As filed with the Securities and Exchange Commission on January 29, 1999.
Registration No. 333-56083
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 4
TO
FORM S-3
Registration Statement Under
The Securities Act of 1933
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 No.)
7108 Fairway Drive, Suite 200, Palm Beach Gardens, FL 33418
(561) 775-5756
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
Mr. William C. Willis, Jr., President
TOP SOURCE TECHNOLOGIES, INC.
7108 Fairway Drive, Suite 200
Palm Beach Gardens, FL 33418
(561) 775-5756
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copy to:
Michael D. Harris, Esq.
Michael Harris, P.A.
1645 Palm Beach Lakes Boulevard, Suite 550
West Palm Beach, Florida 33401
(561) 478-7077
Approximation date of commencement of proposed sale to the public: As
soon as practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box.
[ ]
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box
[X]
<PAGE>
<TABLE>
CALCULATION OF REGISTRATION FEE
<S> <C> <C> <C> <C>
Proposed Proposed
maximum maximum
Title of each class offering aggregate Amount of
of securities Amount to be price per offering registration
to be registered registered share price fee
Common Stock 2,280,937(1) $1.032(2) $2,353,926.98 $______(3)
($.001 par value)
TOTAL REGISTRATION FEE $______(3)
- -----------------------------------------
</TABLE>
(1) Consists of 387,554 shares of common stock issued in connection with
the conversion of $150,000 of 5% Series A Convertible Preferred Stock
("Series A Preferred"), 1,250,000 shares of common stock to be issued
upon conversion of $350,000 of Series A Preferred, 120,000 shares of
common stock to be issued as dividends to holders of Series A Preferred
and 523,383 shares of common stock to be issued upon exercise of
warrants.
(2) Estimated solely for the purpose of computing the registration fee
based on the average of the high and low price of the Registrant's
common stock in the consolidated reporting system on the American Stock
Exchange on June 1, 1998.
(3) The registrant previously paid in connection with the initial filing of
this registration statement covering 3,500,000 shares of common stock.
Because of the redemption of one-half of the Series A Preferred, the
number of shares of common stock covered by this registration statement
has been reduced even though an additional 273,383 shares of common
stock, issuable upon exercise of additional warrants, have been added.
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act or until the Registration Statement shall become effective on
such date as the Commission, acting pursuant to said Section 8(a), may
determine.
<PAGE>
TOP SOURCE TECHNOLOGIES, INC.
CROSS REFERENCE SHEET
<TABLE>
<S> <C>
Form S-3 Item Numbers and Caption Heading in Prospectus
1. Forepart of the Registration Statement and
Outside Front Cover of Prospectus.................................... Cover Page of Form S-3 and
Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus........................................................... Inside Front and Outside Back
Cover Pages of Prospectus
3. Summary Information, Risk Factors...................................... Not Applicable and
and Ratio of Earning to Fixed Charges.................................. Risk Factors
4. Use of Proceeds........................................................ Cover Page of Prospectus
5. Determination of Offering Price........................................ Cover Page of Prospectus
6. Dilution............................................................... Not Applicable
7. Selling Security Holders............................................... Selling Stockholders
8. Plan of Distribution................................................... Cover Page of Prospectus and
Plan of Distribution
9. Description of Securities to be Registered............................. Documents Incorporated by
Reference and Description of
Series A Preferred and
Warrants
10. Interests of Named Experts and Counsel................................. Legal Matters and Experts
11. Material Changes....................................................... Recent Developments and Pro
Forma Condensed Financial
Information
12. Incorporation of Certain Information By Reference...................... Documents Incorporated by
Reference
13. Disclosure of Commission Position on .................................. Part II
Indemnification for Securities Act Liabilities
14. Other Expenses of Issuance and Distribution............................ Part II
15. Indemnification of Directors and Officers.............................. Part II
16. Exhibits and Financial Statement Schedules............................. Part II
17. Undertakings........................................................... Part II
</TABLE>
<PAGE>
PROSPECTUS
TOP SOURCE TECHNOLOGIES, INC.
760,937 Shares of Common Stock
This Prospectus relates to an aggregate of 760,937 shares of common
stock, $.001 par value per share (the "Common Stock"), of Top Source
Technologies, Inc. (the "Company") being offered for sale by certain
stockholders and warrantholders of the Company (the "Selling Stockholders").
These shares consist of 387,554 shares acquired in connection with the recent
conversion of the outstanding 5% Series A Convertible Preferred Stock (the
"Series A Preferred"), and 348,383 shares issuable upon the exercise of two
classes of warrants (the "Warrants"). Of the Warrants, 100,000 are currently
exercisable at $1.10 per share and 248,383 are exercisable at approximately
$1.78 per share. In May 1998, the Company sold to two foreign purchasers (the
"Purchasers"), which are two of the Selling Stockholders, an aggregate of 1,000
shares of Series A Preferred for $1,000,000 (one-half of which has been
redeemed) and issued Warrants to purchase 250,000 shares of the Company's Common
Stock (100,000 of which are currently exercisable) exercisable at $1.10 per
share ("Class A Warrants") to the Purchasers and three other corporations
designated by Intercontinental Holding Company, Ltd., the Placement Agent. In
December 1998, the Company and the Purchasers modified the Series A Preferred
resulting in the Company issuing an additional 25,000 Warrants exercisable at
approximately $.89 per share (the "Class B Warrants"). The Company restructured
its outstanding $3,020,000 9% Convertible Notes (the "Notes") and issued to
certain noteholders Warrants to purchase shares of the Company's Common Stock
exercisable at approximately $1.78 which price is $1.00 above market on the date
of the agreement ("Class C Warrants"). See "Recent Developments". The Series A
Preferred and Warrants were issued to accredited investors pursuant to
exemptions from registration under Section 4(2) of the Securities Act of 1933
(the "Securities Act") and Rule 506 thereunder. The Company was required to
register the underlying shares of Common Stock. See "Description of Series A
Preferred and Warrants".
As of the date of this Prospectus, the Company's officers and directors
beneficially own approximately 2.3% of the Company's Common Stock. Based upon
information available to the Company, the only stockholder beneficially owning
5% or more of the Company's Common Stock is a registered investment advisor.
According to a Schedule 13-G filed by the investment advisor on January 23,
1998, as the result of investment power over the accounts of its clients, the
advisor and its affiliates are the beneficial owners of 7.3% of the Company's
Common Stock, none of which are being offered for sale pursuant to this
Prospectus. The Company has no current information concerning the current
beneficial ownership of this investment advisor. On January 22, 1999, the
closing price of the Company's stock on the American Stock Exchange was
approximately $.8125.
<PAGE>
All of the shares of Common Stock are offered for the respective
accounts of the Selling Stockholders as listed in this Prospectus under "Selling
Stockholders". The Company will receive none of the proceeds from the sale of
the shares of Common Stock by the Selling Stockholders. However, the Company
will receive a maximum of approximately $574,372 in connection with the exercise
of the 373,383 Warrants, the underlying shares of which are covered by this
Prospectus. Such proceeds will be used for general corporate purposes. All of
the expenses of this offering, estimated at $32,000 will be borne by the
Company.
The Company has been advised by the Selling Stockholders that the
Common Stock may be offered and sold from time to time by or on behalf of the
Selling Stockholders, in or through transactions or distributions (including
crosses and block transactions) on the American Stock Exchange or in the
over-the-counter market at market prices prevailing at the time of sale, or at
negotiated prices, and in connection therewith commissions may be paid to
brokers. Brokers participating in such transactions may act as agents for the
Selling Stockholders. The Selling Stockholders, and any brokers participating in
this offering may be deemed to be "underwriters" within the meaning of the
Securities Act of 1933 (the "Securities Act") , and any commissions received by
them may be deemed to be underwriting compensation.
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK
FACTORS".
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith to files reports, proxy statements and other information
with the Securities and Exchange Commission (the "Commission"). Such reports,
proxy statements and other information concerning the Company can be inspected
and copied at the Public Reference Room maintained by the Commission at Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the Commission's
regional offices at 500 West Madison Street, Suite 1400, Chicago, Illinois
60604-2511, and 7 World Trade Center, 13th Floor, New York, New York 10048.
Copies of this material may also be obtained at prescribed rates from the Public
Reference Section of the Commission, 450 Fifth Street N.W., Washington, D.C.
20549. The Commission maintains a World Wide Web site that contains reports,
proxy statements and other information regarding registrants including the
Company that file electronically with the Commission. The address of the site is
http:\\www.sec.gov. Reports, proxy statements and other information concerning
the Company can also be inspected at the offices of the American Stock Exchange,
Inc., 86 Trinity Place, New York, New York 10006.
The Company has filed with the Commission a Registration Statement
under the Securities Act with respect to the Common Stock offered by this
Prospectus. This Prospectus does not contain all the information set forth in
the Registration Statement certain parts of which are omitted in accordance with
the rules of the Commission. For further information with respect to the Company
and the Common Stock offered hereby, reference is made to the Registration
Statement including the exhibits. Statements contained in this Prospectus as to
the contents of any contract or other document are not necessarily complete and,
where the contract or other document has been filed as an exhibit to the
Registration Statement, each such statement is qualified in all respects by
reference to the applicable document filed with the Commission.
The Company will provide without charge to each person, including any
beneficial owner, to whom a copy of this Prospectus is delivered, upon written
or oral request of such person, a copy of any or all of the information that has
been incorporated by reference in this Prospectus (other than exhibits).
Requests should be directed to the Company at its principal executive offices,
7108 Fairway Drive, Suite 200, Palm Beach Gardens, Florida, 33418-3757, (561)
775-5756.
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
On October 6, 1992, the Company's change of domicile merger from
Colorado to Delaware became effective. Top Source, Inc., a Colorado corporation
merged into its wholly-owned subsidiary Top Source Technologies, Inc., formerly
known as Top Source, Inc., a Delaware corporation. The specifics of the merger
are described in the Form 8-B filed with the Commission on November 14, 1992,
which is specifically incorporated by reference into this Prospectus. As a
result of the change of domicile merger, the Form 8-A which is incorporated by
reference herein, was filed with the Commission by the Company's predecessor,
Top Source, Inc., a Colorado corporation.
The following documents filed with the Commission are hereby
specifically incorporated by reference into this Prospectus:
(a) The Company's annual report on Form 10-K, as amended, for the
fiscal year ended September 30, 1998 and all amendments
thereto;
(b) The Company's proxy statement dated November 6, 1998 and
Supplement dated November 23, 1998 filed pursuant to Section
14 of the Exchange Act;
(c) The description of the Company's Common Stock filed by the
Company predecessor, Top Source, Inc., a Colorado corporation,
which is contained in the Registration Statement on Form 8-A
filed on March 12, 1992, File No. 1-11046, including any
amendments or reports filed for the purpose of updating such
description;
(d) The description of the Company's change of domicile merger
which is contained in the Registration Statement on Form 8-B
filed on November 14, 1992 and any amendments and reports
thereto; and
(e) All other reports filed by the Company pursuant to Section
13(a) or 15(d) of the Exchange Act since the filing of the
Form 10-K for the year ended September 30, 1998.
In addition, all documents subsequently filed by the Company pursuant
to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act prior to the
termination of the offering made by this Prospectus shall be deemed to be
incorporated by reference into this Prospectus. Any statement contained in a
document incorporated or deemed to be incorporated by reference in this
Prospectus shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained in this Prospectus or in any
other subsequently filed document which also is or is deemed to be incorporated
by reference in this Prospectus or in a supplement hereto modifies or supersedes
such statement. Any statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
<PAGE>
RISK FACTORS
The shares of Common Stock of Top Source Technologies, Inc. (the
"Company") involve a high degree of risk, including, but not necessarily limited
to the risk factors described below. Each prospective investor should carefully
consider the following risk factors inherent in and affecting the business of
the Company and this offering before making an investment decision. All
statements, trend analysis and other information contained in this Prospectus
relating to the proposed sale of the assets (the "Assets") of Top Source
Automotive, Inc. (the "Proposed Transaction"), the future profitability of Top
Source Automotive, Inc. ("TSA"), Top Source Instruments, Inc. ("TSI"), future
operating results, the ability of the Company to achieve profitability,
development of the Company's new on-site oil analyzer ("OSA-II"), the receipt of
future orders for the sale of overhead sound systems ("OHSS") from
DaimlerChrysler AG ("Chrysler"), the strategic alliance formed with Flying J,
Inc. ("Flying J") and the potential revenues which may arise therefrom, the
ability of the Company to enter into additional strategic alliances or develop
new technologies and the Company's future compliance with debt covenants as well
as other statements including words such as "seek", "anticipate", "believe",
"plan", "estimate", "expect", "intend" and other similar expressions constitute
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Readers are cautioned not to place undue reliance
on these forward-looking statements which speak only as of the date of this
Prospectus. Some or all of the results anticipated by these forward-looking
statement may not occur since these statements are subject to risks and
uncertainties that could cause actual results to differ materially from those
contemplated in such forward-looking statements. Such risks and uncertainties
include those identified in this "Risk Factors" section as well as the
following: the ability of the buyer of TSA to close the necessary financing;
potential changes by Chrysler in the placement of its speakers in Jeep?
Wranglers or decline in production levels at Chrysler for vehicles installing
OHSS; the Company's ability to market OSA-IIs; the acceptance of the OSA-II
technology by the marketplace; a general tendency of large corporations not to
change from known technology to emerging new technology; the reliability of the
OSA-II technology over an extended period of time; the Company's ability to
attract additional strategic partners for OSA-II and for TSA if the Company is
unable to sell it; and other matters which may increase the Company's current
losses.
Historical Losses. Since inception, the Company has never reported
income from operations. As of September 30, 1998, the Company had a retained
earnings deficit of $(28,791,487). The Company has provided cash to support its
operations from the income generated by TSA, the sale of the assets of United
Testing Group, Inc. in 1996, the sale of securities pursuant to private
placements and the exercise of stock options and warrants and from borrowings
from institutional lenders. As described below, TSA has lost and is losing
substantial revenues from Chrysler and the Company has entered into the
Agreement to sell TSA. See "- Change in Business of the Company - Loss of
Operating Income" and "Recent Developments - Sale of TSA". TSA will remain
profitable in spite of its loss of revenues from Chrysler, unless Chrysler
discontinues or materially reduces its business relationship with the Company
beyond that described below in the risk factor entitled "- Dependence on
Chrysler". The Company has shifted its primary focus toward the sale of its
OSA-II which the Company has just completed developing. However, the Company has
generated only limited revenues from the sale and lease of first generation
on-site oil analyzers ("OSA-Is"). Revenue for TSI for the year ended September
30, 1998 was $392,653. The identifiable assets relating to the oil analysis
services segment were approximately $3,944,000, which includes the net value of
the capitalized database of $2,073,000 at September 30, 1998. In order to
achieve profitability, for which no assurances can be given, the Company is
relying upon its ability to market and sell OSA-IIs in sufficient numbers to pay
the Company's substantial fixed and other expenses. The Company believes that
its marketing efforts will be successful. However, if the Company is unable to
meet its goals or to have the necessary resources to sustain its marketing
activities it could have a material adverse effect on the Company's business,
the carrying value of the above listed assets, and the financial condition of
the Company. The Company will continue to evaluate the success of the new
marketing efforts as well as the carrying value of the related assets. There can
be no assurances that the Company will be profitable from operations in the
future.
Reliance on On-Site Oil Analyzer. For several years, the Company has
concentrated on sale and marketing of its first generation OSA but with only
limited success. Since June 1997, under the direction of the Company's new
president, the number of OSA-Is (and OSA-IIs) used by customers has increased.
Additionally, the Company augmented its technical expertise by the hiring of Dr.
John Coates who has developed the second-generation machine OSA-II. The OSA-II
is substantially smaller, quicker and less expensive than the OSA. Moreover, the
OSA-II does not require the Company to rely upon an outside corporation to
manufacture or assemble the machines. Because the Company is relying upon one
product, there is a substantially increased degree of risk to investors.
Development of OSA-II. The Company recently completed the development
of the new OSA-II and in August 1998 completed the assembly of and shipped the
first seven OSA-IIs. However, as with the development of any new product,
unforeseen delays occur and problems may be discovered. Sophisticated computer
software and complex machines often encounter developmental difficulties or
"bugs" which only become apparent subsequent to widespread commercial use.
Problems which may arise in the operation of the OSA-IIs could have a material
adverse effect upon the Company's future operations.
Inability to Market OSA-IIs. The Company has devoted substantial
resources and different approaches to marketing the OSA-Is. Although the
Company's marketing efforts over approximately the last 18 months have increased
the number of OSA-Is being used, the Company has only received orders for tests
or leases of multiple machines from four companies. Most recently, in November
1998, the Company entered into a strategic alliance with Flying J which includes
an initial order of 10 OSA-IIs and the potential purchase of an additional 90
OSA-IIs. See "Recent Developments - Formation of Strategic Alliance with Flying
J". In July 1998, the Company announced that a leading operator of retail tire
stores agreed to install one OSA-II unit in each of seven locations in
Jacksonville, Florida for a six-month trial. The units were shipped in August
and began generating nominal revenue in early September as anticipated. The
initial acceptance at the customer sites has been slower than anticipated. The
Company is working with the customer to refine market concepts. The customer and
the Company believe that the level of interest is sufficient to warrant
continuing the revenue-generating test for the immediate future. In August 1998,
the Company also announced a new test with a large insurance company, which has
will to provide warranty coverage for automobiles which are successfully
evaluated using the OSA-II at the Florida sites and at one other location.
Additionally, in August 1998, the Company announced that it had entered into an
agreement with Speedco, Inc. ("Speedco") to lease 13 OSA-IIs to be placed at
various Speedco truck oil change service centers. Previously, the Company had
leased four OSA-Is to Speedco on a test basis. These four OSA-Is will be
replaced by four of the 13 OSA-IIs. The other multiple order consists of a
short-term lease for five OSA-Is in place at different locations at maintenance
facilities for a large truck engine manufacturer in the United States. Without
the receipt of numerous orders for multiple OSA-IIs and the generation of
revenue by end-users it is not likely that the Company can profitably market and
sell OSA-IIs.
Dependence on Chrysler. Historically, the Company has derived almost
all of its revenues from the sale of OHSS to Chrysler by TSA. In 1997, Chrysler
discontinued using the OHSS on its Jeep(R) Cherokee vehicles. In November 1998,
Chrysler discontinued producing its Jeep(R) Grand Cherokee Ltd. Plus which is
the only model that uses the OHSS. TSA expects to continue assembling the OHSS
for the Jeep(R) Wrangler through at least model year 2002. There can be no
assurances that Chrysler will continue to order OHSSs from TSA. If Chrysler
discontinues using the OHSS on the Jeep(R) Wrangler and the Proposed Transaction
is not consummated, it will have a material adverse effect upon the Company at
least until the Company generates significant revenues from OSA-II.
Change in Business of the Company - Loss of Operating Income. The sale
of TSA Assets will result in a major change in the nature of the Company's
business. For the fiscal years ended September 30, 1997 and 1998, TSA reported
$16,580,270 and $10,815,205, respectively, in revenue or approximately 97.6% and
96.5%, respectively, of the Company's consolidated revenue. TSA's operating
income, including the corporate overhead allocation was $3,091,161 and
$1,071,657 for such periods; the Company reported operating losses of
$(3,304,057) and $(5,529,562) for such periods. Assuming consummation of the
Proposed Transaction, the Company's sole remaining operating subsidiary will be
TSI which reported approximately $403,853 and $392,653 of revenues in the years
ended September 30, 1997 and 1998, respectively. Because TSA has been
profitable, the Company has utilized those profits to develop the OSA and OSA-II
and to meet the Company's other working capital needs including corporate
overhead. To date, the Company has only sold five OSA-Is and 10 OSA-IIs and has
not entered into any long-term leases of OSA-Is or OSA-IIs. While management
believes the proceeds from the sale of Assets will permit the Company to pay its
indebtedness and provide working capital to meet current operating losses of
TSI, the loss of TSA income will eliminate future contributions to working
capital and could adversely affect the Company's long-term financial condition.
The Company will be required to meet its future working capital needs from
anticipated cash flow from TSI or additional financing. There can be no
assurances that TSI will achieve positive cash flow during fiscal 1999 or that
the Company will obtain the necessary financing.
<PAGE>
Change in Short-Term Financial Condition. The proceeds from the sale of
the Assets will substantially improve the Company's short-term financial
condition and liquidity by significantly increasing working capital. The
Company's results of operations could be materially and adversely affected for
the short-term if the sale is consummated due to the loss of TSA profit
contribution. However, the loss of revenues and income from the sale of the TSA
Assets will be partially offset by projected annual debt service savings and
corporate overhead savings including reduced audit fees, travel costs and other
efficiencies. See "Pro Forma Condensed Financial Information of the Company."
The funds available from the sale of TSA Assets will be necessary to sustain TSI
and pay the Company's corporate overhead until TSI is able to generate
substantial revenues and reduce its operating losses. With the improvement in
short-term liquidity, the Company believes it will have sufficient working
capital to successfully market its OSA-IIs over the long-term. No assurances can
be given that the Company will have sufficient working capital or that it will
be successful in marketing OSA-IIs.
Failure of Proposed Transaction to Close. There can be no assurances
that all of the conditions to the Proposed Transaction will be satisfied and
that it will be consummated. A major condition of the Agreement is that NCT
Audio Products, Inc. (the "Buyer") complete a financing of at least $6,500,000
(the "Financing"). The Buyer's parent is a publicly-traded company whose common
stock trades on the Nasdaq National Market System under the symbol "NCTI". There
can be no assurances that the Buyer will complete the necessary Financing.
Failure to consummate the Proposed Transaction will not result in any additional
material expenses of the Company beyond the approximately $227,500, which has
been expensed through the quarter ended December 31, 1998.
Changing Technology; Competitive Factors. The OSA-Is represent a
technological breakthrough affecting the oil analysis industry. Oil analysis is
a 50-year old technology, which is widely used for diagnostic and preventative
maintenance programs for equipment by various industries. Essentially, the
OSA-Is analyze (and the OSA-IIs are designed to analyze) oil at the end user's
location thereby avoiding the need to send petroleum samples to a central
laboratory. The OSA-Is and OSA-IIs utilize complex computer software. In
general, the computer industry is subject to rapid and significantly changing
technology including potential introduction of new products and technologies,
which may have a material adverse impact upon the Company's ability to market
and sell OSA-IIs. Although the Company believes that it has a significant
advantage over potential competitors as a result of its experience over a
five-year period with the OSA-Is, the Company's proprietary database and the
proprietary nature of the resulting technology including the development of the
OSA-IIs. No assurances can be given that either a comparable or more advanced
on-site oil analyzer will not be developed in the future by one or more third
parties.
Patents and Proprietary Information. Historically, the Company
generated almost all of its revenue from products subject to patents and patent
applications exclusively licensed to the Company. TSA has relied upon the sale
of its OHSS enclosures, which are covered by a patent license limited to the
United States and Canada. The Company has obtained patents covering various
features of the OSA-Is which are applicable to the OSA-IIs. The Company has
applied for additional patents covering various features of the OSA-IIs. In
addition, steps have been taken to protect trade secrets through appropriate
confidentiality agreements. There can be no assurances that the patent
applications for the OSA-II will be granted. The failure by the Company to
obtain patents and protect its respective trade secrets could have a material
adverse effect on the Company by increasing the likelihood of competition. In
addition, other companies may independently develop equivalent or superior
technologies and may obtain patent or similar rights with respect to them.
Although the Company believes that the software for the OSA-Is and OSA-IIs has
been independently developed by it, and that such technology does not infringe
on the patents or violate the proprietary rights of others, there can be no
assurances that the Company will not be determined to infringe upon the patents
or proprietary rights of others, or that patents or proprietary rights of others
will not have a material adverse effect on the ability of the Company to
commercialize the OSA-IIs. Patent and technology disputes are common with high
technology products and services.
New Technologies and Other Considerations. In order to expand its
current product line, the Company may continue to seek new technologies and
products. This aspect of the Company's business involves a number of special
risks. Because of these risks, the Company will seek capital input and strategic
partners to sell equity in suitable products and technologies to these partners
in order to reduce the risks to investors. Also, the Company will seek to avoid
substantial and long-term expense associated with the necessary research and
development. Assuming that the Company is able to enter into agreements with
such partners and that those partners will be able to carry out the necessary
research and development, there is the risk that the technologies will not
perform as expected or be cost effective. Assuming successful research and
development, there remains the risks of being able to market the products and
locate industry partners or others able to manufacture the products according to
stringent quality control standards and in a viable economic manner. There can
be no assurances that the Company will be able to successfully locate such
technologies and if so, will be able to find strategic partners able to develop
and market new technologies. Finally, there is the risk that while the Company
is seeking to commercialize a new technology, a competitor will develop
technologies which are more commercially viable thereby reducing the viability
of the Company's products.
Anti-Takeover Considerations. The Company's Restated Certificate of
Incorporation (the "Certificate Provisions") contains various provisions
designed to deter a third party from launching a hostile takeover for the
Company. In addition, the Company has adopted a Shareholder Rights Plan (the
"Rights Plan"). In this Prospectus, the Certificate Provisions and the Rights
Plan are collectively referred to as the "Anti-Takeover Provisions". The
Certificate Provisions consist of: (i) empowering the Board of Directors (the
"Board"), without further action by the stockholders, to issue up to 5,000,000
shares of Preferred Stock in one or more series, with such designations,
preferences, special rights, qualifications, limitations and restrictions as the
Board may determine; (ii) establishing a classified Board whereby election of
the directors is staggered and each year approximately one-third of the
directors are elected for a three year term; (iii) making it difficult to remove
directors for "cause" by requiring a super-majority vote of either: (1) 75% of
the stockholders, or (2) 66-2/3% of the stockholders and the majority of the
"disinterested directors"; (iv) providing that stockholder action taken by
written consent in lieu of a meeting is prohibited unless such consent is signed
by the holders of at least two-thirds of the stock; and (v) restricting
stockholder nomination of directors to any stockholder with the power to vote at
least 15% of the outstanding voting securities of the Company who timely
complies with specific notice procedures. In connection with the Rights Plan,
the Board declared a dividend of one Preferred Stock Purchase Right (the
"Rights") for each outstanding share of the Company's Common Stock. The Rights
permit the holders (stockholders of the Company) to purchase Series A Junior
Preferred Stock. Holders of Rights have the right to acquire stock of the
Company or an "acquiring entity" at one-half of market value. The Rights only
become exercisable in the event, with certain exceptions, an acquiring party
accumulates 15 percent or more of the Company's voting stock. These Rights may
be redeemed by the Company at $.01 per Right prior to the close of business on
the 15th day after a public announcement that beneficial ownership of ownership
of 15% or more of the Company's voting stock has been accumulated by single
acquiror or group (with certain exceptions), under specified circumstances.
The Anti-Takeover Provisions generally make it more difficult or
discourage a proxy contest or the assumption of control by a holder of a
substantial block of the Company's Common Stock because it is more difficult to
remove the incumbent Board. Thus, the Anti-Takeover Proposals have the affect
of: (i) entrenching incumbent management, and (ii) discouraging a third party
from making a tender offer at a premium over the market price or otherwise
attempting to obtain control of the Company even though such an attempt could be
desired by a substantial member of the Company's stockholders. The Anti-Takeover
Provisions were not intended to prevent a takeover of the Company on terms which
are beneficial to the stockholders and will not do so. They may, however, deter
an attempt to acquire the Company in a manner or on terms that the Board
determines not to be in the best interest of its stockholders.
Dependence on Key Personnel. The Company is currently dependent upon
the efforts of the key members of its management team consisting of Mr. William
C. Willis, Jr., the Company's President and Chief Executive Officer, and Mr.
David Natan, the Company's Chief Financial Officer. In addition, the Company is
dependent upon Dr. John Coates, its Director of Technology, who is in charge of
the group which developed the OSA-II. In the event that one or more of these
persons ceases to be employed by the Company, it may have a material adverse
effect upon the Company.
Competition. Competition in the automotive business and the oil
analysis business is intense. With regard to TSA's OHSS business, interior trim
suppliers have a substantial competitive advantage as a result of their
relationships with automobile manufacturers and their substantially greater
degree of financial strength, management depth and engineering expertise. By
offering automobile manufacturers the opportunity to deal with one primary
supplier, an interior trim supplier can offer alternative speaker placement and
thereby competes directly with the Company. With regard to the OSA-II, while the
Company is not aware of any other business that markets and sells an on-site oil
analysis instrument, the Company's oil analysis subsidiary, TSI, competes with
various oil analysis laboratories located throughout the United States. These
laboratories offer service through Federal Express or other express delivery
couriers and provides facsimile or other rapid delivery of oil analysis reports
to the customers.
RECENT DEVELOPMENTS
Sale of TSA
On August 14, 1998, the Company and TSA entered into an agreement, as
amended (the "Agreement") with the Buyer through which the Buyer agreed to
purchase TSA for a minimum of $10,000,000 and up to an additional $6,000,000
representing additional compensation (the "Earn-Out.")
The Company believes that the current aftermarket 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 the two-year period following the Closing. However, no assurances can be
given. If earned, 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 One
("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 subsidiary 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.
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 anticipates that the sale of Assets will close in the first
calendar quarter of 1999. However, assuming it had closed in December 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.
The Buyer paid the Company $1,450,000 as a non-refundable deposit in
June 1998 and an additional $2,050,000 on December 15, 1998 when the Company's
stockholders approved the sale. As a result, the Buyer became the owner of 20%
of TSA. Pursuant to the Agreement, the Buyer had the exclusive right to purchase
the Assets of TSA at any time through March 31, 1999. However, because the
Proposed Transaction failed to close by December 31, 1998, the Buyer had a
one-week option to cancel its exclusive right to purchase the Assets of TSA and
as consideration receive an additional 15% of TSA Common Stock. The Buyer failed
to provide notice to the Company. The Buyer remains the owner of 20% of TSA
Common Stock and retains the exclusive right to purchase the Assets through
March 31, 1999.
Under the terms of the Agreement, the Buyer has agreed to assume all of
TSA's liabilities subject to the limitation that such liabilities not exceed the
amount of inventory owned by TSA, and pay the Company $10,000,000 (or $6,500,000
in addition to the $3,500,000 described above).
In about mid-February 1998, management began discussing with the Buyer
the possibility of the Buyer acquiring TSA. These discussions arose after
initial discussions with the Buyer concerning a proposed strategic alliance
between the two companies. The Company and the Buyer began exchanging letters of
intent beginning in early April 1998 which negotiations continued periodically
over the next several weeks until an initial letter of intent was signed on
April 17, 1998. The Buyer agreed to pay $16 million subject to completion of due
diligence. The Company supplied the Buyer with substantial documentation, and
the Buyer's representatives made two trips to Troy, Michigan to review TSA's
operations. As the discussions with the Buyer became more serious and as the
Buyer conducted its due diligence, the Company and its financial advisor, Morgan
Keegan & Company, Inc. ("Morgan Keegan"), continued preliminary discussions with
a number of potential purchasers, none of which ultimately led to more serious
negotiations. During the course of these discussions, the Company and Morgan
Keegan contacted approximately 135 third parties. None of these potential
purchasers expressed any interest in acquiring TSA.
As a result of its investigation, the Buyer focused on the changes to
the business of TSA and reduced the purchase price to a base of $10 million cash
with a potential Earn-Out of $6 million. This reduced offer was presented to the
Company in June 1998 and approved by the Company's Board on June 16th.
Previously, the Buyer signed the non-binding letter of intent on June 9th and
the Company received a non-refundable deposit on June 11th. On June 16th, the
Board also directed management to pay for and obtain the fairness opinion from
Morgan Keegan. Its approval of the Proposed Transaction was subject to its
review of and satisfaction with the fairness opinion. Subsequent to the June
16th Board meeting, the Company retained Morgan Keegan to evaluate the Proposed
Transaction and determine whether, in its opinion, the consideration to be
received by the Company and the Proposed Transaction was fair to the Company
from a financial point of view.
<PAGE>
Although legal counsel for the Company and the Buyer did not
participate in the negotiations for the letter of intent, they did participate
in the review of it. Moreover, commencing on June 3rd, counsel for the Company
and the Buyer commenced periodic negotiations of the terms and provisions of
letter of intent and the Agreement. On June 20th, the Company submitted to the
Buyer, , the first draft of the Agreement. After receiving comments, the
Company's counsel submitted a second draft of the Agreement on July 12th;
additional comments were received on July 22nd and corrected pages provided to
the Buyer's counsel on July 23rd.
On July 30th, an escrow agreement was executed and on July 31st the
Buyer paid $2,000,050 into escrow. Also on July 31st, the Buyer advised the
Company that it would not be in a position to complete the Proposed Transaction
unless it had the option to pay up to $2,500,000 by issuing a short-term note.
The parties did not agree to the terms of any security. On August 4th, the
Company supplied another draft of the Agreement to the Buyer. On August 6th, the
Buyer's counsel supplied comments on the latest draft of the Agreement. Because
the escrow agreement required the escrow agent to return the $2,050,000 if
requested by the Buyer on August 7th, the parties amended the escrow agreement
to extend the Buyer's time to request a return of the escrow deposit until
August 13th. The parties continued to discuss the issue of security for the
Buyer's note through August 11th when they agreed to defer the type of security
until a later date. Additionally, management of the Company and the Buyer agreed
upon additional changes to the Agreement on August 11th. Discussions continued
on August 12th at which time the Buyer agreed to modify the escrow agreement to
maximize the federal income tax consequences to the Company. Final changes to
the Agreement were made on August 12th and August 13th, agreed upon by the Buyer
on August 13th and the parties executed the Agreement on August 14, 1998. The
Agreement was amended on October 7, 1998 to eliminate the option of issuing the
Buyer's note and requiring an all cash payment.
Changes in Capitalization
The Company recently sold $3,500,000 of its Series B Convertible
Preferred Stock ("Series B Preferred") to two trusts in which Mr. G. Jeff
Mennen, a director of the Company, is a co-trustee and sole trustee,
respectively, and the beneficiaries of which are members of Mr. Mennen's
immediate family (the "Mennen Trusts"). 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 shall have the option to redeem the Series B
Preferred at 110% of Stated Value plus accrued dividends at any time before
April 30, 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. As part of the agreements
with its lenders described below, the Company obtained permission to pay cash
dividends to the Mennen Trusts. However, if in the future the Company is unable
to pay cash dividends, they shall be payable in shares of Common Stock. The
aggregate number of shares of Common Stock to be issued to the Mennen Trusts in
such event shall equal the sum of: (x) the amount of the dividend per share (or
$90 per annum) divided by the Conversion Price plus (y) 25% of the amount
obtained in clause (x), which sum shall be multiplied by 3,500. As additional
consideration, the Company issued to the Mennen Trusts Warrants to purchase
350,000 shares of the Company's Common Stock ("Class D Warrants") exercisable
over a 10-year period at a price of approximately $1.94 per share (or $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 Trusts 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 ("Class
E Warrants"). 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 Class D and
E Warrants as well as the Class F Warrants described below. 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 voted unanimously
to approve the sale of the Series B Preferred with Mr. Mennen abstaining. The
shares of Common Stock underlying the Series B Preferred and the Class D and E
Warrants underlying are not covered by this Prospectus and may not be resold
pursuant to this Prospectus.
In January 1998, the Company recognized it might in fiscal 1998 violate
a covenant contained in $3,020,000 of Subordinated Convertible Notes (the
"Notes") issued in 1995. In order to assure the Company's auditors that the
Company had the ability to comply with this financial covenant, Mr. Mennen
agreed to infuse sufficient capital into the Company as may be necessary. In
exchange for Mr. Mennen's commitment, the Company issued to him 50,000 Warrants
exercisable at $2.00 per share (the "Class F Warrants"). Following the closing
of the Series B Preferred sale, the Company redeemed one-half or $500,000 Stated
Value of the existing Series A Preferred by paying the Purchasers an aggregate
purchase price of $600,000. The Purchasers also agreed not to convert $350,000
of Stated Value of Series A Preferred until after March 31, 1999, and the
Company retained the right to redeem $350,000 of Series A Preferred at a 20%
premium (or for $420,000) at any time before or after March 31, 1999. The
remaining $150,000 of Series A Preferred was converted into an aggregate of
387,554 shares of Common Stock (which sum included accrued dividends) in
accordance with the terms of the Series A Preferred. As consideration for the
delay in converting $350,000 of the Series A Preferred, the Company issued to
the two Purchasers Class B Warrants to purchase an aggregate of 25,000 shares of
Common Stock exercisable at approximately $.89 per share commencing in April
1999. The shares of Common Stock reserved for exercise of the Class B Warrants
are not being offered for sale pursuant to this Prospectus.
The Company has restructured substantially all of its $3,020,000 of
Notes. With a portion of the proceeds from the Series B Preferred, the Company
prepaid an aggregate of $745,000 principal amount of Notes for $496,617
resulting in savings of $248,383 in principal amount (not including future debt
service costs). In connection with the discounting of these Notes, the Company
issued to the noteholders Class C Warrants to purchase an aggregate of 248,383
shares of the Company's Common Stock exercisable over a five-year period at
approximately $1.78 per share. The shares of Common Stock reserved for exercise
of the Class C Warrants may be sold pursuant to this Prospectus. The Company
entered into an agreement with the agent for the remaining noteholders, which
modified the remaining Notes. The Company prepaid such noteholders an aggregate
of $1,568,000 in principal amount of Notes (at the rate of $.70 per $1.00 of
principal). These noteholders continue to hold Notes in the principal amount of
$707,000. Additionally, the interest rate was reduced from 9% per annum to 5%
per annum on the Notes and the conversion price reduced from $10 per share to $2
per share. As part of the Amendment to the Note Purchase Agreement, the
remaining noteholders waived certain restrictive provisions including the
requirement that the Company maintain a 1.5 to 1.0 debt to equity ratio which
waiver continues through and including September 30, 1999 which is the
conclusion of the Company's current fiscal year.
The Company has also obtained a waiver from its principal lender,
NationsCredit Commercial Funding ("NationsCredit"), of the of the financial
covenant precluding the Company from having a loss of more than $2,000,000 in a
fiscal year. 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.
Formation of Strategic Alliance with Flying J
In November 1998, the Company entered into a strategic alliance with
Flying J, a company engaged in various facets of highway-related products and
services including the operation of large truck stops. Flying J agreed to
purchase and market OSA-IIs in up to 100 of their truck stop service centers.
The initial purchase order is for 10 OSA-IIs; the agreement covers a potential
purchase of up to 100 OSA-IIs, payment of a per sample technology licensing fee,
and joint development and marketing of product enhancements to assist in the
further commercialization of the OSA-IIs within the truck stop industry. After
receipt of the initial 10 OSA-IIs, Flying J may terminate the agreement without
any liability. In addition to the purchase price of the OSA-II units, Flying J
is obligated to pay the Company a per sample licensing fee which is reduced at
such time as Flying J has 36 OSA-II units operating. In addition, in recognition
of Flying J's efforts to assist the Company in commercializing the OSA-II within
the truck stop industry, it will receive financial incentives subject in part to
Flying J having at least 36 OSA-II units in operation. There can be no
assurances that Flying J will decide to purchase any of the additional 90
OSA-IIs or that any further commercialization of the OSA-IIs within the truck
stop industry will prove successful.
<PAGE>
Other Matters
As previously publicly reported, Mr. Stuart Landow, the Company's
former Chairman of the Board, resigned as a director and as an employee
effective June 30, 1998.
Mr. William C. Willis, Jr., the Company's president and chief executive
officer and new Chairman of the Board waived a bonus of $127,500 to which he was
entitled under his employment agreement. In exchange for this waiver, in July
1998 the Company's Compensation Committee granted Mr. Willis 100,000 stock
options exercisable at $.875 per share (then fair market value). The options
vest incrementally over a three-year period and are exercisable over a 10-year
term. Mr. Willis initiated this transaction as a result of the Company's efforts
to conserve cash and his confidence in the Company.
New Accounting Standards
In June 1997, the Financial Accounting Standards Board ("FASB")" issued
Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosures about
Segments of an Enterprise and Related Information", which is required to be
adopted in fiscal years beginning after December 15, 1997. This statement
establishes standards for the way public business enterprises report information
about products, services, geographic areas and major customers. The Company will
adopt SFAS No. 131 or for fiscal year ended September 30, 1999. The adoption of
SFAS No. 131 will not have a material impact on its financial position or
results of operations.
PRO FORMA CONDENSED FINANCIAL
INFORMATION OF THE COMPANY
The following unaudited pro forma condensed financial statements were
prepared to reflect the estimated effects of the potential sale of 100% of TSA
for $10,000,000. The sale is structured to occur in three separate steps as
follows: (i) The Company has received a $1,450,000 non-refundable deposit which
gave the Buyer a minimum of a 14.5% equity interest in TSA ("Step 1"),(ii) the
Second Payment of $2,050,000 was paid into escrow on July 30, 1998 and released
to the Company ( became non-refundable ) on December 15, 1998 as a result of an
affirmative shareholder approval which gave the Buyer an additional 5.5% of TSA
Common Stock ("Step 2"), and (iii) the receipt of the remaining proceeds of
$6,500,000 to complete the ultimate sale of 100% of TSA which must occur by
March 31, 1999 ("Step 3").
In the event that the Proposed Transaction fails to close for any
reason, the Company intends to operate TSA and seek another purchaser for its
Assets. For a discussion of the risks involved in this event, see "Risk Factors
- - Failure of Proposed Transaction to Close".
The following pro forma condensed financial statements also show the
effect of the following transactions, which occurred in November and December
1998.
1. The Company received proceeds from the sale of $3,500,000 of
Series B Convertible stock ("Series B").
2. Following the closing of the above Series B sale, the Company
redeemed one-half or $500,000 of the existing Series A Convertible
Preferred Stock ("Series A") and paid a $100,000 early redemption
premium.
3. The Company has restructured substantially all of its outstanding
$3,020,000 Convertible Notes. With a portion of the proceeds from
the Series B sale, the Company prepaid an aggregate of $745,000
face value of the Notes for $496,617 and the issuance of 248,383
10-year warrants at $1.00 above the fair market value of the
Company's common stock. (Measured on the date the restricted debt
term sheet was signed). In regard to the remaining $2,270,000 face
value of the Notes, the holders have agreed to the following
payments: (a) $1,568,000 on December 15, 1998 and (b) $707,000 on
June 20, 2000.
The redemption of one-half of the Series A, the Series B and the
restructuring of the notes all include the issuance of the common stock
warrants. The value of these warrants is approximately $286,000 and has not been
included in the accompanying pro forma Statement of Operations as they are
non-recurring in nature. The Company will record these charges during the first
quarter of fiscal year 1999.
Additionally, in connection with the issuance of the Series B Preferred
Stock, the conversion feature calls for a 15% discount. The intrinsic value of
the conversion feature of the Series B is approximately $618,000 and has not
been recorded in the accompanying pro forma Statement of Operations as they are
non-recurring in nature. The Company will amortize this charge in fiscal 1999
over the earliest conversion date of the Series B or November 1, 1999.
The unaudited pro forma condensed balance sheet as of September 30,
1998 gives effect to the above transactions as if they had occurred on September
30, 1998. The unaudited pro forma condensed statements of operations for the
years ended September 30, 1998 and 1997 and 1996 give effect to the pro forma
transactions as if they had occurred as of October 1, the first day of the
Company's respective fiscal year. Upon the sale of 100% of the TSA Assets (Step
3), this segment will be treated as a discontinued operation, as defined in
Accounting Principals Board Opinion No. 30, accordingly the pro forma statements
of income have been presented for all the same periods as the historical
financial statements.
The unaudited pro forma condensed financial statements were also
prepared to show the effects of the use of the net proceeds from the sale to pay
Nations and the Notes as described in the notes to the unaudited pro forma
condensed financial statements.
The unaudited pro forma condensed financial statements were prepared
utilizing the accounting principles of the Company as outlined in its historical
financial statements included in the Company's Form 10-K/A for the year ended
September 30, 1998 and Form 10-K/A No. 3 for the year ended September 30, 1997,
a copies of which are incorporated by reference herein. The pro forma
adjustments are based upon available information and contain assumptions that
the Company believes are reasonable under the circumstances. The unaudited pro
forma condensed financial statements do not reflect the potential corporate
overhead savings as a result of the sale of TSA.
<PAGE>
<TABLE>
TOP SOURCE TECHNOLOGIES, INC.
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1998
<S> <C> <C> <C> <C> <C> <C>
(Buyer Does Not
Purchase 100%
Sale of $3,500,000 of TSA Assets)
of Series B Buyer Owns (Buyer Owns
Buyer Owns Preferred Stock 20% of TSA 100% of TSA
14.5% of TSA and Related Adjustments Common Stock Adjustments Assets)
Common Stock Material for Deposit for Pro Forma for 100% Sale Pro Forma
ASSETS Historical Transactions 20% of TSA Total of TSA Total
------------- ------------------- ----------------------------------------------------------------
Current Assets:
Cash and cash equivalents $488,899 (a) $3,500,000 (d) $2,050,000 (h) $3,374,282 $6,500,000 (k) $8,067,350
(600,000)(e) (1,806,932)(l)
(496,617)(f)
(1,568,000)(g)
Accounts receivable, net 1,656,317 - - 1,656,317 (1,599,456)(k) 56,861
Advances to officer - - - - - -
Inventories 1,489,840 - - 1,489,840 (349,320)(k) 1,140,520
Prepaid expenses and
other current assets 346,831 - - 346,831 (101,174)(k) 245,657
-------------------------------------------------------------------------------------------------------
Total current assets 3,981,887 835,383 2,050,000 6,867,270 2,643,118 9,510,388
Property and equipment-net 786,438 - - 786,438 (234,960)(k) 551,478
Manufacturing & distribution
rights & patents-net 271,502 - - 271,502 (147,876)(k) 123,626
Capitalized database, net 2,073,194 - - 2,073,194 - 2,073,194
Notes receivable from officers 26,260 - - 26,260 - 26,260
Other assets, net 133,814 - - 133,814 - 133,814
-------------------------------------------------------------------------------------------------------
TOTAL ASSETS $7,273,095 $835,383 $2,050,000 $10,158,478 $2,260,282 $12,418,760
=======================================================================================================
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current Liabilities:
Line of credit $1,318,835 - - $1,318,835 ($1,318,835)(l) -
Accounts payable 842,903 - - 842,903 (245,596)(k) 597,307
Accrued liabilities 840,705 - 65,597 (i) 906,302 (107,641)(k,l) 798,661
-------------------------------------------------------------------------------------------------------
Total current liabilities 3,002,443 - 65,597 3,068,040 (1,672,072) 1,395,968
Senior convertible notes 3,020,000 (2,313,000)(f,g) - 707,000 707,000
Other liabilities 429,524 429,524 429,524
-------------------------------------------------------------------------------------------------------
Total liabilities 6,451,967 (2,313,000) 65,597 4,204,564 (1,672,072) 2,532,492
Minority interest 364,157 (b) 459,959 (j) 824,116 (824,116)(k) -
Stockholders' equity 456,971 (c) 3,500,000 (d) 1,524,444 (j) 5,129,798 4,756,470 (k) 9,886,268
TOTAL LIABILITIES AND (351,617)(e,f)
-------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY $7,273,095 $835,383 $2,050,000 $10,158,478 $2,260,282 $12,418,760
=======================================================================================================
</TABLE>
See notes to unaudited pro forma condensed financial statements.
<PAGE>
<TABLE>
TOP SOURCE TECHNOLOGIES, INC.
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1998
<S> <C> <C> <C> <C> <C> <C>
(Buyer Does Not
Purchase 100%
Sale of $3,500,000 of TSA Assets)
of Series B Record Buyer Owns (Buyer Owns
Preferred Stock Minority 20% of TSA 100% of TSA
and Related Interest in Common Stock Adjustments Assets)
Material Income Pro Forma for 100% Sale Pro Forma
Historical Transactions of TSA Total of TSA Total
---------------------------------------------------------------------------------------------------
Net sales $11,207,858 - $11,207,858 ($10,815,205) (p) $392,653
Cost of sales 8,026,490 - 8,026,490 (7,417,402) (p) 609,088
Selling, general and
administrative expenses 9,035,394 - 9,035,394 (2,326,146) (p) 7,809,248
1,100,000 (q)
---------------------------------------------------------------------------------------------------
Loss from operations (5,854,026) - - (5,854,026) (2,171,657) (8,025,683)
Interest expense, other
income (expense) net 422,085 208,170 (m) (962,760) (o) (332,505) 25,769 (p) (39)
306,697 (m)
Minority interest in
income of TSA (38,820) (378,613) (o) (417,433) 417,433 (p) -
---------------------------------------------------------------------------------------------------
Loss before income taxes
and minority interest (5,470,761) 208,170 (1,341,373) (6,603,964) (1,421,758) (8,025,722)
Income tax expense (58,801) - (58,801) 58,726 (p) (75)
Loss from continuing
---------------------------------------------------------------------------------------------------
operations (5,529,562) 208,170 (1,341,373) (6,662,765) (1,363,032) (8,025,797)
Dividends on preferred stock (20,034) (315,000)(n) - (335,034) (335,034)
Loss from available to
===================================================================================================
common shareholders ($5,549,596) ($106,830) ($1,341,373) ($6,997,799) ($1,363,032) ($8,360,831)
===================================================================================================
Loss from available to common share:
Basic ($0.20) ($0.30)
================ ===============
Diluted ($0.20) ($0.30)
================ ===============
Weighted average
common shares
Outstanding:
Basic 28,242,005 28,242,005
============= ===============
Diluted 28,242,005 28,242,005
============= ===============
</TABLE>
See notes to unaudited pro forma condensed financial statements.
<PAGE>
<TABLE>
TOP SOURCE TECHNOLOGIES, INC.
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1997
<S> <C> <C> <C> <C> <C>
(Buyer Does Not
Purchase 100%
Sale of $3,500,000 of TSA Assets)
of Series B Record Buyer Owns (Buyer Owns
Preferred Stock Minority 20% of TSA 100% of TSA
and Related Interest in Common Stock Adjustments Assets)
Material Income Pro Forma for 100% Sale Pro Forma
Historical Transactions of TSA Total of TSA Total
---------------------------------------------------------------------------------------------------
Net sales $16,984,123 - $16,984,123 ($16,580,270) (p) $403,853
Cost of sales 11,304,708 - 11,304,708 (11,197,664) (p) 107,044
Selling, general and
administrative expenses 8,277,875 - 8,277,875 (2,291,445) (p) 7,086,430
1,100,000 (q)
---------------------------------------------------------------------------------------------------
Loss from operations (2,598,460) - - (2,598,460) (4,191,161) (6,789,621)
Interest expense, other
income (expense) net (223,597) 208,170 (m) (15,427) 5,595 (p) 86,953
96,785 (m)
Minority interest in
income of TSA - (790,498) (o) (790,498) 790,498 (p) -
---------------------------------------------------------------------------------------------------
Loss before income taxes
and minority interest (2,822,057) 208,170 (790,498) (3,404,385) (3,298,283) (6,702,668)
Income tax expense (482,000) - (482,000) 124,000 (p) (358,000)
Loss from continuing
---------------------------------------------------------------------------------------------------
operations (3,304,057) 208,170 (790,498) (3,886,385) (3,174,283) (7,060,668)
Dividends on preferred stock (315,000)(n) (315,000) (315,000)
Loss from available to
===================================================================================================
common shareholders ($3,304,057) ($106,830) ($790,498) ($4,201,385) ($3,174,283) ($7,375,668)
===================================================================================================
Loss from available to
common share: ($0.26)
===============
Basic ($0.12) ($0.26)
================ ===============
Diluted ($0.12)
================
Weighted average
common shares
Outstanding:
Basic 28,065,563 28,065,563
============= ===============
Diluted 28,065,563 28,065,563
============= ===============
See notes to unaudited pro forma condensed financial statements.
</TABLE>
<PAGE>
<TABLE>
TOP SOURCE TECHNOLOGIES, INC.
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1996
<S> <C> <C> <C>
(iii) Proposed
Transaction is
Approved and
Buyer Owns
100% of TSA
Adjustments Assets)
for 100% Sale Pro Forma
Historical of TSA Total
-----------------------------------------------------
Net sales $16,146,524 (16,102,523)(p) $44,001
Cost of sales 10,776,203 (10,749,431)(p) 26,772
Selling, general and administrative expenses 8,426,540 (2,259,258)(p) 7,267,282
1,100,000 (q)
--------------------------------
----------------
Loss from operations (3,056,219) (4,193,834) (7,250,053)
Interest expense, other income (expense) net (232,267) (45,460)(p) (277,727)
-------------------------------- ----------------
Loss before income taxes (3,288,486) (4,239,294) (7,527,780)
Income tax expense (1,543,300) 175,000 (p) (1,368,300)
=====================================================
Loss from continuing operations ($4,831,786) ($4,064,294) ($8,896,080)
=====================================================
Loss from continuing operations per common share:
Basic ($0.17) ($0.32)
============== ================
Diluted ($0.17) ($0.32)
============== ================
Weighted average common shares Outstanding:
Basic 28,027,959 28,027,959
============== ================
Diluted 28,027,959 28,027,959
============== ================
</TABLE>
See notes to unaudited pro forma condensed financial statements.
<PAGE>
Notes to Unaudited Pro Forma Balance Sheet and Consolidated Statements of
Operations
(a) Includes the receipt of a $1,450,000 non-refundable deposit.
(b) Includes the recording of a 14.5% minority interest in TSA.
(c) Includes the gain on 14.5% of the equity in TSA of $962,760. This gain
is not included on the Unaudited Pro Forma Condensed Consolidated
Statement of Operations for all periods presented since it is a
non-recurring item.
(d) Represents the proceeds from the issuance of $3,500,000 of Series B
Convertible Preferred stock in November 1998.
(e) To record the redemption of $500,000 or 50% of the outstanding
Preferred Stock Series A and $100,000 in redemption premiums. The
redemption premium has not been included in the accompanying September
30, 1998 Statement of Operations as it is non-recurring in nature. The
$100,000 redemption has been reflected as a reduction in equity in the
September 30, 1998 Pro Forma Balance Sheet.
(f) To record the repayment of $745,000 face value of notes at a discount.
The discount has not been reflected in the accompanying September 30,
1998 Statement of Operations as a portion of the this discount is an
extraordinary gain and a portion is a non-recurring charge related to
the issuance of 248,383 warrants, both of which are non-recurring in
nature. The entire discount increases shareholder' equity by $248,383
and is reflected accordingly in the September 30, 1998 Pro Forma
Balance Sheet.
(g) Represents the repayment of $1,568,000 principal on the
$3,020,000 Senior Subordinated Convertible Notes.
(h) Represents the receipt of the additional deposit of $2,050,000 on Step
2 of the sale of TSA, which was released, from escrow to the Company on
December 15, 1998 as a result of the affirmative shareholder approval.
(i) Represents the additional 5.5% of the estimated accrued liabilities
relating to the costs of the transaction in the amount of $65,597.
(j) Represents the additional 5.5% of the gain on the TSA sale (see Note
(c) above) and the recording of the additional 5.5% minority interest.
(k) The Company is selling 100% of the Assets of TSA and substantially all
of the liabilities of TSA. This adjustment represents the receipt of
the remaining proceeds for Step 3 of the sale of TSA, the elimination
of the minority interest and the elimination of the respective TSA
Assets, liabilities and equity. The total amount of the gain on the
sale of 100% of TSA's Assets is approximately $7,100,000 of which
$4,619,093 is included herein and the remaining gain is included in
notes ( c) and ( f) above. This gain is reflected in stockholders
equity, but not in the pro forma statements of operations.
(l) Represents the repayment of the Nations Credit Facility with the
proceeds from the TSA sale, and payment of $488,097 of estimated legal,
accounting and investment banking fees and taxes for the sale of TSA.
The $488,097 in fees and taxes is included in accrued liabilities and
will be paid with the proceeds from the sale.
(m) Represents the reduction in interest expense resulting from the
repayment of a portion of debt as discussed in Notes (f), (g) and (l)
above
(n) To record a 9% dividend on Series B Preferred Stock.
(o) To record the 14.5% (for the entire fiscal year) and 5.5% minority
interest in TSA and to eliminate a non-recurring item, which is 14.5%
of the gain on the sale of TSA, $962,760.
(p) Represents the elimination of the minority interest and the respective
TSA results of operations.
(q) Represents the add back of corporate expenses that the Company believes
it will not save as a result of the sale of TSA.
<PAGE>
SELLING STOCKHOLDERS
Table of Selling Stockholders
The following table sets forth information furnished by the Selling
Stockholders, with respect to the number of shares of the Company's Common
Stock, including the shares of Common Stock underlying the Warrants owned by
each Selling Stockholder on the date of this Prospectus, the shares offered
hereby, and the number and percentage of outstanding shares to be owned by each
Selling Stockholder after the offering. No Selling Stockholder has held any
position, office, or had a material relationship with the Company within the
past three years. The beneficial owners of Excalibur Limited Partnership,
Gundyco in Trust for RRSP 550-98866-19, H & H Securities Limited and
Intercontinental Holding Company, Ltd. and San Rafael Consulting Group are
William S. Hechter, Esq., Mark Schoom, William S. Hechter, Esq., and Gerry
Alexander respectfully. For further information on the Series A Preferred and
Warrants, See "Description of Series A Preferred and Warrants".
<TABLE>
<S> <C> <C> <C> <C>
Percentage
Ownership Securities Ownership Owned
Selling Prior to Being After After
Stockholder Offering Offered Offering Offering
Excalibur Limited Partnership 341,579(1),(2) 341,579 ____ ___
Gundyco in Trust for RRSP
550-98866-19 198,891(3),(4) 198,891 ____ ___
H & H Securities Limited 8,200(5) 8,200 ____ ___
Intercontinental Holding
Company, Ltd 8,400(6) 8,400 ____ ___
San Rafael Consulting Group 8,400(7) 8,400 ____ ___
Certain Former Noteholders 248,383(8) 248,383 ____ ___
</TABLE>
(1) Includes 289,079 shares obtained upon conversion of Series A
Preferred and as dividends and underlying Class A Warrants.
(2) Does not include up to 959,000 shares of Common Stock obtainable
upon conversion of remaining 245,000 of Series A Preferred and as
possible future dividends after March 31, 1999. Also does not
include 78,750 shares underlying Class A Warrants and 17,500 shares
underlying Series B Warrants. These shares have been registered but
are not offered for sale by this Prospectus.
<PAGE>
(3) Includes 123,891 shares obtained upon conversion of Series A
Preferred and as dividends and underlying Class A Warrants.
(4) Does not include up to 411,000 shares of Common Stock obtainable
upon conversion of remaining 105,000 of Series A Preferred and as
possible future dividends after March 31, 1999. Also does not
include 67,500 shares underlying Class A Warrants and 7,500 shares
underlying Class B Warrants. These shares have been registered but
are not offered for sale by this Prospectus.
(5) Represents 8,200 shares of Common Stock underlying Class A Warrants
which are exercisable as of the date of this Prospectus. Does not
include 12,300 shares underlying Class A Warrants which are not
currently exercisable.
(6) Represents 8,400 shares of Common Stock underlying Class A Warrants
which are exercisable as of the date of this Prospectus. Does not
include 12,600 shares underlying Class A Warrants which are not
currently exercisable.
(7) Represents 8,400 shares of Common Stock underlying Class A Warrants
which are exercisable as of the date of this Prospectus. Does not
include 12,600 shares underlying Class A Warrants which are not
currently exercisable.
(8) Represents 248,383 shares of Common Stock underlying Class C
Warrants held by former holders of $745,000 in principal of Notes.
The Company redeemed their Notes in December 1998 for $496,617 and
issued one Class D Warrant for each dollar of principal cancelled.
The identity of the former noteholders has been withheld in
accordance with the policy of the Commission's staff.
DESCRIPTION OF SERIES A PREFERRED AND WARRANTS
In May 1998, the Company sold the two Purchasers 1,000 shares of Series
A Preferred for $1,000,000. The shares of Series A Preferred are convertible
into Common Stock as described below, pay an annual dividend of 5% in cash or
Common Stock of the Company as described below, contain a liquidation preference
equal to the Stated Value together with accrued dividends, are redeemable by the
Company under certain circumstances as described below and contain no voting
rights except as otherwise required by law.
The Company also issued $3,500,000 of Series B Preferred to two Trusts
in which Mr. G. Jeff Mennen, a director of the Company, is either co-trustee or
sole trustee and the beneficiaries are members of Mr. Mennen's immediate family.
For the details concerning the terms of the Series B Preferred, see "Recent
Developments".
The Company may redeem the Series A Preferred prior to conversion by
paying the holders 120% of the Stated Value per share plus accrued dividends. As
described above, in December 1998, the Company redeemed $500,000 of Series A
Preferred by paying the Purchasers $600,000, they agreed not to convert $350,000
of Series A Preferred until March 31, 1999 and they converted $150,000 of Series
A Preferred. Upon conversion, the Purchasers received 387,554 shares of Common
Stock which also included dividends accrued through March 31, 1999. See "Recent
Developments". The Series A Preferred may be converted into a number of shares
of Common Stock equal to the Stated Value divided by the conversion price which
is equal to the lesser of (i) $1.10 per share of Common Stock, or (ii) 80% of
the average closing bid price. The Series A Preferred automatically converts
into Common Stock two years after issuance (in May 2000) at the lesser of (i)
$1.10 per share, or (ii) 80% of the average closing bid price.
The Series A Preferred pays an annual dividend of 5% at the option of
the Company payable in cash or shares of Common Stock. The Company has paid
Common Stock through March 31, 1999 because it is prohibited from paying cash
dividends under the terms of an agreement with its principal lender. The Series
A Preferred provides the holders with a per share liquidation preference equal
to the Stated Value.
This Prospectus covers the public sale of the shares of Common Stock
underlying presently exercisable Class A Warrants and the Class C Warrants.
Those shares of Common Stock underlying those Class A Warrants which are not
presently exercisable and underlying the Class B Warrants will be offered for
sale by a Supplement to this Prospectus. The Company is not obligated to and
does not intend to file a registration statement covering the public sale of
shares of Common Stock underlying the Class D and Class E Warrants issued to and
potentially issuable to the Mennen Trusts and the Class F Warrants held by Mr.
Mennen until on or about November 30, 1999.
<PAGE>
The terms of the various classes of Warrants are described below:
<TABLE>
<S> <C> <C> <C>
Series of Warrants Number of Warrants Exercise Price Expiration Date
A(1) 250,000 $1.10 5/7/2001
- --------- -----------------------------------------------------------------------------------------------
B(2) 25,000 $ .89 11/16/2003
- ------------------------------------------------------------------------------------------------------------
C 248,383 $1.78 12/29/2003
- ------------------------------------------------------------------------------------------------------------
D 350,000 $1.93 11/17/2008
- ------------------------------------------------------------------------------------------------------------
E(3) 50,000 (4) 05/01/2009
- ------------------------------------------------------------------------------------------------------------
F 50,000 $2.00 01/13/2003
- ------------------------------------------------------------------------------------------------------------
</TABLE>
- ---------------------------------------
(1) A total of 100,000 are currently exercisable and the remaining
Class A Warrants are exercisable in increments of 50,000.shares
commencing 90, 150 and 210 days after the date of this Prospectus.
(2) May not be exercised until May 17, 1999.
(3) Only issuable if the Series B Preferred is still outstanding on
May 1, 1999.
(4) If issued, the Warrants shall be exercisable at a price of $.50
per share above the closing price of the Company's Common Stock
on April 30, 1999.
PLAN OF DISTRIBUTION
All of the shares of Common Stock are offered for sale by the Selling
Stockholders as listed in this Prospectus under "Selling Stockholders". The
Company will receive none of the proceeds from the sale of the shares of Common
Stock by the Selling Stockholders. However, the Company will receive a maximum
of approximately $555,122 in connection with the exercise of up to 100,000 Class
A and 248,383 Class C Warrants, the underlying shares of Common Stock of which
are covered by this Prospectus. Such proceeds will be used for general corporate
purposes.
The Company has been advised by the Selling Stockholders that the shares
of Common Stock may be offered and sold from time to time by or on behalf of the
Selling Stockholders, in or through transactions or distributions (including
crosses and block transactions) on the American Stock Exchange, or in the
over-the-counter market at market prices prevailing at the time of sale, or at
negotiated prices, and in connection therewith commissions may be paid to
brokers. Brokers participating in such transactions may act as agents for the
Selling Stockholders. The Selling Stockholders, and any brokers participating in
this offering may be deemed to be "underwriters" within the meaning of the
Securities Act, and any commissions received by them may be deemed to be
underwriting compensation.
LEGAL MATTERS
The legality of the securities to be offered hereby will be passed upon
for the Company by Michael Harris, P.A., 1645 Palm Beach Lakes Boulevard, West
Palm Beach, Florida 33401. Attorneys employed by that law firm are the
beneficial owners of 31,000 shares of Common Stock.
EXPERTS
The financial statements and schedules of Top Source Technologies, Inc.
incorporated by reference in this Prospectus and elsewhere in the registration
statement have been audited by Arthur Andersen LLP, independent certified public
accountants, as indicated in their report with respect thereto, and are
incorporated by reference herein in reliance upon the authority of said firm as
experts in accounting in giving said report.
<PAGE>
================================
No dealer, salesperson or other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus, and, if given or made, such information or representations must not
be relied upon as having been authorized by the Company or any of the Selling
Stockholders. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any security other than the securities offered
by this Prospectus, or an offer to sell or a solicitation of an offer to buy any
securities by any person in any jurisdiction in which such offer or solicitation
would be unlawful. Neither the delivery of this Prospectus nor any sale made
hereunder shall, under any circumstances, imply that the information in this
Prospectus is correct as of any time subsequent to the date of this Prospectus.
TABLE OF CONTENTS
Page
Available Information....................... __
Documents Incorporated by
Reference.................................. __
Risk Factors................................ __
Recent Developments......................... __
Pro Forma Condensed Financial
Information of the Company................ __
Selling Stockholders........................ __
Description of Preferred
Stock and Warrants........................ __
Plan of Distribution........................ __
Legal Matters............................... __
Experts..................................... __
================================
================================
TOP SOURCE TECHNOLOGIES, INC.
760,937 Shares
of
Common Stock
----------------
Prospectus
----------------
, 1999
================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN Prospectus
Item 14. Other Expenses of Issuance and Distribution.
The following table sets forth the various expenses in connection with
the issuance and distribution of the securities being registered. All of the
amounts shown are estimates except the Commission registration fee. Such
expenses will be paid by the Company. None of these expenses will be paid by the
Selling Stockholders.
Registration fee ....................................... $ 1,245.52
Printing expenses....................................... $ 100.00
Accounting fees and expenses............................ $10,000.00
Legal fees and expenses (other than Blue Sky)........... $20,000.00
Blue Sky fees and expenses.............................. $ .00
Miscellaneous........................................... $ 654.48
------------
Total....................................... $32,000.00
============
Item 15. Indemnification of Directors and Officers.
The Company's amended and restated certificate of incorporation
provides that the Company shall indemnify its current and former officers and
directors against expenses reasonably incurred by or imposed upon them in
connection with or arising out of any action, suit or proceeding in which they
may be involved or to which they may be made parties by reason of their being or
having been a director or officer of the Company, or at its request, of any
other corporation which it is a stockholder or creditor and from which such
officers and directors are not entitled to be indemnified by (whether or not
they continue to be directors or officers at the time of imposing or incurring
such expense), except in respect of matters as to which they shall be finally
adjudged in such action, suit or proceeding liable for negligence or misconduct.
In the event of settlement of any such action, suit or proceeding,
indemnification shall be provided only in connection with such matters covered
by the settlement as to which the Company is advised by counsel that the persons
to be indemnified did not commit a breach of duty. The foregoing right of
indemnification shall not be exclusive of other rights to which such persons may
be entitled.
In addition, the Company has entered into indemnification agreements
with its executive officers and directors. These agreements provide that the
Company shall indemnify its executive officers and directors, if by reason of
their corporate status, they are or are threatened to be made parties to any
third-party proceedings, to the fullest extent provided by Delaware law. The
agreements provide for indemnification against expenses, judgments, penalties,
fines and amounts paid in settlement, actually and reasonably incurred by them
or on their behalf in connection with such proceeding or any claim, issue or
matter therein if (i) they acted in good faith; (ii) they reasonably believed in
the case of conduct in their official capacity with the Company that their
conduct was in the Company's best interests or in all other cases, that their
conduct was at least not opposed to the Company's best interests; (iii) with
respect to any criminal proceeding, they had no reasonable cause to believe
their conduct was unlawful; and (iv) with respect to an employee benefit plan
they reasonably believed their conduct to be in the best interests of the
participants and/or beneficiaries of the plan. The indemnification agreements
also provide indemnification in direct and derivative actions provided such
officers or directors acted in good faith and in a manner they reasonably
believed to be not opposed to the best interests of the Company. Such officers
or directors are not entitled to indemnification in connection with any
proceeding charging improper personal benefits to such officers or directors,
whether or not involving action in their official capacity, in which they were
judged liable on the basis that personal benefit was improperly received by
them.
INSOFAR AS INDEMNIFICATION FOR LIABILITIES ARISING UNDER THE SECURITIES
ACT OF 1933 MAY BE PERMITTED TO DIRECTORS, OFFICERS OR PERSONS
CONTROLLING THE COMPANY PURSUANT TO THE FOREGOING PROVISIONS, THE
COMPANY HAS BEEN INFORMED THAT IN THE OPINION OF THE SECURITIES AND
EXCHANGE COMMISSION, SUCH INDEMNIFICATION IS AGAINST PUBLIC POLICY AS
EXPRESSED IN THE SECURITIES ACT AND IS THEREFORE UNENFORCEABLE.
Item 16. Exhibits.
4. Form of Common Stock Certificate*
4.1 Amendment to Second Certificate of Designation of Rights
and Preferences****
4.2 Form of Class A Warrants**
4.3 Form of Private Securities Subscription Agreement**
4.4 Asset Purchase Agreement***
4.5 Amendment to Asset Purchase Agreement****
Form of Class C Warrants
Amendment to Note Purchase Agreement*****
Amendment to Series A Preferred Stock Agreement *****
Form of Stock Purchase Agreement (Series B Preferred)*****
Amendment to Loan and Security Agreement*****
Third Certificate of Designation *****
5. Opinion of Michael Harris, P.A.
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Michael Harris, P.A.******
* Contained in Registration Statement on Form 8-A filed
March 12, 1992.
** Contained in Form 10-Q for the period ended March 31, 1998
filed on May 20, 1998 (Item 6, Exhibit 10.1).
*** Contained in the Form 10-Q for the period ended June 30,
1998 filed on August 19, 1998 (Item 6, Exhibit 10.1).
**** Contained in Proxy Statement dated November 6, 1998
(Appendix 1A)
***** Contained in Form 10-K/A No. 1 for the year ended
September 30, 1998
****** Contained in Opinion of Michael Harris, P.A.
Item 17. Undertakings.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration
statement:
(i) To include any Prospectus required by section
10(a)(3) of the Securities Act of 1933 (the
"Securities Act");
(ii) To reflect in the Prospectus any facts or events
arising after the effective date of the registration
statement (or the most recent post-effective
amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the
information set forth in the registration statement;
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in
the registration statement or any material change to
such information in the registration statement;
Provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if
the information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the Registrant pursuant to Section 13 or Section 15(d) of the
Exchange Act that are incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be
deemed to be a new registration statement relating to the
securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
(4) That, for purposes of determining any liability under the
Securities Act, each filing of the Registrant's annual report
pursuant to section 13(a) or section 15(d) of the Exchange Act
that is incorporated by reference in the registration
statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering
of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(5) The undersigned Registrant hereby undertakes to deliver or
cause to be delivered with the Prospectus, to each person to
whom the Prospectus is sent or given, the latest annual report
to security holders that is incorporated by reference in the
Prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Exchange
Act; and, where interim financial information required to be
presented by Article 3 of Regulation S-X are not set forth in
the Prospectus, to deliver, or cause to be delivered to each
person to whom the Prospectus is sent or given, the latest
quarterly report that is specifically incorporated by
reference in the Prospectus to provide such interim financial
information.
(6) Insofar as indemnification for liabilities arising under
the Securities Act may be permitted to directors,
officers and controlling persons of the Registrant pursuant
to the foregoing provisions (see Item 15 above), or
otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of
expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in
connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to
a court of appropriate jurisdiction the question
whether such indemnification by it is against public
policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act or 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirement for filing on Form S-3 and has duly caused this Amendment No. 4 to
Registration Statement on Form S-3 to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Palm Beach Gardens, State
of Florida, on this 29th day of January, 1999.
TOP SOURCE TECHNOLOGIES, INC.
By: /s/ William C. Willis, Jr.
William C. Willis, Jr.
(Chairman, President and Chief Executive Officer)
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 4 to Registration Statement on Form S-3 has been signed by the
following persons in the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
Name Title Date
/s/ William C. Willis, Jr. Director January 29, 1999
- --------------------------
William C. Willis, Jr.
/s/ David Natan Vice President and CFO January 29, 1999
- --------------------------
David Natan (Principal Financial and
Accounting Officer) and Director
/s/ Ronald Burd Director January 29, 1999
- -------------------------
Ronald Burd
/s/ G. Jeff Mennen Director January 29, 1999
- --------------------------
G. Jeff Mennen
/s/ L. Kerry Vickar Director January 29, 1999
- --------------------------
L. Kerry Vickar
</TABLE>
<PAGE>
EXHIBIT INDEX
Exhibit No.
4. Form of Common Stock Certificate*
4.1 Amendment to Second Certificate of Designation of Rights and
Preferences****
4.2 Form of Class A Warrants**
4.3 Form of Private Securities Subscription Agreement**
4.4 Asset Purchase Agreement***
4.5 Amendment to Asset Purchase Agreement****
4.6 Form of Class C Warrants
4.7 Amendment to Note Purchase Agreement*****
4.8 Amendment to Class A Preferred Stock Agreement*****
4.9 Form of Stock Purchase Agreement (Series B Preferred)*****
4.10 Amendment to Loan and Security Agreement
4.11 Third Certificate of Designation*****
5. Opinion of Michael Harris, P.A.*****
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Michael Harris, P.A.******
* Contained in Registration Statement on Form 8-A filed
March 12, 1992.
** Contained in Form 10-Q for the period ended March 31, 1998
filed on May 20, 1998 (Item 6, Exhibit 10.1).
** Contained in the Form 10-Q for the period ended June 30, 1998
filed on August 19, 1998 (Item 6, Exhibit 10.1)
**** Contained in Proxy Statement dated November 6, 1998
Appendix 1A)
***** Contained in Form 10-K/A No. 1 for the year ended
September 30, 1998
****** Contained in Opinion of Michael Harris, P.A.
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As Independent Public Accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made a part of this
Registration Statement.
ARTHUR ANDERSEN, LLP
West Palm Beach, Florida
January 29, 1999
EXHIBIT 5
MICHAEL HARRIS, P.A.
Attorneys at Law
712 U.S. HIGHWAY ONE, SUITE 400
NORTH PALM BEACH, FLORIDA 33408
Telephone: (561) 844-3600
Facsimile: (561) 845-0108
E-Mail Address: [email protected]
Michael D. Harris
Beth J. Harris
January 29, 1999
Top Source Technologies, Inc.
7108 Fairway Drive, Suite 200
Palm Beach Gardens, FL 33418-3757
Re: Top Source Technologies, Inc./SEC
Dear Sirs:
You have advised us that Top Source Technologies, Inc. (the "Company") is
filing with the United States Securities and Exchange Commission Amendment No. 4
to a Registration Statement on Form S-3, with respect to 2,280,937 shares of
common stock, par value $.001 per share.
In connection with the filing of this Registration Statement, you have
requested us to furnish you with our opinion as to the legality of (i) such of
the Company's shares as are presently outstanding; and (ii) such securities as
shall be offered by the Company itself pursuant to the Prospectus which is part
of the Registration Statement.
You have advised us that as of January 29, 1999, the Company's authorized
capital consists of 50,000,000 shares of common stock, par value $.001, of which
29,474,442 shares have been issued. You have further advised us that the Company
has received valid consideration for the issuance of these shares.
After having examined the Company's Amended and Restated Certificate of
Incorporation, Certificates of Designation of Rights and Preferences, Bylaws,
Minutes, the Private Securities Subscription Agreements, as amended, Class A,
Class B, Class C and Class D Warrants and the Reports and Proxy Statement
incorporated by reference in the Prospectus, we are of the opinion that up to
2,280,937 shares of common stock which may be offered by the Selling
Stockholders pursuant to the Registration Statement and accompanying Prospectus,
upon conversion of the 5% Series A Convertible Preferred Stock (the "Preferred
Stock"), payment of dividends to holders of Preferred Stock and exercise of the
Class A, Class B, Class C and Class D Warrants issued by the Company, will be
fully paid and non-assessable, duly authorized and validly issued.
We consent to the use of our name in the Prospectus under the caption
"Legal Matters".
Very truly yours,
MICHAEL HARRIS, P.A.
