SUPPLEMENT TO PROXY STATEMENT
The following information supplements the information contained in the
proxy statement ("Proxy Statement") of Top Source Technologies, Inc. (the
"Company"), dated November 6, 1998 and issued in connection with the annual
meeting of stockholders scheduled to be held on December 15, 1998. The
information contained in this Supplement relates to recent events which
stockholders should consider in connection with their vote on the issues to be
presented at the meeting. Any stockholder who has voted by submitting a proxy
may revoke that proxy by voting on the new proxy card enclosed with this mailing
or by attending the annual meeting and voting in person on the matters to be
presented.
The Company recently sold $3,500,000 of its Series B Convertible
Preferred Stock ("Series B Preferred") to a trust in which Mr. G. Jeff Mennen, a
director of the Company is one of the co-trustees, and the beneficiary is a
member of Mr. Mennen's immediate family (the "Mennen Trust"). The Series B
Preferred is convertible on or after November 1, 1999 into a number of shares of
common stock computed by dividing the stated value of $1,000 per share (the
"Stated Value") by 85% of the closing bid price of the common stock on the
previous trading day (the "Conversion Price"). The Company has the option to
redeem the Series B Preferred at 110% of Stated Value plus accrued dividends at
any time before May 1, 1999, and at a price of 115% of Stated Value plus accrued
dividends commencing on May 1, 1999 and expiring on October 27, 1999. The Series
B Preferred pays a dividend of 9% per annum in cash or, if the Company is unable
to pay cash, in shares of common stock. The number of shares of common stock to
be issued in such event shall equal the sum of: (A) the amount of the dividend
times the Conversion Price plus (B) 25% of the amount obtained in clause (A). As
additional consideration, the Company issued to the Mennen Trust 350,000
warrants to purchase the Company's common stock exercisable over a 10-year
period at a price of $1.93 per share (which is equivalent to $1.00 above the
closing price on the day of consummation of the Series B Preferred sale
transaction). Additionally, if the Series B Preferred has not been redeemed or
converted into common stock on or before May 1, 1999 (which conversion requires
the Company's consent), the Company shall issue to the Mennen Trust an
additional 50,000 10-year warrants exercisable at a price of $.50 per share
above the closing price of the Company's common stock on April 30, 1999. Not
later than November 30, 1999, the Company has agreed to file a registration
statement to cover the public sale of the shares of common stock issuable on
conversion of the Series B Preferred and exercise of the warrants. The Company
consummated this transaction after diligently and actively seeking alternative
financing sources and concluding that the proposal was superior to competing
offers available in strict arms-length transactions. The board of directors
voted unanimously to approve the sale of the Series B Preferred with Mr. Mennen
abstaining.
Following the closing of the Series B Preferred sale, the Company
redeemed one-half or $500,000 Stated Value of the existing Series A Convertible
Preferred Stock ("Series A Preferred") by paying the holders an aggregate
purchase price of $600,000. The holders also agreed not to convert $350,000
Stated Value of Series A Preferred until after March 31, 1999 (and the Company
retained the right to redeem $350,000 Stated Value of Series A Preferred Stock
at a 20% premium above Stated Value at any time on or before March 31, 1999).
The remaining $150,000 Stated Value of Series A Preferred was converted into an
aggregate of 412,970 shares of common stock in accordance with the terms of the
Series A Preferred. As consideration for the delay in converting $350,000 Stated
Value of the Series A Preferred, the Company issued to the two holders thereof,
five-year warrants to purchase an aggregate of 25,000 share of common stock
exercisable at $.8937 per share commencing in April 1999.
The Company has restructured substantially all of its outstanding
$3,020,000 of convertible notes (the "Notes"). With a portion of the proceeds
from the Series B Preferred, the Company prepaid an aggregate of $750,000
principal amount of Notes for $500,000 resulting in a savings of $250,000 in
principal amount (not including future debt service costs). In connection with
the discounting of these Notes, the Company issued to the noteholders warrants
to purchase an aggregate of 250,000 shares of the Company's common stock
exercisable over a five-year period at $1.78 per share. The Company has agreed
to register the shares of common stock issuable upon exercise of the warrants.
In addition, the Agent for holders of an aggregate of $2,270,000 of the Notes
(the "Second Group") has entered into a non-binding letter of intent with the
Company providing for prepayment of $749,100 principal amount of the Notes (at
the rate of $.33 per $1.00 of principal) on December 15, 1998. This payment is
not contingent on stockholder approval of the sale of the Top Source Automotive,
Inc. ("TSA") assets to NCT Audio, Inc. Additionally, the letter of intent
provides that the Company shall make an additional prepayment of $839,900
principal amount of the Notes (at the rate of $.37 per $1.00 of principal) if
the stockholders of the Company approve the sale of TSA assets. Assuming that
the Second Group enters into a definitive Amendment to the Note Purchase
Agreement (the "Amendment") and the Notes are redeemed, the Second Group will
continue to hold Notes in the principal amount of $681,000. The letter of intent
also provides for a modification of the Second Group's remaining Notes upon the
contemplated prepayment by reducing the interest rate from 9% per annum to 5%
per annum and reducing the conversion price from $10.00 per share to $2.00 per
share. The letter of intent also provides that the Second Group will provide a
waiver of certain restrictive provisions of the Note Purchase Agreement,
including the requirement that the Company maintain a 1.5 to one debt to equity
ratio, which waiver shall continue through and including September 30, 1999
which is the conclusion of the Company's current fiscal year. There can be no
assurances that the Amendment will be executed or that the transactions
contemplated by the letter of intent will be consummated.
The Company has also obtained a waiver from its principal lender,
NationsCredit Commercial Funding ("NationsCredit"), of the financial covenant
precluding the Company from having a loss of more than $2,000,000 in a fiscal
year. This waiver is conditioned upon the Company obtaining stockholder approval
of the TSA transaction on or before December 31, 1998. In conjunction with such
waiver, the Company paid NationsCredit a fee of $25,000 and agreed to
collaterally assign a $250,000 certificate of deposit to NationsCredit if the
Company's stockholders approve the TSA transaction prior to December 31, 1998.
The effect of the foregoing transactions is to improve the Company's
liquidity. Stockholders should consider all of the above information in
connection with their voting decision on the matters to be presented at the
December 15, 1998 meeting. To the extent that any information contained in the
November 6, 1998 Proxy Statement has not been modified by the foregoing
transactions, such information remains accurate and is incorporated by reference
in this supplement.
William C. Willis, Jr.
Chairman, President and CEO
Dated: November 23, 1998
IF YOU HAVE NOT ALREADY SENT IN YOUR PROXY, WE URGE YOU TO SEND IN YOUR VOTE
TODAY.
