UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
[X]Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the year ended September 30, 1999
Commission File Number 1-11046
GLOBAL TECHNOVATIONS, INC.
(Exact name of Registrant as specified in its charter).
Delaware 84-1027821
(State or other jurisdiction of (I.R.S. Employer
corporation or organization) Identification Number)
7108 Fairway Drive, Suite 200, Palm Beach Gardens, Florida 33418
(Address of Principal Executive Office) (Zip Code)
Registrant's telephone number, including area code: (561) 775-5756
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common Stock American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
$.001 par value Common Stock (Title of Class)
None
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the Registrant
was required to file such reports); and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
Incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [X]
As of December 27, 1999, 29,799,281 shares of $.001 par value Common Stock (the
Registrant's only class of voting stock) were outstanding. The aggregate market
value of the common shares of the Registrant on December 27, 1999 (on the
closing sales price) held by non-affiliates of the Registrant, was approximately
$23,565,657.
Documents Incorporated by Reference
Location in Form 10-K Incorporated Document
Part III-Items 10, 11, & 12 Definitive Proxy Statement in connection
with its Annual Meeting of Stockholders
to be held on April 3, 2000
<PAGE>
PART I
ITEM 1. BUSINESS
A. General Description of Business
Global Technovations, Inc. (the "Company") was organized in 1986 to distribute a
patented overhead mounted speaker system ("OHSS") for vehicles. With the
September 30, 1999 sale of the Company's OHSS assets, the Company's primary
business became the assembly, sale, and lease of its proprietary on-site oil
analyzer ("OSA-II"), a second generation proprietary oil analysis instrument
that combines two spectrometers in order to analyze both new or used oil in
approximately five minutes. As a result of the sale of the OHSS assets, the
Company's automotive subsidiary, Top Source Automotive, Inc., ("TSA") became a
discontinued operation on September 30, 1999. The Company's oil analysis
business is conducted through a wholly-owned subsidiary, Top Source Instruments
("TSI").
On December 14, 1999, stockholders approved a proposal to change the Company's
name to Global Technovations, Inc. from Top Source Technologies, Inc.
The Company's mission is to identify, acquire, and/or incubate proprietary
technologies that address specific customer needs. The Company's aim is to
maximize technology commercialization through strategic relationships with
business entities, which share its vision and possess the financial and
organizational resources to realize its goals. As part of this mission, in
September 1999, the Company entered into an agreement with BioTek Environmental
Services, Inc., ("BioTek"). Under the terms of this agreement, the Company
received exclusive world-wide rights to market and sell proprietary, hydrocarbon
eating microbes in certain defined markets, many of which are primary markets
for the sale of the OSA-II - (see BioTek Agreement).
B. Financial Information About Industry Segments
The Company currently has one industry segment: oil analysis service. Assuming
that the Company's marketing efforts are successful with the microbe technology,
the Company will enter a new segment in calendar 2000.
C. Narrative Description of Business
General
The Company assembles and markets one product through the sales and leasing of
the OSA-II. As a result of the sale of the OHSS assets on September 30, 1999,
for accounting purposes TSA's sales of approximately $8,863,814 in fiscal 1999
have been classified as discontinued operations and eliminated from the
Company's financial statements. Accordingly, for accounting purposes, OSA-II
sales accounted for all of the Company's revenues from continuing operations in
fiscal 1999. With the signing of the recent agreement to distribute the BioTek
microbe technology, the Company is now marketing two products. During calendar
2000, the Company plans to expand its business as described later in this
report.
ITEM 1. BUSINESS (Continued)
Products and Technologies
Oil Analysis
Oil analysis service requires extracting a small sample of used oil from
oil-lubricated equipment and sending it to a laboratory. Scientific tests
identify and quantify metal debris that is the result of wear. The amount of
metal debris, correlated to time or mileage that the oil has been in service,
indicates if wear is normal or abnormal. Other laboratory tests indicate and
measure if there is any coolant or water in the oil, the amount of airborne
dirt, viscosity, acidity, depletion level of the additive package, flash point,
coloration and many other factors. Oil analysis users select the tests from a
service menu based on their particular needs. Once the empirical data is
generated by laboratory tests, a trained evaluator reviews the results and
generates a report, which often contains service recommendations. The report is
then sent to the end user.
Oil analysis is now widely used for diagnostic and preventative maintenance
programs for equipment in many different industries including those markets
where the Company is concentrating its marketing efforts for the OSA-II. These
markets are the truck market which includes truck stops, truck maintenance and
truck quick lube centers, the automotive market which includes auto power train
development, motorcycle engine development, automobile dealerships, automotive
fleet maintenance, and automobile auctions, the consumer market which includes
retail automobile service outlets, marine applications, the government market
which includes the United States military and municipalities, the industrial and
the heavy equipment market which includes railroads, and mining. Additionally,
the Company is marketing the OSA-II through the Internet, direct mail and
through a stand-alone mini-lab.
OSA Development
It is estimated that the size of the oil analysis market is in excess of two
billion dollars. This includes oil analysis performed by independent and
in-house laboratories. The Company believes that the use of oil analysis will
increase as a preventative maintenance technology. The Company also believes
that advances in oil analysis technology owned by the Company will increase oil
analysis utilization in new and existing markets.
Earlier in the 1990s, the Company acquired two oil analysis laboratories, which
it sold in October 1997. Through its ownership of these laboratories, the
Company recognized a potential business opportunity if it could develop an
on-site oil analyzer which would eliminate the use of a laboratory and provide
near instant results to the end-user. Over the next three years, the Company in
conjunction with a third party developed the first generation on-site oil
analyzer ("OSA" or "OSA-I"), which was based upon a proprietary database of oil
analysis samples, which the Company acquired and further developed.
The concept behind the OSA was that the oil sample must be tested by two
distinctly different types of spectrometers: an emission spectrometer to
identify and quantify metal elements and an infrared spectrometer to measure the
physical and chemical properties of the used oil. Other specifications for the
instrument included parameters such as: user friendly, low cost, minimal
maintenance, near laboratory accuracy and repeatability, reliability and short
turn around time. The overall objective was to provide high volume oil analysis
locations with an OSA that delivers acceptable data in minutes at about the same
price they pay for similar data by sending samples to a laboratory.
The Company has staffed TSI with spectroscopists, instrument specialists, sales
and marketing, systems and programmer personnel as well as technicians capable
of assisting in installation, operation and training.
<PAGE>
ITEM 1. BUSINESS (Continued)
OSA Development (Continued)
After completing development of the OSA-I units, the Company began between 1995
and 1997 to place them in various test market locations in diverse industries
and generated a minimal amount of revenue. Between 1997 and 1998, the Company
sold five OSA-I units. Four of these five units were sold to automotive Original
Equipment Manufacturers ("OEMs")
At the end of fiscal 1997, TSI began the development of the second generation
OSA-II unit. By August 1998, TSI completed the first production run of seven
OSA-II units and shipped them for use in a revenue-generating trial, which
commenced at a Jacksonville, Florida tire retailer in September 1998. Due to
inconsistent levels of interest from store to store in March 1999, all seven
OSA-II units were returned to the Company.
On November 13, 1998, the Company entered into a strategic alliance with Flying
J, Inc. ("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 placed by Flying J was for the outright
purchase of 10 OSA-II units for approximately $700,000, which represented the
largest single OSA-II order since the inception of the technology.
The agreement covered a potential purchase of up to 100 OSA-IIs 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 could 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.
Because of the nature of Flying J's business, its management determined that a
self-service OSA-II unit was more appropriate for the large majority of its
service plazas. As a result, Flying J has not ordered any additional units from
the Company. The Company's management has been in regular communication with
Flying J's management concerning development of a self-service OSA-II,
("OSA-II/SS"). Additionally, the Company's technical staff has commenced initial
development of the instrument and expended funds during fiscal 1999. The primary
issue for resolution concerns the sharing of the cost of approximately $500,000
needed to complete the OSA-II/SS. Management believes that it will reach an
agreement with Flying J or another customer or strategic partner during the
quarter ended March 31, 2000, although no assurances can be given that an
agreement can be reached on sharing of the funding, or that if funding is
obtained, that the Company can successfully produce a working OSA-II/SS unit.
Management believes that the enhanced OSA-II is more commercially viable than
the OSA-I. During fiscal 1997 and 1998, the Company generated $403,853 and
$392,653 in OSA-I revenue, respectively. During fiscal 1999, the Company
generated $1,389,678 in revenues from OSA units. Of this amount, $205,622 of
revenue came from OSA-I units and $1,184,056 came from OSA-II units. Management
believes during fiscal 2000 that it can significantly increase OSA-II revenues
over historical levels although there can be no assurances.
<PAGE>
ITEM 1. BUSINESS (Continued)
Sale of TSA
On September 30, 1999, the Company sold substantially all of the assets of its
85% owned subsidiary, TSA, and certain intellectual property assets of the
Company relating to TSA's OHSS business to Onkyo America, Inc. ("Onkyo") for
total consideration of $10,000,000 consisting of $2,500,000 cash, a $6,500,000
30-day note payable to TSA and a $1,000,000 30-day note payable to the Company
in either cash or convertible preferred stock of Onkyo. The $6,500,000 note and
accrued interest of $46,479 was paid on October 29, 1999, and the $1,000,000
note was paid through issuance of $1,000,000 of Onkyo 5% Series A Convertible
Preferred Stock ("Onkyo Preferred"). Of the $9,000,000 in cash received by the
Company, $500,000 is being held in escrow for a 12-month period until October
2000 in the event that undisclosed TSA liabilities in excess of $50,000 arise.
Upon conclusion of the one-year period, the funds plus interest will be paid to
TSA less any excess undisclosed liabilities, if any, in excess of $50,000. No
accrual has been recorded for claims against the escrowed funds as none are
anticipated at this time.
The $1,000,000 Onkyo Preferred received by the Company has the following
attributes:
a. Conversion. In the event that Onkyo prior to redemption completes an
initial public offering for a minimum of $10,000,000 net of underwriting
discounts and commissions and the equity valuation of Onkyo is in excess of
$25,000,000, the Onkyo Preferred automatically converts into Onkyo Common
Stock, equal to approximately 2.5% of the number of common stock
outstanding prior to completion of the offering.
b. Redemption. After October 1, 2002, either the Company or Onkyo may redeem
the Series A Preferred Stock based upon a formula equal to (i) the product
of multiplying 4.3 times Onkyo's average, annualized net income before
interest, taxes, depreciation, and amortization for the period beginning on
September 1, 1999 (including TSA's operations for the period beginning on
September 1, 1999); times (ii) the fully-diluted percentage of Common Stock
into which the Series A Preferred Stock is convertible. The term
"fully-diluted" gives effect to exercise of all outstanding options and
warrants and conversion of all outstanding convertible securities;
c. Dividends. The Series A Preferred Stock has a cumulative dividend
preference of 5% per annum payable at the end of each year.
d. Liquidation Preference. Upon liquidation of Onkyo or sale of all or
substantially all of the assets of Onkyo or similar event, the Series A
Preferred Stock is entitled to a $1,000,000 liquidation preference in
addition to all cumulative and unpaid dividends; and
e. Non-Voting. The Series A Preferred Stock has no voting rights except those
required by law.
Previously, the Company and TSA had entered into a TSA Asset Purchase Agreement
with NCT Audio Products, Inc. ("NCT") on August 14, 1998 for a minimum of
$10,000,000 in cash and up to $6,000,000 in a potential earn-out based upon the
future operating results of the TSA business being sold. TSA received $1,450,000
in June 1998 and an additional $2,050,000 on December 15, 1998 when the
Company's stockholders approved the sale to NCT. As a result of the approval by
the Company's stockholders on December 15, 1998, NCT became the owner of 20% of
<PAGE>
ITEM 1. BUSINESS (Continued)
Sale of TSA (Continued)
TSA's CommonStock in exchange for the $3,500,000 it paid. During fiscal 1999,
the Company and TSA granted NCT two extensions to close the transaction with a
final deadline of July 15, 1999. As part of the consideration for these
extensions, the Company received back 5% of TSA's Common Stock, thereby reducing
NCT's ownership of TSA to 15%. NCT's parent company issued a press release on
July 16, 1999 stating that it was unable to obtain the necessary financing to
complete the transaction and acknowledging that NCT thereby let its rights under
the TSA Asset Purchase Agreement, lapse. As a result, the Company and TSA
proceeded to negotiate a definitive agreement and ultimately close on the sale
of the assets to Onkyo on September 30, 1999. In September 1999, NCT commenced
an arbitration proceeding alleging that the Company and TSA breached the TSA
Asset Purchase Agreement and sought to obtain injunctive relief from the
Delaware Court of Chancery preventing the Company and TSA from consummating the
Onkyo transaction. The arbitration proceeding in which NCT claims damages,
beyond their 15% equity ownership of TSA, is pending. For information concerning
legal proceedings between the Company and NCT, (see Item 3.
Legal Proceedings.)
BioTek Agreement
In late November 1999, the Company entered into an agreement with BioTek, which
gave the Company the exclusive world-wide rights to market and sell BioTek's
proprietary, hydrocarbon eating microbes in certain defined markets. While oil
and grease eating microbes are not new, widespread commercial acceptance has
been limited because previously available microbes worked too slowly. BioTek has
developed and "grows" the fast-eating oil and grease microbes. Prior to entering
into the agreement, the Company conducted a test with one of its OSA-II
customers and received a favorable response from the customer, as well as
indications of interest relating to a future order.
Under the terms of the agreement, the Company received the exclusive world-wide
rights to market and sell the proprietary microbe biotechnology under the
trademark MightyClean 2000(TM) brand name in the automotive, trucking and food
service businesses. This includes manufacturers, dealers, servicers of cars and
trucks; gas stations, quick lube centers, and tire and battery stores; operators
of vehicle fleets including limousines, taxis and buses; overnight delivery
services; and municipal, government and military fleets. Within the food service
industry, the Company may market and sell MightyClean 2000(TM) to restaurants,
fast food stores, wholesale food distributors and food manufacturers including
meat, poultry and seafood processors. Because many of the existing OSA-II
customers are within the exclusive market segments, the Company intends to
leverage its relationships with these customers to sell MightyClean 2000(TM) to
them. In order to maintain its exclusive rights, the Company must generate
$1,000,000 in sales by May 31, 2001. In December 1999, the Company began
actively marketing MightyClean 2000(TM) and expects to begin shipping it and
generating revenue during the first calendar quarter of 2000.
ARCS (Acceleration Restraint Curve Safety Seat)
Over the past nine years the Company worked on developing a proprietary
technology involving controlled seat motion that occurs at the instant of a
frontal crash to help restrain vehicle occupants and assist automakers in
meeting Federal passive restraint laws. The Company labeled the technology ARCS
(Acceleration Restraint Curve Safety Seat). The primary objective of this
technology is to provide supplemental lower torso restraint to alleviate
abdominal, hip, leg and ankle injuries caused by unwanted lower torso motion
often experienced in a severe frontal crash.
<PAGE>
ITEM 1. BUSINESS (Continued)
ARCS (Acceleration Restraint Curve Safety Seat) (Continued) Management is
unaware of any other moving seat technology that has been successfully tested by
a major automobile manufacturer. In December 1996, the U.S. Patent Office
granted patent protection for ARCS technology.
The Company believes research and development costs to the Company for the ARCS
is complete and all future development and application engineering will be paid
for by the vehicle and/or seat manufacturers. Due to the requirement to design
and build actual pre-production hardware for automaker testing, the Company is
attempting to establish a strategic partner relationship with a seat
manufacturer. The Company hopes to sell the technology and maintain a long-term
opportunity for future royalty income. Based on lead times in the automobile
industry, royalties would not be generated for a minimum of four years after a
contract is signed; however, due to the increasing regulation and scrutiny on
air bag technology, the time period for implementation of an alternate
technology could be shortened.
Significant Customer Information
During fiscal 1999, approximately 65% of the Company's revenue was derived from
sales and lease of the OSA-II to two customers (see Financial Statements and
Supplementary Data).
Potential New Company Products
While OSA-II addressees the condition of an engine and transmission, truckers
and the organizations that own, operate and service them, are still faced with
costly oil changes and the high price and environmental impact of used oil
disposal. The Company has been negotiating an agreement with a third party,
which has developed proprietary technology, which extends the time between oil
changes. Assuming the Company is able to reach agreement with this party, during
calendar 2000, the Company intends to market the concept of the TruckCheck(TM)
Liquid Asset Management program that incorporates the technology of extended oil
drain filtering with on-site analysis to monitor engine conditions between oil
changes. The anticipated product launch, which will include an extended oil
drain filtering system, replacement filter inserts, an optional additive
package, and OSA-II on-site oil analysis, expected to begin in the second half
of calendar year 2000, although there can be no assurances that an agreement can
be reached and that the program can be launched.
Another potential enhancement of the OSA-II technology is the OSA-II/WF, which
would be a quick, low-cost screener for water, fuel, or glycol in the oil. These
substances can cause severe damage or catastrophic engine failure. In the second
half of 2000, the Company expects to launch a MotorCheck(TM) and TruckCheck(TM)
Quick Screen Analyzer using the OSA-II/WF unit, targeting fleet service centers,
oil change centers, oil distributors and municipal and state governments.
Additionally, once the OSA-II/SS is developed, the Company intends to offer it
to retail stores, travel plaza and truck stops, where self-service make oil
analysis far more feasible than attendant service. The OSA-II/SS, as previously
described, is also targeted for launch in the second half of 2000 assuming that
funding for the development cost can be obtained from a third party. There can
be no assurances that these new OSA products will be completed and launched when
anticipated.
<PAGE>
ITEM 1. BUSINESS (Continued)
Potential New Company Products (Continued)
Additionally, the Company has commenced developing the HairTek(TM) hair care
system based upon an instrument that would be similar to the OSA-II. With
HairTek(TM), a strand of hair would be chemically and physically analyzed, and
the HairTek(TM) hair care system would prescribe a shampoo and conditioner
formula designed to remedy dryness, oiliness, frizziness, lack of body or
volume, and/or other shortcomings unique to the hair sample. The products would
be mixed and dispensed on the spot. Once a prototype has been developed, the
Company expects to launch it if it is able to secure a strategic partner with
the needed capital and distribution capability in the hair care business. There
can be no assurances that the Company will be successful in completing
development of the instrument or securing a strategic partner to finance the
research, development and marketing of the technology.
Government Regulation
The Company is subject to government regulations generally affecting all
businesses. The Company believes that it is in material compliance with all such
regulations.
Seasonal Information
The Company's management believes that its business is not seasonal.
Offices and Employees
The Company maintains its administrative office in Palm Beach Gardens, Florida.
Global Technovations, Inc. has a facility in Atlanta, Georgia. As of December
27, 1999, the Company employs approximately 36 full-time people.
<PAGE>
ITEM 2. DESCRIPTION OF PROPERTY
The following table sets forth the location and use of the Company's facilities.
All of the facilities are leased.
USE LOCATION EXPIRATION
Corporate Headquarters Palm Beach Gardens, Florida January 2002
On-Site Analysis Division Atlanta, Georgia September 2001
All facilities have excess capacity and the capability to accommodate
significant future growth. Each of these facilities is in good condition.
ITEM 3. LEGAL PROCEEDINGS
On September 16, 1999, NCT Audio Products, Inc. ("NCT") commenced an action
against Top Source Technologies, Inc. and Top Source Automotive, Inc. ("TSA",
and collectively, "Top Source") by filing a motion for a temporary restraining
order and a preliminary injunction in the Delaware Court of Chancery. In its
motion, NCT sought to enjoin Top Source's sale of TSA's assets to Onkyo America,
Inc. ("Onkyo") on the ground that NCT was entitled to purchase TSA's assets
pursuant to the terms of an Asset Purchase Agreement among NCT and Top Source
dated August 14, 1998 (the "Asset Purchase Agreement"). On October 6, 1999, NCT
withdrew its motion for a temporary restraining order and preliminary injunction
following the closing of a transaction pursuant to which Onkyo purchased
substantially all of TSA's assets.
<PAGE>
ITEM 3. LEGAL PROCEEDINGS (Continued)
Also on September 16, 1999, NCT commenced an arbitration proceeding before the
American Arbitration Association (the "AAA Action"). NCT's Statement of Claim
asserts that Top Source committed breach of contract and fraud, breached
fiduciary duties, and violated Section 10(b) of the Securities Exchange Act of
1934 and Rule 10b-5 promulgated thereunder in connection with NCT's attempts to
acquire substantially all of the assets of TSA. Specific performance of the
Asset Purchase Agreement and compensatory damages in excess of $3.5 million are
sought.
On December 8, 1999, Top Source filed an answer to NCT's Statement of Claim in
which it sought a more specific statement of NCT's claims of wrongdoing, denied
the claims asserted in the statement of Claim, and asserted counterclaims
against NCT.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its annual meeting of stockholders on December 14, 1999. The
stockholders voted to elect David Natan and Ronald Burd to serve as directors of
the Company until 2002. 25,366,331 votes were cast in favor of this proposal,
626,909 were cast against it, and 59,700 abstained.
The stockholders also voted to approve the selection of Arthur Andersen LLP as
the independent auditors of the Company for the fiscal year ending September 30,
1999, 25,748,260 were cast in favor of this proposal, 249,710 were cast against
it and 54,970 abstained.
The stockholders voted to approve the amendment to the 1993 Stock Option Plan.
23,760,505 votes in favor, 2,127,160 votes against and 165,275 votes abstained.
The fourth proposal to approve the amendment of the certificate of incorporation
changing the Company's name was voted as follows: 25,260,747 votes in favor,
624,073 votes against and 168,120 votes abstained.
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Market Information For Common Stock
The following table sets forth for the periods indicated the range of quarterly
high and low representative market prices for the Company's Common Stock. The
Company's Common Stock trades on the American Stock Exchange under the symbol
"TPS".
Fiscal 1999 Fiscal 1998
----------- ------------
High Low High Low
First Quarter (December 31) 1-5/16 1/2 2-1/16 1
Second Quarter (March 31) 1-3/4 13/16 1-1/2 1
Third Quarter (June 30) 1-1/2 15/16 1-1/8 11/16
Fourth Quarter (September 30) 1-9/16 15/16 1-1/4 3/4
Holders
As of November 24, 1999, there were approximately 1,144 holders of record of the
Company's Common Stock.
<PAGE>
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS (Continued)
Dividend Policy
The Company has never paid cash dividends on its Common Stock. Payment of
dividends is within the discretion of the Company's Board of Directors and will
depend upon the earnings, capital requirements and operating and financial
condition of the Company, and any restrictions in loan agreements among other
factors. Currently, the Company intends to follow a policy of retaining future
earnings in order to finance the growth and development of its businesses.
ITEM 6. SELECTED FINANCIAL DATA
The following table summarizes certain selected financial data of the Company's
financial condition and results of operations as of and for the years ended
September 30, 1999, 1998, 1997, 1996 and 1995. The selected financial data
should be read in conjunction with Item 8. Financial Statements and
Supplementary Data and Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations. <TABLE>
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AS OF AND FOR THE YEARS ENDED SEPTEMBER 30, 1999, 1998, 1997, 1996 AND 1995
- ----------------------------------------------------------------------------
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<S> <C> <C> <C> <C> <C>
Balance Sheet Data 1999 1998 1997 1996 1995
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Total Assets $15,674,348 $6,621,299 $ 10,477,643 $ 14,521,298 $ 17,275,640
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Long-term Debt -0- 3,020,000 3,020,000 3,020,000 2,060,000
==============================================================================================================================
==============================================================================================================================
Total Liabilities 7,158,293 6,164,328 5,993,190 5,604,573 2,870,542
==============================================================================================================================
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Stockholders' Equity 8,516,055 456,971 4,484,453 8,916,725 14,405,098
==============================================================================================================================
=============================================================================================================================
Statement of Operations Data
==============================================================================================================================
==============================================================================================================================
Net Sales $1,389,678 $392,653 $403,853 $44,001 $ 13,895
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Loss from Continuing
Operations (4,073,409) (7,440,667) (6,156,550) (7,796,081) (6,010,605)
==============================================================================================================================
==============================================================================================================================
Net Income (Loss) 3,973,882 (5,852,382) (3,235,316) (6,698,787) (3,399,796)
==============================================================================================================================
==============================================================================================================================
Loss per Basic and
Diluted Common Share(1)
From Continuing Operations (0.18) (0.28) (0.22) (0.28) (0.22)
==============================================================================================================================
==============================================================================================================================
Net Income ( Loss) per Basic
and Diluted Weighted
Average Common Share .14 (0.21) (o.12) (0.24) (0.12)
==============================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements for information on transactions
and accounting classifications, which have affected the comparability of the
periods presented above. The Company has not declared cash dividends on its
Common Stock for any of the periods presented above.
(1) Includes the retroactive implementation of SFAS No. 128 ("Earnings per
Share"), which had no impact for all periods presented.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF INTERIM FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
The results of operations for all periods are based upon the Company's financial
statements for all periods treating TSA as a discontinued operation as the
result of the September 30, 1999 TSA asset sale. Thus, all operations of TSA
have been excluded.
1999 Compared to 1998
Total revenue for the year ended September 30, 1999 was $1,389,678 compared to
$392,653 for the same period in 1998. Revenue in 1999 is comprised of sales of
OSA-II units amounting to $930,749 and leases amounting to $458,929, compared to
$195,676, and $196,977, respectively for the same period in 1998. The increase
in sales revenue of $735,073 or 375.7% is primarily attributable to the sale of
13 OSA-II machines during the year ended September 30, 1999 compared to the sale
of 3 OSA-I machines during same period in 1998. The increase in lease revenue of
$261,952 or 133.0% is primarily attributable to an increase in the number of
units leased and on trial generating various levels of revenue (some of which
were nominal) compared to the number of units leased and on trial for the same
period in 1998. As of December 27, 1999, there were 59 units on lease and on
trial generating approximately $60,000 in monthly revenue, compared to 39 and
$30,000 at the same time in 1998. The units currently on lease and on trial are
in a variety of industries which includes automobile dealerships, mini labs,
truck lube centers, truck stops, engine development laboratories,
municipalities, and others.
TSI gross profit margin for year ended September 30, 1999 was 9.6% compared to
- -55.1% for the same period in 1998. Gross profit for the year ended September
30, 1999 includes the expense of $223,000 of obsolete parts and ongoing
technology enhancements identified in fiscal 1999.
General and administrative expenses were $2,409,072 for the year ended September
30, 1999 compared to $2,792,151 for the same period in 1998. The decrease of
$383,079 or 13.7% is attributable to a reduction in expenses at the corporate
office offset partially by increases in expenses at TSI as a result of the
growth and expansion of the business.
Selling and marketing expenses were $752,512 for the year ended September 30,
1999 compared to $810,288 for the same period in 1998. The decrease of $57,776
or 7.1% is attributable to a reduction in personnel expenses at TSI.
Write down of fixed assets of $880,911 for the year ended September 30, 1998
related to the original OSA-I machines, which were deemed to be impaired and
were written off. (See Item 8. Financial Statements and Supplementary Data, Note
2. Oil Analysis Service Segment.)
Severance expense of $1,085,587 for the year ended September 30, 1998 is
attributable to the resignation of the Company's former Chairman and CEO. (See
Item 8. Financial Statements and Supplementary Data, Note 13. Related Party
transactions).
Depreciation and amortization was $379,431 for the year ended September 30, 1999
compared to $853,971 for the same period in 1998. This decrease of $474,540 or
55.6% is primarily attributable to the write-down of the original OSA-I machines
in September 1998.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF INTERIM FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
Results of Operations (Continued)
1999 Compared to 1998 (Continued)
Research and development was $146,896 for the year ended September 30, 1999
compared to $286,341 for the same period in 1998. This decrease of $139,445 or
48.7% is primarily attributable to the initial costs incurred in the development
of the OSA-II machine in fiscal year 1998.
Interest income was $81,815 for the year ended September 30, 1999 compared to
$92,555 for the same period in 1998. The decrease of $10,740 or 11.6% is
primarily due to a decline in cash balances due to operating losses.
Interest expense was $589,362 for the year ended September 30, 1999 compared to
$662,312 for the same period in 1998. The decrease of $72,950 or 11.0% is due to
a decrease in interest as a result of the restructuring of the senior
subordinated convertible notes in November and December 1998, offset by an
increase in interest expense associated with a loan from a trust controlled by a
director of the Company and issuance of warrants as additional consideration for
the loan.
Other income (expense) was ($11,008) for the year ended September 30, 1999
compared to $54,849 for the same period in 1998. This decrease of $65,857 or
120.0% is primarily attributable to the $100,000 redemption premium incurred in
connection with the redemption of 50% of the Series A Preferred Stock offset by
an increase of $39,670 in royalty income.
Income from discontinued operations was $1,232,451 for the year ended September
30, 1999 compared to $948,345 for the same period in 1998. The increase of
$284,106 or 30.0% is primarily as a result of a decrease in operating expenses
including selling and marketing and engineering.
Gain on disposal of discontinued operations was $8,030,832 for the year ended
September 30, 1999 compared to $962,760 for the same period in 1998. The
increase of $7,068,072 or 734.2% is primarily due to the sale of 14.5% equity in
TSA during the year ended September 30, 1998 with the remainder portion of the
sale completed during the year ended September 30, 1999.
Loss on extinguishment of debt of $27,266 for the year ended September 30, 1999
represents loss of $186,011 on early payoff the credit facility offset by the
gain of $158,745 from restructuring of a portion of the outstanding $3,020,000
of Notes. (See Note 4. Debt)
1998 Compared to 1997
Total revenue for the year ended September 30, 1998 was $392,653 compared to
$403,853 for the same period in 1997. The decrease in sales revenue of $99,024
or 33.6% is primarily attributable to a reduction in the average sales price of
the OSA-I machine in 1998 compared to 1997. The Company sold 3 OSA-I machines
during the year ended September 30, 1998 compared to the sale of 2 OSA-I
machines during same period in 1997. The increase in service revenue of $87,824
or 80.5% is primarily attributable to an increase in the number of units leased
and on trial generating various levels of revenue (some of which were nominal)
compared to the number of units leased and on trial for the same period in 1997.
As of December 27, 1998, there were 39 units on lease generating approximately
$30,000 in monthly revenue, compared to 6 units and $8,000 at the same time in
1997.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF INTERIM FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
Results of Operations (Continued)
1998 Compared to 1997 (Continued)
OSA-I gross profit margin for year ended September 30, 1998 was -55.1% compared
to 73.5% for the same period in 1997. The decrease in gross profit margin is
attributable to the write-off of OSA-I inventory during fiscal year 1998 due to
the completion and market introduction of the OSA-II and a decreased margin in
the service revenue segment due to the outright sale of OSA-I units in 1997,
that had a higher gross profit margin in fiscal 1997 compared to a larger number
of ongoing leases in fiscal 1998.
General and administrative expenses were $2,792,151 for the year ended September
30, 1998 compared to $3,894,096 for the same period in 1997. The decrease of
$1,101,945 or 28.3% is attributable to the Company's restructuring which took
place in the fourth quarter of fiscal 1997 and continued efforts to contain
costs.
Selling and marketing expenses were $810,288 for the year ended September 30,
1998 compared to $1,031,756 for the same period in 1997. The decrease of
$221,468 or 21.5% is primarily attributable to the closing of the TSI Farmington
Hills, Michigan location related to the OSA group.
Write down of fixed assets of $880,911 for the year ended September 30, 1998
related to the original OSA- I machines, which were deemed to be impaired and
were written off. (See Item 8. Financial Statements and Supplementary Data, Note
2. Oil Analysis Service Segment.)
Severance expense of $1,085,587 for the year ended September 30, 1998 is
attributable to the resignation of the Company's former Chairman and CEO. (See
Item 8. Financial Statements and Supplementary Data, Note 13. Related Party
Transactions).
Depreciation and amortization was $853,971 for the year ended September 30, 1998
compared to $1,034,898 for the same period in 1997. This decrease of $180,927 or
17.5% is primarily attributable to the write-down of the original OSA-I machines
and a 56% decrease in purchases of fixed assets for the year ended September 30,
1997.
Research and development was $286,341 for the year ended September 30, 1998
compared to $25,682 for the same period in 1997. This increase of $260,659 or
1015.0% is primarily attributable to the development of the OSA-II unit, which
was designed by the Company in fiscal 1998.
Interest income was $92,555 for the year ended September 30, 1998 compared to
$132,526 for the same period in 1997. The decrease of $39,971 or 30.2% is
primarily due to a decline in cash balances due to operating losses.
Interest expense was $662,312 for the year ended September 30, 1998 compared to
$438,849 for the same period in 1997. The increase of $223,463 or 50.9% is due
to the borrowings and amortization of loan fees on its credit facility, which
was only in place for three months in fiscal 1997. The Company did not borrow
any funds during fiscal 1997 on the prior First Union credit facility
Other income (expense) was $54,849 for the year ended September 30, 1998
compared to $88,322 for the same period in 1997. This decrease of $33,473 or
37.9% is primarily attributable to the decrease of $43,833 in royalty income.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF INTERIM FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
1998 Compared to 1997 (Continued)
Income from discontinued operations was $948,345 for the year ended September
30, 1998 compared to $2,921,234 for the same period in 1997. The decrease of
$1,972,889 or 67.5% is primarily attributable to the loss of the OHSS sales for
the Jeep Cherokee contract, which ended on June 30, 1997.
Gain on disposal of discontinued operations was $962,760 for the year ended
September 30, 1998 is the sale of 14.5% equity in TSA (See Item 1. Business Sale
of TSA).
Net Loss Analysis
In order to avoid current, material, ongoing operating losses, and an increase
in the operating loss after the sale of TSA assets (See Item 1. Business), the
Company must generate new, material ongoing OSA-II or other revenues in future
months. Management believes that the recent OSA-II activity described in this
report will improve OSA-II visibility in the marketplace that which will lead to
significant increases in future OSA-II revenues. However, there can be no
assurances.
Liquidity and Capital Resources
Net cash used in operating activities was $4,460,796 for the year ended
September 30, 1999. This usage of cash was attributable to a net loss of
$3,433,158, which excludes depreciation, amortization, income and gain on
discontinued operation and loss on extinguishments of debt. In addition, an
increase in accounts receivable of $152,693 and an increase in inventories of
$795,312 and a net decrease in accounts payable and accrued liabilities of
$359,746 contributed to net cash used in operating activities. The increase in
inventories is primarily the result of the build-up of OSA-II units in
anticipation of future OSA-II orders.
Net cash used in investing activities was $1,395,495 for the year ended
September 30, 1999. This decrease in cash was attributable expenditures by TSI
for capital assets.
Net cash provided by financing activities was $1,709,481, which consisted of net
proceeds from sales of common stock through exercise of stock options of
$26,878, net proceeds from the sale of Series B preferred stock of $3,370,299,
proceeds from the director's loan of $500,000 and proceeds of the Company's
credit facility ("Credit Facility") with NationsCredit Commercial Corporation
("Nations") of $595,151 offset by the redemption of 50% or $500,000 of the
Series A preferred stock, the repayment of the notes of $2,064,617, payment of
$110,403 of extinguishments of debt costs, payment of $107,827 of Series B
preferred stock dividends.
On September 30, 1999, the Company completed the sale to Onkyo America of
substantially all of the assets of TSA. At the closing, the Company and TSA
received $2,000,000 in cash, a $6,500,000 9% secured note due to be paid to TSA
by October 31, 1999, and a $1,000,000 note due to be paid to the Company by
October 31, 1999 in cash or Onkyo Series A 5% Convertible Preferred Stock. Due
to the sale of the assets, the Company was required to simultaneously pay off in
full its Credit Facility with Nations. The balance paid off at closing was
approximately $1,914,000, which included a prepayment penalty of $100,000. As a
result of the payoff of Nations, all liens on the Company's assets were released
and the Company no longer had any credit lines.
Subsequent to September 30, 1999, TSA received $6,500,000, of which $500,000 is
being held in escrow. (See Item 1. Business - "Sale of TSA").
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
Liquidity and Capital Resources (Continued)
As of December 27, 1999, the Company had approximately $4,600,000 in cash
including amounts reserved for the potential liability to NCT for their 15%
equity ownership in TSA (see Item 3. Legal Proceedings). The Company believes
that current cash on hand will be sufficient to fund its operations for the next
12 months. In the event that the Company is unable to reduce its current
operating losses, it will be required to seek new sources of capital to fund its
operations. There can be no assurances that the operating losses will be reduced
or that new financing will be available on acceptable terms.
Forward-Looking Statements
The forward looking statements discussed in the Report under the Business
Section, (Item 1.) and above in Liquidity and Capital Resources include those
relating to the Company's expectations about (1) generating significantly
increased revenue from OSA-II units above historic levels during fiscal year
2000, (2) reaching agreement with a strategic partner or current customer
regarding the sharing of the funding necessary to complete the development of
the OSA-II/SS unit, (3) successfully developing an OSA-II/SS and OSA-II/WF unit,
(4) the Company's ability to begin generating revenue from the MightyClean
2000(TM) product, (5) the introduction of the Liquid Asset Management program,
(6) the development of a successful HairTek(TM) prototype, (7) the increase in
the usage of oil analysis as a preventative maintenance in new and existing
markets, (8) the adequacy of the Company's working capital and liquidity, and
(9) reducing net operating losses, are forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995.
Some or all of these forward-looking statements may not occur. 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 the following: (1) the continued reliability of
the OSA technology over an extended period of time, (2) the Company's ability to
market OSA-IIs, (3) the acceptance of the OSA technology by the marketplace, (4)
the general tendency of large corporations to slowly change from known
technology to emerging new technology, (5) potential future competition from
third parties that may develop proprietary technology, which either does not
violate the Company's proprietary rights or is claimed not to violate the
Company's proprietary rights, and (6) the Company's ability to attract strategic
partners for new OSA-II, prototype (7) the Company's ability to consummate a
strategic partnership with a filter company, (8) the Company ability to complete
the HairTek(TM) prototype, (9) the Company's ability to consummate strategic
partnership for the HairTek(TM) project and for the Liquid Asset Management
Program project, (10) the Company's ability to resolve contractual issues with
potential strategic partners, (11) whether the Company's assessment of its new
technologies will be accepted by potential strategic partners and customers,
(12) the assurance by Y2K vendors are accurate, (13) unforeseen technical
problems or patent issues with any of the Company's potential new products, and
(14) delays of shipping components for new products, and (15) the Company's
ability to market the MightyClean 2000(TM) product.
Inflation
The impact of inflation has become less significant with dormant inflation rates
in recent years. The Company believes inflation has not had a material effect on
the Company's operations.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF INTERIM FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
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
has adopted SFAS No. 131 for fiscal year ended September 30, 1999. The
adoption of SFAS No. 131 did not have a material impact on its financial
position or results of operations.
Year 2000
The Company has assessed the potential impact of the Year 2000 ("Y2K") on the
Company's internal business systems, products, assembly procedures and
operations. The Company's Y2K initiatives included (i) testing and upgrading
internal business systems and facilities; and (ii) contacting key suppliers,
vendors and customers to determine their Y2K compliance state.
The Company has evaluated all of its information technology systems during the
fourth calendar quarter of 1999, and has spent approximately $30,000 on hardware
and software upgrades. The Company believes that all systems company-wide are
Y2K compliant.
At TSI, the Company believes OSA-IIs are Y2K compliant. As of December 27, 1999,
the Company had 5 OSA-I units at customer locations. The Company is negotiating
with these customers to upgrade to OSA-II units because it believes the OSA-I
may not be Y2K compliant. The Company has recorded a liability of $100,000 in
its financial statements for the period ended September 30, 1999, to cover the
cost of replacing these units, if necessary. During the third and fourth
calendar quarters of 1999, the Company received positive written Y2K readiness
assurances from substantially all of the suppliers of parts necessary for the
assembly OSA-II. The Company has not audited any of its suppliers readiness
statements, however, it believes them to be accurate, although there can be no
assurances. The Company cannot presently estimate what, if any, additional costs
it will incur if one or more of these suppliers are not Y2K compliant.
The Company has determined that four suppliers provide proprietary components
integral to the OSA-II for which there are substitute components readily
available. The Company's current inventory levels and parts supplies of these
components are sufficient to cover a temporary short-term disruption in
shipment, however, any delays in excess of two to three months would have a
material adverse impact on the Company's business operations and financial
condition. The Company has no contingency plan beyond this step to cover this
and other Y2K problems should they arise.
Due to the complexity of the Company's technologies and reliance upon third
parties to produce certain components, there can be no assurances that the
Company has identified all of the Y2K issues that could arise. While the Company
is attempting to minimize any negative consequences arising from Y2K
non-compliance, there can be no assurances that Y2K issues will not have a
material adverse impact on the Company's business, operations or financial
condition. Also, if any of the Company's material suppliers, vendors or
customers experience business disruptions due to Y2K issues, the Company might
also be materially adversely affected. Any unexpected costs or delays arising
from Y2K issues could have a material adverse impact on the Company's business,
operations and financial condition.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
INDEX PAGE
- ------------------------------------------------------------------------------------------------------------------- -----------
- ------------------------------------------------------------------------------------------------------------------- -----------
- ------------------------------------------------------------------------------------------------------------------- -----------
- ------------------------------------------------------------------------------------------------------------------- -----------
<S> <C>
Report of Independent Certified Public Accountants 18
- ------------------------------------------------------------------------------------------------------------------- -----------
- ------------------------------------------------------------------------------------------------------------------- -----------
Consolidated Balance Sheets as of September 30, 1999 and 1998 19
- ------------------------------------------------------------------------------------------------------------------- -----------
- ------------------------------------------------------------------------------------------------------------------- -----------
Consolidated Statements of Operations for the Years Ended September 30, 1999, 1998 and 1997 20
- ------------------------------------------------------------------------------------------------------------------- -----------
- ------------------------------------------------------------------------------------------------------------------- -----------
Consolidated Statements of Stockholders' Equity for the Years Ended September 30, 1999, 1998 and 1997 21
- ------------------------------------------------------------------------------------------------------------------- -----------
- ------------------------------------------------------------------------------------------------------------------- -----------
Consolidated Statements of Cash Flows for the Years Ended September 30, 1999, 1998 and 1997 22
- ------------------------------------------------------------------------------------------------------------------- -----------
- ------------------------------------------------------------------------------------------------------------------- -----------
Notes to Consolidated Financial Statements 23
- ------------------------------------------------------------------------------------------------------------------- -----------
</TABLE>
<PAGE>
REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders of Top Source Technologies, Inc.:
We have audited the accompanying consolidated balance sheets of Top Source
Technologies, Inc., (a Delaware corporation) and subsidiaries as of September
30, 1999 and 1998, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended September 30, 1999. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Top Source Technologies, Inc.
and subsidiaries as of September 30, 1999 and 1998 and the results of its
operations and its cash flows for each of the three years in the period ended
September 30, 1999 in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. Schedule II is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states, in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
West Palm Beach, Florida,
November 24, 1999
<PAGE>
Global Technovations, Inc.
FORM 10-K
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 1999 and 1998
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
ASSETS 1999 1998
------------------ -----------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 2,308,952 $ 488,899
Accounts receivable trade, net 209,554 56,861
Due from buyer of automotive subsidiary 6,000,000 -
Inventories 1,935,832 1,140,520
Prepaid expenses 76,657 115,296
Other 102,867 130,361
Net assets from discontinued operations - 1,780,990
------------------ -----------------
Total current assets 10,633,862 3,712,927
Property and equipment, net 1,533,117 551,478
Patents, net 143,881 123,626
Capitalized database, net 1,862,361 2,073,194
Due from buyer of automotive subsidiary 1,500,000 -
Note receivable from officer - 26,260
Other assets, net 1,127 133,814
------------------ -----------------
TOTAL ASSETS $ 15,674,348 $ 6,621,299
================== =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Line of credit $ 1,913,986 $ 1,318,835
Senior subordinated convertible notes 707,000 -
Loan payable 506,712 -
Accounts payable 302,553 597,307
Accrued liabilities 2,607,408 798,662
Payable to former buyer of automotive subsidiary 1,030,835 -
------------------ -----------------
Total current liabilities 7,068,494 2,714,804
Senior subordinated convertible notes - 3,020,000
Other liabilities 89,799 429,524
------------------ -----------------
Total liabilities 7,158,293 6,164,328
Commitments and contingencies (See Note 10) - -
Stockholders' equity:
Preferred stock - $.10 par value, 5,000,000 shares
authorized; 3,500 and 1,000 shares issued and 3,444,644 943,807
outstanding in 1999 and 1998, respectively
Common stock-$.001 par value, 50,000,000 shares
authorized; 29,799,281 and 29,053,803 shares issued and
outstanding in 1999 and 1998, respectively 29,799 29,054
Additional paid-in capital 31,208,571 29,624,951
Accumulated deficit (24,817,605) (28,791,487)
Treasury stock-at cost; 466,234 shares (1,349,354) (1,349,354)
------------------ -----------------
Total stockholders' equity 8,516,055 456,971
------------------ -----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 15,674,348 $ 6,621,299
================== =================
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these consolidated statements.
<PAGE>
Global Technovations, Inc.
FORM 10-K
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Revenue:
Sales revenue $ 930,749 $ 195,676 $ 294,700
Service revenue 458,929 196,977 109,153
------------ ------------ ------------
Total revenue 1,389,678 392,653 403,853
------------ ------------ ------------
Cost of sales and service 1,256,621 609,088 107,044
------------ ------------ ------------
Gross profit (loss) 133,057 (216,435) 296,809
------------ ------------ ------------
Expenses:
General and administrative 2,409,072 2,792,151 3,894,096
Selling and marketing 752,512 810,288 1,031,756
Write down of fixed assets -- 880,911 --
Severance expense -- 1,085,587 --
Depreciation and amortization 379,431 853,971 1,034,898
Research and development 146,896 286,341 25,682
------------ ------------ ------------
Total expenses 3,687,911 6,709,249 5,986,432
------------ ------------ ------------
Loss from operations (3,554,854) (6,925,684) (5,689,623)
Other income (expense):
Interest income 81,815 92,555 132,526
Interest expense (589,362) (662,312) (438,849)
Other (expense) income, net (11,008) 54,849 88,322
------------ ------------ ------------
Net other income (expense) (518,555) (514,908) (218,001)
------------ ------------ ------------
Loss before income taxes (4,073,409) (7,440,592) (5,907,624)
Income tax expense -- (75) (248,926)
------------ ------------ ------------
Loss from continuing operations before
discontinued operations and extraordinary item: (4,073,409) (7,440,667) (6,156,550)
------------ ------------ ------------
Discontinued operations:
Income from discontinued operations,
net of income taxes 1,232,451 948,345 2,921,234
Gain on disposal of discontinued operations,
net of income taxes 8,030,832 962,760 --
------------ ------------ ------------
Discontinued operations 9,263,283 1,911,105 2,921,234
------------ ------------ ------------
Income (loss) before extraordinary item 5,189,874 (5,529,562) (3,235,316)
Loss on extinguishment of debt (27,266) -- --
------------ ------------ ------------
Net income (loss) 5,162,608 (5,529,562) (3,235,316)
Embedded dividend on preferred stock (619,462) (193,807) --
Preferred dividends (277,458) (20,034) --
Value of warrants issued with preferred stock (291,806) (108,979) --
------------ ------------ ------------
Net income (loss) available to common stockholders $ 3,973,882 ($ 5,852,382) ($ 3,235,316)
============ ============ ============
Basic and Diluted Earnings (Loss) Per Share
Continuing Operations (0.18) (0.28) (0.22)
Discontinued Operations 0.32 0.07 0.10
Extraordinary item (0.00) -- --
------------ ------------ ------------
Net Income (Loss) 0.14 (0.21) (0.12)
============ ============ ============
Basic and diluted weighted average common shares outstanding 29,108,705 28,242,005 28,065,563
============ ============ ============
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these consolidated statements .
<PAGE>
Global Technovations, Inc.
FORM 10-K
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
-------------------------- PREFERRED PAID-IN
SHARES AMOUNT STOCK CAPITAL
------------------------------------------------------
<S> <C> <C> <C>
BALANCE, SEPTEMBER 30, 1996 28,446,477 $ 28,446 - $28,723,853
Exercise of stock options ($.5625 to $1.78 per share) 15,000 15 - 20,598
Treasury stock purchases - - - -
Net loss - - - -
------------------------------------------------------
BALANCE, SEPTEMBER 30, 1997 28,461,477 28,461 - 28,744,451
Exercise of stock options ($.53 to $1.50 per share) 549,700 550 - 387,791
Issuance of convertible preferred stock - Series A - - 1,000,000 -
Preferred stock issuance costs and fees - - - (118,606)
Issuance of common stock for payment of dividend
on preferred stock 42,626 43 - 19,991
Intrinsic value of preferred stock conversion feature - - (250,000) 250,000
Preferred stock embedded dividend - - 193,807 -
Value of warrants issued with preferred stock - - - 108,979
Options and warrants issued for services - - - 232,345
Net loss - - - -
------------------------------------------------------
BALANCE, SEPTEMBER 30, 1998 29,053,803 29,054 943,807 29,624,951
Exercise of stock options ($.53 to $.875 per share) 50,550 51 - 26,827
Redemption of convertible preferred stock - Series A - - (500,000) -
Conversion of convertible preferred stock - Series A
to common stock 669,149 668 (500,000) 499,332
Issuance of convertible preferred stock - Series B - - 3,500,000 -
Preferred stock issuance costs and fees - - - (129,701)
Issuance of common stock for payment of dividend
on preferred stock 25,779 26 - 12,105
Preferred stock dividend - - - -
Intrinsic value of preferred stock conversion feature - - (618,625) 618,625
Preferred stock embedded dividend - - 619,462 -
Value of warrants issued with preferred stock - - - 291,806
Options and warrants issued for services - - - 264,626
Net Income - - - -
======================================================
BALANCE, SEPTEMBER 30, 1999 29,799,281 $ 29,799 $ 3,444,644 $31,208,571
======================================================
</TABLE>
<TABLE>
<CAPTION>
TOTAL
ACCUMULATED TREASURY STOCKHOLDERS'
DEFICIT STOCK EQUITY
---------------------------------------------------
<S> <C> <C> <C>
BALANCE, SEPTEMBER 30, 1996 $ (19,703,789) $ (131,785) $ 8,916,725
Exercise of stock options ($.5625 to $1.78 per share) - - 20,613
Treasury stock purchases - (1,217,569) (1,217,569)
Net loss (3,235,316) - (3,235,316)
---------------------------------------------------
BALANCE, SEPTEMBER 30, 1997 (22,939,105) (1,349,354) 4,484,453
Exercise of stock options ($.53 to $1.50 per share) - - 388,341
Issuance of convertible preferred stock - Series A - - 1,000,000
Preferred stock issuance costs and fees - - (118,606)
Issuance of common stock for payment of dividend
on preferred stock (20,034) - -
Intrinsic value of preferred stock conversion feature - - -
Preferred stock embedded dividend (193,807) - -
Value of warrants issued with preferred stock (108,979) - -
Options and warrants issued for services - - 232,345
Net loss (5,529,562) - (5,529,562)
---------------------------------------------------
BALANCE, SEPTEMBER 30, 1998 (28,791,487) (1,349,354) 456,971
Exercise of stock options ($.53 to $.875 per share) - - 26,878
Redemption of convertible preferred stock - Series A - - (500,000)
Conversion of convertible preferred stock - Series A
to common stock - - -
Issuance of convertible preferred stock - Series B - - 3,500,000
Preferred stock issuance costs and fees - - (129,701)
Issuance of common stock for payment of dividend
on preferred stock (12,131) - -
Preferred stock dividend (265,327) - (265,327)
Intrinsic value of preferred stock conversion feature - - -
Preferred stock embedded dividend (619,462) - -
Value of warrants issued with preferred stock (291,806) - -
Options and warrants issued for services - - 264,626
Net Income 5,162,608 - 5,162,608
===================================================
BALANCE, SEPTEMBER 30, 1999 $ (24,817,605) $ (1,349,354) $ 8,516,055
===================================================
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these consolidated statements.
<PAGE>
Global Technovations, Inc.
FORM 10-K
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 5,162,608 $(5,529,562) $(3,235,316)
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Income from discontinued operations (1,232,451) (948,345) (2,921,234)
Gain on disposal of discontinued operations (8,030,832) (962,760) --
Depreciation 307,034 679,245 829,183
Amortization 333,217 294,150 232,756
Write down of fixed assets and inventory -- 1,294,045 --
Loss on extinguishment of debt 27,266 -- --
Loss on disposal of equipment 3,100 160,963 284,212
Non cash value of services 184,620 232,345 --
Decrease in deferred income tax assets, net -- -- 245,926
Repayments from (advances to) officers 26,260 107,661 (133,921)
(Increase) decrease in accounts receivable, net (152,693) (191) 574,025
Increase in inventories (795,312) (1,437,419) (75,118)
Decrease in prepaid expenses 38,639 39,599 36,516
Decrease (increase) in other assets 27,494 729,556 (165,163)
(Decrease) increase in accounts payable (294,754) 539,889 (542,780)
Increase (decrease) in accrued liabilities 274,733 (120,769) (698,314)
(Decrease) increase in other liabilities (339,725) 429,524 --
----------- ----------- -----------
Net cash used in operating activities (4,460,796) (4,492,069) (5,569,228)
----------- ----------- -----------
INVESTING ACTIVITIES:
Purchases of property and equipment, net (1,291,773) (582,132) (820,421)
Additions to patent costs, net (103,722) (65,078) (11,410)
----------- ----------- -----------
Net cash used in investing activities (1,395,495) (647,210) (831,831)
----------- ----------- -----------
FINANCING ACTIVITIES:
Proceeds from exercises of stock options and warrants 26,878 388,341 20,613
Preferred stock issuance, net 3,370,299 881,394 --
Proceeds from loan payable 500,000 -- --
Repurchases of treasury stock -- -- (1,217,569)
Redemption of preferred stock Series A (500,000) -- --
Repayments of Senior Convertible Notes (2,064,617) -- --
Payment of extinguishment of debt costs (110,403) -- --
Payment of preferred stock dividend (107,827) -- --
Proceeds from (repayments of) borrowings 595,151 (677,506) 1,996,341
----------- ----------- -----------
Net cash provided by financing activities 1,709,481 592,229 799,385
----------- ----------- -----------
NET CASH USED IN CONTINUING OPERATIONS: (4,146,810) (4,547,050) (5,601,674)
----------- ----------- -----------
CASH PROVIDED BY DISCONTINUED OPERATIONS:
Operating Activities 1,488,397 1,731,370 3,796,011
Investing Activities 4,478,466 1,200,900 3,256,213
----------- ----------- -----------
Net cash provided by discontinued operations 5,966,863 2,932,270 7,052,224
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents 1,820,053 (1,614,780) 1,450,550
Cash and cash equivalents at beginning of period 488,899 2,103,679 653,129
----------- ----------- -----------
Cash and cash equivalents at end of period $ 2,308,952 $ 488,899 $ 2,103,679
=========== =========== ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these consolidated statements.
<PAGE>
Global Technovations, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS AND BASIS OF PRESENTATION - Currently, the Company has three wholly
owned subsidiaries, Top Source Instruments, Inc. ("TSI"), which markets, leases
and sells oil analysis services with the OSA-II, Top Source Oil Analysis, Inc.
("TSOA"), which became a discontinued operation on September 30, 1996, and ARCS
Safety Seat, Inc. ("ARCS"), which is inactive. Additionally, the Company has one
85% owned subsidiary, Top Source Automotive, Inc. ("TSA"), which became a
discontinued operation on September 30, 1999. (See Note 3. Sale of Top Source
Automotive, Inc.)
The accompanying Consolidated Financial Statements include the accounts of Top
Source Technologies, Inc. and its subsidiaries ("the Company"). All significant
inter-company accounts and transactions have been eliminated. In order to
maintain consistency and comparability between periods presented certain amounts
have been reclassified from previously reported financial statements in order to
conform to the financial statement presentation of the current year. On
September 30, 1999 the Company sold substantially all of the assets of its 85%
owned subsidiary, TSA and other assets used in TSA's business to Onkyo America,
Inc. ("Onkyo"). Accordingly, the operations and financial activity associated
with this business have been reclassified as discontinued operations. With the
disposition of this operation, the Company's core business, became the leasing
and selling of its second generation on-site used oil analyzer ("OSA-II"). The
OSA-II is a proprietary oil analysis instrument that combines two spectrometers
in order to analyze used oil in approximately five minutes and generate a
computerized diagnostic statement about the engine from which the oil was
extracted.
CASH EQUIVALENTS - The Company considers all highly liquid investments purchased
with an original maturity of three months or less to be cash equivalents.
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include the
accounts of the Company and its subsidiaries. All significant inter-company
accounts and transactions have been eliminated.
REVENUE RECOGNITION - The Company recognizes revenue from sales and leases of
OSA units at the time the products are shipped. Revenue from leased OSA units is
recognized ratably over the lease term, which range from 3 to 48 months. All
existing leases are classified as operating leases.
INVENTORIES - Inventories are stated at the lower of cost or market and are
valued by the first-in, first-out (FIFO) method.
FAIR VALUE OF FINANCIAL INSTRUMENTS - The carrying amount of cash and cash
equivalents, accounts receivable, accounts payable, accrued liabilities and debt
approximates fair value.
PROPERTY AND EQUIPMENT - Property and equipment are stated at cost. Repairs and
maintenance costs are charged to expense as incurred. Depreciation and
amortization are computed using the straight-line method over the estimated
useful lives of the assets, or the lease term if shorter in the case of
leasehold improvements, ranging from two to seven years. When property or
equipment is retired or otherwise disposed of, the cost less related accumulated
depreciation is removed from the accounts and the resulting gains or losses are
included in other expense in the accompanying statements of operations.
<PAGE>
Global Technovations, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CAPITALIZED DATABASE - The capitalized database relates to a portion of the cost
in excess of the fair value related to the TSOA acquisition, which was retained
by TSI to support their OSA technology. The capitalized database is being
amortized over 15 years using the straight-line method (see Note 8. Capitalized
Database).
LONG-LIVED ASSETS - The Company continually evaluates factors, events and
circumstances, which include, but are not limited to, the historical and
projected operating performance, specific industry trends and general economic
conditions to assess whether the remaining estimated useful life of the
Company's long-lived assets may warrant revision or that the assets may not be
recoverable. When such factors, events or circumstances indicate that the
long-lived assets should be evaluated for possible impairment, the Company uses
an estimate of undiscounted cash flow generated from the long-lived assets over
the remaining lives of those assets in measuring its recoverability.
RESEARCH AND DEVELOPMENT - The costs associated with research and development of
products and technologies are expensed as incurred.
USE OF ESTIMATES - The preparation of the consolidated financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of assets and liabilities at the date of the
consolidating financial statements, and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
COMPREHENSIVE INCOME - For the years ended September 30, 1999, 1998 and 1997,
there were no differences between net income and comprehensive income.
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 adopted SFAS No. 131 for fiscal year ending
September 30, 1999. The adoption of SFAS No. 131 did not have a material impact
on its financial position or results of operations because its operations are
concentrated in one segment following the sale of TSA (see Note 3. Sale of Top
Source Automotive, Inc.)
QUARTERLY INFORMATION - The Company recorded an additional valuation allowance
to reduce the deferred tax asset in the amount of $249,000, during the fourth
quarter of the fiscal year ended September 30, 1997. (See Note 12. Income Taxes)
STOCK-BASED COMPENSATION - Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation," ("SFAS No. 123") encourages, but does
not require companies to record compensation plans using a fair value based
method. The Company has chosen to continue to account for stock-based
compensation using the intrinsic value based method prescribed in Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees."
Accordingly, compensation cost for stock options is measured as the excess, if
any, of the quoted market price of the corporation's stock at the date of the
grant over the amount an employee must pay to acquire the stock.
<PAGE>
Global Technovations, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
2. OIL ANALYSIS SERVICE
During fiscal 1998, and as a result of the introduction of the OSA-IIs, the
original OSA-I units and related inventory were deemed to be impaired and
written off. An impairment loss, in the amounts of $880,911 and $413,134, was
charged to operations and is included in "Write down of fixed assets" and "Cost
of Sales and Service", respectively, in the accompanying Consolidated Statements
of Operations for the Year Ended September 30, 1998.
The Company believes that its marketing efforts relating to the OSA-II will be
successful. However, if the Company is unable to meet goals or to have the
necessary resources to sustain its marketing activities it could have a material
adverse effect on the Company's financial condition and the carrying value of
its assets. The Company will continue to evaluate the success of the new
marketing efforts as well as the carrying value of the related assets.
3. SALE OF TOP SOURCE AUTOMOTIVE, INC.
On September 30, 1999, the Company sold substantially all of the assets of its
85% owned subsidiary, TSA, and certain intellectual property assets of the
Company relating to TSA's Overhead Speaker Systems ("OHSS") business, to Onkyo
America, Inc. ("Onkyo") for total consideration of $10,000,000 consisting of
$2,500,000 cash, a $6,500,000 30-day note payable to TSA and a $1,000,000 30-day
note payable to the Company in either cash or convertible preferred stock of
Onkyo. The $6,500,000 note and accrued interest of $46,479 was paid on October
29, 1999, and the $1,000,000 note was paid through issuance of $1,000,000 of
Onkyo 5% Series A Convertible Preferred Stock ("Onkyo Preferred"). Of the
$9,000,000 in cash received by the Company, $500,000 is being held in escrow for
a 12-month period until October 2000 in the event that undisclosed TSA
liabilities in excess of $50,000 arise. Upon conclusion of the one-year period,
the funds plus interest will be paid to TSA less any excess undisclosed
liabilities, if any, in excess of $50,000. No accrual has been recorded for
claims against the escrowed funds as none are anticipated at this time.
The $1,000,000 Onkyo Preferred received by the Company has the following
attributes:
a. CONVERSION. In the event that Onkyo prior to redemption completes an initial
public offering for a minimum of $10,000,000 net of underwriting discounts and
commissions and the equity valuation of Onkyo is in excess of $25 million, the
Onkyo Preferred automatically converts into Onkyo Common Stock, equal to
approximately 2.5% of the number of common shares outstanding prior to
completion of the offering.
b. REDEMPTION. After October 1, 2002, either the Company or Onkyo may redeem the
Series A Preferred Stock based upon a formula equal to (i) the product of
multiplying 4.3 times Onkyo's average, annualized net income before interest,
taxes, depreciation, and amortization for the period beginning on September 1,
1999 (including TSA's operations for the period beginning on September 1, 1999);
times (ii) the fully-diluted percentage of Common Stock into which the Series A
Preferred Stock is convertible. The term "fully-diluted" gives effect to
exercise of all outstanding options and warrants and conversion of all
outstanding convertible securities;
c. DIVIDENDS. The Series A Preferred Stock has a cumulative dividend preference
of 5% per annum payable at the end of each year.
d. LIQUIDATION PREFERENCE. Upon liquidation of Onkyo or sale of all or
substantially all of the assets of Onkyo or similar event, the Series A
Preferred Stock is entitled to a $1,000,000 liquidation preference in addition
to all cumulative and unpaid dividends; and
e. NON-VOTING. The Series A Preferred Stock has no voting rights except those
required by law.
<PAGE>
Global Technovations, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
3. SALE OF TOP SOURCE AUTOMOTIVE, INC., (CONTINUED)
Previously, the Company and TSA had entered into a TSA Asset Purchase agreement
with NCT Audio Products, Inc. ("NCT") on August 14, 1998 for a minimum of
$10,000,000 in cash and up to $6,000,000 in a potential earn-out based upon the
future operating results of the TSA business being sold. TSA received $1,450,000
in June 1998 and an additional $2,050,000 on December 15, 1998 when the
Company's stockholders approved the sale to NCT. As a result of the approval by
the Company's stockholders on December 15, 1998, NCT became the owner of 20% of
TSA's Common Stock in exchange for the $3,500,000 it paid. During fiscal 1999,
the Company and TSA granted NCT two additional extensions to close the
transaction with a final deadline of July 15, 1999. As part of the consideration
for these extensions, the Company received back 5% of TSA's Common Stock,
thereby reducing NCT's ownership of TSA to 15%. NCT's parent company issued a
press release on July 16, 1999 stating that it was unable to obtain the
necessary financing to complete the transaction and acknowledging that NCT
thereby let its rights under the asset purchase agreement to lapse. As a result,
the Company and TSA proceeded to negotiate a definitive agreement and ultimately
close on the sale of the assets to Onkyo on September 30, 1999. In September
1999, NCT commenced an arbitration proceeding alleging that the Company and TSA
breached the Asset Purchase Agreement and sought to obtain injunctive relief
from the Delaware Court of Chancery preventing the Company and TSA from
consummating the Onkyo transaction. The Court declined to rule on NCT's request
for a temporary restraining order and NCT's request for injunctive relief was
rendered moot when the Onkyo transaction closed. The arbitration proceeding in
which NCT claims damages, beyond their 15% equity ownership of TSA, is pending.
The Company believes that NCT's claims for damages beyond their 15% equity
ownership of TSA less certain adjustments and offsets, are without merit. In
December 1999, the Company and TSA answered the demand for arbitration by
denying all material allegations and filed a counterclaim against NCT for
substantial damages. The Company has recorded the amounts due to NCT as "Payable
to former buyer of automotive subsidiary" in the accompanying consolidated
balance sheet.
4. STATEMENTS OF CASH FLOWS
In connection with the restructuring of substantially all of the outstanding
Senior Subordinated Convertible Notes (see Note 9. Debt), the Company recorded a
non-cash gain on extinguishment of debt of $248,383 for the year ended September
30, 1999.
There were no significant non-cash investing or financing activities for the
years ended September 30, 1998 and 1997. Cash paid for interest for the years
ended September 30, 1999, 1998, and 1997 was $397,639, $564,930 and $325,782,
respectively.
5. INVENTORIES
Inventories consisted of the following at September 30, 1999 and 1998:
- ------------------------------- ----------------------- ---------------------
1999 1998
- ------------------------------- ----------------------- ---------------------
Raw materials $984,082 $1,140,520
- ------------------------------- ----------------------- ---------------------
Finished goods 951,750 -0-
------- ---
- ------------------------------- ----------------------- ---------------------
$1,935,832 $1,140,520
========= =========
- ------------------------------- ----------------------- ---------------------
<PAGE>
Global Technovations, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
6. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at September 30, 1999 and
1998:
- --------------------------------- ------------- ---------------- ---------------
USEFUL
LIFE
(YEARS) 1999 1998
- --------------------------------- ------------- ---------------- ---------------
Computer equipment 3-4 $967,753 $1,026,411
- --------------------------------- ------------- ---------------- ---------------
On-Site Analyzers 4-5 1,482,829 316,214
- --------------------------------- ------------- ---------------- ---------------
Tools 2 24,253 11,862
- --------------------------------- ------------- ---------------- ---------------
Furniture and fixtures 3-5 190,452 188,285
- --------------------------------- ------------- ---------------- ---------------
Leasehold improvements 2-5 26,555 25,665
------ ------
- --------------------------------- ------------- ---------------- ---------------
2,691,842 1,568,437
--------- ---------
- --------------------------------- ------------- ---------------- ---------------
Less: accumulated depreciation (1,158,725) (1,016,959)
- --------------------------------- ------------- ---------------- ---------------
$1,533,117 $551,478
========= =======
- --------------------------------- ------------- ---------------- ---------------
Depreciation of leased OSA-II machines in the amount of $160,029 and $119,424
for the years ended September 30, 1999 and 1998, respectively, has been
allocated to cost of sales as it directly relates to cost of services.
During fiscal 1998 and as a result of the introduction of the OSA-IIs, the
OSA-Is property and equipment were written down. (See Note 2. Oil Analysis
Service).
7. PATENTS
Patents consisted of the following at September 30, 1999 and 1998:
- ------------------------------------ ------------ -------------- ---------------
USEFUL
LIFE
(YEARS) 1999 1998
- ------------------------------------ ------------ -------------- ---------------
- ------------------------------------ ------------ -------------- ---------------
Patents 10 $241,830 $199,982
- ------------------------------------ ------------ -------------- ---------------
Less: accumulated amortization (97,949) (76,356)
-------- --------
- ------------------------------------ ------------ -------------- ---------------
$143,881 $123,626
======== ========
- ------------------------------------ ------------ -------------- ---------------
OSA (ON-SITE ANALYZER)
TSI has been granted five patents on unique technology critical to the
operations of its On-Site Analyzer. The value of these patents is being
amortized over ten years and have a remaining net book value of $96,313 at
September 30, 1999.
ARCS (ACCELERATION RESTRAINT CURVE SAFETY SEAT)
Over the past eight years the Company worked on developing a proprietary
technology involving controlled seat motion that occurs at the instant of a
frontal crash to help restrain vehicle occupants and assist automakers in
meeting Federal passive restraint laws. The Company is unaware of any other
moving seat technology that has been successfully tested by a major automobile
manufacturer. In December 1996, the U.S. Patent Office granted patent protection
for ARCS technology. The value of the patents related to the ARCS Seat Safety
Device is being amortized over ten years and have a remaining net book value of
$47,568 at September 30, 1999.
<PAGE>
Global Technovations, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
8. CAPITALIZED DATABASE
Capitalized database consisted of the following at September 30, 1999 and 1998:
- ------------------------------------ -------------- -------------- -------------
USEFUL
LIFE (YEARS) 1999 1998
- ------------------------------------ -------------- -------------- -------------
- ------------------------------------ -------------- -------------- -------------
Capitalized database 15 $3,162,500 $3,162,500
- ------------------------------------ -------------- -------------- -------------
Less: accumulated amortization (1,300,139) (1,089,306)
----------- -----------
- ------------------------------------ -------------- -------------- -------------
$1,862,361 $2,073,194
========== ==========
- ------------------------------------ -------------- -------------- -------------
The capitalized database contains an active library of engine and machine tests
that have a diagnosed history. The value of the capitalized database was
determined based on an assessment of the number of samples included in the
database and a per unit cost to develop/buy the data. The 15-year amortization
period is supported by an independent study of the expected life in use of each
engine type in the database. The database will remain for use by TSI and will be
an integral part of TSI by developing specialized markets.
9. DEBT
Notes payable at September 30, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Senior Subordinated convertible notes, due June 2000,
bearing interest at 5% $707,000 $3,020,000
======= ==========
</TABLE>
On June 9, 1995, the Company entered into an agreement with advisory clients of
Ganz Capital Management, Inc., now Mellon Private Asset Management ("Mellon"),
whereby the holders would purchase $3,020,000 nine percent (9%) Senior
Subordinated convertible notes (the "Notes") from the Company maturing in June
2000. After June 9, 1996, the Notes could be prepaid by the Company without
penalty and could be converted by the holders into fully registered shares of
the Company's Common Stock at a conversion price of $10.00 per share. The Notes
are subject to an Indebtedness to Equity ratio that cannot exceed 1.5 to 1.0. As
of September 30, 1998, the Company was not in compliance with the ratio.
Subsequent to September 30, 1998, the Company restructured substantially all of
the $3,020,000 Notes, which included a waiver of the debt to equity ratio until
September 30,1999. As of September 30, 1999, the Company was in compliance with
this ratio.
During December 1998, the Company restructured substantially all of the
outstanding $3,020,000 of Senior Subordinated Convertible Notes (the "Notes").
The Company prepaid an aggregate of $745,000 principal amount of Notes for
$496,617 resulting in a 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 warrants to purchase an aggregate of
248,383 shares of the Company's Common Stock exercisable over a five-year period
at $1.78 per share. The Company is currently in the process of registering the
shares of Common Stock issuable upon exercise of the warrants. In addition, on
December 15, 1998 concurrent with the approval of the sale of TSA Assets by the
Company's stockholders, Noteholders representing $2,240,000 of the remaining
$2,275,000 in Notes outstanding agreed to be prepaid $1,568,000 of the Notes,
leaving $707,000 of principal outstanding due on June 2000.
In connection with this redemption, the Noteholders agreed to reduce the
interest rate from 9% to 5% and reduce the conversion price on the remaining 30%
Note balance from $10.00 per share to $2.00 per share. In connection with the
repayment of the Notes, a waiver of certain restrictive provisions of the Note
Purchase Agreement, including the requirement that the Company maintain a 1.5 to
1 debt to equity ratio, was received (through and including September 30, 1999).
<PAGE>
Global Technovations, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
9. DEBT, (CONTINUED)
On July 1, 1997, the Company entered into a three-year $5,000,000 asset-based
financing agreement ("Credit Facility") with Nations Credit Commercial
Corporation ("Nations"). The Credit Facility, which was secured by substantially
all of the assets of the Company enabled the Company to borrow up to $5,000,000
based upon certain percentages of accounts receivable and inventory balances.
The interest rate on this Credit Facility was 1-1/2% over the prime rate and was
payable monthly with a required minimum borrowing level of $2,500,000 for fee
calculation purposes. The Company's effective interest rate at September 30,
1999 factoring the interest earned on unused drawn funds was 17.4%. As a result
of the sale of TSA assets, the Note balance of approximately $1,914,000, which
included a redemption fee of $100,000, was paid in full. Additionally, the
Credit Facility was cancelled and liens on all assets of the Company were
released on October 1, 1999.
On August 13, 1999, a trust in which Mr. G. Jeff Mennen, a director of the
Company, is one of the trustees (the "Trust") provided the Company a six-month
short-term unsecured loan of $500,000 at a 10% interest rate. The loan can be
prepaid without penalty at anytime during the first six months. In the event the
Company does not repay the loan before February 13, 2000, the Company will be
required to file a registration statement by February 13, 2000. The registration
statement will allow the Trust to convert the loan to Common Stock at 90% of the
market price. As consideration, the Trust received 50,000 warrants at the market
price of $.875 exercisable immediately, and 50,000 warrants at the market price
of $.875 exercisable in one year. The value of these warrants utilizing the
Black- Scholes Option Pricing Model in accordance with SFAS No. 123 was $76,344.
This amount was deducted as interest expense in the fourth quarter of the fiscal
year 1999. Total interest accrued on this loan for the period ended September
30, 1999 amounted to $6,712.
10. COMMITMENTS AND CONTINGENCIES
The Company leases office space under non-cancelable operating leases. Future
minimum rental commitments under these leases are as follows:
Fiscal Year Ending September 30:
2000 $199,899
2001 202,149
2002 42,209
Total rental expense for continuing operations amounted to $188,538, $174,386,
and $299,525 for the years ended September 30, 1999, 1998, and 1997,
respectively.
The Company has commitments under certain employment agreements entered into
with individuals in management positions. The base salary payments due under
these agreements aggregate $467,560 and are payable during fiscal 2000.
The Company established a Retirement Salary Savings Plan (401(k)) (the "Plan")
effective October 1, 1993. All employees employed on October 1, 1993 were
eligible to join the Plan. Otherwise, they will be eligible to participate in
the Plan if they have completed three months of service and have attained the
age of 21. The enrollment dates are the first day of each month. The Company
will match 25% of each dollar contributed by an employee to the Plan on the
first 6% of the salary deferral, not to exceed 1 1/2% of the employee's total
salary eligible under the Plan. The cost the Company incurred for matching
employee contributions and administrative costs during fiscal 1999, 1998 and
1997 was $17,980, $19,160, and $30,943, respectively.
<PAGE>
GLOBAL Technovations, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
10. COMMITMENTS AND CONTINGENCIES, (CONTINUED)
The Company has from time to time incurred expenses associated with litigation
defense and payment of settlements or judgments in connection with its
businesses. The Company believes that such litigation and other legal matters
should not have a significant adverse effect on the Company's financial position
or results of operations.
11. LOSS PER SHARE
The Company adopted SFAS No. 128, "Earnings Per Share" during fiscal 1998. SFAS
No. 128 establishes standards for computing and presenting basic and diluted
earnings per share. Basic earnings per share are calculated by dividing income
(loss) available to Common Stockholders by the weighted average number of shares
of common stock outstanding during each period. Diluted earnings per share is
calculated by dividing income available to common stockholders by the weighted
average number of shares of common stock and dilutive common stock equivalents
outstanding.
For the years ended September 30, 1999, 1998 and 1997, the dilutive effect of
convertible securities and common stock equivalent shares of 4,039,032,
1,274,896, and 554,802, respectively, were not included in the dilutive average
common shares outstanding, as the effect would have been antidilutive.
12. INCOME TAXES
The income tax expense for the years ended September 30, 1999, 1998 and 1997 of
$0, $0, and $249,000 consists of the reversal of previously recorded deferred
tax assets in 1997.
A valuation allowance is provided to reduce the deferred tax assets to a level,
which, more likely than not, will be realized. The Company has determined, it is
not more likely than not that the net deferred tax assets at September 30, 1999
will be realized before the expiration of the underlying net operating loss
carryforwards which will begin expiring in 2002. Accordingly, a full valuation
allowance has been recorded on the potential tax benefit generated from the
operating loss carryforwards.
At September 30, 1999, the Company has net tax basis Federal operating loss
carryforwards of approximately $31,000,000, which may be used to offset future
taxable income, if any. The Company's net operating loss carryforwards expire
between 2002 and 2018.
13. RELATED PARTY TRANSACTIONS
In order to assure the Company would not violate a covenant under the Notes, in
January 1998, G. Jeff Mennen, a director of the Company, agreed to infuse
sufficient capital into the Company to maintain compliance of this ratio through
October 1, 1998 or refinance the Notes (see Note 9. Debt). In consideration for
this guarantee, the Company issued to Mr. Mennen 50,000 10-year warrants
exercisable at $2.00 per share and agreed to register the underlying shares of
Common Stock at its sole expense. These warrants were valued at $31,854
utilizing the Black Scholes Option Pricing Model in accordance with SFAS No. 123
and has been deducted as an expense for the period ended September 30, 1998.
<PAGE>
Global Technovations, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
13. RELATED PARTY TRANSACTIONS, (CONTINUED)
On November 17, 1998, the Company 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 one of the co-trustees and sole trustee,
respectively, and the beneficiaries are members of Mr. Mennen's immediate family
(the "Mennen Trusts"). The Series B Preferred is convertible into a number of
shares of Common Stock computed by dividing the stated value of $1,000 per share
(the "Stated Value") by 85% of the closing bid price of the Common Stock on the
previous trading day (the "Conversion Price"). The Company has the option to
redeem the Series B Preferred at a price of 115% of Stated Value plus accrued
dividends, which option expires on January 1, 2001. The Series B Preferred pays
a dividend of 9% per annum in cash or, if the Company is unable to pay cash, in
shares of Common Stock. The number of shares of Common Stock to be issued in
such event shall equal to the sum of: (A) the amount of the dividend divided by
the Conversion Price plus (B) 25% of the amount obtained in clause (A). As
additional consideration, the Company issued to the Mennen Trusts 350,000
warrants to purchase the Company's Common Stock exercisable over a 10-year
period at a price of $1.94 per share (which was equivalent to $1.00 above the
closing price on the day of consummation of the Series B Preferred sale
transaction). These warrants were valued at $177,251 utilizing the Black Scholes
Option Pricing Model in accordance with SFAS No. 123 and has been deducted from
amounts available to Common Stockholders for the purpose of calculating income
per share for the period ended September 30, 1999. Additionally, since the
Series B Preferred was not redeemed or converted into Common Stock on or before
May 1, 1999 (which conversion required the Company's consent), the Company
issued to the Mennen Trusts an additional 50,000 10-year warrants exercisable at
a price of $1.75, $0.50 per share above the closing price of the Company's
Common Stock on April 30, 1999. These warrants were valued at $27,048 utilizing
the Black-Scholes Option Pricing Model in accordance with SFAS No. 123 and has
been deducted from amounts available to Common Stockholders for the purpose of
calculating income per share for the period ended September 30, 1999.
Under the original terms of the series B Preferred Stock, the Company agreed to
file a registration statement by November 30, 1999 to cover the public sale of
the shares of Common Stock issuable on conversion of the Series B Preferred
Stock and exercise of the warrants. The company did not file a registration
statement (see Note 18. Subsequent Events).
On August 13, 1999, a trust in which Mr. G. Jeff Mennen, a director of the
Company, is one of the trustees (the "Trust") provided the Company a six-month
short-term unsecured loan of $500,000 at a 10% interest rate. The loan can be
prepaid without penalty at anytime during the first six months. In the event the
Company does not repay the loan before February 13, 2000, the Company will be
required to file a registration statement by February 13, 2000. The registration
statement will allow the Trust to convert the loan to Common Stock at 90% of the
market price. As consideration, the Trust received 50,000 warrants at the market
price of $.875 exercisable immediately, and 50,000 warrants at the market price
of $.875 exercisable in one year. The value of these warrants of $76,344 of
utilizing the Black-Scholes Option Pricing Model in accordance with SFAS No. 123
has been deducted as interest expense in the fourth quarter of fiscal year 1999.
In fiscal 1993, Stuart Landow, the former Chairman of the Board of Directors,
President and Chief Executive Officer of the Company entered into an employment
agreement ("Employment Agreement") which provided a base salary of $200,000 per
year. Additionally, the Employment Agreement called for incentive compensation
payments. The incentive cash compensation expense for fiscal 1999, 1998, and
1997 was $0, and $92,760, and $178,406, respectively.
<PAGE>
Global Technovations, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
13. RELATED PARTY TRANSACTIONS, (CONTINUED)
As a result of the hiring of a new CEO, who replaced Mr. Landow as CEO in May
1997, a breach in the terms of the original Employment Agreement occurred, thus,
Mr. Landow could have requested that the "Good Reason" clause of his contract be
triggered effective July 1, 1997. Mr. Landow waived this clause with the
approval of the Board of Directors. This waiver was effective until June 30,
1998 or earlier, if elected by Mr. Landow at which time the terms of the
original Employment Agreement remained in effect, with the exception of the
incentive payments which would be calculated based on the previous sales for the
period from July 1, 1996 through June 30, 1997.
In June 1998, Mr. Landow and the Company's Board of Directors reached an
agreement to modify his Employment Agreement, which resulted in Mr. Landow
triggering the Good Reason clause of his contract and resigning as Chairman and
as a director of the Company, effective June 30, 1998.
Mr. Landow and the Company agreed to a reduction of approximately $195,000 of
the total compensation Mr. Landow was entitled to receive during the three-year
period ending June 30, 2001 by reducing the 36-month term of the severance to 30
months. Mr. Landow agreed to raise the exercise price on 200,000 of his 600,000
Options (all of which remain vested) from $2.06 to $3.56. In return for these
modifications to the Employment Agreement, the Company agreed to extend the
exercise period for all of Mr. Landow's 600,000 vested Options from the original
expiration date of July 1, 1999 to the new date of July 1, 2001.
Additionally, the modified Employment Agreement provides that Mr. Landow would
repay the Company approximately $105,000 he previously borrowed, together with
9% per annum interest over the 30-month term. The Company is deducting the
monthly installments from Mr. Landow's monthly severance compensation payments.
As a result of the triggering of the Good Reason clause of the Employment
Agreement and the modifications, the Company recorded a one-time charge against
earnings of $1,085,587, which is included in "Severance expense" in the
accompanying Consolidated Statement of Operations for the Year Ended September
30, 1998. This one-time charge was comprised of $918,507 in future severance
payments and a non-cash charge of $167,080 which the Company was required to
record due to the change in the stock option measurement date under SFAS No. 123
and the Black-Scholes Option Pricing Model.
As of September 30, 1999, the Company owes Mr. Landow additional payments of
$429,524, which is included in accrued liabilities in the accompanying financial
statements.
14. STOCK AND STOCK OPTION PLANS
The 1990 Stock Plan, as amended, covers 3,300,000 shares of Common Stock and is
intended to provide: (a) officers and other employees of the Company
opportunities to purchase stock in the Company pursuant to options granted
hereunder which qualify as Incentive Stock Options ("ISOs") under the Internal
Revenue Code of 1986, as amended; (b) directors, officers, employees and
consultants of the Company opportunities to purchase stock in the Company
pursuant to Options granted hereunder which do not qualify as ISO's
("Non-Qualified Options"); (c) directors, officers, employees and consultants of
the Company awards of stock in the Company ("Awards"); (d) directors, officers,
employees and consultants of the Company opportunities to make direct purchases
of stock in the Company ("Purchases"); and (e) directors of the Company who are
not employees of the Company with Non-Discretionary Options.
<PAGE>
Global Technovations, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
14. STOCK AND STOCK OPTION PLANS, (CONTINUED)
The 1990 Stock Plan is administered by a committee of four non-employee
directors. The committee, subject to certain restrictions in the 1990 Stock
Plan, has the authority to grant or issue, as applicable, ISOs, Non-Qualified
Options, Awards, Purchases and Non-Discretionary Options. The committee also
establishes exercise or issue prices, vesting schedules and expiration dates.
The Company's 1993 Stock Option Plan (the "1993 Plan") covers 1,500,000 shares
of Common Stock. The 1993 Plan provides: (a) officers and other employees of the
Company opportunities to purchase stock in the Company pursuant to Options
granted hereunder which qualify as ISOs; and (b) directors, officers, employees
and consultants of the Company opportunities to purchase stock in the Company
pursuant to Non-Qualified Options.
A committee of non-employee directors administers the 1993 Plan. The committee,
subject to certain restrictions in the 1993 Plan, has the authority to (i)
determine the employees of the Company to whom ISOs may be granted, and
determine to whom Non-Qualified Options may be granted; (ii) determine the time
or times at which Options may be granted; (iii) determine the exercise price of
shares subject to Options; (iv) determine whether Options granted shall be ISOs
or Non-Qualified Options; (v) determine the time or times when the Options shall
become exercisable, the duration of the exercise period and when the Options
shall vest; (vi) determine whether restrictions such as repurchase Options are
to be imposed on shares subject to Options and the nature of such restrictions,
if any, and (vii) interpret the 1993 Plan and promulgate and rescind rules and
regulations relating to it.
The 1993 Plan also provides for the automatic grant of 30,000 Non-Qualified
Options to any director who is not an employee of the Company. These Options
vest in increments of 5,000 Options per director every June 30 and December 31,
provided that they are still serving as a director at that time. However, in the
event any director resigns prior to full vesting, the Options will vest on a
pro-rata basis.
<PAGE>
Global Technovations, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
14. STOCK AND STOCK OPTION PLANS (CONTINUED)
The Company has issued the following options and warrants to directors,
officers, employees and consultants during 1999, 1998 and 1997. All of the
following Options and warrants issued to employees, directors and officers were
issued at the fair market value of the underlying stock at the date of grant;
therefore, no compensation expense has been recognized. Options or warrants
issued to consultants were charged to operations, determined by the
Black-Scholes Option Pricing Model in accordance with SFAS No. 123.
<TABLE>
<CAPTION>
1999 1998 1997
---------------------------------------------------------------------------
WEIGHTED WEIGHTED WEIGHTE
AVERAGE AVERAGE D
EXERCISE EXERCISE AVERAGE
OPTIONS PRICE OPTIONS PRICE OPTIONS EXERCISE
--------- -------- --------- -------- --------- PRICE
--------
<S> <C> <C> <C> <C> <C> <C>
Outstanding,
beginning of year: 3,265,872 $ 2.34 3,160,580 $ 2.66 2,681,314 $ 3.57
Granted 1,219,748 $ 1.53 1,683,727 $ 1.79 1,148,257 $ 2.12
Expiration Dates 11/13/03- 01/12/2002- 11/11/2006-
9/22/2009 09/01/2008 9/25/2007
Exercised (50,550) $ .53 (549,700) $ .71 (15,000) $ 1.37
Expired or Canceled (474,609) $ 3.23 (1,028,735) $ 3.33 (653,991) $ 5.50
--------- -------
Outstanding, end
of year: 3,960,461 $ 1.94 3,265,872 $ 2.34 3,160,580 $ 2.66
========= ======== ========= ========= ========
Exercisable, end
of year: 3,117,323 $ 2.12 1,802,234 $ 2.94 2,089,163 $ 2.85
========= ======== ========= ========= ========
Weighted-average
fair value of
options granted
during the year $ .60 $ .98 $ 1.46
========= ========== ==========
Available for
grant, end of year: 42,613
=========
</TABLE>
Included in the above table at September 30, 1999 are 575,000 outstanding
options, which were granted outside of the Stock Option Plans during fiscal 1998
and 1997 with a weighted average price of $2.00, and $1.98, respectively. Also,
included in the above table are 1,073,383 warrants, which were granted during
fiscal 1998 and 1999 at prices ranging from $.875 - $2.00.
<PAGE>
Global Technovations, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
14. STOCK AND STOCK OPTION PLANS (CONTINUED)
Information about stock options in various price ranges at September 30, 1999
follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ---------------------------------------------------------------------- -------------------------
WEIGHTED-
AVERAGE
REMAINING WEIGHTED- WEIGHTED-
OUTSTANDING CONTRACTUAL AVERAGE EXERCISABLE AVERAGE
RANGE OF AS OF LIFE EXERCISE AS OF EXERCISE
EXERCISE PRICES 09/30/99 (YEARS) PRICE 09/30/99 PRICE
- ------------------ ----------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
$0.00 - $1.00 687,416 8.3 $0.85 357,743 $0.83
$1.01 - $2.00 2,262,739 8.5 $1.67 1,754,274 $1.72
$2.01 - $3.00 574,820 4.6 $2.23 574,820 $2.23
$3.01 - $5.00 295,000 7.0 $3.47 295,000 $3.47
$5.01 - $8.00 110,486 5.5 $6.76 105,486 $6.77
$8.01 - $10.00 30,000 4.5 $8.75 30,000 $2.12
--------- --- ----- --------- -----
3,960,461 7.7 $1.94 3,117,323 $2.12
========= =========
- ---------------------------------------------------------------------------------------------------
</TABLE>
The Company has adopted the disclosure only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." Accordingly, no compensation cost has
been recognized for its Stock Option Plans. Had compensation for the Company's
stock-based compensation plans been determined pursuant to SFAS No. 123, the
Company's net loss and loss per share would have increased accordingly. Using
the Black-Scholes Option Pricing Model for all Options granted after October 1,
1995, the Company's pro forma net loss and pro forma net loss per share, with
related assumptions, are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---------- ------------ ------------
<S> <C> <C> <C>
Pro forma net income (loss) $3,445,032 $(6,577,819) $(3,619,598)
Pro forma basic and diluted net income
(loss) per share .12 (.23) (.13)
Expected life (years) 7 7 7
Risk-Free interest rate 6.14% 5.67% 6.51%
Expected volatility 69% 86% 81%
Quarterly dividend None None None
</TABLE>
Because SFAS No. 123 method of accounting has not been applied to Options
granted prior to October, 1995, the resulting pro forma compensation cost may
not be representative of that to be expected in future years.
On November 12, 1996, the Company announced that it put into effect a stock
repurchase plan to repurchase up to 400,000 shares of its Common Stock. From
November 12, 1996 through April 22, 1997, the Company repurchased 378,700 shares
at an average purchase price of $3.21 per share. The Company anticipates no
further stock repurchases for the immediate future.
<PAGE>
Global Technovations, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
15. CONCENTRATION OF CREDIT RISK
In fiscal 1999, the Company derived approximately 50% of its revenue from the
outright sale of 10 OSA-II units to Flying J, Inc. Additionally, in fiscal 1999,
the Company derived approximately 14% of its revenue from ongoing long-term
leases with Speedco, Inc., a major truck stop company affiliated with
Shell/Equilon. Loss of Speedco, Inc. ongoing revenues during fiscal year 2000
would have a material adverse impact on the Company.
During fiscal 1998, approximately 63% of the Company's revenues were derived
from four customers, all of which were different than the key customers noted
above in fiscal 1999.
16. DISCONTINUED OPERATIONS
On September 30, 1999, the Company sold substantially all the assets of its 85%
owned subsidiary, TSA and its intellectual property assets relating to TSA's
OHSS business to Onkyo.
The financial activities associated with TSA have been classified as
discontinued operations in the accompanying Consolidated Financial Statements.
The results of operations attributable to TSA are included in the accompanying
Consolidated Statements of Operations as a component of the line items
captioned, "Income from discontinued operations, net of income taxes" and "Gain
on disposal of discontinued operations, net of income taxes". The combined
incomes from these activities were $9,263,283, $1,911,105 and $2,921,234 for the
years ended September 30, 1999, 1998 and 1997, respectively.
Revenues for TSA were $8,863,814, $10,815,205 and $16,580,270 for the years
ended September 30, 1999, 1998, and 1997, respectively. Interest expense was
$547, $1,830 and $2,660 for the years ended September 30, 1999, 1998, 1997,
respectively. Income tax expense was $53,000, $58,726 and $233,074 for the years
ended September 30, 1999, 1998 and 1997, respectively.
The components of the net liabilities associated with TSA's discontinued
operations included in the accompanying Consolidated Balance Sheet as of
September 30, 1998 consist of the following:
- --------------------------------------------------------------- -------------
1998
- --------------------------------------------------------------- -------------
- --------------------------------------------------------------- -------------
Accounts receivable, net $1,599,456
- --------------------------------------------------------------- -------------
Inventories 349,320
- --------------------------------------------------------------- -------------
Prepaid expenses 79,186
- --------------------------------------------------------------- -------------
Other assets 21,988
- --------------------------------------------------------------- -------------
Property and equipment, net 234,960
- --------------------------------------------------------------- -------------
Manufacturing & distribution rights & patents, net 147,876
- --------------------------------------------------------------- -------------
Total assets 2,432,786
- --------------------------------------------------------------- -------------
Accounts payable 245,596
- --------------------------------------------------------------- -------------
Accrued liabilities 42,043
- --------------------------------------------------------------- -------------
Minority interest 364,157
- --------------------------------------------------------------- -------------
Total liabilities 651,796
- --------------------------------------------------------------- -------------
Net assets of discontinued operations $1,780,990
- --------------------------------------------------------------- -------------
<PAGE>
Global Technovations, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
17. PRIVATE PLACEMENT OF SERIES A AND B CONVERTIBLE PREFERRED STOCK
In May 1998, the Company completed the sale in a private offering to two foreign
investors of 1,000 shares of Series A Convertible Preferred Stock ("Series A
Preferred ") with a liquidation value of $1,000 per share and a par value of
$.10 per share. This funding was comprised of $1,000,000 in Series A Preferred,
less placement and legal fees, yielding $881,394 in net proceeds to the Company.
This Series A Preferred paid an annual dividend of 5% in cash or Common Stock.
The Company issued an aggregate of 25,779 and 42,626 shares of Common Stock for
payment of the dividend due on the Series A Preferred for the periods ending
September 30, 1999, and 1998, respectively.
As part of the transaction, the foreign investors and the placement agent
received a total of 250,000 three-year warrants exercisable at $1.10, of which
100,000 warrants were fully vested upon funding and the remaining 150,000
warrants vested upon the redemption on November 13, 1998. These warrants were
valued utilizing the Black-Scholes Option Pricing Model in accordance with SFAS
No. 123. The value of these warrants of $77,209 and $108,070 has been deducted
from amounts available to Common Stockholders for the purposes of calculating
loss per share for the periods ending September 30, 1999 and 1998, respectively.
Under the terms of the Preferred Stock agreement, the holders of Series A
Preferred had the right to convert each share of Series A Preferred into a
number of shares of Common Stock in whole or in part cumulatively. The Company
had the right to redeem the Series A Preferred, at any time, in whole or in part
at 120% of the purchase price of the Series A Preferred plus all accrued and
unpaid dividends. The intrinsic value of the above described beneficial
conversion feature of ($250,000) was recognized as an increase in additional
paid-in-capital and a decrease in Series A Preferred. This beneficial conversion
feature was amortized as an embedded Series A Preferred dividend through
November 8, 1998 (the date on which all the stock could have been converted into
Common Stock). On November 8, 1998, the Company redeemed one-half or $500,000
Stated Value of the existing Series A Preferred Stock ("Series A Preferred") by
paying the holders an aggregate purchase price of $600,000. The holders also
agreed not to convert $350,000 Stated Value of Series A Preferred until after
March 31, 1999 (and the Company retained the right to redeem $350,000 Stated
Value of Series A Preferred Stock at a 20% premium above Stated Value at any
time before or after March 31, 1999). The remaining $150,000 Stated Value of
Series A Preferred was converted into an aggregate of 387,554 shares of Common
Stock (including accrued dividends) in accordance with the terms of the Series A
Preferred. As consideration for the delay in converting $350,000 Stated Value of
the Series A Preferred, the Company issued to the two holders thereof, five-year
warrants to purchase an aggregate of 25,000 shares of Common Stock exercisable
at $.8937 per share commencing in April 1999. These warrants were valued at
$10,298 utilizing the Black-Scholes Option Pricing Model in accordance with SFAS
No. 123 and has been deducted from amounts available to Common Stockholders for
the purpose of calculating income per share for the period ended September 30,
1999.
On November 17, 1998, the Company sold $3,500,000 of its Series B Convertible
Preferred Stock (see Note 13. Related Party Transactions).
On March 30, 1999, the Company and the holders of the Series A Preferred agreed
to modify the conversion terms of the remaining $350,000 of Series A Preferred
resulting in the conversion of the Series A preferred into Common Stock at $1.00
per share, or into 350,000 shares. The holder agreed to restrict public sale of
these 350,000 shares of Common Stock until October 1, 1999 and thereafter 70,000
shares, on a cumulative basis, may be sold each month. The $1.00 price was
substantially higher than the price permissible and occurred as the result of
the Company agreeing not to redeem the $350,000 Series A Preferred.
<PAGE>
Global Technovations, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
18. SUBSEQUENT EVENTS
Under the original terms of the Series B Preferred, the Company was allowed to
redeem the Series B Preferred Stock at a 15% premium until October 27, 1999 (see
Note 13. Related Party Transactions). A redemption did not occur by that date,
so the Company was required to file a registration statement no later than
November 30, 1999. However, on October 21, 1999, the Mennen Trusts agreed to
allow the Company to delay filing a registration statement until January 1, 2001
to cover the potential public sale of the shares of the Company's Common Stock
issuable upon conversion of the Preferred Stock and warrants. Under the terms of
the agreement, the Mennen Trusts received 250,000 warrants at a strike price of
$2.38. In return, the Company maintained its 15% redemption right and was
allowed to extend the required registration or redemption until January 1, 2001.
These warrants were valued at $252,180 utilizing the Black Scholes Option
Pricing Model in accordance with SFAS No. 123 and will be deducted from amounts
available to common stockholders for the purpose of calculating income per share
for the first quarter of fiscal year 2000.
MIGHTYCLEAN 2000(TM)
In November 1999, the Company entered into an agreement with BioTek
Environmental Services, Inc. ("BioTek"), which gave the Company the exclusive
world-wide rights to market and sell BioTek's proprietary, hydrocarbon eating
microbes in certain defined markets. Under the terms of the agreement, the
Company has the exclusive world-wide rights for 25 years to market and sell the
proprietary biotechnology under the trademark MightyClean 2000(TM) brand name in
the automotive, trucking and food service businesses. Maintenance of these
exclusive rights is expressly contingent upon the Company attaining $1,000,000
in sales of the product by May 31, 2000. This includes manufacturers, dealers,
and services of cars and trucks; gas stations, quick lube centers, tire and
battery stores; operators of vehicle fleets including limousines, taxis and
buses, and overnight delivery services as well as municipal, government and
military fleets. Within the food service industry, the Company may market and
sell MightyClean 2000(TM) to restaurants, fast food stores, wholesale food
distributors and food manufacturers including meat, poultry and seafood
processors.
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY Incorporated by
reference from the Proxy Statement, for the Annual Meeting of Stockholders to be
held on April 3, 2000 section entitled "Election of Directors".
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference from the Proxy Statement, for the Annual Meeting of
Stockholders to be held on April 3, 2000, section entitled "Executive Officer
Compensation".
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Incorporated by reference from the Proxy Statement, for the Annual Meeting of
Stockholders to be held on April 3, 2000, section entitled "Voting Securities
and Principal Holders".
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference from the Proxy Statement, for the Annual Meeting of
Stockholders to be held on April 3, 2000, section entitled "Related Party
Transactions".
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
Page
(a) (1) Financial Statements. (See Item 8. of Form 10-K)........... 16
(a) (2) Financial Statement Schedules required to be filed.
Schedule II - Valuation and Qualifying Accounts...... 52
All other schedules have been omitted because the required information is shown
in the consolidated financial statements or notes thereto or they are not
applicable.
<PAGE>
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(Continued)
(a) (3) Exhibits
Footnote
<TABLE>
EXHIBIT INDEX
<S> <C>
- ----------------------------- -------------------------------------------------------------------------------
NUMBER EXHIBIT FOOTNOTE
- ----------------------------- -------------------------------------------------------------------------------
- ----------------------------- -------------------------------------------------------------------------------
3.0 Amended and Restated Certificate of Incorporation 1
- ----------------------------- -------------------------------------------------------------------------------
- ----------------------------- -------------------------------------------------------------------------------
3.1 Amendment to Certificate of Incorporation 8
- ----------------------------- -------------------------------------------------------------------------------
- ----------------------------- -------------------------------------------------------------------------------
3.2 By-Laws 2
- ----------------------------- -------------------------------------------------------------------------------
- ----------------------------- -------------------------------------------------------------------------------
3.3 Amendment to By-Laws 8
- ----------------------------- -------------------------------------------------------------------------------
- ----------------------------- -------------------------------------------------------------------------------
3.4 Amendment to the Amended and Restated Certificate of Incorporation 6
- ----------------------------- -------------------------------------------------------------------------------
- ----------------------------- -------------------------------------------------------------------------------
3.5 Form of Third Certificate of Designation (Series B Preferred Stock) 21
- ----------------------------- -------------------------------------------------------------------------------
- ----------------------------- -------------------------------------------------------------------------------
4.0 1990 Stock Plan 3
- ----------------------------- -------------------------------------------------------------------------------
- ----------------------------- -------------------------------------------------------------------------------
4.1 1993 Stock Option Plan 6
- ----------------------------- -------------------------------------------------------------------------------
- ----------------------------- -------------------------------------------------------------------------------
10.1 First Amendment to Lease of On-Site Analysis, Inc., Atlanta, GA 6
- ----------------------------- -------------------------------------------------------------------------------
- ----------------------------- -------------------------------------------------------------------------------
10.2 Shareholder Rights Plan 5
- ----------------------------- -------------------------------------------------------------------------------
- ----------------------------- -------------------------------------------------------------------------------
10.3 Note Purchase Agreement dated as of June 9, 1995 7
- ----------------------------- -------------------------------------------------------------------------------
- ----------------------------- -------------------------------------------------------------------------------
10.4 First Amendment to Shareholder Rights Plan 8
- ----------------------------- -------------------------------------------------------------------------------
- ----------------------------- -------------------------------------------------------------------------------
10.5 Second Amendment to Shareholder Rights Plan 9
- ----------------------------- -------------------------------------------------------------------------------
- ----------------------------- -------------------------------------------------------------------------------
10.6 Employment Agreement of David Natan 11
- ----------------------------- -------------------------------------------------------------------------------
- ----------------------------- -------------------------------------------------------------------------------
10.8 Lease of office space, Palm Beach Gardens, FL 12
- ----------------------------- -------------------------------------------------------------------------------
- ----------------------------- -------------------------------------------------------------------------------
10.9 Employment Agreement of William C. Willis, Jr. 16
- ----------------------------- -------------------------------------------------------------------------------
- ----------------------------- -------------------------------------------------------------------------------
10.11 Form of Class A Warrants 22
- ----------------------------- -------------------------------------------------------------------------------
- ----------------------------- -------------------------------------------------------------------------------
10.12 Form of Class B Warrants 22
- ----------------------------- -------------------------------------------------------------------------------
- ----------------------------- -------------------------------------------------------------------------------
10.13 Form of Class C Warrants 22
- ----------------------------- -------------------------------------------------------------------------------
- ----------------------------- -------------------------------------------------------------------------------
10.14 Form of Class D Warrants 22
- ----------------------------- -------------------------------------------------------------------------------
- ----------------------------- -------------------------------------------------------------------------------
10.15 Form of Class F Warrants 22
- ----------------------------- -------------------------------------------------------------------------------
- ----------------------------- -------------------------------------------------------------------------------
10.16 Form of Class G Warrants 22
- ----------------------------- -------------------------------------------------------------------------------
- ----------------------------- -------------------------------------------------------------------------------
10.17 Asset Purchase Agreement - NCT Audio Products, Inc. 18
- ----------------------------- -------------------------------------------------------------------------------
- ----------------------------- -------------------------------------------------------------------------------
10.18 Amendment to Asset Purchase Agreement - NCT Audio Products, Inc. 19
- ----------------------------- -------------------------------------------------------------------------------
- ----------------------------- -------------------------------------------------------------------------------
10.19 Second Amendment to Asset Purchase Agreement - NCT Audio Products, Inc. 25
- ----------------------------- -------------------------------------------------------------------------------
- ----------------------------- -------------------------------------------------------------------------------
10.21 Amendment to Note Purchase Agreement dated as of June 9, 1995 20
- ----------------------------- -------------------------------------------------------------------------------
- ----------------------------- -------------------------------------------------------------------------------
10.22 Amended Stock Purchase Agreement - Series B Preferred Stock 20
- ----------------------------- -------------------------------------------------------------------------------
- ----------------------------- -------------------------------------------------------------------------------
10.23 Speedco, Inc. Long-Term Lease [David Natan, are there others?] 23
- ----------------------------- -------------------------------------------------------------------------------
- ----------------------------- -------------------------------------------------------------------------------
10.24 Flying J, Inc. Agreement 23
- ----------------------------- -------------------------------------------------------------------------------
- ----------------------------- -------------------------------------------------------------------------------
10.25 SPX Agreement 23
- ----------------------------- -------------------------------------------------------------------------------
- ----------------------------- -------------------------------------------------------------------------------
10.26 Staveley, Inc. PLC Agreement 23
- ----------------------------- -------------------------------------------------------------------------------
- ----------------------------- -------------------------------------------------------------------------------
10.27 Onkyo America, Inc. Asset Purchase Agreement 24
- ----------------------------- -------------------------------------------------------------------------------
- ----------------------------- -------------------------------------------------------------------------------
10.28 Mennen Trust Convertible Note 23
- ----------------------------- -------------------------------------------------------------------------------
- ----------------------------- -------------------------------------------------------------------------------
10.29 Agreement with Mennen Trusts 22
- ----------------------------- -------------------------------------------------------------------------------
- ----------------------------- -------------------------------------------------------------------------------
10.30 BioTek Environmental, Inc. Agreement 22
- ----------------------------- -------------------------------------------------------------------------------
- ----------------------------- -------------------------------------------------------------------------------
27.0 Financial Data Schedule 22
- ----------------------------- -------------------------------------------------------------------------------
</TABLE>
<PAGE>
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(Continued)
(b) Reports on Form 8-K
Form 8-K for the quarter ended September 30, 1999 was filed on October
14, 1999, and amended on December 13, 1999.
Exhibit Index
<TABLE>
<S> <C>
-------- ---------------------------------------------------------------------------------------------------------------
1 Contained in the Form 8-A dated July 10, 1993.
-------- ---------------------------------------------------------------------------------------------------------------
-------- ---------------------------------------------------------------------------------------------------------------
2 Contained in the documents previously filed with the Securities
and Exchange Commission in conjunction with
-------- ---------------------------------------------------------------------------------------------------------------
-------- ---------------------------------------------------------------------------------------------------------------
3 Contained in the documents previously filed with the Securities
and Exchange Commission in conjunction with
-------- ---------------------------------------------------------------------------------------------------------------
-------- ---------------------------------------------------------------------------------------------------------------
4 Contained as an exhibit to the Proxy Statement dated January 11, 1994.
-------- ---------------------------------------------------------------------------------------------------------------
-------- ---------------------------------------------------------------------------------------------------------------
5 Contained in Form 8-K dated January 5, 1995.
-------- ---------------------------------------------------------------------------------------------------------------
-------- ---------------------------------------------------------------------------------------------------------------
6 Contained in the documents filed with the Securities and Exchange Commission in conjunction with the 9/30/94
-------- ---------------------------------------------------------------------------------------------------------------
-------- ---------------------------------------------------------------------------------------------------------------
7 Contained in documents filed with the Securities and Exchange
Commission in conjunction with
-------- ---------------------------------------------------------------------------------------------------------------
-------- ---------------------------------------------------------------------------------------------------------------
8 Contained in the Form 8-K/A No. 1 dated July 17, 1995.
-------- ---------------------------------------------------------------------------------------------------------------
-------- ---------------------------------------------------------------------------------------------------------------
9 Contained in the Form 8-K/A No. 2 dated December 5, 1995.
-------- ---------------------------------------------------------------------------------------------------------------
-------- ---------------------------------------------------------------------------------------------------------------
10 Contained in Amendment No. 1 to the Registration Statement on Form S-3 filed May 4, 1995.
-------- ---------------------------------------------------------------------------------------------------------------
-------- ---------------------------------------------------------------------------------------------------------------
11 Contained in Amendment No. 3 to the Registration Statement on Form S-3 filed September 27, 1995.
-------- ---------------------------------------------------------------------------------------------------------------
-------- ---------------------------------------------------------------------------------------------------------------
12 Contained in documents filed with the Securities and Exchange
Commission in conjunction with
-------- ---------------------------------------------------------------------------------------------------------------
-------- ---------------------------------------------------------------------------------------------------------------
13 Contained in the Form 8-K dated November 12, 1996.
-------- ---------------------------------------------------------------------------------------------------------------
-------- ---------------------------------------------------------------------------------------------------------------
14 Contained in documents filed with the Securities and Exchange
Commission in conjunction with
-------- ---------------------------------------------------------------------------------------------------------------
-------- ---------------------------------------------------------------------------------------------------------------
15 Contained in documents filed with the Securities and Exchange
Commission in conjunction with the
-------- ---------------------------------------------------------------------------------------------------------------
-------- ---------------------------------------------------------------------------------------------------------------
16 Contained in documents filed with the Securities and Exchange
Commission in conjunction with
-------- ---------------------------------------------------------------------------------------------------------------
-------- ---------------------------------------------------------------------------------------------------------------
17 Contained in documents filed with the Securities and Exchange
Commission in conjunction with
-------- ---------------------------------------------------------------------------------------------------------------
-------- ---------------------------------------------------------------------------------------------------------------
18 Contained in documents filed with the Securities and Exchange
Commission in conjunction with
-------- ---------------------------------------------------------------------------------------------------------------
-------- ---------------------------------------------------------------------------------------------------------------
19 Contained as an exhibit to the November 6, 1998 Proxy Statement.
-------- ---------------------------------------------------------------------------------------------------------------
-------- ---------------------------------------------------------------------------------------------------------------
20 Contained in Form 10-K for the year ended September 30, 1998.
-------- ---------------------------------------------------------------------------------------------------------------
-------- ---------------------------------------------------------------------------------------------------------------
21 Contained in Form 10-K/A No. 1 for the year ended September 30, 1998.
-------- ---------------------------------------------------------------------------------------------------------------
22 Contained in Form 10-K for the year ended September 30, 1999.
-------- ---------------------------------------------------------------------------------------------------------------
23 Contained in Amendment No. 6 to the Registration Statement Form S-3 filed September 3, 1999.
-------- ---------------------------------------------------------------------------------------------------------------
24 Contained in Form 8-K dated September 30, 1999.
-------- ---------------------------------------------------------------------------------------------------------------
25 Contained in Amendment No. 5 to the Registration Statement Form S-3 filed May 21, 1999.
-------- ---------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED SEPTEMBER 30, 1999, 1998 AND 1997
<TABLE>
================================= ----------------- ------------- ---------------------- ---------------- ===============
<S> <C> <C> <C> <C> <C>
Balance at Charged to Balance at
================================= ----------------- ------------- ---------------------- ---------------- ===============
================================= ----------------- ------------- ---------------------- ---------------- ===============
Deducted from Accounts Receivable
Allowance for Doubtful Accounts
================================= ----------------- ------------- ---------------------- ---------------- ===============
================================= ----------------- ------------- ---------------------- ---------------- ===============
Year Ended Sept. 30, 1999 $ - $ - $ - $ - $ -
================================= ----------------- ------------- ---------------------- ---------------- ===============
================================= ----------------- ------------- ---------------------- ---------------- ===============
Year Ended Sept. 30, 1998 $ - $ - $ - $ - $ -
================================= ----------------- ------------- ---------------------- ---------------- ===============
- --------------------------------- ----------------- ------------- ---------------------- ---------------- ===============
Year Ended Sept. 30, 1997 $ 83,650 $ - $ - $ -
- --------------------------------- ----------------- ------------- ---------------------- ---------------- ===============
</TABLE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Registrant's report on Form
10-K to be signed on its behalf by the undersigned, thereunto duly authorized.
GLOBAL TECHNOVATIONS, INC.
By: \s\William C. Willis, Jr.
William C. Willis, Jr.
Chairman, President and
Chief Executive Officer
Dated: December 29, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> SEP-30-1999
<CASH> 2,308,952
<SECURITIES> 0
<RECEIVABLES> 209,554
<ALLOWANCES> 0
<INVENTORY> 1,935,832
<CURRENT-ASSETS> 10,633,862
<PP&E> 1,533,117
<DEPRECIATION> 1,158,725
<TOTAL-ASSETS> 15,674,348
<CURRENT-LIABILITIES> 7,068,494
<BONDS> 0
0
0
<COMMON> 29,799
<OTHER-SE> 8,486,256
<TOTAL-LIABILITY-AND-EQUITY> 15,674,348
<SALES> 1,389,678
<TOTAL-REVENUES> 1,389,678
<CGS> 1,256,621
<TOTAL-COSTS> 1,256,621
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (589,362)
<INCOME-PRETAX> (4,073,409)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,073,409)
<DISCONTINUED> 9,263,283
<EXTRAORDINARY> (27,266)
<CHANGES> 0
<NET-INCOME> 3,973,882
<EPS-BASIC> 0.14
<EPS-DILUTED> 0.14
</TABLE>
THE SECURITIES REPRESENTED BY THIS CERTIFICATE AND ISSUABLE UPON EXERCISE HEREOF
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR UNDER THE PROVISIONS OF ANY APPLICABLE STATE SECURITIES
LAWS, BUT HAVE BEEN ACQUIRED BY THE REGISTERED HOLDER HEREOF FOR PURPOSES OF
INVESTMENT AND IN RELIANCE ON STATUTORY EXEMPTIONS UNDER THE SECURITIES ACT, AND
UNDER ANY APPLICABLE STATE SECURITIES LAW. THESE SECURITIES AND THE SECURITIES
ISSUED UPON EXERCISE HEREOF MAY NOT BE SOLD, PLEDGED, TRANSFERRED OR ASSIGNED,
NOR MAY THIS WARRANT BE EXERCISED, EXCEPT IN ACCORDANCE WITH TERMS SET FORTH IN
THIS CERTIFICATE OR IN A TRANSACTION WHICH IS EXEMPT UNDER PROVISIONS OF THE
SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT; AND IN THE CASE OF AN EXEMPTION, ONLY IF THE
COMPANY HAS RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH
TRANSACTION DOES NOT REQUIRE REGISTRATION OF ANY SUCH SECURITIES. No. ____
TOP SOURCE TECHNOLOGIES, INC.
CLASS C COMMON STOCK PURCHASE WARRANTS
TO PURCHASE _______ SHARES OF COMMON STOCK
Top Source Technologies, Inc., a Delaware corporation (the "Company"),
hereby certifies that, for value received, ____ ------------------------ is
entitled, subject to the terms set forth below, to purchase from the Company at
any time on or from time to time for a period of five years commencing December
___, 1998 and expiring at 6:00 p.m. Miami time on December __, 2003, _______
fully paid and non-assessable shares of common stock (the "Common Stock") of the
Company, at the price per share equal to $1.78125 (the "Purchase Price"). The
number and character of such shares of Common Stock and the Purchase Price are
subject to adjustment as provided herein.
As used herein the following capitalized terms, unless the context
otherwise requires, have the following respective meanings:
(a) The term "Company" includes any corporation which shall
succeed to or assume the obligations of the Company hereunder.
(b) The term "Common Stock" means the common stock, par value
$0.001 per share, of the Company, together with all stock of any class
or classes (however designated) of the Company, the holders of which
shall have the right, without limitation as to amount, either to all or
to a share of the balance of current dividends and liquidating
dividends after the payment of dividends and distributions on any
shares entitled to preference, and the holders of which shall
ordinarily, in the absence of contingencies, be entitled to vote for
the election of a majority of directors of the Company (even though the
right so to vote has been suspended by the happening of such a
contingency).
(c) The term "Other Securities" refers to any stock (other
than Common Stock) and other securities of the Company or any other
person (corporate or otherwise) which the holders of the Warrant, as
defined, at any time shall be entitled to receive, or shall have
received, upon the exercise of the Warrant, in lieu of or in addition
to Common Stock, or which at any time shall be issuable or shall have
been issued in exchange for or in replacement of Common Stock or Other
Securities pursuant to Section 6 or otherwise.
(d) The term "Purchase Price per share" shall be the then
applicable purchase price for one share of Common Stock as adjusted
pursuant to Sections 5 and 6 hereof. The initial Purchase Price is
$1.78125 per share.
(e) The term Registration Statement refers to Form S-3 or
other applicable form in compliance with the Securities Act, as
defined, and rules thereunder to permit the public disposition of
Common Stock (or Other Securities) issued or issuable upon the exercise
of Warrants, and any post-effective amendments and supplements filed or
required to be filed to permit any such disposition.
(f) The term "Securities Act" means the Securities
Act of 1933 as the same shall be in effect at the time.
(g) The term "Warrants" refers to these Warrants.
1. Registration, etc.
1.1 As soon as practicable the Company has agreed to file a
Registration Statement to cover the public sale of the Common Stock issuable on
exercise of the Warrants at the Company's own expense, provided, however, Common
Stock Holders shall cooperate with the Company in the preparation of such
Registration Statement to the extent required to furnish information concerning
such owners therein and their proposed plan of distribution.
1.2 In connection with the filing of a Registration Statement
pursuant to Section 1.1 hereof, the Company shall:
(a) notify the Holders as to the filing thereof and
of all amendments thereto filed prior to the effective date of said
Registration Statement;
(b) notify the Holders, promptly after it shall have
received notice thereof, of the time when the Registration Statement
becomes effective or any supplement to any prospectus forming a part of
the Registration Statement has been filed;
(c) prepare and file without expense to such Holders
the initial Registration Statement and any necessary amendment or
supplement to such Registration Statement or prospectus as may be
necessary to comply with Section 10(a)(3) of the Securities Act or
advisable in connection with the proposed distribution of the Common
Stock by such Holders (but only during such period as the Company is
required to keep the Registration Statement effective);
(d) if the Common Stock or Other Securities, is not a
"covered security" as that term is defined by Section 18(b) of the
Securities Act, use its reasonable best efforts to qualify the Common
Stock or Other Securities being so registered for sale under the
securities or blue sky laws in such reasonable number of states (not to
exceed five in the aggregate) as such registered owners may designate
in writing and to register or obtain the approval of any federal or
state authority which may be required in connection with the proposed
distribution, except, in each case, in jurisdictions in which the
Company must either qualify to do business or file a general consent to
service of process as a condition to the qualification of such
securities;
(e) notify such registered owners of any stop order
suspending the effectiveness of the Registration Statement and use its
reasonable best efforts to remove such stop order;
(f) undertake to keep said Registration Statement and
prospectus effective until the earlier of (i) such time as the Common
Stock or Other Securities issued or issuable upon exercise of the
Warrant are sold or become available for public sale without
registration under the Securities Act; and
(g) furnish to such Holders as soon as available,
copies of any such Registration Statement and each preliminary or final
prospectus and any supplement or amendment required to be prepared
pursuant to the foregoing provisions of this Section 1, all in such
quantities as such Holders may from time to time reasonably request.
Upon written request, the Company shall also furnish to each owner,
without cost, one set of the exhibits to such Registration Statement.
1.3 The Holders of the Common Stock or Other Securities being
registered under this Section 1 agree to pay all of the underwriting discounts
and commissions and their own counsel fees with respect to the securities owned
by them and being registered. The Company agrees that the costs and expenses
which it is obligated to pay in connection with a Registration Statement to be
filed pursuant to Section 1.1 hereof include, but are not limited to,
registration fees, the fees and expenses of counsel for the Company, the fees
and expenses of its accountants and all other costs and expenses incident to the
preparation, printing and filing under the Securities Act of any such
Registration Statement, each prospectus and all amendments and supplements
thereto, the costs incurred in connection with the qualification of such
securities for sale in a reasonable number of states, if applicable, including
fees and disbursements of counsel for the Company or any managing underwriter,
and the costs of supplying a reasonable number of copies of the Registration
Statement, each preliminary prospectus, final prospectus and any supplements or
amendments thereto to such Holders.
1.4 The Company agrees to enter into an appropriate
cross-indemnity agreement with any underwriter (as defined in the Securities
Act) for such registered owners in connection with the filing of a Registration
Statement pursuant to Section 1.1 hereof.
1.5 In the event that the Company shall file any Registration
Statement including therein all or any part of the Common Stock or Other
Securities issued or issuable upon exercise of the Warrants, the Company and
each Holder of such securities shall enter into an appropriate cross-indemnity
agreement whereby the Company shall indemnify and hold harmless the Holder
against any losses, claims, damages or liabilities (or actions in respect
thereof) arising out of or based upon any untrue statement or alleged untrue
statement of any material fact contained in such registration statement, or any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make statements therein not misleading unless
such statement or omission was made in reliance upon and in conformity with
written information furnished or required to be furnished by any such Holder,
and each such Holder shall indemnify and hold harmless the Company, each of its
directors, each of its officers who have signed the Registration Statement and
each person, if any, who controls the Company within the meaning of the
Securities Act against any losses, claims, damages or liabilities (or actions in
respect thereof) arising out of or based upon any untrue statement or alleged
untrue statement of any material fact contained in such Registration Statement,
or any omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make statements therein not misleading, if the
statement or omission was made in reliance upon and in conformity with written
information furnished or required to be furnished by such Holder or such
controlling person expressly for use in such Registration Statement.
1.6 Notwithstanding the provisions of Section 1.2 hereof, if, at the
same time of the pendency of any registration of Common Stock or Other
Securities under this Section 1, the Common Stock or Other Securities being
registered thereunder may be sold by the holder thereof in a transaction
pursuant to Rule 144 promulgated under the Securities Act, such holder shall not
be entitled to require the Company to register such securities pursuant to the
Securities Act.
1.7 Nothing herein shall be construed to require any Holder who may
desire to include any Common Stock or Other Securities in any Registration
Statement referred to in Section 1.1 hereof to exercise their Warrants prior to
the effective date of any Registration Statement.
2. Sale or Exercise Without Registration. If, at the time of any
exercise, permitted transfer or surrender for exchange of the Warrants or of
Common Stock or Other Securities previously issued upon the exercise of the
Warrants, such Warrants or Common Stock (or Other Securities) shall not be
registered under the Securities Act, the Company may require, as a condition of
allowing such exercise, transfer or exchange, that the holder or transferee of
such Warrants, Common Stock or Other Securities, as the case may be, furnish to
the Company an opinion of counsel reasonably satisfactory to the Company to the
effect that such exercise, transfer or exchange may be made without registration
under the Securities Act, provided that the disposition thereof shall at all
times be within the control of such holder or transferee, as the case may be,
and provided further that nothing contained in this Section 2 shall relieve the
Company from complying with any request for registration pursuant to Section 1
hereof. The holder of the Warrants represents to the Company that it is
acquiring the Warrants for investment and not with a view to the distribution
thereof.
3. Exercise of Warrants; Partial Exercise.
3.1 Exercise in Full or in Part. These Warrants may be
exercised in full or in part by the Holder hereof by surrender of these
Warrants, with the form of subscription attached hereto duly executed by such
holder, to the Company at its principal office, as provided in Section 19
hereof, accompanied by payment by certified or official bank check payable to
the order of the Company, in the amount obtained by multiplying the number of
shares of Common Stock called for on the face of these Warrants (without giving
effect to any adjustment therein) by the Purchase Price.
3.2 Company to Reaffirm Obligations. The Company will, at the
time of any exercise of these Warrants, upon the request of the Holder hereof,
acknowledge in writing its continuing obligation to afford to such Holder any
rights to which such Holder shall continue to be entitled after such exercise in
accordance with the provisions of these Warrants, provided that if the Holder of
these Warrants shall fail to make any such request, such failure shall not
affect the continuing obligation of the Company to afford such Holder any such
rights.
4. Delivery of Stock Certificates, etc., on Exercise. As soon as
practicable after the exercise of these Warrants in full or in part, and in any
event within two days thereafter, the Company at its expense (including the
payment by it of any applicable issue or transfer taxes) will cause to be issued
in the name of and delivered to the Holder hereof a certificate or certificates
for the number of fully paid and non-assessable Common Stock or Other Securities
to which such Holder shall be entitled upon such exercise, plus, in lieu of any
fractional share to which such holder would otherwise be entitled, cash equal to
such fraction multiplied by the then current fair market value of one full share
(determined by the closing price on the principal market as of the date of
receipt of the Warrants with executed subscription), together with any other
stock or other securities and property (including cash, where applicable) to
which such Holder is entitled upon such exercise pursuant to Section 5 hereof or
otherwise.
5. Anti-Dilution Provisions. If and to the extent that the number of
issued shares of Common Stock of the Company shall be increased, reduced or
changed by change in par value, split up, reclassification, or distribution of a
dividend payable in Common Stock (or Other Securities of the Company), the
number of shares subject to the Warrants and the exercise price per share shall
be proportionately adjusted; provided, however, that the anti-dilution provision
described in this Section 5 does not apply to sales of Common Stock made by the
Company at a price below the Purchase Price.
6. Reorganization, Consolidation, Merger, etc. In case the Company
shall (a) effect a reorganization, (b) consolidate with or merge with or into
any other entity, or (c) transfer all or substantially all of its properties or
assets to any other entity under any plan or arrangement contemplating the
dissolution of the Company, excluding the sale of assets or securities of Top
Source Automotive, Inc., then, in each such case, the holder of these Warrants,
upon the exercise thereof as provided in Section 3 hereof at any time after the
consummation of such reorganization, consolidation or merger or the effective
date of such dissolution, as the case may be, shall be entitled to receive (and
the Company shall be entitled to deliver), in lieu of the Common Stock (or Other
Securities) issuable upon such exercise prior to such consummation or such
effective date, the stock and other securities and property (including cash) to
which such Holder would have been entitled upon such consummation or in
connection with such dissolution, as the case may be, if such Holder had so
exercised these Warrants immediately prior thereto, all subject to further
adjustment thereafter as provided in Section 5 hereof.
7. Further Assurances. The Company will take all such action as may be
necessary or appropriate in order that the Company may validly and legally issue
fully paid and non-assessable Common Stock upon the exercise of all Warrants
from time to time outstanding.
8. Officer's Certificate as to Adjustments. In each case of any
adjustment or readjustment in the Common Stock (or Other Securities) issuable
upon the exercise of the Warrants, the Company at its expense will promptly
compute such adjustment or readjustment in accordance with the terms of the
Warrants and prepare a certificate, executed by its chief financial or
accounting officer, setting forth such adjustment or readjustment and showing in
detail the facts upon which such adjustment or readjustment is based, and the
number of Common Stock outstanding or deemed to be outstanding. The Company will
forthwith mail a copy of each such certificate to each Holder of Warrants.
9. Notices of Record Date, etc. In the event of
(a) any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the
Company or any transfer of all or substantially all the assets of the
Company to or consolidation or merger of the Company with or into any
other person; or
(b) any voluntary or involuntary dissolution,
liquidation or winding-up of the Company;
and to which Section 6 hereof is applicable, then and in each such
event the Company will mail or cause to be mailed to each holder of
Warrants a notice specifying (i) the date on which any such record is
to be taken for the purpose of such dividend, distribution or right,
and stating the amount and character of such dividend, distribution or
right; and (ii) the date on which any such reorganization,
reclassification, recapitalization, transfer, consolidation, merger,
dissolution, liquidation or winding-up is to take place, and the time,
if any, as of which the holders of record of Common Stock (or Other
Securities) shall be entitled to exchange their shares of Common Stock
(or Other Securities) for securities or other property deliverable upon
such reorganization, reclassification, recapitalization, transfer,
consolidation, merger, dissolution, liquidation or winding-up. Such
notice shall be mailed at least 15 days prior to the date therein
specified.
10. Reservation of Common Stock, etc., Issuable on Exercise of
Warrants. The Company will at all times reserve and keep available, solely for
issuance and delivery upon the exercise of the Warrants, all Common Stock (or
Other Securities) from time to time issuable upon the exercise of the Warrants.
11. Listing on Securities Exchanges; Registration. If the Company at
any time shall list any Common Stock on any national securities exchange, the
Company will, at its expense, simultaneously list on such exchange, upon
official notice of issuance upon exercise of the Warrants, and maintain such
listing of, all Common Stock from time to time issuable upon the exercise of the
Warrants; and the Company will so list on any national securities exchange, will
so register and will maintain such listing of, any Other Securities if and at
the time that any securities of like class or similar type shall be listed on
such national securities exchange by the Company.
12. Exchange of Warrants. Subject to the provisions of Section 2
hereof, upon surrender for exchange of any Warrants, properly endorsed to the
Company, the Company at its own expense will issue and deliver to the holder
thereof new Warrants of like tenor, in the name of such holder calling in the
aggregate on the face or faces thereof for the number of shares of Common Stock
called for on the face of the Warrants so surrendered.
13. Replacement of Warrants. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of any
Warrants and, in the case of any such loss, theft or destruction, upon delivery
of an indemnity agreement reasonably satisfactory in form and amount to the
Company or, in the case of any such mutilation, upon surrender and cancellation
of such Warrants, the Company at its expense will execute and deliver, in lieu
thereof, new Warrants of like tenor.
14. Warrant Agent. The Company may, by written notice to each Holder of
a Warrant, appoint an agent for the purpose of issuing Common Stock (or Other
Securities) upon the exercise of the Warrants pursuant to Section 3 hereof,
exchanging Warrants pursuant to Section 12 hereof, and replacing Warrants
pursuant to Section 12 hereof, and replacing Warrants pursuant to Section 13
hereof, or any of the foregoing, and thereafter any such issuance, exchange or
replacement, as the case may be, shall be made at such office by such agent.
15. Legend. Unless the shares of Common Stock have been registered
under the Securities Act, upon exercise of any of the Warrants and the issuance
of any of the Common Stock, or Other Securities pursuant thereto all
certificates representing Common Stock or Other Securities shall bear on the
face thereof substantially the following legend:
The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended, and
may not be sold, offered for sale, assigned, transferred or
otherwise disposed of, unless registered pursuant to the
provisions of that Act or unless a written opinion of counsel
to the Company concludes that such disposition is in
compliance with an available exemption from such registration.
16. Remedies. The Company stipulates that the remedies at law of the
Holder of these Warrants in the event of any default or threatened default by
the Company in the performance of or compliance with any of the terms of these
Warrants are not and will not be adequate, and that such terms may be
specifically enforced by a decree for the specific performance of any agreement
contained herein or by an injunction against a violation of any of the terms
hereof or otherwise.
17. Severability. In the event any parts of these Warrants are found to
be void, the remaining provisions of these Warrants shall nevertheless be
binding with the same effect as though the void parts were deleted.
18. Benefit. These Warrants shall be binding upon and inure to the
benefit of the parties hereto and their legal representatives, successors and
assigns.
19. Notices and Addresses. All notices, offers, acceptance and any
other acts under this Warrant (except delivery of these Warrants and payment of
the Purchase Price) shall be in writing, and shall be sufficiently given if
delivered to the addressees in person, by Federal Express or similar receipted
delivery, by facsimile delivery or, if mailed, postage prepaid, by certified
mail, return receipt requested, as follows:
The Company: Mr. William C. Willis, Jr., President
Top Source Technologies, Inc.
7108 Fairway Drive, Suite 200
Palm Beach Gardens, FL 33418-3757
Facsimile: (561) 691-5220
With a copy to: Michael Harris, P.A.
1645 Palm Beach lakes Boulevard
Suite 550
West Palm Beach, Florida 33401
Facsimile (561) 478-1817
The Holder: _________________________________
=================================
or to such other address as any of them, by notice to the others may designate
from time to time. The transmission confirmation receipt from the sender's
facsimile machine shall be conclusive evidence of successful facsimile delivery.
Time shall be counted to, or from, as the case may be, the delivery in person or
by mailing.
20. Attorney's Fees. In the event that there is any controversy or
claim arising out of or relating to these Warrants, or to the interpretation,
breach or enforcement thereof, and any action or proceeding including an
arbitration proceeding is commenced to enforce the provisions of these Warrants,
the prevailing party shall be entitled to an award by the court of reasonable
attorney's fees, costs and expenses.
21. Governing Law. These Warrants and any dispute, disagreement, or
issue of construction or interpretation arising hereunder whether relating to
its execution, its validity, the obligations provided herein or performance
shall be governed or interpreted according to the internal laws of the State of
Delaware without regard to choice of law considerations.
22. Section or Paragraph Headings. Section headings herein have been
inserted for reference only and shall not be deemed to limit or otherwise
affect, in any matter, or be deemed to interpret in whole or in part any of the
terms or provisions of these Warrants.
Dated: December 23, 1998
TOP SOURCE TECHNOLOGIES, INC.
By:
David Natan, Vice President of Finance
<PAGE>
ASSIGNMENT FORM
(To be executed only upon the assignment of Warrants)
FOR VALUE RECEIVED the undersigned registered holder of the within
Warrants hereby sells, assigns and transfers unto ______________, whose address
is ____________________________ all of the rights of the undersigned under the
within Warrants, with respect to ______________ Common Stock of ______________
and, if such Common Stock do not include all the Common Stock issuable as
provided in the Warrants, that new Warrants of like tenor for the number of
Common Stock not being transferred hereunder be issued in the name of and
delivered to the undersigned, and does hereby irrevocably constitute and appoint
______________ Attorney to register such transfer on the books of ______________
maintained for the purpose, with full power of substitution in the premises.
Dated: ______________, 199__.
(Signature must conform in all respects to name of holder as specified on the
face of the Warrants)
Signature Guaranteed
Address:
<PAGE>
FORM OF SUBSCRIPTION
(To be signed only upon exercise of Warrants)
To:___________________________
The undersigned, the holder of the within Warrants, hereby irrevocably
elects to exercise the purchase right represented by such Warrants for, and to
purchase thereunder, ______________ Common Stock of ______________, and herewith
makes payment of $______________ therefor, and requests that the certificates
for such shares be issued in the name of, and delivered to, whose address is
. If the Common Stock being purchased
hereby do not include all the Common Stock issuable as provided in the Warrants,
that new Warrants for the number of Common Stock not being purchased hereunder
be issued in the name of and delivered to the undersigned.
Dated: ______________, 199__.
(Signature must conform in all respects to name of holder as specified on the
face of the Warrants)
Signature Guaranteed
THE SECURITIES REPRESENTED BY THIS CERTIFICATE AND ISSUABLE UPON EXERCISE HEREOF
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR UNDER THE PROVISIONS OF ANY APPLICABLE STATE SECURITIES
LAWS, BUT HAVE BEEN ACQUIRED BY THE REGISTERED HOLDER HEREOF FOR PURPOSES OF
INVESTMENT AND IN RELIANCE ON STATUTORY EXEMPTIONS UNDER THE SECURITIES ACT, AND
UNDER ANY APPLICABLE STATE SECURITIES LAW. THESE SECURITIES AND THE SECURITIES
ISSUED UPON EXERCISE HEREOF MAY NOT BE SOLD, PLEDGED, TRANSFERRED OR ASSIGNED,
NOR MAY THESE WARRANTS BE EXERCISED, EXCEPT IN ACCORDANCE WITH TERMS SET FORTH
IN THIS CERTIFICATE OR IN A TRANSACTION WHICH IS EXEMPT UNDER PROVISIONS OF THE
SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT; AND IN THE CASE OF AN EXEMPTION, ONLY IF THE
COMPANY HAS RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH
TRANSACTION DOES NOT REQUIRE REGISTRATION OF ANY SUCH SECURITIES. No. 2
TOP SOURCE TECHNOLOGIES, INC.
CLASS D COMMON STOCK PURCHASE WARRANTS
TO PURCHASE 350,000 SHARES OF COMMON STOCK
Top Source Technologies, Inc., a Delaware corporation (the "Company"),
hereby certifies that, for value received,
__________________________________________________________is entitled, subject
to the terms set forth below, to purchase from the Company at any time on or
from time to time for a period of 10 years commencing November 17, 1998, 350,000
fully paid and non-assessable shares of common stock (the "Common Stock") of the
Company, at the price per share equal to $1.93 (the "Purchase Price"). The
number and character of such shares of Common Stock and the Purchase Price are
subject to adjustment as provided herein.
As used herein the following capitalized terms, unless the context
otherwise requires, have the following respective meanings:
(a) The term "Company" includes any corporation which shall
succeed to or assume the obligations of the Company hereunder.
(b) The term "Common Stock" means the common stock, par value
$0.001 per share, of the Company, together with all stock of any class
or classes (however designated) of the Company, the holders of which
shall have the right, without limitation as to amount, either to all or
to a share of the balance of current dividends and liquidating
dividends after the payment of dividends and distributions on any
shares entitled to preference, and the holders of which shall
ordinarily, in the absence of contingencies, be entitled to vote for
the election of a majority of directors of the Company (even though the
right so to vote has been suspended by the happening of such a
contingency).
(c) The term "Other Securities" refers to any stock (other
than Common Stock) and other securities of the Company or any other
person (corporate or otherwise) which the holders of the Warrants, as
defined, at any time shall be entitled to receive, or shall have
received, upon the exercise of the Warrants, in lieu of or in addition
to Common Stock, or which at any time shall be issuable or shall have
been issued in exchange for or in replacement of Common Stock or Other
Securities pursuant to Section 6 or otherwise.
(d) The term "Purchase Price per share" shall be the then
applicable purchase price for one share of Common Stock as adjusted
pursuant to Sections 5 and 6 hereof.
(e) The term Registration Statement refers to Form S-3 or
other applicable form in compliance with the Securities Act, as
defined, and rules thereunder to permit the public disposition of
Common Stock (or Other Securities) issued or issuable upon the exercise
of Warrants, and any post-effective amendments and supplements filed or
required to be filed to permit any such disposition.
(f) The term "Securities Act" means the Securities
Act of 1933 as the same shall be in effect at the time.
(g) The term "Warrants" refers to these Warrants.
1. Registration, etc.
1.1 The Company has agreed to file a Registration Statement on
or before January 1, 2001, to cover the public sale of the Common Stock issuable
on exercise of the Warrants at the Company's own expense, provided, however,
Common Stock Holders shall cooperate with the Company in the preparation of such
Registration Statement to the extent required to furnish information concerning
such owners therein and their proposed plan of distribution.
1.2 In connection with the filing of a Registration Statement
pursuant to Section 1.1 hereof, the Company shall:
(a) notify the Holders as to the filing thereof and
of all amendments thereto filed prior to the effective date of said
Registration Statement;
(b) notify the Holders, promptly after it shall have
received notice thereof, of the time when the Registration Statement
becomes effective or any supplement to any prospectus forming a part of
the Registration Statement has been filed;
(c) prepare and file without expense to such Holders
the initial Registration Statement and any necessary amendment or
supplement to such Registration Statement or prospectus as may be
necessary to comply with Section 10(a)(3) of the Securities Act or
advisable in connection with the proposed distribution of the Common
Stock by such Holders (but only during such period as the Company is
required to keep the Registration Statement effective);
(d) if the Common Stock or Other Securities, is not a
"covered security" as that term is defined by Section 18(b) of the
Securities Act, use its reasonable best efforts to qualify the Common
Stock or Other Securities being so registered for sale under the
securities or blue sky laws in such reasonable number of states (not to
exceed five in the aggregate) as such registered owners may designate
in writing and to register or obtain the approval of any federal or
state authority which may be required in connection with the proposed
distribution, except, in each case, in jurisdictions in which the
Company must either qualify to do business or file a general consent to
service of process as a condition to the qualification of such
securities;
(e) notify such registered owners of any stop order
suspending the effectiveness of the Registration Statement and use its
reasonable best efforts to remove such stop order;
(f) undertake to keep said Registration Statement and
prospectus effective until the earlier of (i) such time as the Common
Stock or Other Securities issued or issuable upon exercise of the
Warrants are sold or become available for public sale without
registration under the Securities Act; and
(g) furnish to such Holders as soon as available,
copies of any such Registration Statement and each preliminary or final
prospectus and any supplement or amendment required to be prepared
pursuant to the foregoing provisions of this Section 1, all in such
quantities as such Holders may from time to time reasonably request.
Upon written request, the Company shall also furnish to each owner,
without cost, one set of the exhibits to such Registration Statement.
1.3 The Holders of the Common Stock or Other Securities being
registered under this Section 1 agree to pay all of the underwriting discounts
and commissions and their own counsel fees with respect to the securities owned
by them and being registered. The Company agrees that the costs and expenses
which it is obligated to pay in connection with a Registration Statement to be
filed pursuant to Section 1.1 hereof include, but are not limited to,
registration fees, the fees and expenses of counsel for the Company, the fees
and expenses of its accountants and all other costs and expenses incident to the
preparation, printing and filing under the Securities Act of any such
Registration Statement, each prospectus and all amendments and supplements
thereto, the costs incurred in connection with the qualification of such
securities for sale in a reasonable number of states, if applicable, including
fees and disbursements of counsel for the Company or any managing underwriter,
and the costs of supplying a reasonable number of copies of the Registration
Statement, each preliminary prospectus, final prospectus and any supplements or
amendments thereto to such Holders.
1.4 The Company agrees to enter into an appropriate
cross-indemnity agreement with any underwriter (as defined in the Securities
Act) for such registered owners in connection with the filing of a Registration
Statement pursuant to Section 1.1 hereof.
1.5 In the event that the Company shall file any Registration
Statement including therein all or any part of the Common Stock or Other
Securities issued or issuable upon exercise of the Warrants, the Company and
each Holder of such securities shall enter into an appropriate cross-indemnity
agreement whereby the Company shall indemnify and hold harmless the Holder
against any losses, claims, damages or liabilities (or actions in respect
thereof) arising out of or based upon any untrue statement or alleged untrue
statement of any material fact contained in such registration statement, or any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make statements therein not misleading unless
such statement or omission was made in reliance upon and in conformity with
written information furnished or required to be furnished by any such Holder,
and each such Holder shall indemnify and hold harmless the Company, each of its
directors, each of its officers who have signed the Registration Statement and
each person, if any, who controls the Company within the meaning of the
Securities Act against any losses, claims, damages or liabilities (or actions in
respect thereof) arising out of or based upon any untrue statement or alleged
untrue statement of any material fact contained in such Registration Statement,
or any omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make statements therein not misleading, if the
statement or omission was made in reliance upon and in conformity with written
information furnished or required to be furnished by such Holder or such
controlling person expressly for use in such Registration Statement.
1.6 Nothing herein shall be construed to require any Holder
who may desire to include any Common Stock or Other Securities in any
Registration Statement referred to in Section 1.1 hereof to exercise their
Warrants prior to the effective date of any Registration Statement.
2. Sale or Exercise Without Registration. If, at the time of any
exercise, permitted transfer or surrender for exchange of the Warrants or of
Common Stock or Other Securities previously issued upon the exercise of the
Warrants, such Warrants or Common Stock (or Other Securities) shall not be
registered under the Securities Act, the Company may require, as a condition of
allowing such exercise, transfer or exchange, that the holder or transferee of
such Warrants, Common Stock or Other Securities, as the case may be, furnish to
the Company an opinion of counsel reasonably satisfactory to the Company to the
effect that such exercise, transfer or exchange may be made without registration
under the Securities Act, provided that the disposition thereof shall at all
times be within the control of such holder or transferee, as the case may be,
and provided further that nothing contained in this Section 2 shall relieve the
Company from complying with any request for registration pursuant to Section 1
hereof. The holder of the Warrants represents to the Company that it is
acquiring the Warrants for investment and not with a view to the distribution
thereof.
3. Exercise of Warrants; Partial Exercise.
3.1 Exercise in Full or in Part. These Warrants may be
exercised in full or in part by the Holder hereof by surrender of these
Warrants, with the form of subscription attached hereto duly executed by such
holder, to the Company at its principal office, as provided in Section 19
hereof, accompanied by payment by certified or official bank check payable to
the order of the Company, in the amount obtained by multiplying the number of
shares of Common Stock called for on the face of these Warrants (without giving
effect to any adjustment therein) by the Purchase Price.
3.2 Company to Reaffirm Obligations. The Company will, at the
time of any exercise of these Warrants, upon the request of the Holder hereof,
acknowledge in writing its continuing obligation to afford to such Holder any
rights to which such Holder shall continue to be entitled after such exercise in
accordance with the provisions of these Warrants, provided that if the Holder of
these Warrants shall fail to make any such request, such failure shall not
affect the continuing obligation of the Company to afford such Holder any such
rights.
4. Delivery of Stock Certificates, etc., on Exercise. As soon as
practicable after the exercise of these Warrants in full or in part, and in any
event within two days thereafter, the Company at its expense (including the
payment by it of any applicable issue or transfer taxes) will cause to be issued
in the name of and delivered to the Holder hereof a certificate or certificates
for the number of fully paid and non-assessable Common Stock or Other Securities
to which such Holder shall be entitled upon such exercise, plus, in lieu of any
fractional share to which such holder would otherwise be entitled, cash equal to
such fraction multiplied by the then current fair market value of one full share
(determined by the closing price on the principal market as of the date of
receipt of the Warrants with executed subscription), together with any other
stock or other securities and property (including cash, where applicable) to
which such Holder is entitled upon such exercise pursuant to Section 5 hereof or
otherwise.
5. Anti-Dilution Provisions. If and to the extent that the number of
issued shares of Common Stock of the Company shall be increased, reduced or
changed by change in par value, split up, reclassification, or distribution of a
dividend payable in Common Stock (or Other Securities of the Company), the
number of shares subject to the Warrants and the exercise price per share shall
be proportionately adjusted; provided, however, that the anti-dilution provision
described in this Section 5 does not apply to sales of Common Stock made by the
Company at a price below the Purchase Price.
6. Reorganization, Consolidation, Merger, etc. In case the Company
shall (a) effect a reorganization, (b) consolidate with or merge with or into
any other entity, or (c) transfer all or substantially all of its properties or
assets to any other entity under any plan or arrangement contemplating the
dissolution of the Company, excluding the sale of assets or securities of Top
Source Automotive, Inc., then, in each such case, the holder of these Warrants,
upon the exercise thereof as provided in Section 3 hereof at any time after the
consummation of such reorganization, consolidation or merger or the effective
date of such dissolution, as the case may be, shall be entitled to receive (and
the Company shall be entitled to deliver), in lieu of the Common Stock (or Other
Securities) issuable upon such exercise prior to such consummation or such
effective date, the stock and other securities and property (including cash) to
which such Holder would have been entitled upon such consummation or in
connection with such dissolution, as the case may be, if such Holder had so
exercised these Warrants immediately prior thereto, all subject to further
adjustment thereafter as provided in Section 5 hereof.
7. Further Assurances. The Company will take all such action as may be
necessary or appropriate in order that the Company may validly and legally issue
fully paid and non-assessable Common Stock upon the exercise of all Warrants
from time to time outstanding.
8. Officer's Certificate as to Adjustments. In each case of any
adjustment or readjustment in the Common Stock (or Other Securities) issuable
upon the exercise of the Warrants, the Company at its expense will promptly
compute such adjustment or readjustment in accordance with the terms of the
Warrants and prepare a certificate, executed by its chief financial or
accounting officer, setting forth such adjustment or readjustment and showing in
detail the facts upon which such adjustment or readjustment is based, and the
number of Common Stock outstanding or deemed to be outstanding. The Company will
forthwith mail a copy of each such certificate to each Holder of Warrants.
9. Notices of Record Date, etc. In the event of
(a) any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the
Company or any transfer of all or substantially all the assets of the
Company to or consolidation or merger of the Company with or into any
other person; or
(b) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company;
and to which Section 6 hereof is applicable, then and in each such
event the Company will mail or cause to be mailed to each holder of
Warrants a notice specifying (i) the date on which any such record is
to be taken for the purpose of such dividend, distribution or right,
and stating the amount and character of such dividend, distribution or
right; and (ii) the date on which any such reorganization,
reclassification, recapitalization, transfer, consolidation, merger,
dissolution, liquidation or winding-up is to take place, and the time,
if any, as of which the holders of record of Common Stock (or Other
Securities) shall be entitled to exchange their shares of Common Stock
(or Other Securities) for securities or other property deliverable upon
such reorganization, reclassification, recapitalization, transfer,
consolidation, merger, dissolution, liquidation or winding-up. Such
notice shall be mailed at least 15 days prior to the date therein
specified.
10. Reservation of Common Stock, etc., Issuable on Exercise of
Warrants. The Company will at all times reserve and keep available, solely for
issuance and delivery upon the exercise of the Warrants, all Common Stock (or
Other Securities) from time to time issuable upon the exercise of the Warrants.
11. Listing on Securities Exchanges; Registration. If the Company at
any time shall list any Common Stock on any national securities exchange, the
Company will, at its expense, simultaneously list on such exchange, upon
official notice of issuance upon exercise of the Warrants, and maintain such
listing of, all Common Stock from time to time issuable upon the exercise of the
Warrants; and the Company will so list on any national securities exchange, will
so register and will maintain such listing of, any Other Securities if and at
the time that any securities of like class or similar type shall be listed on
such national securities exchange by the Company.
12. Exchange of Warrants. Subject to the provisions of Section 2
hereof, upon surrender for exchange of any Warrants, properly endorsed to the
Company, the Company at its own expense will issue and deliver to the holder
thereof new Warrants of like tenor, in the name of such holder calling in the
aggregate on the face or faces thereof for the number of shares of Common Stock
called for on the face of the Warrants so surrendered.
13. Replacement of Warrants. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of any
Warrants and, in the case of any such loss, theft or destruction, upon delivery
of an indemnity agreement reasonably satisfactory in form and amount to the
Company or, in the case of any such mutilation, upon surrender and cancellation
of such Warrants, the Company at its expense will execute and deliver, in lieu
thereof, new Warrants of like tenor.
14. Warrant Agent. The Company may, by written notice to each Holder of
the Warrants, appoint an agent for the purpose of issuing Common Stock (or Other
Securities) upon the exercise of the Warrants pursuant to Section 3 hereof,
exchanging Warrants pursuant to Section 12 hereof, and replacing Warrants
pursuant to Section 12 hereof, and replacing Warrants pursuant to Section 13
hereof, or any of the foregoing, and thereafter any such issuance, exchange or
replacement, as the case may be, shall be made at such office by such agent.
15. Legend. Unless the shares of Common Stock have been registered
under the Securities Act, upon exercise of any of the Warrants and the issuance
of any of the Common Stock, or Other Securities pursuant thereto all
certificates representing Common Stock or Other Securities shall bear on the
face thereof substantially the following legend:
The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended, and
may not be sold, offered for sale, assigned, transferred or
otherwise disposed of, unless registered pursuant to the
provisions of that Act or unless a written opinion of counsel
to the Company concludes that such disposition is in
compliance with an available exemption from such registration.
16. Remedies. The Company stipulates that the remedies at law of the
Holder of these Warrants in the event of any default or threatened default by
the Company in the performance of or compliance with any of the terms of these
Warrants are not and will not be adequate, and that such terms may be
specifically enforced by a decree for the specific performance of any agreement
contained herein or by an injunction against a violation of any of the terms
hereof or otherwise.
17. Severability. In the event any parts of these Warrants are found to
be void, the remaining provisions of these Warrants shall nevertheless be
binding with the same effect as though the void parts were deleted.
18. Benefit. These Warrants shall be binding upon and inure to the
benefit of the parties hereto and their legal representatives, successors and
assigns.
19. Notices and Addresses. All notices, offers, acceptance and any
other acts under these Warrants (except delivery of these Warrants and payment
of the Purchase Price) shall be in writing, and shall be sufficiently given if
delivered to the addressees in person, by Federal Express or similar receipted
delivery, by facsimile delivery or, if mailed, postage prepaid, by certified
mail, return receipt requested, as follows:
The Company: Mr. William C. Willis, Jr., President
Top Source Technologies, Inc.
7108 Fairway Drive, Suite 200
Palm Beach Gardens, FL 33418-3757
Facsimile: (561) 691-5220
The Holder:
With a copy to:
or to such other address as any of them, by notice to the others may designate
from time to time. The transmission confirmation receipt from the sender's
facsimile machine shall be conclusive evidence of successful facsimile delivery.
Time shall be counted to, or from, as the case may be, the delivery in person or
by mailing.
20. Attorney's Fees. In the event that there is any controversy or
claim arising out of or relating to these Warrants, or to the interpretation,
breach or enforcement thereof, and any action or proceeding including an
arbitration proceeding is commenced to enforce the provisions of these Warrants,
the prevailing party shall be entitled to an award by the court of reasonable
attorney's fees, costs and expenses.
21. Governing Law. These Warrants and any dispute, disagreement, or
issue of construction or interpretation arising hereunder whether relating to
its execution, its validity, the obligations provided herein or performance
shall be governed or interpreted according to the internal laws of the State of
Delaware without regard to choice of law considerations.
22. Section or Paragraph Headings. Section headings herein have been
inserted for reference only and shall not be deemed to limit or otherwise
affect, in any matter, or be deemed to interpret in whole or in part any of the
terms or provisions of these Warrants.
Dated: December 23, 1998
TOP SOURCE TECHNOLOGIES, INC.
By:
David Natan, Vice President of Finance
<PAGE>
ASSIGNMENT FORM
To be executed only upon the assignment of Warrants)
FOR VALUE RECEIVED the undersigned registered holder of the within
Warrants hereby sells, assigns and transfers unto ______________, whose address
is ____________________________ all of the rights of the undersigned under the
within Warrants, with respect to ______________ Common Stock of ______________
and, if such Common Stock do not include all the Common Stock issuable as
provided in the Warrants, that new Warrants of like tenor for the number of
Common Stock not being transferred hereunder be issued in the name of and
delivered to the undersigned, and does hereby irrevocably constitute and appoint
______________ Attorney to register such transfer on the books of ______________
maintained for the purpose, with full power of substitution in the premises.
Dated: ______________, 199__.
(Signature must conform in all respects to name of
holder as specified on the face of the Warrants)
Signature Guaranteed
Address:
<PAGE>
FORM OF SUBSCRIPTION
(To be signed only upon exercise of Warrants)
To:___________________________
The undersigned, the holder of the within Warrants, hereby irrevocably
elects to exercise the purchase right represented by such Warrants for, and to
purchase thereunder, ______________ Common Stock of ______________, and herewith
makes payment of $______________ therefor, and requests that the certificates
for such shares be issued in the name of, and delivered to, , whose address is
. If the Common Stock being purchased
hereby do not include all the Common Stock issuable as provided in the Warrants,
that new Warrants for the number of Common Stock not being purchased hereunder
be issued in the name of and delivered to the undersigned.
Dated: ______________, 199__.
(Signature must conform in all respects to name of
holder as specified on the face of the Warrants)
Signature Guaranteed
Address:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE AND ISSUABLE UPON EXERCISE HEREOF
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR UNDER THE PROVISIONS OF ANY APPLICABLE STATE SECURITIES
LAWS, BUT HAVE BEEN ACQUIRED BY THE REGISTERED HOLDER HEREOF FOR PURPOSES OF
INVESTMENT AND IN RELIANCE ON STATUTORY EXEMPTIONS UNDER THE SECURITIES ACT, AND
UNDER ANY APPLICABLE STATE SECURITIES LAW. THESE SECURITIES AND THE SECURITIES
ISSUED UPON EXERCISE HEREOF MAY NOT BE SOLD, PLEDGED, TRANSFERRED OR ASSIGNED,
NOR MAY THESE WARRANTS BE EXERCISED, EXCEPT IN ACCORDANCE WITH TERMS SET FORTH
IN THIS CERTIFICATE OR IN A TRANSACTION WHICH IS EXEMPT UNDER PROVISIONS OF THE
SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT; AND IN THE CASE OF AN EXEMPTION, ONLY IF THE
COMPANY HAS RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH
TRANSACTION DOES NOT REQUIRE REGISTRATION OF ANY SUCH SECURITIES.
TOP SOURCE TECHNOLOGIES, INC.
CLASS F COMMON STOCK PURCHASE WARRANTS
TO PURCHASE 50,000 SHARES OF COMMON STOCK
Top Source Technologies, Inc., a Delaware corporation (the "Company"),
hereby certifies that, for value received, __________________________ (the
"Holder") is entitled, subject to the terms set forth below, to purchase from
the Company at any time on or from time to time for a period of 10 years
commencing January ____, 1998, 50,000 fully paid and non-assessable shares of
common stock (the "Common Stock") of the Company, at the price per share equal
to $1.1875 (the "Purchase Price"). The number and character of such shares of
Common Stock and the Purchase Price are subject to adjustment as provided
herein.
As used herein the following capitalized terms, unless the context
otherwise requires, have the following respective meanings:
(a) The term "Company" includes any corporation which shall
succeed to or assume the obligations of the Company hereunder.
(b) The term "Common Stock" means the common stock, par value
$0.001 per share, of the Company, together with all stock of any class
or classes (however designated) of the Company, the holders of which
shall have the right, without limitation as to amount, either to all or
to a share of the balance of current dividends and liquidating
dividends after the payment of dividends and distributions on any
shares entitled to preference, and the holders of which shall
ordinarily, in the absence of contingencies, be entitled to vote for
the election of a majority of directors of the Company (even though the
right so to vote has been suspended by the happening of such a
contingency).
(c) The term "Other Securities" refers to any stock (other
than Common Stock) and other securities of the Company or any other
person (corporate or otherwise) which the holders of the Warrants, as
defined, at any time shall be entitled to receive, or shall have
received, upon the exercise of the Warrants, in lieu of or in addition
to Common Stock, or which at any time shall be issuable or shall have
been issued in exchange for or in replacement of Common Stock or Other
Securities pursuant to Section 6 or otherwise.
(d) The term "Purchase Price per share" shall be the then
applicable purchase price for one share of Common Stock as adjusted
pursuant to Sections 5 and 6 hereof.
(e) The term Registration Statement refers to Form S-3 or
other applicable form in compliance with the Securities Act, as
defined, and rules thereunder to permit the public disposition of
Common Stock (or Other Securities) issued or issuable upon the exercise
of Warrants, and any post-effective amendments and supplements filed or
required to be filed to permit any such disposition.
(f) The term "Securities Act" means the Securities
Act of 1933 as the same shall be in effect at the time.
(g) The term "Warrants" refers to these Warrants.
1. Registration, etc.
1.1 The Company has agreed to file a Registration Statement on
or before January 1, 2001 to cover the public sale of the Common Stock issuable
on exercise of the Warrants at the Company's own expense, provided, however,
Common Stock Holders shall cooperate with the Company in the preparation of such
Registration Statement to the extent required to furnish information concerning
such owners therein and their proposed plan of distribution.
1.2 In connection with the filing of a Registration Statement
pursuant to Section 1.1 hereof, the Company shall:
(a) notify the Holders as to the filing thereof and
of all amendments thereto filed prior to the effective date of said
Registration Statement;
(b) notify the Holders, promptly after it shall have
received notice thereof, of the time when the Registration Statement
becomes effective or any supplement to any prospectus forming a part of
the Registration Statement has been filed;
(c) prepare and file without expense to such Holders
the initial Registration Statement and any necessary amendment or
supplement to such Registration Statement or prospectus as may be
necessary to comply with Section 10(a)(3) of the Securities Act or
advisable in connection with the proposed distribution of the Common
Stock by such Holders (but only during such period as the Company is
required to keep the Registration Statement effective);
(d) if the Common Stock or Other Securities, is not a
"covered security" as that term is defined by Section 18(b) of the
Securities Act, use its reasonable best efforts to qualify the Common
Stock or Other Securities being so registered for sale under the
securities or blue sky laws in such reasonable number of states (not to
exceed five in the aggregate) as such registered owners may designate
in writing and to register or obtain the approval of any federal or
state authority which may be required in connection with the proposed
distribution, except, in each case, in jurisdictions in which the
Company must either qualify to do business or file a general consent to
service of process as a condition to the qualification of such
securities;
(e) notify such registered owners of any stop order
suspending the effectiveness of the Registration Statement and use its
reasonable best efforts to remove such stop order;
(f) undertake to keep said Registration Statement and
prospectus effective until the earlier of (i) such time as the Common
Stock or Other Securities issued or issuable upon exercise of the
Warrants are sold or become available for public sale without
registration under the Securities Act; and
(g) furnish to such Holders as soon as available,
copies of any such Registration Statement and each preliminary or final
prospectus and any supplement or amendment required to be prepared
pursuant to the foregoing provisions of this Section 1, all in such
quantities as such Holders may from time to time reasonably request.
Upon written request, the Company shall also furnish to each owner,
without cost, one set of the exhibits to such Registration Statement.
1.3 The Holders of the Common Stock or Other Securities being
registered under this Section 1 agree to pay all of the underwriting discounts
and commissions and their own counsel fees with respect to the securities owned
by them and being registered. The Company agrees that the costs and expenses
which it is obligated to pay in connection with a Registration Statement to be
filed pursuant to Section 1.1 hereof include, but are not limited to,
registration fees, the fees and expenses of counsel for the Company, the fees
and expenses of its accountants and all other costs and expenses incident to the
preparation, printing and filing under the Securities Act of any such
Registration Statement, each prospectus and all amendments and supplements
thereto, the costs incurred in connection with the qualification of such
securities for sale in a reasonable number of states, if applicable, including
fees and disbursements of counsel for the Company or any managing underwriter,
and the costs of supplying a reasonable number of copies of the Registration
Statement, each preliminary prospectus, final prospectus and any supplements or
amendments thereto to such Holders.
1.4 The Company agrees to enter into an appropriate
cross-indemnity agreement with any underwriter (as defined in the Securities
Act) for such registered owners in connection with the filing of a Registration
Statement pursuant to Section 1.1 hereof.
1.5 In the event that the Company shall file any Registration
Statement including therein all or any part of the Common Stock or Other
Securities issued or issuable upon exercise of the Warrants, the Company and
each Holder of such securities shall enter into an appropriate cross-indemnity
agreement whereby the Company shall indemnify and hold harmless the Holder
against any losses, claims, damages or liabilities (or actions in respect
thereof) arising out of or based upon any untrue statement or alleged untrue
statement of any material fact contained in such registration statement, or any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make statements therein not misleading unless
such statement or omission was made in reliance upon and in conformity with
written information furnished or required to be furnished by any such Holder,
and each such Holder shall indemnify and hold harmless the Company, each of its
directors, each of its officers who have signed the Registration Statement and
each person, if any, who controls the Company within the meaning of the
Securities Act against any losses, claims, damages or liabilities (or actions in
respect thereof) arising out of or based upon any untrue statement or alleged
untrue statement of any material fact contained in such Registration Statement,
or any omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make statements therein not misleading, if the
statement or omission was made in reliance upon and in conformity with written
information furnished or required to be furnished by such Holder or such
controlling person expressly for use in such Registration Statement.
1.6 Nothing herein shall be construed to require any Holder
who may desire to include any Common Stock or Other Securities in any
Registration Statement referred to in Section 1.1 hereof to exercise their
Warrants prior to the effective date of any Registration Statement.
2. Sale or Exercise Without Registration. If, at the time of any
exercise, permitted transfer or surrender for exchange of the Warrants or of
Common Stock or Other Securities previously issued upon the exercise of the
Warrants, such Warrants or Common Stock (or Other Securities) shall not be
registered under the Securities Act, the Company may require, as a condition of
allowing such exercise, transfer or exchange, that the holder or transferee of
such Warrants, Common Stock or Other Securities, as the case may be, furnish to
the Company an opinion of counsel reasonably satisfactory to the Company to the
effect that such exercise, transfer or exchange may be made without registration
under the Securities Act, provided that the disposition thereof shall at all
times be within the control of such holder or transferee, as the case may be,
and provided further that nothing contained in this Section 2 shall relieve the
Company from complying with any request for registration pursuant to Section 1
hereof. The holder of the Warrants represents to the Company that it is
acquiring the Warrants for investment and not with a view to the distribution
thereof.
3. Exercise of Warrants; Partial Exercise.
3.1 Exercise in Full or in Part. These Warrants may be
exercised in full or in part by the Holder hereof by surrender of these
Warrants, with the form of subscription attached hereto duly executed by such
holder, to the Company at its principal office, as provided in Section 19
hereof, accompanied by payment by certified or official bank check payable to
the order of the Company, in the amount obtained by multiplying the number of
shares of Common Stock called for on the face of these Warrants (without giving
effect to any adjustment therein) by the Purchase Price.
3.2 Company to Reaffirm Obligations. The Company will, at the
time of any exercise of these Warrants, upon the request of the Holder hereof,
acknowledge in writing its continuing obligation to afford to such Holder any
rights to which such Holder shall continue to be entitled after such exercise in
accordance with the provisions of these Warrants, provided that if the Holder of
these Warrants shall fail to make any such request, such failure shall not
affect the continuing obligation of the Company to afford such Holder any such
rights.
4. Delivery of Stock Certificates, etc., on Exercise. As soon as
practicable after the exercise of these Warrants in full or in part, and in any
event within two days thereafter, the Company at its expense (including the
payment by it of any applicable issue or transfer taxes) will cause to be issued
in the name of and delivered to the Holder hereof a certificate or certificates
for the number of fully paid and non-assessable Common Stock or Other Securities
to which such Holder shall be entitled upon such exercise, plus, in lieu of any
fractional share to which such holder would otherwise be entitled, cash equal to
such fraction multiplied by the then current fair market value of one full share
(determined by the closing price on the principal market as of the date of
receipt of the Warrants with executed subscription), together with any other
stock or other securities and property (including cash, where applicable) to
which such Holder is entitled upon such exercise pursuant to Section 5 hereof or
otherwise.
5. Anti-Dilution Provisions. If and to the extent that the number of
issued shares of Common Stock of the Company shall be increased, reduced or
changed by change in par value, split up, reclassification, or distribution of a
dividend payable in Common Stock (or Other Securities of the Company), the
number of shares subject to the Warrants and the exercise price per share shall
be proportionately adjusted; provided, however, that the anti-dilution provision
described in this Section 5 does not apply to sales of Common Stock made by the
Company at a price below the Purchase Price.
6. Reorganization, Consolidation, Merger, etc. In case the Company
shall (a) effect a reorganization, (b) consolidate with or merge with or into
any other entity, or (c) transfer all or substantially all of its properties or
assets to any other entity under any plan or arrangement contemplating the
dissolution of the Company, excluding the sale of assets or securities of Top
Source Automotive, Inc., then, in each such case, the holder of these Warrants,
upon the exercise thereof as provided in Section 3 hereof at any time after the
consummation of such reorganization, consolidation or merger or the effective
date of such dissolution, as the case may be, shall be entitled to receive (and
the Company shall be entitled to deliver), in lieu of the Common Stock (or Other
Securities) issuable upon such exercise prior to such consummation or such
effective date, the stock and other securities and property (including cash) to
which such Holder would have been entitled upon such consummation or in
connection with such dissolution, as the case may be, if such Holder had so
exercised these Warrants immediately prior thereto, all subject to further
adjustment thereafter as provided in Section 5 hereof.
7. Further Assurances. The Company will take all such action as may be
necessary or appropriate in order that the Company may validly and legally issue
fully paid and non-assessable Common Stock upon the exercise of all Warrants
from time to time outstanding.
8. Officer's Certificate as to Adjustments. In each case of any
adjustment or readjustment in the Common Stock (or Other Securities) issuable
upon the exercise of the Warrants, the Company at its expense will promptly
compute such adjustment or readjustment in accordance with the terms of the
Warrants and prepare a certificate, executed by its chief financial or
accounting officer, setting forth such adjustment or readjustment and showing in
detail the facts upon which such adjustment or readjustment is based, and the
number of Common Stock outstanding or deemed to be outstanding. The Company will
forthwith mail a copy of each such certificate to each Holder of Warrants.
9. Notices of Record Date, etc. In the event of
(a) any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the
Company or any transfer of all or substantially all the assets of the
Company to or consolidation or merger of the Company with or into any
other person; or
(b) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company;
and to which Section 6 hereof is applicable, then and in each such
event the Company will mail or cause to be mailed to each holder of
Warrants a notice specifying (i) the date on which any such record is
to be taken for the purpose of such dividend, distribution or right,
and stating the amount and character of such dividend, distribution or
right; and (ii) the date on which any such reorganization,
reclassification, recapitalization, transfer, consolidation, merger,
dissolution, liquidation or winding-up is to take place, and the time,
if any, as of which the holders of record of Common Stock (or Other
Securities) shall be entitled to exchange their shares of Common Stock
(or Other Securities) for securities or other property deliverable upon
such reorganization, reclassification, recapitalization, transfer,
consolidation, merger, dissolution, liquidation or winding-up. Such
notice shall be mailed at least 15 days prior to the date therein
specified.
10. Reservation of Common Stock, etc., Issuable on Exercise of
Warrants. The Company will at all times reserve and keep available, solely for
issuance and delivery upon the exercise of the Warrants, all Common Stock (or
Other Securities) from time to time issuable upon the exercise of the Warrants.
11. Listing on Securities Exchanges; Registration. If the Company at
any time shall list any Common Stock on any national securities exchange, the
Company will, at its expense, simultaneously list on such exchange, upon
official notice of issuance upon exercise of the Warrants, and maintain such
listing of, all Common Stock from time to time issuable upon the exercise of the
Warrants; and the Company will so list on any national securities exchange, will
so register and will maintain such listing of, any Other Securities if and at
the time that any securities of like class or similar type shall be listed on
such national securities exchange by the Company.
12. Exchange of Warrants. Subject to the provisions of Section 2
hereof, upon surrender for exchange of any Warrants, properly endorsed to the
Company, the Company at its own expense will issue and deliver to the holder
thereof new Warrants of like tenor, in the name of such holder calling in the
aggregate on the face or faces thereof for the number of shares of Common Stock
called for on the face of the Warrants so surrendered.
13. Replacement of Warrants. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of any
Warrants and, in the case of any such loss, theft or destruction, upon delivery
of an indemnity agreement reasonably satisfactory in form and amount to the
Company or, in the case of any such mutilation, upon surrender and cancellation
of such Warrants, the Company at its expense will execute and deliver, in lieu
thereof, new Warrants of like tenor.
14. Warrant Agent. The Company may, by written notice to each Holder of
the Warrants, appoint an agent for the purpose of issuing Common Stock (or Other
Securities) upon the exercise of the Warrants pursuant to Section 3 hereof,
exchanging Warrants pursuant to Section 12 hereof, and replacing Warrants
pursuant to Section 12 hereof, and replacing Warrants pursuant to Section 13
hereof, or any of the foregoing, and thereafter any such issuance, exchange or
replacement, as the case may be, shall be made at such office by such agent.
15. Legend. Unless the shares of Common Stock have been registered
under the Securities Act, upon exercise of any of the Warrants and the issuance
of any of the Common Stock, or Other Securities pursuant thereto all
certificates representing Common Stock or Other Securities shall bear on the
face thereof substantially the following legend:
The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended, and
may not be sold, offered for sale, assigned, transferred or
otherwise disposed of, unless registered pursuant to the
provisions of that Act or unless a written opinion of counsel
to the Company concludes that such disposition is in
compliance with an available exemption from such registration.
16. Remedies. The Company stipulates that the remedies at law of the
Holder of these Warrants in the event of any default or threatened default by
the Company in the performance of or compliance with any of the terms of these
Warrants are not and will not be adequate, and that such terms may be
specifically enforced by a decree for the specific performance of any agreement
contained herein or by an injunction against a violation of any of the terms
hereof or otherwise.
17. Severability. In the event any parts of these Warrants are found to
be void, the remaining provisions of these Warrants shall nevertheless be
binding with the same effect as though the void parts were deleted.
18. Benefit. These Warrants shall be binding upon and inure to the
benefit of the parties hereto and their legal representatives, successors and
assigns.
19. Notices and Addresses. All notices, offers, acceptance and any
other acts under these Warrants (except delivery of these Warrants and payment
of the Purchase Price) shall be in writing, and shall be sufficiently given if
delivered to the addressees in person, by Federal Express or similar receipted
delivery, by facsimile delivery or, if mailed, postage prepaid, by certified
mail, return receipt requested, as follows:
The Company: Mr. William C. Willis, Jr., President
Top Source Technologies, Inc.
7108 Fairway Drive, Suite 200
Palm Beach Gardens, FL 33418-3757
Facsimile: (561) 691-5220
The Holder: ______________________
======================
----------------------
or to such other address as any of them, by notice to the others may designate
from time to time. The transmission confirmation receipt from the sender's
facsimile machine shall be conclusive evidence of successful facsimile delivery.
Time shall be counted to, or from, as the case may be, the delivery in person or
by mailing.
20. Attorney's Fees. In the event that there is any controversy or
claim arising out of or relating to these Warrants, or to the interpretation,
breach or enforcement thereof, and any action or proceeding including an
arbitration proceeding is commenced to enforce the provisions of these Warrants,
the prevailing party shall be entitled to an award by the court of reasonable
attorney's fees, costs and expenses.
21. Governing Law. These Warrants and any dispute, disagreement, or
issue of construction or interpretation arising hereunder whether relating to
its execution, its validity, the obligations provided herein or performance
shall be governed or interpreted according to the internal laws of the State of
Delaware without regard to choice of law considerations.
22. Section or Paragraph Headings. Section headings herein have been
inserted for reference only and shall not be deemed to limit or otherwise
affect, in any matter, or be deemed to interpret in whole or in part any of the
terms or provisions of these Warrants.
Dated: January __, 1999
TOP SOURCE TECHNOLOGIES, INC.
By:
David Natan, Vice President of Finance
<PAGE>
ASSIGNMENT FORM
(To be executed only upon the assignment of Warrants)
FOR VALUE RECEIVED the undersigned registered holder of the within
Warrants hereby sells, assigns and transfers unto ______________, whose address
is ____________________________ all of the rights of the undersigned under the
within Warrants, with respect to ______________ Common Stock of ______________
and, if such Common Stock do not include all the Common Stock issuable as
provided in the Warrants, that new Warrants of like tenor for the number of
Common Stock not being transferred hereunder be issued in the name of and
delivered to the undersigned, and does hereby irrevocably constitute and appoint
______________ Attorney to register such transfer on the books of ______________
maintained for the purpose, with full power of substitution in the premises.
Dated: ______________, 199__.
(Signature must conform in all respects to name of
holder as specified on the face of the Warrants)
Signature Guaranteed
Address:
<PAGE>
FORM OF SUBSCRIPTION
(To be signed only upon exercise of Warrants)
To:___________________________
The undersigned, the holder of the within Warrants, hereby irrevocably
elects to exercise the purchase right represented by such Warrants for, and to
purchase thereunder, ______________ Common Stock of ______________, and herewith
makes payment of $______________ therefor, and requests that the certificates
for such shares be issued in the name of, and delivered to, , whose address is
. If the Common Stock being purchased
hereby do not include all the Common Stock issuable as provided in the Warrants,
that new Warrants for the number of Common Stock not being purchased hereunder
be issued in the name of and delivered to the undersigned.
Dated: ______________, 199__.
(Signature must conform in all respects to name of
holder as specified on the face of the Warrants)
Signature Guaranteed
Address:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE AND ISSUABLE UPON EXERCISE
HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR UNDER THE PROVISIONS OF ANY APPLICABLE
STATE SECURITIES LAWS, BUT HAVE BEEN ACQUIRED BY THE REGISTERED HOLDER
HEREOF FOR PURPOSES OF INVESTMENT AND IN RELIANCE ON STATUTORY EXEMPTIONS
UNDER THE SECURITIES ACT, AND UNDER ANY APPLICABLE STATE SECURITIES LAW.
THESE SECURITIES AND THE SECURITIES ISSUED UPON EXERCISE HEREOF MAY NOT BE
SOLD, PLEDGED, TRANSFERRED OR ASSIGNED, NOR MAY THESE WARRANTS BE
EXERCISED, EXCEPT IN ACCORDANCE WITH TERMS SET FORTH IN THIS CERTIFICATE OR
IN A TRANSACTION WHICH IS EXEMPT UNDER PROVISIONS OF THE SECURITIES ACT AND
ANY APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT; AND IN THE CASE OF AN EXEMPTION, ONLY IF THE
COMPANY HAS RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT
SUCH TRANSACTION DOES NOT REQUIRE REGISTRATION OF ANY SUCH SECURITIES
No. G-__
TOP SOURCE TECHNOLOGIES, INC.
COMMON STOCK PURCHASE WARRANT
TO PURCHASE 100,000 SHARES OF COMMON STOCK
Top Source Technologies, Inc., a Delaware corporation (the "Company"),
hereby certifies that, for value received, _____________________________________
(the "Holder") is entitled, subject to the terms set forth below, to purchase
from the Company at any time on or from time to time for a period of 10 years
commencing August _____, 1999 50,000 fully paid and non-assessable shares of
common stock (the "Common Stock") of the Company; and nine years commencing
August ____, 2000, 50,000 fully paid and non-assessable shares of Common Stock
of the Company, at the price of $1.1875 per share (the "Purchase Price"). The
number and character of such shares of Common Stock and the Purchase Price are
subject to adjustment as provided herein.
As used herein the following capitalized terms, unless the context
otherwise requires, have the following respective meanings:
(a) The term "Company" includes any corporation which shall
succeed to or assume the obligations of the Company hereunder.
(b) The term "Common Stock" means the common stock, par value
$0.001 per share, of the Company, together with all stock of any class
or classes (however designated) of the Company, the holders of which
shall have the right, without limitation as to amount, either to all or
to a share of the balance of current dividends and liquidating
dividends after the payment of dividends and distributions on any
shares entitled to preference, and the holders of which shall
ordinarily, in the absence of contingencies, be entitled to vote for
the election of a majority of directors of the Company (even though the
right so to vote has been suspended by the happening of such a
contingency).
(c) The term "Purchase Price per share" shall be the then
applicable purchase price for one share of Common Stock as adjusted
pursuant to Sections 5 and 6 hereof.
(d) The term Registration Statement refers to Form S-3 or
other applicable form in compliance with the Securities Act, as
defined, and rules thereunder to permit the public disposition of
Common Stock issued or issuable upon the exercise of Warrants, and any
post-effective amendments and supplements filed or required to be filed
to permit any such disposition.
(e) The term "Securities Act" means the Securities
Act of 1933 as the same shall be in effect at the time.
(f) The term "Warrants" refers to these Warrants.
1. Registration, etc.
1.1 The Company has agreed to file a Registration Statement on
or before January 1, 2001 to cover the public sale of the Common Stock issuable
on exercise of the Warrants at the Company's own expense, provided, however, the
Holder shall cooperate with the Company in the preparation of such Registration
Statement to the extent required to furnish information concerning the Holder's
proposed plan of distribution.
1.2 In connection with the filing of a Registration Statement
pursuant to Section 1.1 hereof, the Company shall:
(a) notify the Holder as to the filing thereof and of
all amendments thereto filed prior to the effective date of said
Registration Statement;
(b) notify the Holder promptly after it shall have
received notice thereof, of the time when the Registration Statement
becomes effective or any supplement to any prospectus forming a part of
the Registration Statement has been filed;
(c) prepare and file without expense to the Holder
the initial Registration Statement and any necessary amendment or
supplement to such Registration Statement or prospectus as may be
necessary to comply with Section 10(a)(3) of the Securities Act or
advisable in connection with the proposed distribution of the Common
Stock by the Holder (but only during such period as the Company is
required to keep the Registration Statement effective);
(d) if the Common Stock, is not a "covered security"
as that term is defined by Section 18(b) of the Securities Act, use its
reasonable best efforts to qualify the Common Stock being so registered
for sale under the securities or blue sky laws in such reasonable
number of states (not to exceed five in the aggregate) as such
registered owners may designate in writing and to register or obtain
the approval of any federal or state authority which may be required in
connection with the proposed distribution, except, in each case, in
jurisdictions in which the Company must either qualify to do business
or file a general consent to service of process as a condition to the
qualification of such securities;
(e) notify the registered owners of the Common Stock
any stop order suspending the effectiveness of the Registration
Statement and use its reasonable best efforts to remove such stop
order;
(f) undertake to keep said Registration Statement and
prospectus effective until the earlier of (i) such time as the Common
Stock issued or issuable upon exercise of the Warrants are sold or
become available for public sale without registration under the
Securities Act; and
(g) furnish to the Holder as soon as available,
copies of any such Registration Statement and each preliminary or final
prospectus and any supplement or amendment required to be prepared
pursuant to the foregoing provisions of this Section 1, all in such
quantities as the Holder may from time to time reasonably request. Upon
written request, the Company shall also furnish to each owner, without
cost, one set of the exhibits to such Registration Statement.
1.3 The Holder of the Common Stock being registered under this
Section 1 agrees to pay all of the underwriting discounts and commissions and
its own counsel fees with respect to the securities owned by them and being
registered. The Company agrees that the costs and expenses which it is obligated
to pay in connection with a Registration Statement to be filed pursuant to
Section 1.1 hereof include, but are not limited to, registration fees, the fees
and expenses of counsel for the Company, the fees and expenses of its
accountants and all other costs and expenses incident to the preparation,
printing and filing under the Securities Act of any such Registration Statement,
each prospectus and all amendments and supplements thereto, the costs incurred
in connection with the qualification of such securities for sale in a reasonable
number of states, if applicable, including fees and disbursements of counsel for
the Company or any managing underwriter, and the costs of supplying a reasonable
number of copies of the Registration Statement, each preliminary prospectus,
final prospectus and any supplements or amendments thereto to such Holder.
1.4 The Company agrees to enter into an appropriate
cross-indemnity agreement with any underwriter (as defined in the Securities
Act) for such registered owners in connection with the filing of a Registration
Statement pursuant to Section 1.1 hereof.
1.5 In the event that the Company shall file any Registration
Statement including therein all or any part of the Common Stock issued or
issuable upon exercise of the Warrants, the Company and each Holder of the
Common Stock shall enter into an appropriate cross-indemnity agreement whereby
the Company shall indemnify and hold harmless the Holder against any losses,
claims, damages or liabilities (or actions in respect thereof) arising out of or
based upon any untrue statement or alleged untrue statement of any material fact
contained in such registration statement, or any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
statements therein not misleading unless such statement or omission was made in
reliance upon and in conformity with written information furnished or required
to be furnished by any such Holder, and each such Holder shall indemnify and
hold harmless the Company, each of its directors, each of its officers who have
signed the Registration Statement and each person, if any, who controls the
Company within the meaning of the Securities Act against any losses, claims,
damages or liabilities (or actions in respect thereof) arising out of or based
upon any untrue statement or alleged untrue statement of any material fact
contained in such Registration Statement, or any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
statements therein not misleading, if the statement or omission was made in
reliance upon and in conformity with written information furnished or required
to be furnished by such Holder or such controlling person expressly for use in
such Registration Statement.
1.6 Nothing herein shall be construed to require any Holder
who may desire to include any Common Stock in any Registration Statement
referred to in Section 1.1 hereof to exercise their Warrants prior to the
effective date of any Registration Statement.
2. Sale or Exercise Without Registration. If, at the time of any
exercise, permitted transfer or surrender for exchange of the Warrants or of
Common Stock previously issued upon the exercise of the Warrants, such Warrants
or Common Stock shall not be registered under the Securities Act, the Company
may require, as a condition of allowing such exercise, transfer or exchange,
that the holder or transferee of such Warrants or Common Stock, as the case may
be, furnish to the Company an opinion of counsel reasonably satisfactory to the
Company to the effect that such exercise, transfer or exchange may be made
without registration under the Securities Act, provided that the disposition
thereof shall at all times be within the control of such holder or transferee,
as the case may be, and provided further that nothing contained in this Section
2 shall relieve the Company from complying with any request for registration
pursuant to Section 1 hereof. The Holder of the Warrants represents to the
Company that it is acquiring the Warrants for investment and not with a view to
the distribution thereof.
3. Exercise of Warrants; Partial Exercise.
3.1 Exercise in Full or in Part. These Warrants may be
exercised in full or in part by the Holder hereof by surrender of these
Warrants, with the form of subscription attached hereto duly executed by such
holder, to the Company at its principal office, as provided in Section 19
hereof, accompanied by payment by certified or official bank check payable to
the order of the Company, in the amount obtained by multiplying the number of
shares of Common Stock called for on the face of these Warrants (without giving
effect to any adjustment therein) by the Purchase Price.
3.2 Company to Reaffirm Obligations. The Company will, at the
time of any exercise of these Warrants, upon the request of the Holder hereof,
acknowledge in writing its continuing obligation to afford to such Holder any
rights to which such Holder shall continue to be entitled after such exercise in
accordance with the provisions of these Warrants, provided that if the Holder of
these Warrants shall fail to make any such request, such failure shall not
affect the continuing obligation of the Company to afford such Holder any such
rights.
4. Delivery of Stock Certificates, etc., on Exercise. As soon as
practicable after the exercise of these Warrants in full or in part, and in any
event within two days thereafter, the Company at its expense (including the
payment by it of any applicable issue or transfer taxes) will cause to be issued
in the name of and delivered to the Holder hereof a certificate or certificates
for the number of fully paid and non-assessable Common Stock or Other Securities
to which such Holder shall be entitled upon such exercise, plus, in lieu of any
fractional share to which such holder would otherwise be entitled, cash equal to
such fraction multiplied by the then current fair market value of one full share
(determined by the closing price on the principal market as of the date of
receipt of the Warrants with executed subscription), together with any other
stock or other securities and property (including cash, where applicable) to
which such Holder is entitled upon such exercise pursuant to Section 5 hereof or
otherwise.
5. Anti-Dilution Provisions. If and to the extent that the number of
issued shares of Common Stock of the Company shall be increased, reduced or
changed by change in par value, split up, reclassification, or distribution of a
dividend payable in Common Stock, the number of shares subject to the Warrants
and the exercise price per share shall be proportionately adjusted; provided,
however, that the anti-dilution provision described in this Section 5 does not
apply to sales of Common Stock made by the Company at a price below the Purchase
Price.
6. Reorganization, Consolidation, Merger, etc. In case the Company
shall (a) effect a reorganization, (b) consolidate with or merge with or into
any other entity, or (c) transfer all or substantially all of its properties or
assets to any other entity under any plan or arrangement contemplating the
dissolution of the Company, excluding the sale of assets or securities of Top
Source Automotive, Inc., then, in each such case, the holder of these Warrants,
upon the exercise thereof as provided in Section 3 hereof at any time after the
consummation of such reorganization, consolidation or merger or the effective
date of such dissolution, as the case may be, shall be entitled to receive (and
the Company shall be entitled to deliver), in lieu of the Common Stock issuable
upon such exercise prior to such consummation or such effective date, the stock
and other securities and property (including cash) to which such Holder would
have been entitled upon such consummation or in connection with such
dissolution, as the case may be, if such Holder had so exercised these Warrants
immediately prior thereto, all subject to further adjustment thereafter as
provided in Section 5 hereof.
7. Further Assurances. The Company will take all such action as may be
necessary or appropriate in order that the Company may validly and legally issue
fully paid and non-assessable Common Stock upon the exercise of all Warrants
from time to time outstanding.
8. Officer's Certificate as to Adjustments. In each case of any
adjustment or readjustment in the Common Stock issuable upon the exercise of the
Warrants, the Company at its expense will promptly compute such adjustment or
readjustment in accordance with the terms of the Warrants and prepare a
certificate, executed by its chief financial or accounting officer, setting
forth such adjustment or readjustment and showing in detail the facts upon which
such adjustment or readjustment is based, and the number of Common Stock
outstanding or deemed to be outstanding. The Company will forthwith mail a copy
of each such certificate to each Holder of Warrants.
9. Notices of Record Date, etc. In the event of
(a) any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the
Company or any transfer of all or substantially all the assets of the
Company to or consolidation or merger of the Company with or into any
other person; or
(b) any voluntary or involuntary dissolution,
liquidation or winding-up of the Company;
and to which Section 6 hereof is applicable, then and in each such
event the Company will mail or cause to be mailed to each holder of
Warrants a notice specifying (i) the date on which any such record is
to be taken for the purpose of such dividend, distribution or right,
and stating the amount and character of such dividend, distribution or
right; and (ii) the date on which any such reorganization,
reclassification, recapitalization, transfer, consolidation, merger,
dissolution, liquidation or winding-up is to take place, and the time,
if any, as of which the holders of record of Common Stock shall be
entitled to exchange their shares of Common Stock for securities or
other property deliverable upon such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution,
liquidation or winding-up. Such notice shall be mailed at least 15 days
prior to the date therein specified.
10. Reservation of Common Stock, etc., Issuable on Exercise of
Warrants. The Company will at all times reserve and keep available, solely for
issuance and delivery upon the exercise of the Warrants, all Common Stock from
time to time issuable upon the exercise of the Warrants.
11. Listing on Securities Exchanges; Registration. If the Company at
any time shall list any Common Stock on any national securities exchange, the
Company will, at its expense, simultaneously list on such exchange, upon
official notice of issuance upon exercise of the Warrants, and maintain such
listing of, all Common Stock from time to time issuable upon the exercise of the
Warrants.
12. Exchange of Warrants. Subject to the provisions of Section 2
hereof, upon surrender for exchange of any Warrants, properly endorsed to the
Company, the Company at its own expense will issue and deliver to the holder
thereof new Warrants of like tenor, in the name of such holder calling in the
aggregate on the face or faces thereof for the number of shares of Common Stock
called for on the face of the Warrants so surrendered.
13. Replacement of Warrants. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of any
Warrants and, in the case of any such loss, theft or destruction, upon delivery
of an indemnity agreement reasonably satisfactory in form and amount to the
Company or, in the case of any such mutilation, upon surrender and cancellation
of such Warrants, the Company at its expense will execute and deliver, in lieu
thereof, new Warrants of like tenor.
14. Warrant Agent. The Company may, by written notice to each Holder of
the Warrants, appoint an agent for the purpose of issuing Common Stock upon the
exercise of the Warrants pursuant to Section 3 hereof, exchanging Warrants
pursuant to Section 12 hereof, and replacing Warrants pursuant to Section 12
hereof, and replacing Warrants pursuant to Section 13 hereof, or any of the
foregoing, and thereafter any such issuance, exchange or replacement, as the
case may be, shall be made at such office by such agent.
15. Legend. Unless the shares of Common Stock have been registered
under the Securities Act, upon exercise of any of the Warrants and the issuance
of any of the Common Stock, pursuant thereto all certificates representing
Common Stock shall bear on the face thereof substantially the following legend:
The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended, and
may not be sold, offered for sale, assigned, transferred or
otherwise disposed of, unless registered pursuant to the
provisions of that Act or unless a written opinion of counsel
to the Company concludes that such disposition is in
compliance with an available exemption from such registration.
16. Remedies. The Company stipulates that the remedies at law of the
Holder of these Warrants in the event of any default or threatened default by
the Company in the performance of or compliance with any of the terms of these
Warrants are not and will not be adequate, and that such terms may be
specifically enforced by a decree for the specific performance of any agreement
contained herein or by an injunction against a violation of any of the terms
hereof or otherwise.
17. Severability. In the event any parts of these Warrants are found to
be void, the remaining provisions of these Warrants shall nevertheless be
binding with the same effect as though the void parts were deleted.
18. Benefit. These Warrants shall be binding upon and inure to the
benefit of the parties hereto and their legal representatives, successors and
assigns.
19. Notices and Addresses. All notices, offers, acceptance and any
other acts under these Warrants (except delivery of these Warrants and payment
of the Purchase Price) shall be in writing, and shall be sufficiently given if
delivered to the addressees in person, by Federal Express or similar receipted
delivery, by facsimile delivery or, if mailed, postage prepaid, by certified
mail, return receipt requested, as follows:
The Company: Mr. William C. Willis, Jr., President and
Chief Executive Officer
Top Source Technologies, Inc.
7108 Fairway Drive, Suite 200
Palm Beach Gardens, FL 33418-3757
Facsimile: (561) 691-5220
The Holder: ______________________
======================
----------------------
or to such other address as any of them, by notice to the others may designate
from time to time. The transmission confirmation receipt from the sender's
facsimile machine shall be conclusive evidence of successful facsimile delivery.
Time shall be counted to, or from, as the case may be, the delivery in person or
by mailing.
20. Attorney's Fees. In the event that there is any controversy or
claim arising out of or relating to these Warrants, or to the interpretation,
breach or enforcement thereof, and any action or proceeding including an
arbitration proceeding is commenced to enforce the provisions of these Warrants,
the prevailing party shall be entitled to an award by the court of reasonable
attorney's fees, costs and expenses.
21. Governing Law. These Warrants and any dispute, disagreement, or
issue of construction or interpretation arising hereunder whether relating to
its execution, its validity, the obligations provided herein or performance
shall be governed or interpreted according to the internal laws of the State of
Delaware without regard to choice of law considerations.
22. Section or Paragraph Headings. Section headings herein have been
inserted for reference only and shall not be deemed to limit or otherwise
affect, in any matter, or be deemed to interpret in whole or in part any of the
terms or provisions of these Warrants.
Dated: August ____, 1999
TOP SOURCE TECHNOLOGIES, INC.
By:
David Natan, Vice President of Finance
<PAGE>
ASSIGNMENT FORM
(To be executed only upon the assignment of Warrants)
FOR VALUE RECEIVED the undersigned registered holder of the within
Warrants hereby sells, assigns and transfers unto ______________, whose address
is ____________________________ all of the rights of the undersigned under the
within Warrants, with respect to ______________ Common Stock of Top Source
Technologies, Inc. and, if such Common Stock do not include all the Common Stock
issuable as provided in the Warrants, that new Warrants of like tenor for the
number of Common Stock not being transferred hereunder be issued in the name of
and delivered to the undersigned, and does hereby irrevocably constitute and
appoint ______________ Attorney to register such transfer on the books of
______________ maintained for the purpose, with full power of substitution in
the premises.
Dated: ______________, ______.
(Signature must conform in all respects to name of
holder as specified on the face of the Warrants)
Signature Guaranteed
Address:
<PAGE>
FORM OF SUBSCRIPTION
(To be signed only upon exercise of Warrants)
To:___________________________
The undersigned, the holder of the within Warrants, hereby irrevocably
elects to exercise the purchase right represented by such Warrants for, and to
purchase thereunder, ______________ Common Stock of Top Source Technologies,
Inc., and herewith makes payment of $______________ therefor, and requests that
the certificates for such shares be issued in the name of, and delivered to, ,
whose address is . If the Common Stock being purchased hereby do not include all
the Common Stock issuable as provided in the Warrants, that new Warrants for the
number of Common Stock not being purchased hereunder be issued in the name of
and delivered to the undersigned.
Dated: ______________, ______.
(Signature must conform in all respects to name of
holder as specified on the face of the Warrants)
Signature Guaranteed
Address:
EXHIBIT 10.31
Portions of this Exhibit have been omitted and confidentially and separately
filed with the Securities and Exchange Commission with a Request for
Confidential Treatment.
The omitted portions are marked by opened and closed brackets as follows:
[*]
<PAGE>
Confidential
DISTRIBUTION AGREEMENT
This Distribution Agreement (the "Agreement") is made as of November
22, 1999, by and among Jack R. Creel ("Creel") and BioTek Environmental
Services, Inc. ("BioTek"), a Texas corporation, whose principal place of
business is 2500 Woodland Park, Suite K303, Houston, Texas 77077 and Top Source
Technologies, Inc. (the "Distributor"), a Delaware corporation, whose principal
place of business is 108 Fairway Drive, Suite 200, Palm Beach Gardens, FL
33418-3757. All references herein to BioTek shall also refer to Creel unless
otherwise stated. BioTek is engaged in the business of growing hydrocarbon
eating microbes. The Distributor desires to solicit and sell, as an independent
distributor, the products or product lines particularly described on Schedule 1
attached to this Agreement (the "Products"); and BioTek desires the Distributor
to act as an independent distributor to solicit and sell the Products, all in
accordance with the terms and conditions of this Agreement.
1. Appointment.
(a) BioTek hereby appoints the Distributor as the exclusive
distributor of BioTek to solicit and sell the Products to the
customers described on Schedule 1 attached hereto (the
"Customers"). The Distributor accepts such appointment in
accordance with the terms of this Agreement. The Distributor
represents and warrants that it has the ability and experience
to carry out its obligations under this Agreement, and that
Distributor is not under any restriction prohibiting the
Distributor's performance under this Agreement.
(b) If the Distributor fails to generate at least $1,000,000 in
revenues by May 31, 2001 (or such longer period on a month
ending at least 18 full months following the Distributor's
receipt of inventory pursuant to the initial order for
inventory), the Distributor's exclusivity shall cease as to
Customers except for those Customers (and any affiliates and
entity under common control) to which the Distributor has sold
Products. The Distributor shall retain its right to continue
to sell Products on a non-exclusive basis.
2. Term. Unless sooner terminated as provided elsewhere in this
Agreement, this Agreement shall be effective from the date hereof and for 25
calendar years immediately following such date, and, thereafter, it shall be
renewed automatically on a calendar year basis, unless 180 days' prior notice is
given by either party.
3. Relationship of Parties. The Distributor is an independent
contractor, conducting all of its business in its own name and responsible for
its own business and means of carrying out the performance of its obligations
under this Agreement. Neither party shall have authority to make any
representations, warranties, or guaranties on behalf of the other, to enter into
any contracts or commitments in the name or on behalf of the other, or to bind
the other in any way. The Distributor shall have no liability to any third party
in connection with any representation made by the BioTek to such third party.
The parties to this Agreement do not intend, and nothing in this Agreement shall
be construed, to create a partnership or joint venture between them.
4. General Obligations of BioTek. In addition to other provisions of this
Agreement, BioTek shall:
(a) [*] Any cost increases not evidenced by 30 days' notice from suppliers and
prompt notice from BioTek shall be borne by BioTek. The Distributor shall have
the right to cause BioTek to change any of its suppliers upon 30 days' notice.
On one occasion during any calendar year, the Distributor may have its employees
and auditors review the books and records including electronic media of BioTek,
and any other available information for the purpose of verifying BioTek's direct
costs. If the parties cannot agree upon the actual direct costs, the dispute
shall be settled by arbitration as provided by Section 25. If there is any
variance in excess of 5%, the costs incurred in reviewing BioTek's direct costs
and the cost of arbitration shall be paid by BioTek; supply the products within
30 days from date of receipt of each purchase order.
(b) supply the Products within 30 days from date of receipt of each purchase
order;
(c) permit the Distributor to market the Products under its own name using the
tradename MightyClean 2000(TM) or any other mutually acceptable tradename;
(d) permit the
Distributor to offer the Products to national or key accounts on a "private
label" basis;
(e) [*] The Distributor will promptly reimburse BioTek for the
reasonable expenses it incurs in attending these training sessions;
(f) supply customer leads in the Territory in accordance with BioTek's
independent distributor policies;
[*] CONFIDENTIAL PORTIONS OMITTED AND FILED SEPARATELY WITH THE COMMISSION. (g)
provide the Distributor with technical and sales information, literature and
promotional materials for the Products as are made available to other BioTek
distributors from time to time; (h) upon the reasonable request of the
Distributor, cause its sales management and other sales personnel to participate
in national sales meetings sponsored by the Distributor and attend sales
presentations to potential customers. The Distributor will promptly reimburse
BioTek for the reasonable expenses it incurs in attending these meetings and
sales presentations; (i) not sell any Products directly or indirectly to any
Customer or potential Customer (as defined); (j) inform all other BioTek
distributors that the Distributor, for the duration of this Agreement, will be
the exclusive distributor for the Territory; (k) provide the Distributor with
technical and field sales support to the customer as deemed necessary by BioTek;
(l) comply fully with all federal, state and local environmental, unfair trade
practices, food and drug, occupational health and safety and other laws and
regulations relating to the Products; (m) provide the Distributor with prompt
written notice of any claims, governmental inquiry or investigation, lawsuit or
arbitration relating to the Products except for routine commercial disputes over
payment not involving the safety or effectiveness of the Products or their
compliance with law; (n) provide the Distributor with proof of product liability
insurance in the amount of $1,000,000 and add the Distributor as a named cover
insured under such policy; and (o) keep this Agreement and the pricing terms
contained herein confidential in view of the fact that public disclosure would
be harmful to the Distributor's ability to fulfill its obligations hereunder.
Provided, however, solely to the extent that Distributor publicly discloses any
of the terms of this Agreement in a press release or filing with the Securities
and Exchange Commission, the foregoing confidentiality provision shall not
apply.
. General Obligations of Distributor. The Distributor shall: (a) use
its best efforts at all times to promote, market and sell the Products in the
Territory, which shall include, without limitation, employing or engaging such
personnel and assistance as may be necessary to promote and sell the Products,
attending training seminars, maintaining personal contact with Customers, and
complying with such other reasonable and customary marketing and sales efforts;
(b) not modify, improve, or otherwise alter any of the Products, unless prior
written consent is obtained from BioTek; (c) portray fairly, accurately and in
good faith BioTek's Products and not knowingly take any actions which are
adverse to BioTek's best interests or which might harm BioTek's reputation; (d)
be responsible for and pay all costs and expenses of the Distributor associated
with this Agreement, its obligations hereunder and the conduct of its business,
except as provided for in Section 4. (e) advise BioTek immediately of any
complaints received regarding the Products thereof; provided, however, that the
Distributor has no authority to, and shall not, make any offer on behalf of
BioTek with regard thereto without BioTek's prior written consent; (f) secure
and maintain all necessary licenses and permits required to operate its business
and comply in all material respects with all laws applicable to it and the sale
of the Products; (g) cause its affiliates and employees to abide by the
provisions of this Agreement and be responsible for all acts and omissions of
such persons; (h) provide follow-up and support services to customers
appropriately tailored to ensure customer satisfaction; and (i) provide such
other services related or incidental to the Distributor's obligations under this
Agreement as BioTek and the Distributor may agree upon from time to time.
6. Acceptance of Orders and Terms of Sale. Each order for the Products submitted
by the Distributor to BioTek shall be in writing, set forth the types and
quantity of the Products ordered and requested shipment date(s), and otherwise
be in accordance with BioTek's order placement requirements as established from
time to time. BioTek shall acknowledge each purchase order in writing as soon as
practical and may not cancel such orders. All Products shall be shipped f.o.b.
Houston as disclosed on each order. Unless, the Distributor gives prior notice
of defective Products to BioTek, all payments for the cost of Products shall be
due 30 days after receipt of the Products. [*]
[*]
7. Warranty. BioTek represents and warrants to the Distributor that all Products
supplied by it (i) shall not infringe upon or violate any patent, copyright,
Trade Secret, as defined, trade mark, other proprietary right or any
Confidential Information, as defined; (ii) shall at all times comply with all
laws, rules and regulations including those relating to the environment, food,
drug or health concerns, and occupational safety or other work related matters,
(iii) shall be free from any defects, and (iv) shall be merchantable and fit for
their intended purpose. It is specifically intended by the parties to this
Agreement that the provisions of Article 2 of the Florida Uniform Commercial
Code, Section 672.314 and 672.315, including any case law interpreting these
sections, are applicable to this Agreement.
8. Proprietary Rights Escrow. Concurrently with execution of this Agreement,
BioTek shall place in escrow with Michael Harris, P.A. the Products' formula,
specifications, manufacturing instructions and other Trade Secrets and
Confidential Information necessary for a party to manufacture or produce the
Products (the "Escrowed Information"). The Distributor shall be entitled to
receive and be an owner of the Escrowed Information within 24 hours of written
demand and entitled to manufacture and produce the Products itself or contract
with a third party to do so upon the occurrence of any of the following:
(a) BioTek's failure to fill the Distributor's order for the Products
within 60 days of the date of a purchase order; or [*] CONFIDENTIAL PORTIONS
OMITTED AND FILED SEPARATELY WITH THE COMMISSION.
(b) BioTek's insolvency, voluntary abandonment or cessation of
business, the revocation of any articles of incorporation or similar charter or
license of BioTek or the dissolution or liquidation of BioTek; or
(c) BioTek's entering into or filing by or against BioTek a petition,
arrangement or proceeding seeking an order for relief under the bankruptcy laws
of the United States or any other similar federal or state laws, a receivership
for any of its assets, a composition with or assignment for the benefit of its
creditors, a readjustment of debt or the marshalling of its assets. The parties
shall enter into a Proprietary Rights Escrow Agreement in the form annexed as
Schedule 9 which shall permit the Distributor at its cost and expense to retain
an expert to have full access to the Escrowed Information for the purpose of
ascertaining and verifying that the Products are fit for their intended purpose
as described on Schedule 1. BioTek shall co-operate fully with the expert who
shall execute any reasonable and customary non-disclosure agreement.
9. Proprietary Rights and Indemnification. BioTek shall defend, indemnify and
hold harmless the Distributor and any licensee at BioTek's sole expense from any
claim or action brought against the Distributor or any licensee to the extent
that it is based on a claim that the Products infringe a patent, copyright,
Trade Secret, trademark or any other proprietary right or Confidential
Information, and BioTek shall pay all damages and costs arising therefrom
including reasonable attorneys fees, expert witness fees and disbursements
awarded against the Distributor or any licensee. Provided, however, that the
Distributor and such licensees shall not individually be entitled to any
indemnification unless the affected party provides written notice to BioTek
within 10 business days from receipt of the initial claim, lawsuit or
arbitration procedure and allows BioTek the right to defend the claim on its
behalf. This indemnification right shall not affect any other rights or remedies
of law or in equity as a result of any alleged infringement.
10. Trademarks. The Distributor shall promote and sell the Products under the
trademarks set forth on Schedule 10 attached to this Agreement and under such
other marks as the Distributor may from time to time trademark for distribution
of the Products (the "Trademarks"). The Trademarks will be the sole property of
the Distributor. Neither party shall acquire any rights, title, interest or
license (express or implied) in any trademarks of the other. The Distributor
shall not use the Trademarks in any manner likely to confuse, mislead or deceive
the public, or to be injurious to, or contrary to the best interest of, BioTek.
The Trademarks shall be used by the Distributor solely to designate the
Products. Each party shall inform the other of any infringement known to it of
its trademarks and, the other party's part in preventing or defending any such
infringement. Each Party shall also inform the other promptly of any claim of a
third party of infringement by the other.
11. Restrictive Covenants. During the term of this Agreement, and for a period
of two years after the expiration or termination hereof for any reason
whatsoever, BioTek shall not, either directly or indirectly, on BioTek's own
behalf or in the service or on behalf of others (i) solicit, divert or hire
away, or attempt to solicit, divert or hire away, any person employed by the
Distributor or any of its subsidiaries, or (ii) solicit business from or sell or
market any Products to any Customer of the Distributor. For purposes of this
Section 11 the term "Customer" means any person, firm, corporation, partnership,
association or other entity to which the Distributor or any of its subsidiaries
or licensee, or any of its affiliates sold or provided Products during the
24-month period prior to the time at which any determination is required to be
made as to whether any such person, firm, corporation, partnership, association
or other entity is a Customer. It also includes any affiliate or entity under
common control with any Customer.
12. Confidential and Proprietary Information. In connection with the business
relationship between the parties, the Distributor and BioTek may each have
access to certain confidential information of the other that is not generally
known to the public which includes, but is not limited to, designs,
specifications and technical information, advertising strategies, market targets
and marketing plans, information regarding present and prospective Customers,
suppliers, types of services and products, pricing, special customer
requirements, business strategies and methods and financial information and
other information other than Trade Secrets (as defined below) ("Confidential
Information"); provided, that, Confidential Information shall include
information specifically designated as a Trade Secret that is, notwithstanding
the designation, determined by a court of competent jurisdiction upon final
appeal not to be a trade secret under applicable law.
"Trade Secrets" are defined as information including, but not limited
to, technical or nontechnical data, a formula, a pattern, a compilation, a
program, a devise, a method, a technique, a drawing, a process, financial data,
financial plans, product plans, or a list of actual or potential customer or
suppliers, which derives economic value, actual or potential, from not being
generally known to, and not being readily ascertainable by proper means by,
other persons who can obtain economic value from its disclosure or use, and
which is the subject of efforts that are reasonable under the circumstances to
maintain its secrecy. To the extent that the foregoing is inconsistent with the
definition of "trade secret" mandated by applicable law, the foregoing shall be
deemed amended to the degree necessary to render it consistent with applicable
law. Information shall be deemed to be treated as secret and confidential by a
party with respect to any oral communication if denominated as confidential
immediately before, during or after the communication.
During the term of this Agreement and for a period of 24 months after
the expiration or termination hereof for any reason whatsoever, and as to Trade
Secrets, for so long afterwards as the data or information remain "Trade
Secrets," the Distributor and BioTek shall not use, disclose, disseminate,
publish or otherwise divulge or make available, directly or indirectly, to any
person, any Confidential Information or Trade Secrets of the other, except with
the prior express written consent of the other or strictly in the performance of
their duties hereunder. After the expiration or termination of this Agreement,
each party shall return to the other all physical embodiments of Confidential
Information and Trade Secrets in its possession or control and retain no copies
thereof or notes with respect thereto.
13. Injunctive Remedies. The parties acknowledge and agree that monetary damages
will not be an adequate remedy for a breach by the other of any of the
provisions of Sections 11 and 12 of this Agreement and the irreparable injury
will result to other party, its business and property in the event of such a
breach. Accordingly, the parties acknowledge and agree that each may, in
addition to recovering damages, proceed in equity to enjoin the other from
violating any of the provisions of this Agreement. For purposes of Sections 11
and 12 of this Agreement, the term Distributor and BioTek shall include all
owners, directors, officers, employees, independent contractors and agents of
the Distributor and BioTek, and the Distributor and BioTek shall take all
appropriate actions to ensure that each of them is bound by the terms of the
referenced Sections hereof.
14. Termination of Agreement. This Agreement may be terminated at any time:
- - by mutual written consent of the parties hereto;
- - by Distributor, upon BioTek's failure, refusal or inability to perform any of
its obligations under this Agreement (all of which are acknowledged to be
material), after such breach has not been cured within 60 days after written
notice thereof has been given by Distributor to BioTek.
- - by BioTek, upon Distributor's failure, refusal or inability to perform any of
its obligations under this Agreement (all of which are acknowledged to be
material), after such breach has not been cured within 60 days after written
notice thereof has been given by BioTek to Distributor.
- - by Distributor, upon breach of any material warranty or representation made by
BioTek in the Agreement.
Upon expiration or termination of this Agreement, the Distributor shall
cease immediately all promotion, sales and service of the Products, cease use of
the Trademarks, BioTek names and logos, and return to BioTek all forms,
contracts, price lists, sales literature, technical documentation, and other
documents and items relating to the Products and services, all of which are
acknowledged to be proprietary to and the sole property of BioTek. Provided,
however, the Distributor may continue to sell all Products remaining in
inventory.
Termination shall not affect any claim, demand, liability or right of
either party hereto arising pursuant to this Agreement prior to the termination
or expiration hereof or arising after termination or expiration in connection
with any of the rights or obligations which survive termination of this
Agreement.
15. Force Majure. BioTek and Distributor shall each be excused from any
delay in performance or for non-performance of any of the terms and conditions
of this Agreement caused by any circumstances beyond their respective control,
including, but not limited to, any act of God, fire, flood, or government
regulation, direction or request, or accident, labor dispute, unavoidable
breakdown, civil unrest or disruption to the extent that any such circumstances
affect the Products, delivery, acceptance, transportation, sale, or consumption
of Products. Each party agrees to give the other circumstances which might give
rise to a delay, interruption or reduction of any delivery or acceptance of
Products.
16. Severability. If any provision of this Agreement is held to be
illegal, invalid or unenforceable under present or future laws effective during
the term hereof, such provision shall be fully severable and this Agreement
shall be construed and enforced as if such illegal, invalid or unenforceable
provision had never comprised a part hereof and the remaining provisions hereof
shall remain in full force and effect and shall not be affected by the illegal,
invalid or unenforceable provision by its severance herefrom.
17. Assignment. The Agreement is not assignable, by operation of law or
otherwise by BioTek without the prior written consent of the Distributor. The
Distributor, at its sole option may assign the Agreement and it shall inure to
the benefit of and be enforceable by any successor, assignee or legal
representative of Distributor.
18. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument. The execution of this
Agreement may be by actual or facsimile signature.
19. Benefit. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their legal representatives, successors and
assigns.
20. Notices and Addresses. All notices, offers, acceptance and any
other acts under this Agreement (except payment) shall be in writing, and shall
be sufficiently given if delivered to the addressees in person, by Federal
Express or similar receipted delivery, by facsimile delivery or, if mailed,
postage prepaid, by certified mail, return receipt requested, as follows:
Distributor:
Top Source Technologies, Inc.
7108 Fairway Drive
Suite 200
Palm Beach Gardens, Florida 33418
Attention: Mr. William C. Willis, Jr.,
President
With a copy to: Michael D. Harris, Esq.
Michael Harris, P.A.
1645 Palm Beach Lakes Blvd.
Suite 550
West Palm Beach, FL 33401
Facsimile (561) 478-1817
BioTek and Creel: BioTek Environmental Services, Inc.
2500 Woodland Park
Suite K303
Houston, TX 77077
Facsimile: (281) 556-1991
Attention: Mr. Jack R. Creel, President
or to such other address as either of them, by notice to the other may designate
from time to time. The transmission confirmation receipt from the sender's
facsimile machine shall be conclusive evidence of successful facsimile delivery.
Time shall be counted to, or from, as the case may be, the delivery in person or
by mailing.
21. Attorney's Fees. In the event that there is any controversy or
claim arising out of or relating to this Agreement, or to the interpretation,
breach or enforcement thereof, and any action or proceeding including an
arbitration proceeding is commenced to enforce the provisions of this Agreement,
the prevailing party shall be entitled to an award by the court or arbitrator,
as appropriate, of reasonable attorney's fees, including the fees on appeal,
costs and expenses.
22. Oral Evidence. This Agreement constitutes the entire Agreement
between the parties and supersedes all prior oral and written agreements between
the parties hereto with respect to the subject matter hereof. Neither this
Agreement nor any provision hereof may be changed, waived, discharged or
terminated orally, except by a statement in writing signed by the party or
parties against which enforcement or the change, waiver discharge or termination
is sought. Notwithstanding the above it is acknowledged that in entering into
this Agreement, the Distributor has specifically relied on representations of
BioTek that: (i) the Products are 100% environmentally safe; (ii) that neither
Food and Drug Administration nor Environmental Protection Agency or similar
approvals are required to use, manufacture or distribute the Products; and (iii)
BioTek and/or Creel owns the Products. In the event it is later discovered that
any one of these representations are not true, the Distributor has the right to
unilaterally terminate the Agreement and recover direct and indirect costs
incurred in promoting and distributing the Products and other damages it incurs
including consequential damages.
23. Additional Documents. The parties hereto shall execute such
additional instruments as may be reasonably required by their counsel in order
to carry out the purpose
24. Governing Law This Agreement and any dispute, disagreement, or
issue of construction or interpretation arising hereunder whether relating to
its execution, its validity, the obligations provided herein or performance
shall be governed or interpreted according to the internal laws of the State of
Florida without regard to choice of law considerations.
25. Arbitration. Any controversy, dispute or claim arising out of or
relating to this Agreement, or its interpretation, application, implementation,
breach or enforcement which the parties are unable to resolve by mutual
agreement, shall be settled by submission by either party of the controversy,
claim or dispute to binding arbitration in West Palm Beach, Florida (unless the
parties agree in writing to a different location), before a single arbitrator in
accordance with the rules of the American Arbitration Association then in
effect. In any such arbitration proceeding the parties agree to provide all
discovery deemed necessary by the arbitrator. The decision and award made by the
arbitrator shall be final, binding and conclusive on all parties hereto for all
purposes, and judgment may be entered thereon in any court having jurisdiction
thereof.
<PAGE>
IN WITNESS WHEREOF, BioTek, Creel and the Distributor have
executed this Distribution Agreement on the date and year first above written.
Witnesses: BioTek Environmental Services, Inc.
By:
- --------------------------
Jack R. Creel, President
- ------------------------
- ------------------------------
- -------------------------
Top Source Technologies, Inc.
By____________________________
William C. Willis, Jr., President
<PAGE>
SCHEDULE 1 TO AGREEMENT AMONG
JACK R. CREEL, BIOTEK ENVIRONMENTAL SERVICES, INC. AND
TOP SOURCE TECHNOLOGIES, INC.
CUSTOMER As used in this Agreement, the Distributor shall have the exclusive
right to market an sell the Products anywhere in the world to customers or
potential customers engaged in any aspect of the automotive and food service
business, which term "business" is not limited to for profit entities (the
"Customers"). The term "automotive" includes but is not limited to,
manufacturers of automobiles and trucks, manufacturers and assemblers of
components used in automobiles and trucks, automotive and truck dealers,
businesses which repair automobiles and trucks and/or sell gasoline and oil,
businesses which provide maintenance services to automobiles and trucks such as
tire and battery stores, truck stops, quick lube dealers and all businesses
which use multiple automobiles to provide services to others, such as United
Parcel Service, Federal Express, other delivery services, trucking companies,
corporations and other entities which use fleets of automobiles and trucks and
municipalities and other governmental units. The term "food service" refers to
restaurants, fast food stores, food distributors and manufacturers of food
products including meat packers, poultry providers and businesses engaged in
catching, harvesting, packing or distributing fish or seafood.
SCHEDULE 1 TO AGREEMENT AMONG
JACK R. CREEL, BIOTEK ENVIRONMENTAL SERVICES, INC. AND
TOP SOURCE TECHNOLOGIES, INC.
PRODUCTS
As used in this Agreement, "Products" refer to MightyClean 2000(TM), an
industrial surfactant containing hydrocarbon specific microbes that will degrade
oil, gas, hydraulic fuels, other petrochemical fluids, and other oils derived
from vegetable, animal or hydrocarbon products.
<PAGE>
SCHEDULE 4 TO AGREEMENT AMONG
JACK R. CREEL, BIOTEK ENVIRONMENTAL SERVICES, INC. AND
TOP SOURCE TECHNOLOGIES, INC
COMMISSION
[*]
CONFIDENTIAL PORTIONS OMITTED AND FILED SEPARATELY WITH THE COMMISSION.
<PAGE>
SCHEDULE 9 TO AGREEMENT AMONG
JACK R. CREEL, BIOTEK ENVIRONMENTAL SERVICES, INC. AND
TOP SOURCE TECHNOLOGIES, INC
"FORM OF PROPRIETARY RIGHTS ESCROW AGREEMENT"
<PAGE>
SCHEDULE 10 TO AGREEMENT AMONG
JACK R. CREEL, BIOTEK ENVIRONMENTAL SERVICES, INC. AND
TOP SOURCE TECHNOLOGIES, INC
TRADEMARKS
MightyClean 2000(TM); any other trademark legally available that the
Distributor may deem necessary to carry out the terms of the Agreement.
TOP SOURCE TECHNOLOGIES, INC.
7108 Fairway Drive, Suite 200
Palm Beach Gardens, FL 33418-3757
September 27, 1999
Mr. George Jeff Mennen
TMF Investments, Inc.
25 B Hanover Road
Florham Park, NJ 07932
Wilmington Trust Company
Rodney Square North
1100 North Market Street
Wilmington, DE 19890
Attention: Neil Howard, Esq.
Gentlemen:
This letter is to amend the Stock Purchase Agreement entered into among Top
Source Technologies, Inc. (the "Company") and the addressees of this letter on
November 17, 1998, in the following respects:
1. The second certificate of designation for the Series B Convertible Redeemable
Preferred Stock (the "Series B Preferred") shall be amended in order to extend
the time of the Company to redeem the Series B Preferred at 115% of stated value
plus accrued dividends through and including December 31, 2000, and the Series B
Preferred shall not be convertible prior to January 1, 2001, without the express
written consent of the Company.
2. In all other respects, the Stock Purchase Agreement is ratified and
confirmed.
3. As consideration for this modification, the Company shall issue warrants to
purchase 250,000 shares of its common stock at an exercise price of $2.38 per
share expiring at 6:00 p.m. New York time on October 27, 2009. Of these
warrants, 142,857 shall be issued to Wilmington Trust Co. and George Jeff Mennen
Co-trustees U/A dated 11/25/70, and 107,143 shall be issued to the George Jeff
Mennen, Trustee U/A dated 10/23/85, f/b/o descendants of George S. Mennen.
<PAGE>
Mr. Mennen and Wilmington Trust
September 27, 1999
Page -2-
Please execute a copy of this letter agreement evidencing your agreement
to be bound.
Sincerely yours,
William C. Willis, Jr.
President
We hereby agree to the foregoing.
Wilmington Trust Co. and George Jeff Mennen, Co-Trustees U/A dated 11/25/70
BY: /s/George Jeff Mennen, Trustee
George Jeff Mennen, Trustee
George Jeff Mennen, Trustee
U/A dated 10/23/85 f/b/o descendents of George S. Mennen
BY: /s/George Jeff Mennen, Trustee
George Jeff Mennen, Trustee
