SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
TII Industries, Inc.
----------------------------------------------
(Name of Registrant as Specified in Its Charter)
------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE>
TII INDUSTRIES, INC.
1385 Akron Street
Copiague, New York 11726
------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 20, 1999
------------------
To the Stockholders of
TII Industries, Inc.:
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of TII
Industries, Inc., a Delaware corporation (the "Company"), will be held at the
Huntington Hilton, 598 Broad Hollow Road, Melville, New York, on Tuesday, April
20, 1999 at 10:30 a.m., New York time, at which the following matters are to be
presented for consideration:
1. A proposal to approve the Stock Purchase Agreement dated as of
December 31, 1998 between the Company and Alfred J. Roach
pursuant to which the Company proposes to acquire all of the
issued and outstanding capital stock of PRC Leasing, Inc. in
exchange for 1,176,213 shares of the Company's Common Stock; and
2. Such other matters as may properly come before the meeting or any
adjournments or postponements thereof.
The close of business on March 8, 1999 has been fixed as the record
date for the determination of stockholders entitled to notice of, and to vote
at, the meeting and any adjournments or postponements thereof. A list of such
stockholders will be open for examination by any stockholder for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
10 days prior to the meeting at the offices of the Company, 1385 Akron Street,
Copiague, New York.
By Order of the Board of Directors,
/s/ Dorothy Roach
Dorothy Roach,
Secretary
March 12, 1999
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE
AND SIGN THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED ENVELOPE IN
ORDER TO ASSURE REPRESENTATION OF YOUR SHARES. NO POSTAGE IS NEEDED IF MAILED IN
THE ENCLOSED ENVELOPE IN THE UNITED STATES.
<PAGE>
TII INDUSTRIES, INC.
1385 Akron Street
Copiague, New York 11726
--------------------
PROXY STATEMENT
For Special Meeting of Stockholders
To be Held on April 20, 1999
------------------------
This Proxy Statement, to be mailed to stockholders of TII Industries,
Inc., a Delaware corporation (the "Company"), on or about March 12, 1999, is
furnished in connection with the solicitation by the Board of Directors of the
Company of proxies in the accompanying form ("Proxy" or "Proxies") to be used at
a Special Meeting of Stockholders of the Company to be held on Tuesday, April
20, 1999 at 10:30 a.m., New York time, and at any adjournments or postponements
thereof (the "Meeting"). The Meeting will be held at the Huntington Hilton, 598
Broad Hollow Road, Melville, New York.
The close of business on March 8, 1999 has been fixed as the record
date (the "Record Date") for the determination of stockholders entitled to
notice of, and to vote at, the Meeting. On the Record Date, there were
outstanding 8,375,132 shares of the Company's Common Stock ("Common Stock"). The
presence of a majority of all such shares at the Meeting, in person or by proxy,
will constitute a quorum for the transaction of business at the Meeting. Each
outstanding share of Common Stock on the Record Date is entitled to one vote on
all matters to be voted on at the Meeting. The Meeting has been called to
consider a proposal to approve the Stock Purchase Agreement dated as of December
31, 1998 between the Company and Alfred J. Roach pursuant to which the Company
proposes to acquire all of the issued and outstanding capital stock of PRC
Leasing, Inc. in exchange for 1,176,213 shares of the Company's Common Stock
(the "Proposal"). Under the Company's Bylaws, business that may be transacted at
any special meeting of stockholders is limited to the purposes set forth in the
Notice of Meeting. Therefore, except for motions related thereto, including any
motion to adjourn the Meeting, only the Proposal will be considered at the
Meeting.
Proxies properly executed and received in time for the Meeting will be
voted in accordance with the specifications made thereon or, in the absence of
specification, in favor of the Proposal. The Board of Directors does not intend
to bring before the Meeting any matters or motions other than those described
above. If any other matters, including motions, come before the Meeting, it is
the intention of the persons named in the accompanying Proxy to vote such Proxy
in accordance with their judgment on such matters or motions, including any
matters dealing with the conduct of the Meeting. Proxies submitted which contain
abstentions or broker non-votes will be deemed present at the Meeting for
determining the presence of a quorum. Abstentions are considered shares entitled
to vote at the Meeting, while shares subject to broker non-votes with respect to
any matter are not considered shares entitled to vote with respect to that
matter. Therefore, abstentions will effectively be votes against the Proposal,
while broker non-votes will have no effect on the outcome of the vote on the
Proposal. Any Proxy may be revoked by the person giving it at any time prior to
the exercise of the powers conferred thereby by a written notice of revocation
to Dorothy Roach, Secretary of the Company, 1385 Akron Street, Copiague, New
York 11726, by submitting a duly executed proxy bearing a later date at the
foregoing address or at the Meeting, or by voting in person at the Meeting.
<PAGE>
SECURITY HOLDINGS OF CERTAIN
STOCKHOLDERS AND MANAGEMENT
The following table sets forth information, as of the Record Date, with
respect to the beneficial ownership of the Company's Common Stock by (i) each
person (including any "group", as that term is used in Section 13(d)(3) of the
Securities Exchange Act of 1934) known by the Company to own more than 5% of the
outstanding shares of the Company's Common Stock, (ii) each director of the
Company, (iii) the Company's Chief Executive Officer and each of the four most
highly compensated persons who were serving as executive officers of the Company
at the end of the Company's fiscal year ended June 26, 1998 exceeded $100,000,
and (iv) all executive officers and directors of the Company as a group. The
Company understands that, except as noted below, each beneficial owner has sole
voting and investment power with respect to all shares attributable to such
owner.
Percent
Shares of
Beneficial Owner Owned Class (1)
- ---------------- ----- ---------
Alfred J. Roach 751,600 (2) 8.9%
Route 2-Kennedy
Avenue, Guaynabo,
Puerto Rico 00657
Dorothy Roach 51,744 (3) *
Route 2-Kennedy
Avenue, Guaynabo,
Puerto Rico 00657
Timothy J. Roach 511,013 (4) 6.1%
1385 Akron Street
Copiague, NY 11726
George S. Katsarakes 20,000 *
C. Bruce Barksdale 7,998 (5) *
James R. Grover, Jr. 83,600 (6) 1.0%
Joseph C. Hogan 89,330 (7) 1.1%
William G. Sharwell 90,000 (8) 1.1%
Dare P. Johnston 0 *
James A. Roach 18,488 (9) *
All executive officers and 1,628,773 (10) 18.8%
directors as a group
(12 persons)
- ----------------
(1) Asterisk indicates that the percentage is less than one percent.
Percent of Class assumes the issuance of the Common Stock issuable upon
the exercise of options (to the extent exercisable on or within 60 days
after the Record Date) held by such persons but (except for the
calculation of beneficial ownership by all executive officers and
directors as a group) by no other person or entity.
-2-
<PAGE>
(2) Includes 40,360 shares subject to options held under the Company's
Stock Option Plans. Excludes the shares owned by Mr. Roach's wife,
Dorothy Roach, reflected below in this table, as to which shares Mr.
Roach disclaims beneficial ownership.
(3) Excludes the shares owned by Mrs. Roach's husband, Alfred J. Roach,
reflected above in this table, as to which shares Mrs. Roach disclaims
beneficial ownership.
(4) Includes 968 shares owned by Mr. Roach's wife (who has sole voting and
dispositive power with respect to the shares owned by her and as to
which Mr. Roach disclaims beneficial ownership).
(5) Includes 78 shares owned by Mr. Barksdale's children.
(6) Includes 80,000 shares subject to options held under the Company's
Stock Option Plans.
(7) Includes 89,250 shares subject to options held under the Company's
Stock Option Plans.
(8) Includes 89,400 shares subject to options held under the Company's
Stock Option Plans.
(9) Includes 1,000 shares owned by Mr. Roach's wife (who has sole voting
and dispositive power with respect to the shares owned by her and as to
which Mr. Roach disclaims beneficial ownership).
(10) Includes 299,010 shares subject to options.
-3-
<PAGE>
PROPOSAL
PROPOSAL TO APPROVE STOCK PURCHASE AGREEMENT
BETWEEN THE COMPANY AND ALFRED J. ROACH
General
Since fiscal 1982, the Company has leased equipment from PRC Leasing,
Inc. ("PRC"), a corporation wholly-owned by Alfred J. Roach, Chairman of the
Board of Directors and a director of the Company and presently the beneficial
owner (as determined under Section 13(d)(3) of the Securities Exchange Act of
1934) of 9.0% of the Company's Common Stock (see "Security Holdings of Certain
Holders and Management"). The only activity of PRC is leasing equipment to the
Company. On July 18, 1991, as an inducement to the Company's then bank lenders
to restructure the Company's long-term bank loan, among other things, the
Company acquired certain equipment from PRC and replaced its then existing
leases with PRC with a new lease with PRC. The equipment lease (as subsequently
amended, the "Equipment Lease") has a term expiring July 17, 1999 (subject to an
automatic extension until July 17, 2001, unless terminated by either party upon
at least ninety days written notice prior to the beginning of the next scheduled
renewal period) and provides for rentals at the rate of $200,000 per year. The
Company believes that the rentals charged by PRC are comparable to the rentals
that would have been charged by unrelated leasing companies for similar
equipment.
In November 1998, the Company determined that, since it would require
the equipment then subject to the Equipment Lease (the "Equipment") for a
long-term, instead of continuing to lease the Equipment, it would be in the
Company's best interests to purchase the Equipment. Accordingly, the Company
commissioned an appraisal of the Equipment from a certified appraiser, who
calculated the fair market value of the Equipment to be $2.2 million.
As a result, the Company entered into a Stock Purchase Agreement, dated
as of December 31, 1998, with Alfred J. Roach ("Agreement") to acquire all of
the outstanding shares of capital stock of PRC in exchange for the issuance by
the Company of an aggregate of 1,176,213 shares of the Company's Common Stock
(the "Shares"), being equal to the $2.2 million appraised value of the Equipment
divided by the $1.875 closing price of the Company's Common Stock on December
31, 1998 on The Nasdaq Stock Market's National Market.
The Company's entering into the Agreement was unanimously authorized by
both the Audit Committee of the Board of Directors and the full Board.
Completion of the transactions is subject to, among other things, the approval
by the Company's stockholders.
The Agreement
The following is a brief summary of certain provisions of the Agreement
and is qualified in its entirety by reference to the full text of the Agreement,
a copy of which is attached as Annex I to this Proxy Statement and is
incorporated herein by reference. Capitalized terms used and not defined below
have the meanings given to them in the Agreement.
If the Agreement is approved and the other conditions to completion of
the transactions contemplated by the Agreement are satisfied, it is currently
anticipated that the sale of PRC to the Company will be completed as soon as
practicable following the Meeting.
-4-
<PAGE>
Conditions to Closing
In addition to obtaining the stockholder vote being requested in this
Proxy Statement, it is a condition to the obligations of the Company (unless
waived by the Company) that, at the time of the closing, the representations and
warranties of Mr. Roach made in the Agreement continue to be true and correct in
all material respects; that Mr. Roach shall have performed all obligations
required to be performed by him; that the Equipment shall not have been
adversely affected in any material way, including, without limitation, as a
result of any fire, accident or other casualty, whether insured against or not;
that no preliminary or permanent injunction or other order that prevents the
consummation of the transactions contemplated by the Agreement shall be in
effect nor shall any lawsuit have been brought therefor; that all documents
required to be delivered by Mr. Roach shall have been delivered; and that all
requisite consents and approvals that the Company reasonably deems necessary
shall have been obtained.
In addition to obtaining the stockholder vote being requested in this
Proxy Statement, it is a condition to the obligations of Mr. Roach (unless
waived by Mr. Roach) that, at the time of the closing, the representations and
warranties of the Company made in the Agreement continue to be true and correct
in all material respects; that the Company shall have performed all obligations
required to be performed by it; that there shall be no adverse change in the
condition (financial or otherwise, properties, assets or prospects of the
Company and its subsidiaries taken as a whole; that no preliminary or permanent
injunction or other order that prevents the consummation of the transactions
contemplated by the Agreement shall be in effect nor shall any lawsuit have been
brought therefor; that all documents required to be delivered by the Company
shall have been delivered; and that all requisite consents and approvals that
Mr. Roach requires shall have been obtained.
Representations and Warranties
Mr. Roach and the Company have made certain representations and
warranties in the Agreement to induce the other to enter into the Agreement and
consummate the transactions contemplated by the Agreement.
The representations of the Company relate to, among other things, its
organization; good standing; power and authority to enter into the Agreement and
perform the obligations to be performed by it under the Agreement; the binding
effect of the Agreement on it; required third party consents; the absence of
conflicts with corporate documents, agreements and laws applicable to the
Company; that the Company has not incurred any liability for finders', brokerage
or agents' fees or commissions in connection with the Agreement; its compliance
with the rules of, and accuracy of the filings with, the Securities and Exchange
Commission; and as to its financial statements.
The representations of Mr. Roach relate to, among other things, the
organization, good-standing and capitalization of PRC; Mr. Roach's power and
authority to enter into the Agreement and perform the obligations to be
performed by him under the Agreement; the binding effect of the Agreement on
him; and the absence of conflicts with documents, agreements and laws applicable
to Mr. Roach and PRC; required third party consents; PRC's title to the
Equipment; that neither Mr. Roach nor PRC has incurred any liability for
finders', brokers' or agents' fees or commissions in connection with the
Agreement; as to the financial statements of PRC for the year ended December 31,
1998 and the interim financial statements to be delivered to the Company with
respect to 1999; the completeness of PRC's books and records; the absence of
undisclosed liabilities and certain events, including a covenant that PRC will
not conduct any business other than leasing the Equipment to the Company
pursuant to the Equipment Lease; the absence of litigation against PRC and its
assets; that PRC has paid all taxes
-5-
<PAGE>
applicable to it; and that PRC is in compliance in all material respects with
all applicable laws, rules and regulations.
Indemnification
Mr. Roach has agreed to indemnify and hold the Company harmless from
any liabilities or obligations of PRC other than those reflected on financial
statements of PRC or otherwise disclosed in the Agreement and with respect to
any material breach of any representation or warranty or other agreement made by
him in the Agreement. The Company has agreed to indemnify and hold Mr. Roach
harmless from liabilities and obligations of PRC reflected on PRC's financial
statements or otherwise disclosed to the Company in the Agreement, with respect
to PRC's business subsequent to the closing and with respect to any material
breach of any representation or other agreement made by the Company in the
Agreement.
Registration Rights
The Company has agreed to register the Shares, on up to three
occasions, subject to certain limitations, under the Securities Act of 1933, as
amended (the "Securities Act"), in order to permit the offer and sale from time
to time of the Shares covered by the applicable registration statement by the
holders thereof while the registration statement is in effect and current. The
registration rights afforded cease as to any of the Shares upon their sale
pursuant to a registration statement or Rule 144 under the Securities Act ("Rule
144") or at such time as they may, in the opinion of counsel to the Company, be
sold by the holder thereof under Rule 144 without regard to the volume or other
limitations of Rule 144. The Company has agreed to bear all expenses incurred in
connection with the registration of the Shares, including the fees and expenses
of the Company's counsel and accountants, expenses in connection with the
preparation and filing of the registration statement and registration or
qualification of the Shares under applicable state securities laws, and the fees
and disbursements of one counsel selected by the holders of a majority of the
Shares to review the registration statement. The holders are to bear all selling
discounts, commissions and brokerage commissions. The Company has agreed to
indemnify and hold harmless each holder of Shares against liabilities to which
such holder may become subject by reason of any untrue statement or alleged
untrue statement of a material fact, or the omission or alleged omission to
state a material fact, in a registration statement, except in certain cases,
including if the liability arises out of, or is based upon and made in reliance
and conformity with, information provided by the holder specifically for use in
connection with the registration statement, in which case, the applicable holder
is to so indemnify and hold harmless the Company.
Reasons for Seeking Stockholder Approval
The Shares will represent, based upon the number of shares of Common
Stock outstanding on the Record Date, approximately 12.3% of the Company's
outstanding Common Stock after giving effect to the issuance of the Shares. Mr.
Roach currently owns approximately 8.5% of the Company's outstanding Common
Stock on the Record Date and, including the portion of options to purchase
Common Stock exercisable within 60 days after the Record Date, beneficially owns
approximately 8.9% of the Company's Common Stock. If the Agreement is approved,
and the transactions contemplated by the Agreement are consummated, Mr. Roach
would own approximately 19.8% of the Company's Common Stock and, including such
portion of options, would beneficially own 20.2% of the Company's Common Stock
(assuming no other shares of Common Stock were issued by the Company after the
Record Date).
-6-
<PAGE>
The rules of the Nasdaq Stock Market requires the Company to obtain
stockholder approval of the Stock Purchase Agreement since Mr. Roach is an
officer, director, officer and has a greater than 5% interest in PRC and the
transaction involves the issuance by the Company of 5% or more of its Common
Stock. If the Agreement is not approved by stockholders, or the other conditions
to closing are not fulfilled or waived, the Stock Purchase Agreement will not be
consummated and the Equipment Lease will remain in full force and effect (see
"--Effect on the Equipment Lease").
Effect on the Equipment Lease
The Agreement provides that the Equipment Lease is to remain in full
force and effect, except that no rental payments need by made for periods after
December 31, 1998 unless the stockholder approval is not obtained. If
stockholders do not approve the Agreement, the Company is to pay all rental and
other payments it would otherwise have been required to make in a lump sum no
later than 10 days after the earlier of (i) the date stockholders shall have
voted against such approval, (ii) the Company shall have abandoned any attempt
to obtain stockholder approval or (iii) June 30, 2000.
Required Vote
The affirmative vote of a majority of the shares of Common Stock
present in person or represented by proxy at the Meeting and entitled to vote on
the Proposal is required to approve the Proposal. The Board of Directors
recommends a vote FOR approval of the Proposal.
MISCELLANEOUS
Stockholder Proposals
From time to time stockholders may present proposals which may be
proper subjects for inclusion in the proxy statement and form of proxy related
to that meeting. In order to be considered, such proposals must be submitted in
writing on a timely basis. Stockholder proposals intended to be included in the
Company's proxy statement and form of proxy relating to the Company's 1999
Annual Meeting of Stockholders must be received by July 9, 1999. Any such
proposals, as well as any questions relating thereto, should be directed to the
Secretary of the Company, 1385 Akron Street, Copiague, New York 11726. As to any
proposals intended to be presented by a stockholder, without inclusion in the
Management's proxy statement and form of proxy for the Company's next Annual
Meeting, the proxies named in the Management's form of proxy for that meeting
will be entitled to exercise discretionary authority on that proposal unless the
Company receives notice of the matter on or before September 22, 1999. However,
even if such notice is timely received, such proxies may nevertheless be
entitled to exercise discretionary authority on that matter to the extent
permitted by Securities and Exchange Commission regulations.
Solicitation of Proxies
The cost of solicitation of Proxies, including the cost of reimbursing
banks, brokers and other nominees for forwarding proxy solicitation material to
the beneficial owners of shares held of record by them and seeking instructions
from such beneficial owners, will be borne by the Company. Proxies may be
solicited without extra compensation by certain officers, directors and regular
employees of the Company by mail and, if determined to be necessary, by
telephone, telecopy, telegraph or personal interview. The Company has retained
W.F. Doring
-7-
<PAGE>
& Co., Inc., 150 Bay Street, Jersey City, New Jersey 07302 to aid in the
solicitation of Proxies. For its services, W.F. Doring & Co., Inc. will receive
a fee of $2,500 plus reimbursement for certain out-of-pocket expenses.
By Order of the Board of Directors,
/s/ Dorothy Roach
Dorothy Roach,
Secretary
March 12, 1999
-8-
<PAGE>
PROXY PROXY
TII INDUSTRIES, INC.
Proxy for Special Meeting of Stockholders - April 20, 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints, as proxies for the undersigned,
TIMOTHY J. ROACH and VIRGINIA M. HALL, or either of them, with full power of
substitution, to vote all shares of the capital stock of TII Industries, Inc.
(the "Company") which the undersigned is entitled to vote at the Annual Meeting
of Stockholders of the Company to be held on Tuesday, April 20, 1999, at 10:30
a.m., New York time, at the Huntington Hilton, 598 Broad Hollow Road, Melville,
New York, receipt of Notice of which meeting and the Proxy Statement
accompanying the same being hereby acknowledged by the undersigned, and at any
adjournments or postponements thereof, upon the matters described in the Notice
of Meeting and Proxy Statement and upon such other business as may properly come
before the meeting or any adjournments or postponements thereof, hereby revoking
any proxies heretofore given.
EACH PROPERLY EXECUTED PROXY WILL BE VOTED IN ACCORDANCE WITH THE
SPECIFICATIONS MADE ON THE REVERSE SIDE HEREOF. WHERE NO DIRECTION TO VOTE ON A
SPECIFIC MATTER IS GIVEN, THE PROXIES WILL BE DEEMED AUTHORIZED TO VOTE FOR THE
PROPOSAL AND WILL BE DEEMED TO GRANT AUTHORITY TO VOTE ON SUCH OTHER MATTERS
THAT MAY PROPERLY COME BEFORE THE MEETING AND ANY ADJOURNMENTS OR POSTPONEMENTS
THEREOF.
PLEASE SIGN, DATE AND MAIL THE PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE.
(Continued and to be signed on reverse side)
<PAGE>
TII INDUSTRIES, INC.
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. |_|
A vote FOR the Proposal is recommended by the Board of Directors.
1. To approve the Stock Purchase Agreement, FOR AGAINST ABSTAIN
dated as of December 31, 1998 between the |_| |_| |_|
Company and Alfred J. Roach.
2. To vote upon such other matters that may AUTHORITY AUTHORITY
properly come before the meeting GRANTED WITHHELD
|-| |-|
Dated _____ , 1999
Signature(s)
----------------------------------------
NOTE: Please sign your name or names
exactly as set forth hereon. If signing
as attorney, executor, administrator,
trustee or guardian, please indicate the
capacity in which you are acting.
Proxies executed by corporations should
be signed by a duly authorized officer
and should bear the corporate seal.
- --------------------------------------------------------------------------------
o FOLD AND DETACH HERE o
YOUR VOTE IS IMPORTANT.
PLEASE SIGN, DATE AND MAIL THE PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
<PAGE>
ANNEX I
STOCK PURCHASE AGREEMENT
AGREEMENT made as of the 31st day of December, 1998, by and among TII
INDUSTRIES, INC., a Delaware corporation having an office at 1385 Akron Street,
Copiague, New York 11726 ("Buyer") and ALFRED J. ROACH, residing at Route 2,
Kennedy Avenue, Guaynabo, Puerto Rico 00657 ("Seller").
W I T N E S S E T H:
WHEREAS, Buyer desires to purchase from Seller, and Seller desires to
sell to Buyer, all of the issued and outstanding shares of capital stock
(the"PRC Shares") of PRC Leasing, Inc. ("PRC"), upon the terms and conditions
hereinafter set forth.
NOW THEREFORE, in consideration of the mutual covenants and promises
herein contained and upon the terms and conditions hereinafter set forth, the
parties hereto, intending to be legally bound, agree as follows:
1. PURCHASE AND SALE OF THE PRC SHARES.
1.1. Purchase and Sale. Upon the terms and conditions herein
contained, at the Closing (as hereinafter defined), Seller agrees to sell,
transfer, assign and deliver the PRC Shares to Buyer and Buyer agrees to
purchase and accept the PRC Shares from Seller, in each case free and clear of
all liens, claims, pledges, restrictions, obligations, security interests and
encumbrances of any kind, nature and description.
<PAGE>
2. CONSIDERATION.
2.1. Purchase Price. In consideration for the sale of the PRC Shares,
Buyer shall issue and deliver to Seller an aggregate of 1,176,213 shares of
Common Stock, $.01 par value per share, of Buyer ("Buyer's Common Stock").
3. CLOSING.
3.1. Time and Place of Closing. The closing of the transactions
contemplated by this Agreement (the "Closing") shall take place at the offices
of Buyer at 10:00 a.m., local time, on the fifth business day following the
obtaining of the stockholder approval required by Section 8.1(e) of this
Agreement, or, if the conditions stated in Article 8 are not satisfied on or
prior to the aforesaid date and hour, and neither party terminates this
Agreement pursuant to Section 10.1, then at such other date, hour or place as
Buyer and Seller shall hereafter agree in writing (the date the closing occurs
is herein referred to as the "Closing Date").
3.2. Deliveries by Seller at Closing. At the Closing, Seller shall
deliver to Buyer the following:
(a) the PRC Shares, duly endorsed for transfer to Buyer;
(b) the certificate described in Sections 8.1(a) and 8.1(b)
hereof;
(c) a good standing certificate confirming that PRC is in good
standing under the laws of the Commonwealth of Puerto Rico, certified by the
Secretary of the Commonwealth of Puerto Rico, such Certificate to be of a date
not more than 10 days prior to the Closing Date;
(d) copies of the Certificate of Incorporation of PRC, including
all amendments thereto, certified by the Secretary of the Commonwealth of Puerto
Rico as of a date not more than 10, days prior to the Closing Date;
-2-
<PAGE>
(e) a copy of the By-Laws of PRC, as amended, certified by the
Secretary of PRC as of the Closing Date;
(f) unaudited financial statements of PRC as of a date within
five business days prior to the Closing Date and for the period from January 1,
1999 through such date (the "1999 Interim Financial Statements"), which
financial statements shall be in form and of quality similar to the 1998
Year-End Financial Statements (as defined in Section 4.7) heretofore delivered
by Seller to Buyer.
(g) a written certification by Seller stating that PRC's only
assets are the Equipment set forth on Exhibit "A" hereto (the "Equipment"), that
certain Lease dated July 18, 1991, as amended, between PRC and Buyer (the
"Lease") and any payments due under the Lease and that PRC has no liabilities of
any nature, whether accrued, absolute, contingent or otherwise, including,
without limitation, tax liabilities due or to become due.
3.3. Deliveries by Buyer at Closing. At the Closing, Buyer shall
deliver the following:
(a) 1,176,213 shares of Buyer's Common Stock;
(b) the certificate described in Sections 8.2(a) and 8.2(b)
hereof;
(c) a good standing certificate confirming the Buye is in good
standing under the laws of the State of Delaware, certified by the Secretary of
State of Delaware as of a date not more than 10 days prior to the Closing Date;
and
(d) a Certificate of Incumbency as to each officer of Buyer
authorized to execute this Agreement and the documents to be delivered pursuant
hereto.
4. REPRESENTATIONS AND WARRANTIES OF SELLER AND PRC. Seller hereby
represents and warrants to Buyer as follows:
-3-
<PAGE>
4.1. Status. PRC is, and at the Closing will be, a corporation duly
organized, validly existing and in good standing under the laws of the
Commonwealth of Puerto Rico and it is not required to be qualified to do
business in any other jurisdiction in order to conduct its business operations
in such jurisdiction. PRC has, and at the Closing will have, the power and
authority to conduct all of the activities conducted by it.
4.2. Capitalization and Stock Ownership. The authorized capital of PRC
consists solely of 1,000 shares of Common Stock, $1.00 par value per share, of
which all 1,000 shares are, and at the Closing only such shares (which comprise
the PRC Shares) will be, issued and outstanding. Seller is, and at the Closing
will be, the record and beneficial owner of 100% of the issued and outstanding
capital shares of PRC, free and clear of all liens, charges, encumbrances,
security interests, obligations or other claims. All of the PRC Shares have been
duly authorized and, on the Closing Date will be, validly issued, fully paid and
non-assessable, and were offered and sold in accordance with applicable federal
and state securities laws or applicable exemptions thereunder. There are no and,
at the Closing there will be no, outstanding options, warrants, rights, calls,
puts, agreements, commitment, plans, other arrangements or understandings to
issue or transfer any PRC Shares or any authorized but unissued shares of the
capital stock of PRC or obligating PRC or Seller to grant, extend or enter into
any such option, warrant, right, call, put, agreement, commitment, plan, other
arrangement or understanding. Neither PRC nor Seller is subject to any agreement
limiting, restricting or effecting the rights of PRC or, which would affect or
restrict Buyer's rights, with respect to the PRC Shares or other capital stock
of PRC, including, without limitation, voting rights, rights to transfer such
-4-
<PAGE>
shares or rights to dividends or other distributions with respect to such
shares. PRC has no, and on the Closing Date, will have no, subsidiaries.
4.3. Authority. Seller has, and at the Closing will have, all
necessary corporate power and authority to enter into this Agreement and to
perform the obligations to be performed by each of them hereunder. This
Agreement is, and at the Closing will be, valid and legally binding upon Seller
and PRC, enforceable in accordance with its terms, except only as may be
affected by (i) bankruptcy, insolvency, reorganization, moratorium or similar
laws affecting creditors' rights generally, (ii) general equitable principles
affecting the enforcement of obligations generally, whether at law, in equity or
otherwise, and (iii) the discretion of the court before which any proceeding
therefor may be brought. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby do not, and at the Closing
will not, (i) violate any law, or any rule or regulation of any administrative
agency or any governmental body, or any order, writ, injunction or decree of any
court , administrative agency or governmental body applicable to Seller or PRC,
or the Certificate of Incorporation or By-Laws of PRC, as amended, or any
indenture, loan agreement, lease, mortgage, franchise, permit, undertaking,
contract or other instrument to which Seller or PRC is a party or by which
Seller or PRC or any of their assets is bound or (ii) result in the creation of
any lien, charge or encumbrance upon the assets of Seller or PRC. PRC is not a
party to any agreement, lease mortgage, undertaking or contract other than the
Lease.
4.4. Third Party Consents. Except for consents that may be required
from the Secretary of State of Puerto Rico of the change in control of PRC for
the continued effectiveness of PRC's tax exemption decree and notice required to
the Commissioner of Financial Institutions, no consent, authorization, order or
approval of, or filing or registration with, any governmental authority or other
-5-
<PAGE>
person is required for the execution and delivery of this Agreement or the
consummation by Seller or PRC of any of the transactions contemplated hereby.
4.5. Title to Assets. PRC has, and at the Closing will have, good and
marketable title to all of its assets, including, all of the Equipment and to
all payments under the Lease and, at the Closing, such assets will be free and
clear of all liens, charges, security interests or other encumbrances except
liens for current taxes not yet due.
4.6. Finder's Fees. Neither Seller nor PRC has, and at the Closing
Date neither will have, incurred any liability for finder's or brokerage fees or
agent's commissions in connection with this Agreement or the transactions
contemplated herein.
4.7. Financial Statements. Buyer has received copies of the unaudited
financial statements of PRC as of and for the year ended December 31, 1998 ( the
"1998 Year End Financial Statements"). The 1998 Year End Financial Statements
are, and 1999 Interim Financial Statements to be delivered to Buyer pursuant to
Section 3.2(f) and 8.1(b) will be, consistent with the books and records of PRC;
prepared in accordance with generally accepted accounting principles (except
that they do not include footnotes), on a consistent basis throughout the
periods indicated; and present fairly the financial position of PRC as of the
dates thereof and the results of operations of PRC for the periods indicated.
4.8. Books and Records. Except with respect to taxes not yet assessed,
the underlying books and records of PRC reflect all of the debts, liabilities
and obligations of any nature (whether absolute, accrued or otherwise, and
whether due or to become due) of PRC. PRC has not given any guarantees of the
obligations of any other person or entity.
-6-
<PAGE>
4.9. Undisclosed Liabilities. As of the date hereof PRC has, and at
the Closing will have, no liabilities of any nature, whether accrued, absolute,
contingent or otherwise, for any period prior to such date or arising out of
transactions entered into, or any state of facts existing, at or prior to such
date, except as reflected on the 1998 Year-End Financial Statements and except
for liabilities for taxes which are not yet assessed or accrued. Seller does not
know or have reasonable grounds to know of any basis for the assertion against
PRC of any liability of any nature or in any amount not fully reflected or
reserved against in the financial statements delivered to Buyer or the books and
records of PRC.
4.10. Events Since 1998 Year-End Financial Statements. Since the date
of the 1998 Year- End Financial Statements PRC has not, and through the Closing
PRC will not, (i)conduct business other than leasing the Equipment pursuant to
the Lease; (ii) suffer any material adverse change in the business, condition
(financial or otherwise) or in assets or liabilities of PRC; (iii) incur any
debts, liabilities or obligations, whether accrued, absolute, contingent or
otherwise and whether due or to become due, other than for taxes directly
attributable to its ownership of the Equipment and amounts received or due under
the Lease, and (iv) become a party to any agreement.
4.11. Litigation. There is no litigation, action, suit or other
proceeding pending or, to the best of Seller's knowledge, threatened against PRC
or the assets of PRC or which could adversely affect the transactions
contemplated by this Agreement.
4.12. Taxes. PRC has duly filed, and will duly file for all periods for
which returns are due prior to the Closing, all tax reports and returns
(federal, state, Puerto Rico and local income, corporate, franchise and other)
required by it to be filed. These returns and reports are and will be true and
correct in all material respects and all taxes due from PRC have been paid.
Copies of all
-7-
<PAGE>
such tax returns have been provided to Buyer. The provision for taxes shown in
the 1998 Year End Financial Statements are, and the provision to be shown in the
1999 Interim Financial Statements will be, adequate for taxes due or accrued as
of the dates thereof. PRC has not received notice of any tax deficiency
outstanding, proposed or assessed against it, nor has it executed any waiver of
any statute of limitations on the assessment or collection of any tax. There are
no tax liens upon, pending against, or to the best knowledge of Seller,
threatened against any of the assets of PRC.
4.13. Compliance with Laws. The business of PRC has been, and through
the Closing Date will be, conducted in compliance in all material respects with
all laws, federal, state, Puerto Rico or local, and all provisions of all rules
and regulations of any federal agency, authority, board, commission, or the
like, or any state or local government, or any authority, agency board,
commission, or the like having jurisdiction over such business. PRC possesses
all material licenses, permits and governmental approvals and authorizations
which are required to own its assets and conduct its business as heretofore
conducted.
4.14. Employees. PRC has no, and through the Closing will have no,
employees and since the date of its incorporation, PRC has never maintained,
sponsored or contributed to any employee benefit plan, including without
limitation any incentive, severance, bonus, deferred compensation or similar
benefit plans or arrangements. PRC has never been a party to any collective
bargaining agreement.
4.15. Officers and Directors. Seller is, and on the Closing Date will
be, the sole director and officer of PRC.
-8-
<PAGE>
4.16. Finder's Fees. Neither Seller nor PRC has, and through the
Closing neither will have, incurred any liability for finder's or brokerage fees
or agent's commissions in connection with this Agreement or the transactions
contemplated in this Agreement.
4.17. Accuracy. The representations, warranties and statements of
Seller and PRC contained in this Agreement, or in any certificate delivered by
Seller or PRC pursuant to this Agreement, are true and correct in all material
respects and do not omit to state a material fact necessary in order to make the
representations, warranties or statements contained herein or therein not
misleading.
5. REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer hereby represents
and warrants to Seller as follows:
5.1. Status. Buyer /is, and at the Closing will be, a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware.
5.2. Authority. Buyer has, and at the Closing will have, all necessary
corporate power and authority to enter into this Agreement and to perform the
obligations to be performed by it hereunder. This Agreement is, and at the
Closing will be, valid and legally binding upon Buyer, enforceable in accordance
with its terms, except only as may be affected by (i) bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors rights generally;
(ii) general equitable principles affecting the enforcement of obligations
generally, whether at law, in equity or otherwise and (iii) the discretion of
the court before which any proceeding therefor may be brought. The execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby do not, and at the Closing will not, violate any law, or any rule or
regulation of any
-9-
<PAGE>
administrative agency or any governmental body, or any order, writ, injunction
or decree of any court, administrative agency or governmental body applicable to
Buyer, or the Certificate of Incorporation or By-Laws of Buyer, as amended, or
any indenture, loan agreement, lease, mortgage, franchise, permit, undertaking,
contract or other instrument to which Buyer is a party or by which Buyer or any
of its assets is bound.
5.3. Third Party Consents. Other than Buyer's compliance with its
reporting obligations under the Securities Exchange Act of 1934 (the "Exchange
Act") and consents under Buyer's loan arrangements with BNY Financial Corp. and
Overseas Private Investment Corporation, no consent, authorization, order or
approval of, or filing or registration with, any governmental authority or other
person is required for the execution and delivery of this Agreement or the
consummation by Buyer of any of the transactions contemplated in this Agreement.
5.4. Finder's Fees. Buyer has not, and at the Closing Date will not
have, incurred any liability for finder's or brokerage fees or agent's
commissions in connection with this Agreement or the transactions contemplated
in this Agreement.
5.5. SEC Documents. Buyer has delivered to Seller true and correct
copies of Seller's Annual Report on Form 10-K for the year ended June 26, 1998,
Quarterly Report on Form 10-Q for the quarter ended September 25, 1998 (together
with the reports to be delivered by Buyer to Seller pursuant to Section 6.3, the
"SEC Documents"), each as filed by Buyer with the Securities and Exchange
Commission (the "SEC"). As of their respective dates, the SEC Documents complied
in all material respects with the requirements of the Exchange Act and the rules
and regulations of the SEC promulgated thereunder applicable to the SEC
Documents, and none of the SEC Documents, at the time they were filed with the
SEC, contained any untrue statement of a material fact or omitted
-10-
<PAGE>
to state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading. As of their respective dates, the financial statements of
Buyer included in the SEC Documents complied as to form in all material respects
with applicable accounting requirements and the published rules and regulations
of the SEC with respect thereto. Such financial statements have been prepared in
accordance with generally accepted accounting principles, consistently applied,
during the periods involved (except (i) as may be otherwise indicated in such
financial statements or the notes thereto, or (ii) in the case of unaudited
interim statements, to the extent they may exclude footnotes or may be condensed
or summary statements) and fairly present in all material respects the financial
position of Buyer as of the dates thereof and the results of its operations and
cash flows for the periods then ended (subject, in the case of unaudited
statements, to normal year-end audit adjustments).
6. COVENANTS.
6.1. Pre-Closing Covenants of Seller. During the period from the date
hereof to and including the Closing Date, Seller will cause PRC:
(a) to use its best efforts to (i) maintain its business, carry
on its business practices and keep its books of account, records and files in
substantially the same manner as heretofore, (ii) preserve its good will, (iii)
pay and perform all agreements, contracts and other commitments which are part
of its business (including the Lease) in accordance with the terms and
provisions thereof, and (iv) comply in all material respects with all laws that
may be applicable to the operation of its business;
(b) not to take any action which would cause or constitute a
material breach, or would, if it had been taken immediately prior to the date
hereof, have caused or constituted a material breach,
-11-
<PAGE>
of any of the representations and warranties set forth in Article 4 hereof; in
the event of, and promptly after the occurrence of, or promptly after becoming
aware of the occurrence of, or the impending or threatened occurrence of, any
event which would cause or constitute a material breach or would, if it had
occurred immediately prior to the date hereof, have caused or constituted a
material breach of any of the representations and warranties set forth in said
Article 4, to give detailed notice thereof to Buyer; and to use its best efforts
to prevent or promptly remedy any such breach;
(c) to use its best efforts to (i) effectuate the transactions
contemplated in this Agreement, (ii) fulfill the conditions to Seller's
obligations under this Agreement, and (iii) cause the transactions hereby
contemplated in this Agreement to be effectuated in a smooth and orderly manner;
and
(d) upon reasonable notice, give to Buyer and its officers,
employees, attorneys, consultants, accountants and other representatives access
during normal business hours to all books, contracts, documents and records
relating to the business and the assets of PRC, and shall furnish to Buyer such
information as Buyer may at any time and from time to time reasonably request
with respect to PRC, its business and assets.
6.2 Stockholders' Meeting. Buyer, acting through its Board of
Directors, shall, in accordance with applicable law, use its best efforts to
take all steps necessary to duly call and give notice of, convene and hold, a
special or annual meeting of its stockholders or to solicit written consents for
the purpose of approving the transactions contemplated by this Agreement,
including, without limitation, preparing and filing a proxy statement and form
of proxy and filing same with the Securities and Exchange Commission. Such
meeting shall be held no later than December 31, 1999.
-12-
<PAGE>
6.3. Delivery by Buyer of Future SEC Documents. Buyer shall deliver to
Seller, promptly following their filing with the SEC, copies of all periodic
reports filed by Buyer with the SEC pursuant to Section 13 of the Exchange Act.
6.4. Further Assurances. Each party shall execute and deliver (and
Seller shall prior to Closing cause PRC to execute and deliver) all documents
and instruments and do all other acts which may be reasonably requested by the
other as necessary or desirable to more effectively carry out the intentions of
this Agreement, all without further consideration. After the Closing, each party
shall provide to the other, upon request and without charge, such information as
either requires (a) to prepare its financial statements, (b) to prepare its tax
returns, (c) to perform any other acts reasonably related to the change in
control of and responsibility for the business of PRC and the Buyer's purchase
of such business, and (d) for any litigation that may be brought by third
parties related to the transaction contemplated in this Agreement.
7. REGISTRATION RIGHTS
7.1 Investment Representation. Seller acknowledges that he is
Chairman of the Board and a director of Buyer; that, except as set forth in
Article 5, neither Buyer nor any persons or parties associated with Buyer has
made any representations or warranties of any kind, nature or description
relating to the issuance to him of the shares of the Buyer's Common Stock
hereunder and is relying solely on an independent investigation by it of Buyer
and its prospects; that Seller has received a copy of Buyer's Annual Report on
Form 10-K for the year ended June 26, 1998 and Buyer's Quarterly Report on Form
10-Q for the quarter ended September 25, 1998, each as filed with the SEC
Commission; and that he has had an opportunity to obtain all such additional
information necessary to verify the accuracy of any information set forth in
such Reports. Seller represents and warrants
-13-
<PAGE>
that he has such knowledge and experience in financial and business matters
sufficient to enable him to evaluate the risks of his investment in the Buyer's
Common Stock being issued hereunder; and that he is acquiring the Buyer's Common
Stock being issued to him for investment and not for resale or distribution.
Certificates evidencing the shares will contain a restrictive legend.
7.2 Certain Definitions. As used in this Section, the following
capitalized terms shall have the following meanings:
"Holder" shall mean the holder of any Registrable Securities
including Seller or any transferee of Registrable Securities from Seller.
"Person" shall mean any individual, partnership, corporation,
business trust, joint venture stock company, trust, limited liability company,
unincorporated association, joint venture, nation or government, state or other
political subdivision thereof (or other entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government) or other entity of whatever nature.
"Registrable Securities" shall mean Buyer's Common Stock issuable
pursuant to this Agreement and, in accordance with Rule 416 promulgated under
the Securities Act, any additional shares thereof issuable by reason of a stock
dividend, stock split or similar transaction; provided that any such securities
shall cease to be Registrable Securities (i) upon any sale thereof pursuant to a
registration statement or Rule 144 under the Securities Act or (ii) at such time
as they may, in the
-14-
<PAGE>
opinion of counsel to Buyer, be sold by the Holder thereof pursuant to paragraph
(k) of Rule 144 under the Securities Act.
"Registration Expenses" shall mean all expenses incident to
Buyer's performance of or compliance with the registration requirements set
forth in this Section including, without limitation, the following: (i) the
fees, disbursements and expenses of Buyer's counsel and accountants in
connection with the registration of the Registrable Securities; (ii) all
expenses in connection with the preparation, printing and filing of the
registration statement, any preliminary prospectus or final prospectus, and any
amendments and supplements thereto; (iv) all expenses in connection with the
registration or qualification of the Registrable Securities under state
securities laws in which Buyer is obligated hereunder to register or qualify the
Registrable Securities, including the fees and disbursements of counsel to Buyer
in connection with such qualification; (v) the filing fees incident to any
listing or review of the Registrable Securities or the transactions contemplated
by this Agreement with or by any securities exchange upon which the Registrable
Securities are listed or with the National Association of Securities Dealers,
Inc. and (vi) the fees and disbursements of one counsel, selected by the Holders
of a majority of the Registrable Securities, to review the Registration
Statement Notwithstanding the foregoing, Registration Expenses shall not include
discounts, commissions, brokerage commissions.
"Securities Act" shall mean the Securities Act of 1933, as
amended, or any similar federal statute, and the rules and regulations of the
SEC thereunder, all as the same shall be in effect
-15-
<PAGE>
from time to time, and a reference to a particular section thereof shall be
deemed to include a reference to the comparable section, if any, of any such
similar federal statute.
7.3 Filing of Registration Statements. On up to three (3) occasions
in the aggregate, at any time following the issuance of Registrable Securities,
the Holders of a majority of the Registrable Securities not then subject to a
Registration Statement (as defined below), may demand that Buyer file with the
SEC a registration statement under the Securities Act, on Form S-3 or, if not
available to Buyer, on another appropriate form, pursuant to Rule 415 under the
Securities Act (each a "Registration Statement") to register any (but not less
than 50,000 shares) or all theretofore remaining Registrable Securities in order
to permit the offer and sale of the Registrable Securities from time to time by
such Holders while each Registration Statement is effective and current. Buyer
will comply with such demand within ninety (90) days.
7.4 Continued Effectiveness of Registration Statements. Subject to
Section 7.7 below, Buyer shall use its best efforts to have the Registration
Statement declared effective as soon as practicable after its filing and keep
such registration statement continuously effective until all Registrable
Securities included therein cease to be Registrable Securities.
7.5 Registration Procedures. Buyer shall:
(a) notify each Holder promptly: (i) when the prospectus or any
prospectus supplement or post-effective amendment has been filed with the SEC
and, with respect to the
-16-
<PAGE>
registration statement or any post-effective amendment, when the same has become
effective; (ii) of the issuance by the SEC of any stop order suspending the
effectiveness of the registration statement or the initiation of any proceedings
for that purpose; (iii) of the receipt by Buyer of any notification with respect
to the suspension of the registration or qualification of the Registrable
Securities for sale in any jurisdiction or the initiation or threatening of any
proceeding for such purpose; and (iv) of the happening of any event which makes
any statement made in the registration statement, the prospectus or any document
incorporated therein by reference untrue and which requires the making of any
changes in the registration statement, the prospectus or any document
incorporated therein by reference in order to make the statements therein not
misleading;
(b) cause the prospectus contained in the registration statement
to be supplemented by any required prospectus supplement, and cause such
supplement or prospectus, as so supplemented, to be filed pursuant to Rule 424
under the Securities Act;
(c) upon the occurrence of any event contemplated by Section
7.4(a)(iv) above, prepare a supplement or post-effective amendment to the
registration statement, the related prospectus or any document incorporated
therein by reference or file any other required document so that, as thereafter
delivered to the purchasers of the Registrable Securities, the prospectus will
not contain an untrue statement of a material fact or omit to state any material
fact necessary to make the statements therein not misleading;
-17-
<PAGE>
(d) furnish to each Holder, without charge, at all times while
Buyer shall be required under the provisions hereof to cause the registration
statement to remain current, such number of copies of any prospectus and
prospectus supplement as each Holder may reasonably request in order to effect
the offering and sale of the Registrable Securities;
(e) make reasonable efforts to obtain the withdrawal of any order
suspending the effectiveness of the registration statement;
(f) cause all securities covered by the registration statement to
be listed on each securities exchange or market on which similar securities
issued by Buyer are then listed;
(g) take such action as shall be reasonably necessary to
register or qualify the Registrable Securities covered by such registration
under such blue sky or other state securities laws in the United States for
offer and sale as a Holder shall reasonably request; provided, however, that,
unless it has already done so, Buyer shall not be obligated to qualify as a
foreign corporation to do business under the laws of any jurisdiction in which
it shall not be then qualified or in which it would be required to file any
general consent to service of process, and nothing herein shall be construed as
requiring Buyer to register or qualify the Registrable Securities outside the
United States; and
(h) make generally available to Buyer's security holders as soon
as practicable but no later than 16 months following the effective date of the
registration statement, in accordance with Section 11(a) of the Securities Act
and Rule 158 thereunder, an earnings statement in reasonable
-18-
<PAGE>
detail and covering a period of at least 12 months beginning after the effective
date of the registration statement.
7.6 Registration Expenses. Buyer will pay all of the Registration
Expenses incurred in connection with the registration of Registrable Securities
pursuant to this Section. Each Holder shall bear all discounts, commissions and
brokerage commissions related to the sale or transfer of Registrable Securities,
as well as the fees and expenses of counsel and accountants retained by such
Holder.
7.7 Permissible Delays. Notwithstanding anything in this Agreement
to the contrary:
(a) Buyer shall be entitled to postpone the filing of any
registration statement otherwise required to be prepared and filed by it or
suspend keeping any registration statement or prospectus current and/or
effective without suspending such effectiveness by instructing each Holder not
to sell any Registrable Securities included in any such registration statement
(i) during any period up to 60 days reasonably necessary in order to prepare
annual financial statements of Buyer required to be included in the registration
statement for the fiscal period then most recently ended, (ii) for a period up
to 60 days (but no longer than the reason for non-disclosure continues), if
Buyer would be required to disclose in such registration statement any material
business situation, transaction or negotiation not otherwise disclosed as to
which Buyer's Board has determined, in good faith, that valid, significant and
material business reasons exist that warrant that such information not be
disclosed, or (iii) during the ten-day period prior to, and during the 90-day
period beginning on, the
-19-
<PAGE>
effective date of a registration statement covering an underwritten public
offering by Buyer of any Common Stock or any securities of Buyer convertible
into or exchangeable or exercisable for Common Stock; and
(b) Buyer shall not be obligated to file a registration statement
covering a Holder's Registrable Securities unless and until the Holder furnishes
to Buyer in writing the information regarding such Holder and the Registrable
Securities required to prepare the disclosures required by Sections 507 and 508
of Regulation S-K promulgated under the Securities Act in connection with such
registration statement.
7.8 Indemnification and Contribution.
(a) Buyer agrees to indemnify and hold a Holder, and each person
who controls such Holder, within the meaning of Section 15 of the Securities
Act, harmless against any and all losses, claims, damages and liabilities to
which they or any of them may become subject under the Securities Act or any
other statute or common law or otherwise, and to reimburse them for any
reasonable legal or other expenses incurred by them in connection with
investigating any claims and defending any action (the losses, claims, damages,
and expenses to which Sections 7.8(a) and 7.8(b) pertain, being, collectively, a
"Loss"), insofar as any such Loss shall arise out of or shall be based upon (i)
any untrue statement or alleged untrue statement of a material fact contained in
the registration statement relating to the sale of such Registrable Securities,
or the omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the
-20-
<PAGE>
statements therein not misleading, or ii) any untrue statement or alleged untrue
statement of a material fact contained in any preliminary prospectus (as amended
or supplemented if Buyer shall have filed with the SEC any amendment thereof or
supplement thereof) if used prior to the effective date of such registration
statement, or contained in the prospectus (as amended or supplemented if Buyer
shall have filed with the SEC any amendment thereof or supplement thereof) if
used within the period during which Buyer shall be required to keep the
registration statement to which such prospectus relates current pursuant to the
terms of this Agreement, or the omission or alleged omission to state therein
(if so used) a material fact necessary in order to make the statements therein,
in light of the circumstances under which they were made, not misleading (the
matters in the foregoing clauses (i) and (ii) being, collectively, a
"Violation"); provided, however, that the indemnification agreement contained in
this Section 7.8 shall not apply (A) to a Loss that arises out of or is based
upon a Violation made in reliance upon and in conformity with information
furnished to Buyer by the Holder specifically for use in connection with the
preparation of the registration statement or any preliminary prospectus or
prospectus contained in the registration statement or any such amendment thereof
or supplement thereto, (B) to a Violation made in any preliminary prospectus or
the prospectus contained in the registration statement in the form in which the
registration statement became effective or in the form filed by Buyer with the
SEC pursuant to Rule 424(b) under the Securities Act and the Holder was promptly
advised in writing not to use the incorrect preliminary prospectus or prospectus
and the Holder, notwithstanding such advice, used it; (C) to the extent such
Loss is based on a failure of the Holder to deliver or to cause the preliminary
prospectus or prospectus made available by Buyer to be delivered to the
purchaser of the Registrable Securities to the extent delivery is required under
the Securities Act; or (D) to amounts paid in settlement of any Loss if such
-21-
<PAGE>
settlement is effected without the prior written consent of Buyer, which consent
shall not be unreasonably withheld.
(b) The Holder agrees, in the same manner and to the same extent
as set forth in Section 7.8(a), to indemnify and hold harmless Buyer and each
person, if any, who controls Buyer, within the meaning of Section 15 of the
Securities Act, its directors and those officers of Buyer who shall have signed
any such registration statement with respect to any Loss arising out of a
Violation to which the provisos in Section 7.8(a) apply to the extent, as
contemplated by Section 7.8(a), the Holder's actions or inaction caused such
Loss.
(c) A Person entitled to be indemnified under Sections 7.8(a) or
7.8(b) shall, promptly after receipt of notice of the commencement of any action
against such indemnified Person in respect of which indemnity may be sought,
notify the indemnifying Person in writing of the commencement thereof. The
omission of any indemnified Person so to notify an indemnifying Person of any
such action shall not relieve the indemnifying Person from any liability in
respect of such action which it may have to such indemnified Person on account
of the indemnity provided in Sections 7.8(a) or 7.8(b), as the case may be,
except to the extent the indemnifying Person was materially prejudiced by such
omission, and in no event shall relieve the indemnifying Person from any other
liability which it may have to such indemnified Person. In case any such action
shall be brought against any indemnified Person, the indemnifying Person shall
be entitled to participate therein and, to the extent that it may wish, jointly
with any other indemnifying Person, to assume the defense thereof, with counsel
reasonably satisfactory to the indemnified Person, and, after notice from the
indemnifying
-22-
<PAGE>
Person to such indemnified Person of its election so to assume the defense
thereof, the indemnifying Person shall not be liable to such indemnified Person
for any legal or other expenses subsequently incurred by such indemnified Person
in connection with the defense thereof other than reasonable costs of
investigations; provided, however, that an indemnified Person shall have the
right to retain its own counsel with the fees and expenses to be paid by the
indemnifying Person if, in the reasonable opinion of counsel retained by the
indemnifying Person, the representation by such counsel of the indemnified
Person and the indemnifying Person would be inappropriate due to actual or
potential differing interests between such indemnified Person and the
indemnifying Person. Buyer shall pay reasonable fees for only one separate legal
counsel for all Persons it may be obligated to indemnify pursuant to this
Agreement, and such legal counsel shall be selected by the indemnified Persons
holding a majority in interest of the Registrable Securities included in the
registration statement to which the Loss relates. The indemnified Person shall
cooperate fully with the indemnifying Person in connection with any negotiation
or defense of any such action or claim by the indemnifying Person and shall
furnish to the indemnifying Person all information reasonably available to the
indemnified Person which relates to the Loss. The Person whose counsel is
retained to defend the action or proceeding shall keep the other Persons
reasonably apprised at all times as to the status of the defense or any
settlement negotiations with respect thereto. No indemnifying Person shall be
liable for any settlement of any action, claim or proceeding effected without
its written consent, provided, however, that the indemnifying Person shall not
unreasonably withhold, delay or condition its consent. No indemnifying Person
shall, without the consent of the indemnified Person, consent to entry of any
judgment or enter into any settlement or other compromise which does not include
as an unconditional term thereof the giving by the claimant or plaintiff to such
indemnified Person of a
-23-
<PAGE>
release from all liability in respect to such claim or litigation. Following
indemnification as provided for hereunder, the indemnifying Person shall be
subrogated to all rights of the indemnified Person with respect to all third
parties, firms or corporations relating to the matter for which indemnification
has been made.
(d) If the indemnification provided for in Sections 7.8(a) and
7.8(b) from the indemnifying Person is unavailable to an indemnified Person in
respect of any Loss referred to therein, then the indemnifying Person, in lieu
of indemnifying such indemnified Person, shall contribute to the amount paid or
payable by such indemnified Person as a result of such Loss in such proportion
as is appropriate to reflect the relative fault of the indemnifying Person and
indemnified Persons in connection with the actions that resulted in such Loss,
as well as any other relevant equitable considerations. The relative fault of
such indemnifying Person and indemnified Persons shall be determined by
reference to, among other things, whether any action in question, including any
Violation has been made by, or relates to information supplied by, such
indemnifying Person or indemnified Persons, and their relative intent,
knowledge, access to information and opportunity to correct or prevent such
action. The amount paid or payable by a Person as a result of the Loss referred
to above shall be deemed to include any legal or other fees or expenses
reasonably incurred by such Person in connection with any investigation or
proceeding. The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 7.8(d) were determined by pro rata
allocation or by any other method of allocation that does not take account of
the equitable considerations referred to in this Section 7.8(d). No Person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any
-24-
<PAGE>
Person who was not guilty of such fraudulent misrepresentation. If
indemnification is available under this Section 7.8, the indemnifying Persons
shall indemnify each indemnified Person to the full extent provided in Section
7.8(a) and 7.8(b) hereof without regard to the relative fault of said
indemnifying Person or indemnified Person or any other equitable consideration
provided for in this Section 7.8(d).
7.9 Report by Holder of Sales. In order to enable Buyer to be in a
position to update the registration statement, including the prospectus, from
time to time, if required, and remove any unsold shares from the registration
statement after the time all Registrable Securities cease to be Registrable
Securities, the Holder agrees to notify Buyer in writing as to the number of
Registrable Securities sold or otherwise disposed of by the Holder, whether
pursuant to the registration statement filed by Buyer pursuant to this Section
7, under Rule 144 (including paragraph (k) thereunder) or otherwise, within
fifteen days after the end of each month in which a sale or other disposition of
Registrable Securities occurs and promptly following request for such
information from Buyer from time to time.
8. CONDITIONS PRECEDENT.
8.1. Conditions Precedent to Buyer's Obligations. The obligations of
Buyer under this Agreement, including without limitation, Buyer's obligation to
consummate the transactions contemplated hereby, are subject to the
satisfaction, at or prior to the Closing Date, of the following conditions:
(a) Representations and Warranties of Seller. The representations
and warranties of Seller set forth in this Agreement shall be true and correct
in all material respects as of the date of this
-25-
<PAGE>
Agreement and as of the Closing Date as though made on and as of the Closing
Date, and Buyer shall have received a certificate signed by Seller to such
effect.
(b) Performance of Obligations of Seller. Seller shall have
performed all obligations required to be performed by him under this Agreement
at or prior to the Closing Date, and Buyer shall have received a certificate
signed by Seller to such effect.
(c) No Adverse Change. The Equipment shall not have been
adversely affected in any material way, including, without limitation, as a
result of any fire, accident or other casualty or act of God or the public
enemy, whether insured against or not.
(d) Litigation. No preliminary or permanent injunction or other
order by any federal or state court in the United States which prevents the
consummation of the transactions contemplated by this Agreement shall be in
effect nor shall any person have brought suit to seek such an injunction or
order to prevent the consummation of the transactions contemplated by this
Agreement.
(e) Buyer's Stockholder Approval. The stockholders of Buyer shall
have approved the transactions contemplated in this Agreement by the vote
required under the Delaware General Corporation Law to approve an interested
director transaction and by vote required in order to fulfill the requirements
for the Buyer's listing of all of the Buyer's Common Stock on The Nasdaq Stock
Market, Inc.
(f) Closing Documents. Buyer shall have received all documents to
be delivered pursuant to Section 3.2 hereof.
(g) Consents. All consents and approvals that Buyer reasonably
deems necessary to have obtained prior to the Closing Date in order to
consummate the transactions contemplated by this
-26-
<PAGE>
Agreement (including, without limitation, those described in Section 4.4 and
5.3), shall have been obtained.
8.2. Conditions Precedent to Seller's Obligations. The obligations of
Seller under this Agreement, including without limitation, Seller's obligation
to consummate the transactions contemplated hereby, are subject to the
satisfaction, at or prior to the Closing Date, of the following conditions:
(a) Representations and Warranties of Buyer. The representations
and warranties of Buyer set forth in this Agreement shall be true and correct in
all material respects as of the date of this Agreement and as of the Closing
Date as though made on and as of the Closing Date, and Seller shall have
received a certificate signed by an officer of Buyer to such effect.
(b) Performance of Obligations of Buyer. Buyer shall have
performed all obligations required to be performed by it under this Agreement at
or prior to the Closing Date, and Seller shall have received a certificate
signed by an officer of Buyer to such effect.
(c) No Adverse Change. There shall be no adverse change in the
condition (financial or otherwise), properties, assets or prospects of Buyer and
its subsidiaries taken as a whole.
(d) Litigation. No preliminary or permanent injunction or other
order by any federal or state court in the United states which prevents the
consummation of the transactions contemplated by this Agreement shall be in
effect nor shall any person have brought suit to seek such an injunction or
order to prevent the consummation of the transactions contemplated by this
Agreement.
(e) Buyer's Stockholder Approval. The stockholders of Buyer shall
have approved the transactions contemplated in this Agreement by the vote
required under the Delaware General Corporation Law to approve an interested
director transaction and by vote required in order to fulfill
-27-
<PAGE>
the requirements for the Buyer's listing of all of the Buyer's Common Stock on
The Nasdaq Stock Market, Inc.
(f) Closing Documents. Seller shall have received all documents
to be delivered pursuant to Section 3.3 hereof.
9. INDEMNIFICATION.
9.1. Survival of Representations. All such representations, warranties
and covenants of each party shall survive the Closing (and none shall merge into
any instrument of conveyance), regardless of any investigation or lack of
investigation by either of the parties to this Agreement.
9.2. "Losses" Defined. As used in this Agreement, "Losses" shall mean
all damages, losses, liabilities, costs and expenses of a party seeking
indemnification pursuant to this Agreement (including, without limitation,
reasonable attorneys' fees and disbursements charged to or paid by the party
seeking indemnification) but excluding any punitive damages awarded against such
party seeking indemnification as a result of its own acts or omissions
9.3. Indemnification by Seller. Seller hereby indemnities and holds
harmless Buyer, its directors, officers, employees, agents, successors and
assigns, and any person who controls Buyer from and against any and all Losses
arising out of or resulting from (i) any and all liabilities and obligations of
PRC, other than those reflected on the Closing Date Balance Sheet of PRC to be
delivered pursuant to Section 3.2(i) hereof, or otherwise disclosed to Buyer in
this Agreement; and (ii) any material breach of any representation or warranty
or other agreement of Seller contained in this Agreement or in any certificate
delivered by Seller pursuant to this Agreement.
-28-
<PAGE>
9.4. Indemnification by Buyer. Buyer hereby indemnities and holds
harmless Seller, and his legal representatives, heirs, successors and assigns,
from and against all Losses arising out of or resulting from (i) liabilities and
obligations of PRC reflected on the Closing Date Balance Sheet of PRC to be
delivered pursuant to Section 3.2(i) hereof, or otherwise disclosed to Buyer in
this Agreement; (ii) Buyer's operation of PRC's business subsequent to the
Closing Date; and (iii) any material breach of any representation or warranty or
other agreement of Buyer contained in this Agreement or in any certificate
delivered by Buyer pursuant to this Agreement.
9.5. Claims. For the purposes of this Section 9.4 the party from whom
indemnification is sought under this Agreement shall be referred to as the
"Indemnitor" and the party who is seeking such indemnification shall be referred
to as the "Indemnitee". Should any claim be made by a person not a party to this
Agreement with respect to any matter to which the foregoing indemnification
provisions relate or should any claim for indemnification otherwise come to the
attention of the Indemnitee, the Indemnitee shall promptly give the Indemnitor
written notice of such claim, and the Indemnitor shall thereafter defend or
settle any such claim, at its sole expense, on its behalf and with counsel of
its choosing; provided, however, that the Indemnitee's written consent to any
settlement or disposition shall be a requirement thereto, which consent shall
not be unreasonably withheld. In such defense or settlement, the Indemnitee
shall cooperate and assist the Indemnitor to the maximum extent reasonably
possible and the Indemnitee may participate therein at its own expense and with
counsel of its own choosing.
10. GENERAL.
10.1. Termination. This Agreement may be terminated:
(a) by the mutual written consent of Buyer and Seller;
-29-
<PAGE>
(b) by Buyer, in the event that any of the conditions precedent
enumerated in Section 8.1 to be performed by Seller have not been satisfied or
waived by Buyer at or prior to the Closing, or cured by Seller within seven days
following written notice thereto;
(c) by Seller, in the event that any of the conditions precedent
enumerated in Section 8.2 to be performed by Buyer have not been satisfied or
waived by Seller at or prior to the Closing, or cured by Buyer within seven days
following written notice thereof; or
(d) by Seller, in the event that the stockholders of Buyer shall
not have approved the transactions contemplated by this Agreement within
eighteen months after the date hereof.
In the event of termination of this Agreement as provided in this
Section 10.1, this Agreement shall forthwith become null and void and there
shall be no liability or obligation on the part of Buyer or Seller, except as
(i) set forth in or pursuant to Article 9, Section 10.3 and Section 10.4 hereof;
(ii) that any termination by a party arising out of a breach of any
representation, warranty or covenant contained in this Agreement shall be
without prejudice to the rights of the non-breaching party.
10.2. Effect on Lease. The Lease shall remain in full force and effect,
except that no rental payments need be made for periods after December 31, 1998
unless the stockholder approval required under Section 8.1(e) and 8.2(e) shall
not be obtained. If such stockholder approval is not to be obtained, Buyer shall
make all rental and other payments which it would otherwise have been required
to make for the period from January 1, 1999 in a lump sum in cash no later than
ten days after the earlier of (i) the date stockholders shall have voted against
such approval, (ii) Buyer shall have abandoned any attempt to obtain such
stockholders approval or (iii) eighteen months after the date hereof.
-30-
<PAGE>
10.3. Fees and Expenses. Buyer and Seller shall each bear its and his
own expenses incurred in connection with this Agreement and the transactions
contemplated by this Agreement whether or not such transactions shall be
consummated.
10.4. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, and all such
counterparts shall constitute but one instrument.
10.5. Notices. All notices and other communications hereunder shall be
in writing and shall be deemed given if (i) delivered personally or by
nationally-recognized overnight courier or (ii) mailed by registered or
certified mail, return receipt requested, postage prepaid, in each case,
addressed to the parties at the following addresses (or at such other address
for a party as shall be specified by like notice; provided that notices of a
change of address shall be effective only upon receipt thereof):
If to Buyer: 1385 Akron Street
Copiague, New York 11726
Attention: President
If to PRC: Route 2-Kennedy Avenue
Guaynabo, Puerto Rico 00657
Attention: President
Any notice so addressed shall be deemed to be given (x) three business days
after being mailed by first-class, registered or certified mail, return receipt
requested, postage prepaid and (y) upon delivery, if transmitted by personal
delivery or nationally-recognized overnight courier.
10.6. Assignment. This Agreement shall not be assigned by either party
without the express written consent of the other, and if such assignment is
consented to and made it shall be binding upon, and inure to the benefit of,
such assignee.
-31-
<PAGE>
10.7. Exhibits; Complete Agreement.
(a) All Exhibits referred to in and attached to this Agreement
are intended to be and are specifically made a part of this Agreement.
(b) This Agreement sets forth the entire understanding of the
parties and supersedes all prior agreements, covenants, arrangements,
communications, representations or warranties, whether oral or written, by any
officer, employee or representative of either party.
10.8. Interpretation, Severability and Construction. The headings of
the Articles and Sections of this Agreement are inserted for convenience only
and shall not be deemed to constitute a part hereof. In the event that any
provision of this Agreement shall finally be determined to be, unlawful by a
court or regulatory authority having competent jurisdiction, such provision
shall be deemed to be severed from this Agreement; but every other provision of
this Agreement shall remain in full force and affect. This Agreement shall be
construed in accordance, with, and governed by, the laws of the State of New
York, except to the extent the laws of the State of Delaware mandatorily govern
a particular provision.
[Balance of page intentionally left blank]
-32-
<PAGE>
10.9. Third Parties; Amendment. Nothing herein expressed or implied is
intended or shall be construed to confer upon or give to any person, firm or
corporation, other than the parties and their respective successors and
permitted assigns, any rights or remedies under or by reason of this Agreement.
This Agreement may be amended only by an instrument in writing duly executed by
the parties.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
TII INDUSTRIES, INC.
By: /s/ Timothy J. Roach
------------------------------
Timothy J. Roach, President
/s/ Alfred J. Roach
------------------------------
Alfred J. Roach, Individually
