EXHIBIT 7(c)(i)
TERM SHEET
Term Sheet between:
Sonic Environmental Systems, Inc., a Delaware
corporation, with its principal office at 000, Xxx Xxxx,
Xxxxxxxxxx, Xxx Xxxxxx 00000 (hereinafter referred to as
"Sonic"), and
Turbotak Technologies Inc., a Canadian corporation with
its principal office at 000, Xxxxxxxx Xxxxx, Xxxxx X-00,
Xxxxxxxx, Xxxxxxx, Xxxxxx (hereinafter referred to as
"Turbotak"),
WHEREAS, Sonic and representatives of Turbotak
(hereinafter referred to at times as "the Parties") have
negotiated from time to time relative to (a) Turbotak securing
a group of investors for the purpose of investing monies in
Sonic and its subsidiaries and acquiring by assignment the
entire secured and unsecured claim (hereinafter referred to as
the "Bank Claim") of NatWest Bank and/or its successor by
merger, Fleet Bank N.A. (hereinafter referred to as the
"Bank"), which Bank has a Bank Claim against Sonic and certain
subsidiaries as evidenced by various loan documents executed
by Xxxxx and certain of its subsidiaries, (b) the execution of
a definitive agreement between the Parties relative to the
funding of a plan of reorganization of Sonic (hereinafter "the
Plan") and Turbotak acting as co-proponents of the Plan in a
Chapter 11 proceeding about to be filed by Xxxxx, (c) the
restructuring of the stock ownership of Sonic, whereby
Turbotak will merge into Sonic and Sonic will remain a public
company, to be renamed "TurboSonic Technologies,Inc.,
(U.S.A.)", with a specified percentage of the issued and
outstanding stock to be held by the present stockholders of
Sonic and a specified percentage of such stock to be held by
the stockholders of Turbotak, (d) the filing by Sonic and such
of its subsidiaries as the Board of Sonic, in consultation
with Turbotak, shall determine for protection under Chapter 11
or other Chapters of the United States Bankruptcy Code in the
United States Bankruptcy Court for the District of New Jersey
(hereinafter referred to as the "Bankruptcy Court"), and (e)
the preparation and confirmation by the Bankruptcy Court of a
plan of reorganization (hereinafter the "Plan") for Sonic; and
WHEREAS, the Parties are desirous of setting forth in
this Term Sheet the outline of and their respective
obligations to in connection with the above with the
understanding that definitive agreements consistent with the
terms of this Term Sheet, if necessary, are to be prepared and
executed setting forth their respective responsibilities and
obligations; and
WHEREAS, the Parties are aware that the assignment to
Turbotak by the Bank of its entire Bank Claim with respect to
its transactions with Sonic and its subsidiaries may take
place prior to the preparation and execution of formal
agreements between the Parties and before the filing of a
Chapter 11;
NOW, THEREFORE, the Parties agree as follows:
1. (a) Turbotak shall, on or before September ,
1996, pay to the Bank the sum of $250,000.00 in cash, pursuant
to a certain assignment agreement to be negotiated between the
Bank and Turbotak and consented to by Sonic and upon
consummation of such purchase whereby Turbotak shall succeed
to the entire Bank Claim of the Bank, including all liens and
claims of the Bank together with supporting documents as
reflected in various loan documents and, if applicable,
various orders which may be entered by the Bankruptcy Court.
(b) The directors and officers of Sonic shall agree
that, on or before September , 1996, an amount of
$110,000.00 (or CDN $150,000.00, whichever is greater) will be
deposited in-trust by Xxxxxx Xxxxxxx to Ravin, Sarasohn, Xxxx,
Xxxxxxxxxx, Xxxxx and Xxxxx. It is understood by the Parties
that Turbotak shall have access to the use of these funds,
pari passu, with the use of the funds of the total capital
raised for the purpose of completing the contemplated merged
entity transaction.
2. Turbotak acknowledges that it has been advised by
the Directors and Officers of Sonic that certain claims have
been made against Sonic by Third Parties contesting Sonic's
right or entitlement to the use of its intellectual properties
presently held as collateral for the Bank Claim, referred to
in Paragraph 1 (a) above.
Xxxxx acknowledges that it must obtain a super-priority
lien for any working capital provided by Turbotak
and, if Xxxxx is unable to deliver this super-priority lien,
then Xxxxx agrees that the actiona contemplated in Paragraph
6(b) will take effect.
3. Xxxxx hereby consents to the purchase and assignment
of the Bank Claim to Turbotak.
4. Sonic shall complete and file with the Securities
and Exchange Commission, on or about November 1, 1996, or as
soon thereafter as practicable, Form 10K and 10Q's for the
fiscal year ended April 30, 1996. It is understood by the
Parties agree that such filing is essential to preserving
Sonic's existence as a public company and to obtain new
financing to be provided by Turbotak in accordance with
Paragraph 6. below. It is also understood by Xxxxx and
Turbotak that Xxxxx's ability to regain listing on NASDAQ will
necessitate Sonic's full compliance with required financial
reporting, including Form 10K and the demonstration by Sonic
of a net worth equal to or greater than $2,000,000.00 upon the
confirmation of the Plan by the Bankruptcy Court.
5. As soon as practicable after the execution of this
Term Sheet, Sonic will file for protection under Chapter 11 of
the United States Bankruptcy Code in the Bankruptcy Court, by
converting the involuntary Chapter 7 case to a voluntary
Chapter 11 proceeding, requesting a super-priority lien on the
working capital provided by Turbotak and first security
interest/lien on all of Sonic's assets not already covered in
the Bank Claim, except for existing superior lien on Sonic
Fabricating, Inc.'s assets. Sonic, with Turbotak's agreement,
may apply to NASDAQ to cease trading in Sonic shares.
6. (a) Subject to the execution of the assignment
agreement between the Bank and Turbotak referred to in
Paragraphs 1. above and the filing by Xxxxx and Turbotak for
Chapter 11 referred to in Paragraph 4. above, Turbotak agrees
that, subject to a super-priority lien approval by the
Bankruptcy Court, it will provide Sonic with an additional
working capital facility in an amount of not less than
$250,000.00 in cash plus the amount in Paragraph 1. above for
a minimum total amount of $500,000.00 (being the amount paid
to the Bank and the amount of working capital paid to Sonic)
in return for Turbotak (i) receiving a first security
interest/lien on all assets of Sonic and its subsidiaries,
except for existing superior lien on Sonic Fabricating, Inc.'s
assets, but including the receivables of Sonic Environmental
Controls, all subject to obtaining an order of the Bankruptcy
Court granting Turbotak a super-priority lien and affirming
its first and direct security interest/lien on all assets of
Sonic and its subsidiaries, excepting for existing superior
lien on Sonic Fabricating, Inc.'s assets, (whether covered by
the Bank lien or not); (ii) jointly agreeing with Sonic upon
a negotiating strategy with the unsecured creditors and other
claimants of Sonic relative to a settlement of their claims
against Sonic and such subsidiaries as shall be implicated
through a Plan, such payment to creditors to be in full and
final payment and complete discharge and release of all claims
of such creditors against Sonic and its subsidiaries pursuant
to and under the terms of a Plan to be proposed jointly by
Xxxxx and Turbotak, as is proposed to be submitted to and
approved by the Bankruptcy Court; (iii) jointly proposing a
Plan with Xxxxx to be filed with the Bankruptcy Court which
Plan would provide, inter alia, for the payments specified in
this Paragraph 6.
(b) Turbotak undertakes to provide the working
capital as stated above, pursuant to a timely filing of a
motion in the Bankruptcy Court for the super-priority lien and
first security interest/lien on all assets not covered in the
Bank Claim referred to in Paragraph 5, except for existing
superior lien on Sonic Fabricating, Inc.'s assets. In the
event that Turbotak, during its due diligence and at its sole
discretion and not at any option to Sonic, does not approve of
the Plan and is desirous of cancelling its intention to
complete the total merger, it will notify Sonic of its
decision in writing and allow Sonic a period of thirty days
from the receipt of such notification to select an entity to
purchase Turbotak's right, title and interest in and to the
Bank Claim, provided such entity simultaneously pays to
Turbotak in cash the sum of $250,000.00 plus any additional
working capital (or such other amount to include additional
payments made to Sonic by Turbotak) which Turbotak shall have
paid to Sonic pursuant to said Paragraph 6. (a) plus an
additional amount of $100,000.00 in cash and ten percent (10%)
of working capital paid to Sonic by Turbotak as additional
consideration to Turbotak for having previously furnished
funds for the acquisition of the Bank's lien and having
furnished Sonic with such amounts of additional working
capital. Should Sonic fail to select such an entity within the
period stated, Xxxxx agrees to permit the foreclosure steps
detailed in Paragraph 8. to take effect.
(c) Sonic undertakes to incorporate a wholly-owned
Canadian subsidiary, TurboSonic Technologies Inc.,(Canada),
(hereinafter referred to as "TurboSonic") prior to or in
conjunction with the confirmation of the Plan. The Board of
Directors of Turbotak shall approve the selection of the Board
of Directors of TurboSonic.
7. Use of Cash. Subject to and upon obtaining an
assignment of the Bank Claim as described in Paragraph 6.
above, Turbotak shall not exercise any of the rights it has
thereunder to enforce the liens securing the Bank Claim
provided that it shall participate in and be part of the
management of the business during the Chapter 11 procedure,
and shall permit Sonic and its subsidiaries to use cash
collateral, as defined by Sec. 361 of the Bankruptcy Code, for
normal operating expenses of Sonic and its domestic
subsidiaries through and including January 31, 1997 or other
such date as the Parties may agree upon in writing. Xxxxx
agrees to provide Turbotak with a starting bank balance
account, into which Turbotak will infuse working capital.
Xxxxx further agrees to provide Turbotak with a weekly list of
anticipated expenditures for Turbotak approval, which approval
shall not be unreasonably withheld, and from which list
Sonic's management will pledge not to deviate. The said bank
balance account will reconcile to the weekly list of
expenditures. Should this arrangement be breached by Xxxxx,
Turbotak reserves the right to co-sign each cheque. All cash
collateral utilized by Sonic and its subsidiaries shall be
secured by a lien having the same priority and validity as the
lien that secures the Bank Claim and shall not bear any
interest thereon.
8. Sonic, subject to the prior written approval of
Turbotak, shall file an application with the Bankruptcy Court
seeking to utilize cash collateral in accordance with the
terms hereof. In the event Xxxxx does not obtain an order from
the Bankruptcy Court on or before January 31, 1997, or such
other date as may be agreed upon in writing between the
Parties, confirming the Plan contemplated herein, Turbotak may
exercise all rights that it may have with respect to the
Claim. Xxxxx agrees, following January 31, 1997, and in the
event a Plan is not confirmed as contemplated herein, to
permit all stays to be lifted, to permit Turbotak to foreclose
on its collateral in any court of competent jurisdiction and
waives all defenses to any such action or proceeding commenced
by Turbotak to foreclose or realize the value of its Bank
Claim or collateral.
9. The Plan. As soon as reasonably possible after
execution of this Term Sheet, Sonic shall file a Plan which
will provide for, among other things, the following terms and
conditions, subject to the further approval of Turbotak, which
approval can be conditioned upon the renegotiation of the
following terms and conditions, including the length of time
for payment of any claim:
(a) Administration Claims. Each holder of an
allowed administrative claim, including professional fees
awarded pursuant to orders of the Bankruptcy Court, shall
receive in full satisfaction of such allowed claim, cash equal
to the amount of the allowed claim, on the later of (i) the
effective date of the Plan and (ii) the date that is ten days
after such claim becomes an allowable claim, unless such
holders shall have agreed to different treatment of such
claims, provided, however, that administrative claims
representing obligations incurred in the ordinary course of
business by Xxxxx after September 4, 1996, (the "Petition
Date") shall be assumed by the Reorganized Debtor and shall be
paid and performed in accordance with the terms and conditions
of the particular transaction and the agreements related
thereto.
(b) Tax Claims. In the sole discretion of the
Reorganized Debtor, allowed tax claims, if any, shall be paid
(i) in cash equal to the amount of such allowed claim on the
ffective date or upon such other terms as may be agreed to
between Sonic, Turbotak and any holder of a tax claim or (ii)
in the manner permitted by Sec. 1129(a)(9)(C) of the
Bankruptcy Code and, in such event, interest shall be paid on
the unpaid portion of such allowed tax claim at rate to be
agreed to by Sonic, Turbotak and the appropriate governmental
unit holding such allowed tax claim or, if they are unable to
agree, to be determined by the Bankruptcy Court, or (iii) on
such other terms as may be agreed upon by Reorganized Debtor
and such holder. Nothing herein provided shall prohibit Sonic
and/or Turbotak from contesting and/or appealing any of said
tax claims.
(c) Other Priority Claims. Each holder of a
priority claim, if any, as defined by Sec. 507 of the
Bankruptcy Code, other than administrative claims and tax
claims, shall receive 100 % of such claim in cash on the
latest of (i) 15 days after the effective date, or (ii) ten
(10) days after such claim becomes an allowed priority claim,
or (iii) upon such other terms and conditions agreed to by
Xxxxx and the holder of an allowed priority claim. Sonic
and/or Turbotak reserves the right to object to any such claim
(d) Turbotak, TurboSonic and Division of Equity in
the Reorganized Debtor
(i) In full and complete satisfaction of the
Bank Claim assigned to Turbotak and working
capital provided by Turbotak, Reorganized
Debtor shall issue and Turbotak and/or
TurboSonic shareholders shall receive shares
of stock of the Reorganized Debtor after
merging Turbotak and TurboSonic into Sonic in
such an amount that results in Turbotak and
TurboSonic shareholders owning three shares of
the equity of the Reorganized Debtor to one
share owned by the Sonic shareholders and its
pre-petition creditors.
(ii) On the effective date of the Plan,
Turbotak shall have the right to select five
of the directors and Sonic shall have the
right to select the other three directors out
of a total of eight directors on the Board of
Directors of the Reorganized Debtor. Turbotak
and Sonic may in their sole discretion assign
and/or distribute an amount of their interest,
to be agreed upon, to the Reorganized Debtor
for distribution or retention in treasure for
future distribution to management. The means
and terms of any distribution as provided in
the preceding sentence shall be determined by
the Board of Directors of Sonic and Turbotak
and disclosed in the Plan and Disclosure
Statement to be filed with Bankruptcy Court
pursuant to the Bankruptcy Code.
(e) General Unsecured Claims. The treatment of
general unsecured claims shall be subject to future
negotiation between Turbotak, Sonic and the Committee of
Unsecured Creditors.
(f) Equity Interests. In full satisfaction,
release and discharge of their interests on the effective
date, or as soon thereafter as is practicable, existing equity
holders of Sonic shall receive on a pro rate basis, an amount
of stock of Reorganized Debtor which shall represent one share
of stock for each of three shares of stock received by the
shareholders of Turbotak and TurboSonic taken together as of
the effective date of the Plan of the issued and outstanding
stock of the Reorganized Debtor after the merger with Turbotak
and TurboSonic. The recapitalization of the Reorganized
Debtor's equity may be accomplished through (i) the issuance
of additional shares of the presently outstanding stock, (ii)
cancellation of the presently outstanding stock and issuance
of new shares of stock, or (iii) otherwise as provided for in
the Plan, authorized by Xxxxx and Turbotak as co-proponents of
the Plan.
10. Parties Approval of Plan. All provisions and/or
modifications of the Plan and the related Disclosure Statement
which are to be filed pursuant to this Term Sheet and the
Bankruptcy Code shall be subject to the approval of the
parties hereto provided, however, the foregoing shall not
include any change in Paragraph 16. dealing with the
allocation of shares of stock of Sonic.
11. Bankruptcy Court Approval of Plan. The Parties
hereto understand that the proposed Plan contemplated
hereunder is subject to approval by the Bankruptcy Court and
that modification of the proposed treatment of claims and
interests may be required in order to confirm a Plan.
12. Jurisdiction Any controversy under or in connection
with this Term Sheet shall be subject to the jurisdiction of
the Bankruptcy Court which jurisdiction is consented to by
Turbotak, and shall be governed by and construed in accordance
with the Bankruptcy Code or laws of the State of New Jersey.
13. Binding Effect. Subject to Paragraph 14. below,
this Term Sheet shall be binding upon and inure to the benefit
of Sonic, Turbotak and TurboSonic and any successors and
assigns. This Term Sheet may not be amended, modified or
waived except in writing by the Parties hereto, and with
respect to Xxxxx, subject to approval of the Bankruptcy Court.
14. Board Ratification. Within one (1) day of the
execution of this Term Sheet, the Board of Directors of Sonic
shall at a special meeting called for that purpose or as
otherwise provided under Sonic's By-Laws and Delaware
corporation law (i) approve this Term Sheet and (ii) approve
the board resolution attached hereto as Exhibit A. Turbotak,
by the execution of this agreement, represents that its Board
of Directors has authorized the execution of this agreement.
Upon ratification, subject only to approval by the Bankruptcy
Court, the Term Sheet shall be deemed effective as to Sonic.
Evidence of the Board's ratification or disapproval, as the
case may be, shall be given by Xxxxx in writing to Turbotak
and Xxxxx Xxxxxx, Esq. of Xxxxx, Xxxxxxx, Xxxxxx & Xxxxxx,
attorney for Turbotak, immediately after the Board's
determination to ratify or disapprove this Term Sheet,
whichever the case may be. In the event the Board does not
ratify this Term Sheet within the time period provided, this
Term Sheet shall be deemed terminated and non-effective.
15. This Term Sheet may be executed in several
counterparts, each of which shall be an original, but all of
which shall constitute one and the same instrument.
16. In consideration for the performance by Turbotak and
TurboSonic of their obligations under this Term Sheet, the
Parties agree that the stock ownership of Sonic will be merged
with Turbotak and TurboSonic and restructured so that Sonic
will remain a public company with one quarter of the issued
and outstanding stock of Sonic to be held by the present
stockholders of Sonic and three quarters of such stock to be
held by the stockholders of Turbotak and TurboSonic. In
addition, Turbotak and TurboSonic shall have, prior to the
merger, $500,000.00 cash of new investor provided working
capital additional to that provided in Paragraph 5., free from
any liens, obligations, restrictions or encumbrances. It is
further agreed that no subsequent action shall be taken by
Turbotak, TurboSonic or Sonic to restructure Sonic to better
preserve any net operating losses that will adversely affect
the interest of or the proportionate ownership of the present
Sonic stockholders after reorganization. Furthermore, it is
understood and agreed that, to the extent that any stock is
issued to satisfy obligations to unsecured creditors, the
above said one to three ratio of shares shall be preserved
with any stock issued for said purpose to be counted in the
Sonic stockholders portion of the stock.
17. Immediately following execution of this Term Sheet
and Turbotak's acquisition of the Bank's Claim, the Board of
Directors of Sonic shall remove a director so as to have two
existing vacancies on such board. Turbotak shall have the
option to elect Xxxxxx X. Xxxxx and Xxxxxxx X. Xxxxx (or other
such qualified individuals as Turbotak may propose) as
directors of Sonic. In addition, upon confirmation by the
Bankruptcy Court of Sonic's Plan, the Board of Directors of
Sonic shall vote to enlarge the Board of Sonic from five to
eight directors pursuant to Article II, Section 2.1 of the
Bylaws of Sonic and shall elect additional three nominees of
Turbotak to such newly created directorships. All of said
persons to serve as directors until the next annual meeting of
Sonic subsequent to confirmation of the Plan or until their
successors shall have been otherwise qualified and elected.
18. (a) Upon confirmation of the Plan by the
Bankruptcy Court and the consummation of the merger, Turbotak
shall grant to Xxxxxxx Xxxx, Xxxxxxx Xxxxxx and Xxxxxx Xxxx a
two year option to purchase 50,000 shares of Turbotak stock or
an amount of shares in the merged entity equivalent to 50,000
shares of Turbotak stock for $1.00 in total (this portion of
the grant to be divided 46%, i.e. 23,000 shares, to Xxxxxxx
Xxxx, 27%, i.e. 13,500 shares, to Xxxxxxx Xxxxxx and 27%, i.e.
13,500 shares, to Xxxxxx Xxxx). In addition, and under the
same confirmation and consummation conditions, Turbotak shall
grant a two year option to the same individuals to purchase
200,000 shares of stock in the merged entity at a cost of
$1.00 per share (this grant shall be divided 50%, i.e. 100,000
shares, to Xxxxxxx Xxxx, 25%, i.e. 50,000 shares, to Xxxxxxx
Xxxxxx and 25%, i.e. 50,000 shares, to Xxxxxx Ferb).
(b) Turbotak further agrees that for the
undertaking of management of Sonic and for any other services
rendered during the Chapter 11 proceeding and as compensation
to management, i.e. Xxxxxxx Xxxx, Xxxxxxx Xxxxxx and Xxxxxx
Xxxx, each of management shall receive compensation of $750.00
per week, to be paid by Xxxxx. The employment of these
individuals is at will and the duration of their employment
will be decided by the Sonic Board of Directors.
(c) Upon confirmation of the Plan by the Bankruptcy
Court and the consummation of the merger, Xxxxxxx Xxxx shall
agree to act in the capacity of Chairman of the merged entity
for a period of one year (or for a different period at the
discretion of the merged entity's Board of Directors), the
compensation for which shall be mutually agreed between
Xxxxxxx Xxxx and the merged entity's Board of Directors.
(d) Subject to the execution of the assignment
between Turbotak and the Bank referred to in Paragraph 1.
above and the filing by Xxxxx for Chapter 11 referred to in
Paragraph 4. above, Turbotak agrees to purchase, from Sonic,
165,000 shares of Sonic for an amount of $11,550.
19. The Parties agree that this Term Sheet represents an
outline of the necessary steps to be taken and agree to use
their best efforts to prepare the necessary agreements
consistent therewith as speedily as possible either before or
after the assignment of the Claim by the Bank to Turbotak. In
the event the Parties are unable to agree upon the terms and
conditions of all the requisite documents to be executed by
and among them, their respective attorneys, Xxxxx X. Xxxxx,
Esq. for Sonic and its subsidiaries and Xxxxx Xxxxxx, Esq. for
Turbotak and TurboSonic, shall attempt to arbitrate and
resolve any disputes. If they are unable to unanimously agree
to a resolution of all disputes, the Parties agree that the
Judge of the Bankruptcy Court presiding over Xxxxx's Chapter
11 reorganization proceeding shall be the final non-appealable
arbiter thereof.
20. This agreement is non-assignable in whole or in part
by Turbotak (including, without limitation, that Turbotak
shall have no right to assign or transfer the Bank Claim or
any part thereof to any party without Xxxxx's written consent)
except that it can be assigned to an affiliate corporation or
partnership in which the principals of Turbotak has at least
a 51% equity interest and which affiliate corporation or
partnership shall agree in writing to be bound by all of the
terms and conditions of this Term Sheet and any subsequent
agreements entered into between the Parties hereto.
21. Wherever Sonic is referred to herein, the same
shall include such subsidiaries and affiliates as shall be
included in the Plan or who shall become subject to the
jurisdiction of the Bankruptcy Court either by virtue of a
filing of a Petition for Relief under the Bankruptcy Code, or
by virtue or extension of the proceeding or by implementation
of Sec. 105 of the Bankruptcy Code.
22. This agreement is subject to approval of the
Bankruptcy Court having jurisdiction over the Chapter 11 case
filed or to be filed by Xxxxx.
IN WITNESS WHEREOF, the Parties have set their hand and
seals this 3rd day of September, 1996.
Attest: SONIC ENVIRONMENTAL SYSTEMS INC.
/s/Xxxxxx X. Xxxx By: /s/Xxxxxxx X. Xxxx
President
Attest: TURBOTAK TECHNOLOGIES INC.
/s/Xxxxxxx X. Xxxxx By: /s/Xxxxxx X. Xxxxx
