<PAGE> 1
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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(MARK ONE)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended February 28, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________ to ____________
COMMISSION FILE NUMBER 0-20866
WILSHIRE TECHNOLOGIES, INC.
(Exact name of small business issuer as specified in its charter)
<TABLE>
<S> <C>
CALIFORNIA 33-0433823
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
</TABLE>
5861 EDISON PLACE
CARLSBAD, CALIFORNIA 92008
(Address of principal executive offices)
(760) 929-7200
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes [X] No
[ ]
The number of shares outstanding of the registrant's only class of Common
Stock, no par value, was 12,943,385 on March 31, 1998.
Transitional Small Business Disclosure Format. Yes [ ] No [X]
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WILSHIRE TECHNOLOGIES, INC.
INDEX TO FORM 10-QSB
PART 1 - FINANCIAL INFORMATION PAGE
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets as of 3
February 28, 1998 and November 30, 1997
Condensed Consolidated Statements of Operations 4
for the Quarters Ended February 28, 1998 and
February 28, 1997
Condensed Consolidated Statements of Cash Flows 5
for the Quarters Ended February 28, 1998 and
February 28, 1997
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis or Plan of Operation 8
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 2. Changes in Securities 11
Item 3. Defaults Upon Senior Securities 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
2
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WILSHIRE TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
February 28, November 30,
1998 1997
------------ ------------
<S> <C> <C>
ASSETS (Note 4) (Unaudited) (Note)
Current assets:
Cash $ 91,000 $ 137,000
Accounts receivable trade, less allowance for doubtful
accounts of $5,000 at February 28, 1998
and November 30, 1997, respectively 490,000 335,000
Inventories (Note 2) 1,227,000 1,037,000
Current portion of note receivable (Note 3) 206,000 198,000
Other current assets 272,000 262,000
------------ ------------
Total current assets 2,286,000 1,969,000
Property and equipment, less accumulated depreciation
of $824,000 and $778,000 at February 28, 1998 and
November 30, 1997, respectively 2,194,000 1,293,000
Note receivable from the sale of discontinued business
less current portion (Note 3) 59,000 111,000
Goodwill, less accumulated amortization of $334,000
and $323,000 at February 28, 1998 and November 30,
1997, respectively 408,000 419,000
Patents and trademarks, net 118,000 115,000
------------ ------------
$ 5,065,000 $ 3,907,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
Current liabilities:
Accounts payable $ 1,573,000 $ 625,000
Accrued expenses 309,000 372,000
Interest payable 457,000 330,000
Line of credit (Note 4) 4,500,000 3,750,000
------------ ------------
Total current liabilities 6,839,000 5,077,000
Shareholders' equity (net capital deficiency)
Preferred stock, no par value, 2,000,000 shares authorized
and none issued and outstanding -- --
Common stock, no par value, 50,000,000 shares
authorized; 12,943,385 shares issued and
outstanding at February 28, 1998 and
November 30, 1997 25,907,000 25,907,000
Common stock warrants 301,000 301,000
Accumulated deficit (27,982,000) (27,378,000)
------------ ------------
Total shareholders' equity (net capital deficiency) (1,774,000) (1,170,000)
------------ ------------
$ 5,065,000 $ 3,907,000
============ ============
</TABLE>
Note: The condensed consolidated balance sheet at November 30, 1997 has
been derived from the audited financial statements at that date but
does not include all of the information and footnotes required by
generally accepted accounting principles for complete financial
statements.
See accompanying notes.
3
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WILSHIRE TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Quarters Ended February 28,
--------------------------------
1998 1997
------------ ------------
<S> <C> <C>
Net sales $ 1,053,000 $ 591,000
Cost of sales 959,000 518,000
------------ ------------
Gross profit 94,000 73,000
Operating expenses:
Marketing and selling 130,000 124,000
General and administrative 372,000 263,000
Research and development 74,000 63,000
------------ ------------
Total operating expenses 576,000 450,000
------------ ------------
Loss from operations (482,000) (377,000)
Other income 1,000 --
Interest income (expense), net (122,000) (48,000)
------------ ------------
Loss before provision
for state income taxes (603,000) (425,000)
Provision for state income taxes - current 1,000 1,000
------------ ------------
Net loss $ (604,000) $ (426,000)
============ ============
Weighted average shares outstanding 12,943,000 12,943,000
============ ============
Basic and diluted loss per share $ (0.05) $ (0.03)
============ ============
</TABLE>
See accompanying notes.
4
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WILSHIRE TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Quarters Ended February 28,
-----------------------------
1998 1997
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (604,000) $ (426,000)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 59,000 57,000
Provision for loss on accounts receivable -- 1,000
Net change in operating assets and liabilities:
(Increase) decrease in accounts receivable (155,000) 288,000
Increase in inventories (190,000) (163,000)
Increase in other current assets (10,000) (55,000)
Increase (decrease) in accounts payable and
accrued expenses 885,000 (69,000)
Increase in interest payable 127,000 53,000
------------ ------------
Net cash provided by (used in) operating activities 112,000 (314,000)
------------ ------------
INVESTING ACTIVITIES
Purchase of equipment (947,000) (8,000)
Decrease in note receivable from sale of discontinued operations 44,000 43,000
Increase in other assets (5,000) (7,000)
------------ ------------
Net cash provided by (used in) investing activities (908,000) 28,000
------------ ------------
FINANCING ACTIVITIES
Proceeds from line of credit 750,000 250,000
------------ ------------
Net cash provided by financing activities 750,000 250,000
------------ ------------
NET INCREASE (DECREASE) IN CASH (46,000) (36,000)
CASH - BEGINNING OF PERIOD 137,000 189,000
------------ ------------
CASH - END OF PERIOD $ 91,000 $ 153,000
============ ============
</TABLE>
See accompanying notes.
5
<PAGE> 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Wilshire Technologies, Inc. (the "Company") develops, manufactures and markets
engineered polymer products for industrial clean room use. The Company, based in
Carlsbad, California, markets products through its Wilshire Contamination
Control Division, and manufactures certain of its products in its wholly-owned
Mexican subsidiary, Wilshire International de Mexico S.A. de C.V. During 1996,
the Company divested its Medical Products and Transdermal Products divisions and
has since focused primarily on products used in industrial clean rooms, such as
gloves and contamination control products.
BASIS OF PRESENTATION
The accompanying condensed consolidated unaudited financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB for quarterly
reports under Section 13 or 15(d) of the Securities Exchange Act of 1934.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the quarter ended February 28, 1998 are not necessarily
indicative of the results that may be expected for the fiscal year ending
November 30, 1998. For further information, refer to the financial statements
and footnotes thereto included in the Company's annual report on Form 10-KSB for
the fiscal year ended November 30, 1997.
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiary. Significant intercompany amounts and transactions
have been eliminated.
"During the period ending February 28, 1998, the Company adopted Statement of
Financial Standards (SFAS) No. 128, Earnings Per Share. The adoption of this
statement did not have a material impact since the Company has reported losses
and the impact of common stock equivalents is not included in the net loss per
share calculations as their effect is anti-dilutive or not required."
2. FINANCIAL STATEMENT INFORMATION
Inventories consist of the following:
<TABLE>
<CAPTION>
FEBRUARY 28, NOVEMBER 30,
1998 1997
------------ ------------
<S> <C> <C>
Raw materials $ 210,000 $ 156,000
Work in process 285,000 265,000
Finished goods 732,000 616,000
------------ ------------
$ 1,227,000 $ 1,037,000
============ ============
</TABLE>
6
<PAGE> 7
3. NOTE RECEIVABLE
"In March, 1996, the Board of Directors authorized management to proceed with
the sale of the assets of the Medical Products division which was completed on
June 30, 1996, pursuant to a Purchase of Assets and Assumptions of Sublease
Agreement with Acacia Laboratories of Texas, Inc. The disposition of this
business has been accounted for as a discontinued operation. Pursuant to the
sale of its Medical Products division, the Company received a $540,000 secured
note, payable over 36 months, and bearing interest at a rate of 5% per annum."
4. LINE OF CREDIT
On January 5, 1996, the Company and Trilon Dominion Partners LLC ("Trilon
Dominion") entered into a Credit Agreement (the "Agreement") for a credit line
of $1,000,000 secured by the Company's assets. Under the terms of the Agreement,
the principal was due on June 30, 1996 and the interest was payable monthly at a
rate of prime plus 3.75%. In connection with the loan, the Company issued Trilon
Dominion a five-year warrant that entitles Trilon Dominion to purchase 100,000
shares of the Company's authorized but unissued common stock at an exercise
price of $0.75 per share, subject to adjustment to protect against dilution. The
warrant is exercisable immediately and expires on January 5, 2001. Also, under
the terms of the Agreement, the Company issued Trilon Dominion a second
five-year warrant which became exercisable when the Company extended the
termination date of the Agreement to December 31, 1996. The second warrant
entitles Trilon Dominion to purchase 25,000 shares of the Company's authorized
but unissued common stock at an exercise price equal to the closing price on
June 30, 1996, which was $1.75 per share and it expires on January 5, 2001.
The Agreement was amended further on September 30, 1996, April 15, 1997, and
September 19, 1997. Each amendment increased the credit line by $1,000,000, up
to a total of $4,000,000, and extended the termination date, up to the current
termination date of June 30, 1998. Trilon Dominion received a warrant to
purchase 100,000 shares at the market price with each credit line increase, and
a warrant to purchase 25,000 shares at the market price with each termination
date extension. Warrants for 225,000 shares were issued in each of fiscal years
1996 and 1997. The Company recorded the estimated fair value of the warrants
issued in fiscal year 1997 at $0.07 per underlying common share with a
corresponding charge to earnings of $16,000 in fiscal 1997.
On January 7, 1998, February 17, 1998, and March 10, 1998, the Company and
Trilon Dominion completed Demand Notes, each for $250,000 at an interest rate of
12.25%, to fund the Company's on going operations until a new credit facility
could be completed.
On March 31, 1998 the Company and Trilon Dominion completed an Amended and
Restated Credit Agreement and Revolving Line of Credit (the "Amended Agreement")
which included the principal of $4,000,000 from the previous Agreement and
Amendments, the principal of $750,000 from the three Demand Notes, the accrued
interest and management fees of $543,297 on the Agreement and Notes, and a new
credit line commitment of $2,200,000. Under the terms of the Amended Agreement,
the principal of $7,493,297 is due on December 31, 1998, and the interest is
payable quarterly at an annual rate of 11.5%. In connection with the Amended
Agreement, the Company issued Trilon Dominion a five-year warrant that entitles
Trilon Dominion to purchase 650,000 shares of the Company's authorized but
unissued common stock at an exercise price of $0.41 per share, subject to
adjustment to protect against dilution. The warrant is exercisable immediately
and expires on March 31, 2003. Also, under the terms of the Amended Agreement,
the Company issued Trilon Dominion a second five-year warrant which will become
exercisable if the Company does not pay the principal and interest due on
December 31, 1998 and expires on March 31, 2003. The second warrant entitles
Trilon Dominion to purchase 250,000 shares of the Company's authorized but
unissued common stock at an exercise price equal to the market price on December
31, 1998.
7
<PAGE> 8
5. COMMITMENTS AND CONTINGENCIES
BREAST IMPLANT LITIGATION
During the first quarter of 1998, there have been no significant developments in
the Breast Implant Litigation. For information regarding legal proceedings,
refer to the information contained in the Company's Annual Report on Form 10-KSB
for the fiscal year ended November 30, 1997, under Note 6 to the financial
statements included therein.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
During the first quarter of 1998, the Company's glove equipment suppliers
completed construction of most of the glove production line and prepared it for
shipment to the Company's manufacturing facility in Tijuana, Mexico. Also, the
Company completed an Amended Credit Agreement with Trilon Dominion which
provides funds for the purchase of the glove production equipment and the
Company's working capital requirements. (See Note 4 to the financial
statements.)
In the second quarter, the Company and representatives of the glove equipment
suppliers will install the glove production line in the Company's Tijuana
facility. The line is expected to be operational in the third quarter of 1998.
In addition, the Company expects sales of its contamination control products to
increase, based on a new six-month purchase order from a major computer disk
drive manufacturer for UltraSOLV(TM) Rollers.
From time to time the Company may report, through its press releases and/or
Securities and Exchange Commission filings, certain forward-looking statements
that are subject to risks and uncertainties. Important factors that could cause
actual results to differ materially from those projected by such forward-looking
statements are set forth in Exhibit 99 to the Company's Annual Report on Form
10-KSB for the fiscal year ended November 30, 1996. These include operating
losses, liquidity, reliance on major distributors, new product development,
competition, technological change, patents, trade secrets, product liability,
dependence on key suppliers, and dependence on key personnel.
8
<PAGE> 9
RESULTS OF OPERATIONS
NET SALES
The Company markets its products directly to end users through an internal sales
force utilizing outside distributors. Revenue for all sales is recognized when
title transfers, generally when products are shipped.
Net Sales increased by $462,000 (78.2%) to $1,053,000 in the first quarter of
1998 from $591,000 in the first quarter of 1997 primarily due to increased
shipments of contamination control wipers. Sales for the first quarter of 1997
were adversely affected by an abnormal inventory reduction by a major
distributor of contamination control wipers.
GROSS PROFIT
Gross profit increased by $21,000 to $94,000 in the first quarter of 1998 from
$73,000 in the first quarter of 1997 primarily due to increased sales of
contamination control products offset by increased costs related to the new
glove manufacturing facility and a wiper supplier price increase in 1997. Gross
profit margin as a percent of sales decreased to 8.9% in the first quarter of
1998 from 12.4% in the first quarter of 1997. Excluding the impact of the
supplier price increase and the glove sales and the related cost of sales on
gross profit, the gross profit margin as a percent of sales increased to 26.6%
in the first quarter of 1998 from 25.5% in the first quarter of 1997.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses include additional costs related to
the Company's marketing activities and administrative costs (such as executive
and office salaries, related payroll expenses, investor relations, professional
fees, supplies and utilities).
Selling, general and administrative expenses increased by $115,000 (29.7%) to
$502,000 in the first quarter of 1998 from $387,000 in the first quarter of 1997
primarily due to additional personnel expenses, increased professional fees, and
the timing of expenses related to the annual Shareholders meeting.
RESEARCH AND DEVELOPMENT
Research and development expenses increased $11,000 (17.5%) to $74,000 in the
first quarter of 1998 from $63,000 in the first quarter of 1997, primarily due
to increased project expenses. As a percentage of sales, research and
development expenses were 7.0% in the first quarter of 1998, compared to 10.7%
in the first quarter of 1997.
INTEREST INCOME (EXPENSE), NET
The Company reported higher interest expense in the first quarter of 1998 versus
the same period of 1997 due to increased debt outstanding. The interest expense
was related primarily to the line of credit due to Trilon Dominion Partners,
LLC. (see Note 4).
INCOME TAXES
For the quarters ended February 28, 1998 and February 28, 1997, the Company
sustained losses for both financial reporting and income tax purposes. A tax
provision of $1,000 related to state income taxes was recorded in the financial
statements for 1998 and 1997.
9
<PAGE> 10
LIQUIDITY AND CAPITAL RESOURCES
Management assesses the Company's liquidity by its ability to generate cash to
fund its operations. Significant factors in the management of liquidity are:
funds generated by operations; levels of accounts receivable, inventories,
accounts payable and capital expenditures; adequate lines of credit; and
financial flexibility to attract long-term capital on satisfactory terms.
During 1997 and the first quarter of 1998, the Company has not generated
sufficient cash from operations to fund its working capital and equipment
purchase requirements. Net cash provided by operating activities was $112,000 in
the first quarter of 1998 versus net cash used in operating activities of
$314,000 in the first quarter of 1997. The increase in the cash provided by
operating activities was primarily due to an equipment invoice for $723,000 in
accounts payable at the end of the quarter, which was subsequently paid.
Net cash used in investing activities was $908,000 in the first quarter of 1998,
versus net cash provided by investing activities of $28,000 in the first quarter
of 1997. The increase in cash used resulted from the purchase of glove
production equipment.
Net cash provided by financing activities was $750,000 in the first quarter of
1998 versus $250,000 in the first quarter of 1997. The debt financing in both
years was obtained from Trilon Dominion Partners, LLC.
On January 5, 1996, the Company and Trilon Dominion entered into a Credit
Agreement (the "Agreement") for a credit line of $1,000,000 secured by the
Company's assets. Under the terms of the Agreement, the principal was due on
June 30, 1996 and the interest was payable monthly at a rate of prime plus
3.75%. The Agreement was amended on June 30, 1996, September 30, 1996, April 15,
1997, and September 19, 1997 to a total credit line of $4 million and a
termination date of June 30, 1998. See Note 4 to the financial statements for
details of the Agreement and Amendments.
On January 7, 1998, February 17, 1998, and March 10, 1998 the Company and Trilon
Dominion completed Demand Notes, each for $250,000 of an interest rate of
12.25%, to fund the Company's ongoing operations until a new credit facility
could be completed.
On March 31, 1998 the Company and Trilon Dominion completed an Amended and
Restated Credit Agreement and Revolving Line of Credit (the "Amended Agreement")
which included the principal of $4,000,000 from the previous Agreement and
Amendments, the principal of $750,000 from the three Demand Notes, the accrued
interest and management fees of $543,297 on the Agreement and Notes, and a new
credit line commitment of $2,200,000. Under the terms of the Amended Agreement,
the principal of $7,493,297 is due on December 31, 1998, and the interest is
payable quarterly at an annual rate of 11.5%. In connection with the Amended
Agreement, the Company issued Trilon Dominion a five-year warrant that entitles
Trilon Dominion to purchase 650,000 shares of the Company's authorized but
unissued common stock at an exercise price of $0.41 per share, subject to
adjustment to protect against dilution. The warrant is exercisable immediately
and expires on March 31, 2003. Also, under the terms of the Amended Agreement,
the Company issued Trilon Dominion a second five-year warrant which will become
exercisable if the Company does not pay the principal and interest due on
December 31, 1998 and expires on March 31, 2003. The second warrant entitles
Trilon Dominion to purchase 250,000 shares of the Company's authorized but
unissued common stock at an exercise price equal to the market price on December
31, 1998.
10
<PAGE> 11
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS:
For information regarding legal proceedings, refer to the information
contained in the Company's annual report on Form 10-KSB for the fiscal
year ended November 30, 1997 under the heading, "Legal Proceedings" and
Note 6 to the financial statements therein.
ITEM 2. CHANGES IN SECURITIES:
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES:
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
None
ITEM 5. OTHER INFORMATION:
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS:
10.111 Demand Note dated March 10, 1998 between the Registrant and
Trilon Dominion Partners, L.L.C..
10.112 Amended and Restated Credit Agreement and Revolving Line of
Credit (the "Amended Agreement") dated March 31, 1998 between
the Registrant and Trilon Dominion Partners, L.L.C., exclusive
of certain schedules.
10.113 Warrant dated March 31, 1998 to purchase 650,000 shares of the
Registrant's Common Stock, issued to Trilon Dominion Partners,
L.L.C. pursuant to the Amended Agreement.
10.114 Springing Warrant dated March 31, 1998 to purchase 250,000
shares of the Registrant's Common Stock, issued to Trilon
Dominion Partners, L.L.C. pursuant to the Amended Agreement.
10.115 Grid Promissory Note dated March 31, 1998 between the
Registrant and Trilon Dominion Partners L.L.C. issued under
the Amended Agreement.
(b) REPORTS ON FORM 8-K:
None
11
<PAGE> 12
SIGNATURES
In accordance with requirements of the Securities Exchange Act, the registrant
has caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
WILSHIRE TECHNOLOGIES, INC.
Dated: April 10, 1998 By: /s/ James W. Klingler
---------------------------------
James W. Klingler
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
12
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EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Sequentially
Number Description Numbered Page
- ------ ----------- -------------
<S> <C> <C>
10.111 Demand Note dated March 10, 1998 between the Registrant and
Trilon Dominion Partners, L.L.C.
10.112 Amended and Restated Credit Agreement and Revolving Line of
Credit (the "Amended Agreement") dated March 31, 1998 between
the Registrant and Trilon Dominion Partners, L.L.C., exclusive
of certain schedules.
10.113 Warrant dated March 31, 1998 to purchase 650,000 shares of the
Registrant's Common Stock, issued to Trilon Dominion Partners,
L.L.C. pursuant to the Amended Agreement.
10.114 Springing Warrant dated March 31, 1998 to purchase 250,000
shares of the Registrants's Common Stock, issued to Trilon
Dominion Partners, L.L.C. pursuant to the Amended Agreement
10.115 Grid Promissory Note dated March 31, 1998 between the
Registrant and Trilon Dominion Partners, L.L.C. issued under
the Amended Agreement.
</TABLE>
13
<PAGE> 1
EXHIBIT 10.111
DEMAND NOTE
$250,000.00 New York, New York
March 10, 1998
FOR VALUE RECEIVED, the undersigned, Wilshire Technologies, Inc. a
California corporation (hereinafter referred to as "Borrower"), hereby
unconditionally PROMISES TO PAY to the order to TRILON DOMINION PARTNERS, LLC, a
Delaware limited liability company ("Lender"), at 245 Park Avenue, 28th Floor,
New York, NY 10167, or at such other place as the holder of this Demand Note may
designate from time to time in writing, in lawful money of the United States of
America and in immediately available funds, the principal amount of Two Hundred
Fifty Thousand and 00/100, DOLLARS ($250,000.00), together with interest on the
unpaid principal amount of this Demand Note outstanding from time to time from
the date hereof, at a rate per annum equal to the Prime rate of interest of 8.5%
plus 3.75%, or the highest rate permitted by law, whichever shall be less.
The principal amount of the indebtedness evidenced hereby shall be payable
on demand. Interest thereon shall be paid when principal is paid from the date
hereof until such principal amount is paid in full at such interest rate as
specified above. Following failure to pay on demand, Borrower agrees to pay
interest on any overdue payment of principal at a rate per annum equal to the
stated interest rate plus 5%, or the highest rate permitted by law, whichever
shall be less. All interest calculations shall be computed on the basis of a 360
day year.
Demand, presentment, protest and notice of nonpayment and protest are
hereby waived by Borrower.
Borrower shall have no right to make any off-set against or deduct from
any payment due under this Demand Note.
Principal and interest may be prepaid at any time without penalty.
This Demand Note may not be changed orally, but only by an agreement in
writing and signed by the party against whom enforcement of such change is
sought.
All covenants of Borrower in this Demand Note and all rights of the holder
under this Demand Note shall bind Borrower and its successors and assigns, and
all such covenants and rights shall inure to the benefit of the holder of this
Demand Note and its successors and assigns.
This Demand Note has been delivered and accepted at New York, New York and
shall be interpreted, governed by, and construed in accordance with, the laws of
the State of New York.
Wilshire Technologies, Inc
By: /s/ James W. Klingler
----------------------------
Name: James W. Klingler
Title: VP & CFO
<PAGE> 1
EXHIBIT 10.112
AMENDED AND RESTATED CREDIT AGREEMENT
AND
REVOLVING LINE OF CREDIT
THIS AMENDED AND RESTATED CREDIT AGREEMENT AND REVOLVING LINE OF
CREDIT (the "Agreement") is entered into this 31st day of March, 1998 by and
between WILSHIRE TECHNOLOGIES, INC., a California corporation (the "Borrower"),
and TRILON DOMINION PARTNERS, L.L.C., a Delaware limited liability company (the
"Lender").
RECITALS
A. Borrower and Lender entered into a Credit Agreement dated
January 5, 1996 as amended by an Amendment to Credit Agreement dated June 30,
1996 and as further amended by a Second Amendment to Credit Agreement dated
September 30, 1996, a Third Amendment to Credit Agreement dated April 15, 1997
and a Fourth Amendment to Credit Agreement dated September 19, 1997 (the
"Original Credit Agreement").
B. Lender has loaned to Borrower the aggregate principal amount
of Four Million Seven Hundred Fifty Thousand Dollars ($4,750,000) pursuant to
the Original Credit Agreement as represented by a promissory note (the "Original
Note") and certain demand notes dated January 7, 1998, February 17, 1998 and
March 10, 1998 (the "Demand Notes").
C. Borrower is further indebted to Lender in the amount of Five
Hundred Forty-Three Thousand Two Hundred Ninety-Six and 92/100 Dollars
($543,296.92) on account of certain accrued interest on the Original Note and
the Demand Notes and for management fees provided for in the Original Credit
Agreement.
D. There is outstanding an aggregate amount of Five Million Two
Hundred Ninety-Three Thousand Two Hundred Ninety-Six and 92/100 Dollars
($5,293,296.92) owed by Borrower to Lender.
E. Pursuant to the Original Credit Agreement, Borrower has issued
to Lender warrants and springing warrants to purchase shares of common stock of
Borrower as reflected on Exhibit A hereto.
F. Lender has agreed to extend additional credit to Borrower, and
Borrower has agreed to issue additional warrants and springing warrants to
Lender pursuant to the terms of this Agreement.
15. Commitment.
<PAGE> 2
15.1. Commitment. The Lender agrees, subject to the terms of this
Agreement, to extend credit to the Borrower from and including the date hereof
to but not including the Termination Date, as hereinafter defined, in an
aggregate principal amount at any one time outstanding not exceeding $2,200,000
(the "Commitment"). The Lender shall provide such extensions of credit by making
one or more advances (a "Borrowing") to the Borrower, subject to the terms of
this Agreement and during such period the Borrower may borrow, pay and reborrow
this amount of the Commitment.
15.2. Borrowings. The Borrower shall give the Lender written notice
of each Borrowing requested hereunder by delivering to the Lender a request,
substantially in the form of Exhibit B attached hereto, completed to the
satisfaction of the Lender and delivered as provided in Section 2.4 hereof. The
Lender shall make the amount of any new Borrowing available to the Borrower as
set forth on Schedule 4.4 by remitting the same, in immediately available funds,
to such account as the Borrower may specify to the Lender in writing from time
to time.
15.3. Warrant and Springing Warrant. In consideration of the
Lender's providing the Commitment, the Borrower hereby agrees to issue to the
Lender (i) a warrant in the form of Exhibit C attached hereto (the "Warrant") to
purchase 650,000 shares of common stock of the Borrower, no par value per share
(the "Common Stock"), at an exercise price per share equal to $0.41, exercisable
from the date hereof through March 31, 2003; and (ii) a springing warrant in the
form of Exhibit D attached hereto (the "Springing Warrant") to purchase 250,000
shares of Common Stock, exercisable in the event that the principal and interest
on the Note (as defined in Section 1.4 below) shall not be paid in full on or
before December 31, 1998.
15.4. Note. The Borrowings shall be evidenced by an amended and
restated promissory note (the "Note") of the Borrower in substantially the form
of Exhibit E hereto, dated the Closing Date (as hereinafter defined), payable to
the Lender in a principal amount equal to Five Million Two Hundred Ninety-Three
Thousand Two Hundred Ninety-Six and 92/100 Dollars ($5,293,296.92) plus an
amount equal to the Commitment as then in effect (such amount not to exceed
$7,493,296.92), and otherwise duly completed. At the Closing the Note shall be
issued in exchange for the Original Note and the Demand Notes. The date and
amount of each Borrowing advanced by the Lender to the Borrower, and each
payment made on account of the principal thereof, shall be recorded by the
Lender on its books and, prior to any transfer of the Note, endorsed by the
Lender on the schedule attached to the Note or any continuation thereof. In
furtherance and not in limitation of the foregoing, the Borrower hereby
irrevocably authorizes the Lender to make or cause to be made appropriate
notations on the schedule attached to the Note with respect to all of the
foregoing data. The data set forth on the schedules attached to the Note or on
the records of the Lender shall be presumed correct in the absence of manifest
error, provided in any event that the failure by the Lender to make any such
endorsement or any error therein shall not affect the obligations of the
Borrower hereunder or under the Note in respect of the Borrowings evidenced
thereby.
15.5. Prepayments of Borrowings. Subject to Section 2.3 hereof, the
Borrower shall have the right to prepay Borrowings, at any time or from time to
time, in whole or in part, provided that the Borrower shall give the Lender
notice of each such prepayment, as provided in
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Section 2.4 hereof. Upon the closing of an equipment financing for the
Borrower's fixtures and equipment, the Borrower shall have the mandatory
obligation to prepay Borrowings to Lender in the amount of the proceeds of such
equipment financing.
15.6. Termination. The Commitment shall terminate on the earlier of
(i) the closing of an equipment financing for the Borrower's fixtures and
equipment, or (ii) December 31, 1998 (the "Termination Date").
16. Payments of Principal and Interest.
16.1. Repayment of Loans. The Borrower will pay to the Lender the
principal of the Borrowing, and each Borrowing shall mature, on the Termination
Date.
16.2. Interest. The Borrower will pay to the Lender interest on the
unpaid principal amount of each Borrowing, for the period from and including the
date of such Borrowing to, but excluding the date such Borrowing shall be paid
in full, at a rate per annum equal to the prime rate of interest published in
The Wall Street Journal (Eastern Edition) plus 3% as of the Closing Date, the
Interest Rate, payable quarterly in arrears on the last day of each quarter
until the Termination Date, commencing on June 30, 1998. Any accrued but unpaid
interest shall be added to, and become part of, the principal amount of the
Note. If the principal amount of the Note and all accrued interest thereon are
not paid on the Termination Date, then, notwithstanding anything to the contrary
set forth in this Agreement or the Note, the Borrower shall pay to the Lender on
the Termination Date a default fee of $100,000 and the unpaid principal amount
of the Note and all accrued interest thereon shall accrue interest at a rate per
annum equal to the prime rate of interest published in The Wall Street Journal
(Eastern Edition) plus 6% from and after the Termination Date until paid in full
in cash; provided, however, if the principal amount of the Note and all accrued
interest thereon are not paid on or prior to the date which is exactly six (6)
months after the Termination Date, then the interest rate payable under this
Agreement and the Note shall be increased by an additional 2% per annum every
six (6) months thereafter; provided further, however, the Note is subject to the
express condition that at no time shall Borrower be obligated or required to pay
interest on the principal balance due hereunder at a rate which could subject
Lender to either civil or criminal liability as a result of being in excess of
the maximum interest rate which Borrower is permitted by applicable law to
contract or agree to pay. If by the terms of the Note, Borrower is at any time
required or obligated to pay interest on the principal balance due hereunder at
a rate in excess of such maximum rate as the case may be, such interest rate
shall be deemed to be immediately reduced to such maximum rate and all previous
payments in excess of the maximum rate shall be deemed to have been payments in
reduction of principal and not on account of the interest due hereunder.
16.3. Minimum Amounts. Each Borrowing and partial prepayment of
principal of a Borrowing shall be in an amount at least equal to $100,000.
16.4. Certain Notices. Notices by the Borrower to the Lender of any
Borrowings or of any prepayments shall be irrevocable and shall be effective
only if received by the Lender in writing not later than 10:00 a.m. New York
time at least two business days prior to
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the date of the relevant Borrowing or prepayment. Each such notice of Borrowing
or prepayment shall specify the amount of the Commitment to be borrowed or
prepaid.
17. Closing.
17.1. Closing Date. The Lender shall make the Commitment available
on the date hereof (the "Closing Date") and such later dates from time to time
as Borrower shall elect, upon satisfaction of the terms and conditions hereof
(each a "Borrowing Date").
17.2. Transactions at Closing. On the Closing Date, the Borrower
will deliver to the Lender (i) the Note (with aggregate Borrowings to date
indicated on Schedule I thereto), (ii) the Warrant and (iii) the Springing
Warrant.
18. Representations and Warranties of the Borrower. The Borrower
represents and warrants that:
18.1. Organization, Standing, Qualification, Capitalization, etc.
The Borrower is a corporation duly organized, validly existing and in good
standing under the laws of the state of California, and has all requisite
corporate power and authority to own, lease and operate its properties and to
carry on the business as it is now being conducted. The Borrower is licensed and
qualified to do business as a foreign corporation in each jurisdiction in which
the character of the Borrower's properties, owned or leased, or the nature of
its activities makes such qualification or licensing necessary, unless the
failure to be so licensed or qualified does not have a material adverse effect
on the Borrower. Attached hereto as Schedule 4.1A is a complete and correct copy
of the Articles of Incorporation of the Borrower (the "Articles"), and all
amendments thereto, substantially as the Articles, as amended, will be in effect
at the Closing Date, and attached hereto as Schedule 4.1B is a complete and
correct copy of the Bylaws of the Borrower. The Borrower has authorized capital
stock as set forth on Schedule 4.1C attached hereto. All of the outstanding
shares of capital stock of the Borrower (as listed on Schedule 4.1C attached
hereto and subject to the reservations contained therein) have been duly
authorized and validly issued and are fully paid and nonessessable. There are no
preemptive rights or similar rights on the part of the holders of shares of the
Borrower's capital stock in connection with the sale of the Warrant or the
Springing Warrant or the shares of Common Stock issuable upon exercise of the
Warrant or the Springing Warrant. The Borrower has no Subsidiary (defined as any
corporation or other business entity, a majority of the voting stock (or other
beneficial interests) of which, entitled to vote for the election of directors,
is at any time owned by the Borrower or one or more Subsidiaries), except as
listed on Schedule 4.1D attached hereto.
18.2. Authority, No Defaults and No Material Adverse Effect. The
Borrower has all requisite corporate power and authority to enter into this
Agreement, the Note, the Warrant and the Springing Warrant and to consummate the
transactions contemplated hereby and thereby. The execution and delivery of this
Agreement, the Note, the Warrant, the Springing Warrant and the consummation of
the transactions contemplated hereby and thereby have been duly authorized by
all necessary corporate action on the part of the Borrower. No further approval
or authorization of the Board of Directors or the shareholders of the Borrower
will be required for the issuance and sale of the Note, the Warrant, the
Springing Warrant or the
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Common Stock to be issued upon exercise of the Warrant or the Springing Warrant
(as the case may be) as contemplated herein. The Common Stock to be issued upon
exercise of the Warrant or the Springing Warrant (as the case may be) will be,
at the time of issuance in accordance with the terms of the Warrant or the
Springing Warrant (as the case may be), validly issued and outstanding, and
fully paid and non-assessable. The shares of Common Stock issuable upon exercise
of the Warrant and the Springing Warrant have been reserved for issuance by all
necessary corporate action on behalf of the Borrower. To the best of Borrower's
knowledge, all of the shares of Common Stock that have been offered, issued and
sold by the Borrower, to the extent applicable, have been so offered, issued and
sold in compliance with the Securities Act of 1933, as amended (the "1933 Act"),
and state securities laws. This Agreement, the Note, the Warrant and the
Springing Warrant have been executed and delivered by the Borrower and
constitute the valid and binding obligations of the Borrower, enforceable in
accordance with their respective terms. The execution and delivery of this
Agreement, the Note, the Warrant and the Springing Warrant do not, and the
consummation of the transactions contemplated hereby and thereby will not,
conflict with or result in a breach of or the acceleration of any obligation
under, or constitute a default or event of default (or event which, with notice
or lapse of time or both, would constitute a default) under, any provision of
any charter, bylaw, indenture, mortgage, lien, lease, agreement, contract,
instrument, order, judgment, decree, ordinance or regulation, or any restriction
to which any property of the Borrower is subject or by which the Borrower is
bound, the effect of which would be materially adverse to the Borrower.
18.3. Financial Statements. The Borrower has made all filings with
the Securities and Exchange Commission (or any governmental authority succeeding
to any of its functions) (the "Commission") that it has been required to make
under the 1933 Act and the Securities Exchange Act of 1934, as amended (the
"1934 Act"). The Borrower has provided to the Lender a true, complete and
correct copy of all filings with the Commission made by the Borrower since
January 1, 1996, including all exhibits to such filings (herein referred to as
the "Borrower Securities Documents"). Except as set forth on Schedule 4.3
attached hereto, as of their respective dates, and except as amended, the
Borrower Securities Documents complied in all material respects with the
requirements of the 1933 Act or the 1934 Act, as the case may be, and the
securities regulations or rules thereunder, and none of the Borrower Securities
Documents contained any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The financial statements of the Borrower included in the
Borrower Securities Documents comply as to form in all material respects with
applicable accounting requirements and with the published rules and regulations
of the Commission with respect thereto, have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis during
the periods involved (except as may be indicated in the notes thereto or, in the
case of the unaudited statements, as permitted by Form 10-QSB) and fairly
present (subject, in the case of the unaudited statements, to normal recurring
audit adjustments) the consolidated financial position of the Borrower as of the
dates thereof and the consolidated results of its operations and cash flows for
the periods then ended. Except as set forth in the Borrower Securities
Documents, (i) there have been no material adverse changes in the business,
condition (financial or other), assets, properties or operations or prospects of
the
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Borrower and its Subsidiaries, taken as a whole and (ii) the Borrower's
operations have been conducted in the ordinary course of business in all
material respects.
18.4. Use of Proceeds. The Borrower shall have used and for the term
of this Agreement will use all Borrowings for inventory purposes and the funding
of working capital in the ordinary course of its business, as more specifically
set forth on Schedule 4.4 attached hereto.
18.5. The Offering. Neither the Borrower nor anyone acting on its
behalf has directly or indirectly offered the Note, the Warrant or the Springing
Warrant to be sold to the Lender, any part thereof, or any similar security of
the Borrower, for sale to, or solicited any offer to buy the same from, anyone
other than the Lender and other investors to whom such offers can be made
without requiring the registration of the Note, the Warrant or the Springing
Warrant under the 1933 Act or state securities laws.
18.6. Employment Contracts, etc.; Certain Material Transactions.
Except as described in the Borrower's Securities Documents or as set forth on
Schedule 4.6 attached hereto:
(a) the Borrower has no employment contracts, deferred
compensation agreements or bonus, incentive or profit-sharing plans
currently in force and effect;
(b) there are no existing material arrangements or proposed
material arrangements between the Borrower and any officer or director or
holder of more than 10% of the capital stock of the Borrower; and
(c) the Borrower has no pension, retirement or similar plans
or obligations, whether of a legally binding nature or in the nature of
informal understandings.
18.7. Litigation, etc. Except as described in the Borrower
Securities Documents and as set forth on Schedule 4.7 attached hereto, there is
no action, proceeding or investigation pending or threatened (or any basis
therefor known to the Borrower) that questions the validity of this Agreement,
the Note, the Warrant, the Springing Warrant or the Common Stock to be issued
upon exercise of the Warrant or the Springing Warrant or any action taken or to
be taken pursuant hereto or contemplated hereby, or that might result, either in
any case or in the aggregate, in any material adverse change in the business,
prospects, operations, affairs or condition of the Borrower or in any of its
properties or assets, or in any material liability on the part of the Borrower.
The foregoing includes, without limiting its generality, actions pending, or
threatened (or any basis therefor known to the Borrower) involving the previous
employment of any of the Borrower's employees or prospective employees or their
use in connection with the Borrower's business of any information or techniques
allegedly proprietary to their former employer(s).
18.8. Compliance with Other Instruments, etc. Except as described on
Schedule 4.8 attached hereto, the Borrower is not and at the Closing Date and
each Borrowing Date will not be, in violation of any provision of its Articles
or Bylaws, or of any loan agreement or other
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agreement to which it is a party, other than violations which singly or in the
aggregate will not have a material adverse effect on the business, condition
(financial or other), assets, properties or operations or prospects of the
Borrower and its Subsidiaries taken as a whole ("Material Adverse Effect").
Except as described on Schedule 4.8 attached hereto, the Borrower is not, nor is
it alleged to be, in violation or default of any applicable law, statute, order,
rule or regulation promulgated, including, without limitation, any applicable
securities laws, zoning laws and ordinances, labor laws and regulations of the
state of California or the United States, the Occupational Safety and Health Act
and regulations thereunder, the Employees Retirement Income Security Act, and
national, state and local environmental protection laws and regulations, or any
judgment entered by any court, administrative agency or commission or other
governmental agency or instrumentality of the United States or any other
jurisdiction (a "Governmental Entity"), relating to or affecting the operation,
conduct or ownership of the property or business of the Borrower, which
violation or default or alleged violation or default would have a Material
Adverse Effect, individually or in the aggregate, on the financial condition,
assets, business, properties or prospects of the Borrower.
18.9. Approvals. Except as described on Schedule 4.9 attached
hereto, there is no legal impediment to the execution and delivery of this
Agreement by the Borrower or to the consummation by Borrower of the transactions
contemplated hereby, and no filing or registration by Borrower with, or
authorization, consent or approval of, a Governmental Entity, shareholders or
any other third party is necessary for the consummation by the Borrower of the
transactions contemplated hereby, other than such which, if not made or
obtained, would not, in the aggregate, have a Material Adverse Effect on the
transactions contemplated hereby.
18.10. Tax Returns and Payments. Except as described on Schedule
4.10 attached hereto, all of the tax returns and reports of the Borrower
required by law to be filed have been accurately prepared and timely filed and
all taxes shown as due thereon have been paid or adequately reserved on the
Borrower's books and reflected on the Borrower Securities Documents. No
deficiency assessment or proposed adjustment of the Borrower's federal, state or
local income taxes is pending, and the Borrower has no knowledge of any proposed
liability for any tax to be imposed upon its properties or assets for which
there is not an adequate reserve reflected on the Borrower Securities Documents.
18.11. Disclosure. Neither this Agreement nor any Schedule hereto
nor any certificate or other document referenced herein or therein and furnished
to the Lender by the Borrower contains any untrue statement of a material fact
or omits to state a material fact necessary in order to make the statements
contained therein or herein, in light of the circumstances under which they were
made, not misleading. Except as set forth on Schedule 4.11 attached hereto,
there is no material fact known to the Borrower relating to the business,
affairs, operations, condition or prospects of the Borrower that materially
adversely affects the same and that has not been disclosed to the Lender in
writing by the Borrower.
18.12. Insurance. The Borrower has commercial general liability
insurance, products liability insurance and workers' compensation insurance in
such amounts as are commercially reasonable for businesses of a similar type and
size as the Borrower, true and
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correct copies of which have been delivered by the Borrower to the Lender. The
Borrower has fire and casualty insurance policies with extended coverage
sufficient in amount (subject to reasonable deductibles) to allow it to replace
in all material respects any of its properties that might be damaged or
destroyed.
18.13. Employment Matters.
(a) (i) There are no discrimination charges (relating to
sex, age, race, national origin, handicap or veteran status or otherwise)
pending or threatened, against, or involving the Borrower or any
Subsidiary; (ii) there are no grievances between the Borrower or any
Subsidiary and any employee; (iii) neither the Borrower nor any Subsidiary
is delinquent in payments to any of such employees for any wages,
salaries, commissions, bonuses, benefits or other direct or indirect
compensation for any services performed by them; (iv) the Borrower and
each Subsidiary is in compliance with all federal, state, local and
foreign laws and regulations respecting labor, employment, wages, hours
and benefits; (v) there is no unfair labor practice with respect to the
Borrower or any Subsidiary pending before the National Labor Relations
Board or any Board or any comparable state, local or foreign agency; and
(vi) there is no labor strike, dispute, slow down or stoppage actually
pending or threatened against or involving the Borrower or any Subsidiary.
(b) To the Borrower's knowledge, no employee of the Borrower
or any Subsidiary is in violation of any term of any employment contract,
or any other contract or agreement with or any restrictive covenant or any
other common law obligation to a former employer relating to the right of
any such employee to be employed by the Borrower or any Subsidiary because
of the nature of the business conducted or to be conducted by the Borrower
and any Subsidiary or to the use of trade secrets or proprietary
information of others, and to the Borrower's knowledge, the employment of
the Borrower's or its Subsidiaries' employees does not subject the
Borrower or its Subsidiaries to liability in connection which such
covenants or agreements. There is neither pending, nor to the Borrower's
knowledge threatened, any actions, suits, proceedings or claims with
respect to any contract, agreement, covenant or obligations referred to
above.
18.14. Environmental Matters. The conduct of the Borrower and its
Subsidiaries business as presently conducted and as will be conducted after the
Closing Date, complies with all applicable Environmental Laws (as defined below)
and requirements of Environmental Laws, except for such noncompliance which
would not have a Material Adverse Effect. Without limiting the generality of the
foregoing, the Borrower acknowledges that:
(i) all notices, permits, licenses or similar authorizations
required under any Environmental Laws and requirements of Environmental Laws for
the conduct of the business of the Borrower and its Subsidiaries as presently
conducted have been duly obtained or filed, except where the failure to so
obtain or file would not have a Material Adverse Effect; (ii) the Borrower and
its Subsidiaries have not been involved in the unlawful disposal of hazardous
waste, toxic
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materials or other regulated contaminants nor does any of the Borrower's or its
Subsidiaries' business unlawfully generate hazardous waste, toxic materials, or
regulated contaminates, except for such unlawful disposal or generation which
would not have a Material Adverse Effect; (iii) no citations, fines or penalties
have been assessed, threatened or asserted in connection with the conduct of the
business of the Borrower or its Subsidiaries under Environmental Laws or
requirements of Environmental Laws, except for such citations, fines or
penalties which would not have a Material Adverse Effect; (iv) neither the
Borrower nor its Subsidiaries has received any notice from a Governmental Entity
of any violation or possible violation of any Environmental Laws or requirements
of Environmental Laws, rules, regulations or ordinances or of any licenses,
permits or similar authorizations, except for such violations which would not
have a Material Adverse Effect; and (v) neither the Borrower nor its
Subsidiaries is aware of, and each has taken all steps it has deemed to be
reasonably necessary to determine the existence of any substance, material or
situation relating to the business of the Borrower and its Subsidiaries that
would give rise to remediation obligations under Environmental Laws or
requirements of Environmental Laws, except for such remediation obligations
which would not have a Material Adverse Effect.
For purposes of this Section 4.14, "Environmental Laws" shall mean
any and all laws, statutes, ordinances, rules, regulations, orders, or
determinations of any governmental authority pertaining to health or the
environment in effect in any and all jurisdictions in the United States in which
the Borrower and its Subsidiaries are conducting or at time have conducted
business, including, without limitation, the Clean Air Act, as amended, the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980
("CERCLA"), as amended, the Federal Water Pollution Control Act, as amended, the
Occupational Safety and Health Act of 1970, as amended, the Resource
Conservation and Recovery Act of 1976 ("RCRA"), as amended, the Safe Drinking
Water Act, as amended, the Toxic Substances Control Act, as amended, the
Superfund Amendments and Reauthorization Act of 1986, as amended, and other
environmental conservation or protection laws.
18.15. Registration Rights. Except as set forth on Schedule 4.15
attached hereto, the Borrower is not currently under any obligation to register
under the 1933 Act or state securities laws any of its presently outstanding
securities or any of its securities that may subsequently be issued pursuant to
any existing convertible or exercisable securities.
18.16. Reporting Issuer. All annual and quarterly reports to
shareholders issued by the Borrower have been, at the respective dates of issue,
true and correct in all material respects, contain no misrepresentations and
were prepared in accordance with and complied with the laws, regulations, policy
statements and rules applicable thereto.
18.17. Liens, Encumbrances. Except for liens of the Lender against
Borrower's assets pursuant to the Original Credit Agreement, none of the assets
of the Borrower are subject to any mortgage, security interest, lien, pledge,
claim, option, right of first refusal, indenture, easement, license, security
agreement or other agreement, arrangement, contract, commitment, understanding,
obligation, charge or encumbrance of any kind or character, except for liens of
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current taxes not yet due and payable or other statutory liens arising in the
ordinary course of Borrower's business.
19. Conditions of Lender's Obligations. The Lender's obligation to
consummate this Agreement is subject to the fulfillment to the Lender's
reasonable satisfaction, before or at the Closing, and at each of the Borrowing
Dates, of all of the following conditions:
19.1. Representations and Warranties Correct. The representations
and warranties of the Borrower made or contained herein or otherwise made in
writing by or on behalf of the Borrower in connection with the transactions
contemplated hereby shall be correct in all material respects at and as of the
Closing Date and at each Borrowing Date as if made on and as of the Closing Date
and at each Borrowing Date, except as affected by the transactions contemplated
hereby.
19.2. Performance. The Borrower shall have performed and complied
with all agreements and conditions contained herein required to be performed or
complied with by it before or at the Closing.
19.3. Proceedings and Documents. All corporate and other proceedings
in connection with the transactions contemplated by this Agreement and all
documents and instruments incident to such transactions shall be satisfactory in
substance and form to the Lender and the Lender's counsel, and the Lender or the
Lender's counsel shall have received all such counterpart originals or certified
or other copies of such documents as the Lender or its counsel may reasonably
request.
19.4. Compliance Certificate. The Lender shall have received an
Officer's Certificate, dated as of the Closing Date and at each Borrowing Date,
certifying that the conditions specified in Sections 5.1 and 5.2, as applicable
to the Closing and each Borrowing Date, have been fulfilled.
19.5. Opinion of Borrower Counsel. The Lender shall have received
from Osborn Maledon, P.A., counsel for the Borrower, a favorable opinion, dated
as of the Closing Date and satisfactory in scope and form to the Lender and the
Lender's counsel, that in total opine to the following effect:
(a) as stated in Sections 4.1 (first, second, fourth, fifth
and sixth sentences), 4.2, 4.7 (to the best knowledge and belief of such
counsel), 4.8 (first sentence to the best knowledge and belief of such
counsel), 4.9, 4.15 and 4.16 (to the best knowledge and belief of such
counsel) hereof;
(b) the offer, issue, sale and delivery of the Note, the
Warrant, the Springing Warrant and the Common Stock to be issued upon
exercise of the Warrant or the Springing Warrant (as the case may be)
under the circumstances contemplated by this Agreement constitute exempted
transactions under the 1933 Act and applicable state securities laws as
now in effect, and the registration thereof under that Act or such laws is
not required;
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(c) the offer, issue, sale and delivery of the Note, the
Warrant, the Springing Warrant and the Common Stock to be issued upon
exercise of the Warrant or the Springing Warrant (as the case may be)
under the circumstances contemplated by this Agreement do not require the
filing of a prospectus with the Commission or any consent, notice, order
or approval under the laws of the United States or any state, and the
Lender may immediately following the Closing Date, without any notice or
consent other than as set forth in Schedule 4.9 and as may be applicable
to a "control person" of the Borrower under applicable securities Laws,
sell the Common Stock without any limitations or restrictions, other than
those imposed by the United States or any state securities law.
Such opinions shall also cover such other matters incident to the
transactions contemplated hereby as the Lender or its counsel may reasonably
request.
5.6 Facility Fee. The Borrower shall have paid to the Lender a
facility fee in the amount of $100,000, by cashiers or certified check, or by
wire transfer of funds to an account designated in writing by the Lender.
5.7 Security Agreement. The Borrower shall have and does hereby
ratify, confirm and acknowledge the enforceability against it of the Security
Agreement dated May 13, 1994 between Dominion Capital, Inc. and Borrower, as
amended by Amendment No. 1 to Security Agreement, dated as of January 5, 1996
(whereby Lender succeeded to the rights of Dominion Capital, Inc. under the
Security Agreement, as amended) (the "Security Agreement"), in which Security
Agreement the Borrower granted to the Lender a first priority perfected security
interest in all assets, tangible and intangible, of the Borrower then, now and
hereafter existing, wherever located, including, without limitation, the
proceeds of all such collateral. The Borrower confirms and agrees that all
amounts including those advanced pursuant to this Agreement or evidenced by the
Note are secured by the Security Agreement which continues to be in full force
and effect.
20. Accounting; Financial Statements and Other Information.
20.1. Accounting. The Borrower will maintain and cause each of its
Subsidiaries to maintain a system of accounting established and administered in
accordance with generally accepted accounting principles ("GAAP"), and will set
aside on its books and cause each of its Subsidiaries to set aside on its books
all such proper reserves as shall be required by GAAP.
20.2. Financial Statements. The Borrower will deliver to the Lender
the following financial statements, which, in the case of paragraphs (b) and (c)
below, shall be prepared in accordance with GAAP:
(a) [Intentionally omitted.]
(b) as soon as practicable and in any event within 45 days
after the end of each fiscal quarter of the Borrower, consolidated
statements of income and cash flow of the Borrower and its Subsidiaries
for such quarter and for the period from the current
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fiscal year to the end of such quarter and consolidated and consolidating
balance sheets of the Borrower and its Subsidiaries as at the end of such
quarter, and setting forth, in comparative form, figures for the
corresponding quarter in the approved annual budget, all in reasonable
detail and certified by the chief financial officer of the Borrower as
being a true and correct reflection in all material respects of the
financial condition and results of operation of the Borrower and its
Subsidiaries on a consolidated and consolidating basis, subject to changes
resulting from year-end adjustments and except as otherwise noted therein;
(c) as soon as practicable and in any event within 90 days
after the end of each fiscal year, audited consolidated and consolidating
statements of income and cash flow of the Borrower and its Subsidiaries
for such year, and audited consolidated and consolidating balance sheets
of the Borrower and its Subsidiaries as at the end of such year, and
setting forth, in each case, in comparative form, corresponding figures
from the preceding fiscal year, and corresponding figures, for such year
from the approved annual budget, all in reasonable detail, and, as to the
consolidated statements, reported upon by an independent accounting firm
of nationally recognized standing whose certification shall be without
qualification as to the scope of the audit or as to GAAP, and, as to the
consolidating statements, certified by the chief financial officer of the
Borrower;
(d) together with delivery of the financial statements
required by paragraph (c) above, an Officers' Certificate of the Borrower
containing an analysis of the variance between the results of operations
and the budget for such period and a management commentary as to such
results of operation;
(e) promptly upon receipt thereof, a copy of each other
report (including, without limitation, each management letter) submitted
to the Borrower or any of its Subsidiaries by independent accountants in
connection with any annual, interim, or special audit of the books of the
Borrower or any of its Subsidiaries made by such accountants;
(f) immediately upon any material revision to any of the
financial statements referred to in paragraphs (a), (b), (c), (d) or (e)
above, such financial statements, as revised;
(g) within five (5) business days after the end of each
month, a copy of a schedule containing the monthly uses of cash by the
Borrower, prepared with reasonable detail;
(h) promptly upon the filing thereof, all Forms 10-KSB and
Forms 10-QSB and all other reports and statements, if any, filed by the
Borrower or any of its Subsidiaries with the Commission or with any
securities exchange; and
(i) with reasonable promptness, such other information and
data with respect to the Borrower or any of its Subsidiaries as from time
to time may be reasonably requested.
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21. Other Covenants. The Borrower further covenants and agrees
that, so long as the Note is outstanding:
(a) The Borrower shall:
(1) promptly make all payments or accruals of
principal and interest on the Note when due, and comply with the
other provisions hereof and the provisions of the Note, the Warrant
and the Springing Warrant;
(2) comply, and cause each of its Subsidiaries to
comply, in all material respects, with all applicable federal, state
and local laws, ordinances and regulations;
(3) conduct, and cause each of its Subsidiaries to
conduct, its business in the usual and ordinary course consistent
with past practices;
(4) maintain, and cause each of its Subsidiaries to
maintain, its corporate existence and right to carry on its business
and duly procure all necessary renewals and extensions thereof and
use, and cause each of its Subsidiaries to use, its best efforts to
maintain, preserve and renew all such rights, powers, privileges and
franchises;
(5) keep and maintain, and cause each of its
Subsidiaries to keep and maintain, all buildings, plants and other
property in such good condition, repair and working order and
supplied with all such necessary equipment as in the reasonable
judgment of its Board of Directors may be necessary, so that the
business carried on in connection therewith may be properly and
advantageously conducted at all times;
(6) pay and discharge, and cause each of its
Subsidiaries to pay and discharge, promptly, or cause to be paid and
discharged promptly, all taxes, assessments and governmental charges
or levies imposed upon it or upon its income or upon any part
thereof, as well as all claims of any kind (including claims for
labor, materials and supplies) that, if unpaid, might by law become
a lien or charge upon its property; provided, however, that neither
the Borrower nor any Subsidiary shall be required to pay any such
tax, assessment, charge, levy or claim if the amount, applicability
or validity thereof shall be diligently contested in good faith by
appropriate proceedings and if it shall have set aside on its books
reserves (segregated to the extent required by sound accounting
practice) adequate with respect thereto;
(7) pay, or cause to be paid, the principal of and
interest on all indebtedness for borrowed monies heretofore or
hereafter incurred or assumed by the Borrower or any Subsidiary when
and as the same shall become due and payable unless such
indebtedness be renewed or extended on terms no less favorable than
the original terms thereof;
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(8) faithfully observe, perform and discharge, and
cause each of its Subsidiaries to faithfully observe, perform and
discharge, all covenants, conditions and obligations that are
imposed on it by any and all indentures and other agreements
securing or evidencing such indebtedness or pursuant to which such
indebtedness was incurred, and not permit the occurrence of any act
or omission that is or may be declared to be a default thereunder;
provided, however, that neither the Borrower nor any Subsidiary
shall be required to make any payment or to take any other action by
reason of the provisions of this paragraph (8) if it is diligently
contesting in good faith its obligation to make such payment or to
take such action and shall have set aside on its books adequate
reserves (segregated if and to the extent, required by sound
accounting practice) with respect thereto;
(9) provide or cause to be provided for itself and
each Subsidiary commercial general liability insurance, products
liability insurance and workers' compensation insurance in such
amounts as are commercially reasonable for businesses of similar
type and size as the Borrower and fire and casualty insurance
policies with extended coverage sufficient in amount (subject to
reasonable deductibles) to allow it to replace in all material
respects any of its properties that might be damaged or destroyed;
(10) notify the Lender in writing, promptly upon the
occurrence of any Event of Default (as defined below) hereunder or
any event that would become an Event of Default upon notice or the
lapse of time, or both;
(11) permit the Lender or any authorized
representatives of the Lender to visit and inspect any of the
properties of the Borrower or any of its Subsidiaries including its
and their books of account (and to make copies thereof and to take
extracts therefrom) and to discuss its and their affairs, finances
and accounts with its and their officers, all at such reasonable
times and as often as may be reasonably requested. The rights set
forth herein shall be exercised solely in furtherance of the proper
interests of the Lender as an investor in the Borrower, and such
Lender exercising its rights of inspection hereunder, and its agents
and representatives, shall maintain the confidentiality of all
financial and other confidential information of the Borrower
acquired by them in exercising such rights;
(12) use all Borrowings to be received under this
Agreement for the purposes set forth in Section 4.4 hereof only;
(13) maintain the registration of its Common Stock
under the 1934 Act and will ensure that it is in compliance with all
applicable securities laws and
(b) Except as set forth in Schedule 7(b), the Borrower shall
not, without the Lender's prior written consent:
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<PAGE> 15
(1) merge or consolidate with any other corporation or
entity, or sell, lease, transfer, distribute or otherwise dispose of
all or any substantial part of its properties or assets (in any
single transaction or series of related transactions), or any
intellectual property material to its operations or business
prospects in one or a series of related transactions to a Subsidiary
or any other person (including capital stock of its Subsidiaries);
(2) transfer or permit any Subsidiary to transfer any
of its properties or assets (other than equipment) for the purpose
of subjecting the same to the payment of obligations in priority to
payment of general creditors;
(3) make any loan or advance to any third party, other
than its wholly-owned Subsidiaries, or assume, guarantee or become
liable (contingently or otherwise) for any indebtedness, and will
not permit any of its Subsidiaries to incur any indebtedness;
(4) enter into or be a party to, or amend, modify,
supplement or waive any provisions of any contracts involving
payments from the Borrower in an amount in excess of $150,000;
(5) create, incur, assume or suffer to exist, or
permit any of its Subsidiaries to create, incur, assume or suffer to
exist, any mortgage, pledge, encumbrance or lien of any kind upon
any of its property, assets or revenues, whether now owned or
hereafter acquired, except (i) liens for taxes not yet due or (ii)
other statutory liens arising in the ordinary course of the
Borrower's business;
(6) create any new Subsidiaries, convert any
Subsidiaries from inactive to active or enter into any joint
ventures or partnerships, permit any amendment of, or modification
or supplement to, its or any of its Subsidiaries' Certificates of
Incorporation or its or any of its Subsidiaries' By-laws, or (iii)
permit any amendment of, or modification or supplement to this
Agreement, the Note, the Warrant, or the Springing Warrant;
(7) mortgage, pledge, hypothecate or create or permit
to exist any security interest in, or lien on, any shares of the
capital stock of its Subsidiaries;
(8) sell, issue or otherwise dispose of, or part with
control of, any shares of capital stock of the Borrower or any of
its Subsidiaries, or permit any of its Subsidiaries to do the same;
(9) permit any of its Subsidiaries to, directly or
indirectly, purchase, acquire or lease any property to, or otherwise
deal with, in the ordinary course of business or otherwise, any
Affiliate (as defined below) of the Borrower or it Subsidiaries,
except (i) on an arm's length basis in transactions which are on no
less favorable terms to the Borrower or such Subsidiary than would
be the case
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<PAGE> 16
with a similar transaction with an unaffiliated individual,
partnership, joint venture, corporation, trust, unincorporated
organization, or any other legal entity (hereinafter referred to as
"Person"); provided, however, that if the transaction or series of
related transactions is over $100,000 then the transaction shall be
approved by a majority of the independent directors of the Borrower,
(ii) reasonable, customary and regular fees to the nonmanagement
directors of the Borrower or any of its Subsidiaries to the extent
not in excess of $20,000 in the aggregate in any fiscal year, or
(iii) any transaction among the Borrower and any wholly-owned
Subsidiaries or among such subsidiaries in the ordinary course of
their respective businesses to the extent not in excess of $150,000
in the aggregate in any fiscal year.
For purposes of this Section 7(b), "Affiliate" shall mean, with
respect to any Person, any other Person directly or indirectly
controlling, controlled by, or under direct or indirect common
control with, such Person. A Person shall be deemed to control
another Person if such Person possesses, directly or indirectly, the
power to direct or cause the direction of the management and
policies of such other Person, whether through the ownership of
voting securities, by contract or otherwise;
(10) make Capital Expenditures during any fiscal year
that materially exceed the amounts budgeted for Capital Expenditures
in the approved annual budget of the Borrower and its Subsidiaries
for such fiscal year. For purposes hereof, "Capital Expenditures"
shall mean as to any Person for any period, the aggregate amount of
all capital expenditures which would be classified as capital
expenditures in a statement of income or operations of such Person
for such period prepared in accordance with GAAP;
(11) make any change in the management of the Borrower,
nor establish any bonus, incentive, or other employee benefit plans
(including, without limitation, any welfare plans) with respect to
its capital stock or establish any bonus, incentive or other
employee benefit plans (including, without limitation, any welfare
plans) in which holders of its capital stock or their affiliates are
participants;
(12) declare, pay or set aside for payment any dividend
or other distribution in respect of its capital; or
(13) purchase, cancel, retire, redeem, or otherwise
acquire any of its outstanding capital stock or other securities,
sell, merge or consolidate with, or transfer all or any substantial
part of its assets to, another corporation or other business entity,
liquidate, wind-up, or dissolve (or suffer any liquidation or
dissolution), or enter into any contract, agreement, commitment, or
arrangement with respect to any of the foregoing.
22. Events of Default; Remedies.
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<PAGE> 17
(a) If any one or more of the following events shall occur
for any reason whatsoever (whether such occurrence shall be voluntary or
involuntary or be effected by operation of law or pursuant to any
judgment, decree or order of any court or any order, rule or regulation of
any administrative or other governmental body), it shall be deemed an
Event of Default hereunder:
(1) default by the Borrower in the due and punctual
payment of the principal, interest or both, on the Note when and as
the same of each such obligation shall become due and payable,
whether at maturity or at a date fixed for prepayment or by
acceleration or otherwise;
(2) default by the Borrower in the performance or
observance of any covenant, agreement or other provision of this
Agreement or of any instrument or document delivered to the Lender
in connection with or pursuant to this Agreement that is not cured
within a period of 30 days after written notice of such default is
given to the Borrower, or if any such instrument or document shall
terminate or become void or unenforceable other than (1) in
accordance with its terms or (ii) with the Lender's prior written
consent;
(3) default by the Borrower in the due and punctual
payment of the principal, interest or both on any other financial
obligation, when and as the same shall become due and payable, and
the passage of any applicable cure period;
(4) if any representation or warranty, or any other
statement of fact herein or in any writing, certificate, report or
statement (including, financial statement) at any time furnished to
the Lender pursuant to or in connection with this Agreement, or
otherwise, shall be false or misleading in any material respect when
made;
(5) the Borrower's becoming insolvent or unable to
meet its obligations as they mature, making a general assignment for
the benefit of creditors, or consenting to the appointment of a
trustee or a receiver, or admitting in writing its inability to pay
its debts as they mature;
(6) the appointment of a trustee or receiver for the
Borrower or for a substantial part of the properties of the Borrower
without the consent of Lender and such trustee or receiver not being
discharged within 30 days;
(7) the institution of bankruptcy, reorganization,
insolvency or liquidation proceedings by or against the Borrower or
debtor and, if instituted against it, the same being consented to by
the Borrower or remaining undismissed for a period of 30 days;
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(8) the rendering of any final judgment against the
Borrower for the payment of money which judgment is uninsured and in
an amount in excess of $100,000;
(9) any substantial part of the property of the
Borrower being sequestered or attached and not being returned to the
possession of the Borrower or released from such attachment within
30 days; and
(10) unless previously consented to by the Lender, upon
the effective date of a merger, reorganization or sale of
substantially all of the assets of the Borrower.
If any such Event of Default or any other default under any other
agreement or instrument executed in connection herewith shall occur and be
continuing, the Lender may, at the Lender's sole option, declare the entire
unpaid balance of principal and unpaid interest on the Note to be immediately
due and payable, whereupon the maturity of the then unpaid balance on the Note
shall be accelerated and the principal and all interest accrued thereon shall
forthwith become due and payable without presentment, demand, protest or notice
of any kind, all of which are hereby expressly waived, anything contained herein
or in the Note to the contrary notwithstanding, and the Lender may exercise and
shall have any and all remedies accorded the Lender by law; provided, however,
that with respect to any Event of Default set forth in Section 8(a)(5), (6), (7)
or (8), such Event of Default will automatically cause the principal and accrued
interest to become immediately due and payable.
(b) In case any one or more Events of Default shall occur
and be continuing, the Lender or the holder of the Note may proceed to
protect and enforce their respective rights or remedies either by suit in
equity or by action at law, or both, whether for the specific performance
of any covenant, agreement or other provisions contained herein, in the
Note or in any document or instrument delivered pursuant to this
Agreement, including but not limited to, the Borrower's Articles, or
proceed to enforce the payment of the Note or any other legal, equitable
or statutory right or remedy.
(c) No right or remedy herein conferred upon the Lender or
the holder of the Note is intended to be exclusive of any other right or
remedy contained herein, therein or in any instrument or document
delivered in connection with or pursuant to this Agreement, and every such
right or remedy contained herein and therein or now or hereafter existing
at law or in equity or by statute or otherwise may be exercised separately
or in any combination.
(d) No course of dealing between the Borrower and the Lender
or any failure or delay on the Lender's part in exercising any rights or
remedies hereunder shall operate as a waiver of any of the Lender's rights
or remedies and no single or partial exercise of any rights or remedies
hereunder shall operate as a waiver or preclude the exercise of any other
rights or remedies hereunder.
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23. Representations and Warranties by the Lender; Purchase for
Investment; Transfers Legends on Certificates.
23.1. Representations and Warranties by the Lender. The Lender has
adequate means of providing for its current financial needs and possible
contingencies, and has no present need, and anticipates no need in the
foreseeable future, to sell the Note, the Warrant, the Springing Warrant or the
Common Stock issuable upon exercise of the Warrant or the Springing Warrant
(collectively, the "Securities") that it may acquire. The Lender and its members
are able to bear the economic risk of this investment and, consequently, without
limiting the generality of the foregoing, the Lender and its members (a) are
able to hold any of the Securities they may acquire for an indefinite period of
time and (b) have a sufficient net worth to sustain a loss of their entire
investment in the Securities.
23.2. Purchase for Investment. The Lender represents that the Lender
is an "accredited investor" within the meaning of Regulation D under the 1933
Act and is acquiring the Securities for its own account, for investment purposes
only, and not with a view to the distribution of all or any part thereof. The
Lender will not distribute or transfer any of the Securities in the United
States except in compliance with all applicable federal and state securities
laws.
23.3. Transfers; Legends on Certificates. The Lender acknowledges
that it has been advised that the Securities and/or the certificate(s)
representing the Securities (a) will not be registered under the 1933 Act or any
state securities or blue sky laws (the "Blue Sky Laws"), (b) will be "restricted
securities" as defined in paragraph (a)(3) of Rule 144 under the 1933 Act ("Rule
144"), (c) have been issued in reliance on the statutory exemptions contained in
the 1933 Act, (d) have been issued in reliance on the statutory exemptions
contemplated in the Blue Sky Laws and that the Borrower relied on the
representations of the Lender set forth herein in consummating the issuance of
the Securities, (e) will not be transferable without registration under the 1933
Act and/or applicable Blue Sky Laws, unless an exemption from the registration
requirement thereof is available and an opinion of counsel to that effect is
delivered to the Borrower, and (f) will bear the following restrictive legends
evidencing such restrictions:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND
MAY NOT BE SOLD OR TRANSFERRED UNLESS THE SAME ARE REGISTERED UNDER THE
SECURITIES ACT OF 1933, OR THE BORROWER RECEIVES AN OPINION FROM COUNSEL TO THE
HOLDER THAT REGISTRATION IS NOT REQUIRED FOR SALE OR TRANSFER OR THAT THE SHARES
HAVE BEEN LEGALLY SOLD IN A BROKER'S TRANSACTION PURSUANT TO RULE 144 OR TO A
QUALIFIED INSTITUTIONAL LENDER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES
ACT OF 1933.
Moreover, the Lender has been advised that Rule 144 may not be available for
resales unless the Borrower remains a reporting company subject to the
requirements of the 1934 Act, and the Borrower files all required information
with the Commission.
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23.4. Removal of Legends and Transfer Restrictions. The legend
relating to the 1933 Act endorsed on a stock certificate or other instrument
pursuant to Section 9.3 and the stock transfer instructions with respect to the
Securities represented by such certificate or instrument shall be removed and
the Borrower shall issue a certificate or instrument without such legend to the
holder of such Securities if such Securities are registered under the 1933 Act
and a prospectus meeting the requirements of Section 10 of the 1933 Act is
available or if such holder provides to the Borrower an opinion of counsel for
such holder of the Securities reasonably satisfactory to the Borrower to the
effect that a public sale, transfer or assignment of such Securities may be made
without registration under the 1933 Act.
24. Successors and Assignees.
(a) All of the terms of this Agreement shall be binding upon
and inure to the benefit of and be enforceable by the respective
successors and assignees of the parties hereto, whether so expressed or
not, and, in particular, shall inure to the benefit of and be enforceable
by any holder or holders at the time of the Note, the Warrant or the
Springing Warrant or of any portions thereof.
(b) The Lender may at any time assign to one or more
individuals or entities (each an "Assignee") all or a proportionate part
of this Agreement and the Note, the Warrant and/or the Springing Warrant
and such Assignee shall become the holder of all or a proportionate part
of this Agreement and the Note, the Warrant and/or the Springing Warrant
pursuant to an assignment agreement executed by such Assignee and the
Lender, provided that any transfer is registered, or exempt from
registration, pursuant to all applicable securities laws. Upon execution
and delivery of such assignment agreement and payment by such Assignee to
the Lender of an amount equal to the purchase price agreed to between the
Lender and such Assignee, the Assignee shall have full authority to act in
place of the Lender with respect to all rights and obligations under this
Agreement, and the Lender shall be released from its obligations
hereunder. Upon the consummation of any assignment pursuant to this
subsection (b), the Lender and the Borrower shall make appropriate
arrangements so that, if required, a new Note, Warrant and/or Springing
Warrant is issued to the Assignee. If the Assignee is not incorporated
under the laws of the United States of America or a state thereof, it
shall, prior to the first date on which interest or fees are payable
hereunder for its account, deliver to the Lender certification as to
exemption from deduction or withholding of any United Stales federal
income taxes.
25. Expenses. The Borrower will pay all costs and expenses
incurred in connection with the subject matter of this Agreement and the
transactions contemplated hereby, including all costs and expenses of furnishing
all opinions by counsel of Borrower and all certificates on behalf of the
Borrower and of the Borrower's performance of and compliance with all agreements
and conditions contained herein on its part to be performed or complied with. In
addition, on the closing date of the first one or more private placements
involving the sale of securities of the Borrower in which the aggregate amount
sold in such placement or placements is at least $2,500,000, the Borrower will
reimburse the Lender for the miscellaneous expenses of
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<PAGE> 21
the Lender and the fees, expenses and disbursements of the Lender's
special counsel, Bryan Cave LLP, in connection with the subject matter of
this Agreement and the transactions contemplated hereby.
26. [Intentionally omitted.]
27. Survival of Representations and Warranties, etc. All
agreements, representations and warranties contained herein or made in writing
by the Lender or on behalf of the Borrower in connection with the transactions
contemplated hereby shall survive the execution and delivery of this Agreement,
any investigation at any time made by the Lender or on the Lender's behalf, the
sale and purchase of the Note, the Warrant and the Springing Warrant and payment
therefor. All statements contained in any certificate or other instrument
executed and delivered by the Borrower or its duly authorized officers pursuant
hereto in connection with the transactions contemplated hereby shall be deemed
representations by the Borrower hereunder.
28. Notices. All notices, requests, consents and other
communications hereunder (except as stated in the last sentence of this Section
14) shall be in writing and shall be delivered by facsimile, reliable courier or
first-class registered or certified mail, postage prepaid, (a) if to the Lender,
at the Lender's address as set forth below, marked for attention as there
indicated, or at such other address as may have been furnished to the Borrower
by the Lender in writing, or (b) if to any other holder of the Note, Warrant,
Springing Warrant or Common Stock, at such address as may have been furnished to
the Borrower in writing by such holder, or, until any such other holder
furnishes to the Borrower an address, then to, and at the address of, the last
holder of the Note, Warrant, Springing Warrant or Common Stock who has so
furnished an address to the Borrower or (c) if to the Borrower, at the address
set forth below, or at such other address as may have been furnished to the
Lender in writing by the Borrower:
To the Borrower:
Wilshire Technologies, Inc.
5861 Edison Place
Carlsbad, California 92008
Attn: James Klingler
Telephone No.: 760-929-7200
Telecopy No.: 760-929-0683
Copy to:
Osborn Maledon, P.A.
2929 N. Central Avenue, 21st Floor
Phoenix, Arizona 85012
Attention: Thayne Lowe, Esq.
Telephone: 602-640-9391
Telecopier: 602-640-6077
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To the Lender:
Trilon Dominion Partners, L.L.C.
245 Park Avenue, 28th Floor
New York, New York 10167
Attn: William Gendron
Telephone No.: 212-867-3800
Telecopy No.: 212-867-2955
Copy to:
Bryan Cave LLP
1200 Main Street, Suite 3500
Kansas City, Missouri 64105
Attn: Michael J. Beal, Esq.
Telephone No.: 816-391-7645
Telecopy No.: 816-374-3300
15. Amendments and Waivers. Except as otherwise provided herein,
neither this Agreement nor any term hereof may be changed, waived, discharged or
terminated orally or in writing, except that any term of this Agreement may be
amended and the observance of any such term may be waived (either generally or
in a particular instance and either retroactively or prospectively) with (but
only with) the written consent of the Borrower and the holders of at least 51%
of the outstanding principal amount of the Note. No waiver of any of the
provisions of this Agreement or of any breach hereunder shall be deemed or shall
constitute a waiver of any other provisions nor shall such waiver constitute a
continuing waiver unless otherwise expressly provided.
16. Miscellaneous.
16.1. Governing Law. This Agreement shall be construed and enforced
in accordance with the laws of the State of New York without regard to its
conflict of laws principles or rules.
16.2. Consent to Jurisdiction. Any legal action, suit or proceeding
arising out of or relating to this Agreement or the consummation of the
transactions contemplated hereby may only be instituted in any federal court of
the Southern District of New York or any state court located in New York County,
State of New York, and each party agrees not to assert, by way of motion, as a
defense or otherwise, in any, such action, suit or proceeding, any claim that it
is not subject personally to the jurisdiction of such courts, that the action,
suit or proceeding if brought in such courts, would be an inconvenient forum,
that the venue of the action, suit or proceeding, if brought in any of such
courts, is improper or that this Agreement or the subject matter hereof may not
be enforced in or by such courts on jurisdictional grounds.
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16.3. Entire Agreement. This Agreement (with the Exhibits and
Schedules annexed hereto) between the Borrower and the Lender, embodies the
entire agreement and understanding, between the Lender and the Borrower and
supersedes all prior agreements and understandings relating to the subject
matter hereof.
16.4. Headings of the Agreement. The headings in this Agreement are
for convenience of reference only, and shall not limit or otherwise affect the
meaning hereof.
16.5. Counterparts of the Agreement. This Agreement may be executed
in two or more counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.
16.6. Severability of the Agreement. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
duly executed and delivered as of the day and year first written above.
THE BORROWER: WILSHIRE TECHNOLOGIES, INC.
By: /s/ John Van Egmond
----------------------------------------
Name: John Van Egmond
----------------------------------
Title: President & CEO
----------------------------------
THE LENDER: TRILON DOMINION PARTNERS, L.L.C.
By: /s/ William P. Gendron
----------------------------------------
Name: William P. Gendron
----------------------------------
Title: Vice President
----------------------------------
<PAGE> 24
EXHIBIT 10.112
WILSHIRE TECHNOLOGIES, INC.
List of Exhibits
Exhibit A Outstanding Warrants & Springing Warrants
Exhibit B Borrowing Request Form
Exhibit C Warrant to purchase 650,000 shares
Exhibit D Springing Warrant to purchase 250,000 shares
Exhibit E Grid Promissory Note
<PAGE> 25
EXHIBIT 10.112
EXHIBIT A
WARRANTS ISSUED TO LENDER
<TABLE>
<CAPTION>
PURSUANT TO AMENDMENT
TO CREDIT AGREEMENT NUMBER EXERCISE
TYPE DATED GRANT DATE GRANTED PRICE/SHARE EXPIRATION DATE
---- --------------------- ---------- ------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
Amended and Restated January 5, 1996 January 5, 1996 100,000 $0.75 January 5, 2001
Warrant
Amended and Restated June 30, 1996 June 30, 1996 25,000 $1.75 January 5, 2001
Springing Warrant
Warrant September 30, 1996 September 30, 1996 100,000 $1.31 September 30, 2001
Warrant April 15, 1997 April 15, 1997 100,000 $0.44 April 15, 2002
Springing Warrant June 30, 1997 June 30, 1997 25,000 $0.84 September 30, 2001
Warrant September 19, 1997 September 19, 1997 100,000 $0.95 September 19, 2002
Springing Warrant December 31, 1997 December 31, 1997 25,000 $0.47 April 15, 2002
Springing Warrant September 19, 1997 June 30, 1998 25,000 Unknown * September 19, 2002
</TABLE>
* Price per share shall be equal to closing price for the Common Stock as of
June 30, 1998, as reported by the National Association of Securities
Dealers, Inc. through NASDAQ.
<PAGE> 26
EXHIBIT 10.112
EXHIBIT B
FORM OF NOTICE OF BORROWING
Pursuant to the Credit Agreement dated March 31, 1998 between Wilshire
Technologies, Inc. (the "Borrower") and Trilon Dominion Partners, L.L.C. (the
"Lender"), the Borrower hereby gives notice of its desire to incur a Borrowing
in accordance with the terms set forth below:
1. The aggregate amount of the Borrowing shall be
-------------------------------------------------------------
2. The date of the Borrowing shall be .
-------------------------------------------------------------
3. The proceeds of the Borrowing should be disbursed as follows:
-------------------------------------------------------------
-------------------------------------------------------------
-------------------------------------------------------------
4. The proceeds of the Borrowing should be wired to:
City National Bank ABA Routing #: 122-016-066
400 North Roxbury Drive FBO: Wilshire Technologies, Inc.
Beverly Hills, CA 90210 Account #: 001-719-165
WILSHIRE TECHNOLOGIES, INC.
Date: By:
----------- -----------------------------
James W. Klingler
Vice President, Chief Financial
Officer and Secretary
<PAGE> 27
EXHIBIT 10.112
WILSHIRE TECHNOLOGIES, INC.
DISCLOSURE SCHEDULES
SCHEDULE 4.1A
ARTICLES OF INCORPORATION
<PAGE> 28
EXHIBIT 10.112
WILSHIRE TECHNOLOGIES, INC.
DISCLOSURE SCHEDULES
SCHEDULE 4.1B
BYLAWS
<PAGE> 29
WILSHIRE TECHNOLOGIES, INC.
DISCLOSURE SCHEDULES
SCHEDULE 4.1C
AUTHORIZED CAPITAL STOCK
The Borrower has 50,000,000 shares of common stock, no par value, authorized. As
of February 28, 1998 there were 12,943,385 shares of common stock issued and
outstanding.
The Borrower also has 2,000,000 shares of preferred stock authorized, none of
which is issued or outstanding.
In addition, the Borrower has 4,523,000 Options and Warrants authorized and
outstanding on February 28, 1998 as follows:
<TABLE>
<S> <C>
Warrants
Trilon Dominion Warrants 475,000
Settlement Warrants 2,750,000
PTG Medical Warrants 100,000
Rafael Mizrachi Warrants 50,000
Option Plans
1993 Stock Option Plan (Authorized) 250,000
(6,000 Outstanding)
1995 Stock Option Plan (Authorized) 1,750,000
(862,000 Outstanding)
Non-Plan Options
Aberdeen Options 80,000
Stephen Scibelli Options 200,000
</TABLE>
<PAGE> 30
WILSHIRE TECHNOLOGIES, INC.
DISCLOSURE SCHEDULES
SCHEDULE 4.1D
SUBSIDIARIES
Wilshire International de Mexico S.A. de C.V., incorporated in Mexico on May 9,
1997, is a wholly-owned subsidiary of Wilshire Technologies, Inc.
<PAGE> 31
WILSHIRE TECHNOLOGIES, INC.
DISCLOSURE SCHEDULES
SCHEDULE 4.3
FINANCIAL STATEMENTS
The following SEC reports filed by the Borrower were not in compliance with the
requirements of the 1933 Act or the 1934 Act:
<TABLE>
<CAPTION>
Document Date Filed (a)
-------- --------------
<S> <C>
Report on Form 10-KSB (1992) 2/26/93
Report on Form 10-QSB (1993 Quarter 1) 4/14/93
Report on Form 10-QSB (1993 Quarter 2) 7/14/93
Report on Form 10-QSB (1993 Quarter 3) 9/24/93
Report on Form 10-KSB (1993) 6/21/94
Report on Form 10-QSB (1994 Quarter 1) 6/21/94
</TABLE>
(a) The Borrower's fiscal year ends November 30.
The latest SEC Document filed is the Report on Form 10-KSB for the year ended
November 30, 1997.
<PAGE> 32
WILSHIRE TECHNOLOGIES, INC.
DISCLOSURE SCHEDULES
SCHEDULE 4.4
USE OF PROCEEDS
($000)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Glove Equipment Contamination Control Working Capital
1998 Month Equipment Total
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
March 1,100 -- 100 1,200
April 250 -- 100 350
May 250 -- 50 300
June 50 50 -- 100
July 50 50 -- 100
August 50 100 -- 150
--------------------------------------------------------------------------------
Total 1,750 200 250 2,200
--------------------------------------------------------------------------------
</TABLE>
<PAGE> 33
WILSHIRE TECHNOLOGIES, INC.
DISCLOSURE SCHEDULES
SCHEDULE 4.6
EMPLOYMENT CONTRACTS
Employee: John Van Egmond
Position: President & Chief Executive Officer
Term: One year, renewable, beginning January 1, 1998, with 6 months
severance pay in the event of involuntary termination without
cause.
Compensation: Salary of $175,000 per year
Stock: 100,000 stock options, vesting on January 1, 1998, at a
price of $0.625 per share.
Employee: James W. Klingler
Position: Vice President & Chief Financial Officer
Term: One year, renewable, beginning October 3, 1994, with 6 months
severance pay in the event of involuntary termination without
cause.
Compensation: Salary of $90,000 per year.
Stock: 50,000 stock options, vesting over 2 years, beginning October 3,
1994, at a price of $2.00 per share.
Employee: Fred Pisacane
Position: Vice President of Sales and Marketing
Term: One year, renewable, beginning July 1, 1991, with 90 days notice
of termination.
Compensation: Salary of $90,000 per year plus car allowance of $500 per month.
Stock: 20,000 stock options, vesting over 3 years, beginning July 1,
1991, at a price of $8.00 per share.
Employee: Alan R. Seacord
Position: Vice President of Operations
Term: One year, renewable, beginning May 25, 1993, with 60 days
notice of termination
Compensation: Salary of $45,000 per year
Stock: 6,000 stock options, vesting over 4 years, beginning May 25,
1994, at a price of $15.63 per share.
Employee: Ching-Wang (Eric) Luo
Position: Vice President of Research and Development
Term: One year, renewable, beginning August 2, 1993, with 6 months
notice of termination
Compensation: Salary of $80,000 per year.
Stock: 15,000 stock options, vesting over 4 years, beginning August 3,
1994, at a price of $15.38 per share.
<PAGE> 34
WILSHIRE TECHNOLOGIES, INC.
DISCLOSURE SCHEDULES
SCHEDULE 4.6
MATERIAL TRANSACTIONS
INCENTIVE PLANS
The 1993 Stock Option Plan is described in the Proxy Statement for the 1992
Annual Shareholders Meeting. The 1995 Stock Option Plan is described in the
Proxy Statement for the 1994 Annual Shareholders Meeting.
In 1997 and 1998, the Company has implemented a Sales Incentive Plan whereby the
Sales personnel are paid a bonus from a bonus pool of $100,000 based on
achievement of the quarterly and annual sales and gross profit budget.
INDEMNIFICATION AGREEMENTS
The Borrower's Bylaws provide that the Company shall indemnify its directors to
the fullest extent permitted by California law, and the company has entered into
indemnity agreements with each director.
<PAGE> 35
WILSHIRE TECHNOLOGIES, INC.
DISCLOSURE SCHEDULES
SCHEDULE 4.7
LITIGATION
The Borrower has been named as a defendant in a number of bodily injury lawsuits
involving breast implants. This lawsuit is described in more detail in the SEC
Form 10-KSB for the year ended November 30, 1997.
<PAGE> 36
WILSHIRE TECHNOLOGIES, INC.
DISCLOSURE SCHEDULES
SCHEDULE 4.8
COMPLIANCE WITH OTHER INSTRUMENTS
None.
<PAGE> 37
WILSHIRE TECHNOLOGIES, INC.
DISCLOSURE SCHEDULES
SCHEDULE 4.9
APPROVALS
None.
<PAGE> 38
WILSHIRE TECHNOLOGIES, INC.
DISCLOSURE SCHEDULES
SCHEDULE 4.10
TAX RETURNS AND PAYMENTS
There have been no exceptions in 1994, 1995, or 1996 regarding the timely and
accurate filing of tax returns and payment of taxes due. The tax returns in 1992
and 1993 contained inaccurate financial information.
The tax returns for 1997 will be filed on or before August 15, 1998.
<PAGE> 39
WILSHIRE TECHNOLOGIES, INC.
DISCLOSURE SCHEDULES
SCHEDULE 4.11
DISCLOSURE OF MATERIAL FACTS
The Borrower will not be able to repay the principal of $7,493,296.92 referenced
in this Credit Agreement until it receives the proceeds of an equipment loan or
a private placement of common stock.
<PAGE> 40
WILSHIRE TECHNOLOGIES, INC.
DISCLOSURE SCHEDULES
SCHEDULE 4.15
REGISTRATION RIGHTS
In December 1993, the Borrower filed a registration statement with the SEC to
register approximately 2.1 million shares. The majority of these shares were
registered pursuant to an obligation of the Borrower pertaining to a private
placement in August, 1993.
However, the registration statement became non-usable in March, 1994 when the
Borrower failed to file its Form 10-KSB as required. Therefore, the Borrower is
obligated to re-register those securities.
Trilon, as successor to Dominion Capital, Inc. has registration rights related
to the purchase of 350,000 shares on August 24, 1994, and 350,000 shares on
September 28, 1994.
In addition, registration rights exist with regard to the shares issuable on
exercise of some of the outstanding 1,773,000 options and warrants and the
2,750,000 warrants (subject to adjustment to protect against dilution) issued
pursuant to the shareholder litigation Settlement Agreement.
<PAGE> 41
WILSHIRE TECHNOLOGIES, INC.
DISCLOSURE SCHEDULES
SCHEDULE 7(b)
SHARES TO BE ISSUED
The Borrower has 1,773,000 Options and Warrants authorized and outstanding on
February 28, 1998 as follows:
<TABLE>
<S> <C>
Warrants
Trilon Dominion Warrants 475,000
Settlement Warrants 2,750,000
PTG Medical Warrants 100,000
Rafael Mizrachi Warrants 50,000
Option Plans
1993 Stock Option Plan (Authorized) 250,000
(6,000 Outstanding)
1995 Stock Option Plan (Authorized) 1,750,000
(862,000 Outstanding)
Non-Plan Options
Aberdeen Options 80,000
Stephen Scibelli Options 200,000
</TABLE>
<PAGE> 1
EXHIBIT 10.113
NEITHER THIS WARRANT NOR THE COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT
HAS BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND NEITHER
THIS WARRANT NOR THE COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT MAY BE
TRANSFERRED EXCEPT AS PROVIDED IN SECTION 4 OF THIS WARRANT.
WARRANT
to Purchase Common Stock of
Wilshire Technologies, Inc.
Expiring March 31, 2003
This Warrant certifies that Trilon Dominion Partners, L.L.C., a
Delaware limited liability company, or registered assigns (the "Holder"), is
entitled to subscribe for and purchase from Wilshire Technologies, Inc., a
corporation organized under the laws of the state of California (the "Company"),
all or any part of duly authorized, validly issued, fully paid and nonassessable
shares of the Company's common stock, no par value per share (the common stock,
including any stock into which it may be changed, reclassified, or converted,
and as it may be adjusted pursuant to Section 10 below, is herein referred to as
the "Common Stock"), as comprise 650,000 shares at a purchase price equal to
$0.41 per share (as it may be adjusted pursuant to Section 10 (B), the "Exercise
Price"). This Warrant may be exercised at any time, and from time to time,
during the period from the date hereof and ending at 5:00 p.m., New York, New
York time, on March 31, 2003 (the "Exercise Period"). The maximum number of
shares so issuable under this Warrant is sometimes referred to as the "Aggregate
Number," and initially the Aggregate Number is 650,000.
This Warrant is issued pursuant to that certain Amended and
Restated Credit Agreement and Revolving Line of Credit, dated as of March 31,
1998, by and between the Company and the Holder (the "Credit Agreement").
Pursuant to the Credit Agreement, the Holder has agreed to extend credit to the
Company in the aggregate principal amount of $7,493,296.92, evidenced by a Grid
Promissory Note dated March 31, 1998 issued by the Company in favor of the
Holder in an aggregate principal amount of $7,493,296.92 and bearing interest at
the prime rate published in The Wall Street Journal (Eastern Edition) plus 3%
(the "Note").
This Warrant is subject to the following provisions, terms and
conditions:
Section 1. Exercise of Warrant.
To exercise this Warrant in whole or in part, the Holder shall
deliver to the Company at its principal office in Carlsbad, California, (a) a
written notice, in substantially the form of the Subscription Notice appearing
at the end of this Warrant, of the Holder's election to exercise this Warrant,
which notice shall specify the number of shares of Common Stock to be purchased,
(b) cash or a certified check payable to the Company, or by crediting such
amount against outstanding indebtedness (including principal and accrued
interest thereon) of the
<PAGE> 2
Company to the Holder hereof, if any, at the time of exercise, including any
portion of the Note, in an amount equal to the Exercise Price and (c) this
Warrant. The Company shall as promptly as practicable, and in any event within
15 days thereafter, execute and deliver or cause to be executed and delivered,
in accordance with such notice, a certificate or certificates representing the
aggregate number of shares of Common Stock specified in such notice. The stock
certificate or certificates so delivered shall be in the denomination of 1,000
shares each or such lesser or greater denomination as may be specified in such
notice and shall be issued in the name of the Holder or such other name as shall
be designated in such notice. Such certificate or certificates shall be deemed
to have been issued and the Holder or any other person so designated to be named
therein shall be deemed for all purposes to have become a holder of record of
such shares as of the date such notice, with receipt of this Warrant and payment
of the Exercise Price, is received by the Company as aforesaid. If this Warrant
shall have been exercised only in part, the Company shall, at the time of
delivery of said certificate or certificates, deliver to the Holder a new
warrant evidencing the rights of the Holder to purchase the remaining shares of
Common Stock called for by this Warrant, which new warrant shall in all other
respects be identical to this Warrant, or, at the request of the Holder,
appropriate notation may be made on this Warrant and the same returned to the
Holder. The Company shall pay all expenses, taxes and other charges payable in
connection with the preparation, issue and delivery of such stock certificates
and new warrants, except that, in case such stock certificates or new warrants
shall be registered in a name or names other than the name of the Holder, funds
sufficient to pay all stock transfer taxes that are payable upon the issuance of
such stock certificate or certificates or new warrants shall be paid by the
Holder at the time of delivering the notice of exercise mentioned above.
Subject to compliance with applicable securities laws and the
terms of this Agreement, all shares of Common Stock issued upon the exercise of
this Warrant shall be validly issued, fully paid and nonassessable and, if the
Common Stock is then listed on a national securities exchange, or quoted on an
automated quotation system, shall be duly listed or quoted thereon.
The Company shall not be required upon any exercise of this
Warrant to issue a certificate representing any fraction of a share of Common
Stock, but, in lieu thereof, shall pay to the Holder cash in an amount equal to
a corresponding fraction (calculated to the nearest 1/100 of a share) of the
purchase price of one share of Common Stock as of the date of receipt by the
Company of notice of exercise of this Warrant.
Section 2. Right to Convert Warrant.
The Holder shall have the right to convert this Warrant (the
"Conversion Right") at any time prior to the expiration of the Exercise Period,
into shares of Common Stock in accordance with this Section 2; provided that the
Conversion Right shall be exercisable only if there is no outstanding
indebtedness (including principal and accrued interest thereon) of the Company
to the Holder hereof at the time of exercise of such Conversion Right. Upon
exercise of the Conversion Right, the Company shall deliver to the Holder
(without payment by the Holder of the Exercise Price) that number of shares of
Common Stock equal to the quotient obtained by dividing (x) the value of this
Warrant at the time the Conversion Right is exercised
2
<PAGE> 3
(determined by subtracting the aggregate Exercise Price for this Warrant (in
effect immediately prior to the exercise of the Conversion Right) from the
amount obtained by multiplying the number of shares of Common Stock issuable
upon the exercise of this Warrant by the Closing Price (as defined below)
immediately prior to the exercise of the Conversion Right) by (y) the Closing
Price of one share of Common Stock immediately prior to the exercise of the
Conversion Right.
For purposes hereof, the "Closing Price" shall mean the average
of the highest reported bid and lowest reported asked prices on the principal
national securities exchange on which the Common Stock is listed or admitted to
trading, or, if the Common Stock is not listed or admitted to trading on any
national securities exchange, the average of the highest reported bid and lowest
reported asked prices, as reported by the National Association of Securities
Dealers, Inc. through NASDAQ or a similar organization if NASDAQ is no longer
reporting such information. If the highest reported bid and lowest reported
asked prices of the Common Stock are not reported, the "Closing Price" shall be
the fair market value of the Common Stock, as determined in good faith by the
Company's Board of Directors.
The Conversion Right may be exercised by the Holder, at any time
or from time to time, prior to its expiration, on any business day by delivering
a written notice (the "Conversion Notice") to the Company at the offices of the
Company, exercising the Conversion Right and specifying (i) the total number of
shares of Common Stock the Holder will purchase pursuant to the conversion and
(ii) a place and date not less than two nor more than seven (7) business days
from the date of the Conversion Notice for the closing of such purchase.
At any closing under this Section 2, (i) the Holder will
surrender this Warrant and (ii) the Company will deliver to the Holder a
certificate or certificates for the number of shares of Common Stock issuable
upon such conversion.
Section 3. Transfer, Division and Combination.
The Company agrees to maintain at its principal office in
Carlsbad, California, books for the registration and transfer of this Warrant,
and, subject to the provisions of Section 4 hereof, this Warrant and all rights
hereunder are transferable, in whole or in part, on such books at such office,
upon surrender of this Warrant at such office, together with a written
assignment of this Warrant duly executed by the Holder or his agent or attorney
and funds sufficient to pay any stock transfer taxes payable upon the making of
such transfer. Upon such surrender and payment, the Company shall execute and
deliver a new warrant or warrants in the name of the assignee or assignees and
in the denominations specified in such instrument of assignment, and this
Warrant shall promptly be canceled. A warrant may be exercised by a new holder
for the purchase of shares of Common Stock without having a new warrant issued.
This Warrant may be divided or combined with other warrants upon
presentation hereof at such principal office in Carlsbad, California, together
with a written notice specifying the names and denominations in which new
warrants are to be issued, signed by the Holder or his agent or attorney.
Subject to compliance with the preceding paragraph as to any transfer that
3
<PAGE> 4
may be involved in such division or combination, the Company shall execute and
deliver a new warrant or warrants in exchange for the warrant or warrants to be
divided or combined in accordance with such notice.
Section 4. Restrictions on Exercise and Transfer of Warrants and
Common Stock.
This Warrant shall be exercisable (a) only under circumstances
such that the issue of Common Stock issuable upon such exercise is exempt from
the requirements of registration under the Securities Act of 1933, as amended
(or any similar statute then in effect) (the "1933 Act") and any applicable
securities law or (b) upon registration of such Common Stock in compliance
therewith. This Warrant shall be transferable only under circumstances such that
the transfer is exempt from the requirements of registration under the 1933 Act
and any applicable securities law. By acceptance hereof, the Holder agrees to
comply with such legislation.
Before any transfer or attempted transfer of all or any part of
this Warrant or such Common Stock, the Holder shall give the Company written
notice of its intention so to do describing briefly the manner of any such
proposed transfer. Promptly after receiving such written notice, the Company
shall present copies thereof to Company counsel and, if the Company requests the
Holder to designate special counsel therefor, to any special counsel designated
by the Holder that is reasonably satisfactory to the Company. If, in the opinion
of counsel for the Company and counsel, if any, for the Holder, the proposed
transfer may be effected without registration under the 1933 Act and any
applicable state securities law, the Company, as promptly as practicable, shall
notify the Holder of such opinion, whereupon the securities proposed to be
transferred may be transferred in accordance with the terms of such notice. The
Company shall not be required to effect any such transfer before the receipt of
such favorable opinion or opinions of the effectiveness of registration.
Section 5. Certain Covenants.
The Company covenants and agrees that it will at all times
reserve and set apart and have, free from preemptive rights, a number of shares
of authorized but unissued Common Stock, or other stock or securities
deliverable pursuant to this Warrant, sufficient to enable it at any time to
fulfill all its obligations hereunder.
Section 6. Notices.
In the event that:
(a) the Company proposes to pay any dividend payable in
stock (of any class or classes) or in Convertible Securities, as defined
below, upon its Common Stock or make any distribution (other than
ordinary cash dividends) to the holders of its Common Stock,
(b) the Company proposes to grant to the holders of its
Common Stock generally any rights or options,
4
<PAGE> 5
(c) the Company proposes to effect any capital
reorganization or reclassification of capital stock of the Company,
(d) the Company proposes to consolidate with, or merge
into, any other corporation or to transfer its property as an entirety
or substantially as an entirety, or
(e) the Company proposes to effect the liquidation,
dissolution or winding up of the Company,
then the Company shall cause notice of any such intended action to be given to
all holders of record of outstanding "Warrants" (as hereinafter defined) not
less than 20 days before the date on which the transfer books of the Company
shall close or a record shall be taken for such stock dividend, distribution or
granting of rights or options, or the date when such capital reorganization,
reclassification, consolidation, merger, transfer, liquidation, dissolution or
winding up shall be effective, as the case may be.
Any notice or other document required or permitted to be given or
delivered to holders of record of Warrants shall be delivered by facsimile,
reliable courier or first-class mail postage prepaid to each such holder at the
last address shown on the books of the Company maintained for the registry and
transfer of the Warrants. Any notice or other document required or permitted to
be given or delivered to holders of record of Common Stock issued pursuant to
Warrants shall be delivered by facsimile, reliable courier or first-class mail
postage prepaid to each such holder at such holder's address as the same appears
on the stock records of the Company. Any notice or other document required or
permitted to be given or delivered to the Company shall be delivered by
facsimile, reliable courier or first-class mail postage prepaid to the principal
office of the Company in Carlsbad, California, or delivered to the office of one
of the Company's executive officers at such address, or such other address as
shall have been furnished by the Company to the holders of record of such
Warrants and the holders of record of such Common Stock.
Section 7. Limitation of Liability; Not Shareholders.
No provision of this Warrant shall be construed as conferring
upon the Holder the right to vote or to consent or to receive dividends or to
receive notice as a shareholder in respect of meetings of shareholders for the
election of directors of the Company or any other matter whatsoever as
shareholders of the Company. No provision hereof, in the absence of affirmative
action by the Holder to purchase shares of Common Stock, and no mere enumeration
herein of the rights or privileges of the Holder, shall give rise to any
liability of Holder for the purchase price or as a shareholder of the Company,
whether such liability is asserted by the Company, creditors of the Company or
others.
Section 8. Loss, Destruction, etc. of Warrant.
Upon receipt of evidence satisfactory to the Company of the loss,
theft, mutilation or destruction of any warrant, and in the case of any such
loss, theft or destruction upon delivery of a bond of indemnity in such form and
amount as shall be reasonably satisfactory to the
5
<PAGE> 6
Company, or in the event of such mutilation upon surrender and cancellation of
this Warrant, the Company will make and deliver a new warrant, of like tenor, in
lieu of such lost, stolen, destroyed or mutilated warrant. Any warrant issued
under the provisions of this Section 8 in lieu of any warrant alleged to be
lost, destroyed or stolen, or of any mutilated warrant, shall constitute an
original contractual obligation on the part of the Company.
Section 9. Term of Warrant.
This Warrant shall become exercisable immediately upon its
issuance to the initial Holder. The expiration time and date of this Warrant
shall be 5:00 p.m. New York, New York time, March 31, 2003.
Section 10. Adjustments to Aggregate Number and Exercise Price.
(A) Adjustments of Number of Shares Issuable Pursuant to this
Warrant.
The Aggregate Number shall be subject to adjustment from time to
time as follows and thereafter as adjusted shall be deemed to be the Aggregate
Number hereunder.
(a) In case at any time or from time to time the Company
shall:
(i) take a record of the holders of its Common
Stock for the purpose of entitling them to receive a dividend
payable in, or other distribution of, Common Stock,
(ii) subdivide its outstanding shares of Common
Stock into a larger number of shares of Common Stock,
(iii) combine its outstanding shares of Common
Stock into a smaller number of shares of Common Stock, or
(iv) enter into any consolidation with or merge
into any other corporation wherein the Company is not the
continuing corporation, or wherein cash or securities of a
corporation other than the Company are distributable to holders
of Common Stock of the Company, or sell or convey its property as
an entirety or substantially as an entirety, and in connection
with such consolidation, merger, sale or conveyance, shares of
stock or cash or other securities shall be issuable or
deliverable in exchange for the Common Stock of the Company,
then the Aggregate Number in effect immediately prior thereto shall be
adjusted so that the holder or holders of this Warrant shall thereafter
be entitled to receive, upon exercise hereof, the number of shares of
Common Stock that such holder or holders would have owned or have been
entitled to receive after the occurrence of such event had this Warrant
been exercised immediately prior to the occurrence of such event. In
case of any such consolidation, merger, sale or conveyance, appropriate
provision (as determined by a resolution of the Board of Directors of
the Company) shall be made with respect to the
6
<PAGE> 7
rights and interests thereafter of the Holder, to the end that all the
provisions of this Warrant (including adjustment provisions) shall
thereafter be applicable as nearly as reasonably practicable, in
relation to any such stock or other securities.
(b) In case at any time or from time to time the Company
shall take a record of the holders of its Common Stock for the purpose
of entitling them to receive any dividend or other distribution
(collectively, a "Distribution") of:
(i) cash (other than dividends payable out of
earnings or any surplus legally available for the payment of
dividends under the laws of the state of incorporation of the
Company),
(ii) any evidences of its indebtedness (other than
any obligations or stock convertible into or exchangeable for
shares of Common Stock (such convertible or exchangeable
obligations or stock being hereinafter called "Convertible
Securities")), any shares of its capital stock (other than
additional shares of Common Stock or Convertible Securities) or
any other securities or property of any nature whatsoever (other
than cash), or
(iii) any options or warrants or other rights to
subscribe for or purchase any of the following: any evidences of
its indebtedness (other than Convertible Securities), any shares
of its capital stock (other than additional shares of Common
Stock or Convertible Securities) or any other securities or
property of any nature whatsoever,
then the holder or holders of this Warrant shall be entitled to receive
upon the exercise hereof at any time on or after the taking of such
record the number of shares of Common Stock to be received upon exercise
of this Warrant determined as stated herein and in addition and without
further payment, the cash, stock, securities, other property, options,
warrants and/or other rights to which such holder or holders would have
been entitled by way of the Distribution and subsequent dividends and
distributions to which such holder or holders would have been entitled
by way of the Distribution if such holder or holders (x) had exercised
this Warrant immediately prior to such Distribution, and (y) had
retained the Distribution in respect of the Common Stock and all
subsequent dividends and distributions to which such holder or holders
would have been entitled by way of the Distribution. A reclassification
of the Common Stock into shares of Common Stock and shares of any other
class of stock shall be deemed a distribution by the Company to the
holders of its Common Stock of such shares of such other class of stock
within the meaning of this paragraph (b) and, if the outstanding shares
of Common Stock shall be changed into a larger or smaller number of
shares of Common Stock as a part of such reclassification, such event
shall be deemed a subdivision or combination, as the case may be, of the
outstanding shares of Common Stock within the meaning of paragraph (a)
of this Section 10.
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<PAGE> 8
(c) In case at any time or from time to time the Company
shall (except as hereinafter provided) issue or sell any additional
shares of Common Stock or securities at a price which is less than the
Exercise Price, then the Aggregate Number in effect immediately prior
thereto shall be adjusted immediately so that the Aggregate Number
thereafter shall be an amount equal to the product of (x) the percentage
represented by the fraction, the numerator of which is the Aggregate
Number in effect immediately prior to such issuance or sale and the
denominator of which is the total outstanding shares of Common Stock
immediately prior to such issuance or sale (assuming for purposes of
such calculation the exercise of all of the warrants issued by the
Company, and the conversion, exercise or exchange of all other
securities then outstanding and convertible, exercisable or exchangeable
into shares of Common Stock) as of the date of the sale or issuance by
the Company of the shares requiring the adjustment to the Aggregate
Number pursuant to this Section 10 (such total number of shares of
Common Stock outstanding immediately prior to such issuance or sale, the
"Prior Outstanding Number"), and (y) the total number of shares of
Common Stock outstanding immediately after such issuance or sale
(assuming for purposes of such calculation (i) the exercise of all of
the warrants issued by the Company, and (ii) the conversion, exercise or
exchange of all other securities then outstanding and convertible,
exercisable or exchangeable into shares of Common Stock) (the "New
Outstanding Number");
The provisions of this paragraph (c) shall not apply to
any issuance of additional shares of Common Stock for which an
adjustment is provided under Section 10(A)(a).
(d) In case at any time or from time to time the Company
shall (except as hereinafter provided) take a record of the holders of
its Common Stock for the purpose of entitling them to receive a
distribution of, or shall in any manner issue or sell, any warrants or
other rights to subscribe for or purchase (x) any shares of Common Stock
or (y) any Convertible Securities, whether or not the rights to
subscribe, purchase, exchange or convert thereunder are immediately
exercisable, at a purchase price per share of Common Stock which is less
than the Exercise Price, then the Aggregate Number in effect immediately
prior thereto shall be adjusted immediately so that the Aggregate Number
thereafter shall be an amount equal to the product of (x) the percentage
represented by the fraction, the numerator of which is the Aggregate
Number in effect immediately prior to such distribution, issuance or
sale and the denominator of which is the Prior Outstanding Number and
(y) the New Outstanding Number assuming the exercise of the warrants or
other rights and/or the conversion of the Convertible Securities
distributed, issued or sold at such time.
The provisions of this paragraph (d) shall not apply to
any issuance of additional shares of Common Stock for which an
adjustment is provided under Section 10(A)(a).
(e) In case at any time or from time to time the Company
shall take a record of the holders of its Common Stock for the purpose
of entitling them to receive a
8
<PAGE> 9
distribution of or shall in any manner issue or sell Convertible
Securities, whether or not the rights to exchange or convert thereunder
are immediately exercisable, at an exercise price per share of Common
Stock which is less than the Exercise Price, then the Aggregate Number
in effect immediately prior thereto shall be adjusted immediately so
that the Aggregate Number thereafter shall be an amount equal to the
product of (x) the percentage represented by the fraction, the numerator
of which is the Aggregate Number in effect prior to such distribution,
issuance or sale and the denominator of which is the Prior Outstanding
Number and (y) the New Outstanding Number assuming the conversion of the
Convertible Securities distributed, issued or sold at such time.
No adjustment of the Aggregate Number shall be made under
this Section 10(A)(e) upon the issuance of any Convertible Securities
which are issued pursuant to the exercise of any warrants or other
subscription or purchase or similar rights if an adjustment shall
previously have been made.
(f) The following provisions shall be applicable to the
making of adjustments of the Aggregate Number and Exercise Price
hereinbefore and hereinafter provided for in this Section 10:
(i) The sale or other disposition of any issued
shares of Common Stock owned or held by or for the account of the
Company shall be deemed an issuance thereof for the purposes of
this Section 10.
(ii) The adjustments required by the preceding
paragraphs of this Section 10 shall be made whenever and as often
as any specified event requiring an adjustment shall occur,
except as expressly provided herein. For the purpose of any
adjustment, any specified event shall be deemed to have occurred
at the close of business on the date of its occurrence.
(iii) In computing adjustments under this Section
10, fractional interests in Common Stock shall be taken into
account to the nearest one-thousandth (.001) of a share and shall
be aggregated until they equal one whole share.
(iv) If the Company shall take a record of the
holders of its Common Stock for the purpose of entitling them to
receive a dividend, distribution, warrants or subscription or
purchase or similar rights under Sections 10(A)(a) through
10(A)(e) hereof, but abandon its plan to pay or deliver such
dividend, distribution, warrants, subscription or purchase or
similar rights, then no adjustment shall be required by reason of
the taking of such record and any such adjustment previously made
in respect thereof shall be rescinded and annulled.
(v) Notwithstanding anything herein to the
contrary, no adjustment shall be made to the Aggregate Number as
a result of (x) the issuance of shares of Common Stock issued
upon exercise of this Warrant or any other
9
<PAGE> 10
warrant or springing warrant heretofore, now or hereafter issued
to Holder, (y) the issuance of securities or options to any
employee, director, officer, contractor or consultant of the
Company pursuant to an approval of the Board of Directors of the
Company or pursuant to any plan approved by the Board of
Directors of the Company, including but not limited to, employee
stock options authorized to be issued pursuant to the Company's
1993 and 1995 Stock Option Plans, or (z) any other warrants or
options outstanding on the date hereof and any other warrants or
springing warrants issued to the Holder.
(vi) Upon the expiration or termination of any of
the warrants or other rights or options referred to in Section
10(A)(d) above or the Convertible Securities referred to in
Section 10(A)(e) above, the Aggregate Number after the expiration
or termination of any such warrants, rights, options or
Convertible Securities, the issuance of which caused an
adjustment to the Aggregate Number, shall be readjusted to such
Aggregate Number as would have been obtained had the adjustment
made upon the issuance of such warrants, rights, options or
Convertible Securities been made upon the basis of only the
number of shares of Common Stock actually issued upon the
exercise of such warrants, options or rights, upon the conversion
or exchange of such securities or upon the exercise of the
options or rights related to such securities and subsequent
conversion or exchange thereof.
(vii) The consideration for any additional shares
of Common Stock issuable pursuant to any options, warrants or
other rights to subscribe for or purchase the same shall be the
consideration received or receivable by the Company for issuing
such options, warrants or other rights, plus the additional
consideration payable to the Company upon the exercise of such
options, warrants or other rights. The consideration for any
additional shares of Common Stock issuable pursuant to the terms
of any Convertible Securities shall be the consideration received
or receivable by the Company for issuing any options, warrants or
other rights to subscribe for or purchase such Convertible
Securities, plus the consideration paid or payable to the Company
in respect of the subscription for or purchase of such
Convertible Securities, plus the additional consideration, if
any, payable to the Company upon the exercise of the right of
conversion, exercise or exchange of such Convertible Securities.
In case of the issuance at any time of any additional shares of
Common Stock or Convertible Securities in payment or satisfaction
of any dividend upon any class of stock other than Common Stock,
the Company shall be deemed to have received for such additional
shares of Common Stock or Convertible Securities a consideration
equal to the amount of such dividend so paid or satisfied.
(g) If any event occurs as to which the other provisions
of this Section 10 are not strictly applicable but the lack of any
provision for the exercise of the rights of a holder or holders of this
Warrant would not, in the judgment of the Board of Directors of the
Company, fairly protect the purchase rights of such holder or holders of
10
<PAGE> 11
this Warrant in accordance with the essential intent and principles of
such provisions, or, if strictly applicable, would not, in the judgment
of the Board of Directors of the Company, fairly protect the conversion
rights of the holder or holders of this Warrant in accordance with the
essential intent and principles of such provisions, then the Company
shall appoint a firm of independent certified public accountants in the
United States (which may be the regular auditors of the Company) of
recognized national standing in the United States reasonably
satisfactory to the Holder, which shall give their opinion as to the
adjustments, if any, necessary to preserve without dilution, on a basis
consistent with the essential intent and principles established in the
other provisions of this Section 10, the exercise rights of the holder
or holders of this Warrant. Upon receipt of such opinion, the Company
shall forthwith make any adjustments described therein.
(h) Within 45 days after the end of each fiscal quarter
during which an event occurred that resulted in an adjustment pursuant
to this Section 10, the Company shall cause to be promptly mailed to
each holder of this Warrant (and upon the exercise of this Warrant to
the exercising holder) by first-class mail, postage prepaid, notice of
each adjustment or adjustments to the Aggregate Number effected since
the date of the last such notice and a certificate of the Company's
Chief Financial Officer or, in the case of any such notice delivered
within 45 days after the end of a fiscal year, a firm of independent
public accountants in the United States selected by the Company and
acceptable to the Holder (who may be the regular accountants employed by
the Company), in each case, setting forth the Aggregate Number after
such adjustment, a brief statement of the facts requiring such
adjustment and the computation by which such adjustment was made. The
fees and expenses of such accountants shall be paid by the Company.
(i) The occurrence of a single event shall not trigger an
adjustment of the Aggregate Number under more than one paragraph of this
Section 10.
(B) Adjustments to Exercise Price.
(a) Stock Split or Combination. The Exercise Price shall
be adjusted from time to time in the case of any stock split, dividend
payable in Common Stock, subdivision of the number of shares of the
Common Stock or similar event involving Common Stock (a "Split") or any
reverse stock split, combination or similar event involving the Common
Stock (a "Combination"), and, accordingly, the Exercise Price shall be
proportionately decreased in the case of a Split or increased in the
case of a Combination, as of the close of business on the date the Split
or Combination becomes effective, computed to the nearest cent.
(b) Issuance of Common Stock. The Exercise Price shall be
adjusted from time to time according to the following provisions:
(i) As used in this Section 10(B)(b), the term
"Additional Shares" means any shares of Common Stock or
Convertible Securities issued by
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<PAGE> 12
the Company after the date hereof other than (1) the issuance of
shares of Common Stock issued upon exercise of this Warrant or
any other warrant or springing warrant heretofore, now or
hereafter issued to Holder; (2)shares of Common Stock issued upon
the exercise of any other warrants or options outstanding on the
date hereof and any other warrants or springing warrants issued
to the Holder; (3) the issuance of securities or options to any
employee, director, officer, contractor or consultant of the
Company pursuant to an approval of the Board of Directors of the
Company, including but not limited to, employee stock options
authorized to be issued pursuant to the Company's 1993 and 1995
Stock Option Plans, and (4) shares issued by the Company upon any
Split or Combination or pursuant to any merger, recapitalization
or other event to which the provisions of Paragraph 10(A) apply.
(ii) If the Company shall issue any Additional
Shares either (1) without consideration or (2) for a
consideration per share of Common Stock less than the Exercise
Price in effect immediately prior to the issuance of such
Additional Shares or (3) in the case of Convertible Securities,
at an exercise price per share of Common Stock which is less than
the Exercise Price in effect immediately prior to the issuance of
such Additional Shares, then the Exercise Price (as adjusted
previously pursuant to the terms of this Section 10(B)) shall be
adjusted to a price (computed to the nearest cent and shall be
the new Exercise Price) obtained by applying the following
formula:
NP = (AS x OP) + C
-------------------
AS + NS
where:
NP equal the new Exercise Price
AS equals the number of shares of Common Stock
outstanding (treasury shares not being deemed to
be outstanding) on the date hereof
OP equals the Exercise Price in effect immediately
prior to the calculation
C equals the aggregate consideration received by the
Company for all Additional Shares which were issued
since the date of the last adjustment pursuant to
this formula, or in the case of the first such
adjustment, which were issued after the date hereof
NS equals the number of Additional Shares which were
issued after the date hereof
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<PAGE> 13
provided, however, that adjustment shall be made only if the
result obtained by applying the foregoing formula yields a new
Exercise Price which is less than the Exercise Price in effect
immediately prior to the issuance of such Additional shares.
Section 11. Registration Rights.
(a) Registrable Stock. As used in this Section 11, the
term "Registrable Stock" shall mean (i) all shares of Common Stock that
may be issued upon exercise of this Warrant, and (ii) all shares of
Common Stock that may be issued upon exercise of any other Warrant.
References in this Warrant to rules, regulations and forms
promulgated by the Securities and Exchange Commission shall include
rules, regulations and forms succeeding to the functions thereof,
whether or not bearing the same designation.
The rights and obligations of the Company and the Holder
with respect to the Registrable Stock set forth in this Section 11 shall
supersede any registration rights and obligations of the Company and the
Holder existing prior to the date hereof with respect to the Registrable
Stock.
(b) Request for Registration. If the Company shall receive
a written request (specifying that it is being made pursuant to this
Section 11(b)) from the Holder of the Registrable Stock that the Company
file a registration statement under the 1933 Act, or a similar document
pursuant to any other statute then in effect corresponding to the 1933
Act covering the registration of the Registrable Stock, then the Company
shall use its reasonable best efforts to cause all Registrable Stock to
be registered under the 1933 Act.
Notwithstanding the foregoing, (i) the Company shall not
be obligated to effect a registration pursuant to this Section 11(b)
during the period starting with the date 60 days prior to the Company's
estimated date of filing of, and ending on a date 180 days following the
effective date of a registration statement pertaining to an underwritten
public offering of securities for the account of the Company, provided
that the Company is actively employing in good faith all reasonable
efforts to cause such registration statement to become effective and
that the Company's estimate of the date of filing such registration
statement is made in good faith; and (ii) if the Company shall furnish
to the Holder a certificate signed by the chief executive officer of the
Company stating that in the good faith judgment of the Board of
Directors it would be seriously detrimental to the Company or its
shareholders for a registration statement to be filed in the near
future, then the Company's obligation to use its best efforts to file a
registration statement shall be deferred for a period not to exceed six
months.
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<PAGE> 14
Any request for registration under this Section 11(b) must
be for a firmly underwritten public offering to be managed by an
underwriter or underwriters of recognized national standing reasonably
acceptable to the Company.
(c) Company Registration. Subject to Section 11(g), if at
any time the Company proposes to register any of its Common Stock under
the 1933 Act in connection with the public offering of such securities
solely for cash on a form that would also permit the registration of the
Registrable Stock, the Company shall, each such time, promptly give each
holder of Registrable Stock written notice of such determination. Upon
the written request of the Holder as to all of the Registrable Stock,
given within 20 days after mailing of any such notice by the Company,
the Company shall use its reasonable best efforts to cause to be
registered under the 1933 Act all of the Registrable Stock.
(d) Obligations of the Company. Whenever required under
Sections 11(b), 11(c) or 11(j) to use its reasonable best efforts to
effect the registration of any Registrable Stock, the Company shall, as
expeditiously as reasonably possible:
(1) prepare and file with the Securities and
Exchange Commission a registration statement with respect
to such Registrable Stock and use its reasonable best
efforts to cause such registration statement to become and
remain effective; provided, however, that in connection
with any proposed registration intended to permit an
offering of any securities from time to time (i.e., a
so-called "shelf registration"), the Company shall in no
event be obligated to cause any such registration to
remain effective for more than 90 days;
(2) prepare and file with the Securities and
Exchange Commission such amendments and supplements to
such registration statement and the prospectus used in
connection with such registration statement as may be
necessary to comply with the provisions of the 1933 Act
with respect to the disposition of all securities covered
by such registration statement;
(3) furnish to the holders of Registrable Stock
such numbers of copies of a prospectus, including a
preliminary prospectus, in conformity with the
requirements of the 1933 Act, and such other documents as
they may reasonably request in order to facilitate the
disposition of Registrable Stock owned by them; and
(4) use its reasonable best efforts to register and
qualify the securities covered by such registration
statement under such other securities or Blue Sky Laws of
such jurisdictions as shall be reasonably appropriate for
the distribution of the securities covered by the
registration statement.
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<PAGE> 15
(e) Furnish Information. It shall be a condition precedent
to the obligations of the Company to take any action pursuant to this
Section 11 that the holders of Registrable Stock shall furnish to the
Company such information regarding them, the Registrable Stock held by
them and the intended method of disposition of such securities as the
Company shall reasonably request and as shall be required in connection
with the action to be taken by the Company.
(f) Expenses of Demand Registration. All expenses incurred
in connection with a registration pursuant to Sections 11(b), 11(c) or
11(j) (excluding underwriters' discounts and commissions), including,
without limitation, all registration and qualification fees, printers
and accounting fees, fees and disbursements of counsel for the Company
and the reasonable fees and disbursements of one counsel for the selling
holders, shall be borne by the Company, except to the extent prohibited
or otherwise restricted by state or federal securities laws or
regulations.
(g) Underwriting Requirements:
(1) In connection with any offering involving an
underwriting of shares being issued by the Company, the Company
shall not be required under Section 11(c) to include any of the
holders' Registrable Stock in such underwriting unless they
accept the terms of the underwriting as agreed upon between the
Company and the underwriters selected by it or them, and then
only in such quantity as will not, in the written opinion of the
underwriters, jeopardize the success of the offering by the
Company. If the total amount of securities that all holders
request to be included in such offering exceeds the amount of
securities that the underwriters reasonably believe compatible
with the success of the offering, the Company shall only be
required to include in the offering so many of the securities of
the selling holders as the underwriters believe will not
jeopardize the success of the offering, shall so advise all
selling holders of Registrable Stock and the number of shares of
securities that are entitled to be included in the offering and
underwriting shall be allocated first, to the Company for
securities being sold for its own account, second, among all such
selling holders of Registrable Stock and, third, among all other
selling stockholders, in each case in proportion, as nearly as
practicable, to the respective total amounts of securities owned
by said selling holders of Registrable Stock and other selling
stockholders. If any selling holder of Registrable Stock or any
other selling stockholder disapproves of the terms of any such
underwriting, he, she or it may elect to withdraw therefrom by
written notice to the Company and the underwriter.
(2) In connection with any offering initiated by
any holders of Registrable Stock involving an underwriting of
shares being sold by such holders of Registrable Stock, such
holders shall not be required under Section 11(b) to include any
shares being issued by the Company or sold
15
<PAGE> 16
by any other selling stockholders in such underwriting unless the
Company and such other selling stockholders accepts the terms of
the underwriting as agreed upon between such holders of
Registrable Stock and the underwriters selected by it and
reasonably acceptable to the Company, and then only in such
quantity as will not, in the written opinion of the underwriters,
jeopardize the success of the offering by such holders. If the
total amount of securities that all holders request to be
included in such offering exceeds the amount of securities that
the underwriters reasonably believe compatible with the success
of the offering, the holders of Registrable Stock shall only be
required to include in the offering so many of the securities of
the Company as the underwriters believe will not jeopardize the
success of the offering, shall so advise the Company and such
other selling stockholders, and the number of shares of
securities that are entitled to be included in the offering and
underwriting shall be allocated first, among all such selling
holders of Registrable Stock and other securities of the Company
held by such holders, second, to the Company for securities being
sold for its own account and, third, among all other selling
stockholders. If some but not all of the securities in any of the
foregoing classes are includable in the offering the holders in
such class shall be permitted to participate in the offering pro
rata, as among holders in such class. If the Company of any other
selling stockholder disapproves of the terms of any such
underwriting, he, she or it may elect to withdraw therefrom by
written notice to the holders of Registrable Stock and the
underwriter.
(h) Delay of Registration. No holders of Registrable Stock
shall have any right to take any action to restrain, enjoin or otherwise
delay any registration as the result of any controversy that might arise
with respect to the interpretation or implementation of this Section 11.
(i) Indemnification. In the event any shares of
Registrable Stock are included in the registration statement under this
Section 11:
(1) to the extent permitted by law, the Company
will indemnify and hold harmless each holder of Registrable Stock
requesting or joining in a registration, any underwriter (as
defined in the 1933 Act) for it and each person, if any, who
controls such holder or underwriter within the meaning of the
1933 Act, against any losses, claims, damages or liabilities,
joint or several, to which they may become subject under the 1933
Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are
based on any untrue or alleged untrue statement of any material
fact contained in such registration statement, including any
preliminary prospectus or final prospectus contained therein or
any amendments or supplements thereto, or arise out of or are
based upon the omission or alleged omission to state therein a
material fact
16
<PAGE> 17
required to be stated therein, or necessary to make the
statements therein not misleading or arise out of any violation
by the Company of any rule or regulation promulgated under the
1933 Act applicable to the Company and relating to action or
inaction required of the Company in connection with any such
registration; and will reimburse each such holder, such
underwriter or controlling person for any legal or other expenses
reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action;
provided, however, that the indemnity agreement contained in this
Section 11(i)(l) shall not apply to amounts paid in settlement of
any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Company (which
consent shall not be unreasonably withheld) nor shall the Company
be liable in any such case for any such loss, claim, damage,
liability or action to the extent that it arises out of or is
based upon an untrue statement or alleged untrue statement or
omission or alleged omission made in connection with such
registration statement, preliminary prospectus, final prospectus,
or amendments or supplements thereto, in reliance upon and in
conformity with written information furnished expressly for use
in connection with such registration by any such holder,
underwriter or controlling person;
(2) to the extent permitted by law, each holder requesting
or joining in a registration will indemnify and hold harmless the
Company, each of its directors, each of its officers who have
signed the registration statement, each person, if any, who
controls the Company within the meaning of the 1933 Act and each
agent and any underwriter for the Company (within the meaning of
the 1933 Act) against any losses, claims, damages or liabilities
to which the Company or any such director, officer, controlling
person, agent or underwriter may become subject, under the 1933
Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereto) arise out of or are
based upon any untrue statement or alleged untrue statement of
any material fact contained in such registration statement,
including any preliminary prospectus or final prospectus
contained therein or any amendments or supplements thereto, or
arise out of or are based upon the omission or alleged omission
to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, in each
case to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged
omission was made in such registration statement, preliminary or
final prospectus, or amendments or supplements thereto, in
reliance upon and in conformity with written information
furnished by such holder expressly for use in connection with
such registration; and each such holder will reimburse any legal
or other expenses reasonably incurred by the Company or any such
director, officer, controlling person, agent or underwriter in
connection with investigating or defending any
17
<PAGE> 18
such loss, claim, damage, liability or action; provided, however,
that the indemnity agreement contained in this Section 11(i)(2)
shall not apply to amounts paid in settlement of any such loss,
claim, damage, liability or action if such settlement is effected
without the consent of such holder (which consent shall not be
unreasonably withheld); and
(3) promptly after receipt by an indemnified party under
this paragraph of notice of the commencement of any action, such
indemnified party will, if a claim in respect thereof is to be
made against any indemnifying party under this paragraph, notify
the indemnifying party in writing of the commencement thereof and
the indemnifying party shall have the right to participate in,
and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, to assume
the defense thereof with counsel mutually satisfactory to the
parties. The failure to notify an indemnifying party promptly of
the commencement of any such action, if prejudicial to his
ability to defend such action, shall relieve such indemnifying
party of any liability to the indemnified party under this
paragraph, but the omission so to notify the indemnifying party
will not relieve him of any liability that he may have to any
indemnified party otherwise than under this paragraph.
(j) Registrations on Form S-3.
(1) If (i) the Holder requests in writing
(specifying that the request is being made pursuant to this
Section 11(j)) that the Company file a registration statement on
Form S-3 under the 1933 Act ("Form S-3") (or any successor form
to Form S-3 regardless of its designation) for a public offering
of shares of all of the Registrable Stock, the reasonably
anticipated aggregate price to the public of which would exceed
$500,000, and (ii) the Company is a registrant entitled to use
Form S-3 to register such shares, then the Company shall use its
reasonable best efforts to cause such shares to be registered on
Form S-3 (or any successor form to Form S-3).
(2) All expenses incurred in connection with a
registration requested pursuant to Section 11(j)(1) (excluding
underwriters' discounts and commissions), including, without
limitation, all registration, qualification, printing and
accounting fees, and reasonable fees and disbursements of one
counsel for the selling holder or holders and counsel for the
Company, shall be borne by the Company.
(3) Holders' rights to registration under this
Section 11(j) are in addition to, and not in lieu of, their
rights to registration under Sections 11(b) and 11(c).
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<PAGE> 19
(k) Termination of the Company's Obligations. The Company
shall have no obligations pursuant to Sections 11(b), 11(c) or 11(j) as
to Holder after the Company has included Registrable Stock of Holder in
a registration pursuant to Sections 11(b), 11(c) or 11(j), provided,
however, that if Holder has requested that all of its Registrable Stock
be registered under Section 11(c), but Holder shall be prohibited from
selling all of such stock by virtue of Section 11(g), then Holder's
rights shall not be restricted by the provisions of this Section 11(k)
until such time as it has had an opportunity to sell all of its
Registrable Stock.
(l) Reports Under Securities Exchange Act of 1934. With a
view to making available to the holders of Registrable Stock the
benefits of Rule 144 promulgated under the 1933 Act and any other rule
or regulation of the Securities and Exchange Commission that may at any
time permit a holder to sell securities of the Company to the public
without registration, the Company agrees to use its reasonable best
efforts to:
(1) make and keep public information available, as
those terms are understood and defined in Rule 144, at all times
subsequent to 90 days after the effective date of the first
registration statement covering an underwritten public offering
filed by the Company;
(2) file with the Securities and Exchange
Commission in a timely manner all reports and other documents
required of the Company under the 1933 Act and the Securities
Exchange Act of 1934 (the "1934 Act"); and
(3) furnish to any holder so long as such holder
owns any of the Registrable Stock forthwith upon request a
written statement by the Company that it has complied with the
reporting requirements of Rule 144 (at any time after 90 days
after the effective date of said first registration statement
filed by the Company), and of the 1933 Act and the 1934 Act (at
any time after it has become subject to such reporting
requirements), a copy of the most recent annual or quarterly
report of the Company, and such other reports and documents so
filed by the Company as may be reasonably requested in availing
any holder of any rule or regulation of the Securities and
Exchange Commission permitting the selling of any such securities
without registration.
(m) Lockup Agreement. In consideration for the Company's
agreeing to its obligations under this Section 1l, the holder of
Registrable Stock agrees in connection with any registration of the
Company's securities that, upon the request of the Company or the
underwriters managing any underwritten offering of the Company's
securities, not to sell, make any short sale of, loan, grant any option
for the purchase of or otherwise dispose of any Registrable Stock (other
than those included in the registration) without the prior written
consent of the Company or such underwriters, as the case may
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<PAGE> 20
be, for such period of time (not to exceed 180 days) from the effective
date of such registration as the Company or the underwriters may
specify.
(n) Certain Limitations in Connection with Future Grants
of Registration Rights. From and after the date hereof, the Company
shall not enter into any agreement with any holder or prospective holder
of any securities of the Company providing for the granting to such
holder of registration rights unless:
(1) the Company shall use its best efforts to
include the equivalent of Section 11(m) as a term in any such
agreement; and
(2) any such agreement shall include a provision
that, in the case of a public offering involving an underwritten
registered offering under Section 11(c), protects the holders of
Registrable Stock if marketing factors require a limitation on
the number of securities to be included in the underwriting in
the manner in which the Company is protected under Section 11(g);
and
(3) any such agreement does not grant to such
holder or prospective holder registration rights more favorable
that those granted to the holders of Registrable Stock under this
Section 11.
(o) Transfer of Registration Rights. The registration
rights of the Holder of this Warrant under this Section 11 may be
transferred pro rata to any transferee who acquires at least 20% of the
then outstanding shares of Registrable Stock, or this Warrant; provided,
however, that the Company is given written notice by the Holder at the
time of such transfer stating the name and address of the transferee and
identifying the securities with respect to which the rights under this
Section 11 are being assigned.
Section 12. Amendments.
(a) Other than in respect of Section 11 hereof, neither
this Warrant nor any term hereof may be changed, waived, discharged or
terminated orally or in writing, provided that any term of this Warrant
may be amended or the observance of such term may be waived (either
generally or in a particular instance and either retroactively or
prospectively) with, but only with, the written consent of the Company
and the holders of Warrants that are exercisable for a number of shares
that represent in the aggregate at least a majority of the total number
of shares for which all Warrants are then exercisable (whether or not
the holder of this Warrant consents).
(b) Neither Section 11 of this Warrant nor Section 11 of
any other Warrant, nor any term of either of such Sections 11 may be
changed, waived, discharged or terminated orally or in writing, provided
that any term of Section 11 of this Warrant and any term of Section 11
of any other Warrant may be amended or the observance of such term may
be waived (either generally or in a particular instance and either
retroactively or prospectively) with, but only with, the written consent
of the Company
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<PAGE> 21
and the holders of all Warrants that are exercisable for a number of
shares that represent in the aggregate at least a majority of the total
number of shares for which all Warrants are then exercisable (whether or
not the holder of this Warrant consents). As used herein, "Warrants"
means any warrant or springing warrant heretofore, now or hereafter
issued by the Company to Holder.
Section 13. Governing Law.
This Warrant shall be governed by the laws of the State of New
York without regard to its conflict of laws principles or rules.
Section 14. Consent to Jurisdiction.
Any legal action, suit or proceeding arising out of or relating
to this Agreement or the consummation of the transactions contemplated hereby
may only be instituted in any federal court of the Southern District of New York
or any state court located in New York County, State of New York, and each party
agrees not to assert, by way of motion, as a defense or otherwise, in any such
action, suit or proceeding, any claim that it is not subject personally to the
jurisdiction of such courts, that the action, suit or proceeding if brought in
such courts, would be an inconvenient forum, that the venue of the action, suit
or proceeding, if brought in any of such courts, is improper or that this
Agreement or the subject matter hereof may not be enforced in or by such courts
on jurisdictional grounds.
IN WITNESS WHEREOF, the Company has caused this Warrant to be
signed in its name by its duly authorized officer.
Dated: March 31, 1998
WILSHIRE TECHNOLOGIES, INC.
By: /s/ John Van Egmond
Name: John Van Egmond
Title: President & CEO
21
<PAGE> 22
SUBSCRIPTION NOTICE
The undersigned, the Holder, hereby elects to exercise purchase
rights represented by such Warrant: for, and to purchase thereunder, ___________
shares of the Common Stock covered by such Warrant and herewith makes payment in
full therefor of $ ________ cash and/or by cancellation of $__________ of
indebtedness of the Company to the Holder hereof and requests that certificates
for such shares (and any securities or property deliverable upon such exercise)
be issued in the name of and delivered to ____________________________________
whose address is _____________________________________________________ .
The undersigned agrees that, in the absence of an effective
registration statement with respect to Common Stock issued upon this exercise,
the undersigned is acquiring such Common Stock for investment and not with a
view to distribution thereof and that the certificate or certificates
representing such Common Stock may bear a legend substantially as follows:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 OR QUALIFIED UNDER APPLICABLE STATE SECURITIES LAWS
UNLESS THEY ARE SOLD PURSUANT TO RULE 144 PROMULGATED BY THE
SECURITIES AND EXCHANGE COMMISSION UNDER SAID ACT, THEY MAY NOT
BE SOLD OR OTHERWISE TRANSFERRED IN ABSENCE OF SUCH REGISTRATION
AND QUALIFICATION WITHOUT AN OPINION OF COUNSEL FOR THE HOLDER,
REASONABLY SATISFACTORY TO COUNSEL FOR THE COMPANY, THAT SUCH
REGISTRATION AND QUALIFICATION ARE NOT REQUIRED.
Dated:
---------------------
Signature guaranteed:
22
<PAGE> 23
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers unto _____________________________ the rights represented by the
foregoing Warrant of _______________________ and appoints ____________________
attorney to transfer said rights on the books of said corporation, with full
power of substitution in the premises.
Dated:
---------------------
Signature guaranteed:
NOTICE: The signature to this assignment must correspond with the name as
written upon. the face of the within Warrant in every particular, without
alteration or enlargement or any change whatsoever.
23
<PAGE> 24
FORM OF NOTICE OF CONVERSION
Pursuant to Section 2 of the Warrant to purchase shares of Common
Stock of Wilshire Technologies, Inc. (the "Company"), at an exercise price of $
________ per share, Trilon Dominion Partners, L.L.C. (the "Holder") hereby gives
notice of its desire to convert such Warrant into shares of Common Stock of the
Company in accordance with the terms set forth below:
1. The total number of shares of Common Stock to be purchased
by the Holder pursuant to the conversion is ____________
_______________________________ .
2. The closing of such purchase shall take place on
(a date not less than two nor more than seven business
days from the date of this Conversion Notice) at _______
___________________________________ .
TRILON DOMINION PARTNERS, L.L.C.
By: VC Holdings, Inc. its Managing
Member
Dated: By:
----------------- ----------------------
24
<PAGE> 1
EXHIBIT 10.114
NEITHER THIS SPRINGING WARRANT NOR THE COMMON STOCK ISSUABLE UPON EXERCISE OF
THIS SPRINGING WARRANT HAS BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND NEITHER THIS SPRINGING WARRANT NOR THE COMMON STOCK ISSUABLE UPON
EXERCISE OF THIS SPRINGING WARRANT MAY BE TRANSFERRED EXCEPT AS PROVIDED IN
SECTION 3 OF THIS SPRINGING WARRANT.
SPRINGING WARRANT
to Purchase Common Stock of
Wilshire Technologies, Inc.
Subject to the occurrence of the conditions set forth in Section
8 hereof, this Springing Warrant certifies that Trilon Dominion Partners,
L.L.C., a Delaware limited liability company, or registered assigns (the
"Holder"), is entitled to subscribe for and purchase from Wilshire Technologies,
Inc., a corporation organized under the laws of the State of California (the
"Company"), all or any part of duly authorized, validly issued, fully paid and
nonassessable shares of the Company's common stock, no par value per share (the
common stock, including any stock into which it may be changed, reclassified, or
converted, and as it may be adjusted pursuant to Section 10 below, is herein
referred to as the "Common Stock"), as comprise 250,000 shares at a purchase
price per share equal to the average of the highest reported bid and lowest
reported asked prices for the Common Stock on December 31, 1998, as reported by
the National Association of Securities Dealers, Inc. through NASDAQ, or if no
such prices are quoted on such date, said average on the most recent trading day
prior to such date on which such prices were quoted (as it may be adjusted
pursuant to Section 10(B), the "Exercise Price"). This Springing Warrant may be
exercised only as provided in Section 8 hereof. The maximum number of shares so
issuable under this Springing Warrant is sometimes referred to as the "Aggregate
Number," and initially the Aggregate Number is 250,000.
This Springing Warrant is issued pursuant to that certain Amended
and Restated Credit Agreement and Revolving Line of Credit, dated as of March
31, 1998, by and between the Company and the Holder (the "Credit Agreement").
Pursuant to the Credit Agreement, the Holder has agreed to extend credit to the
Company in the aggregate principal amount of $7,493,296.92, evidenced by a Grid
Promissory Note dated March 31, 1998, issued by the Company in favor of the
Holder in an aggregate principal amount of $7,493,296.92 and bearing interest at
the prime rate published in The Wall Street Journal (Eastern Edition) plus 3%
(the "Note").
This Springing Warrant is subject to the following provisions,
terms and conditions:
<PAGE> 2
Section 1. Exercise of Springing Warrant.
To exercise this Springing Warrant in whole or in part, the
Holder shall deliver to the Company at its principal office in Carlsbad,
California (a) a written notice, in substantially the form of the Subscription
Notice appearing at the end of this Springing Warrant, of the Holder's election
to exercise this Springing Warrant, which notice shall specify the number of
shares of Common Stock to be purchased, (b) cash or a certified check payable to
the Company, or by crediting such amount against outstanding indebtedness
(including principal and accrued interest thereon) of the Company to the Holder
hereof, if any, at the time of exercise, including any portion of the Note, in
an amount equal to the Exercise Price and (c) this Springing Warrant. The
Company shall as promptly as practicable, and in any event within 15 days
thereafter, execute and deliver or cause to be executed and delivered, in
accordance with such notice, a certificate or certificates representing the
aggregate number of shares of Common Stock specified in such notice. The stock
certificate or certificates so delivered shall be in the denomination of 1,000
shares each or such lesser or greater denomination as may be specified in such
notice and shall be issued in the name of the Holder or such other name as shall
be designated in such notice. Such certificate or certificates shall be deemed
to have been issued and the Holder or any other person so designated to be named
therein shall be deemed for all purposes to have become a holder of record of
such shares as of the date such notice, with receipt of this Springing Warrant
and payment of the Exercise Price, is received by the Company as aforesaid. If
this Springing Warrant shall have been exercised only in part, the Company
shall, at the time of delivery of said certificate or certificates, deliver to
the Holder a new springing warrant evidencing the rights of the Holder to
purchase the remaining shares of Common Stock called for by this Springing
Warrant, which new springing warrant shall in all other respects be identical to
this Springing Warrant, or, at the request of the Holder, appropriate notation
may be made on this Springing Warrant and the same returned to the Holder. The
Company shall pay all expenses, taxes and other charges payable in connection
with the preparation, issue and delivery of such stock certificates and new
springing warrants, except that, in case such stock certificates or new
springing warrants shall be registered in a name or names other than the name of
the Holder, funds sufficient to pay all stock transfer taxes that are payable
upon the issuance of such stock certificate or certificates or new springing
warrants shall be paid by the Holder at the time of delivering the notice of
exercise mentioned above.
Subject to compliance with applicable securities laws and the
terms of this Agreement, all shares of Common Stock issued upon the exercise of
this Springing Warrant shall be validly issued, fully paid and nonassessable
and, if the Common Stock is then listed on a securities exchange, or quoted on
an automated quotation system, shall be duly listed or quoted thereon.
The Company shall not be required upon any exercise of this
Springing Warrant to issue a certificate representing any fraction of a share of
Common Stock, but, in lieu thereof, shall pay to the Holder cash in an amount
equal to a corresponding fraction (calculated to the nearest 1/100 of a share)
of the purchase price of one share of Common Stock as of the date of receipt by
the Company of notice of exercise of this Springing Warrant.
2
<PAGE> 3
Section 2. Transfer, Division and Combination.
The Company agrees to maintain at its principal office in
Carlsbad, California, books for the registration and transfer of this Springing
Warrant, and, subject to the provisions of Section 3 hereof, this Springing
Warrant and all rights hereunder are transferable, in whole, on such books at
such office, upon surrender of this Springing Warrant at such office, together
with a written assignment of this Springing Warrant duly executed by the Holder
or his agent or attorney, and funds sufficient to pay any stock transfer taxes
payable upon the making of such transfer. Upon such surrender and payment, the
Company shall execute and deliver a new springing warrant or springing warrants
in the name of the assignee or assignees and in the denominations specified in
such instrument of assignment, and this Springing Warrant shall promptly be
canceled. A springing warrant may be exercised by a new holder for the purchase
of shares of Common Stock without having a new springing warrant issued.
This Springing Warrant may be divided or combined with other
Springing Warrants upon presentation hereof at such principal office in
Carlsbad, California, together with a written notice specifying the names and
denominations in which new Springing Warrants are to be issued, signed by the
Holder or his agent or attorney. Subject to compliance with the preceding
paragraph as to any transfer that may be involved in such division or
combination, the Company shall execute and deliver a new Springing Warrant or
Springing Warrants in exchange for the Springing Warrant or Springing Warrants
to be divided or combined in accordance with such notice.
Section 3. Restrictions on Exercise and Transfer of Springing
Warrants and Common Stock.
This Springing Warrant shall be exercisable (a) only under
circumstances such that the issue of Common Stock issuable upon such exercise is
exempt from the requirements of registration under the Securities Act of 1933,
as amended (or any similar statute then in effect) (the "1933 Act") and any
applicable securities law or (b) upon registration of such Common Stock in
compliance therewith. This Springing Warrant shall be transferable only under
circumstances such that the transfer is exempt from the requirements of
registration under the 1933 Act and any applicable securities law. By acceptance
hereof, the Holder agrees to comply with such legislation.
Before any transfer or attempted transfer of all or any part of
this Springing Warrant or such Common Stock, the Holder shall give the Company
written notice of its intention so to do, describing briefly the manner of any
such proposed transfer. Promptly after receiving such written notice, the
Company shall present copies thereof to Company counsel and, if the Company
requests the Holder to designate special counsel therefor, to any special
counsel designated by the Holder that is reasonably satisfactory to the Company.
If, in the opinion of counsel for the Company and counsel, if any, for the
Holder, the proposed transfer may be effected without registration under the
1933 Act and any applicable state securities law of any such securities, the
Company, as promptly as practicable, shall notify the Holder of such opinion,
whereupon the securities proposed to be transferred may be transferred in
accordance with the
3
<PAGE> 4
terms of such notice. The Company shall not be required to effect any such
transfer before the receipt of such favorable opinion or opinions or the
effectiveness of registration.
Section 4. Certain Covenants.
The Company covenants and agrees that it will at all times
reserve and set apart and have, free from preemptive rights, a number of shares
of authorized but unissued Common Stock, or other stock or securities
deliverable pursuant to this Springing Warrant, sufficient to enable it at any
time to fulfill all its obligations hereunder.
Section 5. Notices.
In the event that:
(a) the Company proposes to pay any dividend payable in
stock (of any class or classes) or in Convertible Securities, as defined
below, upon its Common Stock or make any distribution (other than
ordinary cash dividends) to the holders of its Common Stock,
(b) the Company proposes to grant to the holders of its
Common Stock generally any rights or options,
(c) the Company proposes to effect any capital
reorganization or reclassification of capital stock of the Company,
(d) the Company proposes to consolidate with, or merge
into, any other corporation or to transfer its property as an entirety
or substantially as an entirety, or
(e) the Company proposes to effect the liquidation,
dissolution or winding up of the Company,
then the Company shall cause notice of any such intended action to be given to
the holder(s) of record of outstanding "Springing Warrants" (as hereinafter
defined) not less than 20 days before the date on which the transfer books of
the Company shall close or a record shall be taken for such stock dividend,
distribution or granting of rights or options, or the date when such capital
reorganization, reclassification, consolidation, merger, transfer, liquidation,
dissolution or winding up shall be effective, as the case may be.
Any notice or other document required or permitted to be given or
delivered to holders of record of Springing Warrants shall be delivered by
facsimile, reliable courier or first-class mail postage prepaid to each such
holder at the last address shown on the books of the Company maintained for the
registry and transfer of the Springing Warrants. Any notice or other document
required or permitted to be
4
<PAGE> 5
given or delivered to holders of record of Common Stock issued pursuant to
Springing Warrants shall be delivered by facsimile, reliable courier or
first-class mail postage prepaid to each such holder at such holder's address as
the same appears on the stock records of the Company. Any notice or other
document required or permitted to be given or delivered to the Company shall be
delivered by facsimile, reliable courier or first-class mail postage prepaid to
the principal office of the Company, in Carlsbad, California, or delivered to
the office of one of the Company's executive officers at such address, or such
other address as shall have been furnished by the Company to the holders of
record of such Springing Warrants and the holders of record of such Common
Stock.
Section 6. Limitation of Liability; Not Shareholders.
No provision of this Springing Warrant shall be construed as
conferring upon the Holder the right to vote or to consent or to receive
dividends or to receive notice as a shareholder in respect of meetings of
shareholders for the election of directors of the Company or any other matter
whatsoever as shareholders of the Company. No provision hereof, in the absence
of affirmative action by the Holder to purchase shares of Common Stock, and no
mere enumeration herein of the rights or privileges of the Holder, shall give
rise to any liability of Holder for the purchase price or as a shareholder of
the Company, whether such liability is asserted by the Company, creditors of the
Company or others.
Section 7. Loss, Destruction, etc. of Springing Warrant.
Upon receipt of evidence satisfactory to the Company of the loss,
theft, mutilation or destruction of any Springing Warrant, and in the case of
any such loss, theft or destruction upon delivery of a bond of indemnity in such
form and amount as shall be reasonably satisfactory to the Company, or in the
event of such mutilation upon surrender and cancellation of the Springing
Warrant, the Company will make and deliver a new Springing Warrant, of like
tenor, in lieu of such lost, stolen, destroyed or mutilated Springing Warrant.
Any Springing Warrant issued under the provisions of this Section 7 in lieu of
any Springing Warrant alleged to be lost, destroyed or stolen, or of any
mutilated Springing Warrant, shall constitute an original contractual obligation
on the part of the Company.
Section 8. Term of Springing Warrant; Shares Issuable Upon
Exercise.
(a) This Springing Warrant shall become exercisable only
in the event that the principal amount, plus all accrued and unpaid
interest, on the Note, shall not be paid in full on or before December
31, 1998.
(b) Upon the occurrence of the event described in Section
8(a), this Springing Warrant shall be exercisable for 250,000 shares, at
any time after the date of such occurrence and on or prior to 5:00 p.m.,
New York, New York time, on December 31, 2003 (the "Maturity Date").
(c) The Holder of this Springing Warrant is hereby
authorized by the Company to record on the grid attached to this
Springing Warrant any increase in the number of shares to be issued upon
exercise of this Springing Warrant.
(d) The Holder of this Springing Warrant covenants and
agrees to surrender the Springing Warrant to the Company for
cancellation in the event the
5
<PAGE> 6
outstanding principal amount of the Note, plus all accrued and
unpaid interest, is paid in full on or prior to December 31, 1998.
Section 9. Right to Convert Springing Warrant.
The Holder shall have the right to convert this Springing Warrant
(the "Conversion Right") at any time after such Warrant becomes exercisable and
prior to the expiration of the Maturity Date, into shares of Common Stock in
accordance with this Section 9; provided that the Conversion Right shall be
exercisable only if there is no outstanding indebtedness (including principal
and accrued interest thereon) of the Company to the Holder hereof at the time of
exercise of such Conversion Right.
Upon exercise of the Conversion Right, the Company shall deliver
to the Holder (without payment by the Holder of the Exercise Price) that number
of shares of Common Stock equal to the quotient obtained by dividing (x) the
value of this Springing Warrant at the time the Conversion Right is exercised
(determined by subtracting the aggregate Exercise Price for this Springing
Warrant (in effect immediately prior to the exercise of the Conversion Right)
from the amount obtained by multiplying the number of shares of Common Stock
issuable upon the exercise of this Springing Warrant by the Closing Price (as
defined below) immediately prior to the exercise of the Conversion Right) by (y)
the Closing Price of one share of Common Stock immediately prior to the exercise
of the Conversion Right.
For purposes hereof, the "Closing Price" shall mean the average
of the highest reported bid and lowest reported asked prices on the principal
national securities exchange on which the Common Stock is listed or admitted to
trading, or, if the Common Stock is not listed or admitted to trading on any
national securities exchange, the average of the highest reported bid and lowest
reported asked prices for the Common Stock as furnished by the National
Association of Securities Dealers, Inc. through NASDAQ or a similar organization
if NASDAQ is no longer reporting such information. If the highest reported bid
and lowest reported asked prices are not reported for the Common Stock, the
"Closing Price" shall be the fair market value of the Common Stock, as
determined in good faith by the Company's Board of Directors.
The Conversion Right may be exercised by the Holder, at any time
or from time to time, prior to its expiration, on any business day by delivering
a written notice (the "Conversion Notice") to the Company at the offices of the
Company, exercising the Conversion Right and specifying (i) the total number of
shares of Common Stock the Holder will purchase pursuant to the conversion and
(ii) a place and date not less than two nor more than seven (7) business days
from the date of the Conversion Notice for the closing of such purchase.
At any closing under this Section 9, (i) the Holder will
surrender this Springing Warrant and (ii) the Company will deliver to the Holder
a certificate or certificates for the number of shares of Common Stock issuable
upon such conversion.
6
<PAGE> 7
Section 10. Adjustment of Aggregate Number and Exercise Price
(A) Adjustments of Number of Shares Issuable Pursuant to this Springing
Warrant.
The Aggregate Number shall be subject to adjustment from time to
time as follows and thereafter as adjusted shall be deemed to be the Aggregate
Number hereunder.
(a) In case at any time or from time to time the Company
shall:
(i) take a record of the holders of its Common
Stock for the purpose of entitling them to receive a dividend
payable in, or other distribution of, Common Stock,
(ii) subdivide its outstanding shares of Common
Stock into a larger number of shares of Common Stock,
(iii) combine its outstanding shares of Common
Stock into a smaller number of shares of Common Stock, or
(iv) enter into any consolidation with or merge
into any other corporation wherein the Company is not the
continuing corporation, or wherein cash or securities of a
corporation other than the Company are distributable to holders
of Common Stock of the Company, or sell or convey its property as
an entirety or substantially as an entirety, and in connection
with such consolidation, merger, sale or conveyance, shares of
stock or cash or other securities shall be issuable or
deliverable in exchange for the Common Stock of the Company,
then the Aggregate Number in effect immediately prior thereto shall be
adjusted so that the holder or holders of this Springing Warrant shall
thereafter be entitled to receive, upon exercise hereof, the number of
shares of Common Stock that such holder or holders would have owned or
have been entitled to receive after the occurrence of such event had
this Springing Warrant been exercised immediately prior to the
occurrence of such event. In case of any such consolidation, merger,
sale or conveyance, appropriate provision (as determined by a resolution
of the Board of Directors of the Company) shall be made with respect to
the rights and interests thereafter of the Holder, to the end that all
the provisions of this Springing Warrant (including adjustment
provisions) shall thereafter be applicable as nearly as reasonably
practicable, in relation to any such stock or other securities.
(b) In case at any time or from time to time the Company
shall take a record of the holders of its Common Stock for the purpose
of entitling them to receive any dividend or other distribution
(collectively, a "Distribution") of:
7
<PAGE> 8
(i) cash (other than dividends payable out of
earnings or any surplus legally available for the payment of
dividends under the laws of the state of incorporation of the
Company),
(ii) any evidences of its indebtedness (other than
any obligations or stock convertible into or exchangeable for
shares of Common Stock (such convertible or exchangeable
obligations or stock being hereinafter called "Convertible
Securities")), any shares of its capital stock (other than
additional shares of Common Stock or Convertible Securities) or
any other securities or property of any nature whatsoever (other
than cash), or
(iii) any options or warrants or other rights to
subscribe for or purchase any of the following: any evidences of
its indebtedness (other than Convertible Securities), any shares
of its capital stock (other than additional shares of Common
Stock or Convertible Securities) or any other securities or
property of any nature whatsoever,
then the holder or holders of this Springing Warrant shall be entitled
to receive upon the exercise hereof at any time on or after the taking
of such record the number of shares of Common Stock to be received upon
exercise of this Springing Warrant determined as stated herein and in
addition and without further payment, the cash, stock, securities, other
property, options, warrants and/or other rights to which such holder or
holders would have been entitled by way of the Distribution and
subsequent dividends and distributions to which such holder or holders
would have been entitled by way of the Distribution if such holder or
holders (x) had exercised this Springing Warrant immediately prior to
such Distribution, and (y) had retained the Distribution in respect of
the Common Stock and all subsequent dividends and distributions to which
such holder or holders would have been entitled by way of the
Distribution. A reclassification of the Common Stock into shares of
Common Stock and shares of any other class of stock shall be deemed a
distribution by the Company to the holders of its Common Stock of such
shares of such other class of stock within the meaning of this paragraph
(b) and, if the outstanding shares of Common Stock shall be changed into
a larger or smaller number of shares of Common Stock as a part of such
reclassification, such event shall be deemed a subdivision or
combination, as the case may be, of the outstanding shares of Common
Stock within the meaning of paragraph (a) of this Section 10.
(c) In case at any time or from time to time the Company
shall (except as hereinafter provided) issue or sell any additional
shares of Common Stock or securities at a price which is less than the
Exercise Price, then the Aggregate Number in effect immediately prior
thereto shall be adjusted immediately so that the Aggregate Number
thereafter shall be an amount equal to the product of (x) the percentage
represented by the fraction, the numerator of which is the Aggregate
Number in effect immediately prior to such issuance or sale and the
denominator of which is the total outstanding shares of Common Stock
immediately prior to such issuance or sale (assuming for purposes of
such calculation the exercise of all of the warrants issued by the
Company, and the
8
<PAGE> 9
conversion, exercise or exchange of all other securities then
outstanding and convertible, exercisable or exchangeable into shares of
Common Stock) as of the date of the sale or issuance by the Company of
the shares requiring the adjustment to the Aggregate Number pursuant to
this Section 10 (such total number of shares of Common Stock outstanding
immediately prior to such issuance or sale, the "Prior Outstanding
Number"), and (y) the total number of shares of Common Stock outstanding
immediately after such issuance or sale (assuming for purposes of such
calculation (i) the exercise of all of the warrants issued by the
Company, and (ii) the conversion, exercise or exchange of all other
securities then outstanding and convertible, exercisable or exchangeable
into shares of Common Stock) (the "New Outstanding Number");
The provisions of this paragraph (c) shall not apply to
any issuance of additional shares of Common Stock for which an
adjustment is provided under Section 10(A)(a).
(d) In case at any time or from time to time the Company
shall (except as hereinafter provided) take a record of the holders of
its Common Stock for the purpose of entitling them to receive a
distribution of, or shall in any manner issue or sell, any warrants or
other rights to subscribe for or purchase (x) any shares of Common Stock
or (y) any Convertible Securities, whether or not the rights to
subscribe, purchase, exchange or convert thereunder are immediately
exercisable, at a purchase price per share of Common Stock which is less
than the Exercise Price, then the Aggregate Number in effect immediately
prior thereto shall be adjusted immediately so that the Aggregate Number
thereafter shall be an amount equal to the product of (x) the percentage
represented by the fraction, the numerator of which is the Aggregate
Number in effect immediately prior to such distribution, issuance or
sale and the denominator of which is the Prior Outstanding Number and
(y) the New Outstanding Number assuming the exercise of the warrants or
other rights and/or the conversion of the Convertible Securities
distributed, issued or sold at such time.
The provisions of this paragraph (d) shall not apply to
any issuance of additional shares of Common Stock for which an
adjustment is provided under Section 10(A)(a).
(e) In case at any time or from time to time the Company
shall take a record of the holders of its Common Stock for the purpose
of entitling them to receive a distribution of or shall in any manner
issue or sell Convertible Securities, whether or not the rights to
exchange or convert thereunder are immediately exercisable, at an
exercise price per share of Common Stock which is less than the Exercise
Price, then the Aggregate Number in effect immediately prior thereto
shall be adjusted immediately so that the Aggregate Number thereafter
shall be an amount equal to the product of (x) the percentage
represented by the fraction, the numerator of which is the Aggregate
Number in effect prior to such distribution, issuance or sale and the
denominator of which is the Prior Outstanding Number and (y) the New
Outstanding Number assuming the conversion of the Convertible Securities
distributed, issued or sold at such time.
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<PAGE> 10
No adjustment of the Aggregate Number shall be made under
this Section 10(A)(e) upon the issuance of any Convertible Securities
which are issued pursuant to the exercise of any warrants or other
subscription or purchase or similar rights if an adjustment shall
previously have been made.
(f) The following provisions shall be applicable to the
making of adjustments of the Aggregate Number and Exercise Price
hereinbefore and hereinafter provided for in this Section 10:
(i) The sale or other disposition of any issued
shares of Common Stock owned or held by or for the account of the
Company shall be deemed an issuance thereof for the purposes of
this Section 10.
(ii) The adjustments required by the preceding
paragraphs of this Section 10 shall be made whenever and as often
as any specified event requiring an adjustment shall occur,
except as expressly provided herein. For the purpose of any
adjustment, any specified event shall be deemed to have occurred
at the close of business on the date of its occurrence.
(iii) In computing adjustments under this Section
10, fractional interests in Common Stock shall be taken into
account to the nearest one-thousandth (.001) of a share and shall
be aggregated until they equal one whole share.
(iv) If the Company shall take a record of the
holders of its Common Stock for the purpose of entitling them to
receive a dividend, distribution, warrants or subscription or
purchase or similar rights under Sections 10(A)(a) through
10(A)(e) hereof, but abandon its plan to pay or deliver such
dividend, distribution, warrants, subscription or purchase or
similar rights, then no adjustment shall be required by reason of
the taking of such record and any such adjustment previously made
in respect thereof shall be rescinded and annulled.
(v) Notwithstanding anything herein to the
contrary, no adjustment shall be made to the Aggregate Number as
a result of (x) the issuance of shares of Common Stock issued
upon exercise of this Springing Warrant or any other warrant or
springing warrant heretofore, now or hereafter issued to Holder,
(y) the issuance of securities or options to any employee,
director, officer, contractor or consultant of the Company
pursuant to an approval of the Board of Directors of the Company
or pursuant to any plan approved by the Board of Directors of the
Company, including but not limited to, employee stock options
authorized to be issued pursuant to the Company's 1993 and 1995
Stock Option Plans, or (z) any other warrants or options
outstanding on the date hereof and any other warrants or
springing warrants issued to the Holder.
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<PAGE> 11
(vi) Upon the expiration or termination of any of
the warrants or other rights or options referred to in Section
10(A)(d) above or the Convertible Securities referred to in
Section 10(A)(e) above, the Aggregate Number after the expiration
or termination of any such warrants, rights, options or
Convertible Securities, the issuance of which caused an
adjustment to the Aggregate Number, shall be readjusted to such
Aggregate Number as would have been obtained had the adjustment
made upon the issuance of such warrants, rights, options or
Convertible Securities been made upon the basis of only the
number of shares of Common Stock actually issued upon the
exercise of such warrants, options or rights, upon the conversion
or exchange of such securities or upon the exercise of the
options or rights related to such securities and subsequent
conversion or exchange thereof.
(vii) The consideration for any additional shares
of Common Stock issuable pursuant to any options, warrants or
other rights to subscribe for or purchase the same shall be the
consideration received or receivable by the Company for issuing
such options, warrants or other rights, plus the additional
consideration payable to the Company upon the exercise of such
options, warrants or other rights. The consideration for any
additional shares of Common Stock issuable pursuant to the terms
of any Convertible Securities shall be the consideration received
or receivable by the Company for issuing any options, warrants or
other rights to subscribe for or purchase such Convertible
Securities, plus the consideration paid or payable to the Company
in respect of the subscription for or purchase of such
Convertible Securities, plus the additional consideration, if
any, payable to the Company upon the exercise of the right of
conversion, exercise or exchange of such Convertible Securities.
In case of the issuance at any time of any additional shares of
Common Stock or Convertible Securities in payment or satisfaction
of any dividend upon any class of stock other than Common Stock,
the Company shall be deemed to have received for such additional
shares of Common Stock or Convertible Securities a consideration
equal to the amount of such dividend so paid or satisfied.
(g) If any event occurs as to which the other provisions
of this Section 10 are not strictly applicable but the lack of any
provision for the exercise of the rights of a holder or holders of this
Springing Warrant would not, in the judgment of the Board of Directors
of the Company, fairly protect the purchase rights of such holder or
holders of this Springing Warrant in accordance with the essential
intent and principles of such provisions, or, if strictly applicable,
would not, in the judgment of the Board of Directors of the Company,
fairly protect the conversion rights of the holder or holders of this
Springing Warrant in accordance with the essential intent and principles
of such provisions, then the Company shall appoint a firm of independent
certified public accountants in the United States (which may be the
regular auditors of the Company) of recognized national standing in the
United States reasonably satisfactory to the Holder, which shall give
their opinion as to the adjustments, if any, necessary to preserve
without dilution, on a basis consistent with the essential intent and
principles established in the
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<PAGE> 12
other provisions of this Section 10, the exercise rights of the holder
or holders of this Springing Warrant. Upon receipt of such opinion, the
Company shall forthwith make any adjustments described therein.
(h) Within 45 days after the end of each fiscal quarter
during which an event occurred that resulted in an adjustment pursuant
to this Section 10, the Company shall cause to be promptly mailed to
each holder of this Springing Warrant (and upon the exercise of this
Springing Warrant to the exercising holder) by first-class mail, postage
prepaid, notice of each adjustment or adjustments to the Aggregate
Number effected since the date of the last such notice and a certificate
of the Company's Chief Financial Officer or, in the case of any such
notice delivered within 45 days after the end of a fiscal year, a firm
of independent public accountants in the United States selected by the
Company and acceptable to the Holder (who may be the regular accountants
employed by the Company), in each case, setting forth the Aggregate
Number after such adjustment, a brief statement of the facts requiring
such adjustment and the computation by which such adjustment was made.
The fees and expenses of such accountants shall be paid by the Company.
(i) The occurrence of a single event shall not trigger an
adjustment of the Aggregate Number under more than one paragraph of this
Section 10.
(B) Adjustments to Exercise Price.
(a) Stock Split or Combination. The Exercise Price shall
be adjusted from time to time in the case of any stock split, dividend
payable in Common Stock, subdivision of the number of shares of the
Common Stock or similar event involving Common Stock (a "Split") or any
reverse stock split, combination or similar event involving the Common
Stock (a "Combination"), and, accordingly, the Exercise Price shall be
proportionately decreased in the case of a Split or increased in the
case of a Combination, as of the close of business on the date the Split
or Combination becomes effective, computed to the nearest cent.
(b) Issuance of Common Stock. The Exercise Price shall be
adjusted from time to time according to the following provisions:
(i) As used in this Section 10(B)(b), the term
"Additional Shares" means any shares of Common Stock or
Convertible Securities issued by the Company after the date
hereof other than (1) the issuance of shares of Common Stock
issued upon exercise of this Springing Warrant or any other
warrant or springing warrant heretofore, now or hereafter issued
to Holder; (2) shares of Common Stock issued upon the exercise of
any other warrants or options outstanding on the date hereof and
any other warrants or springing warrants issued to the Holder;
(3) the issuance of securities or options to any employee,
director, officer, contractor or consultant of the Company
pursuant to an approval of the Board of Directors of the Company,
including but not limited to, employee stock options authorized
to be issued pursuant to the Company's
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<PAGE> 13
1993 and 1995 Stock Option Plans, and (4) shares issued by the
Company upon any Split or Combination or pursuant to any merger,
recapitalization or other event to which the provisions of
Paragraph 10(A) apply.
(ii) If the Company shall issue any Additional
Shares either (1) without consideration or (2) for a
consideration per share of Common Stock less than the Exercise
Price in effect immediately prior to the issuance of such
Additional Shares or (3) in the case of Convertible Securities,
at an exercise price per share of Common Stock which is less than
the Exercise Price in effect immediately prior to the issuance of
such Additional Shares, then the Exercise Price (as adjusted
previously pursuant to the terms of this Section 10(B)) shall be
adjusted to a price (computed to the nearest cent and shall be
the new Exercise Price) obtained by applying the following
formula:
NP = (AS x OP) + C
------------------
AS + NS
where:
NP equal the new Exercise Price
AS equals the number of shares of Common Stock
outstanding (treasury shares not being deemed to
be outstanding) on the date hereof
OP equals the Exercise Price in effect immediately
prior to the calculation
C equals the aggregate consideration received by the
Company for all Additional Shares which were
issued since the date of the last adjustment
pursuant to this formula, or in the case of the
first such adjustment, which were issued after the
date hereof
NS equals the number of Additional Shares which were
issued after the date hereof
provided, however, that adjustment shall be made only if the
result obtained by applying the foregoing formula yields a new
Exercise Price which is less than the Exercise Price in effect
immediately prior to the issuance of such Additional shares.
Section 11. Registration Rights.
(a) Registrable Stock. As used in this Section 11, the
term "Registrable Stock" shall mean (i) all shares of Common Stock that
may be issued upon
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<PAGE> 14
exercise of this Springing Warrant, and (ii) all shares of Common Stock
that may be issued upon exercise of any Springing Warrant.
References in this Springing Warrant to rules, regulations
and forms promulgated by the Securities and Exchange Commission shall
include rules, regulations and forms succeeding to the functions
thereof, whether or not bearing the same designation.
The rights and obligations of the Company and the Holder
with respect to the Registrable Stock set forth in this Section 11 shall
supersede any registration rights and obligations of the Company and the
Holder existing prior to the date hereof with respect to the Registrable
Stock.
(b) Request for Registration. If the Company shall receive
a written request (specifying that it is being made pursuant to this
Section 11(b)) from the Holder of the Registrable Stock that the Company
file a registration statement under the 1933 Act, or a similar document
pursuant to any other statute then in effect corresponding to the 1933
Act covering the registration of the Registrable Stock, then the Company
shall use its reasonable best efforts to cause all Registrable Stock to
be registered under the 1933 Act.
Notwithstanding the foregoing, (i) the Company shall not
be obligated to effect a registration pursuant to this Section 11(b)
during the period starting with the date 60 days prior to the Company's
estimated date of filing of, and ending on a date 180 days following the
effective date of, a registration statement pertaining to an
underwritten public offering of securities for the account of the
Company, provided that the Company is actively employing in good faith
all reasonable efforts to cause such registration statement to become
effective and that the Company's estimate of the date of filing such
registration statement is made in good faith; and (ii) if the Company
shall furnish to the Holder a certificate signed by the chief executive
officer of the Company stating that in the good faith judgment of the
Board of Directors it would be seriously detrimental to the Company or
its shareholders for a registration statement to be filed in the near
future, then the Company's obligation to use its best efforts to file a
registration statement shall be deferred for a period not to exceed six
months.
Any request for registration under this Section 11(b) must
be for a firmly underwritten public offering to be managed by an
underwriter or underwriters of recognized national standing reasonably
acceptable to the Company.
(c) Company Registration. Subject to Section 11(g), if at
any time the Company proposes to register any of its Common Stock under
the 1933 Act in connection with the public offering of such securities
solely for cash on a form that would also permit the registration of the
Registrable Stock, the Company shall, each such time, promptly give each
holder of Registrable Stock written notice of such determination. Upon
the written request of the Holder as to all of the Registrable Stock,
given within 20 days after mailing of any such notice by the Company,
the Company shall use its
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<PAGE> 15
reasonable best efforts to cause to be registered under the 1933 Act all
of the Registrable Stock.
(d) Obligations of the Company. Whenever required under
Sections 11(b), 11(c) or 11(j) to use its reasonable best efforts to
effect the registration of any Registrable Stock, the Company shall, as
expeditiously as reasonably possible:
(1) prepare and file with the Securities and
Exchange Commission a registration statement with respect to such
Registrable Stock and use its reasonable best efforts to cause
such registration statement to become and remain effective;
provided, however, that in connection with any proposed
registration intended to permit an offering of any securities
from time to time (i.e., a so-called "shelf registration"), the
Company shall in no event be obligated to cause any such
registration to remain effective for more than 90 days;
(2) prepare and file with the Securities and
Exchange Commission such amendments and supplements to such
registration statement and the prospectus used in connection with
such registration statement as may be necessary to comply with
the provisions of the 1933 Act with respect to the disposition of
all securities covered by such registration statement;
(3) furnish to the holders of Registrable Stock
such numbers of copies of a prospectus, including a preliminary
prospectus, in conformity with the requirements of the 1933 Act,
and such other documents as they may reasonably request in order
to facilitate the disposition of Registrable Stock owned by them;
and
(4) use its reasonable best efforts to register and
qualify the securities covered by such registration statement
under such other securities or Blue Sky Laws of such
jurisdictions as shall be reasonably appropriate for the
distribution of the securities covered by the registration
statement.
(e) Furnish Information. It shall be a condition precedent
to the obligations of the Company to take any action pursuant to this
Section 11 that the holders of Registrable Stock shall furnish to the
Company such information regarding them, the Registrable Stock held by
them and the intended method of disposition of such securities as the
Company shall reasonably request and as shall be required in connection
with the action to be taken by the Company.
(f) Expenses of Demand Registration. All expenses incurred
in connection with a registration pursuant to Sections 11(b), 11(c) or
11(j) (excluding underwriters' discounts and commissions), including,
without limitation, all registration and qualification fees, printers'
and accounting fees, fees and disbursements of counsel for the Company
and the reasonable fees and disbursements of one counsel for the selling
holders, shall be borne by the Company, except to the extent prohibited
or otherwise restricted by state or federal securities laws or
regulations.
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<PAGE> 16
(g) Underwriting Requirements.
(1) In connection with any offering involving an
underwriting of shares being issued by the Company, the Company
shall not be required under Section 11(c) to include any of the
holders' Registrable Stock in such underwriting unless they
accept the terms of the underwriting as agreed upon between the
Company and the underwriters selected by it or them, and then
only in such quantity as will not, in the written opinion of the
underwriters, jeopardize the success of the offering by the
Company. If the total amount of securities that all holders
request to be included in such offering exceeds the amount of
securities that the underwriters reasonably believe compatible
with the success of the offering, the Company shall only be
required to include in the offering so many of the securities of
the selling holders as the underwriters believe will not
jeopardize the success of the offering, shall so advise all
selling holders of Registrable Stock, and the number of shares of
securities that are entitled to be included in the offering and
underwriting shall be allocated first, to the Company for
securities being sold for its own account, second, among all such
selling holders of Registrable Stock and, third, among all other
selling stockholders, in each case in proportion, as nearly as
practicable, to the respective total amounts of securities owned
by said selling holders of Registrable Stock and other selling
stockholders. If any selling holder of Registrable Stock or any
other selling stockholder disapproves of the terms of any such
underwriting, he, she or it may elect to withdraw therefrom by
written notice to the Company and the underwriter.
(2) In connection with any offering initiated by
any holders of Registrable Stock involving an underwriting of
shares being sold by such holders of Registrable Stock, such
holders shall not be required under Section 11(b) to include any
shares being issued by the Company or sold by any other selling
stockholders in such underwriting unless the Company and such
other selling stockholders accepts the terms of the underwriting
as agreed upon between such holders of Registrable Stock and the
underwriters selected by it and reasonably acceptable to the
Company, and then only in such quantity as will not, in the
written opinion of the underwriters, jeopardize the success of
the offering by such holders. If the total amount of securities
that all holders request to be included in such offering exceeds
the amount of securities that the underwriters reasonably believe
compatible with the success of the offering, the holders of
Registrable Stock shall only be required to include in the
offering so many of the securities of the Company as the
underwriters believe will not jeopardize the success of the
offering, shall so advise the Company and such other selling
stockholders, and the number of shares of securities that are
entitled to be included in the offering and underwriting shall be
allocated first, among all such selling holders of Registrable
Stock and other securities of the Company held by such holders,
second, to the Company for securities being sold for its own
account and, third, among all other selling stockholders. If some
but not all of the
16
<PAGE> 17
securities in any of the foregoing classes are includable in the
offering the holders in such class shall be permitted to
participate in the offering pro rata, as among holders in such
class. If the Company of any other selling stockholder
disapproves of the terms of any such underwriting, he, she or it
may elect to withdraw therefrom by written notice to the holders
of Registrable Stock and the underwriter.
(h) Delay of Registration. No holders of Registrable Stock
shall have any right to take any action to restrain, enjoin or otherwise
delay any registration as the result of any controversy that might arise
with respect to the interpretation or implementation of this Section 11.
(i) Indemnification. In the event any shares of
Registrable Stock are included in the registration statement under this
Section 11:
(1) to the extent permitted by law, the Company
will indemnify and hold harmless each holder of Registrable Stock
requesting or joining in a registration, any underwriter (as
defined in the 1933 Act) for it and each person, if any, who
controls such holder or underwriter within the meaning of the
1933 Act, against any losses, claims, damages or liabilities,
joint or several, to which they may become subject under the 1933
Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are
based on any untrue or alleged untrue statement of any material
fact contained in such registration statement, including any
preliminary prospectus or final prospectus contained therein or
any amendments or supplements thereto, or arise out of or are
based upon the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to make
the statements therein not misleading, or arise out of any
violation by the Company of any rule or regulation promulgated
under the 1933 Act applicable to the Company and relating to
action or inaction required of the Company in connection with any
such registration; and will reimburse each such holder, such
underwriter or controlling person for any legal or other expenses
reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action;
provided, -------- however, that the indemnity agreement
contained in this Section 11(i)(1) shall not apply to amounts
paid in settlement of any such loss, claim, damage, liability or
action if such settlement is effected without the consent of the
Company (which consent shall not be unreasonably withheld) nor
shall the Company be liable in any such case for any such loss,
claim, damage, liability or action to the extent that it arises
out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in connection with
such registration statement, preliminary prospectus, final
prospectus, or amendments or supplements thereto, in reliance
upon and in conformity with written information furnished
expressly for use in connection with such registration by any
such holder, underwriter or controlling person;
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<PAGE> 18
(2) to the extent permitted by law, each holder
requesting or joining in a registration will indemnify and hold
harmless the Company, each of its directors, each of its officers
who have signed the registration statement, each person, if any,
who controls the Company within the meaning of the 1933 Act and
each agent and any underwriter for the Company (within the
meaning of the 1933 Act) against any losses, claims, damages or
liabilities to which the Company or any such director, officer,
controlling person, agent or underwriter may become subject,
under the 1933 Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereto) arise out
of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in such registration
statement, including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements
thereto, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading, in each case to the extent, but only to the extent,
that such untrue statement or alleged untrue statement or
omission or alleged omission was made in such registration
statement, preliminary or final prospectus, or amendments or
supplements thereto, in reliance upon and in conformity with
written information furnished by such holder expressly for use in
connection with such registration; and each such holder will
reimburse any legal or other expenses reasonably incurred by the
Company or any such director, officer, controlling person, agent
or underwriter in connection with investigating or defending any
such loss, claim, damage, liability or action; provided, however,
that the indemnity agreement contained in this Section 11(i)(2)
shall not apply to amounts paid in settlement of any such loss,
claim, damage, liability or action if such settlement is effected
without the consent of such holder (which consent shall not be
unreasonably withheld); and
(3) promptly after receipt by an indemnified party
under this paragraph of notice of the commencement of any action,
such indemnified party will, if a claim in respect thereof is to
be made against any indemnifying party under this paragraph,
notify the indemnifying party in writing of the commencement
thereof, and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly
noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties. The failure to notify an
indemnifying party promptly of the commencement of any such
action, if prejudicial to his ability to defend such action,
shall relieve such indemnifying party of any liability to the
indemnified party under this paragraph, but the omission so to
notify the indemnifying party will not relieve him of any
liability that he may have to any indemnified party otherwise
than under this paragraph.
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<PAGE> 19
(j) Registrations on Form S-3.
(1) If (i) the Holder requests in writing
(specifying that the request is being made pursuant to this
Section 11(j)) that the Company file a registration statement on
Form S-3 under the 1933 Act ("Form S-3") (or any successor form
to Form S-3 regardless of its designation) for a public offering
of shares of all of the Registrable Stock, the reasonably
anticipated aggregate price to the public of which would exceed
$500,000, and (ii) the Company is a registrant entitled to use
Form S-3 to register such shares, then the Company shall use its
reasonable best efforts to cause such shares to be registered on
Form S-3 (or any successor form to Form S-3).
(2) All expenses incurred in connection with a
registration requested pursuant to Section 11(j)(1) (excluding
underwriters' discounts and commissions), including, without
limitation, all registration, qualification, printing and
accounting fees, and reasonable fees and disbursements of one
counsel for the selling holder or holders and counsel for the
Company, shall be borne by the Company.
(3) Holders' rights to registration under this
Section 11(j) are in addition to, and not in lieu of, their
rights to registration under Sections 11(b) and 11(c).
(k) Termination of the Company's Obligations. The Company
shall have no obligations pursuant to Sections 11(b), 11(c) or 11(j) as
to Holder after the Company has included Registrable Stock of Holder in
a registration pursuant to Sections 11(b), 11(c) or 11(j); provided,
however, that if Holder has requested that all of its Registrable Stock
be registered under Section 11(c), but Holder shall be prohibited from
selling all of such stock by virtue of Section 11(g), then Holder's
rights shall not be restricted by the provisions of this Section 11(k)
until such time as it has had an opportunity to sell all of its
Registrable Stock.
(l) Reports Under Securities Exchange Act of 1934. With a
view to making available to the holders of Registrable Stock the
benefits of Rule 144 promulgated under the 1933 Act and any other rule
or regulation of the Securities and Exchange Commission that may at any
time permit a holder to sell securities of the Company to the public
without registration, the Company agrees to use its reasonable best
efforts to:
(1) make and keep public information available, as
those terms are understood and defined in Rule 144, at all times
subsequent to 90 days after the effective date of the first
registration statement covering an underwritten pubic offering
filed by the Company;
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<PAGE> 20
(2) file with the Securities and Exchange
Commission in a timely manner all reports and other documents
required of the Company under the 1933 Act and the Securities
Exchange Act of 1934 (the "1934 Act"); and
(3) furnish to any holder so long as such holder
owns any of the Registrable Stock forthwith upon request a
written statement by the Company that it has complied with the
reporting requirements of Rule 144 (at any time after 90 days
after the effective date of said first registration statement
filed by the Company), and of the 1933 Act and the 1934 Act (at
any time after it has become subject to such reporting
requirements), a copy of the most recent annual or quarterly
report of the Company, and such other reports and documents so
filed by the Company as may be reasonably requested in availing
any holder of any rule or regulation of the Securities and
Exchange Commission permitting the selling of any such securities
without registration.
(m) Lockup Agreement. In consideration for the Company's
agreeing to its obligations under this Section 11, holder of Registrable
Stock agrees in connection with any registration of the Company's
securities that, upon the request of the Company or the underwriters
managing any underwritten offering of the Company's securities, not to
sell, make any short sale of, loan, grant any option for the purchase of
or otherwise dispose of any Registrable Stock (other than those included
in the registration) without the prior written consent of the Company or
such underwriters, as the case may be, for such period of time (not to
exceed 180 days) from the effective date of such registration as the
Company or the underwriters may specify.
(n) Certain Limitations in Connection with Future Grants
of Registration Rights. From and after the date hereof, the Company
shall not enter into any agreement with any holder or prospective holder
of any securities of the Company providing for the granting to such
holder of registration rights unless:
(1) the Company shall use its best efforts to
include the equivalent of Section 11(m) as a term in any such
agreement; and
(2) any such agreement shall include a provision
that, in the case of a public offering involving an underwritten
registered offering under Section 11(c), protects the holders of
Registrable Stock if marketing factors require a limitation on
the number of securities to be included in the underwriting in
the manner in which the Company is protected under Section 11(g).
(3) any such agreement does not grant to such
holder, or prospective holder, registration rights more favorable
than those granted to the holders of Registrable Stock under this
Section 11.
(o) Transfer of Registration Rights. The registration
rights of the Holder of the Springing Warrant under this Section 11 may
be transferred pro rata to any transferee who acquires at least 20% of
the then outstanding shares of Registrable Stock,
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<PAGE> 21
or the Springing Warrant; provided, however, that the Company is given
written notice by the Holder at the time of such transfer stating the
name and address of the transferee and identifying the securities with
respect to which the rights under this Section 11 are being assigned.
Section 12. Amendments.
(a) Other than in respect of Section 11 hereof, neither
this Springing Warrant nor any term hereof may be changed, waived,
discharged or terminated orally or in writing, provided that any term of
this Springing Warrant may be amended or the observance of such term may
be waived (either generally or in a particular instance and either
retroactively or prospectively) with, but only with, the written consent
of the Company and the holders of all Springing Warrants that are
exercisable for a number of shares that represent in the aggregate at
least a majority of the total number of shares for which all Springing
Warrants are then exercisable (whether or not the holder of this
Springing Warrant consents).
(b) Neither Section 11 of this Springing Warrant nor
Section 11 of any other Springing Warrant nor any term of either of such
Sections 11 may be changed, waived, discharged or terminated orally or
in writing, provided that any term of Section 11 of this Springing
Warrant and any term of Section 11 of any other Springing Warrant may be
amended or the observance of such term may be waived (either generally
or in a particular instance and either retroactively or prospectively)
with, but only with, the written consent of the Company and the holders
of all Springing Warrants that are exercisable for a number of shares
that represent in the aggregate at least a majority of the total number
of shares for which all Springing Warrants are then exercisable (whether
or not the holder of this Springing Warrant consents). As used herein,
"Springing Warrants" means any warrant or springing warrant heretofore,
now or hereafter issued by the Company to Holder.
Section 13. Governing Law.
This Springing Warrant shall be governed by the laws of the State
of New York without regard to its conflict of laws, principles or rules.
Section 14. Consent to Jurisdiction.
Any legal action, suit or proceeding arising out of or relating
to this Agreement or the consummation of the transactions contemplated hereby
may only be instituted in any federal court of the Southern District of New York
or any state court located in New York County, State of New York, and each party
agrees not to assert, by way of motion, as a defense or otherwise, in any such
action, suit or proceeding, any claim that it is not subject personally to the
jurisdiction of such courts, that the action, suit or proceeding if brought in
such courts, would be an inconvenient forum, that the venue of the action, suit
or proceeding, if brought in any of such courts, is improper or that this
Agreement or the subject matter hereof may not be enforced in or by such courts
on jurisdictional grounds.
21
<PAGE> 22
IN WITNESS WHEREOF, the Company has caused this Springing Warrant
to be signed in its name by its duly authorized officer.
Dated: March 31, 1998
WILSHIRE TECHNOLOGIES, INC.
By /s/ John Van Egmond
-------------------------
Name: John Van Egmond
Title: President & CEO
22
<PAGE> 23
FORM OF NOTICE OF CONVERSION
Pursuant to Section 9 of the Springing Warrant to purchase shares
of Common Stock of Wilshire Technologies, Inc. (the "Company"), at an exercise
price of $________ per share, Trilon Dominion Partners, L.L.C. (the "Holder")
hereby gives notice of its desire to convert such Springing Warrant into shares
of Common Stock of the Company in accordance with the terms set forth below:
1. The total number of shares of Common Stock to be purchased
by the Holder pursuant to the conversion is _____________
__________________________.
2. The closing of such purchase shall take place on _______
_____________________ (a date not less than two nor more
than seven business days from the date of this Conversion
Notice) at______________________________________________
________________________________________________________
TRILON DOMINION PARTNERS, L.L.C.
By: VC Holdings, Inc., its Managing Member
Dated: By:
----------------- ---------------------------
23
<PAGE> 24
SUBSCRIPTION NOTICE
The undersigned, the Holder, hereby elects to exercise purchase
rights represented by such Springing Warrant for, and to purchase thereunder,
________________ shares of the Common Stock covered by such Springing Warrant
and herewith makes payment in full therefor of $______________________ cash
and/or by cancellation of $________________________ of indebtedness of the
Company to the Holder hereof and requests that certificates for such shares (and
any securities or property deliverable upon such exercise) be issued in the name
of and delivered to _____________________ whose address is ___________________ .
The undersigned agrees that, in the absence of an effective
registration statement with respect to Common Stock issued upon this exercise,
the undersigned is acquiring such Common Stock for investment and not with a
view to distribution thereof and that the certificate or certificates
representing such Common Stock may bear a legend substantially as follows:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 OR QUALIFIED UNDER APPLICABLE STATE SECURITIES LAWS.
UNLESS THEY ARE SOLD PURSUANT TO RULE 144 PROMULGATED BY THE
SECURITIES AND EXCHANGE COMMISSION UNDER SAID ACT, THEY MAY NOT
BE SOLD OR OTHERWISE TRANSFERRED IN ABSENCE OF SUCH REGISTRATION
AND QUALIFICATION WITHOUT AN OPINION OF COUNSEL FOR THE HOLDER,
REASONABLY SATISFACTORY TO COUNSEL FOR THE COMPANY, THAT SUCH
REGISTRATION AND QUALIFICATION ARE NOT REQUIRED.
Dated:
---------------------
Signature guaranteed:
24
<PAGE> 25
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers unto __________________________________________ the rights represented
by the foregoing Springing Warrant of ___________________________ and
appoints_______________________ __________________________________ attorney to
transfer said rights on the books of said corporation, with full power of
substitution in the premises.
Dated:
---------------------
Signature guaranteed:
NOTICE: The signature to this assignment must correspond with the name as
written upon the face of the within Springing Warrant in every particular,
without alteration or enlargement or any change whatsoever.
25
<PAGE> 26
SHARES ISSUED UPON EXERCISE OF SPRINGING WARRANT
This Springing Warrant entitles the holder hereof to purchase the
number of shares of Common Stock as set forth below.
<TABLE>
<S> <C> <C> <C>
Date of Default on Note Increase in Shares Total Shares Outstanding Notation Made by
- ----------------------- ------------------ ------------------------ ----------------
</TABLE>
<PAGE> 1
EXHIBIT 10.115
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR THE SECURITIES LAWS OF ANY STATE OR ANY OTHER JURISDICTION. IT MAY NOT BE
SOLD OR TRANSFERRED IN THE ABSENCE OF REGISTRATION OR AN EXEMPTION THEREFROM
UNDER SAID ACT AND SAID LAWS.
GRID PROMISSORY NOTE
$7,493,296.92 March 31, 1998
(See Schedule I Attached)
FOR VALUED RECEIVED, the undersigned, WILSHIRE TECHNOLOGIES,
INC., a California corporation (the "Borrower"), hereby promises to pay to
TRILON DOMINION PARTNERS, L.L.C., a Delaware limited liability company (the
"Lender") or to order, at its principal office at 245 Park Avenue, 28th Floor,
New York, New York 10167, the principal sum of SEVEN MILLION FOUR HUNDRED
NINETY-THREE THOUSAND TWO HUNDRED NINETY-SIX AND 92/100 DOLLARS ($7,493,296.92)
(or such lesser amount as shall equal the aggregate unpaid principal amount of
the Borrowing made by the Lender to the Borrower under the Credit Agreement
defined below), in lawful money of the United States of America and in
immediately available funds, on the dates and in the principal amounts provided
in the Credit Agreement, and to pay interest on the unpaid principal amount of
each such Borrowing, at such office, in the like money and funds, for the period
commencing on the date of such Borrowing until such Borrowing shall be paid in
full, at the rate per annum and on the dates provided in the Credit Agreement.
The date and amount of each Borrowing made by the Lender to the
Borrower, and each payment made on account of the principal thereof, shall be
recorded by the Lender on its books and, prior to any transfer of this Note,
endorsed by the Lender on the schedule attached hereto or any continuation
thereof.
1. This Promissory Note (the "Note") is issued pursuant to the
Amended and Restated Credit Agreement and Revolving Line of Credit, dated March
31, 1998, between the Borrower and the Lender (the "Credit Agreement"). This
Note evidences Borrowings made by the Lender to the Borrower under the Credit
Agreement. Capitalized terms used in this Note have the respective meanings
assigned to them in the Credit Agreement.
2. The Credit Agreement provides for the acceleration of the
Maturity of this Note upon the occurrence of certain events and for prepayments
of Borrowings upon the terms and conditions specified therein.
3. For purposes of calculating interest accrued hereon at the
Interest Rate, interest on this Note shall be calculated on the basis of the
actual days elapsed over a 365- or 366-day year, as the case may be.
<PAGE> 2
Principal and accrued interest on this Note, computed as
aforesaid, shall be due and payable as follows:
(i) principal shall be payable at Maturity; and
(ii) interest shall be payable quarterly in arrears on the
last day of each quarter until Maturity, commencing June 30, 1998.
4. For purposes hereof, "Maturity" means the earlier of: (i) the
closing of an equipment financing for Borrower's fixtures and equipment, or (ii)
December 31, 1998, on which all outstanding principal and accrued but unpaid
interest is due under this Note.
5. This Note is secured by and subject to the provisions of the
Security Agreement dated May 13, 1994, between Dominion Capital, Inc. and the
Borrower, as amended by Amendment No. 1 to Security Agreement, dated as of
January 5, 1996 (whereby Lender succeeded to the rights of Dominion Capital,
Inc. under the Security Agreement, as amended) (the "Security Agreement"),
including the subordination and security interests set forth therein.
6. Should the principal of, or any installment of the principal
or interest on, this Note become due and payable on any day other than a
business day, the maturity thereof shall be extended to the next succeeding
business day and interest shall be payable with respect to such extension.
Payments made to the Lender by the Borrower hereunder shall be applied first to
accrued interest and then to principal.
7. An "Event of Default" for the purposes of this Note shall mean
any event of default listed in Section 8(a) of the Credit Agreement. Upon the
occurrence of any Event of Default or other default under any other agreement or
instrument executed in connection herewith, the holder hereof may, at its
option, declare the entire unpaid balance of principal and accrued interest on
this Note to be immediately due and payable; provided, however, that with
respect to any Event of Default set forth in Section 8(a)(5), (6), (7) or (8) of
the Credit Agreement, such Event of Default will automatically cause the
principal and accrued interest on this Note to become immediately due and
payable.
8. Notwithstanding anything contained in this Note to the
contrary, the Lender shall never be deemed to have contracted for or be entitled
to receive, collect or apply as interest on this Note any amount in excess of
the amount permitted and calculated at the Maximum Rate (defined below); and, in
the event the Lender ever receives, collects or applies as interest any amount
in excess of the amount permitted and calculated at the Maximum Rate, such
amount which would be excessive interest shall be applied to the reduction of
the unpaid principal balance of this Note; and, if the principal balance of this
Note is paid in full, any remaining excess shall forthwith be paid to the
Borrower.
The term "Maximum Rate," as used herein, shall mean, with respect
to the holder hereof, the maximum nonusurious interest rate, if any, that at any
time, from time to time, may be contracted for, taken, reserved, charged or
received on the indebtedness evidenced by this Note under the laws which are
presently in effect and applicable to such holder and such
2
<PAGE> 3
indebtedness, or under such applicable laws that may hereafter be in effect and
that allow a higher maximum nonusurious interest rate than applicable laws now
allow.
9. This Note shall be governed by the laws of the State of New
York without regard to its conflict of laws principles or rules.
10. If this Note is placed in the hands of an attorney for
collection, and if it is collected through any legal proceedings at law or in
equity or in bankruptcy, receivership or other court proceedings, the Borrower
promises to pay all costs and expenses of collection, including, but not limited
to, court costs and the reasonable attorneys' fees and disbursements of the
holder hereof.
Executed as of the day and year first written above.
WILSHIRE TECHNOLOGIES, INC.
By: /s/ John Van Egmond
---------------------------
Name: John Van Egmond
Title: President & CEO
3
<PAGE> 4
SCHEDULE I
<TABLE>
<CAPTION>
Date of Borrowing Amount of Borrowing Principal Amount to Date Amount Remaining
- ----------------- ------------------- ------------------------ ----------------
<S> <C> <C> <C>
03/31/98 $5,293,296.92 $5,293,296.92 $2,200,000
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FORM
10-QSB FOR THE QUARTER ENDED FEBRUARY 28, 1998, AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FORM 10-QSB AND THE ACCOMPANYING NOTES THERETO.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-30-1998
<PERIOD-START> DEC-01-1997
<PERIOD-END> FEB-28-1998
<CASH> 91
<SECURITIES> 0
<RECEIVABLES> 495
<ALLOWANCES> 5
<INVENTORY> 1,227
<CURRENT-ASSETS> 2,286
<PP&E> 3,018
<DEPRECIATION> 824
<TOTAL-ASSETS> 5,065
<CURRENT-LIABILITIES> 6,839
<BONDS> 0
0
0
<COMMON> 25,907
<OTHER-SE> (27,681)
<TOTAL-LIABILITY-AND-EQUITY> 5,065
<SALES> 1,053
<TOTAL-REVENUES> 1,053
<CGS> 959
<TOTAL-COSTS> 1,535
<OTHER-EXPENSES> (1)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 122
<INCOME-PRETAX> (603)
<INCOME-TAX> 1
<INCOME-CONTINUING> (604)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (604)
<EPS-PRIMARY> (0.05)
<EPS-DILUTED> (0.05)
</TABLE>
