UNITED STATES
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, 1998
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)
7108 Fairway Drive, Suite 200, Palm Beach Gardens, Florida 33418
(Address of principal executive offices) (Zip Code)
Registrants telephone number, including area code: (561) 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 issuers classes
of common stock, as of the latest practicable date.
Class Outstanding at August 14, 1998
Common stock: $.001 par value 28,951,177 shares
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TOP SOURCE TECHNOLOGIES, INC.
FORM 10-Q
INDEX
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements Page
Consolidated Balance Sheets as of June 30, 1998
(Unaudited) and September 30, 1997......................1
Cosolidated Statements of Operations for the
Three and Nine Months Ended June 30, 1998 and 1997
(Unaudited).............................................2-3
Consolidated Statements of Cash Flows for the
Nine Months Ended June 30, 1998 and 1997 (Unaudited)......4
Notes to Unaudited Interim Consolidated
Financial Statements....................................5-8
ITEM 2. Managements Discussion and Analysis of Interim
Financial Condition and Results of Operations..................8-12
PART II - OTHER INFORMATION
ITEM 5. Other Information.............................................12-14
ITEM 6. Exhibits and Reports on Form 8-K..............................14-15
i
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TOP SOURCE TECHNOLOGIES, INC.
Form 10-Q
CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 1998 AND SEPTEMBER 30, 1997
(UNAUDITED)
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<S> <C> <C>
June 30 September 30
ASSETS 1998 1997
---------------- ------------------
Current Assets:
Cash and cash equivalents $1,962,287 $2,103,679
Accounts receivable trade 1,861,502 2,255,303
Advances to officer 5,839 27,234
Inventories 1,303,150 881,023
Prepaid expenses 255,687 219,446
Other 101,666 155,448
---------------- ------------------
Total current assets 5,490,131 5,642,133
Property and equipment, net 1,601,100 2,147,403
Manufacturing and distribution rights and patents, net 262,922 284,562
Capitalized database, net 2,125,902 2,284,027
Notes receivable from officers 27,395 106,687
Other assets, net 205,897 890,218
================ ==================
TOTAL ASSETS $9,713,347 $11,355,030
================ ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Line of credit $833,477 $1,996,341
Accounts payable 711,254 672,836
Accrued liabilities 1,687,779 1,181,400
---------------- ------------------
Total current liabilities 3,232,510 3,850,577
Senior convertible notes 3,020,000 3,020,000
---------------- ------------------
Total liabilities 6,252,510 6,870,577
Commitments and contingencies
Stockholders' equity:
Preferred stock - 5,000,000 shares authorized
1,000 issued and outstanding at June 30 932,500 -
Common stock-$.001 par value, 50,000,000 shares
authorized; 28,831,177 and 28,461,477 shares issued and
outstanding on June 30 and September 30, respectively 28,831 28,461
Additional paid-in capital 29,241,205 28,744,451
Accumulated deficit (25,392,345) (22,939,105)
Treasury stock-at cost; 466,234 (1,349,354) (1,349,354)
---------------- ------------------
Total stockholders' equity 3,460,837 4,484,453
---------------- ------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $9,713,347 $11,355,030
================ ==================
See accompanying notes to unaudited interim consolidated financial statements.
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1
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TOP SOURCE TECHNOLOGIES, INC.
Form 10-Q
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1998 AND 1997 (UNAUDITED)
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<S> <C> <C>
1998 1997
---------------- ------------------
Revenue:
Product sales $2,532,892 $5,589,905
Service revenue 132,246 177,715
---------------- ------------------
Net sales 2,665,138 5,767,620
---------------- ------------------
Cost of sales:
Cost of product sales 1,733,481 3,576,113
Cost of services 41,968 69,282
---------------- ------------------
Cost of sales 1,775,449 3,645,395
---------------- ------------------
Gross profit 889,689 2,122,225
---------------- ------------------
Expenses:
General and administrative 1,176,220 1,336,434
Severance expense 1,085,587 -
Selling and marketing 269,372 425,686
Depreciation and amortization 223,955 286,643
Research and development 65,654 15,831
---------------- ------------------
Total expenses 2,820,788 2,064,594
---------------- ------------------
Income (loss) from operations (1,931,099) 57,631
Other income (expense):
Interest income 2,672 25,215
Interest expense (143,795) (70,000)
Gain on sale of equity interest 1,030,435 -
Other income, net 4,857 (6,577)
---------------- ------------------
Net other income (expense) 894,169 (51,362)
---------------- ------------------
Income (loss) before income taxes (1,036,930) 6,269
Income tax expense (4,242) (2,274)
---------------- ------------------
Income (loss) from continuing operations (1,041,172) 3,995
Income from discontinued operations - 6,808
---------------- ------------------
Net income (loss) (1,041,172) 10,803
Accretion of discount on preferred stock (108,979) -
================ ==================
Net income (loss) available to common stockholder's $(1,150,151) $ 10,803
================ ==================
Basic and diluted net income (loss) per weighted
average common share outstanding:
Continuing operations $ (0.04) $ 0.00
Discontinued operations - 0.00
================ ==================
Total $ (0.04) $ 0.00
================ ==================
Basic and diluted weighted average common
shares outstanding 28,274,627 28,880,427
================ ==================
See accompanying notes to unaudited interim consolidated financial statements.
2
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TOP SOURCE TECHNOLOGIES, INC.
Form 10-Q
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED JUNE 30, 1998 AND 1997 (UNAUDITED)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
1998 1997
---------------- ------------------
Revenue:
Product sales $8,952,308 $13,859,582
Service revenue 329,596 377,150
---------------- ------------------
Net sales 9,281,904 14,236,732
---------------- ------------------
Cost of sales:
Cost of product sales 6,010,274 9,081,447
Cost of services 132,867 147,717
---------------- ------------------
Cost of sales 6,143,141 9,229,164
---------------- ------------------
Gross profit 3,138,763 5,007,568
---------------- ------------------
Expenses:
General and administrative 3,427,677 3,818,267
Severance expense 1,085,587 -
Selling and marketing 903,931 1,044,280
Depreciation and amortization 707,095 826,422
Research and development 128,094 19,056
---------------- ------------------
Total expenses 6,252,384 5,708,025
---------------- ------------------
Loss from operations (3,113,621) (700,457)
Other income (expense):
Interest income 54,971 92,249
Interest expense (415,545) (211,150)
Gain on sale of equity interest 1,030,435 -
Other income, net 31,762 19,850
---------------- ------------------
Net other income (expense) 701,623 (99,051)
---------------- ------------------
Loss before income taxes (2,411,998) (799,508)
Income tax expense (41,242) (39,274)
---------------- ------------------
Loss from continuing operations (2,453,240) (838,782)
Income from discontinued operations - 68,741
---------------- ------------------
Net loss (2,453,240) (770,041)
Accretion of discount on preferred stock (108,979) -
================ ==================
Net loss available to common stockholder's $(2,562,219) $ (770,041)
================ ==================
Basic and diluted net loss per weighted average
common share outstanding:
Continuing operations $ (0.09) $ (0.03)
Discontinued operations - 0.00
================ ==================
Total $ (0.09) $ (0.03)
================ ==================
Basic and diluted weighted average common shares
outstanding 28,164,897 28,089,261
================ ==================
See accompanying notes to unaudited interim consolidated financial statements.
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3
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TOP SOURCE TECHNOLOGIES, INC.
Form 10-Q
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED JUNE 30, 1998 AND 1997 (UNAUDITED)
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<S> <C> <C>
1998 1997
---------------- ------------------
Net loss ($2,453,240) ($770,041)
Adjustments to reconcile net loss to
net cash used in operating activities:
Income from discontinued operations - (68,741)
Depreciation 734,165 858,733
Amortization 209,992 207,612
Disposal of equipment 157,798 236,080
Non cash compensation 204,183 -
Repayment from (advance to officer) 100,687 (72,020)
Decrease in accounts receivable, net 393,801 160,807
Increase in inventories (422,127) (198,741)
Decrease (increase) in prepaid expenses (36,241) 44,614
Decrease (increase) in other assets 735,089 (36,036)
Increase (decrease) in accounts payable 38,418 (468,040)
Increase (decrease) in accrued liabilities 521,391 (1,046,554)
---------------- ------------------
Net cash provided by (used in) operating activities 183,916 (1,152,327)
---------------- ------------------
INVESTING ACTIVITIES:
Purchases of property and equipment, net (345,660) (1,450,809)
Reimbursement of tooling costs - 361,056
Additions to patent costs, net (27,213) (9,033)
Discontinued operations - change in net assets (15,012) 3,417,651
---------------- ------------------
Net cash provided by (used in) investing activities (387,885) 2,318,865
---------------- ------------------
FINANCING ACTIVITIES:
Proceeds from sale of common stock, net 292,941 20,613
Proceeds from sale of preferred stock, net 932,500 -
Repurchase of treasury stock - (1,217,567)
Repayment of borrowings (1,162,864) -
---------------- ------------------
Net cash provided by (used in) financing activities 62,577 (1,196,954)
---------------- ------------------
Net decrease in cash and cash equivalents (141,392) (30,416)
Cash and cash equivalents at beginning of period 2,103,679 653,129
---------------- ------------------
Cash and cash equivalents at end of period $1,962,287 $622,713
================ ==================
See accompanying notes to unaudited interim consolidated financial statements.
4
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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 for the year ended September 30, 1997.
Certain fiscal year 1998 amounts have been reclassified to conform to current
year presentation.
Allocation of Depreciation and Amortization
The Company allocates depreciation and amortization to cost of sales as it
directly relates to products or services sold. The Companys accounting policy
for depreciating On-Site Analysis (OSA) equipment is to depreciate them over a
five-year period. Only depreciation from OSA machines being leased or generating
revenue is included in cost of sales.
New Accounting Standards
a. Loss per share was calculated based upon Financial Accounting Standards
(SFAS) No. 128, Earnings Per Share, which was adopted by the Company during
the three months ended December 31, 1997. Adoption of SFAS No. 128 which
superseded the previous standard (APB No. 15) had no effect on the Company's
previously reported loss per share.
b. During the three months ended March 31, 1998, the Company adopted
Financial Standards Board Statement of Financial Accounting Standard No. 130,
Reporting Comprehensive Income (SFAS 130). SFAS 130 establishes standards for
reporting and display of comprehensive income and its components in the
financial statements. For the three and nine months ended June 30, 1998, there
were no differences between net income and comprehensive income.
2. INVENTORIES
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<S> <C> <C>
Inventories consisted of the following: June 30, September 30,
1998 1997
Raw materials $1,235,306 $ 820,821
Finished goods 67,844 60,202
$1,303,150 $ 881,023
</TABLE>
5
TOP SOURCE TECHNOLOGIES, INC.
FORM 10-Q
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. EXECUTIVE EMPLOYMENT CONTRACT
In fiscal 1993, Stuart Landow, the former Chairman of the Board of
Directors, President and Chief Executive Officer of the Company entered into an
employment agreement ("Employment Agreement") with the Company. The term of this
Employment Agreement was five years through August 18, 1998. In the event of
termination without cause, or if Mr. Landow resigned for "Good Reason", as
defined in the Employment Agreement, the Company was required to make 36
consecutive monthly payments equal to his base and incentive compensation. Mr.
Landow was entitled to continue to receive medical, life and disability
insurance coverage during the 36-month term.
As a result of the hiring of a new CEO in May 1997, a breach in the terms
of the original Employment Agreement occurred, thus, Mr. Landow could have
requested that the Good Reason clause of his contract be triggered effective
July 1, 1997. This clause was waived by Mr. Landow with the approval of the
Board of Directors as it was determined to be in the best interest of the
Company to retain Mr. Landow for a period of one year. This waiver was effective
until June 30, 1998 or earlier, if elected by Mr. Landow at which time the terms
of the original Employment Agreement remained in effect, with the exception of
the incentive payments which would be calculated based on the previous sales for
the period from July 1, 1996 through June 30, 1997.
In June 1998, Mr. Landow and the Company's Board of Directors reached an
agreement to modify his Employment Agreement which resulted in Mr. Landow
triggering the Good Reason clause of his contract and resigning as Chairman and
as a director of the Company, effective June 30, 1998.
In order to lessen the cash impact of the Employment Agreement, Mr. Landow
and the Company agreed to a reduction of approximately $195,000 of the total
compensation Mr. Landow was entitled to receive during the three-year period
ending June 30, 2001 by reducing the 36 month term of the severance to 30
months. In addition, in the event all of Mr. Landow's 600,000 vested options are
exercised, Mr. Landow will pay $300,000 more for the exercise of 200,000 of
these 600,000 options, by agreeing to an increase in the original exercise price
from $2.06 to $3.56 on 200,000 options. In return for these modifications to the
Employment Agreement, the Company agreed to extend the exercise period for all
of Mr. Landow's 600,000 vested options from the original expiration date of July
1, 1999 to the new date of July 1, 2001.
Additionally, the modified Employment Agreement provides that Mr. Landow
shall repay the Company approximately $105,000 he previously borrowed, together
with 9% per annum interest over the 30-month term. The Company is deducting the
monthly installments from Mr. Landows monthly severance compensation payments.
As a result of the triggering of the Good Reason clause of the Employment
Agreement and the modifications agreed to by both Mr. Landow and the Company's
Board of Directors, the Company recorded a one-time charge against earnings of
$1,085,587, which is included in total "Accrued Liabilities" in the accompanying
Consolidated Balance Sheet for the third fiscal quarter ended June 30, 1998.
This one-time charge was comprised of $918,507 in future severance payments and
a non-cash charge of $167,080 which the Company was required to record due to
the change in the stock option measurement date under Financial Accounting
Standards, 123 "Accounting For Stock-Based Compensation" ("FASB 123") and the
Black Scholes Option Pricing Model.
6
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TOP SOURCE TECHNOLOGIES, INC.
FORM 10-Q
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. OTHER ASSETS
On March 20, 1998, the Company entered into an agreement with Thermo
Jarrell Ash Corporation (TJA) to terminate the supply agreement entered into
by both parties on March 3, 1995. Pursuant to the terms of the original
agreement, Top Source Instruments (TSI) made a deposit of $650,000 with TJA,
for TJA to be the exclusive manufacturer of OSA. This amount was included in
Other Assets in the September 30, 1997 Consolidated Balance Sheet. Both
parties agreed to terminate the original agreement effective March 31, 1998 due
to the anticipation of the second generation of OSA which would not require any
TJA involvement. On March 31, 1998, TJA returned cash to the Company of $285,000
and applied the remainder of the deposit ($365,000) as payment in full for the
purchase by the Company of $582,689 of OSA parts at TJA's cost. The Company has
recorded these materials as parts inventory at the purchase price of $365,000.
The Company believes that these parts along with the parts inventory previously
on hand will be sufficient inventory to support the existing first generation
OSA units at customers' locations and equipment inventory.
5. PRIVATE PLACMENT OF SERIES A CONVERTIBLE PREFERRED STOCK
In May 1998, the Company completed the sale in a private offering to two
foreign investors of 1,000 shares of Series A Convertible Preferred Stock
(Preferred Stock) with a liquidation value of $1,000 per share and a par value
of $.10 per share. This funding was comprised of $1,000,000 in Preferred Stock,
less placement and legal fees, yielding $932,500 in net proceeds to the Company.
This Preferred Stock pays an annual dividend of 5% in cash or common stock.
After the registration statement filed on Form S-3 becomes effective, the
investors shall be obligated to fund an additional $1,500,000 in tranches of
$500,000, within 90 days, 150 days and 210 days, respectively. The additional
three tranches of funding are subject to the Company maintaining a stock price
of $1.00 per share and daily trading volume of 40,000 shares. No dividends have
been accrued for the period ended June 30, 1998, as the amount is not material.
The holders of Preferred Stock shall have the right to convert each share
of Preferred Stock into a number of shares of common stock in whole or in part
cumulatively as follows: 25% on August 8, 1998, 25% on September 8, 1998, 25% on
October 8, 1998 and 25% November 8, 1998. The conversion price shall be the
lesser of $1.10 or 85% of the five-day average closing bid price of the shares
of Top Source prior to conversion, decreasing to 83% for conversion after 120
days and 80% for conversion after 150 days. The Company may redeem the Preferred
Stock, at any time, in whole or in part at 120% of the purchase price of the
Preferred Stock plus all accrued and unpaid dividends.
As part of the transaction, the foreign investors and the placement agent
received a total of 250,000 three-year warrants exercisable as $1.10. These
warrants vest pro-rata as amounts are funded up to $2,500,000. Accordingly,
100,000 warrants are fully vested upon the funding of the initial $1,000,000.
These warrants which are fully vested have been valued at $108,979 utilizing the
Black Scholes Option Pricing Model as required by FASB 123. The value of these
warrants have been deducted from amounts available to common stockholders for
the purposes of calculating loss per share. As a requirement of the Subscription
Agreement, the Company has filed a Registration Statement with the Securities
and Exchange Commission on June 8, 1998, which is not yet effective, covering
the future sale of common stock underlying the Preferred Stock and warrants.
6. SALE OF TOP SOURCE AUTOMOTIVE, INC.
The Company has recently executed a definitive agreement to sell
substantially all the assets and liabilities of TSA under the terms of the
Agreement. The Company received a $1,450,000 non-refundable deposit, which
represented the sale of a 14.5% equity interest in TSA. The Company also has
received an additional $2,050,000, which is currently being held in escrow until
a majority approval of Top Source stockholders can be obtained. Upon stockholder
approval, the $2,050,000 will be released to the Company and the buyer would own
a total of 20% equity interest in TSA. The final payment of $4,000,000 cash and
a promissory note of $2,500,000 is due by March 31, 1999. (See Item 5. Other
Information for more detail information about this transaction.)
7
TOP SOURCE TECHNOLOGIES, INC.
FORM 10-Q
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. SALE OF TOP SOURCE AUTOMOTIVE, INC. (Continued)
Upon the sale of 100% of TSAs assets, this transaction will be treated as
a discontinued operation, as defined under Accounting Principles Board No. 30.
However, due to the potential that the Company may not receive shareholder
approval or receive the final payment from the buyer, the gain on the 14.5%
equity interest has been treated as part of continuing operations on the June
30, 1998 Consolidated Statement of Operations.
ITEM 2. MANAGEMENTS 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, 1998 was
$2,665,138 and $9,281,904 compared to $5,767,620 and $14,236,732 for the same
period in 1997. The decrease in revenue for both the three and nine-month period
ended June 30, 1998 compared to the same period in 1997 is primarily
attributable to the loss of the patented Overhead Mounted Speaker System
(OHSS) sales for the Jeep CherokeeYM contract which ended on June 30, 1997
offset by sales increases in the new Grand Cherokee Program which began in
August 1997.
For the three months ended June 30, 1998, the Jeep CherokeeTM sales were $0
compared to $3,297,675 in sales for the three months ended June 30, 1997. This
was offset by the increase in sales of $263,972 for the new Grand Cherokee
program. The decrease in the Wrangler sales for the three-month period was
nominal. For the nine months ended June 30, 1998, the Jeep CherokeeTM sales were
$0 compared to $7,074,439 in sales for the nine months ended June 30, 1997,
which was offset by the increase in sales of $2,438,077 for the Grand Cherokee
and the increase in sales of $229,154 for the Wrangler compared to the
respective periods in 1997.
There was a nominal decrease in the OSA revenue for both the three and nine
months ended June 30, 1998. This is attributable to a decrease in the outright
sales of OSA units offset by a larger number of ongoing leases.
As of August 14, 1998, TSI had approximately 18 OSA units generating
various levels of revenue (in some cases nominal monthly revenue) through lease
and revenue generating tests in a variety of industries including automobile
dealerships, truck lube centers, truck stops, and motorcycle development
laboratories.
During fiscal 1997 and 1998, the Company sold outright one OSA unit to each
of the domestic Big Three automakers, to Hyundai Motors in South Korea, and to
a powertrain testing facility in France. Based on the usage of these OSA units
by major companies and from information gathered by the Company at numerous test
sites during the past four years, at the end of fiscal 1997, TSI began the
development of an improved second generation OSA unit (OSA-II). On August 13,
1998, the Company completed the first production run of seven OSA-II units and
shipped them for use in a revenue-generating test which will commence at a
Jacksonville tire retailer in September 1998.
<PAGE>
8
TOP SOURCE TECHNOLOGIES, INC.
FORM 10-Q
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF INTERIM FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations (Continued)
The Company believes that this activity has demonstrated that the OSA
technology is commercially viable, that the awareness of the OSA is increasing
and that it will begin to generate increasing ongoing revenue through multiple
OSA placements and long-term leases. Additionally, in order to improve OSA
distribution and revenue potential, the Company continues to have discussions
with potential strategic partners who are interested in licensing the OSA
technology for specific industry applications both domestically and
internationally, however, there can be no assurances that these initiatives will
result in additional OSA revenues.
The Company believes that it has sufficient quantities of the first
generation OSA units and parts to support current locations; and that the OSA-II
is a vastly improved machine over the original OSA. The Company also believes
that the enhanced OSA will function properly although no assurances can be
given. Failure by the Company to produce functional OSA-II units will have a
material adverse effect on the Company.
The gross profit margin for three and nine months ended June 30, 1998 was
33.4% and 33.8% compared to 36.8% and 35.2% for the same periods in 1997. The
decrease in the gross profit margin compared to the prior year is primarily
attributable to the decrease in OSA gross margin due to the sale of a used
demonstrator OSA unit at a discounted price.
General and administrative expenses decreased $160,214 and $390,590 for the
three and nine-month periods ended June 30, 1998 compared to the same periods in
1997. This decrease is attributable to the Company's restructuring which took
place in the fourth quarter of fiscal 1997, partially offset by the hiring of a
new CEO and additional OSA support and development personnel.
Severance expense of $1,085,587 for the three and nine months ended June
30, 1998 is attributable to the triggering of the Good Reason clause in Mr.
Stuart Landow's Employment Agreement. (See Note 3. Executive Employment
Contract).
Selling and marketing expenses decreased 36.7% and 13.4% for the three and
nine months ended June 30, 1998 compared to the same periods in 1997. The
decrease was primarily attributable to the closing of the Farmington Hills,
Michigan location related to the OSA group.
Depreciation and amortization decreased 21.9% and 14.4% for the three and
nine months ended June 30, 1998 compared to the same periods ended in 1997. The
decrease is due to the reduction in the fixed asset base from the write-off at
the end of fiscal 1997 of obsolete tooling at TSA.
Interest income decreased 89.4% and 40.4% for the three and nine months
ended June 30, 1998 compared to the same period in 1997. The decrease is
attributable to a decline in on hand cash balances due to operating losses.
Interest expense increased 105.4% and 96.8% for the three and nine months
ended June 30, 1998 compared to the same period in 1997. The increase is due to
the increased borrowings and effective rate of borrowing with NationsCredit.
9
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TOP SOURCE TECHNOLOGIES, INC.
FORM 10-Q
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF INTERIM FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - (Continued)
Results of Operations (Continued)
The gain on the sale of equity interest of $1,030,435 for the three and
nine months ended June 30, 1998 represents the gain on the sale of 14.5% equity
interest in TSA. (See Item 5. Other Information - Sale of Top Source Automotive,
Inc.)
Net Loss Analysis
In order to avoid current, material, ongoing operating losses, and an
increase in this operating loss after the projected sale of the TSA assets (see
Item 5. Other Information), the Company must generate new, material, ongoing OSA
or other revenues in future months. The Company believes that the recent OSA
activity described in this MD&A section, and the completion of development of
the new OSA-II, will improve OSA visibility in the marketplace that which will
lead to significant increases in future OSA revenues. However, there can be no
assurances.
Liquidity and Capital Resources
Net cash provided by operating activities was $183,916 for the nine
months ended June 30, 1998. This usage of cash was attributable to a net loss of
$1,509,083, which excludes depreciation and amortization, an increase in
inventories of $422,127 due to the purchase of additional OSA parts (see Note 4.
Other Assets). This was offset by a decrease in accounts receivable of $393,801,
an increase in accrued liabilities of $521,391 an increase in accounts payable
of $38,418 and a decrease in other assets of $735,089 (see Note 4. Other Assets)
and disposal of equipment of $157,798.
Net cash used by investing activities was $(387,885). This use of cash is
attributable to $345,660, which was expended for capital assets and additions to
patent costs of $27,213.
Net cash provided by financing activities was $62,577, which consisted of
the net proceeds from sales of common stock through exercise of stock options of
$292,941 and net proceeds from the sale of preferred stock of $932,500, which
was offset by the repayment of $1,162,864 in borrowings on the Company's Credit
Facility.
On July 1, 1997, the Company entered into a three-year $5,000,000
asset-based financing agreement (Credit Facility) with NationsCredit
Commercial Corporation ("Nations"). This Credit Facility replaced the Companys
former $3,750,000 facility. The new Credit Facility, which is secured by
substantially all of the assets of the Company enables the Company to borrow up
to $5,000,000 based upon certain percentages of accounts receivable and
inventory balances. The Credit Facility allows for borrowing of up to 85% of
accounts receivable and 50% of inventory for both TSA and TSI. The overall
sub-limit of borrowing against inventory is $1,500,000. The interest rate on
this Credit Facility is 1-1/2% over the prime rate and is payable monthly with a
required minimum borrowing level of $2,500,000 for the fee calculation purposes.
The Company's effective interest rate at June 30, 1998 factoring the interest
earned on used drawn funds was approximately 11.1%. As of June 30, 1998 and
August 14, 1998, borrowings on this Credit Facility were $833,477 and $504,995,
respectively. Total unused availability for the same periods were $803,000 and
$160,000, respectively. The Company plans to repay the Credit Facility in full
upon the ultimate sale of TSA (see Item 5. Other Information). Upon payment of
the Credit Facility, Nations will release the lien, which it holds on all of the
assets of the Company including TSA common stock and assets.
10
<PAGE>
TOP SOURCE TECHNOLOGIES, INC.
FORM 10-Q
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF INTERIM FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - (Continued)
Liquidity and Capital Resources (Continued)
The Credit Facility calls for certain financial covenants that, if not met,
would cause default under the agreement and increase the interest rate by 2%.
The Credit Facility requires the Company not to exceed $2,000,000 in losses from
operations (plus or minus any non-recurring items agreed upon) measured on an
annual basis each September 30, 1998.
Based on an operating loss of $2,398,088 at June 30, 1998, (which is net of
agreed upon items), and based on current operations, the Company will be in
default of this covenant as of September 30, 1998. This would require the
Company to obtain a waiver from NationsCredit (which NationsCredit provided to
the Company in fiscal 1997 for exceeding this covenant); or to pay off the loan
balance, at the time of default, which the Company intends to do with the
proceeds of the TSA sale.
In 1995, advisory clients of Mellon Private Asset Management ("Mellon"),
purchased $3,020,000 in 9% Senior Subordinated convertible notes from the
Company (Notes). These Notes are subject to an Indebtedness to Equity ratio
that cannot exceed 1.5 to 1.0. As of June 30, 1998, this ratio was 1.14,
therefore, the Company was in compliance with the ratio. However, due to the
Company's historic losses and due to the uncertainty on the timing of OSA
revenues, there is a possibility that the Company will exceed this ratio during
the fourth quarter of fiscal 1998. In the event the ratio is not met and the
Company is unable to receive a waiver from Mellon, G. Jeff Mennen, a new Board
member of the Company, has agreed to guarantee a sufficient capital infusion
into the Company to maintain compliance of this ratio through October 1, 1998,
or to refinance the notes. In consideration for this guarantee, the Company
issued 50,000 ten-year warrants exercisable at $2.00 per share to Mr. Mennen.
The warrants have been valued at $31,854 under FASB 123 using the Black Scholes
Option Pricing Model. This non-cash amount has been included in general and
administrative expenses in the accompanying Consolidated Statements of
Operations for the three and nine months ended June 30, 1998.
In May 1998, the Company completed a private placement of Preferred Stock
and has received net proceeds of $932,500. The Company also anticipates
additional funding from this private placement of approximately $1,500,000,
although there can be no assurance that the Company will meet the conditions
requiring the two foreign investors to purchase additional tranches. (See Note
5. to the Financial Statements.)
During the last year, the Company initiated and completed a major
restructuring. This restructuring included the hiring of a new CEO and a
reduction in approximately one-third of the Companys work force. The primary
strategy of the new Company management has been to concentrate marketing
activities to sell or lease OSAs to fifteen to twenty specific markets. The
Company believes that their marketing efforts will be successful. However, if
the Company is unable to meet goals or to have the necessary resources to
sustain their marketing activities it could have a material adverse effect on
the financial condition of the Company. The Company will continue to evaluate
the success of the new marketing efforts.
Based on current cash on hand of approximately $1,700,000, expected
proceeds from the ultimate sale of TSA, and potential future proceeds of
$1,500,000 in Preferred Stock, the Company believes that it has sufficient cash
on hand to fund its operations and the anticipated inventory build of second
generation OSA units. In the event that the TSA transaction does not close, or
if the additional Preferred Stock is not purchased, the Company would be
required to raise additional capital to fund its operations. he Company is
currently exploring various financing alternatives. There can be no assurance
that any future financing will be available or, if available, on acceptable
terms.
11
<PAGE>
TOP SOURCE TECHNOLOGIES, INC.
FORM 10-Q
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF INTERIM FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - (Continued)
Forward-Looking Statements
The statements discussed in this report relating to the Company's
expectations that it anticipates (1) generating additional and increasing OSA
revenue (2) the OSA-II will function and operate properly, (3) entering into
strategic relationships to sell the OSA, (4) selling its TSA subsidiary, (5) the
adequacy of cash flow and liquidity, (6) being able to support the current OSA
instruments without the involvement of TJA, (7) reducing operating losses, and
(8) the funding of the balance of $1,500,000 of the Preferred Stock offering,
and (9) achieving the $6,000,000 Earn-Out related to the sale of TSA, are
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
Important factors that could cause actual results to differ materially from
the forward-looking statements include the following: (1) a decline in
production levels at Chrysler for vehicles installing OHSS, (2) the continued
reliability of the OSA technology over an extended period of time, (3) the
Companys ability to market OSAs, (4) the acceptance of the OSA technology by
the marketplace, (5) the general tendency of large corporations to slowly change
from known technology to emerging new technology, (6) potential future
competition from third parties that may develop proprietary technology which
either does not violate the Company's proprietary rights or is claimed not to
violate the Companys proprietary rights, (7) potential unforeseen technical
problems with the performance of OSA-II, (8) the inability of current TSA
management and potential new TSA management after the TSA sale, if completed, to
attain joint venture agreements with large OEM and aftermarket suppliers at TSA,
(9) the ability of the buyer of TSA to obtain financing and other closing
conditions are met, and (10) matters relating to the Company's future stock
price and volume.
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
Sale of Top Source Automotive, Inc.
On August 14, 1998, the Company executed a Definitive Agreement
(Agreement) with NCT Audio Products Inc., (the "Buyer"), a subsidiary of Noise
Cancellation Technologies of Stamford, Connecticut (NASDAQ: NCTI) to purchase
substantially all of the assets of TSA. This Agreement was the result of months
of negotiations subsequent to a letter of intent signed between the parties on
April 17, 1998.
Under the terms of the Agreement, the transaction requires the majority
approval of the Company's stockholders. The Company intends to hold its Annual
Meeting to seek such approval on November 5, 1998 in New York City.
12
<PAGE>
TOP SOURCE TECHNOLOGIES, INC.
FORM 10-Q
ITEM 5. OTHER INFORMATION - (Continued)
Sale of Top Source Automotive, Inc. - (Continued)
Under terms and subject to the conditions of the Agreement, on the closing
date (the "Closing" or the "Closing Date"), the Buyer will purchase 100% of the
assets (the "Assets") and assume substantially all of the liabilities of TSA for
a minimum of $10,000,000 consisting of a non-refundable deposit of $1,450,000
paid to TSA on June 10, 1998, $2,050,000 paid into escrow on July 30, 1998 and
the balance of $6,500,000 due at the Closing, which must occur by March 31,
1999. Of this $6,500,000 at least $4,000,000 must be in cash and the balance may
be in the form of a 12% secured promissory note due March 31, 1999 (the "Buyer's
Note"). Additionally, TSA shall receive up to an additional $6,000,000 payable
at the option of the Company in cash or in common stock of the Buyer based upon
the future earnings of the Buyer's subsidiary, which acquires the Assets, for a
two-year period following the Closing. All of the consideration shall be paid to
TSA and may be transferred to the Company without any distribution to the Buyer
which will become a minority stockholder of TSA following the Annual Meeting.
The consummation of the proposed transaction is subject to the satisfaction or
waiver of certain conditions including approval of the Company's stockholders,
and the Buyer obtaining the necessary financing. If the Company's stockholders
approve the proposed transaction, the $2,050,000 in escrow shall be paid to the
Company, and the Buyer will become the owner of 20% of the outstanding common
stock; if the proposed transaction is not approved, the $2,050,000 will be
returned to the Buyer and it will become the owner of 14.5% of TSA's common
stock. If the proposed transaction fails to close by March 31, 1999, the Company
will be free to attempt to find another purchaser of TSA and the Buyer will be
obligated to sell its TSA shares to any such purchaser on the same terms and
conditions as the Company receives for its TSA Common Stock. However, if the
proposed transaction fails to close by December 31, 1998, the Buyer has a one
week option to cancel its exclusive right to purchase the Assets of TSA and as
consideration for such cancellation receive an additional 15% of TSA Common
Stock.
In order to consummate the proposed transaction, the Company must obtain
the consent of NationsCredit, which will not provide such consent unless its
Credit Facility is paid in full. As of the date of this filing, approximately
$504,995 was owed to NationsCredit. Upon payment of its Credit Facility,
NationsCredit will release the lien, which it holds on all of the assets of the
Company including the TSA Common Stock and Assets and simultaneously this Credit
Facility will be effectively cancelled.
The Earn-Out
For the first year following the Closing ("Year One"), the Buyer shall pay
TSA an Earn-Out of up to $3,000,000 and a cumulative amount of up to $6,000,000
for Year One and the 12-month period subsequent to Year Two ("Year Two").
The Earn-Out in Year One shall be equal to the amount by which the product
of four and one-half times EBITDA, as defined, for Year One exceeds $8,000,000.
As used in the Agreement, "EBITDA" means income before interest, taxes,
depreciation and amortization of the Buyer's division acquiring the Assets ("New
TSA"). The Agreement further provides that EBITDA shall be based solely upon the
operations of New TSA based upon operations consistent with the historical
operations of TSA and excluding items of income or expense such as non-recurring
items, extraordinary items, intercompany items and other items of income and
expense which are not consistent with such past practice.
13
<PAGE>
TOP SOURCE TECHNOLOGIES, INC.
FORM 10-Q
PART II - OTHER INFORMATION - (Continued)
ITEM 5. OTHER INFORMATION - (Continued)
Earn-Out (Continued)
In effect to the extent that in Year One the cash flow of New TSA times
four and one-half exceeds $8,000,000, the Buyer shall pay the Earn-Out up to the
maximum of $3,000,000. The Year Two Earn-Out shall be equal to the amount by
which the product of four and one-half times EBITDA for Year Two exceeds the
greater of: (i) Year One EBITDA times four and one-half, or (ii) $8,000,000. The
maximum Year Two Earn-Out calculated using this formula is $6,000,000 minus the
Year One Earn-Out.
The Company has the option to accept the Earn-Out in cash or in shares of
the Buyer's Common Stock. Such decision will only be made after the Earn-Out is
achieved and the Company considers all relevant information including reviewing
audited financial statements of the Buyer.
Based upon an anticipated Closing Date between November 5, 1998 and
December 31, 1998, and assuming no changes to TSA's revenues and expenses after
the Closing; no Earn-Out payment if calculated on a pro-forma basis would have
been earned by the Company. The Company believes that current after-market and
other OEM production line initiatives in process for OHSS, will result in
additional revenues that will enable the Company to achieve the full $6,000,000
Earn-Out over a two-year period after Closing. However, no assurances can be
given.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
10.1 Asset Purchase Agreement by and among Top Source
Technologies, Inc., Top Source Automotive, Inc.,
NCT Audio Products, Inc. and Noise Cancellation
Technologies, Inc.
10.2 Amendment to Stuart Landow's Employment Agreement
27.0 Financial Data Schedule
14
<PAGE>
TOP SOURCE TECHNOLOGIES, INC.
FORM 10-Q
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (Continued)
b. Reports on Form 8-K
No reports on Form 8-K were filed during the
quarter ended June 30, 1998.
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
David Natan
Vice President and Chief Financial Officer
Dated: August 19, 1998
15
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> JUN-30-1998
<CASH> $1,962,287
<SECURITIES> 0
<RECEIVABLES> 1,861,502
<ALLOWANCES> 0
<INVENTORY> 1,303,150
<CURRENT-ASSETS> 5,490,131
<PP&E> 1,601,100
<DEPRECIATION> 2,987,656
<TOTAL-ASSETS> 9,713,347
<CURRENT-LIABILITIES> 3,232,510
<BONDS> 0
0
932,500
<COMMON> 28,831
<OTHER-SE> 3,431,906
<TOTAL-LIABILITY-AND-EQUITY> 9,713,347
<SALES> 9,281,904
<TOTAL-REVENUES> 9,281,904
<CGS> 6,143,141
<TOTAL-COSTS> 6,143,141
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (415,545)
<INCOME-PRETAX> (2,411,998)
<INCOME-TAX> ( 41,242)
<INCOME-CONTINUING> (2,453,240)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,453,240)
<EPS-PRIMARY> (0.09)
<EPS-DILUTED> (0.09)
</TABLE>
ASSET PURCHASE AGREEMENT
By and Among
TOP SOURCE TECHNOLOGIES, INC.,
TOP SOURCE AUTOMOTIVE, INC.,
NCT AUDIO PRODUCTS, INC.
and
NOISE CANCELLATION TECHNOLOGIES, INC.
August 14, 1998
<PAGE>
iv
<PAGE>
<TABLE>
<S> <C>
TABLE OF CONTENTS
Page
1. The Basic Transaction ............................................................................................1
1.1 The Earn-Out..................................................................................... 2
1.2 Receipt of Non-Refundable Deposit................................................................ 3
2. Acquisition of 20% of TSA Common Stock........................................................................ 3
2.1 The Second Payment............................................................................... 3
2.2 Issuance of 20% of TSA
Common Stock................................................................................... 3
2.3 Delivery into Escrow............................................................................. 3
2.4 Termination of Exclusive Right;
Issuance of 15% Common Stock................................................................... 4
3. Payment of Acquisition Consideration; Conditions.............................................................. 4
3.1 The Buyer's Obligation........................................................................... 4
3.2 Payment of Balance of Acquisition Consideration.................................................. 4
3.3 Anti-Dilution Protection......................................................................... 4
3.4 Buyer's Financing................................................................................ 4
3.5 The Closing...................................................................................... 5
4. Miscellaneous Matters ......................................................................................... 5
4.1 Failure of the Buyer to Pay the Balance of the
Acquisition Consideration - Bring Along Provisions............................................ 5
4.2 Parent Stockholder Approval...................................................................... 5
4.3 Due Diligence.................................................................................... 6
5. Sale of Assets ....................................................................................... 6
5.1 Sale of Assets................................................................................... 6
5.2 Excluded Assets.................................................................................. 8
5.3 Method of Conveyance............................................................................. 9
5.4 Assumed Obligations.............................................................................. 9
5.5 Allocations...................................................................................... 10
5.6 Adjustments to Purchase Price.................................................................... 10
5.7 Updating of Schedules............................................................................ 10
6. Representations and Warranties................................................................................ 10
6.1 The Parent and TSA............................................................................... 10
6.2 Updating of the Parent's and
TSA's Representations and Warranties........................................................... 18
6.3 Representations and Warranties of the
Buyer ...................................................................................... 18
7. Covenants Prior to Closing.................................................................................... 19
7.1 Parent's and TSA's Covenants..................................................................... 19
7.2 Stockholder Approval............................................................................. 20
7.3 Access ...................................................................................... 20
7.4 Interim Joint Operation.......................................................................... 21
<PAGE>
Page
7.5 Cooperation...................................................................................... 21
7.6 Bulk Sales Laws.................................................................................. 21
7.7 The Buyer's Covenants............................................................................ 21
8. Conditions to Closing ...................................................................................... 21
8.1 Conditions to the Obligations of the Parent
and TSA........................................................................................ 21
8.2 Conditions to the Obligations of the Buyer....................................................... 22
8.3 Conditions to the Obligations of the Parent,
TSA and the Buyer.............................................................................. 23
8.4 Closing Documents................................................................................ 23
8.5 Closing Apportionments........................................................................... 23
9. Post-Closing Covenants........................................................................................ 24
9.1 The Earn-Out..................................................................................... 24
9.2 Exercise of the Parent's Option.................................................................. 24
9.3 Delivery of Acquisition Shares................................................................... 25
9.4 Post-Closing Access and Delivery of Reports............................................................ 28
9.5 Guarantee of NCTI...................................................................................... 29
9.6 Covenant Not to Compete................................................................................ 29
9.7 Change of Business Name.......................................................................... 29
9.8 Further Assurances............................................................................... 29
9.9 Hiring of TSA's Employees........................................................................ 30
9.10 Nominee to the Buyer's Board of Directors........................................................ 30
10. Survival of Representations and Warranties.................................................................... 30
10.1 Indemnification by the Parent and TSA............................................................ 30
10.2 Indemnification by the Buyer..................................................................... 31
10.3 Indemnification Payments......................................................................... 31
10.4 Procedure for Third Party Claims................................................................. 31
10.5 Remedies Cumulative.............................................................................. 32
10.6 Limits on Indemnification........................................................................ 32
11. Brokerage ...................................................................................... 32
12. General Provisions ...................................................................................... 33
12.1 Severability..................................................................................... 33
12.2 Counterparts..................................................................................... 33
12.3 Benefit ...................................................................................... 33
12.4 Notices and Addresses............................................................................ 33
12.5 Attorney's Fees.................................................................................. 34
12.6 Oral Evidence.................................................................................... 34
12.7 Additional Documents............................................................................. 34
12.8 Governing Law.................................................................................... 34
12.9 Arbitration...................................................................................... 34
12.10 Equitable Relief................................................................................. 35
12.11 Expenses ...................................................................................... 35
12.12 Section Headings................................................................................. 35
</TABLE>
<PAGE>
DEFINITIONS
<TABLE>
Each of the following terms is defined in this Agreement in the respective
Section referenced adjacent to such term:
<S> <C>
Defined Term Section Reference
Acquisition Shares................................. Section 1
Acquisition Consideration.......................... Section 1
Agreement...........................................Preface
Assets..............................................Section 1
Assumed Leases......................................Section 5.1(d)
Assumed Obligations.................................Section 5.4
Buyer Indemnitee(s).................................Section 10.1
Buyer...............................................Preface
Buyer's Financial Statements........................Section 9.3(c)(ii)
Closing.............................................Section 3.5
Closing Date........................................Section 3.5
Closing Date Financial Statements...................Section 6.1(r)
Contracts...........................................Section 5.1(e)
Earn-Out Financial Statements.......................Section 9.2
Earn-Out............................................Section 1(d)
EBITDA..............................................Section 1.1(b)
Employee Benefit Plans..............................Section 6.1(h)
Environmental, Health, and Safety Laws..............Section 6.1(i)
ERISA...............................................Section 6.1(h)
Excluded Assets.....................................Section 5.2
Fairness Opinion....................................Section 4.2
Financial Statements................................Section 6.1(r)
Financing...........................................Section 1
Financing Closing...................................Section 3.5
First Payment.......................................Section 1.2
Income..............................................Section 2.3
Intangible Assets...................................Section 5.1(h)
Intellectual Property...............................Section 5.1(g)
Inventory...........................................Section 5.1(c)
Knowledge...........................................Section 6.1(c)
Laws................................................Section 6.1(n)
Leases..............................................Section 6.1(e)
Licenses and Permits................................Section 6.1(k)
Liens...............................................Section 5.3(b)
Losses..............................................Section 10.1
NCT.................................................Preface
OEMs................................................Section 7.4
Ordinary Course of Business.........................Section 5.4
Parent..............................................Preface
Parent=s Option.....................................Section 1(d)
Personal Property...................................Section 5.1(b)
Defined Term Section Reference
Prohibited Business........................... Section 9.6(a)
Rep Letter.................................... Section 9.3(c)
Second Payment................................ Section 2.1
Seller Indemnitee(s).......................... Section 10.2
Stock Power................................... Section 2.1
Taxes......................................... Section 6.1(c)
TSA........................................... Preface
Year One...................................... Section 1.1(a)
Year Two...................................... Section 1.1(a)
</TABLE>
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (the "Agreement") is entered into as of this
14th day of August, 1998, by and among Top Source Technologies, Inc., a Delaware
corporation (the "Parent"), Top Source Automotive, Inc., a Florida corporation
("TSA"), NCT Audio Products, Inc. (the "Buyer") and Noise Cancellation
Technologies, Inc. (ANCTI@) solely as a guarantor of the Earn-Out, as defined in
this Agreement.
WHEREAS, TSA designs, assembles and markets patented overhead sound systems
installed in vehicles on an original equipment manufacturer and after-market
basis;
WHEREAS, TSA operates an innovative sound laboratory and assembly facility
located in Troy, Michigan;
WHEREAS, the Parent wishes to sell and the Buyer wishes to purchase up to
100% of the Assets of TSA, as defined, on the terms and conditions contained in
this Agreement; and
WHEREAS, NCTI has agreed to guarantee the Earn-Out.
NOW THEREFORE, in consideration of the mutual premises and the
covenants and promises hereinafter contained, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto intending to be legally bound hereby agree as follows:
<PAGE>
1. The Basic Transaction. The Buyer agrees to buy 100% of the assets of TSA (the
"Assets") for up to $16,000,000, consisting of a minimum of $10,000,000 and up
to $6,000,000 in either restricted common stock of the Buyer (the "Acquisition
Shares") or in cash as may be selected by the Parent. The purchase price (the
"Acquisition Consideration") has been and shall be payable as follows:
(a) $1,450,000 non-refundable deposit paid on June 10, 1998;
(b) $2,050,000 paid to the Escrow Agent as defined on July 31, 1998;
(c) at the Closing, as defined in Section 3.5 below, $6,500,000 in cash or
at least $4,000,000 in cash and the balance by means of a 12% note due March 31,
1999 (the "Note"), the form of which is annexed as Schedule 1(d)(l) which Note
shall be secured by a lien on the assets of the Buyer which TSA and the Buyer
mutually agree upon;
(d) at the Closing, as defined in Section 3.5 below, up to $6,000,000 in
contingent additional payments as determined pursuant to Section 1.1 below (the
"Earn-Out") of cash or Acquisition Shares as may be selected by the Parent (the
"Parent's Option"). If the Earn-Out is to be paid as described below, it may be
paid in any combination of cash or Acquisition Shares as selected by the Parent
within 60 days following the end of Year One and/or Year Two;
(e) at the Closing, as defined in Section 3.5 below, the assumption by the
Buyer of all of TSA's liabilities as reflected on the Financial Statements, as
defined, and thereafter incurred in the Ordinary Course of Business, as defined,
through the Closing, as defined;
(f) All of the Acquisition Consideration received by TSA free of
restrictions under the Escrow Agreement may be transferred to the Parent at any
time, and the Buyer waives its right as a shareholder to participate in such
distributions. If TSA transfers the Acquisition Consideration to the Parent, the
Buyer shall execute an acknowledgement to such transfer in the form provided on
Schedule 1(f)(1) to this Agreement. A copy of the assignment of the Note is
annexed as Schedule 1(f)(2). Additionally, simultaneous with such transfer and
assignment, Buyer and NCTI shall execute all appropriate security agreements and
UCC-1s required to perfect the Parent's security interest in the security; and
(g) As additional consideration, the Buyer shall sell to TSA the TSA Common
Stock referred to in Section 2 hereof. Notwithstanding this provision, the Buyer
shall be entitled to its pro-rata share of any dividends paid by TSA during the
period commencing with the release from escrow as described in Section 2.3 of
this Agreement.
1.1 The Earn-Out. The Parent's Option (as described in Section 9.2
below) may be selected only if the Buyer's net income, as adjusted, reaches
certain levels described below:
(a) The Buyer shall pay the Parent or TSA an Earn-Out of up
to $3,000,000 with respect to the 12-month period subsequent to the
date of closing ("Year One"), and up to a cumulative amount of up to
$6,000,000 for Year One and the 12-month period subsequent to Year One
("Year Two").
(b) The Earn-Out in Year One shall be equal to the amount by
which the product of four and one-half times EBITDA, as defined, for
Year One exceeds $8,000,000. As used in this Agreement, AEBITDA@ means
the earnings before interest, taxes, depreciation and amortization of
operations of the business related to the Assets, as defined. EBITDA
shall be derived from the audited financial statements of the Buyer,
shall be based solely upon the operations of the business acquired,
shall be based upon operations which are consistent with the business
of TSA for the two years immediately preceding the date of Closing, as
defined, and shall exclude items of income or expense such as
non-recurring items, extraordinary items, intercompany items and other
items of income and expense which are not consistent with such past
practice. The maximum Year One Earn-Out using this formula shall be
$3,000,000.
(c) The Year Two Earn-Out shall be equal to the amount by
which the product of four and one-half times EBITDA for Year Two
exceeds the greater of: (i) Year One EBITDA times four and one-half, or
(ii) $8,000,000. The maximum Year Two Earn-Out calculated using this
formula is $6,000,000 minus the Year One Earn-Out. The maximum total
Earn-Out for Year One and Year Two combined is $6,000,000.
1.2 Receipt of Non-Refundable Deposit. The Buyer has paid to the Parent
the sum of $1,450,000 (the "First Payment") which represents a non-refundable
deposit which at the Closing as defined shall be credited toward the Acquisition
Consideration provided for in Section 1 of this Agreement.
2. Acquisition of TSA Common Stock.
2.1 The Second Payment. As described in Section 2.3 of this Agreement,
the Buyer has paid the Parent $2,050,000 (the "Second Payment") representing the
amount necessary for the Buyer to purchase 20% of TSA's common stock. The Buyer
shall also promptly deliver a blank stock power duly executed with a medallion
guarantee (the "Stock Power").
2.2 Issuance of 20% of TSA Common Stock. TSA shall promptly issue to
the Buyer two stock certificates equal to 20% in the aggregate of the issued and
outstanding shares of TSA common stock to be held in escrow. One certificate
shall be for 5.5% and the other certificate shall be for 14.5% of the issued and
outstanding common stock of TSA.
2.3 Delivery into Escrow. The Buyer has delivered the Second Payment
and shall deliver the Stock Power to Michael Harris, P.A. (the "Escrow Agent")
to hold in escrow and TSA shall deliver the two stock certificates for 5.5% and
14.5% of TSA's common stock to the Escrow Agent to hold in escrow, all in
accordance with the terms and conditions of an escrow agreement, as amended, in
the form annexed hereto as Schedules 2.3(1) and 2.3(2). The escrow shall
continue until the Parent's stockholders shall have voted on a proposal to
approve the sale of 100% of the Assets as provided in Section 4.2 hereof. If
such stockholder approval is obtained, the Escrow Agent shall deliver the Second
Payment and one-half of the income thereon (the "Income") to the Parent and the
TSA common stock certificate, the Stock Power and the other one-half of the
Income to the Buyer. If the Parent's stockholders do not approve the sale of
100% of the Assets, the Escrow Agent shall return the Second Payment to the
Buyer with the Income, deliver to the Buyer a stock certificate for 14.5% of TSA
common stock and deliver a stock certificate for 5.5% of TSA common stock, Stock
Power and the Income to the Parent.
2.4 Termination of Exclusive Right; Issuance of 15% Common Stock. The
Buyer has the exclusive option to purchase the Assets at any time through 5:00
p.m. New York time on March 31, 1999. If the Closing, as defined, has not
occurred by 5:00 p.m., New York time, on December 31, 1998, by notice given to
the Parent on or before 5:00 p.m., New York time on January 7, 1999, the Buyer
may cause TSA to issue to it a number of shares of common stock equal to 15% of
TSA in which case the Buyer shall forfeit its exclusive right to purchase the
Assets.
3. Payment of Acquisition Consideration; Conditions.
3.1 The Buyer's Obligation. At such time as the Buyer shall have paid
the Parent $3,500,000 consisting of the First and Second Payments, the Buyer
shall, subject to the Parent obtaining approval of its stockholders as provided
in Section 4.2 of this Agreement, be obligated to purchase the Assets from TSA.
As used in this Agreement, the term "Assets" means all of the personal property
owed by TSA including tangible and intangible property used in or related to the
business of TSA excluding only the Excluded Assets, as defined in Section 5.2 of
this Agreement.
3.2 Payment of Balance of Acquisition Consideration. The Buyer shall,
subject to the conditions of this Agreement, pay TSA the sum of $6,500,000 as
provided in Section 1(c) of this Agreement on or before 5:00 p.m., New York
time, on March 31, 1999. If the Closing referred to in Section 3.5 of this
Agreement has not occurred by such time, the Buyer shall default in the
performance of its obligation, and thereafter (or after such earlier date as
provided by this Agreement) the Parent and TSA shall have the right to sell 100%
of TSA common stock or 100% of the Assets to a third party subject only to the
provisions of Section 4.1 of this Agreement.
3.3 Anti-Dilution Protection. TSA shall not sell or offer to sell any
shares of capital stock or other securities convertible into or exchangeable for
shares of its capital stock. The prohibition pursuant to this Section 3.3 shall
lapse upon the failure of the Buyer to close the transaction contemplated by
this Agreement by the time referred to in Section 3.2 of this Agreement or a
default as provided in Section 3.4.
3.4 Buyer's Financing. It shall be a condition precedent for the Buyer
to purchase the Assets of TSA that the Buyer must complete a financing (the
"Financing"). Provided the Financing Closing occurs on or before the Closing:
(a) from the Financing net proceeds, the Buyer shall use at least $4,000,000 to
pay part of the Acquisition Consideration; (b) it shall be a condition of the
Financing that the use of proceeds contained in any offering documents or
agreement identifies at least $4,000,000 as being used to acquire the Assets;
(c) at such time as the offering documents allocate or describe the use of any
net proceeds from the Financing, it shall identify at least $4,000,000 as being
used to purchase the Assets of TSA; and (d) if the offering documents fail to do
so, the Buyer shall default in the performance of its obligation and the Parent
and TSA shall have the same rights specified in Section 3.2 of this Agreement.
3.5 The Closing. The Closing of the sale and purchase of the Assets as
contemplated hereunder (the "Closing") shall be held on a date (the "Closing
Date") which is on or after the date of the Closing of Buyer's Financing (the
"Financing Closing") or such earlier date as Buyer may elect but in no event
later than March 31, 1999, at which time TSA shall sell 100% of the Assets to
the Buyer subject to payment of the unpaid balance of the Acquisition
Consideration. The Buyer shall provide reasonable notice to the Parent and TSA
of the time of the Financing Closing.
4. Miscellaneous Matters.
4.1 Failure of the Buyer to Pay the Balance of the Acquisition
Consideration - Bring Along Provisions. Pending the payment of the balance of
the Acquisition Consideration and after the Buyer's exclusive right to purchase
the Assets has lapsed, unless the Closing occurs, the shares of TSA common stock
held by the Buyer, if any, shall not be publicly or privately sold, assigned,
transferred, encumbered or pledged except as provided in the next sentence and
the stock certificates evidencing the Buyer's shares of TSA common stock shall
contain an appropriate legend concerning this restriction. In the event that the
Parent or TSA subsequently finds a third party purchaser for 100% of the common
stock or Assets of TSA after the Buyer's exclusive right to purchase the Assets
has lapsed ( and assuming the Closing shall not have occurred), the Parent shall
have the power to cause the Buyer to sell its common stock of TSA to such third
party purchaser (or the Buyer consents to the sale of Assets) in consideration
for the receipt by the Buyer of the pro-rata share of the consideration to be
paid by such purchaser to the Parent or TSA for 100% of the common stock or
Assets of TSA, payable in the same type of consideration and at the same times
as the Parent or TSA receives such consideration.
4.2 Parent Stockholder Approval. It shall be a condition precedent for
the Buyer to purchase the Assets of TSA that the stockholders of the Parent
approve the sale of 100% of the Assets. The Parent shall exercise its reasonable
best efforts to convene an annual or special meeting of its stockholders
soliciting such approval. The Parent anticipates that such meeting shall be held
on or before November 5, 1998. The Buyer and NCTI shall co-operate with the
Parent and provide such information concerning the Buyer and NCTI as may be
requested by the Staff of the Securities and Exchange Commission in connection
with its review of the Proxy Statement filed by the Parent in connection with
its stockholders' meeting. In conjunction with such stockholders' meeting, the
Parent shall obtain an opinion from an investment banking firm as to the
fairness of the transaction providing for the sale of 100% of the Assets of TSA
to the Parent stockholders from a financial point of view (the "Fairness
Opinion"). The cost of such Fairness Opinion shall be borne by the Parent. Such
Fairness Opinion shall solely be for the benefit of the Parent and its board of
directors.
4.3 Due Diligence. Pending the Closing, TSA shall give the Buyer and
its accountants, counsel and other representatives, access, upon 72 hours'
notice during normal business hours, to TSA's premises, books, records,
contracts and commitments. TSA shall furnish to the Buyer with all financial and
other information which the Buyer shall reasonably request concerning TSA's
business and its Assets through the Closing.
5. Sale of Assets.
5.1 Sale of Assets. On the terms and subject to the conditions set
forth in this Agreement, at the Closing, TSA shall sell, convey, transfer and
assign to the Buyer, and the Buyer shall purchase and accept from TSA all right,
title and interest in and to all of the Assets of TSA used in or related to its
business, including, without limitation, the assets described in subsections (a)
through (m) hereof, and excluding only the Excluded Assets, as defined in
Section 5.2, free and clear of all Liens, as defined.
(a) Prepaid Assets. All prepaid and deferred items or
credits, such as unbilled charges, deposits and other similar items
including, without limitation, those as set forth on Schedule 5.1(a).
(b) Personal Property. All tangible personal property,
including, without limitation, all machinery, equipment, tools, dies,
molds, parts, furniture, furnishings, leasehold improvements, fixtures,
computer hardware, office equipment, vehicles and supplies including,
without limitation, those assets described on Schedule 5.1(b) (the
"Personal Property").
(c) Inventory. All inventories, stock-in-trade,
work-in-process, finished units, repair and replacement parts and raw
materials (including goods in transit, consigned inventory, inventory
sold on approval and rental inventory) (the "Inventory"). The Inventory
shall be provided to the Buyer as a Schedule at such time as the Parent
and TSA update the representations and warranties as described in
Section 6.2 of this Agreement and shall be as of the same date provided
in Section 6.2. Notwithstanding the foregoing, on the Closing Date
inventory shall consist of not less than 25 days' supply of inventory
necessary to support TSA's operations in the Ordinary Course of
Business, as defined in Section 5.4 below, at the same level as that
experienced over the prior 90 days.
(d) Leases. All rights of TSA under the leases set
forth on Schedule 5.1(d) (the "Assumed Leases").
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(e) Contracts. All rights and benefits of TSA under all
contracts, agreements, license agreements, vendor agreements, purchase
orders, commitments, sales orders and supply agreements, including,
without limitation, those set forth on Schedule 5.1(e) (the
"Contracts").
(f) Licenses and Permits. All right, title and interest in
and to all licenses, permits, approvals, and authorizations including,
without limitation, applications therefor, relating to TSA's operation
of its business which are held by or have been granted to, or have been
applied for, by TSA, to the extent assignment or transfer is permitted
by applicable Law.
(g) Intellectual Property. All right, title and interest in
and to all patents, licenses, copyrights, trademarks, trade names,
service marks (including the trademark and name of TSA or any
derivation thereof), logos and slogans, and all of the goodwill
associated therewith, and all registrations, applications and other
rights associated with the foregoing, if any, whether registered or
unregistered, now used or presently planned to be used by TSA in
connection with its business, including, without limitation, those set
forth on Schedule 5.1(g), including the right to sue for past
infringement thereof (collectively, the "Intellectual Property").
Notwithstanding the foregoing, the name "Top Source" or any other name
containing the words "Top Source" shall not be conveyed to the Buyer
except that the Buyer shall acquire the right to use the names "Top
Source Automotive, Inc." and "Top Source Automotive".
(h) Intangible Assets. All right, title and interest in and
to all intangible assets including but not limited to all know-how,
technology, slogans, data, studies, confidential information,
restrictive covenants, computer software (including documentation and
related object and source codes), indemnity rights, and other
intangible assets now used or presently planned to be used by TSA, and
all of the goodwill associated therewith, confidentiality obligations
and similar obligations of present and former shareholders, officers
and employees of TSA (collectively, the "Intangible Assets"). Annexed
as Schedule 5.1(h) is an itemization of Intangible Assets.
(i) Records and Documents. All books, files, papers,
technical and research analyses, engineering, sales, marketing and
other studies, data and plans, records and other data located at TSA's
facility in Troy, Michigan, or pertaining to its business, including,
without limitation, all supplier and customer lists and other
databases, licensee lists, distributor lists, bid information, customer
correspondence, quality assurance records, test reports, invoices, job
orders and technique sheets.
(j) Telephone Numbers. TSA's interest in and to all
telephone, facsimile and telex (if any) numbers and telephone and other
directory listings utilized in connection with its business.
(k) Corporate Name. The names "Top Source Automotive, Inc."
and "Top Source Automotive" and all goodwill associated therewith.
Provided, however, the Buyer shall not use the names "Top Source", "Top
Source Automotive" or similar names as the corporate name of the
publicly-held holding company or other publicly-held corporation.
Provided, further, the Buyer shall not use the name "Top Source" for
any purpose except to use the name "Top Source Automotive" or
substantially similar name to conduct business operations selling
automotive products to automobile original equipment manufacturers or
to the automotive aftermarket.
(l) Warranties. All rights benefitting TSA under any
warranty, express or implied, which relate to the Assets.
(m) Accounts Receivable. All accounts receivable are subject
to customary reserves. At such time as the Parent or TSA are required
to update their representations and warranties as provided in Section
6.2 of this Agreement, they shall deliver a Schedule of the accounts
receivable as of the same date provided in Section 6.2.
(n) Other Assets. All tangible, intangible, real, personal
and mixed property, assets and rights which constitute part of the
business as an ongoing business, wherever located, including, but not
limited to, those assets set forth on the Financial Statements, as
defined, except as expressly set forth in Section 5.2, are to be
conveyed to the Buyer as part of the Assets.
5.2 Excluded Assets. Notwithstanding any provisions of this
Agreement to the contrary, there shall be excluded from the purchase and
sale contemplated hereunder those assets of TSA (including all
inter-company accounts receivable) described on Schedule 5.2 to this
Agreement, which assets shall not be considered or treated as Assets (the
"Excluded Assets").
5.3 Method of Conveyance.
(a) Upon payment of the Acquisition Consideration described
in Section 3.1, the sale, transfer, conveyance, assignment and delivery
by TSA of the Assets to the Buyer in accordance with Section 5.1 shall
be effected at the Closing by TSA's execution and delivery of one or
more bills of sale, assignments, and other instruments of conveyance
and transfer.
(b) At the Closing, TSA shall sell, transfer, convey, assign
and deliver to the Buyer fee simple absolute title to and exclusive
possession of all of the Assets free and clear of any and all liens,
encumbrances, claims, charges, security interests, rights of TSA and
any third party, rights of redemption, equities, and any other
restrictions of any kind or nature whatsoever, including any leases,
escrows, options, security or other deposits, rights of redemption,
chattel mortgages, conditional sales contracts, collateral security
arrangements and other title or interest retention arrangements
(collectively, "Liens") except as set forth on Schedule 5.3(b).
(c) TSA covenants and agrees that if any of the Assets
cannot be transferred or assigned by TSA without the consent of or
notice to a third party and in respect of which any necessary consent
or notice has not been obtained or given as of the Closing Date, or any
of the Assets are non-assignable in their nature, TSA will cause the
beneficial interest in and to the same, in any event, to pass to the
Buyer; and TSA covenants and agrees, on and after the Closing Date, (x)
to hold such Assets in trust for, and for the benefit of, the Buyer;
and (y) to use its best efforts to obtain and secure such consent
within 30 days of the Closing Date and to give such notice as may be
required to effect valid transfer(s) or assignment(s) of such Assets;
and (z) to make or complete such transfer(s) or assignment(s) as soon
as possible. In determining whether TSA shall have used its best
efforts as required by this Section 5.3(c), TSA shall not be required
to pay any consideration for obtaining any consents.
5.4 Assumed Obligations. At the Closing, the Buyer shall assume and
shall agree to satisfy and discharge, as the same shall become due, all of TSA's
obligations, debts and liabilities (contingent or otherwise) including all
accrued salaries, wages and liabilities to employees including severance
obligations as long as such obligations, debts and liabilities arise in the
Ordinary Course of Business of TSA as the result of acts or failures to act
which occur through the Closing Date (collectively the "Assumed Obligations").
Provided, however, unless otherwise provided by any Laws, the Buyer shall not
assume any liabilities or obligations for unused and accrued vacation pay, sick
pay and other employee benefits arising under any of the Parent's or TSA's plans
or programs providing health, retirement or other benefits to TSA's employees.
Nor shall the Buyer assume any liabilities or obligations arising from any
breach of contract, breach of warranty, tort, infringement and violation of
Laws. As used in this Agreement, the phrase "Ordinary Course of Business" means
the ordinary course of business consistent with past custom and practice
(including with respect to quantity and frequency). Buyer assumes no obligation
to hire or employ any officers or other employees of TSA. Provided further, that
in no event shall Buyer's obligations with respect to Assumed Obligations exceed
the fair value of the Inventory delivered to the Buyer pursuant to Section
5.1(c) above.
5.5 Allocations. The Parent, TSA and the Buyer agree that the
Acquisition Consideration including the First Payment and Second Payment shall
be allocated among the Assets in accordance with Schedule 5.5. The Parent and
TSA further agree to cooperate with the Buyer in completing and delivering to
the Buyer or the Internal Revenues Service such information concerning the
determination of the purchase price as may be required pursuant to the Internal
Revenue Code.
5.6 Adjustments to Purchase Price. The Acquisition Consideration shall
be adjusted to reflect those adjustments as set forth in Schedule 5.6.
5.7 Updating of Schedules. At such time as the Parent or TSA are
required to update their representations and warranties as provided in Section
6.2 of this Agreement, the Parent or TSA shall deliver to the Buyer updated
Schedules and new Schedules of Inventory and accounts receivable as of the date
provided in Section 6.2. These updated Schedules, new Schedules and any changes
in the representations and warranties shall be in writing and evidenced by a
certificate signed by the president or chief financial officer of the Parent and
shall be deemed incorporated by reference into this Agreement.
6. Representations and Warranties.
6.1 The Parent and TSA. The Parent and TSA, jointly and severally,
hereby represent and warrant to the Buyer, all of which representations and
warranties are, and will be as of the Closing Date subject to Section 6.2 of
this Agreement, true, complete, and correct in all respects as of the date
hereof as follows:
(a) Organization and Qualification. The Parent and TSA are
corporations duly organized, validly existing and in good standing
under the Laws of the jurisdiction of their incorporation. The Parent
has all requisite power and authority to own the shares of TSA common
stock. TSA has all requisite power and authority to conduct those
businesses presently owned or conducted by it, and is duly qualified to
do business as it is now being conducted and is in good standing as a
foreign corporation in each other jurisdiction where the property
owned, leased or used by it or the conduct of its business makes such
qualification necessary except where the lack of such qualification
would not have a material adverse effect on the financial condition of
TSA, the ability of TSA to consummate the transactions contemplated by
this Agreement or the Buyer's ability to conduct the business of TSA as
it has been conducted. The copies of the Certificate of Incorporation
and By-Laws of the Parent and the Articles of Incorporation of TSA and
the By-Laws of TSA, which have been delivered to the Buyer, are
complete and correct and are in full force and effect at the date
hereof.
(b) Authorization; No Restrictions, Consents or Approvals.
The Parent and TSA have full power and authority to enter into and
perform this Agreement, and each has taken all necessary corporate
action to authorize the execution and delivery of this Agreement and
the performance by Buyer of its obligations hereunder except that the
Parent's stockholders must approve the sale of 100% of the common stock
or Assets of TSA. This Agreement has been duly executed by the Parent
and TSA and, subject to the Parent's stockholders' approval,
constitutes the legal, valid, and binding obligation of the Parent and
TSA, enforceable against each in accordance with its terms subject to
the qualification that the enforcement of certain rights and remedies
contained in this Agreement may be limited or affected by applicable
bankruptcy, insolvency, reorganization, arrangement, moratorium or
other federal or state laws relating to or affecting creditors rights
and remedies and by general principles of equity including the
discretion of courts regardless of whether arising in an action of law
or equity. The execution and delivery of this Agreement, the sale of
20% of the TSA common stock and the Assets and the consummation by the
Parent and TSA of the transactions contemplated herein or hereby, do
not and will not on the Closing Date conflict with or violate any of
the terms of the Certificate of Incorporation of the Parent, the
Articles of Incorporation of TSA and the By-Laws of the Parent or TSA
or any applicable Law relating to either; conflict with, or result in a
breach of any of the terms of, or result in the acceleration of any
indebtedness or obligations under, any agreement, obligation, or
instrument by which the Parent or TSA is bound or to which any property
of TSA is subject, or constitute a default thereunder; or result in the
violation by the Parent or TSA of any Laws to which the Parent or TSA
or any Assets of the Parent or TSA may be subject which would
materially adversely affect the transaction contemplated herein. Except
as set forth in Schedule 6.1(b), no material authorization, consent, or
approval of any governmental authority or any other person is necessary
or required in connection with the execution and delivery by the Parent
and TSA of this Agreement or the performance by the Parent and TSA's of
their obligations hereunder.
(c) Taxes. Except as set forth on Schedule 6.1(c), TSA has
timely filed (timely being understood to include all properly granted
extensions) all returns required to be filed by it with respect to all
foreign, federal, state and local income, payroll, employment,
unemployment, withholding, excise, sales, personal property, use,
business and occupation, franchise and occupancy, real estate, or other
taxes (all of the foregoing taxes including interest and penalties
thereon and including estimated taxes, being hereinafter collectively
the "Taxes") and has to its Knowledge paid or reserved all Taxes which
are shown to have become due pursuant to such returns and has paid or
reserved all other Taxes for which it has received a notice of
assessment or demand for payment. As used in this Agreement the word
AKnowledge@ means information known to an executive officer of the
applicable party. To its Knowledge all such returns or reports are true
and correct in all material respects.
(d) Title to TSA Common Stock or Assets. The Parent has good
and marketable title to all of TSA's common stock, free and clear of
any Lien and TSA has good and marketable title to all of the its
Assets, free and clear of any Lien except as disclosed on Schedule
5.3(b).
(e) Leases. TSA does not own any real property. Schedule
5.1(d) sets forth a complete and accurate listing or description of all
real and personal property leases, subleases, concessions, licenses,
occupancy agreements or conditional sales agreements (collectively, the
"Leases" and individually a "Lease") to which TSA is a party. Each of
the Leases is valid, binding and enforceable in accordance with its
terms, and is in full force and effect; to the best of TSA's Knowledge,
there are no existing defaults on the part of TSA or, to the best of
TSA's Knowledge, any other party, under any Lease, and no event of
default under any such Lease has occurred and is continuing which
(whether with or without the giving of notice, lapse of time or both,
or the happening of any other event) would constitute a default under
such Lease; each such Lease will, subject to obtaining any consent
listed in Schedule 5.1(d), continue to be in full force and effect on
the same terms and conditions immediately after the Closing without the
need for any action on the part of the Buyer; and accurate and complete
copies of each such Lease including all amendments thereto, have been
delivered to Buyer at or prior to the date hereof. TSA's interest in
each of the Leases is free and clear of all Liens or other encumbrances
(except statutory liens such as landlord liens) and are not, in the
case of real property, except as set forth in Schedule 5.1(d), subject
to any limitations of any nature whatsoever of which TSA has Knowledge
which may materially interfere with the Buyer's use thereof in a manner
consistent with TSA's use thereof prior to Closing.
(f) Contracts and Other Documents. Except for those
contracts which are listed on Schedule 5.1(e) and those Leases listed
on Schedule 5.1(d), or which have been entered into by TSA in the
Ordinary Course of Business and do not involve payment or receipt of
more than $25,000, TSA is not a party to any contract, lease or similar
document. Neither TSA nor, to the best of TSA's Knowledge, any other
party is in default under any Contract or other instrument listed on
Schedule 6.1(f) to which TSA is a party or by which it is bound. No
contract continues for a period of more than 12 months from the Closing
Date or is in excess of the normal, ordinary and usual requirements of
TSA's business.
(g) Labor Difficulties. Except as set forth in Schedule
6.1(g), (i) TSA is not a party to a union agreement or collective
bargaining agreement and no attempt to organize any employees of TSA
has been made, proposed or threatened; there is no labor strike, formal
labor dispute, formal labor grievance, labor arbitration proceeding,
general slowdown or stoppage, or charge of unfair labor practice
pending before a court, regulatory body or arbitration tribunal, or, to
the best of TSA's Knowledge, threatened against or affecting the
Assets, and to the best of TSA's Knowledge no event has occurred which
would constitute reasonable grounds for such a strike, dispute,
grievance, proceeding or charge; and TSA is in compliance in all
material respects with all federal, state and local labor and
employment-related Laws.
(h) ERISA; Employee Benefit Plans. Schedule 6.1(h) contains
a list of all of the plans, funds, policies, programs, arrangements or
understandings sponsored or maintained by TSA, pursuant to which any
employee of the TSA (or any dependent or beneficiary of any such
employee) might be or become entitled to (1) retirement or
profit-sharing or stock bonus benefits; (2) severance or separation
from service benefits; (3) incentive, performance, stock, share
appreciation or bonus awards; (4) health care benefits; (5) disability
income or wage continuation benefits; (6) supplemental unemployment
benefits; (7) life insurance, death or survivor's benefits; (8) accrued
sick pay or vacation pay; or (9) any type of benefit offered under any
arrangement subject to characterization as an "employee welfare benefit
plan" within the meaning of Section 3(3) of ERISA (collectively
referred to as the "Employee Benefit Plans"). All of the Employee
Benefit Plans are in full force and effect and neither TSA nor to TSA's
Knowledge any other party is in material default under them. TSA has
not received any written notice of noncompliance, and to TSA's
Knowledge, TSA is in compliance in all material respects with all terms
of the Employee Benefit Plans and with ERISA, and all other applicable
laws as they affect TSA and its employees. TSA has not received written
notice of, and to TSA's Knowledge there are no, claims or defaults.
(i) Environmental, Health, and Safety Laws.
(1) TSA has complied with all Environmental,
Health, and Safety Laws, as defined, and no action, suit,
proceeding, hearing, investigation, charge, complaint,
claim, demand, or notice has been filed or commenced against
it alleging any failure so to comply. Without limiting the
generality of the preceding sentence, TSA has obtained and
been in compliance with all of the terms and conditions of
all permits, licenses, and other authorizations which are
required under, and has complied with all other limitations,
restrictions, conditions, standards, prohibitions,
requirements, obligations, schedules, and timetables which
are contained in, all Environmental, Health, and Safety
Laws. As used in this Agreement, the term "Environmental,
Health, and Safety Laws" means the Comprehensive
Environmental Response, Compensation and Liability Act of
1980, the Resource Conservation and Recovery Act of 1976,
and the Occupational Safety and Health Act of 1970, each as
amended, together with all other laws (including rules,
regulations, codes, plans, injunctions, judgments, orders,
decrees, rulings, and charges thereunder) of federal, state,
local, and foreign governments (and all agencies thereof)
concerning pollution or protection of the environment,
public health and safety, or employee health and safety,
including laws relating to emissions, discharges, releases,
or threatened releases of pollutants, contaminants, or
chemical, industrial, hazardous, or toxic materials or
wastes into ambient air, surface water, ground water, or
lands or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport,
or handling of pollutants, contaminants, or chemical,
industrial, hazardous, or toxic materials or wastes.
(2) To its Knowledge, TSA has no liability for
damage to any site, location, or body of water for any
illness of or personal injury to any employee or other
individual, or for any reason under any Environmental,
Health, and Safety Law.
(3) To its Knowledge, all properties and equipment
used in the business of TSA have been free of asbestos,
PCB's, methylene chloride, trichloroethylene,
1,2-transdichloroethylene, dioxins, dibenzofurans, and
extremely hazardous substances, as defined by Section 302 of
the Emergency Planning and Community Right-to-Know Act of
1986, as amended.
(j) Employees. Schedule 6.1(j) sets forth an accurate and
complete list of the names of all of TSA's employees. By letter dated
July 16, 1998, the Buyer has previously been provided with current
salaries or wage rates, as applicable.
(k) Licenses and Permits. TSA has obtained, has paid all
amounts currently due and has in full force and effect all material
licenses, franchises, permits, approvals, certificates, certifications
and other authorizations from all applicable governmental authorities
which are necessary for the conduct of the business as currently
conducted and the ownership, use, occupancy and operation of the Assets
(the "Licenses and Permits"). Schedule 6.1(k) sets forth a complete and
accurate list of all Licenses and Permits. All Licenses and Permits are
transferable to the Buyer if the Buyer elects to purchase the Assets.
Renewal of each of the Licenses and Permits has been or will be as of
the Closing Date, timely applied for to the extent required under all
Laws. To the best of TSA's Knowledge, there is no fact or event which
is likely to prevent the renewal of any of the Licenses and Permits
under existing Law or which, with the passage of time or the giving of
notice or both, is likely to constitute a material violation of the
terms of any of the Licenses and Permits or of any applications or
agreements made in connection therewith. No action or proceeding is
pending or, to the best of TSA's Knowledge, threatened which could
result in the revocation, cancellation, suspension, modification, or
limitation of any of the Licenses and Permits.
(l) Accounts Receivable. All of TSA's accounts receivable
arose from bona fide transactions in the Ordinary Course of Business of
TSA, have not been discounted, and no counterclaim or right of set-off
has been asserted with respect thereto.
(m) Absence of Undisclosed Liabilities. Except as set forth
on Schedule 6.1(m), TSA does not have any material liability or
obligation of any nature, whether contingent or accrued other than
liabilities or obligations reflected in the Financial Statements or the
Closing Date Financial Statements, as defined.
(n) Compliance With Law. Except as set forth in Schedule
6.1(n), TSA has at all times operated in all respects and is
presently in compliance in all material respects with all
applicable federal, state, local, foreign or other laws,
rules, regulations, orders, injunctions, judgments, and all
orders, writs, decrees and consents of any governmental or
political subdivision or agency thereof, or any court or
similar person established by any such governmental or
political subdivision or agency thereof (collectively, the
"Laws"), including but not limited to all applicable
domestic and foreign Laws, rules and regulations relating to
the safe conduct of business, employment discrimination,
wages and hours, employment of illegal aliens, collective
bargaining, the payment of withholding and social security
taxes, product labelling, antitrust, consumer protection,
occupational safety and health, consumer product safety, the
importation of goods, product liability, currency exchange,
securities and trading with the enemy matters, and to the
best of TSA's Knowledge no event has occurred which would
constitute reasonable grounds for a claim that
non-compliance has occurred or is occurring and any
non-compliance will not materially and adversely affect the
Assets or the Buyer's ability to conduct the business of TSA
as it has been conducted.
(o) Intellectual Property and Intangible Assets. TSA owns or
possesses valid and binding licenses or other rights to use, whether or
not registered, all Intellectual Property and Intangible Assets.
Schedule 5.1(g) sets forth a complete and accurate list of all such
Intellectual Property and Intangible Assets (identifying those owned
and those licensed), including all United States, state and foreign
registrations or applications for registration thereof and all
agreements (including, without limitation, agreements pursuant to which
TSA has granted licenses to third parties to use any Intellectual
Property or Intangible Asset) relating thereto. TSA is not required to
pay any royalty, license fee or similar compensation with respect to
the Intellectual Property or Intangible Assets in connection with the
conduct of its business. The use by TSA of any of the Intellectual
Property or Intangible Assets does not, to the Knowledge of the Parent
or TSA, violate the proprietary rights of any other person and no
claims have been asserted by any person with respect to the use of the
Intellectual Property or Intangible Assets by TSA. To the best of the
Parent's and TSA's Knowledge, no person is infringing upon the
Intellectual Property or Intangible Assets.
(p) Pending Litigation. Except as set forth in Schedule
6.1(p), to the Knowledge of the Parent and TSA there are no actions,
suits, claims, or proceedings pending or threatened against TSA, in any
court or governmental agency or instrumentality which, if adversely
determined, would have a material adverse effect on the business,
financial condition, or results of operations of TSA, or on the Buyer's
title to the Assets; nor is there outstanding any writ, order, decree,
or injunction applicable to TSA that restricts the Parent's or TSA's
authority or right to enter into this Agreement and consummate the
transactions contemplated hereby, or would otherwise prevent or delay
the transactions contemplated by this Agreement.
(q) Customer List. Schedule 6.1(q) sets forth a
complete and accurate copy of TSA's customer list as of
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the date first written above.
(r) Financial Statements. By letter dated July 16, 1998, the
Company and TSA delivered the unaudited financial statements of TSA as
of September 30, 1997, derived from the audited financial statements of
the Parent as of that date, which include the balance sheet of TSA at
September 30, 1997, statement of operations, retained earnings and
statements of cash flows and stockholders' equity of TSA for the fiscal
year ended September 30, 1997, together with the related notes thereto
(collectively, the "Financial Statements") in each case certified by
the Chief Financial Officer of TSA. On the Closing Date, TSA shall
deliver to the Buyer the unaudited balance sheet of TSA as of a date
not more than 61 days before the Closing Date, and an unaudited
statement of operations for the period since from October 1, 1997
(collectively, the "Closing Date Financial Statements"). Provided,
however, if the Closing occurs after September 30, 1998 and the
Parent's audited financial statements have been issued, TSA shall
provide unaudited Closing Date Financial Statements derived from the
audited financial statements of the Parent at September 30, 1998. The
Financial Statements and the Closing Date Financial Statements are or
will be complete and correct in all material respects and fairly
present the financial condition of TSA as of the dates thereof and the
results of its operations for the fiscal years and periods ended on
such dates. The Financial Statements and Closing Date Financial
Statements have been (or will be as applicable) prepared in accordance
with generally accepted accounting principles consistently applied.
(s) Inventory. All Inventory of TSA was acquired and has
been maintained in the Ordinary Course of Business; is of good and
merchantable quality; and consists substantially of a quality, quantity
and condition usable, leasable or saleable in the Ordinary Course of
Business.
(t) Suppliers. Except as reflected on Schedule 6.1(t), TSA
has no Knowledge of any supplier's intention to discontinue or
substantially reduce the size or number of transactions it consummates
with TSA prior to Closing or will consummate with TSA upon the
consummation of the transactions contemplated herein.
(u) Capitalization. The entire authorized capital stock of
TSA consists of 100 shares of common stock, of which 100 shares are
issued and outstanding and owned by the Parent. All of the issued and
outstanding shares of common stock of TSA have been duly authorized and
are validly issued, fully paid and non-assessable. There are no rights,
options or warrants to acquire any shares of capital stock of TSA.
(v) No Other Representations and Warranties. The Parent and
TSA shall not be deemed to have made to Buyer any representation or
warranty other than as is expressly made in Section 6.1(a) through (u).
6.2 Updating of the Parent's and TSA's Representations and Warranties.
Not less than 10 days prior to the Closing Date (and assuming that the Parent's
stockholders have approved the sale of 100% of the Assets of TSA, and the Buyer
is not in default), the Buyer shall provide notice to the Parent and TSA who
shall as soon as reasonably practicable update all of the Schedules contained in
Section 5.1 and 6.1 (except for the Closing Date Financial Statements) to a date
as of the last month's end which is at least 15 days but not more than 45 days
from the date of notice.
6.3 Representations and Warranties of the Buyer. The Buyer hereby
represents and warrants to the Parent and to TSA, all of which representations
and warranties are true, complete, and correct in all respects as of the date
hereof and as of the Closing Date, as follows:
(a) Organization and Qualification. The Buyer and NCTI are
corporations duly organized, validly existing and in good standing
under the Laws of the jurisdiction of their incorporation. The Buyer
and NCTI have all requisite power and authority to sell the Acquisition
Shares and execute the guarantee as provided by this Agreement and the
Buyer and NCTI have all requisite power and authority to conduct those
businesses presently owned or conducted by them. The Buyer and NCTI are
duly qualified to do business as is now being conducted by each and
each is in good standing as a foreign corporation in each other
jurisdiction where the property owned, leased or used by each or the
conduct of each's business makes such qualification necessary except
where the lack of such qualification would not have a material adverse
effect on their financial condition or the ability of each to
consummate the transactions contemplated by this Agreement. The copies
of the Certificate of Incorporation and By-Laws of the Buyer, which
have been delivered to the Parent and TSA, are complete and correct and
are in full force and effect at the date hereof.
(b) Authorization; No Restrictions, Consents or Approvals.
The Buyer and NCTI have full power and authority to enter into and
perform this Agreement, and have taken all necessary corporate action
to authorize the execution and delivery of this Agreement and the
performance by the Buyer and NCTI of their obligations hereunder. This
Agreement has been duly executed by the Buyer and NCTI and constitutes
the legal, valid, binding, and enforceable obligation of the Buyer and
NCTI, enforceable against each in accordance with its terms subject to
the qualification that the enforcement of certain rights and remedies
contained in this Agreement may be limited or affected by applicable
bankruptcy, insolvency, reorganization, arrangement, moratorium or
other federal or state laws relating to or affecting creditors rights
and remedies and by general principles of equity including the
discretion of courts regardless of whether arising in an action of law
or equity. The execution and delivery of this Agreement, the sale of
the Acquisition Shares and the consummation by the Buyer and NCTI of
the transactions contemplated herein or hereby, do not and will not on
the Closing Date conflict with or violate any of the terms of the
Certificate of Incorporation of the Buyer and NCTI and the By-Laws of
the Buyer and NCTI or any applicable Law relating to the Buyer and
NCTI, conflict with, or result in a breach of any of the terms of, or
result in the acceleration of any indebtedness or obligations under,
any agreement, obligation, or instrument by which the Buyer or NCTI is
bound or to which any property of the Buyer or NCTI is subject, or
constitute a default thereunder, or result in the violation by the
Buyer or NCTI of any Laws to which the Buyer or any assets of the Buyer
or NCTI may be subject which would materially adversely affect the
transaction contemplated herein. Except as set forth on Schedule
6.3(b), no authorization, consent, or approval of any governmental
authority or any other person is necessary or required in connection
with the execution and delivery by the Buyer or NCTI of this Agreement
or the performance by the Buyer or NCTI of their obligations hereunder.
7. Covenants Prior to Closing.
7.1 Parent's and TSA's Covenants. The Parent and TSA covenant that,
except as otherwise consented to in writing by the Buyer, from and after the
date hereof until the Closing or the earlier termination of this Agreement:
(a) Except as set forth in Schedule 7.1(a), TSA shall not
engage in any practice, take any action or enter into any transaction
outside the Ordinary Course of Business. Without limiting the
generality of the foregoing:
(i) TSA will not authorize or effect any change
in its Articles of Incorporation or By-Laws; and
(ii) TSA shall not issue any note, bond or other
debt security or create, incur, assume or grant any
indebtedness or borrow money or capitalize lease obligations
outside the Ordinary Course of Business. Nothing contained
herein shall prevent TSA from engaging in any transaction
permitted by that certain agreement entered into among
NationsCredit Commercial Corporation through its
NationsCredit Commercial Funding Division, the Parent, TSA
and Top Source Instruments, Inc. as of July 1, 1997 and
related ancillary agreements entered into as of that date
among such parties.
(b) All real property, machinery and equipment and other
operating properties used in the business of TSA will be kept and
maintained in good repair and working order (ordinary wear and tear
excepted) on a basis consistent with past practices, and TSA will duly
observe and conform to all material terms and conditions upon or under
which any of such properties are held.
(c) TSA will use its best efforts to maintain in full force
and effect in all material respects all insurance coverages for its
business currently in effect and shall undertake to obtain equivalent
replacement coverage with respect to any policies hereafter canceled or
terminated.
7.2 Stockholder Approval. The Parent shall seek its
stockholders' approval as provided in Section 4.2 hereof.
7.3 Access. TSA shall give the Buyer access to information as
contained in Section 4.3 hereof.
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7.4 Interim Joint Operation. Through the Closing or the termination of
this Agreement, TSA and the Buyer shall use their respective best efforts to
market and sell the Buyer's products through TSA and its employees. TSA agrees
to sell the Buyer's products only through automobile original equipment
manufacturers ("OEMs") and the automotive aftermarket. With respect to sales to
or through OEMs, TSA shall not sell any of the Buyer's products involving flat
panel transducer based audio drivers. TSA shall provide Buyer during this period
with the use of its receptionist, one existing office, a products display area,
and the common areas located at TSA's facility in Troy, Michigan. The Buyer
shall pay all incremental marketing and sales expenses.
7.5 Cooperation. The Parent, TSA and the Buyer agree to cooperate with
each other in determining whether any filings are required to be made or
consents required to be obtained in any jurisdiction in connection with the
consummation of the transactions contemplated hereby and in making or causing to
be made any such filings promptly and in seeking to obtain in a timely manner
any such consents; and to use all reasonable efforts to obtain promptly the
satisfaction of the conditions to the Closing of the transactions contemplated
herein. The Parent, TSA and the Buyer shall furnish to each other and to each
other's counsel all such information as may be reasonably required in order to
effectuate the foregoing.
7.6 Bulk Sales Laws. TSA shall comply with the provisions of
all applicable bulk sales laws.
7.7 The Buyer's Covenants. The Buyer covenants that it shall use its
reasonable best efforts to obtain the Financing and in connection with such
Financing allocate at least $4,000,000 of the net proceeds for the purpose of
paying the Acquisition Consideration to TSA as more specifically provided in
Section 3.3 hereof.
8. Conditions to Closing.
8.1 Conditions to the Obligations of the Parent and TSA. The
obligations of the Parent and TSA under this Agreement, including, without
limitation, the obligation to sell 100% of the Assets of TSA, shall be subject
to satisfaction of the following conditions, unless waived by the Parent and
TSA:
(a) The Buyer shall have paid the balance of the
Acquisition Consideration.
(b) The Buyer shall have performed in all material respects
all other agreements, and satisfied in all material respects all other
conditions on its part to be performed or satisfied hereunder at or
prior to the Closing Date.
(c) All of the representations and warranties of the Buyer
herein shall have been true and correct in all material respects when
made, shall have continued to have been true and correct in all
material respects at all times subsequent thereto, and shall be true
and correct in all material respects on and as of the Closing Date as
though made on, as of and with reference to such date.
(d) NCTI shall have executed and delivered a guarantee of
the Buyer's payment of the Earn-Out as provided in Section 9.5 of this
Agreement.
(e) Delivery of an opinion of counsel to the Buyer,
addressed to the Parent and TSA and dated the Closing Date, in
substance similar to that contained on Schedule 8.1(e).
8.2 Conditions to the Obligations of the Buyer. The obligations of the
Buyer under this Agreement shall be subject to satisfaction of the following
conditions, unless waived by the Buyer:
(a) The Parent and TSA shall have performed in all material
respects all agreements, and satisfied in all material respects all
conditions on their part to be performed or satisfied hereunder at or
prior to the Closing Date.
(b) All representations and warranties of the Parent and TSA
herein shall have been true and correct in all material respects when
made, shall have continued to have been true and correct in all
material respects at all times subsequent thereto, and shall be true
and correct in all material respects on and as of the Closing Date as
though made on, as of and with reference to such date.
(c) All consents, approvals, certificates and authorizations
required to be obtained by the Parent and TSA in connection with the
sale of the Assets, including without limitation, all approvals by and
clearances from all governmental authorities, lenders, and other third
parties, shall have been obtained and no such consent, approval or
authorization shall be subject to any condition which is unduly
burdensome.
(d) There shall not have occurred since June 30, 1998,
except as set forth in Schedule 8.2(d), any material adverse change
with respect to the business, assets, financial condition or results of
operations of TSA.
(e) TSA shall have executed and delivered to the Buyer all
documents necessary to convey title to the Assets to the Buyer as
contemplated by this Agreement.
(f) TSA shall have provided to the Buyer a complete and
accurate schedule including an aging schedule for all of TSA's Accounts
Receivable as of a date not more than two business days prior to the
Closing Date.
(g) The Buyer shall have entered into assignment and
assumption agreements with respect to all assumed Leases of real
property or personal property.
(h) Counsel to the Parent and TSA shall deliver an opinion
addressed to the Buyer and dated the Closing Date in substance similar
to that on Schedule 8.2(h).
(i) Each of the persons specified on Schedule 9.5(a) hereof
has executed an agreement not to compete as provided in Section 9.5(a)
which agreement shall be in form and substance reasonably satisfactory
to the Parent and the Buyer.
(j) The Parent and TSA shall have provided the Buyer with
such financial and other information concerning TSA which the Buyer may
reasonably request.
8.3 Conditions to the Obligations of the Parent, TSA and the Buyer. The
obligations of the Parent, TSA and the Buyer to consummate any of the
transactions contemplated by this Agreement shall be subject to (i) the Parent's
stockholders shall have approved the sale of Assets in accordance with the
Delaware General Corporation Law, (ii) the parties shall agree upon collateral
to secure payment of the Note, and (iii) there being no injunction or temporary
restraining order granted restraining or prohibiting the consummation of the
transactions contemplated by this Agreement, and no action, suit or other
proceeding by any federal, state, or local governmental authority seeking such
an injunction or order shall be pending or threatened.
8.4 Closing Documents. If there is a Closing as contemplated by this
Agreement, the parties shall deliver to each other, in form and substance
reasonably satisfactory and consistent with this Agreement all documents
necessary including instruments of conveyance and officers' certificates as to
the accuracy of representations and warranties.
8.5 Closing Apportionments.
(a) The following items shall be apportioned as of the close
of business on the day immediately prior to the Closing Date (with such
meter readings as shall be appropriate) and paid by TSA or the Buyer to
the other, as the case may be, or credited against the Acquisition
Consideration, in respect of all periods prior to the Closing Date;
(i) All water, utility and other similar charges,
and sewer rent and assessments, affecting the portion of
TSA's real property which constitutes part of the Assets;
(ii) All Lease and other payments required to be
paid under the Assumed Obligations;
(iii) Excluding transfer Taxes, all real,
intangible, use and personal property or similar Taxes
levied on property of TSA used in connection with the
business;
(iv) All payroll and related payroll Taxes and
benefits of TSA with respect to employees of TSA hired by
the Buyer.
The Buyer shall pay all Taxes and assessments after the
Closing Date, and TSA shall immediately upon receipt of a
bill therefor, including satisfactory documentation of the
amounts so invoiced, pay to the Buyer, TSA's pro-rata
portion thereof attributable to all periods prior to the
Closing Date.
(b) The above-described adjustments shall be determined in
accordance with generally accepted accounting principles, consistently
applied or, with respect to real property Taxes, assessments and
utility charges, in accordance with the custom of the Bar Association
for the county in which such real property is located; and shall, to
the extent practicable, be paid by TSA to the Buyer or by the Buyer to
TSA, as the case may be, at the Closing, by wire transfer, subject to
verification, or an adjustment may be made in the Acquisition
Consideration therefor.
(c) The provisions of this Section 8.5 shall survive the
Closing. Any errors or omissions in computing apportionments at the
Closing, or any recomputations required as a result of facts that
become known after the Closing shall be corrected as soon as
practicable thereafter.
9. Post-Closing Covenants. Following the Closing, the parties hereto shall be
bound by the following covenants:
9.1 The Earn-Out. The Buyer shall be obligated to pay the
Earn-Out as provided in Section 1(d) of this Agreement.
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9.2 Exercise of the Parent's Option. As soon as available but not later
than 90 days following the end of Year One and Year Two, the Buyer shall deliver
to the Parent its audited financial statements for Buyer's fiscal year which
ended most proximately to the end of Year One and Year Two together with
unaudited financial statements covering the period from the end of such fiscal
year to the end of Year One and Year Two, as the case may be (the "Earn-Out
Financial Statements") and a calculation of EBITDA for such Year which
calculation shall be certified by the Buyer's chief financial officer. Within
three business days after receipt of such Earn-Out Financial Statements and
calculation, the Parent shall give notice to the Buyer of whether it elects to
receive cash or Acquisition Shares (or any combination thereof) pursuant to the
Parent's Option. Any such election shall not be deemed to be a waiver of the
Parent's right to object to the calculation of EBITDA or the accuracy of any of
the component numbers used in such calculation.
(a) In providing notice of its election of the Parent's
Option, the Parent shall not be required to reserve its right to make
such objection.
(b) The Parent at any time through 30 days after the Parent
has received the Buyer's Earn-Out Financial Statements for Year One or
Year Two, as applicable, and calculation of EBITDA for such year(s) may
request access to the Buyer's books and records including electronic
media for the purpose of determining if the numbers used to calculate
EBITDA are true and correct. Such access shall be given as provided in
Section 9.4 hereof and shall be in addition to the reporting obligation
contained in Section 9.4 (b).
(c) If the Parent elects to dispute the numbers used to
calculate or the calculations of EBITDA, it may within 120 days after
receipt of the Earn-Out Financial Statements for Year One and/or Year
Two, as applicable, and the calculation of EBITDA for such year(s)
institute an arbitration proceeding as provided by Section 12.10
hereof. If the arbitration panel determines that the Earn-Out for Year
One and/or Year Two reported by the Buyer understates the actual
Earn-Out by 7-1/2% or more, the cost of such arbitration proceeding
including reasonable attorneys, accounting and expert witness fees
shall be paid by the Buyer.
(d) The number of Acquisition Shares shall be based upon the
amount of the Earn-Out for Year One and Year Two, as applicable, less
any amount the Parent elects to receive in cash divided by the average
closing price of the Buyer's common stock on the principal market for
such securities for the five trading days before the end of Year One
and Year Two, as applicable.
9.3 Delivery of Acquisition Shares. Assuming the Parent elects its
Option to receive Acquisition Shares for the Earn-Out in Year One and/or Year
Two, the following provisions shall apply:
(a) Assuming the Buyer is required to file reports with the
Securities and Exchange Commission, the Buyer shall deliver to TSA such
disclosure documents and reports filed by the Buyer with the Securities
and Exchange Commission as the Buyer selects.
(b) TSA shall execute and deliver to the Buyer by facsimile
or otherwise a customary investment letter.
(c) At or prior to the delivery of the Acquisition Shares,
the Buyer shall execute and deliver to the Parent (or TSA if
applicable) a written representation letter (the "Rep Letter") in form
satisfactory to the Parent (or TSA if applicable) that:
(i) all of the Buyer's representations and
warranties contained in this Agreement are true and correct
as the date of delivery of the Acquisition Shares;
(ii) Since the date of the Buyer's financial
statements contained in the last Form 10-K filed with the
Securities and Exchange Commission or other financial
statements given to the Parent or TSA (the "Buyer's
Financial Statements"), there has not been any change which
would have a material adverse effect on the business,
results of operations, financial condition, or future
prospects of the Buyer except as reflected on a Schedule to
the Rep Letter;
(iii) Except as set forth on a Schedule to the Rep
Letter, the Buyer has timely filed (timely being understood
to include all properly granted extensions) all returns
required to be filed by it with respect to all Taxes and has
paid or reserved all Taxes which are shown to have become
due pursuant to such returns and has paid or reserved all
other Taxes for which it has received a notice or assessment
or demand for payment or has otherwise been made aware of a
deficiency. All such returns or reports are true and correct
in all material respects.
(iv) The Buyer has good and marketable title to all
of the Acquisition Shares, free and clear of any Lien and
such Shares are not subject to any pre-emptive rights or
other restrictions except as may be imposed by the
applicable federal and state securities laws.
(v) Except as set forth on a Schedule to the Rep
Letter, the Buyer does not have any material liability or
obligation of any nature, whether contingent, accrued,
absolute, unasserted or otherwise, other than liabilities or
obligations reflected on the Buyer's Financial Statements
and since that date arising in the Ordinary Course of
Business.
(vi) Except as set forth on a Schedule to the Rep
Letter, to the best of its Knowledge the Buyer has at all
times operated in all respects and is presently in
compliance in all material respects with all Laws including,
but not limited to, all applicable domestic and foreign
Laws, rules and regulations relating to the safe conduct of
business, employment discrimination, wages and hours,
employment of illegal aliens, collective bargaining, the
payment of withholding and social security taxes, product
labelling, antitrust, consumer protection, occupational
safety and health, consumer product safety, the importation
of goods, product liability, currency exchange, securities
and trading with the enemy matters, and to the best of the
Buyer's Knowledge no event has occurred which would
constitute reasonable grounds for a claim that
non-compliance has occurred or is occurring and any
non-compliance will not materially and adversely affect the
Buyer's business, assets or financial condition.
(vii) Except as set forth on a Schedule to the Rep
Letter, to the Knowledge of the Buyer, there are no actions,
suits, claims, or proceedings pending or threatened against
the Buyer, in any court or governmental agency or
instrumentality which, if adversely determined, would have a
material adverse effect on the business, financial position,
or results of operations of the Buyer, nor is there
outstanding any writ, order, decree, or injunction
applicable to the Buyer that limits the Buyer's authority or
right to issue the Acquisition Shares; and
(viii) The Earn-Out Financial Statements and all
reports, registration statements and other statements filed
by the Buyer with the Securities and Exchange Commission
since the date of the last Form 10-K or Form 10-KSB, as and
if applicable, are true and correct in all material
respects, do not contain any untrue statements of material
facts and do not omit to state any material facts required
to be stated therein or necessary to make the statements
therein not misleading.
(ix) The Buyer shall not be deemed to have made to
the Parent and TSA any representation or warranty other than
as is expressly made in the Rep Letter.
(d) The Acquisition Shares to be issued to TSA based upon
the Earn-Out shall be delivered to TSA no later than five business days
following the 90th day after the end of Year One and/or Year Two, as
applicable. If requested, TSA will deliver an undertaking to the Buyer,
satisfactory in form and content to the Buyer, whereby TSA will be
prohibited from selling, assigning or otherwise transferring or
encumbering or pledging any of the Acquisition Shares for such period
as may be determined by the underwriter of any public offering without
such underwriter's prior written consent which shall not be
unreasonably withheld. The lock-up imposed by the underwriter shall not
be longer than that imposed on any other stockholder including
officers, directors and principal stockholders of the Buyer.
9.4 Post-Closing Access and Delivery of Reports.
(a) The Buyer shall, following the Closing, give to TSA and
its authorized representatives such reasonable access, at TSA's cost and
expense, during normal business hours and upon prior notice, to all books and
records reflecting the results of operations of the Buyer which include the
Assets acquired (including without limitation all such accounting books and tax
records), as TSA may reasonably require in connection with the preparation and
filing of tax returns, audits or any claim made by any party with respect to a
liability or obligation that is not an Assumed Obligation. Such access shall
also be given to the extent that Section 9.2(b) is applicable as provided
therein. The Parent, TSA and their authorized representatives shall execute such
confidentiality agreements with respect to such inspections as shall be
reasonably requested by the Buyer.
(b) Within 30 days following the end of each calendar
quarter during Year One, Year Two and the first month following Year Two, the
Buyer shall deliver to the Parent in the manner provided for the giving of
notice pursuant to Section 12.5 of the Agreement, a written report containing at
the very least the information relating to the operations of the Assets acquired
as reflected on Schedule 9.4(b) to this Agreement.
(c) At the same that the Buyer delivers to the Parent the
reports set forth in Section 9.4(b), the Buyer shall also deliver in the same
manner to the Parent a calculation of EBITDA for the prior quarter which
calculation shall be certified by the Buyer=s chief financial officer.
(d) In addition to all of the rights set forth above in this
Section 9.4, if the Parent appoints a designee to the Buyer=s board of
directors, such person shall have all of the rights of inspection as a member of
the Buyer=s board of directors and audit committee and may share any information
obtained as a result of serving on the board of directors and audit committee
with the Parent as long as such information is used solely for the purpose of
insuring that the Parent=s and TSA=s rights pursuant to this Agreement including
the right to obtain an Earn-Out are protected.
(e) If requested by the Parent, the Buyer will enter into a
separate agreement with the auditors for the Buyer at the Parent's sole expense
for the purpose of obtaining from such auditors quarterly agreed upon procedures
letters and other reports for the purpose of verifying the information contained
in the reports and calculations of EBITDA given to the Parent pursuant to this
Agreement. If the Buyer's auditors fail to so agree to provide such services or
agree to do so at billing rates which exceed the rates charged to the Buyer, TSA
and the Buyer shall select a mutually agreeable auditing firm. The Buyer shall
provide such auditors with such information as they may reasonably require, and
the Buyer consents to the delivery of such agreed upon procedures letters and
reports to the Parent notwithstanding any privilege or confidentiality which
might otherwise attach to the information. The Parent shall be subject to the
provisions of this Agreement relating to the confidentiality of such
information.
9.5 Guarantee of NCTI. NCTI guarantees to TSA that if the Earn-Out is
required to be paid by the Buyer to TSA in Year One and/or Year Two, NCTI
unconditionally guarantees the obligation of the Buyer to pay the Earn-Out. In
the event that the Buyer does not pay the Earn-Out for Year One or Year Two
within five days from the respective due dates, NCTI shall pay the Earn-Out to
TSA.
9.6 Covenant Not to Compete.
(a) The Parent and TSA hereby covenant and agree that for
the period commencing with the Closing Date and ending two years from
such date, the Parent and TSA shall not, within any geographic area
throughout the world, directly or indirectly, own, operate, or
otherwise engage in any entity or business enterprise which is engaged
in the manufacture or sale of vehicle audio systems or components
thereof or which engages in a business similar to that conducted by the
TSA and the Buyer pursuant to Section 7.4 hereof (the "Prohibited
Business"). The provisions of this Section 9.6(a) shall also apply to
each of the persons contained on Schedule 9.6(a).
(b) The Parent and TSA shall cause its subsidiaries and
affiliates, to hold in confidence and refrain from disclosing, or
making use of all Knowledge and information of a confidential nature
relating to the business of TSA prior to the Closing Date or Knowledge
learned as the result of the Parent and TSA exercising their rights
hereunder, except Knowledge and information which is or becomes
generally available to the public other than as a result of a
disclosure prohibited hereby, or is required to be disclosed by Law.
9.7 Change of Business Name. As of the Closing Date, TSA and any
affiliate of TSA whose name includes "Top Source Automotive" shall change its
name to a name which does not include "Top Source Automotive, Inc." but which
may include the words "Top Source"), and the Parent and TSA shall cease using
the name "Top Source Automotive, Inc.", or any confusingly similar name but can
use names containing the words "Top Source".
9.8 Further Assurances. The Parent and TSA from time to time after the
Closing, at the Buyer's request, will execute, acknowledge and deliver to the
Buyer such other instruments of conveyance and transfer and will take such other
actions and execute and deliver such other documents, certifications and further
assurances as the Buyer may reasonably require in order to vest more effectively
in the Buyer, or to put the Buyer more fully in possession of, any of the
Assets. Each of the parties hereto will cooperate with the other and execute and
deliver to the other parties hereto such other instruments and documents and
take such other actions as may be reasonably requested from time to time by any
other party hereto as necessary to carry out, evidence and confirm the intended
purposes of this Agreement.
9.9 Hiring of TSA's Employees. Following the Closing, the Buyer shall
have the right, but not the obligation, to employ TSA's officers and other
employees as it may elect. In this regard, unless specifically provided by Law,
the Buyer shall be under no obligation to assume any liabilities or obligations
under any of the Parent's or TSA's Employee Benefit plans. Provided, however,
any sums due to such persons for salaries, wages, benefits or otherwise shall be
assumed by the Buyer.
9.10 Nominee to the Buyer's Board of Directors. Following the Closing,
the Parent shall have the right to appoint a member to the Buyer's board of
directors for a period of six months following the later of (i) the expiration
of Year Two, and (ii) the Buyer's full compliance with the delivery of
information contained in Section 9.2 hereof. The Buyer shall use its best
efforts to either cause such person to be elected at meetings of the
stockholders or appointed, as the case may be.
10. Survival of Representations and Warranties. The representations and
warranties contained in this Agreement shall survive the Closing for a period of
one year except as otherwise provided in this Agreement.
10.1 Indemnification by the Parent and TSA. The Parent and TSA shall,
jointly and severally, defend, indemnify, and hold harmless the Buyer and its
affiliates and their respective officers, directors, shareholders, agents and
employees (individually, a "Buyer Indemnitee" and collectively the "Buyer
Indemnitees"), from and against any and all claims, losses, deficiencies,
liabilities, obligations, damages, penalties, punitive damages, costs, and
expenses (including, without limitation, reasonable legal, accounting and
consulting fees), whether or not resulting from third party claims
(collectively, "Losses"), suffered by a Buyer Indemnitee, which arise out of or
result from:
(a) any inaccuracy or misrepresentation in or breach of any
of the representations, warranties, covenants or agreements made by the
Parent or TSA in this Agreement or in any document, certificate or
affidavit delivered by the Parent and TSA pursuant to the provisions of
this Agreement;
(b) any obligation, liability, debt or commitment of TSA
which is not an Assumed Obligation, whether or not paid by the Buyer;
and
(c) any claims by any person arising out of or due to the
failure to comply with the bulk sales laws, fraudulent conveyance or
other laws for the protection of creditors of the State of Michigan,
including, without limitation, any claims by any person against all or
any part of the Assets.
(d) any other matter related to the conduct of its business
by TSA or any predecessor or the use or ownership of the Assets prior
to the Closing (including, but not limited to, all acts, omissions and
conditions existing or occurring prior to the Closing for which any of
the Buyer Indemnitees is alleged to be liable pursuant to any successor
or similar theory of liability).
10.2 Indemnification by the Buyer. The Buyer shall defend, indemnify
and hold harmless, the Parent and TSA and their respective officers, directors,
agents and employees (individually, a "Seller Indemnitee" and collectively the
"Seller Indemnitees") from and against any and all Losses, suffered by a Seller
Indemnitee, which arise out of or result from any inaccuracy or
misrepresentation in or breach of any of the representations, warranties,
covenants or agreements made by the Buyer in this Agreement or in any document,
certificate or affidavit delivered by the Buyer pursuant to the provisions of
this Agreement; any Taxes arising from the operation by the Buyer after the
Closing Date of the business purchased by the Buyer or any of the Assumed
Obligations.
10.3 Indemnification Payments. Subject to Section 10.4, all indemnity
payments, whether by the Buyer, the Parent or TSA, to be made under this
Agreement shall be made in immediately available funds.
10.4 Procedure for Third Party Claims.
(a) Notice to the indemnifying party shall be given promptly
after receipt by any Seller Indemnitee or Buyer Indemnitee of actual
Knowledge of the commencement of any action or the assertion of any
claim that will likely result in a claim by it for indemnity pursuant
to this Agreement. Such notice shall set forth in reasonable detail the
nature of such action or claim to the extent known, and include copies
of any written correspondence or pleadings from the party asserting
such claim or initiating such action. The indemnifying party shall be
entitled, at its own expense, to assume or participate in the defense
of such action or claim. In the event that the indemnifying party
assumes the defense of such action or claim, it shall be conducted by
counsel chosen by such party and approved by the party seeking
indemnification, which approval shall not be unreasonably withheld.
(b) With respect to actions as to which the indemnifying
party does not exercise its right to assume the defense, the party
seeking indemnification shall assume and control the defense of and
contest such action with counsel chosen by it and approved by the
indemnifying party, which approval shall not be unreasonably withheld.
The indemnifying party shall be entitled to participate in the defense
of such action, the cost of such participation to be at its own
expense. The indemnifying party shall be obligated to pay the
reasonable attorneys' fees and expenses of the party seeking
indemnification to the extent that such fees and expenses related to
claims as to which indemnification is payable under Sections 10.1 or
10.2, as such expenses are incurred.
(c) Both the indemnifying party and the indemnified party
shall cooperate fully with one another in connection with the defense,
compromise, or settlement of any such claim or action, including,
without limitation, by making available to the other all pertinent
information and witnesses within its control.
10.5 Remedies Cumulative. The remedies provided for herein shall be
cumulative and shall not preclude assertion by any party of any other rights or
the seeking of any other remedies against any other party. Nothing contained in
Sections 10.1 - 10.4 shall be construed in any way to limit, impair or modify
any provisions of this Agreement or to otherwise impose any additional liability
or obligation on the Buyer at any time for any liability or obligation of the
Parent or TSA other than the Buyer's obligation to indemnify the Parent or TSA
hereunder.
10.6 Limits on Indemnification. Notwithstanding the provisions of
Sections 10.1 - 10.4 above, neither the Buyer Indemnitees nor the Seller
Indemnitees shall be entitled to receive indemnification under this Agreement
for a claim relating to a breach of a representation or warranty contained
herein until the aggregate amount of indemnification claims they shall have
asserted hereunder shall exceed $100,000.
11. Brokerage. Each of the parties represents that it has dealt with no broker
or finder in connection with any of the transactions contemplated by this
Agreement, and, insofar as it knows, no broker or other person is entitled to
any compensation including, without limitation, a commission or finder's fee, in
connection with any of these transactions except the Parent shall be responsible
to pay for the fees and costs of its financial advisor. The parties each agree
to indemnify and hold harmless one another against any loss, liability, damage,
cost, claim, or expense incurred by reason of any compensation, including,
without limitation, brokerage, commission, or finder's fee, alleged to be
payable because of any act, omission, or statement or the indemnifying party.
12. General Provisions.
12.1 Severability. If any provision of this Agreement is held to be
illegal, invalid or unenforceable under present or future Laws, such provision
shall be fully severable and this Agreement shall be construed and enforced as
if such illegal, invalid or unenforceable provision had never comprised a part
hereof and the remaining provisions hereof shall remain in full force and effect
and shall not be affected by the illegal, invalid or unenforceable provision by
its severance herefrom.
12.2 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument. The execution of this
Agreement may be by actual or facsimile signature.
12.3 Benefit. This Agreement shall be binding upon and inure to the
benefit of the Parent and TSA and their legal representatives, successors and
assigns. The Buyer shall not make any assignment, whether by voluntary or
involuntary act including operation of law, without the written consent of the
Parent and TSA which may be unreasonably withheld.
12.4 Notices and Addresses. All notices, offers, acceptance and any
other acts under this Agreement (except payment) shall be in writing, and shall
be sufficiently given if delivered to the addressees in person, by Federal
Express or similar receipted delivery or by facsimile delivery as follows:
The Parent and TSA: Top Source Technologies, Inc.
7108 Fairway Drive, Suite 200
Palm Beach Gardens, FL 33418-3757
Facsimile: (561) 691-5220
Attention: President
with a copy to: Michael D. Harris, Esq.
Michael Harris, P.A.
712 U.S. Highway One
North Palm Beach, FL 33408
Facsimile (561) 845-0108
The Buyer: NCT Audio, Inc.
One Dock Street, Suite 300
Stamford, CT 06902
Facsimile: (203) 348-4106
The Guarantor: Noise Cancellation Technologies, Inc.
One Dock Street, Suite 300
Stamford, CT 06902
Facsimile: (203) 348-4106
with a copy to: John Horton, Esq.
Noise Cancellation Technologies, Inc.
One Dock Street, Suite 300
Stamford, CT 06902
Facsimile: (203) 348-4106
or to such other address as either of them, by notice to the other may designate
from time to time. The transmission confirmation receipt from the sender's
facsimile machine shall be conclusive evidence of successful facsimile delivery.
Time shall be counted to, or from, as the case may be, the delivery in person or
by mailing.
12.5 Attorney's Fees. In the event that there is any controversy or
claim arising out of or relating to this Agreement, or to the interpretation,
breach or enforcement thereof, and any action or arbitration proceeding is
commenced to enforce the provisions of this Agreement, the prevailing party
shall be entitled to an award by the court or arbitrators, as appropriate, of
reasonable attorney's fees, including the fees on appeal, costs and expenses.
12.6 Oral Evidence. This Agreement constitutes the entire Agreement
between the parties and supersedes all prior oral and written agreements between
the parties hereto with respect to the subject matter hereof. Neither this
Agreement nor any provision hereof may be changed, waived, discharged or
terminated orally, except by a statement in writing signed by the party or
parties against which enforcement or the change, waiver discharge or termination
is sought.
12.7 Additional Documents. The parties hereto shall execute such
additional instruments as may be reasonably required by their counsel in order
to carry out the purpose and intent of this Agreement and to fulfill the
obligations of the parties hereunder.
12.8 Governing Law. This Agreement and any dispute, disagreement, or
issue of construction or interpretation arising hereunder whether relating to
its execution, its validity, the obligations provided herein or performance
shall be governed or interpreted according to the internal laws of the State of
Delaware without regard to choice of law considerations.
12.9 Arbitration. Except as provided in Section 12.11 hereof, any
controversy, dispute or claim arising out of or relating to this Agreement, or
its interpretation, application, implementation, breach or enforcement which the
parties are unable to resolve by mutual agreement, shall be settled by
submission by either party of the controversy, claim or dispute to binding
arbitration in Wilmington, Delaware (unless the parties agree in writing to a
different location), before three arbitrators in accordance with the rules of
the American Arbitration Association then in effect. In any such arbitration
proceeding the parties agree to provide all discovery deemed necessary by the
arbitrators. The decision and award made by the arbitrators shall be final,
binding and conclusive on all parties hereto for all purposes, and judgment may
be entered thereon in any court having jurisdiction thereof.
12.10 Equitable Relief. The parties recognize that the rights granted
to the Parent by Section 9.4 of this Agreement and to the Buyer by Section 9.5
are special, unique and of extraordinary character, and that in the event of the
breach by the Buyer or the Parent (or TSA) of the terms and conditions of such
Sections 9.4 and 9.5, respectively, the Parent or the Buyer shall be entitled to
institute and prosecute proceedings in any court of competent jurisdiction, to
enjoin the offending party from breaching the provisions of Section 9.4 or 9.5.
12.11 Expenses. The Parent, TSA, the Buyer and NCTI shall each pay all
of its own expenses relating to the negotiation and preparation of this
Agreement and all other documents including the registration statement relating
to the Financing regardless of whether the Closing ever occurs. Provided,
however, the Buyer shall pay up to $25,000 of the fees and expenses incurred by
Arthur Andersen, LLP in connection with any audits of TSA, the inclusion of
TSA=s financial statements in any registration statement filed by the Buyer and
the review of such registration statements by Arthur Andersen, LLP.
12.12 Section Headings. Section headings herein have been inserted for
reference only and shall not be deemed to limit or otherwise affect, in any
matter, or be deemed to interpret in whole or in part any of the terms or
provisions of this Agreement.
IN WITNESS WHEREOF the Parent, TSA and the Buyer have set their hand
and seals as of the date first above written.
WITNESSES: TOP SOURCE TECHNOLOGIES, INC.
By:
William C. Willis, Jr., President
TOP SOURCE AUTOMOTIVE, INC.
By:
William C. Willis, Jr., President
NCT AUDIO, INC.
By:
Michael Parrella, President
IN WITNESS WHEREOF, NCTI sets its hand and seal as of the date first
above written solely as Guarantor of the Buyer's obligation to pay the Earn-out
as herein provided pursuant to Section 9.5 hereof.
NOISE CANCELLATION TECHNOLOGIES, INC.
By:
Michael Parrella, President
<PAGE>
SCHEDULE 1(d)(2) TO AGREEMENT AMONG
TOP SOURCE TECHNOLOGIES, INC.,
TOP SOURCE AUTOMOTIVE, INC.,
NCT AUDIO PRODUCTS, INC.,
and
NOISE CANCELLATION TECHNOLOGIES, INC.
Promissory Note
PROMISSORY NOTE
$2,500,000 ____________, 1998
FOR VALUE RECEIVED, the undersigned ("Maker") promises to pay to the
order of Top Source Automotive, Inc. (the "Holder") the sum of two-million
five-hundred thousand dollars ($2,500,000). This Note shall bear interest at 12%
per annum calculated on the basis of a 360 day year, commencing on the date
hereof. Said principal and all accrued interest is due and payable on March 31,
1999.
This Note shall be secured by a first security interest on the assets
of the Maker as identified on Exhibit A attached hereto.
Payments shall be made in legal tender of the United States of America
at Top Source Technologies, Inc., 7108 Fairway Drive, Suite 200, Palm Beach
Gardens, FL 33418-3757, or at such other place as may be designated in writing
by the Holder.
This Note may be prepaid in whole or in part, at any time without
penalty.
This Note shall be in default when payment required to be made
hereunder shall not have been received by Holder in immediately available funds
by 5:00 p.m. Florida time on its due date.
In addition to non-payment, the occurrence of any of the following
shall constitute a default prior to the due date:
<PAGE>
(a) A receiver, liquidator, trustee or similar officer of the Maker or
of any property of the Maker shall be appointed by court order; any property of
the Maker shall be sequestered by court order; or a petition shall be filed
against the Maker under any bankruptcy, reorganization or insolvency law and
shall not be dismissed within 30 days after such filing;
(b) The Maker shall file a petition in bankruptcy or request
reorganization under any provision of any bankruptcy, reorganization or
insolvency law or shall consent to the filing of any petition against it under
any such law;
(c) The Maker shall make a formal or informal assignment for the
benefit of its creditors or admit in writing its inability to pay its debts
generally when they become due or shall consent to the appointment of a
receiver, trustee or liquidator of the Maker or of all or any part of the
property of the Maker;
(d) Any property of the Maker with a value of $_________ or more shall
be levied upon, garnished, attached, or otherwise seized for the benefit of any
creditor of the Maker or shall be foreclosed upon by any party having a security
interest therein;
(e) Final judgment(s) against the Maker for payment of money
aggregating in excess of $__________ shall be outstanding and shall have been
outstanding for more than 10 days from the date of entry and shall not have been
discharged in full or stayed;
(f) The Maker shall liquidate or be dissolved or adopt or approve a
plan of liquidation, or cease doing business;
(g) The Maker (i) ceases to carry on business on a regular basis, or
(ii) enters into an agreement to (A) sell substantially all of its assets, (B)
merge into, consolidates with or is acquired by any other business entity, (C)
sell all or substantially all of the assets it purchased from Top Source
Automotive, Inc., or (D) sell more than 49.9% of the Maker's capital stock to a
third party; or
(h) any of the foregoing events occur with respect to the guarantor of
this Note.
While in default, this Note shall bear interest at the rate of 18% per
annum or such maximum rate of interest allowable under the laws of the State of
Florida.
Upon the occurrence of any such event of default, all principal and
accrued interest under this Note shall, at the election of Holder, become
immediately due and payable without notice or demand.
All makers and endorsers now or hereafter becoming parties hereto
jointly and severally waive demand, presentment, notice of non-payment in
protest and, if this Note becomes in default and is placed into the hands of an
attorney for collection, to pay attorney's fees and all other costs of such
collection, provided the Holder is the prevailing party.
This Note may not be changed or terminated orally, but only with an
agreement in writing, signed by the parties against whom enforcement of any
waiver, change, modification or discharge is sought, with such agreement being
effective and binding only upon the parties thereto.
This Note and the rights and obligations of the Holder and of the
undersigned shall be governed by and construed and enforced in accordance with
the laws of the State of Florida.
NCT AUDIO PRODUCTS, INC.
By:
Michael Parrella, President
<PAGE>
SCHEDULE 1(f)(1) TO AGREEMENT AMONG
TOP SOURCE TECHNOLOGIES, INC.,
TOP SOURCE AUTOMOTIVE, INC.,
NCT AUDIO PRODUCTS, INC.,
and
NOISE CANCELLATION TECHNOLOGIES, INC.
Form of Acknowledgement
ACKNOWLEDGEMENT
Pursuant to the Asset Purchase Agreement (the "Agreement") entered into on
August 7, 1998 by and among Top Source Technologies, Inc. (the "Parent"), Top
Source Automotive, Inc. ("TSA"), NCT Audio Products, Inc. (the "Buyer") and
Noise Cancellation Technologies, Inc. ("NCTI"), the Buyer and NCTI acknowledge
that TSA has elected to transfer the Acquisition Consideration, as defined by
the Agreement, to the Parent. All payments pursuant to the Note, as defined by
the Agreement, and, if applicable, the guarantee, shall be made directly to the
Parent.
IN WITNESS WHEREOF, the undersigned has executed this Acknowledgement
this ____ day of ___________, 1998.
NCT AUDIO PRODUCTS, INC.
By:
Michael Parella, President
NOISE CANCELLATION TECHNOLOGIES, INC.
By:
Michael Parrella, President
<PAGE>
SCHEDULE 1(f)(2) TO AGREEMENT AMONG
TOP SOURCE TECHNOLOGIES, INC.,
TOP SOURCE AUTOMOTIVE, INC.,
NCT AUDIO PRODUCTS, INC.,
and
NOISE CANCELLATION TECHNOLOGIES, INC.
Form of Assignment of Promissory Note
ASSIGNMENT OF PROMISSORY NOTE
WHEREAS, Top Source Automotive, Inc. ("TSA") is the holder of a note in the
amount of $2,500,000 issued by NCT Audio Products, Inc. (the "Note"), guaranteed
by Noise Cancellation Technologies, Inc. (the "Guarantee"); and
WHEREAS, TSA desires to assign all its rights in the Note and its
rights in the Guarantee to Top Source Technologies, Inc.
NOW THEREFORE, FOR $10.00 and other good and valuable consideration,
receipt of which is hereby acknowledged, TSA hereby assigns all its right, title
and interest in the Note and Guarantee to Top Source Technologies, Inc.
IN WITNESS WHEREOF, the undersigned has executed this Assignment of
Promissory Note this _____ day of ___________, 1998.
TOP SOURCE AUTOMOTIVE, INC.
By:
William C. Willis, President
<PAGE>
SCHEDULE 2.3(1) TO AGREEMENT AMONG
TOP SOURCE TECHNOLOGIES, INC.,
TOP SOURCE AUTOMOTIVE, INC.,
NCT AUDIO PRODUCTS, INC.,
and
NOISE CANCELLATION TECHNOLOGIES, INC.
Form of Escrow Agreement
ESCROW AGREEMENT
THIS ESCROW AGREEMENT ("Agreement") entered into as of this 30th day of
July, 1998, among Top Source Technologies, Inc. (the "Parent"), Top Source
Automotive, Inc. ("TSA"), NCT Audio Products, Inc. (the "Buyer") and Michael
Harris, P.A. (the "Escrow Agent").
WHEREAS, the Buyer is negotiating with the Parent and TSA to purchase the
assets of TSA and pursuant to the Asset Purchase Agreement (the "Purchase
Agreement") being negotiated, the Buyer is required to make the Second Payment;
and
WHEREAS, the Buyer desires to make the Second Payment prior to execution of
the Purchase Agreement pursuant to the terms and conditions contained in this
Agreement; and
WHEREAS, the Parent, TSA, the Buyer and the Escrow Agent desire to enter
into this Agreement providing for the Second Payment to be held in escrow.
NOW, THEREFORE, in consideration of the foregoing and the mutual promises
and covenants herein contained, the parties hereto hereby agree as follows:
1. All capitalized terms not defined in this Agreement shall have the
meaning described to them in the Purchase Agreement.
2. The Buyer has deposited with the Escrow Agent the sum of $2,050,000
representing the Second Payment.
3. The Buyer may give notice to the Escrow Agent at any time prior to 6:00
p.m., New York time, on August 7, 1998, requesting that the Escrow Agent return
the $2,050,000 to the Buyer. Upon receipt of that notice, the Escrow Agent shall
promptly refund to the Buyer the sum of $2,050,000 together with one-half of the
money market interest earned on the $2,050,000 (the "Income"). The remaining
one-half of the Income shall be paid to the Parent and TSA.
4. The Second Payment and the Income, as it is earned, shall be deposited
by the Escrow Agent in a money market account maintained with Raymond James &
Associates, Inc., a member of the New York Stock Exchange or, at the sole
discretion of the Escrow Agent, it may be invested in United States government
securities or in accounts or certificates of deposits of money center banks.
Unless the Second Payment and one-half of the Income are delivered to the Buyer
as a result of its request for return of the Second Payment as provided above,
the Escrow Agent shall hold the Second Payment and the Income, two stock
certificates, one for 20.5% of the issued and outstanding common stock of TSA
and the other for 14.5% reflecting that the Buyer is the record owner of such
shares and a stock power executed by the Buyer containing a medallion guarantee
(collectively the "Escrow"). The Escrow Agent shall hold the Escrow until the
Parent's stockholders shall have voted on a proposal to sell 100% of TSA's
Assets to the Buyer pursuant to the Purchase Agreement. If such stockholder
approval is obtained in the manner required by the Delaware General Corporation
Law, the Escrow Agent shall deliver the Second Payment and one-half of the
Income to the Parent and the TSA common stock certificate, the stock power and
the other one-half of the Income to the Buyer. If the Parent's stockholders do
not approve the sale of 100% of the Assets, the Escrow Agent shall return the
Second Payment to the Buyer with one-half of the Income, deliver the TSA stock
certificate for 14.5% to the Buyer and deliver the TSA stock certificate for
20.5%, stock power and one-half of the Income to the Parent.
5. While the Escrow Agent is holding the Escrow, the components of the
Escrow shall not become the property of the Escrow Agent or any other party to
this Agreement, or be subject to the debts of the Escrow Agent or any other
party to this Agreement, and the Escrow Agent shall make or permit no
disbursements from the Escrow except as expressly provided herein. Until the
Escrow is delivered as provided by this Agreement, the Second Payment shall be
deemed to be the property of the Buyer free and clear of any or all claims of
the Parent, TSA or any of their creditors, and the TSA stock certificate shall
be deemed to be the property of the Parent free and clear of any and all claims
of the Buyer or any of its creditors. At such time as the Escrow Agent shall
have made all the payments and remittances provided for in this Agreement, the
Escrow Agent shall be completely discharged and released of any and all further
liabilities and responsibilities hereunder.
6. The Escrow Agent, in its actions pursuant to this Agreement, shall be
fully protected in every reasonable exercise of its discretion and shall have no
obligations hereunder either to the Parent, TSA or the Buyer, except as
expressly set forth herein.
7. In performing any of its duties hereunder, the Escrow Agent shall not
incur any liability to anyone for any damages, losses or expenses, except for
willful act or omission, and it shall, accordingly, not incur any such liability
with respect to (i) any action taken or omitted in good faith upon advice of its
counsel given with respect to any question relating to the duties and
responsibilities of the Escrow Agent under this Agreement, or (ii) any action
taken or omitted in reliance upon any instrument, including the written advice
provided for herein, not only as to its due execution and the validity and
effectiveness of its provisions, but also as to the truth and accuracy of any
information contained therein, which the Escrow Agent shall in good faith
believe to be genuine, to have been signed and presented by a proper person or
persons, and to conform with the provisions of this Escrow Agreement.
8. If at any time a dispute shall exist as to the duties of the Escrow
Agent and the terms thereof, the Escrow Agent may deposit said funds with the
Clerk of the Court of Palm Beach County, State of Florida and may interplead the
parties hereto. Upon so depositing such funds and filing its complaint in the
interpleader, the Escrow Agent shall be completely discharged and released from
all further liability or responsibility under the terms hereof.
9. The Parent, TSA and the Buyer, jointly and severally, hereby agree to
indemnify and hold harmless the Escrow Agent against any and all losses, claims,
damages, liabilities and expenses including reasonable costs of investigation
and counsel fees and disbursements, which may be imposed upon the Escrow Agent
or incurred by the Escrow Agent in connection with its acceptance of appointment
as Escrow Agent hereunder, or the performance of its duties hereunder, including
any litigation arising from this Escrow Agreement or involving the subject
matter hereof unless the Escrow Agent is found by a court of competent
jurisdiction to have committed a willful act or omission causing legal damages.
10. This Escrow Agreement and any dispute, disagreement, or issue of
construction or interpretation arising hereunder whether relating to its
execution, its validity, the obligations provided herein or performance shall be
governed or interpreted according to the laws of the State of Florida.
11. In the event any parts of this Agreement are found to be void, the
remaining provisions of this Agreement shall nevertheless be binding with the
same effect as though the void parts were deleted.
12. This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original but all of which together shall constitute one
and the same instrument. The execution of this Agreement may be by actual or
facsimile signature.
13. This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their legal representatives, successors and assigns.
14. All notices, offers, acceptance and any other acts under this Agreement
(except payment) shall be in writing, and shall be sufficiently given if
delivered to the addressees in person, by Federal Express or similar receipted
delivery or by facsimile delivery as follows:
The Parent and TSA:
Top Source Technologies, Inc.
7108 Fairway Drive, Suite 200
Palm Beach Gardens, FL 33418-3757
Facsimile: (561)691-5220
Attention: President
Escrow Agent:
Michael D. Harris, Esq.
Michael Harris, P.A.
712 U.S. Highway One
North Palm Beach, FL 33408
Facsimile (561) 845-0108
The Buyer:
NCT Audio, Inc.
One Dock Street
Suite 300
Stamford, CT 06902
Facsimile: (203) 348-4106
or to such other address as either of them, by notice to the other may
designate from time to time. The transmission confirmation receipt from the
sender's facsimile machine shall be conclusive evidence of successful facsimile
delivery. Time shall be counted to, or from, as the case may be, the delivery in
person or by mailing.
15. In the event that there is any controversy or claim arising out of or
relating to this Agreement, or to the interpretation, breach or enforcement
thereof, and any action or proceeding is commenced to enforce the provisions of
this Agreement, the prevailing party shall be entitled to an award by the court
or arbitrator, as appropriate, of reasonable attorney's fees, including the fees
on appeal, costs and expenses.
16. This Agreement constitutes the entire Agreement between the parties and
supersedes all prior oral and written agreements between the parties hereto with
respect to the subject matter hereof. Neither this Agreement nor any provision
hereof may be changed, waived, discharged or terminated orally, except by a
statement in writing signed by the party or parties against which enforcement or
the change, waiver discharge or termination is sought.
17. The parties hereto shall execute such additional instruments as may be
reasonably required by their counsel in order to carry out the purpose and
intent of this Agreement and to fulfill the obligations of the parties
hereunder.
IN WITNESS WHEREOF, the Parent, TSA, the Buyer and the Escrow Agent
have executed this Escrow Agreement on the date and year first above written.
Witnesses: TOP SOURCE TECHNOLOGIES, INC.
By: /s/ William C. Willis, Jr.
William C. Willis, Jr., President
TOP SOURCE AUTOMOTIVE, INC.
By: /s/ William C. Willis, Jr.
William C. Willis, Jr., President
MICHAEL HARRIS, P.A.
By: /s/ Michael D. Harris
Michael D. Harris, President
NCT AUDIO PRODUCTS, INC.
By: /s/ Michael Parrella
President
<PAGE>
SCHEDULE 2.3(2) TO AGREEMENT AMONG
TOP SOURCE TECHNOLOGIES, INC.,
TOP SOURCE AUTOMOTIVE, INC.,
NCT AUDIO PRODUCTS, INC.,
and
NOISE CANCELLATION TECHNOLOGIES, INC.
Amendment to the Escrow Agreement
Top Source Technologies, Inc.
7108 Fairway Drive, Suite 200
Palm Beach Gardens, FL 33418-3757
August 17, 1998
NCT Audio Products, Inc.
One Dock Street, Suite 300
Stamford, CT 06902
Michael Harris, P.A.
712 U.S. Highway One
Suite 400
North Palm Beach, FL 33408
Gentlemen:
This letter agreement amends in certain respects that certain Escrow
Agreement (the "Agreement") entered into as of July 30, 1998 among Top Source
Technologies, Inc., Top Source Automotive, Inc. ("TSA"), NCT Audio Products,
Inc. (the "Buyer") and Michael Harris, P.A. (the "Escrow Agent").
We hereby agree that the Agreement is amended as follows:
1. The time in which the Buyer may give notice to the Escrow Agent as
provided in Section 3 of the Agreement has previously been extended to
6:00 p.m., New York time on August 14, 1998.
2. All references in the Agreement to a stock certificate for 20% of TSA
common stock shall be deleted and replaced by a stock certificate
representing 5.5% of TSA's common stock. The Escrow Agent is directed
to return the certificate for 20% TSA common stock in exchange for
receipt of a certificate for 5.5% of TSA's common stock.
In all other respects the Agreement is ratified and confirmed.
Please sign a copy of this letter agreement agreeing to be bound by its
terms.
Very truly yours,
/s/ William C. Willis, Jr.
William C. Willis, Jr.
WCW:rsr
We hereby agree to the contents of the foregoing letter agreement.
Date: August ___, 1998
TOP SOURCE TECHNOLOGIES, INC.
By: /s/ William C. Willis, Jr.
William C. Willis, Jr., President
TOP SOURCE AUTOMOTIVE, INC.
By: /s/ William C. Willis, Jr.
William C. Willis, Jr., President
MICHAEL HARRIS, P.A.
By: /s/ Michael D. Harris
Michael D. Harris, President
NCT AUDIO PRODUCTS, INC.
By: /s/ Michael Parrella
Michael Parrella, President
<PAGE>
SCHEDULE 5.1(a) TO AGREEMENT AMONG
TOP SOURCE TECHNOLOGIES, INC.,
TOP SOURCE AUTOMOTIVE, INC.,
NCT AUDIO PRODUCTS, INC.,
and
NOISE CANCELLATION TECHNOLOGIES, INC.
Prepaid Assets
Top Source Automotive, Inc
Schedule of Prepaids
Account # 1400
May 31, 1998
Description Amount
- -----------------------------------------------------------------
Chrysler Tooling Adjustment 20,785
Bostick annual property tax 2,406
Bostick Real Est. mo. bldg. rent 15,925
IBM annual CATIA software maint. 89
RDSC-50 hr. supp. contrct.@$80/hr. 1,700
IBM annual CATIA maint. 760
ACS annual EDI software maint. 545
BSB Comm. qtr. service-voice Mail 354
IBM 7006 RISC/6000 maint. 100
IBM annual software 7012 69345 2,313
IBM 7012 RISC/6000 maint. 179
Bostick Real Est. 3yrs bldg.ins.liability 6,908
Incat Solutions 1yr CATIA support cont 2,345
IBM CATIA sftwr. publishing-1 yr. 124
Savin Corp. copier serv. contract-1 yr. 432
=============
54,965
=============
<PAGE>
SCHEDULE 5.1(b) TO AGREEMENT AMONG
TOP SOURCE TECHNOLOGIES, INC.,
TOP SOURCE AUTOMOTIVE, INC.,
NCT AUDIO PRODUCTS, INC.,
and
NOISE CANCELLATION TECHNOLOGIES, INC.
Personal Property
Date: May 31 98 11:13am TOP SOURCE AUTOMOTIVE, INC Page: 1
Asset Net Value Report
Journal 1 in Summary
Sorted by Classification
Including Selected Assets
* Status thru A
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Asset Acquisition Acquisition Accumulated
Number Date Life Rem Cost Basis ReductiBasis Red Depreciation Net Value
- ---------- --------- --- --- -----------------------------------------------------------------
COMPUTERS #1505 Totals 231,917.62 0 0 189,975.30 41,942.32
PRODUCTION EQUIPMNT.#1510 Totals 122,309.27 0 0 75,395.39 46,913.88
EXHIBIT EQUIPMENT #1560 Totals 5,454.40 0 0 5,454.40 0.00
LEASEHLD.IMPROVMNTS.#1540 Totals 146,745.99 0 0 98,507.28 48,238.71
OFFICE FURN./FIXTRS.#1501 Totals 126,913.69 0 0 94,074.23 32,839.46
TOOLING (HARD) #1521 Totals 156,112.63 0 0 114,177.18 41,935.45
VEHICLES #1550 Totals 47,124.54 0 0 30,913.61 16,210.93
COMPUTER SOFTWARE #1506 Totals 50,892.69 0 0 28,088.41 22,804.28
ENGINEERING EQUIP. #1515 Totals 176,795.25 0 0 159,576.28 17,218.97
TOOLING (SOFT) #1522 Totals 73,138.45 0 0 73,138.45 0.00
-----------------------------------------------------------------
10 classifications printed 1,137,404.53 0.00 0.00 869,300.53 268,104.00
=================================================================
</TABLE>
<TABLE>
Date: May 31 98 2:22pm TOP SOURCE AUTOMOTIVE, INC Page: 1
Asset Net Value Report
Journal 1 in Detail
Sorted by Classification
Including Selected Assets
* Status thru A
<S> <C> <C> <C> <C> <C> <C>
Asset Acquisition Acquisition Basic Basic Accumulated
Number Date Life Rem Cost Reduction Reduction Depreciation Net Value
---------- --------- --- --- --------------- ----------------------------------------------------
9 Feb 01 90 36 0 3,600.00 - - 3,600.00 -
52 Mar 01 92 36 0 2,149.00 - - 2,149.00 -
57 Mar 01 92 36 0 2,755.00 - - 2,755.00 -
81 May 01 92 36 0 2,796.31 - - 2,796.31 -
95 Jun 01 92 36 0 21,241.05 - - 21,241.05 -
105 Jun 01 92 36 0 395.14 - - 395.14 -
114 Jul 01 92 36 0 1,333.00 - - 1,333.00 -
125 Aug 01 92 36 0 1,260.00 - - 1,260.00 -
151 Jan 01 93 36 0 557.44 - - 557.44 -
168 Jul 01 93 36 0 11,850.00 - - 11,808.34 41.66
183 Aug 01 93 36 0 984.31 - - 984.31 -
184 Sep 01 93 36 0 543.43 - - 543.43 -
191 Sep 01 93 36 0 1,599.37 - - 1,599.37 -
193 Sep 01 93 36 0 975.00 - - 975.00 -
197 Oct 01 93 36 0 6,865.11 - - 6,865.11 -
220 Jan 01 94 36 0 1,200.00 - - 1,200.00 -
339 Feb 14 94 36 0 4,300.00 - - 4,300.00 -
353 Nov 02 93 36 0 2,384.84 - - 2,384.84 -
358 Mar 14 94 36 0 3,116.05 - - 3,116.05 -
362 Mar 07 94 36 0 850.00 - - 850.00 -
371 Apr 26 94 36 0 2,350.00 - - 2,350.00 -
372 Apr 26 94 36 0 700.00 - - 700.00 -
396 May 16 94 36 0 2,050.00 - - 2,050.00 -
471 Oct 25 94 36 0 1,555.00 - - 1,555.00 -
489 Nov 02 94 36 0 697.16 - - 697.16 -
492 Dec 01 94 36 0 995.00 - - 995.00 -
494 Jan 17 95 36 0 688.87 - - 688.87 -
497 Feb 01 95 36 0 808.79 - - 808.79 -
498 Feb 27 95 36 0 4,197.60 - - 4,197.60 -
503 May 01 95 36 0 532.70 - - 532.70 -
513 Jul 25 95 36 0 1,327.87 - - 1,290.98 36.89
529 Aug 22 95 36 1 29,792.44 - - 28,137.30 1,655.14
530 Aug 22 95 36 1 6,650.00 - - 6,280.56 369.44
531 Sep 12 95 36 2 4,558.00 - - 4,178.17 379.83
532 Sep 21 95 36 2 3,000.00 - - 2,750.00 250.00
540 Oct 04 95 36 3 805.50 - - 716.00 89.50
541 Oct 06 95 36 3 1,059.98 - - 942.20 117.78
542 Oct 17 95 36 3 3,312.00 - - 2,944.00 368.00
547 Oct 19 95 36 3 678.38 - - 603.00 75.38
548 Nov 02 95 36 4 792.88 - - 682.76 110.12
557 Oct 28 95 36 3 3,089.74 - - 2,746.44 343.30
558 Oct 28 95 36 3 4,727.64 - - 4,202.35 525.29
569 Feb 14 96 36 7 1,551.30 - - 1,206.57 344.73
570 Feb 28 96 36 7 4,982.00 - - 3,874.89 1,107.11
581 Feb 24 96 36 7 2,860.40 - - 2,224.76 635.64
582 Mar 08 96 36 8 323.29 - - 242.47 80.82
Date: May 31 98 2:22pm TOP SOURCE AUTOMOTIVE, INC Page: 2
Asset Net Value Report
Journal 1 in Detail
Sorted by Classification
Including Selected Assets
Asset Acquisition Acquisition Accumulated
Number Date Life Rem Cost Basis ReduBasis ReductDepreciation Net Value
---------- --------- --- --- --------------- ----------------------------------------------------
608 May 08 96 36 10 484.40 - - 336.39 148.01
617 Apr 25 96 36 9 322.12 - - 232.64 89.48
621 May 07 96 36 10 472.74 - - 328.29 144.45
624 May 03 96 36 10 3,263.74 - - 2,266.49 997.25
625 May 01 96 36 10 753.66 - - 523.38 230.28
628 May 29 96 36 10 1,487.40 - - 1,032.92 454.48
637 Jun 10 96 36 11 7,092.09 - - 4,728.06 2,364.03
638 Jun 10 96 36 11 423.97 - - 282.65 141.32
644 Apr 30 96 36 9 1,717.20 - - 1,240.20 477.00
651 Jul 19 96 36 12 513.04 - - 327.78 185.26
653 May 25 96 36 10 278.78 - - 193.60 85.18
656 Aug 20 96 36 13 5,115.60 - - 3,126.20 1,989.40
664 Sep 03 96 36 14 394.32 - - 230.02 164.30
665 Sep 07 96 36 14 634.94 - - 370.38 264.56
669 Oct 07 96 36 15 587.24 - - 326.23 261.01
675 Oct 31 96 36 15 352.97 - - 196.09 156.88
680 Nov 27 96 36 16 25,062.11 - - 13,227.22 11,834.89
682 Dec 16 96 36 17 563.39 - - 281.70 281.69
683 Dec 20 96 36 17 570.74 - - 285.37 285.37
697 Jan 28 97 36 18 497.14 - - 234.76 262.38
699 Feb 03 97 36 19 890.40 - - 395.73 494.67
700 Feb 10 97 36 19 7,745.42 - - 3,442.41 4,303.01
706 Feb 17 97 36 19 2,727.26 - - 1,212.12 1,515.14
709 Mar 28 97 36 20 3,573.70 - - 1,489.04 2,084.66
717 Jan 17 97 36 18 2,532.34 - - 1,195.83 1,336.51
721 Aug 08 97 36 25 317.99 - - 88.33 229.66
727 Sep 01 97 9 0 632.01 - - 632.01 -
730 Sep 15 97 36 26 689.04 - - 172.26 516.78
733 Dec 05 97 36 29 3,329.18 - - 554.86 2,774.32
741 May 14 98 36 34 360.40 - - 10.01 350.39
742 May 28 98 36 34 1,017.60 - - 28.27 989.33
165-A Jun 01 93 36 0 2,673.10 - - 2,673.10 -
--------------- ----------------------------------------------------
COMPUTERS #1505 Totals 231,917.62 - - 189,975.30 41,942.32
47 Jul 01 89 48 0 7,135.20 - - 7,135.20 -
153 Jan 31 93 48 0 639.71 - - 639.71 -
154 Jan 31 93 48 0 1,800.00 - - 1,800.00 -
159 Feb 01 93 48 0 957.90 - - 957.90 -
169 Jul 01 93 48 0 5,436.27 - - 5,436.27 -
171 Jul 01 93 48 0 5,556.40 - - 5,556.40 -
174 Jul 01 93 48 0 1,422.62 - - 1,422.62 -
218 Jan 01 94 36 0 1,453.63 - - 1,453.63 -
355 Mar 24 94 48 0 1,200.00 - - 1,200.00 -
356 Mar 28 94 48 0 1,400.00 - - 1,400.00 -
373 Apr 01 94 48 0 3,800.00 - - 3,800.00 -
484 Nov 07 94 48 4 2,100.00 - - 1,881.25 218.75
Date: May 31 98 2:22pm TOP SOURCE AUTOMOTIVE, INC Page: 3
Asset Net Value Report
Journal 1 in Detail
Sorted by Classification
Including Selected Assets
Asset Acquisition Acquisition Accumulated
Number Date Life Rem Cost Basis ReduBasis ReductDepreciation Net Value
---------- --------- --- --- --------------- ----------------------------------------------------
493 Dec 09 94 48 5 1,692.00 - - 1,480.50 211.50
495 Jan 01 95 36 0 3,200.00 - - 3,200.00 -
500 Apr 18 95 48 9 2,929.19 - - 2,318.94 610.25
517 Aug 09 95 48 13 1,845.06 - - 1,306.92 538.14
520 Jun 23 95 48 11 2,133.35 - - 1,600.01 533.34
539 Aug 29 95 48 13 715.80 - - 507.03 208.77
549 Nov 08 95 36 4 1,056.60 - - 909.85 146.75
565 Dec 14 95 48 17 3,940.12 - - 2,462.58 1,477.54
572 Jan 25 96 48 18 1,820.62 - - 1,099.96 720.66
583 Mar 06 96 48 20 3,013.50 - - 1,695.09 1,318.41
584 Mar 11 96 48 20 959.00 - - 539.44 419.56
585 Mar 21 96 48 20 875.00 - - 492.19 382.81
586 Mar 21 96 48 20 680.00 - - 382.50 297.50
598 Apr 02 96 48 21 4,591.00 - - 2,486.79 2,104.21
609 May 10 96 48 22 3,075.00 - - 1,601.56 1,473.44
611 May 09 96 48 22 6,757.40 - - 3,519.48 3,237.92
618 Apr 19 96 48 21 1,000.64 - - 542.01 458.63
619 Apr 30 96 48 21 259.70 - - 140.67 119.03
623 May 17 96 48 22 980.50 - - 510.68 469.82
633 Apr 25 96 84 57 26,387.64 - - 8,167.60 18,220.04
643 Jul 12 96 48 24 365.44 - - 175.11 190.33
646 Jul 09 96 48 24 2,475.10 - - 1,185.99 1,289.11
648 Jul 09 96 48 24 287.50 - - 137.76 149.74
657 Jul 10 96 48 24 287.50 - - 137.76 149.74
658 Jul 23 96 48 24 637.59 - - 305.51 332.08
659 Jun 27 96 12 0 1,503.26 - - 1,503.26 -
677 Oct 01 96 48 27 795.00 - - 331.25 463.75
678 Oct 21 96 48 27 413.20 - - 172.17 241.03
679 Nov 01 96 48 28 721.50 - - 285.59 435.91
691 Jan 09 97 48 30 4,413.84 - - 1,563.24 2,850.60
696 Jan 08 97 48 30 654.39 - - 231.76 422.63
731 Nov 20 97 48 40 375.00 - - 54.69 320.31
734 Dec 09 97 48 41 2,285.00 - - 285.63 1,999.37
735 Dec 09 97 48 41 2,200.00 - - 275.00 1,925.00
736 Dec 17 97 48 41 2,581.10 - - 322.64 2,258.46
611-01 May 08 96 48 22 1,500.00 - - 781.25 718.75
--------------- ----------------------------------------------------
PRODUCTION EQUIPMNT.#1510 Totals 122,309.27 - - 75,395.39 46,913.88
30 Feb 01 91 36 0 897.40 - - 897.40 -
46 Oct 01 90 36 0 4,557.00 - - 4,557.00 -
--------------- ----------------------------------------------------
EXHIBIT EQUIPMENT #1560 Totals 5,454.40 - - 5,454.40 -
507 Jun 27 95 36 0 8,459.72 - - 8,459.72 -
514 Jul 19 95 36 0 730.34 - - 710.05 20.29
Date: May 31 98 2:22pm TOP SOURCE AUTOMOTIVE, INC Page: 4
Asset Net Value Report
Journal 1 in Detail
Sorted by Classification
Including Selected Assets
Asset Acquisition Acquisition Accumulated
Number Date Life Rem Cost Basis ReduBasis ReductDepreciation Net Value
---------- --------- --- --- --------------- ----------------------------------------------------
519 Aug 23 95 36 1 670.00 - - 632.78 37.22
538 Sep 08 95 36 2 10,925.00 - - 10,014.58 910.42
545 Oct 12 95 36 3 411.40 - - 365.69 45.71
552 Nov 01 95 36 4 932.22 - - 802.75 129.47
553 Nov 20 95 36 4 1,267.35 - - 1,091.33 176.02
554 Nov 27 95 36 4 972.64 - - 837.55 135.09
555 Oct 13 95 36 3 8,747.00 - - 7,775.11 971.89
567 Jan 22 96 36 6 1,638.44 - - 1,319.85 318.59
568 Jan 24 96 36 6 800.00 - - 644.44 155.56
575 Feb 23 96 36 7 284.68 - - 221.42 63.26
576 Feb 06 96 36 7 3,643.00 - - 2,833.44 809.56
577 Feb 06 96 36 7 2,436.00 - - 1,894.67 541.33
578 Feb 19 96 36 7 800.00 - - 622.22 177.78
579 Feb 28 96 36 7 427.50 - - 332.50 95.00
588 Feb 23 96 36 7 1,217.75 - - 947.14 270.61
589 Mar 06 96 36 8 858.60 - - 643.95 214.65
590 Mar 19 96 36 8 8,000.00 - - 6,000.00 2,000.00
591 Mar 11 96 36 8 675.00 - - 506.25 168.75
592 Mar 15 96 36 8 427.50 - - 320.63 106.87
593 Mar 15 96 36 8 225.00 - - 168.75 56.25
594 Apr 15 96 36 9 1,300.00 - - 938.89 361.11
597 Apr 11 96 36 9 1,030.64 - - 744.35 286.29
599 Apr 03 96 36 9 550.00 - - 397.22 152.78
600 Apr 17 96 36 9 390.99 - - 282.38 108.61
601 Apr 19 96 36 9 736.31 - - 531.78 204.53
606 Apr 19 96 36 9 236.80 - - 171.02 65.78
610 Apr 26 96 36 9 8,846.10 - - 6,388.85 2,457.25
615 May 03 96 36 10 525.00 - - 364.58 160.42
616 May 08 96 36 10 1,100.00 - - 763.89 336.11
620 Apr 30 96 36 9 2,950.00 - - 2,130.56 819.44
630 Apr 23 96 36 9 419.70 - - 303.12 116.58
632 May 16 96 36 10 800.00 - - 555.56 244.44
636 Jun 03 96 36 11 1,255.50 - - 837.00 418.50
660 Jul 03 96 36 12 296.76 - - 189.60 107.16
666 Sep 24 96 36 14 641.00 - - 373.92 267.08
667 Sep 06 96 36 14 2,300.00 - - 1,341.67 958.33
671 Sep 13 96 36 14 875.00 - - 510.42 364.58
672 Oct 18 96 36 15 250.00 - - 138.89 111.11
687 Oct 30 96 36 15 622.00 - - 345.56 276.44
692 Jan 16 97 36 18 1,200.00 - - 566.67 633.33
693 Jan 03 97 36 18 5,238.00 - - 2,473.50 2,764.50
694 Jan 16 97 36 18 317.50 - - 149.93 167.57
695 Jan 31 97 36 18 2,950.00 - - 1,393.06 1,556.94
708 Mar 13 97 36 20 2,000.00 - - 833.33 1,166.67
713 Apr 14 97 36 21 1,153.00 - - 448.39 704.61
714 Apr 30 97 36 21 2,417.16 - - 940.01 1,477.15
722 Jul 31 97 36 24 5,148.70 - - 1,573.21 3,575.49
Date: May 31 98 2:22pm TOP SOURCE AUTOMOTIVE, INC Page: 5
Asset Net Value Report Last
Journal 1 in Detail
Sorted by Classification
Including Selected Assets
Asset Acquisition Acquisition Accumulated
Number Date Life Rem Cost Basis ReduBasis ReductDepreciation Net Value
---------- --------- --- --- --------------- ----------------------------------------------------
723 Aug 05 97 36 25 325.95 - - 90.54 235.41
724 Aug 05 97 36 25 325.95 - - 90.54 235.41
725 Jul 16 97 36 24 1,920.00 - - 586.67 1,333.33
726 Jun 19 97 36 23 1,000.00 - - 333.33 666.67
708-1 Apr 15 97 36 21 3,925.00 - - 1,526.39 2,398.61
588-01 May 08 96 36 10 1,217.25 - - 845.31 371.94
589-01 Apr 02 96 36 9 503.50 - - 363.64 139.86
590-01 Apr 02 96 36 9 8,000.00 - - 5,777.78 2,222.22
590-02 Apr 18 96 36 9 5,665.00 - - 4,091.39 1,573.61
597-01 Apr 18 96 36 9 1,030.64 - - 744.35 286.29
632-01 Jul 01 96 36 12 790.00 - - 504.72 285.28
636-01 Jul 08 96 36 12 800.00 - - 511.11 288.89
636-02 Jul 16 96 36 12 744.00 - - 475.33 268.67
667-01 Oct 31 96 36 15 4,493.95 - - 2,496.64 1,997.31
671-01 Sep 20 96 36 14 1,211.45 - - 706.68 504.77
692-01 Feb 10 97 36 19 872.00 - - 387.56 484.44
693-01 Feb 10 97 36 19 9,777.60 - - 4,345.60 5,432.00
693-02 Feb 13 97 36 19 800.00 - - 355.56 444.44
693-03 Feb 17 97 36 19 3,244.40 - - 1,441.96 1,802.44
--------------- ----------------------------------------------------
LEASEHLD.IMPROVMNTS.#1540 Totals 146,745.99 - - 98,507.28 48,238.71
20 Oct 01 90 36 0 654.72 - - 654.72 -
28 Sep 01 91 36 0 4,000.00 - - 4,000.00 -
37 Jan 29 92 36 0 2,924.06 - - 2,924.06 -
39 Feb 12 92 36 0 347.36 - - 347.36 -
41 Feb 21 92 36 0 483.60 - - 483.60 -
68 Apr 01 92 36 0 1,462.73 - - 1,462.73 -
77 May 01 92 36 0 2,340.00 - - 2,340.00 -
78 May 01 92 36 0 572.00 - - 572.00 -
86 May 01 92 36 0 7,000.00 - - 7,000.00 -
89 May 01 92 36 0 235.25 - - 235.25 -
93 Jun 01 92 36 0 663.52 - - 663.52 -
97 Jun 01 92 36 0 9,197.80 - - 9,197.80 -
104 Jun 01 92 36 0 6,090.02 - - 6,090.02 -
110 Jul 01 92 36 0 683.28 - - 683.28 -
127 Aug 01 92 36 0 1,398.60 - - 1,398.60 -
130 Sep 01 92 36 0 598.44 - - 598.44 -
131 Sep 01 92 36 0 2,375.36 - - 2,375.36 -
132 Sep 01 92 36 0 440.56 - - 440.56 -
160 Apr 01 93 36 0 1,129.32 - - 1,129.32 -
176 Aug 01 93 36 0 1,647.00 - - 1,647.00 -
224 Jan 01 94 36 0 1,966.63 - - 1,966.63 -
338 Feb 01 94 36 0 723.84 - - 723.84 -
344 Feb 07 94 36 0 364.96 - - 364.96 -
370 May 20 93 36 0 408.00 - - 408.00 -
483 Nov 03 94 36 0 445.16 - - 445.16 -
Date: May 31 98 2:22pm TOP SOURCE AUTOMOTIVE, INC Page: 6
Asset Net Value Report
Journal 1 in Detail
Sorted by Classification
Including Selected Assets
Asset Acquisition Acquisition Accumulated
Number Date Life Rem Cost Basis ReduBasis ReductDepreciation Net Value
---------- --------- --- --- --------------- ----------------------------------------------------
504 Jun 26 95 36 0 515.95 - - 515.95 -
511 Jul 18 95 36 0 5,727.96 - - 5,568.85 159.11
515 Aug 04 95 36 1 496.62 - - 469.03 27.59
516 Aug 23 95 36 1 703.77 - - 664.67 39.10
521 Aug 25 95 36 1 1,340.16 - - 1,265.71 74.45
522 Aug 28 95 36 1 2,024.71 - - 1,912.23 112.48
523 Sep 05 95 36 2 857.90 - - 786.41 71.49
524 Sep 08 95 36 2 1,250.80 - - 1,146.57 104.23
525 Sep 13 95 36 2 901.48 - - 826.36 75.12
526 Sep 19 95 36 2 1,086.53 - - 995.99 90.54
527 Sep 12 95 36 2 670.00 - - 614.17 55.83
528 Sep 28 95 36 2 884.98 - - 811.23 73.75
546 Oct 27 95 36 3 3,070.75 - - 2,729.56 341.19
556 Oct 01 95 36 2 1,243.79 - - 1,140.14 103.65
580 Feb 17 96 36 7 423.99 - - 329.77 94.22
605 Apr 25 96 36 9 1,706.45 - - 1,232.44 474.01
622 May 10 96 36 10 856.20 - - 594.58 261.62
629 May 22 96 36 10 875.00 - - 607.64 267.36
631 May 10 96 36 10 1,293.14 - - 898.01 395.13
635 Mar 28 96 36 8 629.23 - - 471.92 157.31
640 May 31 96 36 10 257.58 - - 178.88 78.70
642 Jul 08 96 36 12 1,384.00 - - 884.22 499.78
649 Jul 19 96 36 12 848.00 - - 541.78 306.22
654 Jul 23 96 36 12 323.53 - - 206.70 116.83
655 Aug 29 96 36 13 559.80 - - 342.10 217.70
661 Aug 19 96 36 13 847.96 - - 518.20 329.76
662 Sep 17 96 36 14 710.73 - - 414.59 296.14
663 Sep 19 96 36 14 954.12 - - 556.57 397.55
668 Sep 27 96 36 14 295.63 - - 172.45 123.18
689 Jan 20 97 36 18 3,971.03 - - 1,875.21 2,095.82
701 Dec 27 96 36 17 518.50 - - 259.25 259.25
702 Feb 28 97 36 19 897.80 - - 399.02 498.78
703 Feb 07 97 36 19 220.45 - - 97.98 122.47
707 Feb 27 97 36 19 394.29 - - 175.24 219.05
711 Mar 31 97 36 20 7,342.20 - - 3,059.38 4,282.82
712 Apr 15 97 36 21 2,650.00 - - 1,030.56 1,619.44
715 May 07 97 36 22 294.10 - - 106.20 187.90
719 Jul 31 97 28 16 28,756.94 - - 11,297.37 17,459.57
720 Aug 09 97 36 25 150.00 - - 41.67 108.33
729 Oct 31 97 36 27 825.41 - - 183.42 641.99
--------------- ----------------------------------------------------
OFFICE FURN./FIXTRS.#1501 Totals 126,913.69 - - 94,074.23 32,839.46
670 Oct 21 96 24 3 63,364.00 - - 52,803.33 10,560.67
674 Oct 21 96 24 3 63,364.00 - - 52,803.33 10,560.67
732 Nov 12 97 24 16 29,384.63 - - 8,570.52 20,814.11
--------------- ----------------------------------------------------
TOOLING (HARD) #1521 Totals 156,112.63 - - 114,177.18 41,935.45
Date: May 31 98 2:22pm TOP SOURCE AUTOMOTIVE, INC Page: 7
Asset Net Value Report
Journal 1 in Detail
Sorted by Classification
Including Selected Assets
Asset Acquisition Acquisition Accumulated
Number Date Life Rem Cost Basis ReduBasis ReductDepreciation Net Value
---------- --------- --- --- --------------- ----------------------------------------------------
501 Apr 03 95 36 0 761.08 - - 761.08 -
502 Apr 11 95 36 0 11,760.90 - - 11,706.66 54.24
673 Oct 17 96 36 15 605.98 - - 336.66 269.32
688 Oct 15 96 36 15 30,496.58 - - 16,942.54 13,554.04
718 Jun 24 97 36 23 3,500.00 - - 1,166.67 2,333.33
--------------- ----------------------------------------------------
VEHICLES #1550 Totals 47,124.54 - - 30,913.61 16,210.93
559 Nov 18 95 36 4 1,500.00 - - 1,291.67 208.33
560 Dec 11 95 36 5 1,054.70 - - 878.92 175.78
561 Dec 12 95 36 5 686.50 - - 572.08 114.42
571 Feb 28 96 36 7 3,386.69 - - 2,634.09 752.60
596 Apr 03 96 36 9 961.62 - - 694.50 267.12
641 Jun 05 96 36 11 394.38 - - 262.92 131.46
645 May 28 96 36 10 6,057.90 - - 4,206.88 1,851.02
650 Jul 15 96 36 12 492.90 - - 314.91 177.99
652 May 25 96 36 10 1,092.86 - - 758.93 333.93
676 Nov 11 96 36 16 665.00 - - 350.97 314.03
681 Nov 27 96 36 16 2,260.98 - - 1,193.30 1,067.68
684 Nov 05 96 36 16 2,375.00 - - 1,253.47 1,121.53
685 Dec 30 96 36 17 25,228.00 - - 12,614.00 12,614.00
686 Dec 11 96 36 17 524.70 - - 262.35 262.35
698 Feb 03 97 36 19 331.78 - - 147.46 184.32
705 Feb 13 97 36 19 557.56 - - 247.80 309.76
710 Mar 28 97 36 20 491.46 - - 204.78 286.68
739 Apr 06 98 36 33 1,314.40 - - 73.02 1,241.38
740 Mar 27 98 36 32 1,516.26 - - 126.36 1,389.90
--------------- ----------------------------------------------------
COMPUTER SOFTWARE #1506 Totals 50,892.69 - - 28,088.41 22,804.28
215 Nov 01 93 36 0 1,038.91 - - 1,038.91 -
216 Dec 01 93 36 0 89,806.24 - - 89,806.24 -
354 Mar 15 94 36 0 5,325.94 - - 5,325.94 -
357 Mar 05 94 36 0 1,600.00 - - 1,600.00 -
395 May 03 94 36 0 3,640.00 - - 3,640.00 -
409 Jul 01 94 36 0 576.76 - - 576.76 -
490 Nov 10 94 36 0 7,274.38 - - 7,274.38 -
512 Jun 22 95 36 0 3,932.51 - - 3,932.51 -
533 Sep 22 95 36 2 3,072.94 - - 2,816.86 256.08
534 Sep 22 95 36 2 3,072.94 - - 2,816.86 256.08
535 Sep 27 95 36 2 763.66 - - 700.02 63.64
543 Sep 26 95 36 2 3,735.50 - - 3,424.21 311.29
550 Oct 31 95 36 3 803.48 - - 714.20 89.28
604 Apr 18 96 36 9 1,514.16 - - 1,093.56 420.60
612 Apr 29 96 36 9 36,622.60 - - 26,449.66 10,172.94
613 Apr 30 96 36 9 2,352.00 - - 1,698.67 653.33
634 Mar 13 96 36 8 1,053.00 - - 789.75 263.25
Date: May 31 98 2:22pm TOP SOURCE AUTOMOTIVE, INC Page: 8
Asset Net Value Report
Journal 1 in Detail
Sorted by Classification
Including Selected Assets
Asset Acquisition Acquisition Accumulated
Number Date Life Rem Cost Basis ReduBasis ReductDepreciation Net Value
---------- --------- --- --- --------------- ----------------------------------------------------
639 Jun 10 96 36 11 465.50 - - 310.33 155.17
647 Jul 02 96 36 12 7,100.00 - - 4,536.11 2,563.89
704 Feb 10 97 36 19 1,630.00 - - 724.44 905.56
716 May 01 97 36 22 325.00 - - 117.36 207.64
728 Oct 14 97 36 27 615.82 - - 136.85 478.97
737 Feb 07 98 36 31 473.91 - - 52.66 421.25
--------------- ----------------------------------------------------
ENGINEERING EQUIP. #1515 Totals 176,795.25 - - 159,576.28 17,218.97
119 Jul 01 92 3 0 5,450.00 - - 5,450.00 -
136 Sep 01 92 3 0 10,100.00 - - 10,100.00 -
137 Sep 01 92 3 0 900.00 - - 900.00 -
138 Sep 01 92 3 0 6,053.45 - - 6,053.45 -
139 Sep 01 92 3 0 600.00 - - 600.00 -
150 Dec 01 92 3 0 2,250.00 - - 2,250.00 -
359 Feb 23 94 3 0 6,000.00 - - 6,000.00 -
360 Mar 04 94 3 0 6,000.00 - - 6,000.00 -
401 Jun 01 94 3 0 4,305.00 - - 4,305.00 -
505 Jun 05 95 3 0 1,200.00 - - 1,200.00 -
506 Jun 06 95 3 0 980.00 - - 980.00 -
509 Jun 01 95 3 0 4,300.00 - - 4,300.00 -
551 Oct 26 95 3 0 25,000.00 - - 25,000.00 -
--------------- ----------------------------------------------------
TOOLING (SOFT) #1522 Totals 73,138.45 - - 73,138.45 -
--------------- ----------------------------------------------------
325 assets printed 1,137,404.53 - - 869,300.53 268,104.00
=============== ====================================================
</TABLE>
<PAGE>
SCHEDULE 5.1(d) TO AGREEMENT AMONG
TOP SOURCE TECHNOLOGIES, INC.,
TOP SOURCE AUTOMOTIVE, INC.,
NCT AUDIO PRODUCTS, INC.,
and
NOISE CANCELLATION TECHNOLOGIES, INC.
Leases
Caterpillar Financial Services Lease
Copier
Pitney Bowes Machine
Real Estate Lease
Telephone Lease
<PAGE>
SCHEDULE 5.1(e) TO AGREEMENT AMONG
TOP SOURCE TECHNOLOGIES, INC.,
TOP SOURCE AUTOMOTIVE, INC.,
NCT AUDIO PRODUCTS, INC.,
and
NOISE CANCELLATION TECHNOLOGIES, INC.
Contracts
Chrysler Corporation Purchase Orders
Kenwood U.S.A. Corporation
Scheduled Leases
<PAGE>
SCHEDULE 5.1(g) TO AGREEMENT AMONG
TOP SOURCE TECHNOLOGIES, INC.,
TOP SOURCE AUTOMOTIVE, INC.,
NCT AUDIO PRODUCTS, INC.,
and
NOISE CANCELLATION TECHNOLOGIES, INC.
Intellectual Property
Attached.
<PAGE>
SCHEDULE 5.1(h) TO AGREEMENT AMONG
TOP SOURCE TECHNOLOGIES, INC.,
TOP SOURCE AUTOMOTIVE, INC.,
NCT AUDIO PRODUCTS, INC.,
and
NOISE CANCELLATION TECHNOLOGIES, INC.
Intangible Assets
<TABLE>
TOP SOURCE AUTOMOTIVE, INC.
INTANGIBLE ASSETS
May 31, 1998
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
USE- OCT '97 NOV '97DEC '97 JAN' 98 FEB' 98MARCH'98 APRIL 'MAY '98 NET
FY 1998 FUL VALUE AT MONTHLY MONTHLYMONTHLY MONTHLY MONTHLYMONTHLY MONTHLYMONTHLY VALUE AT
Description Cost A/A ADD'TL LIF 30-Sep-97 AMORT. AMORT. AMORT. AMORT. AMORT. AMORT. AMORT. AMORT. 30-Sep-98
- --------------------------------------------------------------------------------------------------------------------------------
Pelo Rights 58,438.043,728.25 13 17,706.57 374.60 374.60 374.60 374.374.60 374.60 374.60 374.60 14,709.75
B & R Rights 437,500.374,418.21 13 85,517.69 2,804.492,804.42,804.49 2,804.2,804.42,804.49 2,804.42,804.46 3,081.79
OHSS 55,813.420,454.25 10 39,080.14 465.11 465.11 465.11 465.465.11 465.11 465.11 465.11 35,359.24
OHSS-10/95 Additions 2,185.50 582.80 10 1,748.40 18.21 18.21 18.21 18.18.21 18.21 18.21 18.21 1,602.70
OHSS-11/ 95 Additions 2,653.00 685.36 10 2,144.51 22.11 22.11 22.11 22.22.11 22.11 22.11 22.11 1,967.64
OHSS-12/95 Additions 5,000.001,250.00 10 4,083.33 41.67 41.67 41.67 41.41.67 41.67 41.67 41.67 3,750.00
OHSS-2/96 Additions 1,073.06 241.44 10 894.22 8.94 8.94 8.94 8.98.94 8.94 8.94 8.94 831.62
OHSS-4/96 Additions 267.50 57.96 10 227.38 2.23 2.23 2.23 2.22.23 2.23 2.23 2.23 209.54
OHSS-5/96 Additions 2,194.37 457.16 10 1,883.50 18.29 18.29 18.29 18.18.29 18.29 18.29 18.29 1,737.21
OHSS-6/96 Additions 1,414.00 282.80 10 1,225.47 11.78 11.78 11.78 11.11.78 11.78 11.78 11.78 1,131.20
OHSS-12/96 Additions 1,391.52 208.73 10 1,275.56 11.60 11.60 11.60 11.11.60 11.60 11.60 11.60 1,182.79
OHSS-2/97 Additions 1,314.00 175.20 10 1,226.40 10.95 10.95 10.95 10.10.95 10.95 10.95 10.95 1,138.80
10/97 Glenn S Aren 700.00 46.67 700.10 0.00 5.83 5.83 5.83 5.85.83 5.83 5.83 5.83 653.33
12/97 Hamilton, Brooks ec327.61 13.65 327.10 0.00 2.72.73 2.73 2.73 2.73 313.96
1/98 G ardenson 710.00 23.67 710.10 0.00 5.92 5.92 5.92 5.92 686.33
3/98 Dykema Goss/Arend13,245.00 331.13,245.10 0.00 110.38 110.38 110.38 12,913.88
4/98 G Arendson Patent 2,280.00 38.02,280.10 0.00 19.00 19.00 2,242.00
5/98 Dykema Goss/A9Aren4,156.96 34.64,156.10 0.00 34.64 4,122.32
----------------------- ---------------------------------------------------------------------------------
Total OHSS 590,664.443,029.21,419.57 157,013.163,795.813,795.83,795.81 3,798.3,804.43,914.83 3,933.3,968.4 147,634.11
----------------------- ---------------------------------------------------------------------------------
</TABLE>
<PAGE>
SCHEDULE 5.1(g) TO AGREEMENT AMONG
TOP SOURCE TECHNOLOGIES, INC.,
TOP SOURCE AUTOMOTIVE, INC.,
NCT AUDIO PRODUCTS, INC.,
and
NOISE CANCELLATION TECHNOLOGIES, INC.
Previously delivered to the Buyer by letter dated July 16, 1998.
<PAGE>
SCHEDULE 5.2 TO AGREEMENT AMONG
TOP SOURCE TECHNOLOGIES, INC.,
TOP SOURCE AUTOMOTIVE, INC.,
NCT AUDIO PRODUCTS, INC.,
and
NOISE CANCELLATION TECHNOLOGIES, INC.
Excluded Assets
1. All inter-company accounts receivable are not being sold and shall remain
with the Parent.
<PAGE>
SCHEDULE 5.3(b) TO AGREEMENT AMONG
TOP SOURCE TECHNOLOGIES, INC.,
TOP SOURCE AUTOMOTIVE, INC.,
NCT AUDIO PRODUCTS, INC.,
and
NOISE CANCELLATION TECHNOLOGIES, INC.
Liens, Encumbrances, Etc.
1. The NationsCredit loan shall be paid at closing.
2. Certain Liens such as Liens or other statutory Liens may exist.
3. Scheduled leases.
<PAGE>
SCHEDULE 5.5 TO AGREEMENT AMONG
TOP SOURCE TECHNOLOGIES, INC.,
TOP SOURCE AUTOMOTIVE, INC.,
NCT AUDIO PRODUCTS, INC.,
and
NOISE CANCELLATION TECHNOLOGIES, INC.
Allocations
To be selected by the Buyer.
<PAGE>
SCHEDULE 5.6 TO AGREEMENT AMONG
TOP SOURCE TECHNOLOGIES, INC.,
TOP SOURCE AUTOMOTIVE, INC.,
NCT AUDIO PRODUCTS, INC.,
and
NOISE CANCELLATION TECHNOLOGIES, INC.
Adjustments to Purchase Price
To be determined.
<PAGE>
SCHEDULE 6.1(b) TO AGREEMENT AMONG
TOP SOURCE TECHNOLOGIES, INC.,
TOP SOURCE AUTOMOTIVE, INC.,
NCT AUDIO PRODUCTS, INC.,
and
NOISE CANCELLATION TECHNOLOGIES, INC.
Required Consents, Etc.
1. The Parent and TSA require that the stockholders of the Parent
vote to approve the sale of 100% of the
common stock of the Parent or the Assets of TSA.
2. Real Estate Lease Consent.
3. Kenwood U.S.A. Corp. Agreement.
4. Agreement as to collateral securing the Note.
<PAGE>
SCHEDULE 6.1(c) TO AGREEMENT AMONG
TOP SOURCE TECHNOLOGIES, INC.,
TOP SOURCE AUTOMOTIVE, INC.,
NCT AUDIO PRODUCTS, INC.,
and
NOISE CANCELLATION TECHNOLOGIES, INC.
Taxes
None
<PAGE>
SCHEDULE 6.1(g) TO AGREEMENT AMONG
TOP SOURCE TECHNOLOGIES, INC.,
TOP SOURCE AUTOMOTIVE, INC.,
NCT AUDIO PRODUCTS, INC.,
and
NOISE CANCELLATION TECHNOLOGIES, INC.
Labor Difficulties
None
<PAGE>
SCHEDULE 6.1(h) TO AGREEMENT AMONG
TOP SOURCE TECHNOLOGIES, INC.,
TOP SOURCE AUTOMOTIVE, INC.,
NCT AUDIO PRODUCTS, INC.,
and
NOISE CANCELLATION TECHNOLOGIES, INC.
Employee Benefit Plans
Oasis - Employee Leasing Arrangement.
<PAGE>
SCHEDULE 6.1(j) TO AGREEMENT AMONG
TOP SOURCE TECHNOLOGIES, INC.,
TOP SOURCE AUTOMOTIVE, INC.,
NCT AUDIO PRODUCTS, INC.,
and
NOISE CANCELLATION TECHNOLOGIES, INC.
Employee Information
=============================================================================
TOP SOURCE AUTOMOTIVE, INC.
EMPLOYEES
=============================================================================
EMPLOYEE NAME:
=============================================================================
Salaried:
=============================================================================
Barnes, Lee
Bednarsky, Verna
Belter, Thomas
Flores, Eric
Grice Corr, Debra
Grubbs, Randall
Hensley, Todd
Hren, Richard
Lancaster, Kathy
Martin, Kevin
McLean, James
Paytas, Share
============================================================================
Hourly:
============================================================================
Crachiolo, Kristen
Elias, Firas
Facaeanu, Mihai
Garretson, Nancy
Griffiths, Nancy
Mansoor, Roza
Mefford, Shane
Rasch, Linda
Reese, Clyde
Rofa, Nadir
Schmidt, David
Taylor, Veronica
Zaremski, James
=============================================================================
<PAGE>
SCHEDULE 6.1(k) TO AGREEMENT AMONG
TOP SOURCE TECHNOLOGIES, INC.,
TOP SOURCE AUTOMOTIVE, INC.,
NCT AUDIO PRODUCTS, INC.,
and
NOISE CANCELLATION TECHNOLOGIES, INC.
Licenses and Permits
To be provided.
<PAGE>
SCHEDULE 6.1(m) TO AGREEMENT AMONG
TOP SOURCE TECHNOLOGIES, INC.,
TOP SOURCE AUTOMOTIVE, INC.,
NCT AUDIO PRODUCTS, INC.,
and
NOISE CANCELLATION TECHNOLOGIES, INC.
Undisclosed Liabilities
None.
<PAGE>
SCHEDULE 6.1(n) TO AGREEMENT AMONG
TOP SOURCE TECHNOLOGIES, INC.,
TOP SOURCE AUTOMOTIVE, INC.,
NCT AUDIO PRODUCTS, INC.,
and
NOISE CANCELLATION TECHNOLOGIES, INC.
Compliance with Law Exceptions
None.
<PAGE>
SCHEDULE 6.1(p) TO AGREEMENT AMONG
TOP SOURCE TECHNOLOGIES, INC.,
TOP SOURCE AUTOMOTIVE, INC.,
NCT AUDIO PRODUCTS, INC.,
and
NOISE CANCELLATION TECHNOLOGIES, INC.
Pending Litigation
None.
<PAGE>
SCHEDULE 6.1(q) TO AGREEMENT AMONG
TOP SOURCE TECHNOLOGIES, INC.,
TOP SOURCE AUTOMOTIVE, INC.,
NCT AUDIO PRODUCTS, INC.,
and
NOISE CANCELLATION TECHNOLOGIES, INC.
Customer List
Chrysler
Kenwood
General Motors
<PAGE>
SCHEDULE 6.1(R) TO AGREEMENT AMONG
TOP SOURCE TECHNOLOGIES, INC.,
TOP SOURCE AUTOMOTIVE, INC.,
NCT AUDIO PRODUCTS, INC.,
and
NOISE CANCELLATION TECHNOLOGIES, INC.
page 1
<TABLE>
TOP SOURCE AUTOMOTIVE, INC
Comparative Statement of Earnings
Month of MAY 31,1998
<S> <C> <C>
Actual Prior Year % of
Month Month Variance Prior Y
---------- ---------- ---------- -------
Net sales 720,761.96 1,713,305.04 992,543.08 42.07
Cost of sales at standard 445,159.79 1,117,910.33 672,750.54 39.82
Gross profit at standard 275,602.17 595,394.71 319,792.54 46.29
Manufacturing variances 39,727.86 119,638.22 79,910.36 33.21
Manufacturing Profit 235,874.31 475,756.49 239,882.18 49.58
Salaries-Administration 2,166.66 4,110.59 1,943.93 52.71
Salaries-officer 0.00 11,666.66 11,666.66 0.00
Benefits-officer 337.58 1,355.77 1,018.19 24.90
Auto Allowance-Officer 0.00 1,000.00 1,000.00 0.00
Auto Allowance-Administration 2,625.00 0.00 (2,625.00) 0.00
Travel 19.80 36.45 16.65 54.32
Entertainment 0.00 1,636.41 1,636.41 0.00
Employee benefits-admin. 88.48 40.13 (48.35) 220.48
Taxes - Other 2,406.05 2,771.12 365.07 86.83
Contract Labor/Recruitment 2,590.00 65.00 (2,525.00) ******
Computer supplies 270.57 0.00 (270.57) 0.00
------------- ------------- ------------- ------
Administrative expenses 10,504.14 22,682.13 12,177.99 46.31
------------- ------------- ------------- ------
Patent amortization 3,968.47 3,789.98 (178.49) 104.71
Salaries - sales 27,618.08 22,485.02 (5,133.06) 122.83
Commissions 2,616.71 680.34 (1,936.37) 384.62
Employee benefits-sales 1,995.36 2,333.03 337.67 85.53
Auto allowance-Sales 0.00 1,793.46 1,793.46 0.00
Travel 1,631.68 190.94 (1,440.74) 854.55
Entertainment 945.03 3,160.07 2,215.04 29.91
Advertising/promotion 150.00 0.00 (150.00) 0.00
Subscriptions,dues,seminars 1,312.95 0.00 (1,312.95) 0.00
Miscellaneous 0.00 95.40 95.40 0.00
Write-off 0.00 5,685.96 5,685.96 0.00
------------- ------------- ------------- ------
Selling expenses 36,269.81 36,424.22 154.41 99.58
Salaries - engineering 29,620.41 37,384.60 7,764.19 79.23
Bonus 0.00 7,152.50 7,152.50 0.00
Employee benefits-engr. 2,759.29 4,751.75 1,992.46 58.07
Auto Allowance-Engineering 0.00 1,047.68 1,047.68 0.00
Travel 934.89 1,700.04 765.15 54.99
Drafting/Engineering supplies 188.89 596.94 408.05 31.64
Entertainment 307.06 62.41 (244.65) 492.00
Memberships/Dues 21.95 (6,377.50) (6,399.45) 0.34
Research and development 2,469.54 3,073.21 603.67 80.36
Consulting-Engineering 7,458.64 8,023.69 565.05 92.96
Engineering-Equipment Maint. 1,438.45 559.91 (878.54) 256.91
Subscriptions,dues,seminars 0.00 570.00 570.00 0.00
------------- ------------- ------------- ------
Engineering expenses 45,199.12 58,545.23 13,346.11 77.20
page 2
Actual Prior Year % of
Month Month Variance Prior Y
---------- ---------- ---------- -------
(continued)
------------- ------------- ------------- ------
Depreciation 1,875.93 2,063.73 187.80 90.90
Discounts allowed 881.38 0.00 (881.38) 0.00
Interest expense 135.33 191.46 56.13 70.68
Misc Income (34.98) 0.00 34.98 0.00
Interest Income-Affiliates 0.00 (95.85) (95.85) 0.00
Divestiture Expense 9,856.70 0.00 (9,856.70) 0.00
Gain(loss) on sale of fixed as (483.50) 0.00 483.50 0.00
Restructuring Expense 16,637.50 0.00 (16,637.50) 0.00
------------- ------------- ------------- ------
Other expenses 26,992.43 95.61 (26,896.82) ******
------------- ------------- ------------- ------
Operating expenses 124,809.90 123,600.90 (1,209.00) 100.98
Profit (loss) before taxes on income 111,064.41 352,155.59 241,091.18 31.54
Taxes on income 4,500.00 6,166.66 1,666.66 72.97
Net Profit (loss) 106,564.41 345,988.93 239,424.52 30.80
============= ============= ============= ======
page 3
TOP SOURCE AUTOMOTIVE, INC
Comparative Statement of Earnings
8 Months ended MAY 31,1998
Actual Prior Variance % of
YTD YTD Prior Y
---------- ------- ---------- -------
Net sales 8,039,267.32 11,971,715.82 3,932,448.50 67.15
Cost of sales at standard 5,193,274.24 7,575,535.19 2,382,260.95 68.55
Gross profit at standard 2,845,993.08 4,396,180.63 1,550,187.55 64.74
Manufacturing variances 197,756.71 281,814.54 84,057.83 70.17
Manufacturing Profit 2,648,236.37 4,114,366.09 1,466,129.72 64.37
Salaries-Administration 17,258.28 21,862.27 4,603.99 78.94
Salaries-officer 0.00 93,333.28 93,333.28 0.00
Benefits-officer 4,199.20 3,373.20 (826.00) 124.49
Auto Allowance-Officer 0.00 8,000.00 8,000.00 0.00
Auto Allowance-Administration 23,585.85 3,864.29 (19,721.56) 610.35
Travel 518.88 2,340.59 1,821.71 22.17
Entertainment 0.00 5,942.79 5,942.79 0.00
Employee benefits-admin. 519.32 677.80 158.48 76.62
Business taxes, fees, licenses 209.00 180.00 (29.00) 116.11
Taxes - Other 24,839.82 24,647.22 (192.60) 100.78
Contract Labor/Recruitment 3,003.35 5,390.88 2,387.53 55.71
Computer supplies 485.16 0.00 (485.16) 0.00
Memberships/Dues-officers 0.00 2,015.00 2,015.00 0.00
------------- ------------- ------------- ------
Administrative expenses 74,618.86 171,627.32 97,008.46 43.48
------------- ------------- ------------- ------
Patent amortization 30,807.56 30,252.84 (554.72) 101.83
Salaries - sales 217,260.48 126,951.51 (90,308.97) 171.14
Commissions 9,280.41 10,960.10 1,679.69 84.67
Employee benefits-sales 11,833.41 11,447.11 (386.30) 103.37
Auto allowance-Sales 0.00 6,235.79 6,235.79 0.00
Travel 27,233.07 6,219.59 (21,013.48) 437.86
Entertainment 10,934.67 22,041.38 11,106.71 49.61
Advertising/promotion 183.67 7,793.60 7,609.93 2.36
Show expense 6,785.50 0.00 (6,785.50) 0.00
Subscriptions,dues,seminars 6,768.72 413.75 (6,354.97) ******
Miscellaneous 557.26 1,953.18 1,395.92 28.53
Public relations 5,355.68 0.00 (5,355.68) 0.00
Write-off (729.88) 5,685.96 6,415.84 12.84
------------- ------------- ------------- ------
Selling expenses 295,462.99 199,701.97 (95,761.02) 147.95
Salaries - engineering 255,719.58 270,331.17 14,611.59 94.59
Bonus 0.00 13,761.07 13,761.07 0.00
Employee benefits-engr. 17,911.57 18,141.65 230.08 98.73
Auto Allowance-Engineering 0.00 2,483.17 2,483.17 0.00
Travel 13,342.32 9,445.46 (3,896.86) 141.26
Drafting/Engineering supplies 5,982.85 6,080.79 97.94 98.39
Entertainment 2,717.80 5,750.58 3,032.78 47.26
Memberships/Dues 621.95 4,765.78 4,143.83 13.05
------------- ------------- ------------- ------
Engineering expenses 296,296.07 330,759.67 34,463.60 89.58
page 4
Actual Prior Variance % of
YTD YTD Prior Y
---------- ------- ---------- -------
(continued)
------------- ------------- ------------- ------
Depreciation 15,024.05 22,953.38 7,929.33 65.45
------------- ------------- ------------- ------
Research and development 106,624.38 63,503.43 (43,120.95) 167.90
page 5
TOP SOURCE AUTOMOTIVE, INC
Comparative Statement of Earnings
8 Months ended MAY 31,1998
Actual Prior % of
YTD YTD Variance Prior Y
---------- -------- ---------- -------
Discounts allowed 5,207.51 0.00 (5,207.51) 0.00
Interest expense 1,217.26 1,792.85 575.59 67.90
Misc Income (5,226.44) (126,000.00) (120,773.56) 4.15
Interest Income-Affiliates (305.89) (853.55) (547.66) 35.84
Divestiture Expense 9,856.70 0.00 (9,856.70) 0.00
Gain(loss) on sale of fixed as 12,311.31 (8,539.25) (20,850.56) 144.17
Restructuring Expense 15,470.83 0.00 (15,470.83) 0.00
------------- ------------- ------------- ------
Other expenses 38,531.28 (133,599.95) (172,131.23) 28.84
------------- ------------- ------------- ------
Operating expenses 857,365.19 685,198.66 (172,166.53) 125.13
Profit (loss) before taxes on income 1,790,871.18 3,429,167.43 1,638,296.25 52.22
Taxes on income 36,166.62 49,333.29 13,166.67 73.31
Net Profit (loss) 1,754,704.56 3,379,834.14 1,625,129.58 51.92
============= ============= ============= ======
TOP SOURCE AUTOMOTIVE, INC
Balance Sheet
MAY 31,1998
ASSETS
Current Prior Year Change in
Balance End Balance Balance
--------- -------------- -----------
Current assets:
Cash and Equivalents (217,806.94) (194,056.38) (23,750.56)
Receivables-trade 1,646,308.64 2,184,699.57 (538,390.93)
Receivables-other 19,939.75 32,622.51 (12,682.76)
Inventory 722,988.34 764,788.49 (41,800.15)
Other Current Assets 73,895.32 83,482.23 (9,586.91)
Total Current Assets 2,245,325.11 2,871,536.42 (626,211.31)
Manufacturing and Distribution Rights (net) 147,625.16 157,013.15 (9,387.99)
Property and Equipment 1,179,898.80 1,146,036.05 33,862.75
Accumulated Depreciation (869,300.53) (689,098.24) (180,202.29)
310,598.27 456,937.81 (146,339.54)
TOTAL ASSETS 2,703,548.54 3,485,487.38 (781,938.84)
============= ============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts Payable 455,532.15 615,419.88 (159,887.73)
Accrued Liabilities 28,530.17 261,969.14 (233,438.97)
Total Current Liabilities 484,062.32 877,389.02 (393,326.70)
Intercompany - Corporate (11,469,309.97) (9,325,993.27) (2,143,316.70)
Shareholders' equity:
Common stock 100.00 100.00 0.00
Additional paid-in-capital 394,820.57 394,820.57 0.00
Retained earnings 11,539,171.06 11,539,171.06 0.00
Profit (loss) for period 1,754,704.56 0.00 1,754,704.56
Total Shareholders' Equity 13,688,796.19 11,934,091.63 1,754,704.56
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 2,703,548.54 3,485,487.38 (781,938.84)
============= ============= =============
page 2
TOP SOURCE AUTOMOTIVE, INC
Comparative Statement of Earnings
Month of MAY 31,1998
Current Same Month % of
Month Prior Year Variance Prior Y
---------- ------------ ---------- -------
Net sales 720,761.96 1,713,305.04 992,543.08 42.07
Cost of sales at standard 445,159.79 1,117,910.33 672,750.54 39.82
Gross profit at standard 275,602.17 595,394.71 319,792.54 46.29
Manufacturing variances 39,727.86 119,638.22 79,910.36 33.21
Manufacturing Profit 235,874.31 475,756.49 239,882.18 49.58
Administrative expenses 10,504.14 22,682.13 12,177.99 46.31
Patent amortization 3,968.47 3,789.98 (178.49) 104.71
Selling expenses 36,269.81 36,424.22 154.41 99.58
Engineering expenses 33,832.49 46,318.42 12,485.93 73.04
Depreciation - Engineering 1,875.93 2,063.73 187.80 90.90
Research and development 11,366.63 12,226.81 860.18 92.96
Other expenses 26,992.43 95.61 (26,896.82) ******
124,809.90 123,600.90 (1,209.00) 100.98
Profit (loss) before taxes on income 111,064.41 352,155.59 241,091.18 31.54
Taxes on income 4,500.00 6,166.66 1,666.66 72.97
Net Profit (loss) 106,564.41 345,988.93 239,424.52 30.80
============= ============= ============= ======
Depreciation plant equipment in cost of 14,497.75 14,231.80 (265.95) 101.87
page 3
TOP SOURCE AUTOMOTIVE, INC
Comparative Statement of Earnings
8 Months ended MAY 31,1998
Actual Prior Yr % of
YTD YTD Variance Prior Y
---------- --------- ---------- -------
Net sales 8,039,267.32 11,971,715.82 3,932,448.50 67.15
Cost of sales at standard 5,193,274.24 7,575,535.19 2,382,260.95 68.55
Gross profit at standard 2,845,993.08 4,396,180.63 1,550,187.55 64.74
Manufacturing variances 197,756.71 281,814.54 84,057.83 70.17
Manufacturing Profit 2,648,236.37 4,114,366.09 1,466,129.72 64.37
Administrative expenses 74,618.86 171,627.32 97,008.46 43.48
Patent amortization 30,807.56 30,252.84 (554.72) 101.83
Selling expenses 295,462.99 199,701.97 (95,761.02) 147.95
Engineering expenses 296,296.07 330,759.67 34,463.60 89.58
Depreciation - Engineering 15,024.05 22,953.38 7,929.33 65.45
Research and development 106,624.38 63,503.43 (43,120.95) 167.90
Other expenses 38,531.28 (133,599.95) (172,131.23) 28.84
857,365.19 685,198.66 (172,166.53) 125.13
Profit (loss) before taxes on income 1,790,871.18 3,429,167.43 1,638,296.25 52.22
Taxes on income 36,166.62 49,333.29 13,166.67 73.31
Net Profit (loss) 1,754,704.56 3,379,834.14 1,625,129.58 51.92
============= ============= ============= ======
Depreciation plant equipment in cost of 121,962.00 106,528.63 (15,433.37) 114.49
</TABLE>
<PAGE>
SCHEDULE 6.1(t) TO AGREEMENT AMONG
TOP SOURCE TECHNOLOGIES, INC.,
TOP SOURCE AUTOMOTIVE, INC.,
NCT AUDIO PRODUCTS, INC.,
and
NOISE CANCELLATION TECHNOLOGIES, INC.
Suppliers Discontinuing or Reducing Transactions with TSA
None.
<PAGE>
SCHEDULE 6.3(b) TO AGREEMENT AMONG
TOP SOURCE TECHNOLOGIES, INC.,
TOP SOURCE AUTOMOTIVE, INC.,
NCT AUDIO PRODUCTS, INC.,
and
NOISE CANCELLATION TECHNOLOGIES, INC.
Buyer's Consents
<PAGE>
SCHEDULE 7.1(a) TO AGREEMENT AMONG
TOP SOURCE TECHNOLOGIES, INC.,
TOP SOURCE AUTOMOTIVE, INC.,
NCT AUDIO PRODUCTS, INC.,
and
NOISE CANCELLATION TECHNOLOGIES, INC.
Actions Outside Ordinary Course of Business
None.
<PAGE>
SCHEDULE 8.1(g) TO AGREEMENT AMONG
TOP SOURCE TECHNOLOGIES, INC.,
TOP SOURCE AUTOMOTIVE, INC.,
NCT AUDIO PRODUCTS, INC.,
and
NOISE CANCELLATION TECHNOLOGIES, INC.
Form of Opinion of Buyer's Counsel
1. __________ have been duly organized, are validly existing and are in good
standing under the laws of the State of _____________, respectively, with full
corporate power and authority to own and lease its properties and conduct its
business. To the best of our knowledge, __________ is duly qualified or licensed
to do business as a foreign corporation and is in good standing in each
jurisdiction in which the character of the business conducted by it or the
location of the properties owned or leased by it, requires such qualification
except for such jurisdictions in which the failure to qualify in the aggregate
will not have a material adverse effect on the results of operations, financial
condition, business or prospects of __________ taken as a whole.
2. __________ have the corporate power and authority to execute and
deliver the Agreement and other agreements and instruments (the "Transaction
Documents") to which each is a party and the authority to perform their
obligations thereunder. Such execution, delivery and performance by __________
will not conflict with, or result in a breach of, such party's Articles or
Certificate of Incorporation or By-laws. The execution and delivery of the
Transaction Documents and the performance of the obligations thereunder by such
party will not result in a breach of, default under or other violation of, any
of the terms, conditions or provisions of any law or regulation or, to the best
of our knowledge, any order, writ, injunction or decree of any court, government
or regulatory authority, or any of the terms, conditions or provisions of any
agreement, instrument or document to which __________ is a party or by which
___________ or their properties are bound. To our knowledge, such execution,
delivery and performance will not constitute grounds for acceleration of the
maturity of any material agreement, indenture, undertaking or other instrument
to which _______ is a party or by which they or their properties may be bound or
result in the creation or imposition of (or the obligation to create or impose)
any lien, charge or encumbrance on, or security interest in, any of their
respective properties pursuant to the provisions of any of the foregoing.
3. The execution and delivery by __________ of the Transaction
Documents to which each is a party and the performance of the transactions
contemplated thereby have been duly authorized and approved by all requisite
corporate action on the part of each corporation.
4. Each of the Transaction Documents to which __________ is a party has
been duly executed and delivered by such ____________. Each Transaction Document
so executed by these parties constitutes the valid and binding obligation of
such party enforceable in accordance with its terms, except as the
enforceability thereof (i) may be subject to or limited by bankruptcy,
insolvency, reorganization, arrangement, moratorium or similar laws relating to
or affecting the rights of creditors generally, and (ii) is subject to general
principles of equity, regardless of whether such enforceability is considered in
a proceeding in equity or at law.
5. To our knowledge, __________ owns, possesses, is licensed or
otherwise has the right to use all licenses, permits and other governmental
approvals and authorizations that are materially necessary for the operation of
its business.
6. To the best of our knowledge, there are no judgments outstanding
against __________, nor are there any suits or proceedings pending or
threatened, which if adversely determined, would have a material adverse effect
on (i) the transactions contemplated in, or the validity or enforceability of,
any of the Transaction Documents, or (ii) the condition, financial or otherwise,
of __________. To the best of our knowledge, __________ is not in default with
respect to, or in violation of, (A) any order, writ, injunction or decree of any
court, (B) any law, order, regulation or demand of any governmental authority,
or (C) any agreement to which __________, or its properties is bound or subject,
which would have a material adverse effect on (x) the transactions contemplated
in, or the validity or enforceability of, any of the Transaction Documents, or
(y) the condition, financial or otherwise, of __________.
7. No consents, orders, authorizations, or approvals from, or notices
to, registrations with, or exemptions by, any governmental or public body or
authority are required by law in connection with the valid execution and
delivery of the Transaction Documents by ___________ or the performance by
__________ under the Transaction Documents to which either is a party.
<PAGE>
SCHEDULE 8.2(d) TO AGREEMENT AMONG
TOP SOURCE TECHNOLOGIES, INC.,
TOP SOURCE AUTOMOTIVE, INC.,
NCT AUDIO PRODUCTS, INC.,
and
NOISE CANCELLATION TECHNOLOGIES, INC.
Material Adverse Changes since June 30, 1998
None.
<PAGE>
SCHEDULE 8.2(i) TO AGREEMENT AMONG
TOP SOURCE TECHNOLOGIES, INC.,
TOP SOURCE AUTOMOTIVE, INC.,
NCT AUDIO PRODUCTS, INC.,
and
NOISE CANCELLATION TECHNOLOGIES, INC.
Form of Opinion of Counsel to the Parent and TSA
1. TSI and TSA have been duly organized, are validly existing and are in good
standing under the laws of the States of Delaware and Florida, respectively,
with full corporate power and authority to own and lease its properties and
conduct its business. To the best of our knowledge, TSA is duly qualified or
licensed to do business as a foreign corporation and is in good standing in each
jurisdiction in which the character of the business conducted by it or the
location of the properties owned or leased by it, requires such qualification
except for such jurisdictions in which the failure to qualify in the aggregate
will not have a material adverse effect on the results of operations, financial
condition, business or prospects of TSA taken as a whole.
2. TSI and TSA have the corporate power and authority to execute and
deliver the Agreement and other agreements and instruments (the "Transaction
Documents") to which each is a party and the authority to perform their
obligations thereunder. Such execution, delivery and performance by TSI and TSA
will not conflict with, or result in a breach of, such party's Articles or
Certificate of Incorporation or By-laws. The execution and delivery of the
Transaction Documents and the performance of the obligations thereunder by such
party will not result in a breach of, default under or other violation of, any
of the terms, conditions or provisions of any law or regulation or, to the best
of our knowledge, any order, writ, injunction or decree of any court, government
or regulatory authority, or any of the terms, conditions or provisions of any
agreement, instrument or document to which TSI or TSA is a party or by which TSI
or TSA or their properties are bound. To our knowledge, such execution, delivery
and performance will not constitute grounds for acceleration of the maturity of
any material agreement, indenture, undertaking or other instrument to which TSI
or TSA is a party or by which they or their properties may be bound or result in
the creation or imposition of (or the obligation to create or impose) any lien,
charge or encumbrance on, or security interest in, any of their respective
properties pursuant to the provisions of any of the foregoing.
3. The execution and delivery by TSI and TSA of the Transaction
Documents to which each is a party and the performance of the transactions
contemplated thereby have been duly authorized and approved by all requisite
corporate action on the part of each corporation.
4. Each of the Transaction Documents to which TSI and TSA is a party
has been duly executed and delivered by such parties. Each Transaction Document
so executed by these parties constitutes the valid and binding obligation of
such party enforceable in accordance with its terms, except as the
enforceability thereof (i) may be subject to or limited by bankruptcy,
insolvency, reorganization, arrangement, moratorium or similar laws relating to
or affecting the rights of creditors generally, and (ii) is subject to general
principles of equity, regardless of whether such enforceability is considered in
a proceeding in equity or at law.
5. All shares of TSA's outstanding stock have been duly authorized
validly issued and are fully paid and non-assessable. To the best of our
knowledge, there are no pre-emptive or other rights to subscribe for or to
purchase shares of common stock, nor, to the best of our knowledge, are there
any restrictions upon the voting or transfer of any of the outstanding shares of
common stock.
6. To our knowledge, TSA owns, possesses, is licensed or otherwise has
the right to use all licenses, permits and other governmental approvals and
authorizations that are materially necessary for the operation of its business.
7. To the best of our knowledge, there are no judgments outstanding
against TSA, nor are there any suits or proceedings pending or threatened, which
if adversely determined, would have a material adverse effect on (i) the
transactions contemplated in, or the validity or enforceability of, any of the
Transaction Documents, or (ii) the condition, financial or otherwise, of TSA. To
the best of our knowledge, TSA is not in default with respect to, or in
violation of, (A) any order, writ, injunction or decree of any court, (B) any
law, order, regulation or demand of any governmental authority, or (C) any
agreement to which TSA, or its properties is bound or subject, which would have
a material adverse effect on (x) the transactions contemplated in, or the
validity or enforceability of, any of the Transaction Documents, or (y) the
condition, financial or otherwise, of TSA.
8. No consents, orders, authorizations, or approvals from, or notices
to, registrations with, or exemptions by, any governmental or public body or
authority are required by law in connection with the valid execution and
delivery of the Transaction Documents by TSI or TSA, or the performance by TSI
or TSA under the Transaction Documents to which either is a party.
<PAGE>
SCHEDULE 9.6(a) TO AGREEMENT AMONG
TOP SOURCE TECHNOLOGIES, INC.,
TOP SOURCE AUTOMOTIVE, INC.,
NCT AUDIO PRODUCTS, INC.,
and
NOISE CANCELLATION TECHNOLOGIES, INC.
Persons Required to Sign Agreement Not to Compete
All TSA Employees.
6
Agreement
THIS AGREEMENT is made as of the 30th day of June, 1998, by and between
Top Source Technologies, Inc., a Delaware corporation (the "Company), and Mr.
Stuart Landow (the "Executive").
W I T N E S S E T H THAT
WHEREAS, the Company and the Executive are parties to that certain
Employment Agreement dated as of August 18, 1993, as amended by the letter
agreement dated November 30, 1993, and as further amended by the letter
agreement effective as of June 1, 1997 (as so amended, the "Employment
Agreement"); and
WHEREAS, the initial term of employment under the Employment Agreement
was scheduled to expire on June 1, 1999; and
WHEREAS, the Company has previously acknowledged that the Executive is
entitled to resign from employment with the Company for Good Reason (as defined
in the Employment Agreement) and to receive certain benefits in connection with
such resignation as provided in the Employment Agreement; and
WHEREAS, the parties have mutually agreed that the Executive's
employment with the Company should terminate effective as of the date of this
Agreement; and
WHEREAS, the Company and the Executive desire to set forth their
agreement as to certain matters relating the such termination of employment;
NOW, THEREFORE, it is hereby agreed as follows:
1. TERMINATION OF EMPLOYMENT. The Executive's employment with the
Company shall terminate effective as of the close of business on the date of
this Agreement, and the Executive shall resign as a director and/or officer of
the Company and each its subsidiaries with effect as of such date. The Executive
shall not be required to provide any further services to the Company or any of
its subsidiaries.
2. CONSULTING PAYMENT. The Company shall pay the Executive the sum
of $32,465.82 per month for the thirty consecutive months (the "Payout Period")
commencing on July 15, 1998 and ending on December 15, 2000 (the "Monthly
Payment"). The Monthly Payment shall be payable on the fifteenth day of each
calendar month (or, if any such date is not a business day, on the next business
day following such date) during the Payout Period. The Company may deduct the
amounts payable by the Executive to the Company in repayment of certain loans
referred to in Section 4(b) of this Agreement from the corresponding Monthly
Payments.
3. STOCK OPTIONS. (a) Section 2 of the Stock Option Agreement (the
"Option Agreement"), between the Company and the Executive, dated August 18,
1993, is hereby amended in its entirety to read as follows:
Option Price. The exercise price of 400,000 of such options shall be $2.06
per share, and the exercise price of the remaining 200,000 options shall be
$3.56 per share.
(b) The Company agrees and acknowledges that all of the Options previously
granted to the Executive pursuant to the Option Agreement are fully vested and
are currently exercisable. The Company and the Executive agree further that,
notwithstanding the last sentence of Section 4(a) of the Option Agreement or
Section 6(a) (iv) of the Employment Agreement, all of the Options shall remain
exercisable through July 1, 2001.
3. CONTINUED PARTICIPATION IN BENEFIT PLANS. The Company shall
make available without cost to the Executive and his spouse and dependents,
insurance substantially comparable to the medical, life and long-term disability
insurance coverage provided pursuant to Section 5(b) of the Employment Agreement
that are in effect on the date of this Agreement for the duration of the Payout
Period or, in the event that the Company cannot obtain such benefits for the
Executive, the cash equivalent thereof, in each case plus the amount in cash,
payable on an annual basis, necessary to gross-up such benefit or payment, as
the case may be, for personal income taxes payable by the Executive with respect
to such benefits or payments or payments at the marginal rate of 41.05%. The
foregoing insurance coverage shall be included as part of any required
continuation of coverage under Part 6, Subtitle B of Title I of the Employee
Retirement Income Security Act of 1974, as amended, or any similar state or
local law ("COBRA Coverage"); provided, however, that the COBRA Coverage shall
terminate with respect to such spouse and/or dependents as of the date that the
spouse and/or dependents receive equivalent coverage and benefits under any
plans, programs and/or arrangements of a subsequent employer.
4. CERTAIN OTHER ARRANGEMENTS.
(a) The Executive hereby agrees on a best efforts basis to attempt not
to trade in any of the Company's securities for a period of 90 (ninety) days
commencing as of the date hereof.
(b) The outstanding loans in the aggregate principal amount of $105,000
(the
"Loans") previously made by the Company to the Executive pursuant to the Loan
Agreement dated August 7, 1997, between the Company and the Executive, and the
Loan Agreement dated August 7, 1997, between the Company and Executive are
hereby restructured such that the principal amount of the Loans will hereafter
be repaid by the Executive to the Company in thirty equal monthly installments
of $3,500.00 payable on the fifteenth day of each calendar month during the
Payout Period as set forth in Schedule A hereto, plus interest at the rate of 9%
per annum compounded quarterly. The Company may deduct the scheduled repayments
from the corresponding Monthly Payments payable by the Company to the Executive
during the Payout Period.
5. WAIVER OF CERTAIN RIGHTS; CONTINUING OBLIGATIONS.
(a) The Executive acknowledges and agrees that the payments and other
benefits set forth in this Agreement are in lieu of any and all amounts to which
the Executive may be entitled under the Employment Agreement as a result of his
termination of his employment by the company for "Good Reason", and the
Executive hereby waives any and all such rights and any and all claims which the
Executive had, has or may have had against the Company, any of its subsidiaries,
and any of their respective officers, directors, employees and agents, under the
Employment Agreement or otherwise arising out of or relating to the Executive's
employment by the Company. Except as provided in Section 5(b) of this Agreement,
the Employment Agreement shall terminate and shall be of no further force and
effect.
(b) Notwithstanding anything to the contrary set forth in Section 5(a)
of
Agreement, Sections 7(a) (Competition with the Company), 7(b) (Confidentiality
and Conduct), 7(c) (No Interference), 7(d) (Post-Termination Activities, 7(e)
(Equitable Relief), 8 (Indemnification) and 13 (Arbitration), of the Employment
Agreement shall survive the termination of the Executive's employment and shall
continue in full force and effect for the applicable periods specified in the
Employment Agreement or (I) in the case of Section 8 of the Employment Agreement
until the later of the date the statute of limitations has run on claims
relating to periods prior to July 1, 1998, or the date on which such claims, if
any, have been finally resolved, or (ii) in the case of Section 13, until all
payments due under this Agreement have been made. The Company shall continue to
maintain directors and officer's liability insurance covering the period prior
to July 1, 1998 until the expiration of its indemnification obligations under
this Agreement.
6. SUCCESSORS; BENEFICIARIES. (a) This Agreement is personal to the
Executive and, without the prior written consent of the Company, shall not be
assign-able by the Executive otherwise than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be enforceable by
the Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon
the Company and its successors and assigns.
(c) The Company shall require any successor (whether direct or
indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of the Company expressly to assume and agree to perform
this Agreement in the same manner and to the same extent that the Company would
have been required to perform it if no such successions had taken place. As used
in this Agreement, "Company" shall mean both the Company as defined above and
any such successor that assumes and agrees to perform this Agreement, by
operation of law or otherwise.
(d) The Executive shall be entitled, to the extent permitted under
any applicable
law, to select and change the beneficiary or beneficiaries to receive any
compensation or benefit payable hereunder following the Executive's death by
giving the Company written notice thereof. In the event of the Executive's death
or a judicial determination of his incompetence, reference in this Agreement to
the Executive shall be deemed, where appropriate, to refer to his beneficiary,
estate or other legal representative.
7. MISCELLANEOUS. (a) This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware, without
reference to principles of conflict of laws. This Agreement may not be amended
or modified except by a written agreement executed by the parties hereto or
their respective successors and legal representatives.
(b) All notices and other communications under this Agreement shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Executive:
Mr. Stuart Landow
338 River Edge Road
Jupiter, Florida 33477
If to the Company:
Top Source Technologies, Inc.
7108 Fairway Drive, Suite 200
Palm Beach Gardens, Florida 33418
Attention: General Counsel
or to such other address as either party furnishes to the other in writing in
accordance with this paragraph (b) of Section 14. Notices and communications
shall be effective when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not
affect the validity or enforceability of any other provision of this Agreement.
If any provision of this Agreement shall be held invalid or unenforceable in
part, the remaining portion of such provision, together with all other
provisions of this Agreement, shall remain valid and enforceable and continue in
full force and effect to the fullest extent consistent with law.
(d) Notwithstanding any other provision of this Agreement, the Company
and the
Executive agree that the payments hereunder are for services that Executive may
render as a consultant to the Company and that the Company will not withhold
from amounts payable under this Agreement any federal, state, local or foreign
taxes from such payments unless and to the extent such withholding is required
under applicable laws or regulations. Consistent with the foregoing, it is
acknowledged and agreed that, except as specifically provided in Section 3
hereof, the Executive shall be responsible for the payment of all taxes payable
by the Executive in connection with the payments and other benefits to be
received by the Executive pursuant to this Agreement.
(e) The rights and benefits of the Executive under this Agreement may
not be
anticipated, assigned, alienated or subject to attachment, garnishment, levy,
execution or other legal or equitable process except as required by law. Any
attempt by the Executive to anticipate, alienate, assign, sell, transfer,
pledge, encumber or charge the same shall be void. Payments hereunder shall not
be considered assets of the Executive in the event of insolvency or bankruptcy.
(f) This Agreement may be executed in several counterparts, each of
which shall be deemed an original, and said counterparts shall constitute but
one and the same instrument.
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<PAGE>
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand
and, pursuant to the authorization of the Board of Directors, the Company has
caused this Agreement to be executed in its name on its behalf, all as of the
day and year first above written.
- ---------------------------
Stuart Landow
TOP SOURCE TECHNOLOGIES, INC.
By: _________________________
President and CEO
Will Willis, Jr.
