As filed with the Securities and Exchange Commission on May 21, 1999.
Registration No. 333-56083
=============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 5
TO
FORM S-3
Registration Statement Under
The Securities Act of 1933
TOP SOURCE TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 84-1027821
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7108 Fairway Drive, Suite 200, Palm Beach Gardens, FL 33418
(561) 775-5756
(Address, including zip code, and telephone number, including area
code, of registrant's principal executive offices)
Mr. William C. Willis, Jr., President
TOP SOURCE TECHNOLOGIES, INC.
7108 Fairway Drive, Suite 200
Palm Beach Gardens, FL 33418
(561) 775-5756
(Name, address, including zip code, and telephone number, including
area code, of agent for service) Copy to:
Michael D. Harris, Esq.
Michael Harris, P.A.
1645 Palm Beach Lakes Boulevard, Suite 550
West Palm Beach, Florida 33401
(561) 478-7077
Approximation date of commencement of proposed sale to the public: As
soon as practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box.
[ ]
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box.
[X]
<PAGE>
<TABLE>
CALCULATION OF REGISTRATION FEE
<S> <C> <C> <C> <C>
Proposed Proposed
maximum maximum
Title of each class offering aggregate Amount of
of securities Amount to be price per offering registration
to be registered registered share price fee
Common Stock 1,260,937(1) $1.032(2) $1,301,286.98 $1,245.52(3)
($.001 par value)
TOTAL REGISTRATION FEE $1,245.52(3)
</TABLE>
- -----------------------------------------
(1) Consists of 737,554 shares of common stock issued in connection with
the conversion of 5% Series A Convertible Preferred Stock ("Series A
Preferred"), and 523,383 shares of common stock to be issued upon
exercise of warrants.
(2) Estimated solely for the purpose of computing the registration fee
based on the average of the high and low price of the Registrant's
common stock in the consolidated reporting system on the American Stock
Exchange on June 1, 1998.
(3) Previously paid in connection with the initial filing of this
registration statement covering 3,500,000 shares of common stock.
Because of the redemption of the Series A Preferred, the number of
shares of common stock covered by this registration statement has been
reduced even though an additional 273,383 shares of common stock,
issuable upon exercise of additional warrants, have been added.
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act or until the Registration Statement shall become effective on
such date as the Commission, acting pursuant to said Section 8(a), may
determine.
<PAGE>
<TABLE>
TOP SOURCE TECHNOLOGIES, INC.
CROSS REFERENCE SHEET
<S> <C>
Form S-3 Item Numbers and Caption Heading in Prospectus
1. Forepart of the Registration Statement and
Outside Front Cover of Prospectus.................................... Cover Page of Form S-3 and
Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus........................................................... Inside Front and Outside Back
Cover Pages of Prospectus
3. Summary Information, Risk Factors...................................... Not Applicable and
and Ratio of Earning to Fixed Charges.................................. Risk Factors
4. Use of Proceeds........................................................ Cover Page of Prospectus
5. Determination of Offering Price........................................ Cover Page of Prospectus
6. Dilution............................................................... Not Applicable
7. Selling Security Holders............................................... Selling Stockholders
8. Plan of Distribution................................................... Cover Page of Prospectus and
Plan of Distribution
9. Description of Securities to be Registered............................. Documents Incorporated by
Reference and Description of
Series B Preferred and
Warrants
10. Interests of Named Experts and Counsel................................. Legal Matters and Experts
11. Material Changes....................................................... Recent Developments and Pro
Forma Condensed Financial
Information
12. Incorporation of Certain Information By Reference...................... Documents Incorporated by
Reference
13. Disclosure of Commission Position on .................................. Part II
Indemnification for Securities Act Liabilities
14. Other Expenses of Issuance and Distribution............................ Part II
15. Indemnification of Directors and Officers.............................. Part II
16. Exhibits and Financial Statement Schedules............................. Part II
17. Undertakings........................................................... Part II
</TABLE>
<PAGE>
PROSPECTUS
TOP SOURCE TECHNOLOGIES, INC.
1,085,937 Shares of Common Stock
This Prospectus relates to an aggregate of 1,085,937 shares of common
stock, $.001 par value per share (the "Common Stock"), of Top Source
Technologies, Inc. (the "Company") being offered for sale by certain
stockholders and warrantholders of the Company (the "Selling Stockholders").
These shares consist of 737,554 shares acquired in connection with the recent
conversion of the outstanding 5% Series A Convertible Preferred Stock (the
"Series A Preferred"), and 348,383 shares issuable upon the exercise of two
classes of warrants (the "Warrants"). Of the Warrants, 100,000 are currently
exercisable at $1.10 per share and 248,383 are exercisable at approximately
$1.78 per share. In May 1998, the Company sold to two foreign purchasers (the
"Purchasers"), which are two of the Selling Stockholders, an aggregate of 1,000
shares of Series A Preferred for $1,000,000 (all of which has been redeemed) and
issued Warrants to purchase 250,000 shares of the Company's Common Stock
(100,000 of which are currently exercisable) exercisable at $1.10 per share
("Class A Warrants") to the Purchasers and three other corporations designated
by Intercontinental Holding Company, Ltd., the Placement Agent. In December
1998, the Company and the Purchasers modified the Series A Preferred resulting
in the Company issuing an additional 25,000 Warrants exercisable at
approximately $.89 per share (the "Class B Warrants"). The Company restructured
its outstanding $3,020,000 9% Convertible Notes (the "Notes") and issued to
certain noteholders Warrants to purchase shares of the Company's Common Stock
exercisable at approximately $1.78 which price is $1.00 above market on the date
of the agreement ("Class C Warrants"). See "Recent Developments". The Series A
Preferred and Warrants were issued to accredited investors pursuant to
exemptions from registration under Section 4(2) of the Securities Act of 1933
(the "Securities Act") and Rule 506 thereunder. The Company was required to
register the underlying shares of Common Stock. See "Description of Series B
Preferred and Warrants".
As of the date of this Prospectus, the Company's officers and directors
beneficially own approximately 2.3% of the Company's Common Stock. Based upon
information available to the Company, the only stockholder beneficially owning
5% or more of the Company's Common Stock is a registered investment advisor.
According to a Schedule 13-G filed by the investment advisor on February 4,
1999, as the result of investment power over the accounts of its clients, the
advisor and its affiliates are the beneficial owners of 5.85% of the Company's
Common Stock, none of which are being offered for sale pursuant to this
Prospectus. On May 11, 1999, the closing price of the Company's stock on the
American Stock Exchange was approximately $1.25.
All of the shares of Common Stock are offered for the respective accounts
of the Selling Stockholders as listed in this Prospectus under "Selling
Stockholders". The Company will receive none of the proceeds from the sale of
the shares of Common Stock by the Selling Stockholders. However, the Company
will receive a maximum of approximately $739,622 in connection with the exercise
of the 523,383 Warrants, the underlying shares of which are covered by this
Prospectus. Such proceeds will be used for general corporate purposes. All of
the expenses of this offering, estimated at $32,000 will be borne by the
Company.
The Company has been advised by the Selling Stockholders that the
Common Stock may be offered and sold from time to time by or on behalf of the
Selling Stockholders, in or through transactions or distributions (including
crosses and block transactions) on the American Stock Exchange or in the
over-the-counter market at market prices prevailing at the time of sale, or at
negotiated prices, and in connection therewith commissions may be paid to
brokers. Brokers participating in such transactions may act as agents for the
Selling Stockholders. The Selling Stockholders, and any brokers participating in
this offering may be deemed to be "underwriters" within the meaning of the
Securities Act of 1933 (the "Securities Act"), and any commissions received by
them may be deemed to be underwriting compensation.
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS".
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith to files reports, proxy statements and other information
with the Securities and Exchange Commission (the "Commission"). Such reports,
proxy statements and other information concerning the Company can be inspected
and copied at the Public Reference Room maintained by the Commission at Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the Commission's
regional offices at 500 West Madison Street, Suite 1400, Chicago, Illinois
60604-2511, and 7 World Trade Center, 13th Floor, New York, New York 10048.
Copies of this material may also be obtained at prescribed rates from the Public
Reference Section of the Commission, 450 Fifth Street N.W., Washington, D.C.
20549. The Commission maintains a World Wide Web site that contains reports,
proxy statements and other information regarding registrants including the
Company that file electronically with the Commission. The address of the site is
http:\\www.sec.gov. Reports, proxy statements and other information concerning
the Company can also be inspected at the offices of the American Stock Exchange,
Inc., 86 Trinity Place, New York, New York 10006.
The Company has filed with the Commission a Registration Statement
under the Securities Act with respect to the Common Stock offered by this
Prospectus. This Prospectus does not contain all the information set forth in
the Registration Statement certain parts of which are omitted in accordance with
the rules of the Commission. For further information with respect to the Company
and the Common Stock offered hereby, reference is made to the Registration
Statement including the exhibits. Statements contained in this Prospectus as to
the contents of any contract or other document are not necessarily complete and,
where the contract or other document has been filed as an exhibit to the
Registration Statement, each such statement is qualified in all respects by
reference to the applicable document filed with the Commission.
The Company will provide without charge to each person, including any
beneficial owner, to whom a copy of this Prospectus is delivered, upon written
or oral request of such person, a copy of any or all of the information that has
been incorporated by reference in this Prospectus (other than exhibits).
Requests should be directed to the Company at its principal executive offices,
7108 Fairway Drive, Suite 200, Palm Beach Gardens, Florida, 33418-3757, (561)
775-5756.
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
On October 6, 1992, the Company's change of domicile merger from
Colorado to Delaware became effective. Top Source, Inc., a Colorado corporation
merged into its wholly-owned subsidiary Top Source Technologies, Inc., formerly
known as Top Source, Inc., a Delaware corporation. The specifics of the merger
are described in the Form 8-B filed with the Commission on November 14, 1992,
which is specifically incorporated by reference into this Prospectus. As a
result of the change of domicile merger, the Form 8-A, which is incorporated by
reference herein, was filed with the Commission by the Company's predecessor,
Top Source, Inc., a Colorado corporation.
The following documents filed with the Commission are hereby
specifically incorporated by reference into this Prospectus:
(a) The Company's annual report on Form 10-K, as amended, for the
fiscal year ended September 30, 1998 and all amendments
thereto;
(b) The Company's quarterly reports on Form 10-Q for the quarters
ended December 31, 1998 and March 31, 1999;
(c) The Company's proxy statement dated November 6, 1998 and
Supplement dated November 23, 1998 filed pursuant to Section
14 of the Exchange Act;
(d) The description of the Company's Common Stock filed by the
Company predecessor, Top Source, Inc., a Colorado corporation,
which is contained in the Registration Statement on Form 8-A
filed on March 12, 1992, File No. 1-11046, including any
amendments or reports filed for the purpose of updating such
description;
(e) The description of the Company's change of domicile merger
which is contained in the Registration Statement on Form 8-B
filed on November 14, 1992 and any amendments and reports
thereto; and
(f) All other reports filed by the Company pursuant to Section
13(a) or 15(d) of the Exchange Act since the filing of the
Form 10-Q for the Quarter ended March 31, 1999.
In addition, all documents subsequently filed by the Company pursuant
to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act prior to the
termination of the offering made by this Prospectus shall be deemed to be
incorporated by reference into this Prospectus. Any statement contained in a
document incorporated or deemed to be incorporated by reference in this
Prospectus shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained in this Prospectus or in any
other subsequently filed document which also is or is deemed to be incorporated
by reference in this Prospectus or in a supplement hereto modifies or supersedes
such statement. Any statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
<PAGE>
RISK FACTORS
The shares of Common Stock of the Company involve a high degree of
risk, including, but not necessarily limited to the risk factors described
below. Each prospective investor should carefully consider the following risk
factors inherent in and affecting the business of the Company and this offering
before making an investment decision. All statements, trend analysis and other
information contained in this Prospectus relating to the proposed sale of the
assets (the "Assets") of Top Source Automotive, Inc. (the "Proposed
Transaction"), the future profitability of Top Source Automotive, Inc. ("TSA"),
Top Source Instruments, Inc. ("TSI"), future operating results, the ability of
the Company to achieve profitability, development of the Company's new on-site
oil analyzer ("OSA-II"), the receipt of future orders for the sale of overhead
sound systems ("OHSS") from Daimler Chrysler AG ("Chrysler"), the strategic
alliance formed with Flying J, Inc. ("Flying J") and the potential revenues
which may arise therefrom, the ability of the Company to enter into additional
strategic alliances or develop new technologies and the Company's future
compliance with debt covenants as well as other statements including words such
as "seek", "anticipate", "believe", "plan", "estimate", "expect", "intend" and
other similar expressions constitute forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. Readers are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of the date of this Prospectus. Some or all of the results
anticipated by these forward-looking statements may not occur since these
statements are subject to risks and uncertainties that could cause actual
results to differ materially from those contemplated in such forward-looking
statements. Such risks and uncertainties include those identified in this "Risk
Factors" section as well as the following: the ability of the proposed buyer of
TSA to close the necessary financing; potential changes by Chrysler in the
placement of its speakers in Jeep(TM) Wranglers or decline in production levels
at Chrysler for vehicles installing OHSS; the Company's ability to market
OSA-IIs; the acceptance of the OSA-II technology by the marketplace; a general
tendency of large corporations not to change from known technology to emerging
new technology; the reliability of the OSA-II technology over an extended period
of time; the Company's ability to attract additional strategic partners for
OSA-II and for TSA if the Company is unable to sell it; and other matters which
may increase the Company's current losses.
Historical Losses. Since inception, the Company has never reported
income from operations. As of March 31, 1999, the Company had a retained
earnings deficit of $29,136,868. The Company has provided cash to support its
operations from the income generated by TSA, the recent sale of 20% of TSA
common stock, the sale of the assets of United Testing Group, Inc. in 1996, the
sale of securities pursuant to private placements and the exercise of stock
options and warrants and from borrowings from institutional lenders. As
described below, TSA has lost and is losing substantial revenues from Chrysler
and the Company has entered into the Agreement to sell TSA. The management of
the Company has serious concerns concerning the ability of NCT Audio, Inc. (the
"Proposed Buyer") to close the Proposed Transaction. See "- Change in Business
of the Company - Loss of Operating Income" and " Failure of Proposed Transaction
to Close; Substantial Doubt that the Proposed Transaction Will Close", and
"Recent Developments - Sale of TSA". TSA will remain profitable in spite of its
loss of revenues from Chrysler, unless Chrysler discontinues or materially
reduces its business relationship with the Company beyond that described below
in the risk factor entitled " Dependence on Chrysler". The Company has shifted
its primary focus toward the sale of its OSA-II which the Company has just
completed developing. However, the Company has generated only limited revenues
from the sale and lease of first generation on-site oil analyzers ("OSA-Is").
Revenue for TSI for the year ended September 30, 1998 was $392,653. The
identifiable assets relating to the oil analysis services segment were
approximately $3,944,000, which includes the net value of the capitalized
database of $2,073,000 at September 30, 1998. In order to achieve profitability,
for which no assurances can be given, the Company is relying upon its ability to
market and sell OSA-IIs in sufficient numbers to pay the Company's substantial
fixed and other expenses. The Company believes that its marketing efforts will
be successful. However, if the Company is unable to meet its goals or to have
the necessary resources to sustain its marketing activities it could have a
material adverse effect on the Company's business, the carrying value of the
above listed assets, and the financial condition of the Company. The Company
will continue to evaluate the success of the new marketing efforts as well as
the carrying value of the related assets. There can be no assurances that the
Company will be profitable from operations in the future.
Reliance on On-Site Oil Analyzer. For several years, the Company has
concentrated on sale and marketing of its first generation OSA but with only
limited success. Since June 1997, under the direction of the Company's new
president, the number of OSA-Is (and OSA-IIs) used by customers has increased.
Additionally, the Company augmented its technical expertise by the hiring of Dr.
John Coates who has developed the second-generation machine OSA-II. The OSA-II
is substantially smaller, quicker and less expensive than the OSA. Moreover, the
OSA-II does not require the Company to rely upon an outside corporation to
manufacture or assemble the machines. Because the Company is relying upon one
product, there is a substantially increased degree of risk to investors.
Development of OSA-II. The Company completed the development of the new
OSA-II and in August 1998 completed the assembly of and shipped the first seven
OSA-IIs. However, as with the development of any new product, unforeseen delays
occur and problems may be discovered. Sophisticated computer software and
complex machines often encounter developmental difficulties or "bugs" which only
become apparent subsequent to widespread commercial use. Problems which may
arise in the operation of the OSA-IIs could have a material adverse effect upon
the Company's future operations.
Inability to Market OSA-IIs. The Company has devoted substantial
resources and different approaches to marketing the OSA-Is and OSA-IIs. Although
the Company's marketing efforts over approximately the last 24 months have
increased the number of OSA-Is being used, the Company has only received orders
for tests or leases of multiple machines from six companies. Without the receipt
of numerous orders for multiple OSA-IIs and the generation of revenue by
end-users it is not likely that the Company can profitably market and sell
OSA-IIs.
Dependence on Chrysler. Historically, the Company has derived almost
all of its revenues from the sale of OHSS to Chrysler by TSA. In 1997, Chrysler
discontinued using the OHSS on its Jeep(R) Cherokee vehicles. In November 1998,
Chrysler discontinued producing its Jeep(R) Grand Cherokee Ltd. Plus, which is
the only model that installed the OHSS on an OEM basis. TSA expects to continue
assembling the OHSS for the Jeep(R) Wrangler through at least model year 2002.
There can be no assurances that Chrysler will continue to order OHSSs from TSA.
If Chrysler discontinues using the OHSS on the Jeep Wrangler and the Proposed
Transaction is not consummated, it will have a material adverse effect upon the
Company at least until the Company generates significant revenues from OSA-II.
Change in Business of the Company - Loss of Operating Income.
Substantial doubt exists as to whether the Proposed Buyer will be able to close
the Proposed Transaction. However, the sale of TSA Assets, if it occurs, will
result in a major change in the nature of the Company's business. For the fiscal
years ended September 30, 1997 and 1998, TSA reported $16,580,270 and
$10,815,205, respectively, in revenue or approximately 97.6% and 96.5%,
respectively, of the Company's consolidated revenue. TSA's operating income,
including the corporate overhead allocation was $3,091,161 and $1,071,657 for
such periods; the Company reported operating losses of $(3,304,057) and
$(5,529,562) for such periods. Assuming consummation of the Proposed
Transaction, the Company's sole remaining operating subsidiary will be TSI which
reported approximately $403,853 and $392,653 of revenues in the years ended
September 30, 1997 and 1998, respectively. Because TSA has been profitable, the
Company has utilized those profits to develop the OSA and OSA-II and to meet the
Company's other working capital needs including corporate overhead. To date, the
Company has only sold five OSA-Is and 113 OSA-IIs and has not entered into any
long-term leases of OSA-Is or OSA-IIs. While management believes the proceeds
from the sale of Assets, if it occurs, will permit the Company to pay its
indebtedness and provide working capital to meet current operating losses of
TSI, the loss of TSA income will eliminate future contributions to working
capital and could adversely affect the Company's long-term financial condition.
The Company will be required to meet its future working capital needs from
additional financing, while the Company is currently engaged in discussion to
re-finance its credit line and obtain new equity or debt financing. There can be
no assurances that the Company will obtain the necessary financing.
Liquidity Considerations. Because of its history of losses, the Company at
times experiences periods where it has liquidity concerns. Most recently the
Company faced such a period prior to its December 1998 sale of $3,500,000 of
Series B Preferred Stock ("Series B Preferred") as described under "Recent
Developments - Changes in Capitalization." Unless and until the Company develops
a profitable business model, it will require additional financing in order to
meet its working capital needs. Any equity financing will be dilutive to
stockholders if such financing can be obtained. The Company anticipates it has
sufficient working capital to last through September,1999 if the TSA sale does
not close. The Company is engaged in discussions concerning a new debt or equity
financing. The Company believes that it can complete a financing if necessary,
which will provide it with sufficient liquidity for at least 12 months. The
Company is uncertain as to the ultimate terms it can reach with any potential
investors. There can be no assurances that the Company can complete any
financing and meet its working capital needs.
Potential Impact of Conversion of Preferred Stock. On March 31, 1999
the holder of the outstanding $350,000 of the Company's Series A Preferred
converted 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 only 70,000 shares
may be sold in each month. The Series B Preferred converts at a floating rate
but not until November 1, 1999. The Company does not intend to file a
registration statement for the sale of the Common Stock underlying the Series B
Preferred until November 30, 1999. Commencing in December 1999, the Common Stock
issuable upon conversion of the Series B Preferred may begin to be sold under
Rule 144. The beneficial owner of the Series B Preferred is a director of the
Company. The following impact may result from the conversion of Series B
Preferred:
The lower the price of the Common Stock, the more shares will be
issued upon conversion of the Series B.
Conversion and sale of some shares increases the supply available
for sale, which could further depress the market price. This could
have an escalating effect and result in a further depression of
the price of the Common Stock.
The significant downward pressure on the price of the Common
Stock could encourage short sales by the selling stockholders or
others, which would further depress the market price for the
Common Stock.
The conversion of the Series B Preferred may result in
substantial dilution to existing stockholders since the holders
may ultimately convert their shares into a very large number of
shares of Common Stock if such Common Stock trades at lower prices
at the times of conversion.
See "Description of Series B Preferred Stock and Warrants".
Potential Future Dilution. The following tables set forth certain
information if all outstanding Series B Preferred was converted and warrants
exercised as of May 11, 1999. The times of convertibility and exercisability
vary. See "Recent Developments - Changes in Capitalization" and "Description of
Series B Preferred and Warrants" for information as to the first dates of
convertibility and exercisability.
<TABLE>
<S> <C> <C> <C>
Amount Outstanding ($ or No. of Shares of Common
No. of Shares) Assumed Bid Price of Stock Issuable
Class of Security Common Stock
- ---------------------------- --------------------------- --------------------------- --------------------------
- ---------------------------- --------------------------- -------------------------- ---------------------------
Series B Preferred $3,500,000 $1.00 4,117,647
- ------------------ ---------- ----- ---------
$.875 4,729,729
----- ---------
$.60 6,862,745
---- ---------
$.40 10,294,117
---- ----------
- ---------------------------- --------------------------- -------------------------- ---------------------------
- ---------------------------- --------------------------- -------------------------- ---------------------------
Class A Warrants 250,000 250,000
- ---------------- ------- -------
Class B Warrants 25,000 25,000
- ---------------- ------ ------
Class C Warrants 248,383 N/A 248,383
- ---------------- ------- -------- -------
Class D Warrants 350,000 350,000
- ---------------- ------- -------
Class E Warrants 50,000 50,000
- ---------------- ------ ------
Class F Warrants 50,000 50,000
- ---------------- ------ ------
- ---------------------------- --------------------------- -------------------------- ---------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Conversion of
Series B
Preferred and Each Assumed Price of Percentage of
Class of Warrants Common Stock Outstanding Shares
- --------------------------------------------------------------- ----------------------- -----------------------
- --------------------------------------------------------------- ----------------------- -----------------------
5,091,030 $1.00 15%
--------- ----- ---
5,703,112 $.875 16%
--------- ----- ---
- --------------------------------------------------------------- ----------------------- -----------------------
- --------------------------------------------------------------- ----------------------- -----------------------
7,836,128 $.60 21%
--------- ---- ---
- --------------------------------------------------------------- ----------------------- -----------------------
- --------------------------------------------------------------- ----------------------- -----------------------
11,267,500 $.40 27%
---------- ---- ---
- --------------------------------------------------------------- ----------------------- -----------------------
- --------------------------------------------------------------- ----------------------- -----------------------
- --------------------------------------------------------------- ----------------------- -----------------------
</TABLE>
Possible Loss of Stock Exchange Listing. The Company's Common Stock is
traded on the American Stock Exchange (the "Amex"). Section 713 of the Amex
Company Guide requires stockholder approval of any transaction involving the
sale or issuance of Common Stock (or securities convertible into Common Stock)
equals 20% or more of outstanding Common Stock and the price is less than the
greater of (i) book value, or (ii) market value. The Company did not obtain
approval of its stockholders to issue the Series B Preferred and does not
anticipate seeking such approval prior to the conversion and sale of Common
Stock thereafter. As reflected in the first chart in the above risk factor,
conversion of the Series B Preferred at the prices below the current bid price
would most likely involve a transaction relating to the issuance of 20% or more
of the Common Stock of the Company. In addition to Section 713, the Amex has the
authority under Section 1003 of the Amex Company Guide to delist a security.
Since they have broad authority, while certain guidelines are provided, the Amex
may delist a security even if none of the guidelines are violated. Section
1003(f)(v) permits delisting if the Common Stock has been "selling for a
substantial period of time at a low price per share..." if the Company fails to
effect a reverse split. There can be no assurances that the Amex will not delist
the Company's Common Stock. If it does so, the market will be far less liquid.
In turn, this can further depress the price of the Company's Common Stock.
Change in Short-Term Financial Condition. If the Proposed Transaction
closes, the proceeds from the sale of the Assets will substantially improve the
Company's short-term financial condition and liquidity by significantly
increasing working capital. However, as detailed in the next risk factor and in
"Recent Developments" there is substantial doubt as to the consummation of the
sale of Assets. However, the Company's results of operations could be materially
and adversely affected for the short-term if the sale is consummated due to the
loss of TSA profit contribution. However, the loss of revenues and income from
the sale of the TSA Assets will be partially offset by projected annual debt
service savings and corporate overhead savings including reduced audit fees,
travel costs and other efficiencies. See "Pro Forma Condensed Financial
Information of the Company." The funds available from the sale of TSA Assets
will be necessary to sustain TSI and pay the Company's corporate overhead until
TSI is able to generate substantial revenues and reduce its operating losses.
With the improvement in short-term liquidity, the Company believes it will have
sufficient working capital to successfully market its OSA-IIs over the
long-term. No assurances can be given that the Company will have sufficient
working capital or that it will be successful in marketing OSA-IIs.
Failure of Proposed Transaction to Close; Substantial Doubt that the
Proposed Transaction Will Close. There can be no assurances that all of the
conditions to the Proposed Transaction will be satisfied and that it will be
consummated. There currently is and since September 30, 1998 there has been
substantial doubt that NCT Audio Products, Inc. (the "Proposed Buyer") will be
able to close the Proposed Transaction. The reasons for this conclusion are as
follows:
1. The transaction originally was scheduled to close on or before December 31,
1998. The Proposed Buyer was unable to do so and the closing date was
extended to on or before March 31, 1999. The Proposed Buyer was unable to
close on March 31, 1999.
<PAGE>
2. Because the Proposed Buyer's failure to close on March 31, 1999 would have
caused it to lose its exclusive right to purchase the TSA Assets, the
Proposed Buyer and the Company and TSA entered into an agreement extending
the closing to on or before May 28, 1999.
3. The components of the $350,000 extension fee paid by the Proposed Buyer
reflects the Proposed Buyer's inability to raise cash to fund the extension
of its exclusive right. The only cash paid was $20,685, which represents
interest income on the funds held in escrow that had inadvertently not been
released to the Proposed Buyer. The second portion of the extension fee is
$125,000 of the Proposed Buyer's minority interest in TSA's earnings, since
the Proposed Buyer owns 20% of TSA. The final portion of the $350,000 fee
represents a $204,315 short-term note due April 16, 1999 (the "Note").
4. The Note was not and has not been paid. There are escalating penalties as
provided in the extension agreement. The first penalty is that $145,685
consisting of the $20,685 and minority interest will not be credited
against the $6,500,000, if the Proposed Buyer closes. In the event the
closing occurs by May 28, 1999, none of the $350,000 extension fee can be
applied as a credit against the $6,500,000. The most significant penalty
for failure to close by May 28, 1999 is the forfeiture of the potential TSA
dividends for the succeeding 12 months.
5. The Proposed Buyer is a subsidiary of NCT Group, Inc. which trades on the
Over-the-Counter Bulletin Board having been delisted from the Nasdaq Small
Cap Market last year. The parent corporation reported a loss of $14.2
million dollars for 1998 on revenues of $3.3 million excluding a one time
licensing fee of $3.2 million.
<PAGE>
6. In January 1999, the Proposed Buyer sought to raise $53 million from the
sale of debt and preferred stock through a Confidential Offering Memorandum
(the "Memorandum"). The sale evidently did not occur, since the Proposed
Buyer's parent has announced it received a $40 million financing proposal
from an institutional lender which is subject to due diligence. While we
have no access to internal information concerning the viability of the
financing, it appears to be an extremely difficult financing. It is
premised upon the roll-up of three businesses including TSA and requires
$40,000,000 of reasonably liquid assets as collateral. Thus according to
the Memorandum:
To purchase the TSA Assets, the Proposed Buyer must pay the Company
$6,500,000. But TSA liquid assets are approximately $1,500,000 and substantially
less than 100% of liquid assets is customarily available to be borrowed.
The second business is no longer subject to a binding agreement with the
Proposed Buyer. The expired agreement required the Proposed Buyer to pay it
$10,500,000.
The third business, not identified in the Memorandum, is scheduled to
receive approximately $24,500,000.
In order to consummate this roll-up, the other two businesses must have
approximately $38,500,000 of allowable liquid assets to support the remaining
$33,500,000 of the loan remaining after allocating $6,500,000 for the TSA
Assets.
See "Recent Developments- Sale of TSA".
<PAGE>
Changing Technology; Competitive Factors. The OSA-Is represent a
technological breakthrough affecting the oil analysis industry. Oil analysis is
a 50-year old technology, which is widely used for diagnostic and preventative
maintenance programs for equipment by various industries. Essentially, the
OSA-Is analyze (and the OSA-IIs are designed to analyze) oil at the end user's
location thereby avoiding the need to send petroleum samples to a central
laboratory. The OSA-Is and OSA-IIs utilize complex computer software. In
general, the computer industry is subject to rapid and significantly changing
technology including potential introduction of new products and technologies,
which may have a material adverse impact upon the Company's ability to market
and sell OSA-IIs. Although the Company believes that it has a significant
advantage over potential competitors as a result of its experience over a
five-year period with the OSA-Is, the Company's proprietary database and the
proprietary nature of the resulting technology including the development of the
OSA-IIs. No assurances can be given that either a comparable or more advanced
on-site oil analyzer will not be developed in the future by one or more third
parties.
Patents and Proprietary Information. Historically, the Company
generated almost all of its revenue from products subject to patents and patent
applications exclusively licensed to the Company. TSA has relied upon the sale
of its OHSS enclosures, which are covered by a patent license limited to the
United States and Canada. The Company has obtained patents covering various
features of the OSA-Is which are applicable to the OSA-IIs. The Company has
applied for additional patents covering various features of the OSA-IIs. In
addition, steps have been taken to protect trade secrets through appropriate
confidentiality agreements. There can be no assurances that the patent
applications for the OSA-II will be granted. The failure by the Company to
obtain patents and protect its respective trade secrets could have a material
adverse effect on the Company by increasing the likelihood of competition. In
addition, other companies may independently develop equivalent or superior
technologies and may obtain patent or similar rights with respect to them.
Although the Company believes that the software for the OSA-Is and OSA-IIs has
been independently developed by it, and that such technology does not infringe
on the patents or violate the proprietary rights of others, there can be no
assurances that the Company will not be determined to infringe upon the patents
or proprietary rights of others, or that patents or proprietary rights of others
will not have a material adverse effect on the ability of the Company to
commercialize the OSA-IIs. Patent and technology disputes are common with high
technology products and services.
New Technologies and Other Considerations. In order to expand its
current product line, the Company may continue to seek new technologies and
products. This aspect of the Company's business involves a number of special
risks. Because of these risks, the Company will seek capital input and strategic
partners to sell equity in suitable products and technologies to these partners
in order to reduce the risks to investors. Also, the Company will seek to avoid
substantial and long-term expense associated with the necessary research and
development. Assuming that the Company is able to enter into agreements with
such partners and that those partners will be able to carry out the necessary
research and development, there is the risk that the technologies will not
perform as expected or be cost effective. Assuming successful research and
development, there remains the risks of being able to market the products and
locate industry partners or others able to manufacture the products according to
stringent quality control standards and in a viable economic manner. There can
be no assurances that the Company will be able to successfully locate such
technologies and if so, will be able to find strategic partners able to develop
and market new technologies. Finally, there is the risk that while the Company
is seeking to commercialize a new technology, a competitor will develop
technologies, which are more commercially viable thereby reducing the viability
of the Company's products.
Anti-Takeover Considerations. The Company's Restated Certificate of
Incorporation (the "Certificate Provisions") contains various provisions
designed to deter a third party from launching a hostile takeover for the
Company. In addition, the Company has adopted a Shareholder Rights Plan (the
"Rights Plan"). In this Prospectus, the Certificate Provisions and the Rights
Plan are collectively referred to as the "Anti-Takeover Provisions". The
Certificate Provisions consist of: (i) empowering the Board of Directors (the
"Board"), without further action by the stockholders, to issue up to 5,000,000
shares of Preferred Stock in one or more series, with such designations,
preferences, special rights, qualifications, limitations and restrictions as the
Board may determine; (ii) establishing a classified Board whereby election of
the directors is staggered and each year approximately one-third of the
directors are elected for a three year term; (iii) making it difficult to remove
directors for "cause" by requiring a super-majority vote of either: (1) 75% of
the stockholders, or (2) 66-2/3% of the stockholders and the majority of the
"disinterested directors"; (iv) providing that stockholder action taken by
written consent in lieu of a meeting is prohibited unless such consent is signed
by the holders of at least two-thirds of the stock; and (v) restricting
stockholder nomination of directors to any stockholder with the power to vote at
least 15% of the outstanding voting securities of the Company who timely
complies with specific notice procedures. In connection with the Rights Plan,
the Board declared a dividend of one Preferred Stock Purchase Right (the
"Rights") for each outstanding share of the Company's Common Stock. The Rights
permit the holders (stockholders of the Company) to purchase Series A Junior
Preferred Stock. Holders of Rights have the right to acquire stock of the
Company or an "acquiring entity" at one-half of market value. The Rights only
become exercisable in the event, with certain exceptions, an acquiring party
accumulates 15 percent or more of the Company's voting stock. These Rights may
be redeemed by the Company at $.01 per Right prior to the close of business on
the 15th day after a public announcement that beneficial ownership of ownership
of 15% or more of the Company's voting stock has been accumulated by single
acquirer or group (with certain exceptions), under specified circumstances.
The Anti-Takeover Provisions generally make it more difficult or
discourage a proxy contest or the assumption of control by a holder of a
substantial block of the Company's Common Stock because it is more difficult to
remove the incumbent Board. Thus, the Anti-Takeover Proposals have the affect
of: (i) entrenching incumbent management, and (ii) discouraging a third party
from making a tender offer at a premium over the market price or otherwise
attempting to obtain control of the Company even though such an attempt could be
desired by a substantial member of the Company's stockholders. The Anti-Takeover
Provisions were not intended to prevent a takeover of the Company on terms which
are beneficial to the stockholders and will not do so. They may, however, deter
an attempt to acquire the Company in a manner or on terms that the Board
determines not to be in the best interest of its stockholders.
<PAGE>
Dependence on Key Personnel. The Company is currently dependent upon the
efforts of the key members of its management team consisting of Mr. William C.
Willis, Jr., the Company's President and Chief Executive Officer, and Mr. David
Natan, the Company's Chief Financial Officer. In addition, the Company is
dependent upon Dr. John Coates, its Director of Technology, who is in charge of
the group which developed the OSA-II. In the event that one or more of these
persons ceases to be employed by the Company, it may have a material adverse
effect upon the Company.
Competition. Competition in the automotive business and the oil
analysis business is intense. With regard to TSA's OHSS business, interior trim
suppliers have a substantial competitive advantage as a result of their
relationships with automobile manufacturers and their substantially greater
degree of financial strength, management depth and engineering expertise. By
offering automobile manufacturers the opportunity to deal with one primary
supplier, an interior trim supplier can offer alternative speaker placement and
thereby competes directly with the Company. With regard to the OSA-II, while the
Company is not aware of any other business that markets and sells an on-site oil
analysis instrument, the Company's oil analysis subsidiary, TSI, competes with
various oil analysis laboratories located throughout the United States. These
laboratories offer service through Federal Express or other express delivery
couriers and provides facsimile or other rapid delivery of oil analysis reports
to the customers. <PAGE>
RECENT DEVELOPMENTS
Sale of TSA
On August 14, 1998, the Company and TSA entered into an agreement, as
amended (the "Agreement") with the Proposed Buyer through which the Proposed
Buyer agreed to purchase TSA for a minimum of $10,000,000 and up to an
additional $6,000,000 representing additional compensation (the "Earn-Out.")
described on pages ______ of this Prospectus.
Under the terms of the Agreement, the Proposed Buyer has agreed to
assume all of TSA's liabilities subject to the limitation that such liabilities
not exceed the amount of inventory owned by TSA, and pay the Company $10,000,000
(or $6,500,000 in addition to the $3,500,000 described below). Since September
30, 1998 the Company has had substantial doubt as to whether the Proposed Buyer
will have the funds to close the Proposed Transaction. See "Risk Factors Failure
of the Proposed Transaction to Close; Substantial Doubt that the Proposed
Transaction will Close." The initial anticipated closing date was not later than
December 31, 1998. This date was extended to March 31, 1999 and now to May 28,
1999 because of the Proposed Buyer's inability to complete a financing. See
"Risk Factors".
The Proposed Buyer paid the Company $1,450,000 as a non-refundable
deposit in June 1998 and an additional $2,050,000 on December 15, 1998 when the
Company's stockholders approved the sale. As a result, the Proposed Buyer became
the owner of 20% of TSA. Pursuant to the Agreement, the Proposed Buyer had the
exclusive right to purchase the Assets of TSA at any time through March 31,
1999. However, because the Proposed Transaction failed to close by December 31,
1998, the Proposed Buyer had a one-week option to cancel its exclusive right to
purchase the Assets of TSA and as consideration receive an additional 15% of TSA
Common Stock. The Proposed Buyer failed to provide notice to the Company. The
Proposed Buyer remains the owner of 20% of TSA Common Stock. However, in
mid-March, the Proposed Buyer notified the Company that it would not be able to
close the Proposed Transaction by March 31, 1999. On March 30, 1999, the Company
granted the Proposed Buyer an extension until May 28, 1999 to complete the
purchase of TSA. As consideration for this extension, the Company received a
non-refundable fee from the Proposed Buyer of $350,000. This extension fee
consisted of $20,685 in cash which the Company's counsel had been holding in
escrow, $125,000 representing the Proposed Buyer's minority earnings of TSA as a
20% stockholder of TSA and a $204,315 Note payable due on April 16, 1999. The
Note was not and has not been paid. Additionally, due to the Proposed Buyer's
failure to close the transaction by March 31, 1999, the Company will receive
$100,000 of the Proposed Buyer's convertible preferred stock. See "Risk
Factors".
If the Proposed Transaction fails to close by May 28,1999, the Company
will be free to attempt to find another purchaser of TSA and the Proposed Buyer
will be obligated to sell its TSA shares to any such purchaser on the same terms
and conditions as the Company receives for its TSA Common Stock.
Assuming the Proposed Transaction had closed in December 1998, and
assuming no changes to TSA's revenues and expenses after the closing, no
Earn-Out payment if calculated on a pro forma basis would have been earned by
the Company. The Company believes that current after-market and other OEM
production line initiatives in process for OHSS will result in additional
revenues that will enable the Company to achieve the full $6,000,000 Earn-Out
over a two-year period after closing if it occurs. However, no assurances can be
given.
The Company believes that the current aftermarket and other OEM
production line initiatives in process for OHSS will result in additional
revenues that will enable the Company to achieve the full $6,000,000 Earn-Out
over the two-year period following the Closing if it occurs. However, no
assurances can be given. If earned, for the first year following the Closing
("Year One"), the Proposed Buyer shall pay TSA an Earn-Out of up to $3,000,000
and a cumulative amount of up to $6,000,000 for Year One and the 12-month period
subsequent to Year One ("Year Two").
The Earn-Out in Year One shall be equal to the amount by which the
product of four and one-half times EBITDA, as defined, for Year One exceeds
$8,000,000. As used in the Agreement, "EBITDA" means income before interest,
taxes, depreciation and amortization of the Proposed Buyer's subsidiary
acquiring the Assets ("New TSA"). The Agreement further provides that EBITDA
shall be based solely upon the operations of New TSA based upon operations
consistent with the historical operations of TSA and excluding items of income
or expense such as non-recurring items, extraordinary items, intercompany items
and other items of income and expense which are not consistent with such past
practice.
In effect, to the extent that in Year One the cash flow of New TSA
times four and one-half exceeds $8,000,000, the Proposed Buyer shall pay the
Earn-Out up to the maximum of $3,000,000. The Year Two Earn-Out shall be equal
to the amount by which the product of four and one-half times EBITDA for Year
Two exceeds the greater of: (i) Year One EBITDA times four and one-half, or (ii)
$8,000,000. The maximum Year Two Earn-Out calculated using this formula is
$6,000,000 minus the Year One Earn-Out.
Changes in Capitalization
In December 1998, the Company received $3,500,000 from the sale of its
Series B Preferred to two trusts in which Mr. G. Jeff Mennen, a director of the
Company, is a co-trustee and sole trustee, respectively, and the beneficiaries
of which are members of Mr. Mennen's immediate family (the "Mennen Trusts"). The
Series B Preferred is convertible on or after November 1, 1999 into a number of
shares of Common Stock computed by dividing the stated value of $1,000 per share
(the "Stated Value") by 85% of the closing bid price of the Common Stock on the
previous trading day (the "Conversion Price"). The Company shall have the option
to redeem the Series B Preferred at 110% of Stated Value plus accrued dividends
at any time before April 30, 1999 and at a price of 115% of Stated Value plus
accrued dividends commencing on May 1, 1999 and expiring on October 27, 1999.
The Series B Preferred pays a dividend of 9% per annum in cash. As part of the
agreements with its lenders described below, the Company obtained permission to
pay cash dividends to the Mennen Trusts. However, if in the future the Company
is unable to pay cash dividends, they shall be payable in shares of Common
Stock. The aggregate number of shares of Common Stock to be issued to the Mennen
Trusts in such event shall equal the sum of: (x) the amount of the dividend per
share (or $90 per annum) divided by the Conversion Price plus (y) 25% of the
amount obtained in clause (x), which sum shall be multiplied by 3,500. As
additional consideration, the Company issued to the Mennen Trusts Warrants to
purchase 350,000 shares of the Company's Common Stock ("Class D Warrants")
exercisable over a 10-year period at a price of approximately $1.94 per share
(or $1.00 above the closing price on the day of consummation of the Series B
Preferred sale transaction). Additionally, because the Series B Preferred was
not redeemed or converted into Common Stock on or before May 1, 1999, ( the
Company issued to the Mennen Trusts an additional 50,000 10-year Warrants
exercisable at a price of $.50 per share above the closing price of the
Company's Common Stock on April 30, 1999 or $1.75 per share ("Class E
Warrants"). Not later than November 30, 1999, the Company has agreed to file a
registration statement to cover the public sale of the shares of Common Stock
issuable on conversion of the Series B Preferred and exercise of the Class D and
E Warrants as well as the Class F Warrants described below. The Company
consummated this transaction after diligently and actively seeking alternative
financing sources and concluding that the proposal was superior to competing
offers available in strict arms-length transactions. The Board voted unanimously
to approve the sale of the Series B Preferred with Mr. Mennen abstaining. The
shares of Common Stock underlying the Series B Preferred and the Class D and E
Warrants underlying are not covered by this Prospectus and may not be resold
pursuant to this Prospectus.
In January 1998, the Company recognized it might in fiscal 1998 violate
a covenant contained in $3,020,000 of Subordinated Convertible Notes (the
"Notes") issued in 1995. In order to assure the Company's auditors that the
Company had the ability to comply with this financial covenant, Mr. Mennen
agreed to infuse sufficient capital into the Company as may be necessary. In
exchange for Mr. Mennen's commitment, the Company issued to him 50,000 Warrants
exercisable at $2.00 per share (the "Class F Warrants"). Following the closing
of the Series B Preferred sale, the Company redeemed one-half or $500,000 Stated
Value of the existing Series A Preferred by paying the Purchasers an aggregate
purchase price of $600,000. In late 1998, the remaining $150,000 of Series A
Preferred converted into an aggregate of 387,554 shares of Common Stock (which
sum included accrued dividends) in accordance with the terms of the Series A
Preferred. As consideration for the initial delay in converting $350,000 of the
Series A Preferred, the Company issued to the two Purchasers Class B Warrants to
purchase an aggregate of 25,000 shares of Common Stock exercisable at
approximately $.89 per share commencing in April 1999. The shares of Common
Stock reserved for exercise of the Class B Warrants are being offered for sale
pursuant to this Prospectus.
The Purchasers also agreed not to convert the remaining $350,000 of
Series A Preferred until March 31, 1999. On that date, one of the Selling
Stockholders, Excalibur Limited Partnership ("Excalibur"), acquired the other
Purchaser's Series A Preferred and converted all $350,000 into 350,000 shares of
Common Stock or at $1.00 per share. This was substantially higher than the
actual conversion price thereby reducing the dilution to existing stockholders.
Additionally, Excalibur agreed that the 350,000 shares of Common Stock, which
will be eligible for resale under Rule 144 in May 1999, shall not be sold prior
to October 1,1999, and then only up to a maximum of 70,000 shares per month.
The Company has restructured substantially all of its $3,020,000 of
Notes. With a portion of the proceeds from the Series B Preferred, the Company
prepaid an aggregate of $745,000 principal amount of Notes for $496,617
resulting in savings of $248,383 in principal amount (not including future debt
service costs). In connection with the discounting of these Notes, the Company
issued to the noteholders Class C Warrants to purchase an aggregate of 248,383
shares of the Company's Common Stock exercisable over a five-year period at
approximately $1.78 per share. The shares of Common Stock reserved for exercise
of the Class C Warrants may be sold pursuant to this Prospectus. The Company
entered into an agreement with the agent for the remaining noteholders, which
modified the remaining Notes. The Company prepaid such noteholders an aggregate
of $1,568,000 in principal amount of Notes (at the rate of $.70 per $1.00 of
principal). These noteholders continue to hold Notes in the principal amount of
$707,000. Additionally, the interest rate was reduced from 9% per annum to 5%
per annum on the Notes and the conversion price reduced from $10 per share to $2
per share. As part of the Amendment to the Note Purchase Agreement, the
remaining noteholders waived certain restrictive provisions including the
requirement that the Company maintain a 1.5 to 1.0 debt to equity ratio which
waiver continues through and including September 30, 1999 which is the
conclusion of the Company's current fiscal year.
The Company has also obtained a waiver from its principal lender,
NationsCredit Commercial Funding ("NationsCredit"), of the of the financial
covenant precluding the Company from having a loss of more than $2,000,000 in a
fiscal year. In conjunction with such waiver, the Company paid NationsCredit a
fee of $25,000 and agreed to collaterally assign a $250,000 certificate of
deposit to NationsCredit.
Formation of Strategic Alliance with Flying J
In November 1998, the Company entered into a strategic alliance with
Flying J, a company engaged in various facets of highway-related products and
services including the operation of large truck stops. Flying J agreed to
purchase and market OSA-IIs in up to 100 of their truck stop service centers.
The initial purchase order is for 10 OSA-IIs; the agreement covers a potential
purchase of up to 100 OSA-IIs, payment of a per sample technology licensing fee,
and joint development and marketing of product enhancements to assist in the
further commercialization of the OSA-IIs within the truck stop industry. After
receipt of the initial 10 OSA-IIs, Flying J may terminate the agreement without
any liability. Flying J paid the Company for the first 10 units during the
quarter ending March 31, 1999. The Company recognized revenue of approximately
$280,000 for the quarter ended March 31, 1999 representing four units which were
delivered to Flying J during the quarter. An additional six OSA-II's have been
installed at Flying J facilities during the quarter ending June 30, 1999. In
addition to the purchase price of the OSA-II units, Flying J is obligated to pay
the Company a per sample licensing fee, which is reduced at such time as Flying
J has 36 OSA-II units operating. In addition, in recognition of Flying J's
efforts to assist the Company in commercializing the OSA-II within the truck
stop industry, it will receive financial incentives subject in part to Flying J
having at least 36 OSA-II units in operation. The Company is currently reviewing
potential modifications to the OSA-II unit in order to make it a self-serve unit
which can operate quietly and be placed in up to 100 of Flying J's truck stops.
While the Company believes the proposed changes are technically feasible, the
costs of modification may approximate $150,000. The Company does not intend to
modify the unit unless Flying J bears this cost. The Company only anticipates
selling to Flying J a limited number of OSA IIs during the remainder of 1999.
These units will be installed in Flying J's full service plazas, which do not
require a self-serve OSA-II. There can be no assurances that Flying J will
decide to purchase any of the additional 90 OSA-IIs or that any further
commercialization of the OSA-IIs within the truck stop industry will prove
successful.
Other Matters
As previously publicly reported, Mr. Stuart Landow, the Company's
former Chairman of the Board, resigned as a director and as an employee
effective June 30, 1998.
Mr. William C. Willis, Jr., the Company's president and chief executive
officer and new Chairman of the Board waived a bonus of $127,500 to which he was
entitled under his employment agreement. In exchange for this waiver, in July
1998 the Company's Compensation Committee granted Mr. Willis 100,000 stock
options exercisable at $.875 per share (then fair market value). The options
vest incrementally over a three-year period and are exercisable over a 10-year
term. Mr. Willis initiated this transaction as a result of the Company's efforts
to conserve cash and his confidence in the Company.
New Accounting Standards
In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 131, "Disclosures about Segments
of an Enterprise and Related Information", which is required to be adopted in
fiscal years beginning after December 15, 1997. This statement establishes
standards for the way public business enterprises report information about
products, services, geographic areas and major customers. The Company will adopt
SFAS No. 131 or for fiscal year ended September 30, 1999. The adoption of SFAS
No. 131 will not have a material impact on its financial position or results of
operations. <PAGE>
PRO FORMA CONDENSED FINANCIAL
INFORMATION OF THE COMPANY
The following unaudited pro forma condensed financial statements were
prepared to reflect the estimated effects of the potential sale of 100% of TSA
for $10,000,000. The sale is structured to occur in three separate steps as
follows: (i) The Company has received a $1,450,000 non-refundable deposit which
gave the Buyer a minimum of a 14.5% equity interest in TSA ("Step 1"), (ii) the
Second Payment of $2,050,000 was paid into escrow on July 30, 1998 and released
to the Company (became non-refundable) on December 15, 1998 as a result of an
affirmative shareholder approval which gave the Buyer an additional 5.5% of TSA
Common Stock ("Step 2"), and (iii) the receipt of the remaining proceeds of
$6,500,000 to complete the ultimate sale of 100% of TSA which was to occur by
March 31, 1999 ("Step 3").
As a result of the completion of Steps I and II of the transaction, the
Buyer became a 20% owner of the Common Stock of TSA. On January 7, 1999, the
Buyer of TSA's Assets, by virtue of not exercising its right to receive an
additional 15% minority stake in TSA maintained its exclusive right to complete
the remainder of the transaction by March 31, 1999. As a result, the Buyer will
remain as a 20% minority owner of TSA unless Step III of the transaction is
completed.
On March 30, 1999, the Parent Company granted the Buyer an extension
until May 28, 1999 to complete the purchase of TSA. As consideration for this
extension, the Parent Company received a non-refundable fee from the Buyer of
$350,000. This extension fee consisted of $20,685 in cash, $125,000 of the
Buyer's minority interest in TSA earnings and a $204,315 note payable due on
April 16, 1999 (the "Note") from the Buyer to TSA. Additionally, due to the
Buyer's failure to close the transaction by March 31, 1999, the Parent Company
received a penalty premium of $100,000 of the Buyer's convertible preferred
stock. ( See page xx for further discussion ).
If the transaction fails to close by May 28, 1999, the Parent Company
intends to operate TSA and will be free to attempt to find another purchaser of
TSA. The Buyer will be obligated to sell its TSA shares to any such purchaser on
the same terms and conditions as the Company receives for its TSA Common Stock.
For a discussion of the risks involved in this event, see "Risk Factors Failure
of Proposed Transaction to Close".
The unaudited pro forma condensed balance sheet as of March 31, 1999
gives effect to the above transactions as if they had occurred on March 31,
1999. The unaudited pro forma condensed statements of operations for the years
ended September 30, 1998 and 1997 and 1996 give effect to the pro forma
transactions as if they had occurred as of October 1, the first day of the
Company's respective fiscal year. The unaudited pro forma condensed statements
of operations for the six months ended March 31, 1999 and 1998 give effect to
the pro forma transactions and the proceeds from the sale of the sale of
$3,500,000 of Series B Convertible Stock and the repayment of $2,313,000 of the
Senior Convertible Notes, as if they had occurred as of October 1, the first day
of the Company's respective fiscal year. Upon the sale of 100% of the TSA Assets
(Step 3), this segment will be treated as a discontinued operation as defined in
Accounting Principals Board Opinion No. 30, accordingly the pro forma statements
of income have been presented for all the same periods as the historical
financial statements.
The unaudited pro forma condensed financial statements were also
prepared to show the effects of the use of the net proceeds from the sale to pay
Nations as described in the notes to the unaudited pro forma condensed financial
statements.
The unaudited pro forma condensed financial statements were prepared
utilizing the accounting principles of the Company as outlined in its historical
financial statements included in the Company's Form 10-K/A No. 2 for the year
ended September 30, 1998 and Form 10-K/A No. 3 for the year ended September 30,
1997, a copies of which are incorporated by reference herein. The pro forma
adjustments are based upon available information and contain assumptions that
the Company believes are reasonable under the circumstances. The unaudited pro
forma condensed financial statements do not reflect the potential corporate
overhead savings as a result of the sale of TSA.
<PAGE>
<TABLE>
TOP SOURCE TECHNOLOGIES, INC.
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED BALANCE SHEET
AS OF March 31, 1999
<S> <C> <C> <C>
(Buyer Owns
Buyer Owns 100% of TSA
20% of TSA Adjustments Assets)
Common Stock for 100% Sale Pro Forma
ASSETS Historical of TSA Total
--------------------------------------------------------------
Current Assets:
Cash and cash equivalents $ 847,069 (a) $6,500,000 (d) $5,592,950
(1,754,119)(e)
Accounts receivable, net 1,572,926 (1,477,689)(d) 95,237
Inventories 2,369,602 (378,063)(d) 1,991,539
Prepaid expenses and
other current assets 237,871 (66,412)(d) 171,459
--------------------------------------------------------------
Total current assets 5,027,468 2,823,717 7,851,185
Property and equipment-net 1,115,149 (178,692)(d) 936,457
Manufacturing & distribution
rights & patents-net 257,240 (128,430)(d) 128,810
Capitalized database, net 1,967,777 - 1,967,777
Notes receivable from officers - - -
Other assets, net 359,936 - 359,936
--------------------------------------------------------------
TOTAL ASSETS $8,727,570 $2,516,595 $11,244,165
==============================================================
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current Liabilities:
Line of credit $1,276,943 ($1,276,943)(e) $ -
Accounts payable 873,581 (563,957)(d) 309,624
Accrued liabilities 1,274,895 (73,701)(d,e) 1,201,194
--------------------------------------------------------------
Total current liabilities 3,425,419 (1,914,601) 1,510,818
Senior convertible notes 707,000 707,000
Other liabilities 263,469 263,469
--------------------------------------------------------------
Total liabilities 4,395,888 (1,914,601) 2,481,287
Minority interest 734,677 (b) (734,677)(d) -
Stockholders' equity 3,597,005 (c) 5,165,873 (d) 8,762,878
TOTAL LIABILITIES AND
--------------------------------------------------------------
STOCKHOLDERS' EQUITY $8,727,570 $2,516,595 $11,244,165
==============================================================
See notes to unaudited pro forma condensed financial statements.
</TABLE>
<PAGE>
<TABLE>
TOP SOURCE TECHNOLOGIES, INC.
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED MARCH 31, 1999
<S> <C> <C> <C> <C> <C>
(Buyer Does Not
Record Purchase 100%
Minority of TSA Assets)
Interest in Buyer Owns (Buyer Owns
Income 20% of TSA 100% of TSA
of TSA and Common Stock Adjustments Assets)
Material Pro Forma for 100% Sale Pro Forma
Historical Transactions Total of TSA Total
------------------------------------------------------------------------------------------------
Net sales $4,684,553 - $4,684,553 ($4,141,644) (i) $542,909
Cost of sales 2,987,348 - 2,987,348 (2,676,905) (i) 310,443
Selling, general and
administrative expenses 2,870,809 - 2,870,809 (630,123) (i) 2,340,686
100,000 (j)
------------------------------------------------------------------------------------------------
Loss from operations (1,173,604) - (1,173,604) (934,616) (2,108,220)
Interest expense, other
income (expense) net 1,404,127 51,297 (f) (207,446) 842 (i) (79,598)
(1,662,870) (h) 127,006 (f)
Minority interest in
income of TSA (87,807) (71,448) (h) (159,255) 159,255 (i) -
------------------------------------------------------------------------------------------------
Loss before income taxes
and minority interest 142,716 (1,683,021) (1,540,305) (647,513) (2,187,818)
Income tax expense (37,500) - (37,500) 37,500 (i) -
Loss from continuing
------------------------------------------------------------------------------------------------
operations 105,216 (1,683,021) (1,577,805) (610,013) (2,187,818)
Dividends on preferred stock (119,956) (49,673) (g) (169,629) (169,629)
Loss from available to
================================================================================================
common shareholders ($14,740) ($1,732,694) ($1,747,434) ($610,013) ($2,357,447)
================================================================================================
Loss from available to common share:
Basic ($0.00) ($0.08)
============== ===============
Diluted ($0.00) ($0.08)
============== ===============
Weighted average
common shares
Outstanding:
Basic 28,883,197 28,883,197
============== ===============
Diluted 28,883,197 28,883,197
============== ===============
See notes to unaudited pro forma condensed financial statements.
<PAGE>
</TABLE>
<PAGE>
<TABLE>
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED MARCH 31, 1998
<S> <C> <C> <C> <C> <C> <C>
(Buyer Does Not
Purchase 100%
Sale of $3,500,000 of TSA Assets)
of Series B Record Buyer Owns (Buyer Owns
Preferred Stock Minority 20% of TSA 100% of TSA
and Related Interest in Common Stock Adjustments Assets)
Material Income Pro Forma for 100% Sale Pro Forma
Historical Transactions of TSA Total of TSA Total
---------------------------------------------------------------------------------------------------
Net sales $6,616,766 - $6,616,766 ($6,419,416) (i) $197,350
Cost of sales 4,367,692 - 4,367,692 (4,276,793) (i) 90,899
Selling, general and
administrative expenses 3,431,596 - 3,431,596 (1,167,134) (i) 2,814,462
550,000 (j)
---------------------------------------------------------------------------------------------------
Loss from operations (1,182,522) - - (1,182,522) (1,525,489) (2,708,011)
Interest expense, other
income (expense) net (192,546) 117,526 (f) - (75,020) 16,953 (i) 78,692
136,759 (f)
Minority interest in
income of TSA - (184,307) (h)(184,307) 184,307 (i) -
---------------------------------------------------------------------------------------------------
Loss before income taxes
and minority interest (1,375,068) 117,526 (184,307) (1,441,849) (1,187,470) (2,629,319)
Income tax expense (37,000) - (37,000) 37,000 (i) -
Loss from continuing
---------------------------------------------------------------------------------------------------
operations (1,412,068) 117,526 (184,307) (1,478,849) (1,150,470) (2,629,319)
Dividends on preferred stock - (157,500)(g) - (157,500) (157,500)
Loss from available to
===================================================================================================
common shareholders ($1,412,068) ($39,974) ($184,307) ($1,636,349) ($1,150,470) ($2,786,819)
===================================================================================================
Loss from available to common share:
Basic ($0.05) ($0.10)
============= ===============
Diluted ($0.05) ($0.10)
============= ===============
Weighted average
common shares
Outstanding:
Basic 28,110,033 28,110,033
============= ===============
Diluted 28,110,033 28,110,033
============= ===============
See notes to unaudited pro forma condensed financial statements.
</TABLE>
<PAGE>
<TABLE>
TOP SOURCE TECHNOLOGIES, INC.
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1998
<S> <C> <C> <C> <C> <C> <C>
(Buyer Does Not
Purchase 100%
Sale of $3,500,000 of TSA Assets)
of Series B Record Buyer Owns (Buyer Owns
Preferred Stock Minority 20% of TSA 100% of TSA
and Related Interest in Common Stock Adjustments Assets)
Material Income Pro Forma for 100% Sale Pro Forma
Historical Transactions of TSA Total of TSA Total
---------------------------------------------------------------------------------------------------
Net sales $11,207,858 - $11,207,858 ($10,815,205) (i) $392,653
Cost of sales 8,026,490 - 8,026,490 (7,417,402) (i) 609,088
Selling, general and
administrative expenses 9,035,394 - 9,035,394 (2,326,146) (i) 7,809,248
1,100,000 (j)
----------------------------------------------------------------------------------------------------
Loss from operations (5,854,026) - - (5,854,026) (2,171,657) (8,025,683)
Interest expense, other
income (expense) net 422,085 208,170 (f) (962,760) (h) (332,505) 25,769 (i) (39)
306,697 (f)
Minority interest in
income of TSA (38,820) (378,613) (h) (417,433) 417,433 (i) -
----------------------------------------------------------------------------------------------------
Loss before income taxes
and minority interest (5,470,761) 208,170 (1,341,373) (6,603,964) (1,421,758) (8,025,722)
Income tax expense (58,801) - (58,801) 58,726 (i) (75)
Loss from continuing
----------------------------------------------------------------------------------------------------
operations (5,529,562) 208,170 (1,341,373) (6,662,765) (1,363,032) (8,025,797)
Dividends on preferred stock (20,034) (315,000)(g) - (335,034) (335,034)
Loss from available to
----------------------------------------------------------------------------------------------------
common shareholders ($5,549,596) ($106,830) ($1,341,373) ($6,997,799) ($1,363,032) ($8,360,831)
====================================================================================================
Loss from available to common share:
Basic ($0.20) ($0.30)
============= =============
Diluted ($0.20) ($0.30)
============= =============
Weighted average
common shares
Outstanding:
Basic 28,242,005 28,242,005
============= ===============
Diluted 28,242,005 28,242,005
============= ===============
See notes to unaudited pro forma condensed financial statements.
</TABLE>
<PAGE>
<TABLE>
TOP SOURCE TECHNOLOGIES, INC.
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1997
<S> <C> <C> <C>
(iii) Proposed
Transaction is
Buyer Owns
100% of TSA
Adjustments Assets)
for 100% Sale Pro Forma
Historical of TSA Total
----------------------------------------------------------------------
Net sales $16,984,123 ($16,580,270) (i) $403,853
Cost of sales 11,304,708 (11,197,664) (i) 107,044
Selling, general and administrative expenses 8,277,875 (2,291,445) (i) 7,086,430
1,100,000 (j)
----------------------------------------------------------------------
Loss from operations (2,598,460) (4,191,161) (6,789,621)
Interest expense, other income (expense) net (223,597) 5,595 (i) (121,217)
96,785 (f)
----------------------------------------------------------------------
Loss before income taxes (2,822,057) (4,088,781) (6,910,838)
Income tax expense (482,000) 124,000 (i) (358,000)
----------------------------------------------------------------------
Loss from continuing operations ($3,304,057) ($3,964,781) ($7,268,838)
======================================================================
Loss from available to common share:
Basic ($0.12) ($0.26)
================= ==================
Diluted ($0.12) ($0.26)
================= ==================
Weighted average
common shares
Outstanding:
Basic 28,065,563 28,065,563
================= ==================
Diluted 28,065,563 28,065,563
================= ==================
See notes to unaudited pro forma condensed financial statements.
</TABLE>
<PAGE>
<TABLE>
TOP SOURCE TECHNOLOGIES, INC.
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1996
<S> <C> <C> <C>
(iii) Proposed
Transaction is
Approved and
Buyer Owns
100% of TSA
Adjustments Assets)
for 100% Sale Pro Forma
Historical of TSA Total
-----------------------------------------------------
Net sales $16,146,524 (16,102,523)(i) $44,001
Cost of sales 10,776,203 (10,749,431)(i) 26,772
Selling, general and administrative expenses 8,426,540 (2,259,258)(i) 7,267,282
1,100,000 (j)
-----------------------------------------------------
Loss from operations (3,056,219) (4,193,834) (7,250,053)
Interest expense, other income (expense) net (232,267) (45,460)(i) (277,727)
-----------------------------------------------------
Loss before income taxes (3,288,486) (4,239,294) (7,527,780)
Income tax expense (1,543,300) 175,000 (i) (1,368,300)
-----------------------------------------------------
Loss from continuing operations ($4,831,786) ($4,064,294) ($8,896,080)
=====================================================
Loss from continuing operations per common share:
Basic ($0.17) ($0.32)
============== ================
Diluted ($0.17) ($0.32)
============== ================
Weighted average common shares Outstanding:
Basic 28,027,959 28,027,959
============== ================
Diluted 28,027,959 28,027,959
============== ================
See notes to unaudited pro forma condensed financial statements.
</TABLE>
<PAGE>
Notes to Unaudited Pro Forma Balance Sheet and Consolidated
Statements of Operations
(a) Includes the receipt of $3,500,000 of proceeds from the sale of 20%
interest in TSA.
(b) Includes the recording of a 20% minority interest in TSA
(c) Includes the gain on 20% of the equity in TSA of $2,625,630. This gain is
not included on the Unaudited Pro Forma Condensed Consolidated Statement of
Operations for all periods presented since it is a non-recurring item.
(d) The Company is selling 100% of the Assets of TSA and substantially all of
the liabilities of TSA. This adjustment represents the receipt of the
remaining proceeds for Step 3 of the sale of TSA, the elimination of the
minority interest and the elimination of the respective TSA Assets,
liabilities and equity. The total amount of the gain on the sale of 100% of
TSA's Assets is approximately $7,100,000 of which $4,480,666 is included
herein and the remaining gain is included in note (c). This gain is
reflected in stockholders equity, but not in the pro forma statements of
operations.
(e) Represents the repayment of the Nations Credit Facility with the proceeds
from the TSA sale, and payment of $477,176 of estimated legal, accounting
and investment banking fees and taxes for the sale of TSA. The $477,176 in
fees and taxes is included in accrued liabilities and will be paid with the
proceeds from the sale.
(f) Represents the reduction in interest expense resulting from the repayment
of a portion of debt as discussed in Note (e) and Senior Convertible Notes
repaid in November and December 1998.
(g) To record a 9% dividend on Series B Preferred Stock.
(h) To record the 20% (for the entire period) minority interest in TSA and to
eliminate a non-recurring item, which is the gain on the sale of TSA.
(i) Represents the elimination of the minority interest and the respective TSA
results of operations.
(j) Represents the add back of corporate expenses that the Company believes it
will not save as a result of the sale of TSA.
<PAGE>
SELLING STOCKHOLDERS
Table of Selling Stockholders
The following table sets forth information furnished by the Selling
Stockholders, with respect to the number of shares of the Company's Common
Stock, including the shares of Common Stock underlying the Warrants owned by
each Selling Stockholder on the date of this Prospectus, the shares offered
hereby, and the number and percentage of outstanding shares to be owned by each
Selling Stockholder after the offering. No Selling Stockholder has held any
position, office, or had a material relationship with the Company within the
past three years. The beneficial owners of Excalibur Limited Partnership,
Gundyco in Trust for RRSP 550-98866-19, H & H Securities Limited and
Intercontinental Holding Company, Ltd. and San Rafael Consulting Group are
William S. Hechter, Esq., Mark Schoom, William S. Hechter, Esq., and Gerry
Alexander, respectively. The Company believes Charles Ganz of Mellon Bank
exercises discretion to sell the Common Stock offered by the former noteholders.
For further information on the Series A Preferred and Warrants, See "Description
of Series A Preferred and Warrants".
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
- -------------------- ------------------ ------------------- ------------------ ------------------ -------------------
Selling Ownership Prior Securities Being Ownership After Percentage Owned Percentage Owned
Stockholders to Offering Offered Offering Before Offering After Offering
- -------------------- ------------------ ------------------- ------------------ ------------------ -------------------
- -------------------- ------------------ ------------------- ------------------ ------------------ -------------------
Excalibur Limited
Partnership
770,038(1) 691,288(2) 78,750(3) 2.5% *
- -------------------- ------------------ ------------------- ------------------ ------------------ -------------------
- -------------------- ------------------ ------------------- ------------------ ------------------ -------------------
Gundyco in Trust
for RRSP 180,016(4) 146,266(5) 33,750(6) * *
550-98866-19
- -------------------- ------------------ ------------------- ------------------ ------------------ -------------------
- -------------------- ------------------ ------------------- ------------------ ------------------ -------------------
H & H Securities
Limited 20,500(7) 8,200 12,300 * *
- -------------------- ------------------ ------------------- ------------------ ------------------ -------------------
- -------------------- ------------------ ------------------- ------------------ ------------------ -------------------
Intercontinental
Holding Company, 21,000(8) 8,400 12,600 * *
Ltd.
- -------------------- ------------------ ------------------- ------------------ ------------------ -------------------
- -------------------- ------------------ ------------------- ------------------ ------------------ -------------------
San Rafael
Consulting Group 21,000(9) 8,400 12,600 * *
- -------------------- ------------------ ------------------- ------------------ ------------------ -------------------
- -------------------- ------------------ ------------------- ------------------ ------------------ -------------------
Certain Former
Noteholders 248,383(10) 248,383 -0- * *
- -------------------- ------------------ ------------------- ------------------ ------------------ -------------------
* Less than 1%.
</TABLE>
(1) Represents 621,288 shares obtained upon conversion of Series A Preferred
and as dividends, and 52,500 and 17,500 shares underlying Class A and
Class B Warrants.
(2) A total of 350,000 shares of Common Stock, may not be sold until October
1, 1999 and then only in amounts of 70,000 per month cumulatively. Does
not include 78,750 shares underlying Class A Warrants. These shares have
been registered but are not offered for sale by this Prospectus.
(3) Represents the 78,750 shares referred to in note (2).
(4) Represents 116,266 shares obtained upon conversion of Series A Preferred
and as dividends and 56,250 and 7,500 shares underlying Class A and Class
B Warrants.
(5) Does not include 33,750 shares underlying Class A Warrants. These shares
have been registered, but are not offered for sale by this Prospectus.
(6) Represents the shares referred to in note (5).
<PAGE>
7) Represents 8,200 shares of Common Stock underlying Class A Warrants, which
are exercisable as of the date of this Prospectus and 12,300 shares
underlying Class A Warrants, which are not currently exercisable. The
12,300 shares have been registered, but are not offered for sale by this
Prospectus.
(8) Represents 8,400 shares of Common Stock underlying Class A Warrants which
are exercisable as of the date of this Prospectus 12,600 shares
underlying Class A Warrants, which are not currently exercisable. The
12,600 shares have been registered, but are not offered for sale by the
Prospectus.
(9) Represents 8,400 shares of Common Stock underlying Class A Warrants which
are exercisable as of the date of this Prospectus and 12,600 shares
underlying Class A Warrants, which are not currently exercisable. The
12,600 shares have been registered, but are not offered for sale by the
Prospectus.
(10) Represents 248,383 shares of Common Stock underlying Class C Warrants
held by former holders of $745,000 in principal of Notes. The Company
redeemed their Notes in December 1998 or $496,617 and issued one Class D
Warrant for each dollar of principal cancelled. The identity of the
former noteholders has been withheld in accordance with the policy of the
Commission's staff.
DESCRIPTION OF SERIES B PREFERRED AND WARRANTS
The Company issued $3,500,000 of Series B Preferred to the MennenTrusts.
Mr. G. Jeff Mennen, a director of the Company, is either co-trustee or sole
trustee and the beneficiaries are members of Mr. Mennen's immediate family. For
the details concerning the terms of the Series B Preferred, see "Recent
Developments - Changes in Capitalization".
This Prospectus covers the public sale of the shares of Common Stock
underlying presently exercisable Class A Warrants and the Class B and Class C
Warrants. Those shares of Common Stock underlying those Class A Warrants which
are not presently exercisable will be offered for sale by a Supplement to this
Prospectus. The Company is not obligated to and does not intend to file a
registration statement covering the public sale of shares of Common Stock
underlying the Class D and Class E Warrants issued to and potentially issuable
to the Mennen Trusts and the Class F Warrants held by Mr. Mennen until on or
about November 30, 1999. The terms of the various classes of Warrants are
described below:
<TABLE>
<S> <C> <C> <C>
Class of Warrants Number of Warrants Exercise Price Expiration Date
A(1) 250,000 $1.10 5/7/2001
- -----------------------------------------------------------------------------------------------------------
B(2) 25,000 $ .89 11/16/2003
- ------------------------------------------------------------------------------------------------------------
C 248,383 $1.78 12/29/2003
- ------------------------------------------------------------------------------------------------------------
D 350,000 $1.93 11/17/2008
- ------------------------------------------------------------------------------------------------------------
E 50,000 $1.75 05/01/2009
- ------------------------------------------------------------------------------------------------------------
F 50,000 $2.00 01/13/2003
- ------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------------------------------
(1) A total of 100,000 are currently exercisable and the remaining
Class A Warrants are exercisable in increments of 50,000 shares
commencing 90, 150 and 210 days after the date of this Prospectus.
(2) May not be exercised until May 17, 1999.
PLAN OF DISTRIBUTION
All of the shares of Common Stock are offered for sale by the Selling
Stockholders as listed in this Prospectus under "Selling Stockholders". The
Company will receive none of the proceeds from the sale of the shares of Common
Stock by the Selling Stockholders. However, the Company will receive a maximum
of approximately $739,622 in connection with the exercise of up to 100,000 Class
A 25,000 Class B and 248,383 Class C Warrants, the underlying shares of Common
Stock of which are covered by this Prospectus. Such proceeds will be used for
general corporate purposes.
The Company has been advised by the Selling Stockholders that the shares
of Common Stock may be offered and sold from time to time by or on behalf of the
Selling Stockholders, in or through transactions or distributions (including
crosses and block transactions) on the American Stock Exchange, or in the
over-the-counter market at market prices prevailing at the time of sale, or at
negotiated prices, and in connection therewith commissions may be paid to
brokers. Brokers participating in such transactions may act as agents for the
Selling Stockholders. The Selling Stockholders, and any brokers participating in
this offering may be deemed to be "underwriters" within the meaning of the
Securities Act, and any commissions received by them may be deemed to be
underwriting compensation.
LEGAL MATTERS
The legality of the securities to be offered hereby will be passed upon
for the Company by Michael Harris, P.A., 1645 Palm Beach Lakes Boulevard, West
Palm Beach, Florida 33401. Attorneys employed by that law firm are the
beneficial owners of 31,000 shares of Common Stock.
EXPERTS
The financial statements and schedules of Top Source Technologies, Inc.
incorporated by reference in this Prospectus and elsewhere in the registration
statement have been audited by Arthur Andersen LLP, independent certified public
accountants, as indicated in their report with respect thereto, and are
incorporated by reference herein in reliance upon the authority of said firm as
experts in accounting in giving said report. <PAGE>
No dealer, salesperson or other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus, and, if given or made, such information or representations must not
be relied upon as having been authorized by the Company or any of the Selling
Stockholders. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any security other than the securities offered
by this Prospectus, or an offer to sell or a solicitation of an offer to buy any
securities by any person in any jurisdiction in which such offer or solicitation
would be unlawful. Neither the delivery of this Prospectus nor any sale made
hereunder shall, under any circumstances, imply that the information in this
Prospectus is correct as of any time subsequent to the date of this Prospectus.
TABLE OF CONTENTS
Page
Available Information....................... __
Documents Incorporated by
Reference.................................. __
Risk Factors................................ __
Recent Developments......................... __
Pro Forma Condensed Financial
Information of the Company................ __
Selling Stockholders........................ __
Description of Series B Preferred
Stock and Warrants........................ __
Plan of Distribution........................ __
Legal Matters............................... __
Experts..................................... __
================================
================================
TOP SOURCE TECHNOLOGIES, INC.
1,085,937 Shares
of
Common Stock
----------------
Prospectus
----------------
, 1999
================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following table sets forth the various expenses in connection with
the issuance and distribution of the securities being registered. All of the
amounts shown are estimates except the Commission registration fee. Such
expenses will be paid by the Company. None of these expenses will be paid by the
Selling Stockholders.
Registration fee ....................................... $ 1,245.52
Printing expenses........................................ $ 100.00
Accounting fees and expenses................................. $10,000.00
Legal fees and expenses (other than Blue Sky)................ $20,000.00
Blue Sky fees and expenses................................... $ .00
Miscellaneous................................................ $ 654.48
------------
Total............................................. $32,000.00
==========
Item 15. Indemnification of Directors and Officers.
The Company's amended and restated certificate of incorporation
provides that the Company shall indemnify its current and former officers and
directors against expenses reasonably incurred by or imposed upon them in
connection with or arising out of any action, suit or proceeding in which they
may be involved or to which they may be made parties by reason of their being or
having been a director or officer of the Company, or at its request, of any
other corporation which it is a stockholder or creditor and from which such
officers and directors are not entitled to be indemnified by (whether or not
they continue to be directors or officers at the time of imposing or incurring
such expense), except in respect of matters as to which they shall be finally
adjudged in such action, suit or proceeding liable for negligence or misconduct.
In the event of settlement of any such action, suit or proceeding,
indemnification shall be provided only in connection with such matters covered
by the settlement as to which the Company is advised by counsel that the persons
to be indemnified did not commit a breach of duty. The foregoing right of
indemnification shall not be exclusive of other rights to which such persons may
be entitled.
In addition, the Company has entered into indemnification agreements
with its executive officers and directors. These agreements provide that the
Company shall indemnify its executive officers and directors, if by reason of
their corporate status, they are or are threatened to be made parties to any
third-party proceedings, to the fullest extent provided by Delaware law. The
agreements provide for indemnification against expenses, judgments, penalties,
fines and amounts paid in settlement, actually and reasonably incurred by them
or on their behalf in connection with such proceeding or any claim, issue or
matter therein if (i) they acted in good faith; (ii) they reasonably believed in
the case of conduct in their official capacity with the Company that their
conduct was in the Company's best interests or in all other cases, that their
conduct was at least not opposed to the Company's best interests; (iii) with
respect to any criminal proceeding, they had no reasonable cause to believe
their conduct was unlawful; and (iv) with respect to an employee benefit plan
they reasonably believed their conduct to be in the best interests of the
participants and/or beneficiaries of the plan. The indemnification agreements
also provide indemnification in direct and derivative actions provided such
officers or directors acted in good faith and in a manner they reasonably
believed to be not opposed to the best interests of the Company. Such officers
or directors are not entitled to indemnification in connection with any
proceeding charging improper personal benefits to such officers or directors,
whether or not involving action in their official capacity, in which they were
judged liable on the basis that personal benefit was improperly received by
them.
INSOFAR AS INDEMNIFICATION FOR LIABILITIES ARISING UNDER THE SECURITIES
ACT OF 1933 MAY BE PERMITTED TO DIRECTORS, OFFICERS OR PERSONS
CONTROLLING THE COMPANY PURSUANT TO THE FOREGOING PROVISIONS, THE
COMPANY HAS BEEN INFORMED THAT IN THE OPINION OF THE SECURITIES AND
EXCHANGE COMMISSION, SUCH INDEMNIFICATION IS AGAINST PUBLIC POLICY AS
EXPRESSED IN THE SECURITIES ACT AND IS THEREFORE UNENFORCEABLE.
<PAGE>
Item 16. Exhibits.
4. Form of Common Stock Certificate (1)
4.1 Second Certificate of Designation of Series A Convertible
Preferred (8)
4.2 Amendment to Second Certificate of Designation of Series A
Convertible Preferred(8)
4.3 Form of Class A Warrants (2)
4.4 Form of Private Securities Subscription Agreement (2)
4.5 Form of Class B Warrants
4.6 Form of Class C Warrants (6)
4.7 Form of Stock Purchase Agreement (Series B Preferred) (5)
4.8 Third Certificate of Designation (5)
5. Opinion of Michael Harris, P.A. (6)
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Michael Harris, P.A. (7)
99 Asset Purchase Agreement (3)
99.1 Amendment to Asset Purchase Agreement (4)
99.2 Amendment to Note Purchase Agreement (5)
99.3 Amendment to Loan and Security Agreement (6)
99.4 Second Amendment to Asset Purchase Agreement
(1) Contained in Registration Statement on Form 8-A filed
March 12, 1992.
(2) Contained in Form 10-Q for the period ended March 31,1998
filed on May 20, 1998 (Item 6, Exhibit 10.1).
(3) Contained in the Form 10-Q for the period ended June 30,
1998 filed on August 19, 1998 (Item 6, Exhibit 10.1).
(4) Contained in Proxy Statement dated November 6, 1998
(Appendix 1A)
(5) Contained in Form 10-K/A No. 1 for the year ended September
30, 1998
(6) Contained in Amendment No.4 to Form S-3 filed January 29,1999.
(7) Contained in Opinion of Michael Harris, P.A.
(8) Contained in Form 10-K for year ended September 30, 1998.
<PAGE>
Item 17. Undertakings.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration
statement:
(i) To include any Prospectus required by section
10(a)(3) of the Securities Act of 1933
(the "Securities Act");
(ii) To reflect in the Prospectus any facts or events
arising after the effective date of the registration
statement (or the most recent post-effective
amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the
information set forth in the registration statement;
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in
the registration statement or any material change to
such information in the registration statement;
Provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if
the information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the Registrant pursuant to Section 13 or Section 15(d) of the
Exchange Act that are incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bonafide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered, which remain unsold at the termination of
the offering.
(4) That, for purposes of determining any liability under the Securities Act,
each filing of the Registrant's annual report pursuant to section 13(a) or
section 15(d) of the Exchange Act that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
(5) The undersigned Registrant hereby undertakes to deliver or cause to be
delivered with the Prospectus, to each person to whom the Prospectus is
sent or given, the latest annual report to security holders that is
incorporated by reference in the Prospectus and furnished pursuant to and
meeting the requirements of Rule 14a-3 or Rule 14c-3 under the Exchange
Act; and, where interim financial information required to be presented by
Article 3 of Regulation S-X are not set forth in the Prospectus, to
deliver, or cause to be delivered to each person to whom the Prospectus is
sent or given, the latest quarterly report that is specifically
incorporated by reference in the Prospectus to provide such interim
financial information.
(6) Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions (see Item 15 above), or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act or 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirement for filing on Form S-3 and has duly caused this Amendment No. 5 to
Registration Statement on Form S-3 to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Palm Beach Gardens, State
of Florida, on this 21st day of May, 1999.
TOP SOURCE TECHNOLOGIES, INC.
By: /s/ William C. Willis, Jr.
William C. Willis, Jr.
(Chief Executive Officer)
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 5 to Registration Statement on Form S-3 has been signed by the
following persons in the capacities and on the dates indicated.
Name Title Date
/s/ William C. Willis, Jr. Director May 21, 1999
- --------------------------
William C. Willis, Jr.
/s/ David Natan Vice President and CFO May 21, 1999
- --------------------------
David Natan (Principal Financial and
Accounting Officer) and Director
/s/ Ronald Burd Director May 21, 1999
Ronald Burd
/s/ G. Jeff Mennen Director May 21, 1999
- --------------------------
G. Jeff Mennen
/s/ L. Kerry Vickar Director May ___, 1999
- --------------------------
L. Kerry Vickar
<PAGE>
EXHIBIT INDEX
Exhibit No.
4. Form of Common Stock Certificate (1)
4.1 Second Certificate of Designation of Series A Convertible
Preferred (8)
4.2 Amendment to Second Certificate of Designation of Series A
Convertible Preferred(8)
4.3 Form of Class A Warrants (2)
4.4 Form of Private Securities Subscription Agreement (2)
4.5 Form of Class B Warrants
4.6 Form of Class C Warrants (6)
4.7 Form of Stock Purchase Agreement (Series B Preferred) (5)
4.8 Third Certificate of Designation (5)
4.9 Amendment to Private Securities Subscription Agreement
5. Opinion of Michael Harris, P.A. (6)
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Michael Harris, P.A. (7)
99 Asset Purchase Agreement (3)
99.1 Amendment to Asset Purchase Agreement (4)
99.2 Amendment to Note Purchase Agreement (5)
99.3 Amendment to Loan and Security Agreement (6)
99.4 Second Amendment to Asset Purchase Agreement
(1) Contained in Registration Statement on Form 8-A filed
March 12, 1992.
(2) Contained in Form 10-Q for the period ended March 31,1998
filed on May 20, 1998 (Item 6, Exhibit 10.1).
(3) Contained in the Form 10-Q for the period ended June 30, 1998
filed on August 19, 1998 (Item 6, Exhibit 10.1).
(4) Contained in Proxy Statement dated November 6, 1998
(Appendix 1A)
(5) Contained in Form 10-K/A No. 1 for the year ended
September 30, 1998
(6) Contained in Amendment No.4 to Form S-3 filed
January 29, 1999.
(7) Contained in Opinion of Michael Harris, P.A.
(8) Contained in Form 10-K for year ended September 30, 1998.
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As Independent Public Accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made a part of this
Registration Statement.
ARTHUR ANDERSEN, LLP
West Palm Beach, Florida
May 21, 1999
EXHIBIT 4.5 FORM OF CLASS H WARRANTS
THIS WARRANT AND THE SECURITIES TO BE ISSUED UPON ITS EXERCISE HAVE NOT BEEN
REGISTERED WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION (THE
"COMMISSION") OR THE SECURITIES COMMISSION OF ANY STATE PURSUANT TO AN EXEMPTION
FROM REGISTRATION UNDER REGULATION D PROMULGATED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "1933 ACT"). THIS WARRANT MAY NOT BE EXERCISED BY OR ON
BEHALF OF ANY U.S. PERSON, UNLESS REGISTERED UNDER THE 1933 ACT, OR AN EXEMPTION
FROM SUCH REGISTRATION IS AVAILABLE. THIS WARRANT SHALL NOT CONSTITUTE AN OFFER
TO SELL NOR A SOLICITATION OF AN OFFER TO BUY THE WARRANT IN ANY JURISDICTION IN
WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL.
THIS WARRANT AND THE SECURITIES TO BE ISSUED UPON ITS EXERCISE MAY NOT BE SOLD,
PLEDGED, TRANSFERRED OR ASSIGNED BY OR TO ANY U.S. PERSON EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE 1933 ACT AND UNDER APPLICABLE STATE
SECURITIES LAWS, OR IN A TRANSACTION WHICH IS EXEMPT FROM REGISTRATION UNDER THE
PROVISIONS OF THE 1933 ACT AND UNDER PROVISIONS OF APPLICABLE STATE SECURITIES
LAWS; AND IN THE CASE OF AN EXEMPTION, ONLY IF THE COMPANY HAS RECEIVED AN
OPINION FROM COUNSEL THAT SUCH TRANSACTION DOES NOT REQUIRE REGISTRATION OF THE
SECURITIES.
STOCK PURCHASE WARRANT
No. __
TO PURCHASE ______ SHARES OF COMMON STOCK OF
TOP SOURCE TECHNOLOGIES, INC.
THIS CERTIFIES that, for value received, _____________________________, located
at _______________, _______, _______, ____________ (the "Investor"), is
entitled, upon the terms and subject to the conditions hereinafter set forth, at
any time on or after November 16, 1998 and on or prior to November 16, 2003 (the
"Termination Date") but not thereafter, to subscribe for and purchase from TOP
SOURCE TECHNOLOGIES, INC., a corporation incorporated in the State of Delaware
(the "Company"), ____________________________ shares (the "Warrant Shares") of
Common Stock, $.001 value per share of the Company (the "Common Stock"). The
purchase price of one share of Common Stock (the "Exercise Price") under this
Warrant shall be equal to $.8937. The Exercise Price and the number of shares
for which the Warrant is exercisable shall be subject to adjustment as provided
herein. This Warrant is being issued in connection with the Letter Agreement
dated November 16, 1998 modifying the terms and conditions of the Series A 5%
Convertible Preferred Stock (the "Agreement") and is subject to its terms and
conditions.
1. Title of Warrant. Prior to the expiration hereof and subject to compliance
with applicable laws, this Warrant and all rights hereunder are transferable, in
whole or in part, at the office or agency of the Company by the holder hereof in
person or by duly authorized attorney, upon surrender of this Warrant together
with the Assignment Form annexed hereto properly endorsed.
2. Authorization of Shares. The Company covenants that all shares of Common
Stock which may be issued upon the exercise of rights represented by this
Warrant will, upon exercise of the rights represented by this Warrant and full
payment of the Exercise Price, be duly authorized, validly issued, fully paid
and nonassessable and free from all taxes, liens and charges in respect of the
issue thereof (other than taxes in respect of any transfer occurring
contemporaneously with such issue).
3. Exercise of Warrant. Except as provided in Section 11 herein, exercise of the
purchase rights represented by this Warrant may be made in whole or in part at
any time ending before the close of business on the Termination Date, or such
earlier date on which this Warrant may terminate as provided in this Warrant, by
the surrender of this Warrant and the Notice of Exercise Form annexed hereto
duly executed, at the office of the Company (or such other office or agency of
the Company as it may designate by notice in writing to the registered holder
hereof at the address of such holder appearing on the books of the Company) and
upon payment of the Exercise Price of the shares thereby purchased; whereupon
the holder of this Warrant shall be entitled to receive a certificate for the
number of shares of Common Stock so purchased. Certificates for shares purchased
hereunder shall be delivered to the holder hereof within four (4) business days
after the date on which this Warrant shall have been exercised as aforesaid, or
be subject to the damages set forth in the Agreement. Payment of the Exercise
Price may be by certified check or cashier's check or by wire transfer to an
account designated by the Company in an amount equal to the Exercise Price
multiplied by the number of Warrant Shares.
4. No Fractional Shares or Script. No fractional shares or scrip representing
fractional shares shall be issued upon the exercise of this Warrant. Fractional
Shares shall be rounded down as provided for in Section 5(g) of the Certificate
of Designation.
5. Charges, Taxes and Expenses. Issuance of certificates for shares of Common
Stock upon the exercise of this Warrant shall be made without charge to the
holder hereof for any issue or transfer tax or other incidental expense in
respect of the issuance of such certificate, all of which taxes and expenses
shall be paid by the Company, and such certificates shall be issued in the name
of the holder of this Warrant or in such name or names as may be directed by the
holder of this Warrant; provided, however, that in the event certificates for
shares of Common Stock are to be issued in a name other than the name of the
holder of this Warrant, this Warrant when surrendered for exercise shall be
accompanied by the Assignment Form attached hereto duly executed by the holder
hereof, and provided further, that upon any transfer involved in the issuance or
delivery of any certificates for shares of Common Stock, the Company may
require, as a condition thereto, the payment of a sum sufficient to reimburse it
for any transfer tax incidental thereto.
6. Closing of Books. Unless otherwise required by law or the principal trading
market for the Company's Common Stock, the Company will not close its
shareholder books or records in any manner which prevents the timely exercise of
this Warrant for a period of time in excess of five (5) trading days per year.
7. No Rights as Shareholder until Exercise. This Warrant does not entitle the
holder hereof to any voting rights or other rights as a shareholder of the
Company prior to the exercise thereof. Upon the surrender of this Warrant and
the payment of the aggregate Exercise Price, the Warrant Shares so purchased
shall be, and be deemed to be, issued to such holder as the record owner of such
shares as of the close of business on the later of the date of such surrender or
payment.
8. Assignment and Transfer of Warrant. This Warrant may be assigned by the
surrender of this Warrant and the Assignment Form annexed hereto duly executed
at the office of the Company (or such other office or agency of the Company as
it may designate by notice in writing to the registered holder hereof at the
address of such holder appearing on the books of the Company); provided,
however, that the Company may require, as a condition thereto, the payment of a
sum sufficient to reimburse it for any expenses of transfer incidental thereto
and that this Warrant may not be resold or otherwise transferred except (I) in a
transaction registered under the Securities Act of 1933 (the "Securities Act"),
or (ii) in a transaction pursuant to an exemption, if available, from such
registration and whereby, if requested by the Company, an opinion of counsel
reasonably satisfactory to counsel for the Company is obtained by the holder of
this Warrant to the effect that the transaction is so exempt.
9. Loss, Theft, Destruction or Mutilation of Warrant. The Company represents and
warrants that upon receipt by the Company of evidence reasonably satisfactory to
it of the loss, theft, destruction or mutilation of this Warrant certificate or
any stock certificate relating to the Warrant Shares, and in case of loss, theft
or destruction, of indemnity or security reasonably satisfactory to it, and upon
reimbursement to the Company of all reasonable expenses incidental thereto, and
upon surrender and cancellation of such Warrant or stock certificate, if
mutilated, the Company will make and deliver a new Warrant or stock certificate
of like tenor and dated as of such cancellation, in lieu of such Warrant or
stock certificate.
10. Saturdays, Sundays, Holidays, etc. If the last or appointed day for the
taking of any action or the expiration of any right required or granted herein
shall be a Saturday, Sunday or a legal holiday in the State of New York, then
such action may be taken or such right may be exercised on the next succeeding
day not a legal holiday.
11. Effect of Certain Events.
(a) If at any time the Company proposes (i) to sell or otherwise convey all or
substantially all of its assets or (ii) to effect a transaction (by merger or
otherwise) in which more than 50% of the voting power of the Company is disposed
of (collectively, a "Sale or Merger Transaction"), in which the consideration to
be received by the Company or its shareholders consists solely of cash, then the
Warrant shall terminate if the Warrant has not been exercised by the effective
date of such Sale or Merger transaction, the Company shall give the holder of
this Warrant thirty (30) days notice of such termination and of the proposed
effective date of the Sale or Merger transaction.
(b) In case the Company shall at any time effect a Sale or Merger Transaction in
which the consideration to be received by the Company or its shareholders
consists in whole or in part of consideration other than cash, the holder of
this Warrant shall have the right thereafter to purchase, by exercise of this
Warrant and payment of the aggregate Exercise Price in effect immediately prior
to such action, the kind and amount of shares and other securities and property
which it would have owned or have been entitled to receive after the happening
of such Sale or Merger transaction had this Warrant been exercised immediately
prior thereto.
(c) "Piggy-Back" Registration.
(i) The holder of this Warrant shall have the right to include all of the
Warrant Shares (the "Registrable Securities") as part of any registration of
securities filed by the Company (other than in connection with a transaction
contemplated by Rule 145(a) promulgated under the Securities Act or pursuant to
Forms S-4 or S-8) and must be notified in writing of such filing. The holder
shall have five (5) business days to notify the Company in writing as to whether
the Company is to include holder's Registrable Securities as part of the
registration; provided, however, that if any registration pursuant to this
Section shall be underwritten, in whole or in part, the Company may require that
the Registrable Securities requested for inclusion pursuant to this Section be
included in the underwriting on the same terms and conditions as the securities
other-wise being sold through the underwriters. If in the good faith judgment of
the underwriter of such offering only a limited number of Registrable Securities
should be included in such offering, or no such shares should be included, the
holder of such Registrable Securities, and any other selling stockholders, shall
be reduced, such reduction to be applied by excluding (on a pro rata basis)
Registrable Securities proposed to be sold by the holder of this Warrant and
shares proposed to be sold by all other persons. Those Registrable Securities
which are not included in an underwritten offering pursuant to the foregoing
provisions of this Section (and all other Registrable Securities held by the
selling stockholders) shall be withheld from the market by the Holders thereof
for a period, not to exceed ninety (90) days, which the underwriter may
reasonably determine-nine is necessary in order to effect such underwritten
offering, and the Holder shall sign any agreement to this effect requested by
such underwriter. Notwithstanding the foregoing provisions, the Company may
withdraw any registration statement without incurring any liability to the
holders of Registrable Securities.
(ii) The registration rights set forth in Section 11(c)(i) shall cease upon the
earliest of (A) the effective registration under the Securities Act of all of
the Registrable Securities and the disposal of such securities pursuant to such
registration, (B) registration under the Securities Act is no longer required
for the immediate public distribution of such security as a result of the
provisions of Rule 144 promulgated under the Securities Act, or (C) such
Registrable Securities cease to be outstanding.
12. Adjustments-of Exercise Price and Number of Warrant Shares. The number and
kind of securities purchasable upon the exercise of this Warrant and the
Exercise Price shall be subject to adjustment from time to time upon the
happening of any of the following.
In case the Company shall (i) declare or pay a dividend in shares of Common
Stock or make a distribution in shares of Common Stock to holders of its
outstanding Common Stock, (ii) subdivide its outstanding shares of Common Stock,
(iii) combine its outstanding shares of Common Stock into a smaller number of
shares of Common Stock or (iv) issue any shares of its capital stock in a
reclassification of the Common Stock, then the number of Warrant Shares
purchasable upon exercise of this Warrant immediately prior thereto shall be
adjusted so that the holder of this Warrant shall be entitled to receive the
kind and number of Warrant Shares or other securities of the Company which he
would have owned or have been entitled to receive had such Warrant been
exercised in advance thereof Upon each such adjustment of the kind and number of
Warrant Shares or other securities of the Company which are purchasable
hereunder, the holder of this Warrant shall thereafter be entitled to purchase
the number of Warrant Shares or other securities resulting from such adjustment
at an Exercise Price per such Warrant Share or other security obtained by
multiplying the Exercise Price in effect immediately prior to such adjustment by
the number of Warrant Shares purchasable pursuant hereto immediately prior to
such adjustment and dividing by the number of Warrant Shares or other securities
of the Company resulting from such adjustment. An adjustment made pursuant to
this paragraph shall become effective immediately after the effective date of
such event retroactive to the record date, if any, for such event.
13. Voluntary Adjustment by the Company. The Company may at any time during the
term of this Warrant, reduce the then current Exercise Price to any amount and
for any period of time deemed appropriate by the Board of Directors of the
Company.
14. Notice of Adjustment. Whenever the number of Warrant Shares or number or
kind of securities or other property purchasable upon the exercise of this
Warrant or the Exercise Price is adjusted, as herein provided, the Company shall
promptly mail by registered or certified mail, return receipt requested, to the
holder of this Warrant notice of such adjustment or adjustments setting forth
the number of Warrant Shares (and other securities or property) purchasable upon
the exercise of this Warrant and the Exercise Price of such Warrant Shares (and
other securities or property) after such adjustment, setting forth a brief
statement of the facts requiring such adjustment and setting forth the
computation by which such adjustment was made. Such notice, in absence of
manifest error, shall be conclusive evidence of the correctness of such
adjustment.
15. Authorized Shares. The Company covenants that during the period the Warrant
is outstanding, it will reserve from its authorized and unissued Common Stock a
sufficient number of shares to provide for the issuance of the Warrant Shares
upon the exercise of any purchase rights under this Warrant. The Company further
covenants that its issuance of this Warrant shall constitute full authority to
its officers who are charged with the duty of executing stock certificates to
execute and issue the necessary certificates for the Warrant Shares upon the
exercise of the purchase rights under this Warrant. The Company will take all
such reasonable action as may be necessary to assure that such Warrant Shares
may be issued as 'provided herein without violation of any applicable law or
regulation, or of any requirements of prove the NASDAQ Stock Market or any
domestic securities exchange upon which the Common Stock may be listed.
16. Miscellaneous.
(a) Issue Date, Jurisdiction. The provisions of this Warrant shall be construed
and shall be given effect in all respects as if it had been issued and delivered
by the Company on the date hereof This Warrant shall be binding upon any
successors or assigns of the Company. This Warrant shall constitute a contract
under the laws of the State of Delaware, without regard to its conflict of law,
principles or rules. This Agreement and any dispute, disagreement, or issue of
construction or interpretation arising hereunder whether relating to its
execution, its validity, the obligations provided herein or performance shall be
governed or interpreted according to the internal laws of the State of Delaware
without regard to choice of law considerations. The courts of the State of
Delaware shall have exclusive jurisdiction over any cause or controversy arising
under the terms of this Agreement or between the parties as the result of any
act taken or failure to act not taken by either party pursuant to this
Agreement.
(b) Restrictions. The holder hereof acknowledges that the Warrant Shares
acquired upon the exercise of this Warrant, if not registered, will have
restrictions upon resale imposed by state and federal securities laws.
(c) Modification and Waiver. This Warrant and any provisions hereof may be
changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of the same is sought.
(d) Notices. Any notice, request or other document required or permitted to be
given or delivered to the holders hereof by the Company shall be delivered or
shall be sent by certified or registered mail, postage prepaid, to each such
holder at its address as shown on the Books of the Company or to the Company at
the address set forth in the Agreement.
(e) Capitalized Terms. All capitalized terms not otherwise defined herein shall
have the meaning assigned to them in the Agreement.
(d) Entire Agreement. This Warrant, together with all documents referenced
herein, embody the entire agreement and understanding between the parties hereto
with respect to the subject matter hereof and supersedes all prior oral or
written agreements and understandings relating to the subject matter hereof. No
statement, representation, warranty, covenant or agreement of any kind not
expressly set forth in this Agreement shall affect, or be used to interpret,
change or restrict, the express terms and provisions of this Agreement.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its
officer thereunto duly authorized.
Dated: November __, 1998 TOP SOURCE TECHNOLOGIES, INC.
By:________________________________
David Natan, Vice President of
Finance
Exhibit 4.9
March 30, 1999
VIA FACSIMILE NUMBER (561) 691-5220
Mr. David Natan, Vice President
Chief Financial Officer
Top Source Technologies, Inc.
7108 Fairway Drive
Suite 200
Palm Beach Gardens, FL 33418
Dear David:
RE: $350,000./00 Series A Preferred Stock
Please be advised I am writing this Letter Agreement on behalf of Excalibur
Limited Partnership and Gundyco in Trust. This will confirm our agreement
wherein Excalibur will convert the outstanding $350.,000.00 of Series A
Preferred to common stock at a price of $1.00 per share, totaling 350,000
shares. Excalibur will purchase from Gundyco its $105,000 Series A preferred for
an amount of $126,000.00.
I wish to further confirm that Excalibur will agree to a 6 month lock up on
these shares, and thereafter, agree not to sell these shares at a rate of more
than 20% per month.
I further confirm that Top source will continue to register all shares and
warrants pursuant to the Registration Rights Agreement which is presently in
effect between the parties in question.
Kindly instruct your transfer agent to issue the 350,000 shares in the name of
Excalibur Limited Partnership, and please deliver them to my attention.
Thank you for all your consideration.
Sincerely yours,
William S. Hechter
/jmg
I hereby agree to the contents of this Letter Agreement dated March 30th, 1999.
Top Source Technologies, Inc. Gundyco in Trust
Per:__________________ Per: ______________
David Natan, Vice President Mark Shoom
Chief Financial Officer
VIA FACSIMILE NUMBER (203) 348-4106
March 30, 1999
Mr. Michael J. Parrella
President
NCT Audio Products, Inc.
One Dock Street, Suite 100
Stamford, CT 06902
RE: Top Source Technologies, Inc./NCT Audio Products, Inc.
Dear Mr. Parrella:
Extension Terms
This letter confirms our recent discussions to the effect that NCT
Audio Products, Inc. ("NCT") will not be able to close on its proposed purchase
of the assets of Top Source Automotive, Inc. ("TSA") by March 31, 1999. In order
to maintain the exclusive right to purchase the assets of TSA, NCT shall pay to
TSA the total sum of $350,000 (the "Extension Fee") on or before 5:00 p.m. Miami
time on March 30, 1999. This Extension Fee consists of (i) a $204,315 Note; (ii)
$20,685 currently held in escrow for the benefit of NCT and (iii) $125,000 of
TSA minority equity earnings. If NCT pays the Note by 5:00 p.m. April 16, 1999
and closes the transaction by May 28, 1999, the Extension Fee shall be credited
in full against the $6,500,000 balance due at closing. If NCT fails to pay the
Note by April 16, 1999 or fails to close the transaction by May 28, 1999,
certain penalties will apply. See Penalty Provisions below. As an option premium
and not part of the Extension Fee, NCT shall deliver to TSA as promptly as
possible $100,000 of NCT's convertible preferred stock, which stock shall not be
credited toward the balance of $6,500,000 due to TSA or otherwise credited. The
number of shares of Convertible Preferred Stock comprising the $100,000 will be
determined based upon a valuation of NCT Audio by its primary investors and/or
underwriters. It is the intent of the parties that this convertible preferred
stock shall be a premium for granting the extension and shall be retained by TSA
regardless of whether the transaction closes on May 28, 1999 or any time
thereafter, or if at all. In exchange for the Extension Fee and Preferred Stock
consideration, NCT shall retain the exclusive right to purchase the assets of
TSA until 5:00 p.m. Miami time on May 28, 1999.
<PAGE>
Penalty Provisions
Penalty Provisions, if the Following Events Occur:
1. Failure to pay the Note by April 16, 1999.
a. The Note will be begin to accrue interest on April
17, 1999 at the rate of two times prime rate or the
highest rate allowable by law, whichever is lowest.
b. In the event that the Note is not paid by April 16,
1999, the $20,685 and $125,000 portion of the
Extension Fee shall no longer be credited toward the
$6,500,000 closing amount due. This provision shall
apply even if the transaction closes by May 28, 1999.
2. Failure to Pay the Note by April 30, 1999.
In addition to Penalty Provision (1. b.) above, in the event
the Note and accrued interest is not paid by April 30, 1999,
the $204,315 portion of the Extension Fee shall no longer be
credited toward the $6,500,000 closing amount due. This
provision shall apply even if the transaction closes by May
28, 1999.
3. Failure to Pay the Note Prior to Closing.
In the event the Note is not paid prior to closing, it shall
be added along with accrued interest to the $6,500,000 due at
closing. Therefore, the amount due at closing will be
$6,704,315, plus accrued interest.
4. Failure to Close by May 28, 1999.
a. If NCT fails to close the transaction by May 28,
1999, the $350,000 Extension Fee shall be retained by
TSA and shall not be refundable or convertible into
TSA equity.
b. If the transaction does not close by May 28, 1999 and
the Note has not been paid, the Note and any accrued
interest will remain payable in full to the Company.
c. If the transaction has not closed by May 28, 1999,
NCT will forfeit its minority earnings in TSA for the
period June 1, 1999 through May 30, 2000.
NCT assigns to TSA the sum of $20,685 in escrow and directs the escrow
agent to pay TSA. In addition, all of the consideration received by TSA may be
assigned by it to its principal stockholder, Top Source Technologies Inc., the
("Company") and in doing so, NCT shall have no claim to such consideration
notwithstanding its status of an owner of 20% of the common stock of TSA.
This letter agreement amends the asset purchase agreement the
("Agreement") entered into as of August 14, 1998 by and among the Company, TSA,
NCT and Noise Cancellation Technologies, Inc., which Agreement was amended on
October 7, 1998. Except as specifically provided by the amendment of October 7,
1998 and this letter agreement, in all other respects the Agreement is ratified
and confirmed.
Please confirm your agreement to the above terms by signing in place
indicated below.
Very truly yours,
-----------------------------
William C. Willis, Jr.
Chairman, President and CEO
On behalf of:
Top Source Technologies, Inc. and
Top Source Automotive, Inc.
We hereby agree to the foregoing amendment.
NCT Audio Products, Inc.
By: ________________________
Michael J. Parrella
President
