay is suspended, Adrenaline
shall, upon receipt of such interest, pay to Top Source either (i) if the
payment relates to a royalty payment that was to be made to Top Source under
Section III.B.1(a) above, (X) seventy percent (70%) of such interest if the
payment related to sublicensing of the Patent Rights or (Y) three percent (3%)
of such interest if the payment related to sales of the Licensed Products or
Licensed Processes, or (ii) if the payment relates to a royalty payment that was
to be made to Top Source under Section III.B.1(b) above, (X) 25% of such
interest if the payment related to sublicensing of the Patent Rights or (Y) two
percent (2%) of such interest if the payment related to sales of the Licensed
Products or Licensed Processes.
(f) At any time during the term of this Agreement, if Adrenaline
shall receive any written notice or claim or shall otherwise reasonably conclude
that the manufacture or sale of any Licensed Product or use of any Licensed
Process constitutes or results in infringement of an adversely held patent or if
an action shall be commenced against Adrenaline for infringement of an adversely
held patent for the manufacture or sale of any Licensed Product or use of any
Licensed Process, then Adrenaline may negotiate with the owner of said adversely
held patent for a license on terms as Adrenaline deems appropriate. Should
Adrenaline settle such matter by taking a license or otherwise, the earned
royalties otherwise payable pursuant to this Article III shall be reduced by the
same amount that earned royalties are paid under said adversely held patent;
provided, that such reduction shall be limited to the amount by which the earned
royalties paid under said adversely held patent exceed the amounts Adrenaline is
permitted to deduct from royalties payable to MIT. Anything to the contrary
herein notwithstanding, Adrenaline shall have the right to deduct from any
royalties otherwise payable to Top Source in respect of any ignition system
which is covered by an Invention, any costs or expenses, including, without
limitation, royalties or license fees payable to Combustion Electromagnetics,
Incorporated or its assignees or licensees, incurred by Adrenaline as a result
of any claim that Van Duyne, Adrenaline or its employees or consultants have
improperly used or disclosed technology or other information.
(g) In the event that any claim or claims of any patent issued
pursuant to the Patent Rights is held invalid in any country by a final decision
of a court of competent jurisdiction, then Adrenaline shall have no further
obligation to pay any royalties hereunder with respect to any Licensed Product
or Licensed Process sold in such countries covered by such decision, unless such
Licensed Product or Licensed Process is covered in such jurisdiction by a
pending claim under the Patent Rights or an unexpired claim under any patent
issued under the Patent Rights which has not been held invalid in such
jurisdiction.
(h) In the event Adrenaline becomes a party to a legal dispute
with respect to the validity of any Patent Rights, all royalty payments with
respect to any Licensed Product or Licensed Process covered by such Patent
Rights shall be suspended until such time as the courts have made a definitive
judgment. If the court holds such patent valid, then Adrenaline will pay all
royalties earned during the litigation and will resume making its timely
payments thereafter. If the patent is held invalid or judged to be infringing
on patents held by third parties, then Adrenaline shall make adjustments to its
royalty payments pursuant to Section III.B.1(f) or Section III.B.1(g) above, as
the case may be.
(i) Royalties shall be due and owing in any country of the
Territory solely for the life of any patent in that country. Upon the
expiration of such patent in such country due to the passage of time or
otherwise (X) Adrenaline shall no longer have any obligation to pay Top Source a
royalty payment based upon such patent and (Y) Adrenaline shall have the right
to continue the manufacture and sale of such Licensed Produce or Licensed
Process in such country with no further payment to Top Source. No Royalty
Payments shall be due after the termination of this Agreement.
(j) In the event that (a) the Patent Rights are sublicensed by
Adrenaline in combination with additional rights that Adrenaline has under other
patents (the "Combined License"), or (b) Adrenaline sells a Licensed Product or
Licensed Process that is only covered in part by the Patent Rights or is
manufactured using a process which is only covered in part by the Patent Rights
(the "Combined Product"), then the parties acknowledge and agree that, subject
to the terms of this Agreement, the royalty payments specified in subsections
B.1(a) and (b) shall be based upon the amount of royalty revenues or Net Sales,
as applicable, actually received by Adrenaline for the whole Combined License or
Combined Product.
C. RECORDS.
1. Adrenaline shall keep full, true and accurate books of account
containing all particulars that may be necessary for the purpose of showing the
amounts payable to Top Source hereunder. Such books of account shall be kept at
Adrenaline's principal place of business or the principal place of business of
the appropriate division of Adrenaline to which this Agreement relates. Such
books and the supporting data shall be open, at all reasonable times and upon
reasonable notice during the term of this Agreement and for one (1) year after
its termination, to the inspection of Top Source or its agents for the purpose
of verifying Adrenaline's royalty statement or compliance in other respects with
this Agreement; provided, however, that such examination shall not take place
more often than once each year and shall not cover such records for more than
the preceding three (3) years; and provided further that Top Source and its
agents shall hold in confidence any information obtained from such examination
except to the extent of verifying the correctness of Adrenaline's royalty
statements and payments, and Top Source shall not disclose to any third party,
except as shall be required by law or permitted by this Agreement, the amount of
royalty payments or sales or any other information provided by Adrenaline to Top
Source in the reports.
2. Adrenaline, within sixty (60) days after December 31 of each year
beginning on December 31, 1996, shall deliver to Top Source true and accurate
reports, giving such particulars of the business conducted by Adrenaline during
the preceding twelve-month period under this Agreement as shall be pertinent to
a royalty accounting hereunder.
3. With each such report submitted, Adrenaline shall pay to Top
Source the royalties due and payable under this Agreement for such prior twelve-
month period. If no royalties shall be due, Adrenaline shall so report.
4. The royalty payments set forth in this Agreement shall, if
overdue, bear interest until payment at a per annum rate two percent (2%) above
the prime rate in effect at the Chase Manhattan Bank, N.A. on the due date. The
payment of such interest shall not foreclose Top Source from exercising any
other rights it may have as a consequence of the lateness of any payment.
5. Any tax levied upon Top Source which is paid or required to be
withheld by Adrenaline on account of royalties payable to Top Source under this
Agreement shall be deducted from the amount of royalties otherwise due.
Adrenaline shall secure and return to Top Source proof of any such taxes
withheld and paid by Adrenaline for the benefit of Top Source.
IV. NON-COMPETITION. During the term of this Agreement and for a period
of two years thereafter, Top Source shall not, without the prior written consent
of Adrenaline, directly or indirectly become associated with, render services
to, invest in, represent, advice or otherwise participate as an officer,
director, stockholder, employee, partner, agent of or a consultant for, any
business that is competitive with any aspect of the ignition and engine control
system to be developed by Adrenaline or with any of the Licensed Products,
Licensed Processes or the Patent Rights, except that beneficial ownership of no
more than 5% of the stock of any corporation shall not be deemed of itself to be
a violation of this provision. If any restriction set forth in this Article IV
is found by any court of competent jurisdiction to be unenforceable because it
extends for too long a period of time or over too great a range of activities or
in too broad a geographic area, it shall be interpreted to extend only over the
maximum period of time, range of activities or geographic areas to which it may
be enforceable.
V. NON-SOLICITATION. During the term of this Agreement and for a period
of one year thereafter, Top Source shall not recruit or otherwise solicit,
entice or induce any employees of Adrenaline or any of its subsidiaries or
affiliates to terminate their employment with, or otherwise cease their
relationships with Adrenaline or any of its subsidiaries or affiliates, in order
to engage in any activity or any business, firm, corporation or any other entity
that conduct research with respect to, develops, produces or manufactures any
products or techniques or provides services similar to those developed,
produced, manufactured or provided by the Company.
VI. NONDISCLOSURE.
A. Top Source agrees that it will not at any time, either during or
after the term of this Agreement, without the prior written consent of the
President or the Board of Directors of Adrenaline, divulge or disclose to
anyone, other than employees of Top Source on a need to know basis, any
Adrenaline Proprietary Information (as defined below) and will in no event
disclose, appropriate, use or attempt to use any such Adrenaline Proprietary
Information for its own benefit, or the benefit of any third party, or in any
manner which may injure or cause loss or may be calculated to injure or cause
loss to Adrenaline.
B. Top Source shall not disclose or permit access to Adrenaline
Proprietary Information by any employee of Top Source unless such disclosure is
necessary to determine Adrenaline's compliance with the terms of this Agreement
and unless such person has executed a confidentiality agreement concerning the
Adrenaline Proprietary Information in a form satisfactory to Adrenaline
C. For purposes of this Article VI, the term "Adrenaline Proprietary
Information" shall mean all knowledge and information which Top Source has
acquired in the past or may acquire as a result of, or related to, its
relationship with Adrenaline concerning Adrenaline's current and proposed
business, including without limitation, finances, operations, strategic planing,
research and development, activities, products, prototypes, software programs,
designs, systems, improvements, applications, processes, trade secrets,
services, cost and pricing policies, technical information, information relating
to formulae, diagrams, schematics, notes, data, memoranda, know-how, techniques,
inventions, and purchasing, merchandising and selling strategies. Without
limiting the generality of the foregoing, Adrenaline Proprietary Information
shall include the Project Proprietary Information, the Project Inventions, the
Patent Rights. Notwithstanding the foregoing, Adrenaline Proprietary
Information shall not include information which is or becomes publicly available
(except as may be disclosed by Top Source in violation of this Agreement) or is
obtained by Top Source from a third party which has a right to disclose such
information without an obligation of confidentiality.
VII. TERMINATION.
A. Adrenaline shall be entitled to terminate the rights and
obligations under Article III of this Agreement for breach by Top Source of the
terms herein upon 30 days' notice if such breach is then continuing.
B. Adrenaline shall have the right to terminate the rights and
obligations under Article III of this Agreement as to Patent Rights upon notice
to Top Source if the license to Adrenaline from MIT under the Patent Agreement
is terminated or if the Termination Agreement is terminated.
C. The rights and obligations set forth in Article III of this
Agreement shall automatically terminate upon the expiration of all of the Patent
Rights due to the passage of time or otherwise and the rights and obligations
set forth in Article III of this Agreement with respect to any particular Patent
Right shall automatically terminate upon the expiration of such Patent Right due
to the passage of time or otherwise.
D. Upon termination of the rights and obligations under Article III
of this Agreement for any reason, nothing herein contained shall be deemed to
release either party from any obligation that matures prior to the effective
date of such termination.
E. Top Source shall have no rights under this Agreement arising from
any business decision Adrenaline has made, will make or does not make concerning
the commercialization or marketing of any Licensed Product or Licensed Process,
including without limitation, the sale, price, marketing or promotion thereof.
VIII. SURVIVAL. The obligations contained in Sections I.B, I.C, I.D, I.E,
I.F, II.B, Article IV, Article, V, Article VI and Article IX, this Article VIII
and any other provisions which by their nature survive termination shall survive
the termination or expiration of this Agreement as continuing agreements of the
parties hereto.
IX. RELEASE. Top Source, for itself and its successors, agents, legal
representatives and assigns (hereinafter collectively referred to as the
"Releasors") hereby release and forever discharge Adrenaline and Van Duyne,
their respective heirs, executors, administrators, affiliates, agents, legal
representatives, successors and assigns (hereinafter collectively referred to as
the "Releasees") from any and all obligations, liabilities, claims, sums of
money, demands, accounts, agreements, judgements, debts, damages, actions,
causes of action, suits, proceedings controversies, bills, covenants, contracts
and promises of any kind and nature whatsoever, known or unknown, in law or
equity, which against the Releasees, Releasors ever had, may have or hereafter
can, shall or may have, upon, or by any reason of any matter, cause or thing
whatsoever arising out of or in any manner connected with the 1990 Royalty
Agreement or the Consulting Agreement, except for those obligations of
Adrenaline and Van Duyne under such 1990 Royalty Agreement and Consulting
Agreement which by virtue of this Agreement are deemed to specifically survive
such termination as such obligations are modified by this Agreement.
X. THIRD PARTY BENEFICIARY. Top Source hereby acknowledges and agrees
that Adrenaline is a third party beneficiary of the terms of the Termination
Agreement and that the termination of or the inability to enforce the
Termination Agreement would have a materially adverse effect on Adrenaline's
business and on any benefits it might receive hereunder. Top Source further
agrees that, in consideration of the terms of this Agreement and of Adrenaline's
status as a third party beneficiary of the Termination Agreement, (a) Top Source
will not terminate or modify the Termination Agreement without the prior written
consent of Adrenaline, (b) Top Source will not seek to have the Termination
Agreement declared unenforceable or to otherwise negate the terms thereof, and
(c) Adrenaline has the right to enforce compliance with the terms of the
Termination Agreement against Top Source as if Adrenaline were a party thereto.
Top Source further agrees that if the Termination Agreement is terminated,
declared unenforceable or if the terms thereof are otherwise negated, then Top
Source will use its best efforts to ensure that (i) another Termination
Agreement or similar agreement is entered into between Top Source and MIT, (ii)
that Adrenaline has a continuing license to the Patent Rights and (iii) that
Adrenaline does not incur any additional expenses or costs as a result of such
termination, unenforceability or negation.
XI. MISCELLANEOUS.
A. SEVERABILITY. The invalidity or unenforceability of an provision
of this Agreement will not affect the validity or enforceability of any other
provision of this Agreement, and each other provision of this Agreement will be
severable and enforceable to the extent permitted by law.
B. BINDING EFFECT. This Agreement is binding upon and shall inure
to the benefit of Adrenaline, Van Duyne and Top Source and their respective
heirs, executors, administrators, legal representatives, successors and assigns.
C. NOTICE. All notices required or permitted hereunder must be in
writing and are deemed effectively given upon personal delivery or upon deposit
in the United States Post Office, by registered or certified mail, postage
prepaid, addressed to the other party to this Agreement at the address shown
beneath such party's signature to this Agreement, or at such other address as
one party will designate to the other in accordance with this Section XI .C.
D. PRONOUNS. Whenever the context may require, any pronouns used in
this Agreement are deemed to include the corresponding masculine, feminine or
neuter forms, and the singular form of nouns and pronouns are deemed to include
the plural, and vice versa.
E. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the parties, and supersedes all prior agreements and
understandings, relating to the subject matter of this Agreement.
F. AMENDMENT. This Agreement may be amended or modified only by a
written instrument executed by all of the parties hereto.
G. COUNTERPARTS. This Agreement may be executed in duplicate
counterparts, which, when taken together, shall constitute one instrument and
each of which shall be deemed an original instrument.
H. GOVERNING LAW. This Agreement is to be construed, interpreted
and enforced in accordance with the laws of The Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
TOP SOURCE, INC.
By: /s/ Stuart Landow
Stuart Landow/CEO
(Print Name and Title)
ADRENALINE, INC.
By: /s/ Ed Van Duyne
Ed Van Duyne/President
(Print Name and Title)
______________________________
Edward Van Duyne
cavanaugh\30001.100\restate.7
