<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934*
Zytec Corporation
-----------------------------------------
(Name of Issuer)
Common Stock, no par value
-----------------------------------------
(Title of Class of Securities)
989 86710
-----------------------------------------
(CUSIP Number)
Copy to:
William C. Morro Edward T. Swan
BMO Nesbitt Burns Equity Partners, Inc. Kirkland & Ellis
111 West Monroe - 20th Floor East 200 E. Randolph Drive
Chicago, Illinois 60603 Chicago, Illinois 60601
312/461-2021 312/861-2465
- --------------------------------------------------------------------------------
(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
December 23, 1996
-------------------------------------------------------------
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(b)(3) or (4), check the following box [_].
*The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities, and
for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 ("Act") or otherwise subject to the liabilities of that section of the Act
but shall be subject to all other provisions of the Act (however, see the
Notes).
(Continued on following pages)
<PAGE>
- --------------------------- ------------------
CUSIP NO. 989 86710 13D PAGE 2
- --------------------------- ------------------
- --------------------------------------------------------------------------------
1 NAME OF REPORTING PERSON
BMO Nesbitt Burns Capital (U.S.), Inc.
- --------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a) [_]
(b) [X]
- --------------------------------------------------------------------------------
3 SEC USE ONLY
- --------------------------------------------------------------------------------
4 SOURCE OF FUNDS*
WC
- --------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(D) OR 2(E) [_]
- --------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
- --------------------------------------------------------------------------------
NUMBER OF 7 SOLE VOTING POWER
SHARES 0 (See Item 5)
-------------------------------------------------------------
BENEFICIALLY 8 SHARED VOTING POWER
OWNED BY 877,193 (See Item 5)
-------------------------------------------------------------
EACH 9 SOLE DISPOSITIVE POWER
REPORTING 0 (See Item 5)
-------------------------------------------------------------
PERSON 10 SHARED DISPOSITIVE POWER
WITH 877,193 (See Item 5)
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
877,193 (See Item 5)
- --------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
[_]
- --------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
8.7% (See Item 5)
- --------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
CO
- --------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE>
- --------------------------- ------------------
CUSIP NO. 989 86710 13D PAGE 3
- --------------------------- ------------------
- --------------------------------------------------------------------------------
1 NAME OF REPORTING PERSON
BMO Nesbitt Burns Equity Group (U.S.), Inc.
- --------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a) [_]
(b) [X]
- --------------------------------------------------------------------------------
3 SEC USE ONLY
- --------------------------------------------------------------------------------
4 SOURCE OF FUNDS*
Not Applicable
- --------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(D) OR 2(E) [_]
- --------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
- --------------------------------------------------------------------------------
NUMBER OF 7 SOLE VOTING POWER
SHARES 877,193 (See Item 5)
-------------------------------------------------------------
BENEFICIALLY 8 SHARED VOTING POWER
OWNED BY 0 (See Item 5)
-------------------------------------------------------------
EACH 9 SOLE DISPOSITIVE POWER
REPORTING 877,193 (See Item 5)
-------------------------------------------------------------
PERSON 10 SHARED DISPOSITIVE POWER
WITH 0 (See Item 5)
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
877,193 (See Item 5)
- --------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
[_]
- --------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
8.7% (See Item 5)
- --------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
CO
- --------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE>
- --------------------------- ------------------
CUSIP NO. 989 86710 13D PAGE 4
- --------------------------- ------------------
- --------------------------------------------------------------------------------
1 NAME OF REPORTING PERSON
Bankmont Financial Corporation
- --------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a) [_]
(b) [X]
- --------------------------------------------------------------------------------
3 SEC USE ONLY
- --------------------------------------------------------------------------------
4 SOURCE OF FUNDS*
Not Applicable
- --------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(D) OR 2(E) [_]
- --------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
- --------------------------------------------------------------------------------
NUMBER OF 7 SOLE VOTING POWER
SHARES 0 (See Item 5)
-------------------------------------------------------------
BENEFICIALLY 8 SHARED VOTING POWER
OWNED BY 877,193 (See Item 5)
-------------------------------------------------------------
EACH 9 SOLE DISPOSITIVE POWER
REPORTING 877,193 (See Item 5)
-------------------------------------------------------------
PERSON 10 SHARED DISPOSITIVE POWER
WITH 0 (See Item 5)
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
0 (See Item 5)
- --------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
[X]
- --------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
8.7% (See Item 5)
- --------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
CO
- --------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE>
- --------------------------- ------------------
CUSIP NO. 989 86710 13D PAGE 5
- --------------------------- ------------------
- --------------------------------------------------------------------------------
1 NAME OF REPORTING PERSON
Bank of Montreal
- --------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a) [_]
(b) [X]
- --------------------------------------------------------------------------------
3 SEC USE ONLY
- --------------------------------------------------------------------------------
4 SOURCE OF FUNDS*
Not Applicable
- --------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(D) OR 2(E) [_]
- --------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Canada
- --------------------------------------------------------------------------------
NUMBER OF 7 SOLE VOTING POWER
SHARES 0 (See Item 5)
-------------------------------------------------------------
BENEFICIALLY 8 SHARED VOTING POWER
OWNED BY 877,193 (See Item 5)
-------------------------------------------------------------
EACH 9 SOLE DISPOSITIVE POWER
REPORTING 0 (See Item 5)
-------------------------------------------------------------
PERSON 10 SHARED DISPOSITIVE POWER
WITH 877,193 (See Item 5)
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
877,193 (See Item 5)
- --------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
[_]
- --------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
8.7% (See Item 5)
- --------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
BK
- --------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE>
ITEM 1. SECURITY AND ISSUER.
-------------------
This Statement relates to shares of Common Stock, no par value (the
"Common Stock"), of Zytec Corporation, a Minnesota corporation (the "Company").
- ------------- -------
The address of the Company's principal executive office is 7575 Market
Place Drive, Eden Prairie, Minnesota 55344.
ITEM 2. IDENTITY AND BACKGROUND.
-----------------------
(a) This Statement is jointly filed by each of the following persons
pursuant to Rule 13d-(1)(f) promulgated by the Securities and Exchange
Commission ("SEC") under Section 13 of the Securities Exchange Act of 1934, as
---
amended (the "Act"): (i) BMO Nesbitt Burns Capital (U.S.), Inc., a Delaware
---
corporation ("BMO-CAP"), by virtue of its direct beneficial ownership of a
-------
Convertible Subordinated Promissory Note convertible into Common Stock upon the
occurrence of certain events (the "Note") and a Stock Purchase Warrant (the
----
"Warrant") which may become exercisable for Common Stock upon the occurrence of
-------
certain events after repayment of the Note, (ii) BMO Nesbitt Burns Equity Group
(U.S.), Inc., a Delaware corporation ("BMO-GROUP"), by virtue of its ownership
---------
of all of the outstanding common stock of BMO-CAP, (iii) Bankmont Financial
Corp. U.S., a Delaware corporation ("BFC"), by virtue of its ownership of all of
---
the outstanding common stock of BMO-GROUP and (iv) Bank of Montreal, a canadian
bank organized under the laws of Quebec, Canada ("B of MONT"), by virtue of its
---------
ownership of all of the outstanding common stock of BFC (the entities in clauses
(i) - (iv) collectively, the "Reporting Persons"). BMO-CAP, BMO-GROUP, BFC and
-----------------
B of MONT are parties to a Joint Filing Agreement, dated as of January 2, 1997,
which is attached hereto as Exhibit A.
---------
Information with respect to each of the Reporting Persons is given
solely by such Reporting Person, and no Reporting Person assumes responsibility
for the accuracy or completeness of information by another Reporting Person. By
their signature on this Statement, each of the Reporting Persons agrees that
this Statement is filed on behalf of such Reporting Person.
Certain information required by this Item 2 concerning the directors
and executive officers of BMO-CAP, BMO-GROUP, BFC and B of MONT is set forth on
Schedule A attached hereto, which is incorporated herein by reference.
- ----------
The Reporting Persons may be deemed to constitute a "group" for
purposes of Section 13(d)(3) of the Act. The Reporting Persons expressly
disclaim that they have agreed to act as a group other than as described in this
Statement.
(b) The address of the principal business and principal office of BMO-
CAP is 111 West Monroe, Chicago, IL 60603. The address of the principal
business and principal office of BMO-GROUP is 111 West Monroe, Chicago, IL
60603. The address of the principal business and
6
<PAGE>
principal office of BFC is 111 West Monroe, Chicago, IL 60603. The address of
the principal business and principal office of B of MONT is First Canadian
Place, Toronto, Canada M5X 1A1.
(c) BMO-CAP is an entity established to provide debt and equity
financing to businesses, as permitted by Section 4(c)(7) of the Bank Holding
Company Act. BMO-GROUP is a holding company established as a merchant bank.
BFC is a parent holding company that is the sole owner of certain bank and non-
bank companies in the United States. B of MONT is engaged in the business of
banking. B of MONT's principal business activity involves providing financial
services to businesses, governments, financial institutions and individuals in
Canada, the United States and throughout the world.
(d) During the past five years, none of the Reporting Persons nor, to
the best knowledge of such persons, any of the persons named in Schedule A to
----------
this Statement, has been convicted in a criminal proceeding (excluding traffic
violations or similar misdemeanors).
(e) During the past five years, none of the Reporting Persons nor, to
the best knowledge of such persons, any of the persons named in Schedule A to
----------
this Statement, was a party to a civil proceeding of a judicial or
administrative body of competent jurisdiction as a result of which such person
was or is subject to a judgment, decree or final order enjoining future
violations of, or prohibiting or mandating activity subject to, federal or state
securities laws or finding any violation with respect to such laws.
ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
-------------------------------------------------
The Company and BMO-CAP are parties to a Note and Warrant Purchase
Agreement, dated as of December 23, 1996 (the "Purchase Agreement"). A copy of
------------------
the Purchase Agreement is attached hereto as Exhibit B, and is incorporated
---------
herein by reference. Pursuant to the Purchase Agreement, on December 23, 1996,
BMO-CAP acquired (i) a Note in the principal amount of $12,000,000 which may
become convertible into shares of Common Stock upon the occurrence of certain
events at a present price of $13.68 per share and (ii) a Warrant which may
become exercisable for a number of shares presently equal to 877,193 upon the
occurrence of certain events at such time as the Note has been repaid. A Form
of Note purchased by BMO-CAP is attached hereto as Exhibit C and is incorporated
---------
herein by reference. A Form of Warrant purchased by BMO-CAP is attached hereto
as Exhibit D, and is incorporated herein by reference. The source of such funds
---------
was the working capital of BFC.
ITEM 4. PURPOSE OF TRANSACTION.
----------------------
BMO-CAP acquired the Note and the Warrant for investment purposes.
Depending on market conditions and other factors (including evaluation of the
Company's businesses and prospects, availability of funds, alternative uses of
funds and general economic conditions), BMO-CAP may from time to time purchase
additional securities of the Company or dispose of all or a portion of its
investment in the Company.
7
<PAGE>
The Company, BMO-CAP, Ronald D. Schmidt ("Schmidt"), John M. Steel
-------
("Steel"), Lawrence J. Matthews ("Matthews"), Schmidt Family Limited Partnership
- ------- --------
("SFLP"), Alice M. Schmidt ("A.M. Schmidt") and Gail M. Matthews ("G.
---- ------------ --
Matthews") are parties to a Registration Agreement, dated as of December 23,
1996 (the "Registration Agreement"). Pursuant to the Registration Agreement,
----------------------
BMO-CAP, Schmidt, Steel, Matthews, SFLP, G. Matthews and A.M. Schmidt were
granted certain registration rights with respect to the Common Stock each holds
or has or may have the right to acquire. A copy of the Registration Agreement
is attached hereto as Exhibit E, and is incorporated herein by reference.
---------
The summaries of the agreements referred to in this Item 4 and
elsewhere in this Statement are not intended to be complete and are qualified in
their entirely by reference to the detailed provisions of the such agreements
incorporated herein by reference.
ITEM 5. INTEREST IN SECURITIES OF THE ISSUER.
------------------------------------
(a) BMO-CAP is the direct beneficial owner of the Note and the
Warrant, which will be convertible into a number of shares of Common Stock
presently equal to 877,193 upon the occurrence of certain events, and the
Warrant, which may become exercisable upon the occurrence of certain events at
such time as the Note has been repaid into a number of shares presently equal to
877,193. The shares of Common Stock acquirable upon conversion of the Note or
exercise of the Warrant represent approximately 8.7% of the Company's Common
Stock.
By virtue of the relationship between BMO-CAP and BMO-GROUP described
in Item 2, BMO-GROUP may be deemed to possess indirect beneficial ownership of
the shares of Common Stock beneficially owned by BMO-CAP, and, by virtue of the
relationship between BMO-CAP, BMO-GROUP and BFC described in Item 2, BFC may be
deemed to possess indirect beneficial ownership of the shares of Common Stock
beneficially owned by BMO-CAP. In addition, by virtue of the relationship
between BMO-CAP, BMO-GROUP, BFC and B of Mont described in Item 2, B of Mont may
be deemed to possess indirect beneficial ownership of the shares of Common Stock
beneficially owned by BMO-CAP. The filing of this Statement by BMO-GROUP, BFC
or B of Mont shall not be construed as an admission that any of BMO-GROUP, BFC
or B of MONT is, for the purpose of Section 13(d) or 13(g) of the Act, the
beneficial owner of any securities covered by this Statement.
The percentages calculated in this Item 5 are based upon 9,165,604
shares of Common Stock outstanding (not including the conversion of the Note or
exercise of the Warrant) as of December 23, 1996.
(b) As permitted by Section 4(c)(7) of the Bank Holding Company Act,
BMO-CAP has the sole power to vote or direct the vote of the 877,193 shares of
Common Stock beneficially owned by BMO-CAP (assuming conversion of the Note or
exercise of the Warrant
8
<PAGE>
beneficially owned by BMO-CAP into 877,193 shares of Common Stock upon the
occurrence of certain events).
By virtue of the relationship between BMO-CAP and BMO-GROUP described
in Item 2, BMO-GROUP may be deemed to indirectly share the power to vote or
direct the vote (assuming conversion of the Note or exercise of the Warrant
beneficially owned by BMO-CAP into 877,193 shares of Common Stock upon the
occurrence of certain events) and indirectly share the power to dispose of or
direct the disposition of the shares of Common Stock beneficially owned by BMO-
CAP. By virtue of the relationship between BMO-CAP, BMO-GROUP and BFC described
in Item 2, BFC may be deemed to indirectly share the power to vote or direct the
vote (assuming conversion of the Note or exercise of the Warrant beneficially
owned by BMO-CAP into 877,193 shares of Common Stock upon the occurrence of
certain events) and indirectly share the power to dispose of or direct the
disposition of the shares of Common Stock beneficially owned by BMO-CAP. By
virtue of the relationship between BMO-CAP, BMO-GROUP, BFC and B of MONT
described in Item 2, B of MONT may be deemed to indirectly share the power to
vote or direct the vote (assuming conversion of the Note or exercise of the
Warrant beneficially owned by BMO-CAP into 877,193 shares of Common Stock upon
the occurrence of certain events) and indirectly share the power to dispose of
or direct the disposition of the shares of Common Stock beneficially owned by
BMO-CAP.
(c) None of the Reporting Persons has effected a transaction in shares
of Common Stock during the past 60 days.
(d) No person other than the Reporting Persons has the right to
receive or the power to direct the receipt of dividends from, or the proceeds
from the sale of, the Common Stock reported as being beneficially owned by the
Reporting Persons.
(e) Not applicable.
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT
---------------------------------------------------------------------
TO SECURITIES OF THE ISSUER.
---------------------------
Except as set forth in Item 4, to the best knowledge of the Reporting
Persons, no contracts, arrangements, understandings or relationships (legal or
otherwise) exist among the persons named in Item 2 or between such persons and
any other person with respect to any securities of the Company, including but
not limited to transfer or voting of any such securities, finder's fees, joint
ventures, loan or option arrangements, puts or calls, guarantees of profits,
divisions of profits or loss, or the giving or withholding of proxies.
9
<PAGE>
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS.
--------------------------------
Exhibit A -- Joint Filing Agreement, dated as of January 2, 1997, by
and among BMO-CAP, BMO-GROUP, BFC and B of MONT.
Exhibit B -- Note and Warrant Purchase Agreement, dated as of
December 23, 1996, by and among the Company and BMO-
CAP.
Exhibit C -- Form of Convertible Subordinated Note issued to BMO-CAP
on December 23, 1996.
Exhibit D -- Form of Stock Purchase Warrant issued to BMO-CAP on
December 23, 1996.
Exhibit E -- Registration Agreement, dated as of December 23, 1996,
by and among the Company, BMO-CAP, Schmidt, Steel,
Matthews, SFLP, A.M. Schmidt and G. Matthews.
10
<PAGE>
SIGNATURE
After reasonable inquiry and to the best of our knowledge and belief,
each of the undersigned certifies that the information set forth in this
Statement is true, complete and correct.
Dated: January 2, 1997
BMO NESBITT BURNS CAPITAL (U.S.),
INC.
By__________________________________
Its_________________________________
BMO NESBITT BURNS EQUITY GROUP
(U.S.), INC.
By__________________________________
Its_________________________________
BANKMONT FINANCIAL CORP. (U.S.)
By__________________________________
Its_________________________________
BANK OF MONTREAL
By__________________________________
Its_________________________________
<PAGE>
EXHIBIT A
AGREEMENT RE JOINT FILING OF
SCHEDULE 13D
______________
The undersigned hereby agrees as follows:
(i) Each of them is individually eligible to use the Schedule 13D to
which this Exhibit is attached, and such Schedule 13D is filed on behalf of each
of them; and
(ii) Each of them is responsible for the timely filing of such
Schedule 13D and any amendments thereto, and for the completeness and accuracy
of the information concerning such person contained therein; but none of them is
responsible for the completeness or accuracy of the information concerning the
other persons making the filing, unless such person knows or has reason to
believe that such information is inaccurate.
Dated: January 2, 1997
BMO NESBITT BURNS CAPITAL (U.S.),
INC.
By__________________________________
Its_________________________________
BMO NESBITT BURNS EQUITY GROUP
(U.S.), INC.
By__________________________________
Its_________________________________
BANKMONT FINANCIAL CORP. (U.S.)
By__________________________________
Its_________________________________
BANK OF MONTREAL
By__________________________________
Its_________________________________
<PAGE>
SCHEDULE A
----------
BMO NESBITT BURNS CAPITAL (U.S.), INC.
--------------------------------------
BOARD OF DIRECTORS
- ------------------
Thomas A. Tutsch
William A. Downe
Edward J. Lyman, Jr.
William C. Morro
EXECUTIVE OFFICERS
- ------------------
Thomas A. Tutsch - Vice Chairman
William C. Morro - President
Thomas J. McDonough - Vice President
L. David Bird - Vice President
Christopher E.M. Payne - Vice President
Georges A. Soare' - Vice President
Helen K. Schubbe - Secretary
BMO NESBITT BURNS GROUP (U.S.), INC.
------------------------------------
BOARD OF DIRECTORS
- ------------------
Brian J. Steck
Thomas A. Tutsch
William A. Downe
Edward J. Lyman, Jr.
William C. Morro
EXECUTIVE OFFICERS
- ------------------
Brian J. Steck - Chairman
Thomas A. Tutsch - Vice Chairman and Vice President
William C. Morro - President
Thomas J. McDonough - Vice President
I. David Bird - Vice President
Christopher E.M. Payne - Vice President
Georges Soare' - Vice President
Helen K. Schubbe - Secretary
<PAGE>
BANKMONT FINANCIAL CORP. (U.S.)
-------------------------------
BOARD OF DIRECTORS
- ------------------
F. Anthony Comper
Brian J. Steck
Roxanne Decyk
Richard E. Terry
James J. Glasser
Lorne C. Webster
Dr. Leo M. Henikoff
Robert B. Wells
Alan G. McNally
Thomas R. Sizer
EXECUTIVE OFFICERS
- ------------------
F. Anthony Comper - Chairman and Chief Executive Officer
Alan G. McNally - President
Robert B. Wells - Treasurer and Chief Executive Officer
Thomas R. Sizer - Secretary
BANK OF MONTREAL
----------------
BOARD OF DIRECTORS
- ------------------
Barford, Ralph M.
Barrett, Matthew W., O.C.
Beatty, David, O., O.B.E.
Bentley, Peter J.G., O.C., LLD.
Comper, Anthony F.
Cote, Pierre, C.M.
Desrochers, Louis A., M.C., c.r.
Fraser, John F., O.C., B.Comm., LLD.
Gantz, Wilbur H.
Glasser, James J.
Kwok, Stanley
MacAulay, Blair J.
Mannix, Ronald N.
Molson, Eric H.
Monty, Jean G. C.M.
Nickenson, Jerry E.A.
Reitman, Jeremy H.
-2-
<PAGE>
PART I
CONTINUED
Sautcer, Guylaine, C.M., F.C.A.
Southern, Nancy C.
Webster, Lorne C.
SENIOR OFFICERS
- ---------------
Barrett, Matthew W., O.C. - Chairman of the Board and Chief Executive
Officer
Comper, Anthony F. - President and Chief Operating Officer
Chisholm, Jeffrey S. - Vice-Chairman Electronic Financial Services
Dorricott, Keith O. - Vice-Chairman Corporate Services
Rogers, Ronald G. - Vice-Chairman Personal and Commercial
Financial Services
Steck, Brian J. - Vice-Chairman Corporate and Investment Banking
Darlington, Lloyd F. - Chief Technology Officer and General Manager
Bourdeau, Yvan J.P. - Executive Vice-President and Treasurer
Downe, William A. - Executive Vice-President North American
Corporate
Banking; Corporate and Investment Banking
Gilmour, Barry K. - Executive Vice-President, Systems Operations
Hopkins, George W. - Executive Vice-President Corporate Staff
Jackson, Terry A. - Executive Vice-President Asset Management
Services
Jansson, Harri E. - Executive Vice-President Central Ontario
Division
Macmillan, Neil R. - Executive Vice-President Risk Management
Policy
Maila, Michael G. - Executive Vice-President Mexico and Latin
America; Electronic Financial Services
O'Neill, Timothy J. - Executive Vice-President and Chief Economist
Rayfield, Michael R. - Executive Vice-President Corporate Banking
Rosenswig, Deanna - Executive Vice-President Corporate
Electronic Banking Service
Wells, Robert B. - Executive Vice-President and Chief Financial
Officer
White, Andrew R. - Executive Vice-President
Jones, Dereck M. - Senior Vice-President and General Counsel
Kinsley, Marnie J. - Senior Vice-President and Chief Auditor
Somerville, Penny F. - Senior Vice-President and Corporate Controller
Begy, Christopher B. - Vice President and Chief Accountant
Jones, Velma J. - Vice President and Secretary
-3-
<PAGE>
ADDRESSES AND PRINCIPAL OCCUPATIONS
-----------------------------------
NAME PRINCIPAL OCCUPATION/ADDRESS
- ---- ----------------------------
Barford, Ralph M. President
Valleydene Corporation Limited
20 Eglinton Avenue West
Suite 1903
P.O. Box 2026
Toronto, Ontario M4R 1K8
Barrett, Matthew W., O.C. Chairman of the Board and Chief
Executive Officer
Bank of Montreal
First Canadian Place
Toronto, Ontario M5X 1A1
Beatty, David., O.B.E. Chairman and Chief Executive Officer
Old Canada Investment Corporation
Limited 145 King Street West
Suite 2700
Toronto, Ontario M5H 1J8
Begy, Christopher B. Vice-President and Chief Accountant
Bank of Montreal
Bank of Montreal Tower
55 Floor Street West
Toronto, Ontario M4W 3M5
Bentley, Peter J.G., O.C., LLD. Chairman of the Board
Cantor Corporation
2900 - 1055 Dunsmuir Street
P.O. Box 48420
Bentall Postal Station
Vancouver, British Columbia V7X 1B5
Bird, L. David Vice President
BMO Nesbitt Burns Equity Partners, Inc.
1 First Canadian Place, 6th Floor
P.O. Box 150
Toronto, Ontario M5X 1H3 Canada
-4-
<PAGE>
ADDRESSES AND PRINCIPAL OCCUPATIONS
-----------------------------------
NAME PRINCIPAL OCCUPATION/ADDRESS
- ---- ----------------------------
Bourdeau, Yvan J.P. Executive Vice-President and Treasurer
Bank of Montreal
First Canadian Place
Toronto, Ontario M5X 1A1
Chisholm, Jeffrey S. Vice-Chairman
Bank of Montreal
Electronic Financial Services and
President, mbank
Bank of Montreal
First Canadian Place
Toronto, Ontario MSX 1A1
Comper, Anthony F. President and Chief Operating Officer
Bank of Montreal
First Bank Tower
First Canadian Place
Toronto, Ontario M5X 1A1
Cote, Pierre, C.M. Chairman of the Board
Celanese Canada Inc.
800 Rene-Levesque Blvd. West
23rd Floor
Montreal, Quebec H3B 1Z1
Darlington, Lloyd F. Chief Technology Officer and
General Manager
Operations
Bank of Montreal
Bank of Montreal Tower
55 Bloor Street West
Toronto, Ontario M4W 3M5
Decyk, Roxanne J. Vice President
Corporate Planning
Amoco Corporation
200 E. Randolph Drive
Chicago, Illinois 60601
-5-
<PAGE>
ADDRESSES AND PRINCIPAL OCCUPATIONS
-----------------------------------
NAME PRINCIPAL OCCUPATION/ADDRESS
- ---- ----------------------------
Desrochers, Louis A., M.C., c.r. Senior Partner
McCuaig Desrochers
2491 Toronto Dominion Tower
Edmonton Centre N.W.
Edmonton, Alberta T5J 2Z1
Dorricott, Keith O. Vice-Chairman
Corporate Services
Bank of Montreal
First Canadian Place
Toronto, Ontario M5X 1A1
Downe, William A. Executive Vice President, North American
Corporate Banking
Bank of Montreal
115 South LaSalle Street, 13th Floor West
Chicago, Illinois 60603
Fraser, John F., O.C., Vice-Chairman
B.Comm., LLD. Russel Metals Inc.
#600 One Lombard Place
Winnipeg, Manitoba R3B 0X3
Gantz, Wilbur H. President and Chief Executive Officer
PathoGenesis Corporation
5215 Old Orchard Road
Suite 910
Skokie, Illinois 60077 U.S.A.
Gilmour, Barry K. Executive Vice-President, Systems
Operations Bank of Montreal
Bank of Montreal Tower
55 Bloor Street West
Toronto, Ontario M4W 3M5
Glasser, James J. Chairman Emeritus
GATX Corporation
500 W. Monroe Street
Suite 2660
Chicago, Illinois 60661
U.S.A.
-6-
<PAGE>
ADDRESSES AND PRINCIPAL OCCUPATIONS
-----------------------------------
NAME PRINCIPAL OCCUPATION/ADDRESS
- ---- ----------------------------
Henikoff, Dr. Leo M. President and Chief Executive Officer
Rush-Presbyterian-St. Luke's Medical
Center
1725 W. Harrison, Suite 364
Chicago, Illinois 60612
Hopkins, George W. Executive Vice-President
Corporate Staff
Bank of Montreal
Bank of Montreal Tower
55 Bloor Street West
Toronto, Ontario M4W 3M5
Jackson, Terry A. Executive Vice-President
Asset Management Services of Bank of
Montreal and President
The Trust Company of Bank of Montreal
302 Bay Street
Toronto, Ontario M5X 1A1
Jansson, Harri E. Executive Vice-President
Central Ontario Division
Bank of Montreal
Personal and Commercial Financial
Services
302 Bay Street
Toronto, Ontario M5X 1A1
Jones, Dereck M. Senior Vice-President and
General Counsel
Bank of Montreal
First Canadian Place
Toronto, Ontario M5X 1A1
Jones, Velma J. Vice-President and Secretary
Bank of Montreal
First Canadian Place
Toronto, Ontario M5X 1A1
-7-
<PAGE>
ADDRESSES AND PRINCIPAL OCCUPATIONS
-----------------------------------
NAME PRINCIPAL OCCUPATION/ADDRESS
- ---- ----------------------------
Kinsley, Marnie J. Senior Vice-President and
Chief Auditor
Bank of Montreal
Bank of Montreal Tower
55 Floor Street West
Toronto, Ontario M4W 3M5
Kwok, Stanley Director
Amara International Investment Corp.
355 Burrard Street
Suite 408
Vancouver, British Columbia V6C 2G8
Lyman, Edward J. Jr. Vice Chairman of the Board
Harris Trust and Savings Bank
111 West Monroe Street, 4th Floor West
Chicago, Illinois 60603
MacAulay, Blair J. Counsel
Fraser & Beatty
P.O. Box 100
First Canadian Place
Toronto, Ontario M5X 1A1
MacMillan, Neil R. Executive Vice-President
Risk Management Policy
Bank of Montreal
First Canadian Place
Toronto, Ontario MSX 1A1
Maila, Michael G. Executive Vice-President
Mexico and Latin America
Electronic Financial Services
Bank of Montreal
First Canadian Place
Toronto, Ontario MSX 1A1
Mannix, Ronald N. Chairman and Cheif Executive Officer
Loram Corporation
P.O. Box 2550
Calgary, Alberta T2P 2M7
-8-
<PAGE>
ADDRESSES AND PRINCIPAL OCCUPATIONS
-----------------------------------
NAME PRINCIPAL OCCUPATION/ADDRESS
- ---- ----------------------------
McDonough, Thomas J. Vice President
Director - Mergers and Acquisitions
Nesbitt Burns Securities, Inc.
111 West Monroe Street, Suite 20E
Chicago, Illinois 60603
McNally, Alan G. Chairman of the Board and Chief
Executive Officer
Bankmont Financial Corp. (U.S.)
Harris Trust and Savings Bank
Harris Bankcorp, Inc.
P.O. Box 755
111 West Monroe Street
Chicago, Illinois 60690
Molson, Eric H. Chairman of the Board
The Molson Companies Limited
1225 St. Antoine Street West
Suite 300
Montreal, Quebec H3C 1B3
Monty, Jean G., C.M. President and Chief Executive Officer
Northern Telecom Limited
8200 Dixie Road
Suite 100
Brampton, Ontario L8T 5P5
Morro, William C. Managing Director
BMO Nesbitt Burns Equity Partners, Inc.
111 West Monroe Street, 20th Floor East
Chicago, Illinois 60603
Nickenson, Jerry E.A. Chairman
H.B. Nickenson & Sons Ltd.
P.O. Box 130
North Sydney, Nova Scotia B2A 3M2
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<PAGE>
ADDRESSES AND PRINCIPAL OCCUPATIONS
-----------------------------------
NAME PRINCIPAL OCCUPATION/ADDRESS
- ---- ----------------------------
O'Neill, Timothy J. Executive Vice-President and
Chief Economist
Bank of Montreal
First Canadian Place
Toronto, Ontario M5X 1A1
Payne, Christopher E.M. Vice President
BMO Nesbitt Burns Equity Partners, Inc.
1 First Canadian Place, 6th Floor
P.O. Box 150
Toronto, Ontario M5X 1H3 Canada
Rayfield, Michael R. Executive Vice-President
Corporate Banking
Corporate and Investment Banking
Bank of Montreal
First Canadian Place
Toronto, Ontario MSX 1A1
Reitman, Jeremy H. President
Reitmans (Canada) Limited
250 Souve Street West
Montreal, Quebec H3L 1Z2
Rogers, Ronald G. Vice-Chairman
Personal and Commercial Financial
Services
First Canadian Place
Toronto, Ontario M5X 1A1
Rosenswig, Deanna Executive Vice-President
Corporate Electronic Banking Services
Electronic Financial Services
Bank of Montreal
First Canadian Place
Toronto, Ontario M5X 1A1
Sautcer, Guylaine, C.M., F.C.A. Chairman of the Board of Directors
Canadian Broadcasting Corporation
1321 Sherbrooke Street West
C-61
Montreal, Quebec H3G 1J4
-10-
<PAGE>
ADDRESSES AND PRINCIPAL OCCUPATIONS
-----------------------------------
NAME PRINCIPAL OCCUPATION/ADDRESS
- ---- ----------------------------
Schubbe, Helen K. Secretary
BMO Nesbitt Burns Equity Partners, Inc.
111 West Monroe Street, 20th Floor East
Chicago, Illinois 60603
Sizer, Thomas R. Vice President and Secretary
Harris Trust and Savings Bank
Harris Bankcorp, Inc.
P.O. Box 755
111 West Monroe Street
Chicago, Illinois 60690
Soare', Georges A. Vice President
BMO Nesbitt Burns Equity Partners, Inc.
1 First Canadian Place, 6th Floor
P.O. Box 150
Toronto, Ontario M5X 1H3 Canada
Somerville, Penny F. Senior Vice-President and
Corporate Controller
Bank of Montreal
First Canadian Place
Toronto, Ontario M5X 1A1
Southern, Nancy C. Deputy Chairman
ATCO Ltd.
#1600, 999 - 11th Avenue S.W.
Calgary, Alberta T2R 1N6
Steck, Brian J. Chairman and Chief Executive Officer of
Nesbitt
Burns
Vice-Chairman - Corporate and Investment
Banking of Bank of Montreal
1 First Canadian Place, 68th Floor
Toronto, Ontario M5X 1A1 Canada
Terry, Richard E. Chairman and Chief Executive Officer
Peoples Energy Corporation
130 East Randolph Drive, 24th Floor
Chicago, Illinois 60601
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<PAGE>
ADDRESSES AND PRINCIPAL OCCUPATIONS
-----------------------------------
NAME PRINCIPAL OCCUPATION/ADDRESS
- ---- ----------------------------
Tutsch, Thomas A. President and Chief Executive Officer
BMO Nesbitt Burns Equity Partners, Inc.
1 First Canadian Place, 6th Floor
P.O. Box 150
Toronto, Ontario M5X 1A1
Canada
Webster, Lorne C. Chairman and Chief Executive Officer
Prenor Group, Ltd.
100 University Street -Suite 1200
Montreal, Quebec
Canada H3B 3A4
Wells, Robert B. Executive Vice-President and Chief
Financial Officer
Bank of Montreal - Finance Group
1 First Canadian Place - 3rd Floor
Podium
Toronto, Ontario, Canada M5X 1A1
White, Andrew R. Executive Vice-President, Bank of
Montreal and
Chief Operating Officer, mbank
Bank of Montreal Tower
55 Floor Street West
Toronto, Ontario M4W 3M5
-12-
<PAGE>
EXHIBIT B
NOTE AND WARRANT PURCHASE AGREEMENT
DATED AS OF DECEMBER 23, 1996
BETWEEN ZYTEC CORPORATION
AND BMO NESBITT BURNS CAPITAL (U.S.), INC.
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
<S> <C> <C>
1. Authorization and Closing..........................................................1
1A. Authorization of the Note and the Warrant...................................1
1B. Purchase and Sale of the Note and the Warrant...............................1
1C. The Closing.................................................................1
2. Conditions of the Purchaser's Obligation at the Closing............................1
2A. Representations and Warranties; Covenants...................................1
2B. Registration Agreement......................................................2
2C. Subordination and Intercreditor Agreement...................................2
2D. Sale of Note and Warrant to the Purchaser...................................2
2E. Securities Law Compliance...................................................2
2F. Opinion of the Company's Counsel............................................2
2G. Closing Documents...........................................................2
2H. Proceedings.................................................................3
2I. Waiver......................................................................3
2J. Fees and Expenses...........................................................3
3. Covenants..........................................................................3
3A. Financial Statements and Other Information..................................3
3B. Inspection of Property......................................................5
3C. Note Restrictive Covenants..................................................6
3D. Note Affirmative Covenants..................................................7
3E. Compliance with Agreements..................................................8
3F. Use of Proceeds.............................................................8
3G. Current Public Information..................................................8
3H. Regulatory Compliance Cooperation...........................................8
3I. Contingent Warrants.........................................................9
3J. Public Disclosures.........................................................10
4. Transfer of Restricted Securities.................................................10
4A. General Provisions.........................................................10
4B. Opinion Delivery...........................................................10
4C. Rule 144A..................................................................10
4D. Legend Removal.............................................................10
5. Representations and Warranties of the Company.....................................11
5A. Organization, Corporate Power and Licenses.................................11
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C>
5B. Capital Stock and Related Matters...........................................11
5C. Subsidiaries; Investments...................................................12
5D. Authorization; No Breach....................................................12
5E. Financial Statements........................................................13
5F. Absence of Undisclosed Liabilities..........................................13
5G. No Material Adverse Change..................................................14
5H. Absence of Certain Developments.............................................14
5I. Assets......................................................................15
5J. Tax Matters.................................................................15
5K. Contracts and Commitments...................................................16
5L. Intellectual Property Rights................................................18
5M. Litigation, etc.............................................................19
5N. Brokerage...................................................................19
5O. Governmental Consent, etc...................................................19
5P. Insurance...................................................................19
5Q. Employees...................................................................20
5R. ERISA.......................................................................20
5S. Compliance with Laws........................................................21
5T. Environmental and Safety Matters............................................22
5U. Affiliated Transactions.....................................................24
5V. Investment Company..........................................................24
5W. Solvency, etc...............................................................24
5Y. Disclosure..................................................................24
5Z. Reports with the Securities and Exchange Commission.........................25
6. Representations and Warranties of the Purchaser......................................25
6A. Organization and Qualification..............................................25
6B. Due Authorization...........................................................25
6C. Purchaser's Investment Representations......................................26
6D. Brokerage...................................................................26
6E. Accredited Investor.........................................................26
7. Definitions..........................................................................26
7A. Definitions.................................................................26
8. Miscellaneous........................................................................31
8A. Expenses....................................................................31
8B. Transaction Fee.............................................................31
8C. Remedies....................................................................31
8D. Survival of Representations and Warranties..................................32
8E. Successors and Assigns......................................................32
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C> <C>
8F. Generally Accepted Accounting Principles...................................32
8G. Severability...............................................................32
8H. Counterparts...............................................................32
8I. Descriptive Headings; Interpretation.......................................32
8J. Governing Law..............................................................32
8K. Notices....................................................................33
8L. Consideration for Warrant..................................................34
8M. No Strict Construction.....................................................34
8N. Indemnification............................................................34
8O. Payment Set Aside..........................................................35
</TABLE>
Schedules and Exhibits
- ----------------------
List of Exhibits
List of Disclosure Schedules
-iii-
<PAGE>
ZYTEC CORPORATION
NOTE AND WARRANT PURCHASE AGREEMENT
-----------------------------------
THIS AGREEMENT is made as of December 23, 1996, between Zytec
Corporation, a Minnesota corporation (the "Company"), and BMO Nesbitt Burns
Capital (U.S.), Inc., a Delaware corporation (the "Purchaser"). Except as
otherwise indicated herein, capitalized terms used herein are defined in Section
6 hereof.
The parties hereto agree as follows:
Section 1. Authorization and Closing.
-------------------------
1A. Authorization of the Note and the Warrant. The Company shall
-----------------------------------------
authorize the issuance and sale to the Purchaser of (i) its 7 1/2% Convertible
Subordinated Promissory Note in the principal amount of $12,000,000 and
containing the terms and conditions and in the form set forth in Exhibit A
---------
attached hereto (the "Note") and (ii) the Warrant referred to in paragraph 3I
hereof. The Note is convertible into shares of the Company's Common Stock, no
par value (the "Common Stock") upon certain terms and conditions set forth
therein.
1B. Purchase and Sale of the Note and the Warrant. At the Closing,
---------------------------------------------
the Company shall sell to the Purchaser and, subject to the terms and conditions
set forth herein, the Purchaser shall purchase from the Company a Note in the
principal amount of $12,000,000 at a price equal to $11,999,000. In addition,
at the Closing, the Purchaser shall pay the Company $1,000 in consideration for
the issuance of the Warrant referred to in paragraph 3I hereof.
1C. The Closing. The closing of the purchase and sale of the Note
-----------
and the Warrant (the "Closing") shall take place at the offices of Kirkland &
Ellis in Chicago, Illinois, at 10:00 a.m. on December 23, 1996 (the "Closing
Date"), or at such other place or on such other date as may be mutually
agreeable to the Company and the Purchaser. At the Closing, the Company shall
deliver to the Purchaser instruments evidencing the Note and the Warrant to be
purchased by the Purchaser, payable to the order of the Purchaser or its nominee
or registered in the Purchaser's or its nominee's name, respectively, upon
payment of the purchase price thereof by a cashier's or certified check, or by
wire transfer of immediately available funds to the Company's account at Harris
Trust and Savings Bank, in the aggregate amount of $12,000,000.
Section 2. Conditions of the Purchaser's Obligation at the
-----------------------------------------------
Closing. The obligation of the Purchaser to purchase and pay for the Note and
the Warrant at the Closing is subject to the satisfaction as of the Closing of
the following conditions:
2A. Representations and Warranties; Covenants. The representations
-----------------------------------------
and warranties contained in Section 5 hereof shall be true and correct in all
material respects at and as of the Closing as though then made, except to the
extent of changes caused by the transactions expressly contemplated herein, and
the Company shall have performed in all material respects all of the covenants
required to be performed by it hereunder prior to the Closing.
<PAGE>
2B. Registration Agreement. The Company, the Purchaser, Ronald D.
----------------------
Schmidt, Lawrence J. Matthews and John M. Steel shall have entered into a
registration agreement in form and substance as set forth in Exhibit C attached
---------
hereto (the "Registration Agreement"), and the Registration Agreement shall be
in full force and effect as of the Closing.
2C. Subordination and Intercreditor Agreement. The Company, the
-----------------------------------------
Purchaser and Harris Trust and Savings Bank shall have entered into a
subordination and intercreditor agreement in form and substance reasonably
acceptable to the Company, the Purchaser and the Bank (the "Subordination
Agreement"), and the Subordination Agreement shall be in full force and effect
as of the closing.
2D. Sale of Note and Warrant to the Purchaser. The Company shall
-----------------------------------------
have simultaneously sold to the Purchaser the Note and the Warrant to be
purchased by the Purchaser hereunder at the Closing and shall have received
payment therefor in full.
2E. Securities Law Compliance. The Company shall have made all
-------------------------
filings under all applicable federal and state securities laws necessary to
consummate the issuance of the Note and the Warrants pursuant to this Agreement
in compliance with such laws.
2F. Opinion of the Company's Counsel. The Purchaser shall have
--------------------------------
received from Winthrop & Weinstine, P.A., counsel for the Company, an opinion
with respect to the matters set forth in Exhibit D attached hereto, which shall
---------
be addressed to the Purchaser, dated the date of the Closing and in form and
substance satisfactory to the Purchaser.
2G. Closing Documents. The Company shall have delivered to each
-----------------
Purchaser all of the following documents:
(i) an Officer's Certificate, dated the date of the Closing,
stating that the conditions specified in Section 1 and paragraphs 2A
through 2E, inclusive, have been fully satisfied;
(ii) certified copies of the resolutions duly adopted by the
Company's board of directors authorizing the execution, delivery and
performance of this Agreement, the Registration Agreement and each of the
other agreements contemplated hereby, the issuance and sale of the Note,
the issuance of the Warrant, the reservation for issuance upon conversion
of the Note or exercise of the Warrant an aggregate of 877,193 shares of
Common Stock and the consummation of all other transactions contemplated by
this Agreement;
(iii) certified copies of the Company's Articles of
Incorporation and bylaws, each as in effect at the Closing;
-2-
<PAGE>
(iv) copies of all third party and governmental consents,
approvals and filings required in connection with the consummation of the
transactions hereunder (including, without limitation, all blue sky law
filings and waivers of all preemptive rights and rights of first refusal);
and
(v) such other documents relating to the transactions
contemplated by this Agreement as the Purchaser or its special counsel may
reasonably request.
2H. Proceedings. All corporate and other proceedings taken or
-----------
required to be taken by the Company in connection with the transactions
contemplated hereby to be consummated at or prior to the Closing and all
documents incident thereto shall be satisfactory in form and substance to the
Purchaser and its special counsel.
2I. Waiver. Any condition specified in this Section 2 may be waived
------
if consented to by the Purchaser; provided that no such waiver shall be
effective unless it is set forth in a writing executed by the Purchaser.
2J. Fees and Expenses. At the Closing, the Company shall have (i)
-----------------
reimbursed the Purchaser for all actual out-of-pocket fees and expenses incurred
in connection with the transactions contemplated by this Agreement by the
Purchaser or any of its affiliates (including, without limitation, fees and
expenses of special counsel, accountants and other consultants and advisors not
associated with the Purchaser) (the "Fees and Expenses") and (ii) paid to
Nesbitt Burns Securities, Inc. a transaction fee in the amount of at least
$480,000 less the amount payable under (i) above, as provided in paragraph 7A
hereof.
Section 3. Covenants.
---------
3A. Financial Statements and Other Information. The Company shall
------------------------------------------
deliver to the Purchaser (so long as such Purchaser holds the Note or the
Warrant) and to each holder of at least 25% of the outstanding principal amount
of the Note and each holder of Warrants exercisable into at least 25% of the
Underlying Common Stock:
(i) as soon as available but in any event within 30 days after
the end of each monthly accounting period in each fiscal year, unaudited
consolidating and consolidated statements of income and cash flows of the
Company and its Subsidiaries set forth by operating division for such
monthly period and for the period from the beginning of the fiscal year to
the end of such month, and unaudited consolidating and consolidated balance
sheets of the Company and its Subsidiaries as of the end of such monthly
period, setting forth in each case comparisons to the Company's annual
business plan and to the corresponding period in the preceding fiscal year,
and all such statements shall be prepared in accordance
-3-
<PAGE>
with generally accepted accounting principles, consistently applied and
shall be certified by the Company's chief financial officer;
(ii) accompanying the financial statements referred to in
subparagraph (i), an Officer's Certificate stating that there is no Event
of Default or Potential Event of Default in existence and that neither the
Company nor any of its Subsidiaries is in default under any of its other
material agreements or, if any Event of Default or Potential Event of
Default or any such default exists, specifying the nature and period of
existence thereof and what actions the Company and its Subsidiaries have
taken and propose to take with respect thereto;
(iii) within 90 days after the end of each fiscal year (or in
the case of (c) below, as soon as available, if later), consolidating and
consolidated statements of income and cash flows of the Company and its
Subsidiaries for such fiscal year, and consolidating and consolidated
balance sheets of the Company and its Subsidiaries as of the end of such
fiscal year, setting forth in each case comparisons to the Company's annual
business plan and to the preceding fiscal year, all prepared in accordance
with generally accepted accounting principles, consistently applied, and
accompanied by (a) with respect to the consolidated portions of such
statements, an opinion containing no exceptions or qualifications (except
for qualifications regarding specified contingent liabilities) of an
independent accounting firm of recognized national standing, (b) a
certificate from such accounting firm, addressed to the Company's board of
directors, stating that in the course of its examination nothing came to
its attention that caused it to believe that there was an Event of Default
or Potential Event of Default in existence or that there was any other
default by the Company or any Subsidiary in the fulfillment of or
compliance with any of the terms, covenants, provisions or conditions of
any other material agreement to which the Company or any Subsidiary is a
party or, if such accountants have reason to believe any Event of Default
or Potential Event of Default or other default by the Company or any
Subsidiary exists, a certificate specifying the nature and period of
existence thereof, and (c) a copy of such firm's annual management letter
to the board of directors;
(iv) promptly upon receipt thereof, any additional reports,
management letters or other detailed information concerning significant
aspects of the Company's operations or financial affairs given to the
Company by its independent accountants (and not otherwise contained in
other materials provided hereunder);
(v) prior to the beginning of each fiscal year, an annual
business plan prepared on a monthly basis by operating division for the
Company and its Subsidiaries for such fiscal year (displaying anticipated
statements of income and cash flows and balance sheets), and promptly upon
preparation thereof any other significant business plans prepared by the
Company and any revisions of such annual or other business plans;
-4-
<PAGE>
(vi) promptly (but in any event within five business days)
after the discovery or receipt of notice of any Event of Default or
Potential Event of Default, any default under any other material agreement
to which it or any of its Subsidiaries is a party, any condition or event
which has resulted in or is reasonably likely to result in any material
liability under any federal, state or local statute or regulation relating
to public health and safety, worker health and safety or pollution or
protection of the environment or any other material adverse change, event
or circumstance affecting the Company or any Subsidiary (including, without
limitation, the filing of any material litigation against the Company or
any Subsidiary or the existence of any dispute with any Person which
involves a reasonable likelihood of such litigation being commenced), an
Officer's Certificate specifying the nature and period of existence thereof
and what actions the Company and its Subsidiaries have taken and propose to
take with respect thereto;
(vii) within ten days after transmission thereof, copies of all
financial statements, proxy statements, reports and any other general
written communications which the Company sends to its stockholders and
copies of all registration statements and all regular, special or periodic
reports which it files, or any of its officers or directors file with
respect to the Company, with the Securities and Exchange Commission or with
any securities exchange on which any of its securities are then listed, and
copies of all press releases and other statements made available generally
by the Company to the public concerning material developments in the
Company's and its Subsidiaries' businesses; and
(viii) with reasonable promptness, such other information and
financial data concerning the Company and its Subsidiaries as any Person
entitled to receive information under this paragraph 3A may reasonably
request.
Each of the financial statements referred to in subparagraph (i) and (iii) shall
be true and correct in all material respects as of the dates and for the periods
stated therein, subject in the case of the unaudited financial statements to
changes resulting from normal year-end adjustments for recurring accruals (none
of which would, alone or in the aggregate, be materially adverse to the
financial condition, operating results, assets, operations or business prospects
of the Company and its Subsidiaries taken as a whole). The Purchaser shall have
the right to reject such financial statements by providing notice to the
Company.
3B. Inspection of Property. The Company shall permit any
----------------------
representatives designated by the Purchaser (so long as the Purchaser holds the
Note or the Warrant) or any holder of at least 25% of the outstanding principal
amount of the Note or Warrants exercisable into at least 25% of the Underlying
Common Stock, upon reasonable notice and during normal business hours and at
such other times as any such holder may reasonably request, to (i) visit and
inspect any of the properties of the Company and its Subsidiaries, (ii) examine
the corporate and financial records of the Company and its Subsidiaries and make
copies thereof or extracts therefrom and (iii) discuss the
-5-
<PAGE>
affairs, finances and accounts of any such corporations with the directors,
officers, key employees and independent accountants of the Company and its
Subsidiaries. The presentation of an executed copy of this Agreement by the
Purchaser or any such holder of the Note or the Warrant to the Company's
independent accountants shall constitute the Company's permission to its
independent accountants to participate in discussions with such Persons.
3C. Note Restrictive Covenants. So long as any payment obligation
--------------------------
under Note remains outstanding, the Company shall not:
(i) except for dividends payable in shares of Common Stock
issued upon the outstanding shares of Common Stock, directly or indirectly
declare or pay any dividends or make any distributions upon any of its
capital stock or other equity securities during any fiscal year in excess
of (when added to all amounts under (ii) below) an aggregate of 20% of the
Company's consolidated net income (determined in accordance with generally
accepted accounting principles, consistently applied) for the immediately
preceding fiscal year, provided that no such dividends or distributions may
-------------
be declared or paid if any Event of Default or Potential Event of Default
is then in existence or would be caused by such declaration or payment
thereof;
(ii) directly or indirectly redeem, purchase or otherwise
acquire, or permit any Subsidiary to redeem, purchase or otherwise acquire,
any of the Company's or any Subsidiary's capital stock or other equity
securities (including, without limitation, warrants, options and other
rights to acquire such capital stock or other equity securities) or
directly or indirectly redeem, purchase or make any payments with respect
to any stock appreciation rights, phantom stock plans or similar rights or
plans during any fiscal year in excess of (when added to all amounts under
(i) above) an aggregate of 20% of the Company's consolidated net income
(determined in accordance with generally accepted accounting principles,
consistently applied) for the immediately preceding fiscal year;
(iii) become subject to, or permit any of its Subsidiaries to
become subject to, (including, without limitation, by way of amendment to
or modification of) any agreement or instrument (other than the
Subordination Agreement) which by its terms would (under any circumstances)
restrict (a) the right of any Subsidiary (other than Zytec Gmbh) to make
loans or advances or pay dividends to, transfer property to, or repay any
Indebtedness owed to, the Company or another Subsidiary or (b) the
Company's right to perform the provisions of this Agreement, the Note or
the Registration Agreement (including, without limitation, provisions
relating to the payment of principal and interest on the Notes);
(iv) create, incur, assume or suffer to exist, or permit any
Subsidiary to create, incur, assume or suffer to exist at any time, any
Indebtedness senior in liquidation or payment of principal and interest to
the Note exceeding an aggregate principal amount equal
-6-
<PAGE>
to the outstanding balance of the Company's shareholders equity on a
consolidated basis (as calculated without inclusion of the Note or the
obligations of Zytec GmbH) (the "Permitted Senior Indebtedness");
(v) create, incur, assume or suffer to exist, or permit any
Subsidiary to create, incur, assume or suffer to exist, any Liens other
than Permitted Liens;
(vi) prepay any interest on any Indebtedness or prepay any
principal on any Indebtedness other than Permitted Senior Indebtedness,
other than any prepayments which do not exceed an aggregate of $100,000 in
any twelve-month period;
(vii) liquidate, dissolve or effect a recapitalization or
reorganization in any form of transaction (including, without limitation,
any reorganization into a limited liability company or into partnership or
other noncorporate form);
(viii) make any amendment to the Company's Articles of
Incorporation or bylaws, or file any resolution of the board of directors
with the Minnesota Secretary of State containing any provisions, which
would adversely affect or otherwise impair the rights or relative priority
of the holders of the Underlying Common Stock under this Agreement, the
Articles of Incorporation or the Company's bylaws;
(ix) enter into, amend, modify or supplement, or permit any
Subsidiary to enter into, amend, modify or supplement, any material
agreement, commitment, arrangement or transaction with any of its or any
Subsidiary's officers, directors, employees, stockholders or Affiliates or
with any individual related by blood or marriage to any such individual or
with any entity in which any such Person or individual owns a beneficial
interest, except for customary employment arrangements and benefit programs
on reasonable terms and except as otherwise expressly contemplated by this
Agreement;
(x) incur, assume, create or have outstanding obligations or
liabilities (whether accrued, absolute, contingent or otherwise) for leases
of real or personal property that are not used in connection with customer
contracts (the "Uncommitted Lease Obligations"), other than Uncommitted
Lease Obligations for which the annual lease payments will not at any time
exceed $5,000,000 in the aggregate;
(xi) establish or acquire any Subsidiaries; or
(xii) make investments in any Subsidiary or any other Person
(other than investments in Subsidiaries which, in the aggregate, do not
exceed $3,000,000).
-7-
<PAGE>
3D. Note Affirmative Covenants. So long as any payment obligation
--------------------------
under Note remains outstanding, the Company shall:
(i) maintain Consolidated Tangible Net Worth equal to or
greater than $25 million;
(ii) maintain proper books of record and account which present
fairly in all material respects its financial condition and results of
operations and make provisions on its financial statements for all such
proper reserves as in each case are required in accordance with generally
accepted accounting principles, consistently applied; and
(iii) use its best efforts to reduce its Uncommitted Lease
Obligations by entering into (i) customer contracts which require the
customer to assume the Company's Uncommitted Lease Obligations in
connection with work performed by the Company and (ii) long-term customer
contracts for work performed using the leased real and personal property
related to the Uncommitted Lease Obligations.
3E. Compliance with Agreements. The Company shall perform and
--------------------------
observe (i) all of its obligations to the holder of the Note and all of its
obligations to each holder of the Underlying Common Stock set forth in the
Company's Articles of Incorporation and bylaws, (ii) all of its obligations to
the holder of the Warrant set forth therein and (iii) all of its obligations to
each holder of Registrable Securities set forth in the Registration Agreement.
3F. Use of Proceeds. The Company shall not, nor shall it permit any
---------------
Subsidiary to, use any proceeds from the sale of the Note hereunder, directly or
indirectly, for the purposes of purchasing or carrying any "margin securities"
within the meaning of Regulation G or T promulgated by the Board of Governors of
the Federal Reserve Board or for the purpose of arranging for the extension of
credit secured, directly or indirectly, in whole or in part by collateral that
includes any "margin securities."
3G. Current Public Information. The Company shall file all reports
--------------------------
required to be filed by it under the Securities Act and the Securities Exchange
Act and the rules and regulations adopted by the Securities and Exchange
Commission thereunder and shall take such further action as any holder or
holders of Restricted Securities may reasonably request, all to the extent
required to enable such holders to sell Restricted Securities pursuant to (i)
Rule 144 adopted by the Securities and Exchange Commission under the Securities
Act (as such rule may be amended from time to time) or any similar rule or
regulation hereafter adopted by the Securities and Exchange Commission or (ii) a
registration statement on Form S-3 or any similar registration form hereafter
adopted by the Securities and Exchange Commission. Upon request, the Company
shall deliver to any holder of Restricted Securities a written statement as to
whether it has complied with such requirements.
-8-
<PAGE>
3H. Regulatory Compliance Cooperation. Before the Company redeems,
---------------------------------
purchases or otherwise acquires, directly or indirectly, or converts or takes
any action with respect to the voting rights of, any shares of any class of its
capital stock or any securities convertible into or exchangeable for any shares
of any class of its capital stock (other than a conversion of the Note or an
exercise of the Warrant), the Company shall give written notice of such pending
action to the Purchaser. Upon the written request of the Purchaser made within
10 days after its receipt of any such notice stating that after giving effect to
such action the Purchaser would have a Regulatory Problem, the Company shall
defer taking such action for such period (not to extend beyond 45 days after the
Purchaser's receipt of the Company's original notice) as such Purchaser requests
to permit it and its Affiliates to reduce the quantity of the Company's
securities they own in order to avoid the Regulatory Problem. In addition, the
Company shall not be a party to any merger, consolidation, recapitalization or
other transaction pursuant to which the Purchaser would be required to take any
voting securities, or any securities convertible into voting securities, which
might reasonably be expected to cause the Purchaser to have a Regulatory
Problem. For purposes of this paragraph, a Person shall be deemed to have a
"Regulatory Problem" when such Person and such Person's Affiliates would own,
control or have power over a greater quantity of securities of any kind issued
by the Company or any other entity than are permitted under any requirement of
any governmental authority. The Company shall grant to any subsequent holder of
Restricted Securities, upon such holder's request, the same rights granted to
the Purchaser pursuant to this paragraph.
3I. Contingent Warrants.
-------------------
(i) At the Closing, the Company shall issue to the Purchaser a
Warrant substantially in the form of Exhibit B hereto (the "Warrant") for the
---------
consideration set forth in paragraph 1B hereof. The Warrants shall provide that
upon:
(1) an Optional Repayment of the Note prior to the completion by the
Company of a Qualified Offering; or
(2) an Optional Repayment of the Note at a time after the completion of a
Qualified Offering when the Company has not authorized the issuance of
a separate class of non-voting common stock into which the Notes would
be convertible and which would be convertible (subject to regulatory
restrictions) on a share-for-share basis into the Company's voting
common stock;
the holders of the Notes shall have the right to acquire initially the same
number of shares of Common Stock into which the portion of such holder's Note
being repaid is convertible as of the date of the Optional Repayment. The
initial exercise price for each share of Common Stock under the Warrant shall be
equal to the Conversion Price under the Note as of the payment date, and the
Warrant shall be exercisable at any time thereafter and shall expire (unless
previously exercised) on the first to occur of (i) the Scheduled Repayment Date
or (ii) such time 30 days after the Purchaser
-9-
<PAGE>
has received notice that the Company has (A) completed a Qualified Offering, if
such Qualified Offering had not been completed prior to the date of the Optional
Repayment and (B) authorized the issuance of a separate class of non-voting
common stock into which the Warrant would be exercisable and which would be
convertible (subject to regulatory restrictions) on a share-for-share basis into
the Company's voting common stock.
(ii) The terms "Conversion Price," "Optional Repayment," and
"Scheduled Repayment Date" have the meanings set forth in the Note.
3J. Public Disclosures. The Company shall not, nor shall it permit
------------------
any Subsidiary to, disclose the Purchaser's name or identity as an investor in
the Company in any press release or other public announcement or in any document
or material filed with any governmental entity, without the prior written
consent of the Purchaser, unless such disclosure is required by applicable law
or governmental regulations or by order of a court of competent jurisdiction, in
which case prior to making such disclosure the Company shall give written notice
to the Purchaser describing in reasonable detail the proposed content of such
disclosure and shall permit the Purchaser to review and comment upon the form
and substance of such disclosure.
Section 4. Transfer of Restricted Securities.
---------------------------------
4A. General Provisions. Restricted Securities are transferable only
------------------
pursuant to (i) public offerings registered under the Securities Act, (ii) Rule
144 or Rule 144A of the Securities and Exchange Commission (or any similar rule
or rules then in force) if such rule is available and (iii) subject to the
conditions specified in paragraph 4B below, any other legally available means of
transfer.
4B. Opinion Delivery. In connection with the transfer of any
----------------
Restricted Securities (other than a transfer described in paragraph 4A(i) or
(ii) above), the holder thereof shall deliver written notice to the Company
describing in reasonable detail the transfer or proposed transfer, together with
an opinion of Kirkland & Ellis or other counsel which (to the Company's
reasonable satisfaction) is knowledgeable in securities law matters to the
effect that such transfer of Restricted Securities may be effected without
registration of such Restricted Securities under the Securities Act. In
addition, if the holder of the Restricted Securities delivers to the Company an
opinion of Kirkland & Ellis or such other counsel (which opinion is reasonably
acceptable to the Company and its counsel) that no subsequent transfer of such
Restricted Securities shall require registration under the Securities Act, the
Company shall promptly upon such contemplated transfer deliver new certificates
for such Restricted Securities which do not bear the Securities Act legend set
forth in paragraph 7C. If the Company is not required to deliver new
certificates for such Restricted Securities not bearing such legend, the holder
thereof shall not transfer the same until the prospective transferee has
confirmed to the Company in writing its agreement to be bound by the conditions
contained in this paragraph and paragraph 7C.
-10-
<PAGE>
4C. Rule 144A. Upon the request of the Purchaser, the Company shall
---------
promptly supply to such Purchaser or its prospective transferees all information
(if any) regarding the Company required to be delivered in connection with a
transfer pursuant to Rule 144A of the Securities and Exchange Commission.
4D. Legend Removal. If any Restricted Securities become eligible for
--------------
sale pursuant to Rule 144(k), the Company shall, upon the request of the holder
of such Restricted Securities, remove the legend set forth in paragraph 7C from
the certificates for such Restricted Securities.
Section 5. Representations and Warranties of the Company. As a
---------------------------------------------
material inducement to the Purchasers to enter into this Agreement and purchase
the Note and the Warrant hereunder, the Company hereby represents and warrants
that:
5A. Organization, Corporate Power and Licenses. The Company is a
------------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of Minnesota and is qualified to do business in every jurisdiction in which the
failure to so qualify has had or would reasonably be expected to have a material
adverse effect on the financial condition, operating results, assets or business
prospects of the Company and its Subsidiaries taken as a whole. The Company
possesses all requisite corporate power and authority and all material licenses,
permits and authorizations necessary to own and operate its properties, to carry
on its businesses as now conducted and presently proposed to be conducted and to
carry out the transactions contemplated by this Agreement. The copies of the
Company's charter documents and bylaws which have been furnished to the
Purchaser's special counsel reflect all amendments made thereto at any time
prior to the date of this Agreement and are correct and complete.
5B. Capital Stock and Related Matters.
---------------------------------
(i) As of the Closing and immediately thereafter, the authorized
capital stock of the Company shall consist of 25,000,000 shares of Common Stock,
of which 9,165,604 shares shall be issued and outstanding and 877,193 shares
shall be reserved for issuance upon conversion of the Note or exercise of the
Warrant. As of the Closing, neither the Company nor any Subsidiary shall have
outstanding any stock or securities convertible or exchangeable for any shares
of its capital stock or containing any profit participation features, nor shall
it have outstanding any rights or options to subscribe for or to purchase its
capital stock or any stock or securities convertible into or exchangeable for
its capital stock or any stock appreciation rights or phantom stock plans,
except for the Note and the Warrant and except as set forth on the attached
"Capitalization Schedule." The Capitalization Schedule accurately sets forth
the following information with respect to all outstanding options and rights to
acquire the Company's capital stock: the holder, the number of shares covered,
the exercise price and the expiration date. As of the Closing, neither the
Company nor any Subsidiary shall be subject to any obligation (contingent or
otherwise) to repurchase or
-11-
<PAGE>
otherwise acquire or retire any shares of its capital stock or any warrants,
options or other rights to acquire its capital stock, except as set forth on the
Capitalization Schedule. As of the Closing, all of the outstanding shares of the
Company's capital stock shall be validly issued, fully paid and nonassessable.
(ii) There are no statutory or, to the best of the Company's
knowledge, contractual stockholders preemptive rights or rights of refusal with
respect to the issuance of the Note or the Warrant hereunder or the issuance of
the Common Stock upon conversion of the Note or upon exercise of the Warrant.
The Company has not violated any applicable federal or state securities laws in
connection with the offer, sale or issuance of any of its capital stock, and the
offer, sale and issuance of the Note or the Warrant hereunder do not require
registration under the Securities Act or any applicable state securities laws.
To the best of the Company's knowledge, there are no agreements between the
Company's stockholders with respect to the voting or transfer of the Company's
capital stock or with respect to any other aspect of the Company's affairs.
5C. Subsidiaries; Investments. The attached "Subsidiary Schedule"
-------------------------
correctly sets forth the name of each Subsidiary, the jurisdiction of its
incorporation and the Persons owning the outstanding capital stock of such
Subsidiary. Each Subsidiary is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation, possesses all
requisite corporate power and authority and all material licenses, permits and
authorizations necessary to own its properties and to carry on its businesses as
now being conducted and as presently proposed to be conducted and is qualified
to do business in every jurisdiction in which the failure to so qualify has had
or would reasonably be expected to have a material adverse effect on the
financial condition, operating results, assets or business prospects of the
Company and its Subsidiaries taken as a whole. All of the outstanding shares of
capital stock of each Subsidiary are validly issued, full paid and non
assessable, and all such shares are owned by the Company or another Subsidiary
free and clear of any Lien and not subject to any option or right to purchase
any such shares. Except as set forth on the Subsidiary Schedule, neither the
Company nor any Subsidiary owns or holds the right to acquire any shares of
stock or any other security or interest in any other Person.
5D. Authorization; No Breach. The execution, delivery and
------------------------
performance of this Agreement, the Note, the Registration Agreement, the Warrant
and all other agreements and instruments contemplated hereby to which the
Company is a party, have been duly authorized by the Company. This Agreement,
the Registration Agreement, the Note, the Warrant, the Articles of Incorporation
and all other agreements and instruments contemplated hereby to which the
Company is a party each constitutes a valid and binding obligation of the
Company, enforceable in accordance with its terms. Except as set forth on the
attached "Restrictions Schedule," the execution and delivery by the Company of
this Agreement, the Note, the Registration Agreement, the Warrant and all other
agreements and instruments contemplated hereby to which the Company is a party,
the offering, sale and issuance of the Note and the Warrant hereunder, the
issuance of the Common Stock upon conversion of the Note, the issuance of Common
Stock upon exercise of the Warrant,
-12-
<PAGE>
and the fulfillment of and compliance with the respective terms hereof and
thereof by the Company, do not and shall not (i) conflict with or result in a
breach of the terms, conditions or provisions of, (ii) constitute a default
under, (iii) result in the creation of any lien, security interest, charge or
encumbrance upon the Company's or any Subsidiary's capital stock or assets
pursuant to, (iv) give any third party the right to modify, terminate or
accelerate any obligation under, (v) result in a violation of, or (vi) require
any authorization, consent, approval, exemption or other action by or notice or
declaration to, or filing with, any court or administrative or governmental body
or agency pursuant to, the charter or bylaws of the Company or any Subsidiary,
or any law, statute, rule or regulation to which the Company or any Subsidiary
is subject (including, without limitation, any usury laws applicable to the
Note), or any material agreement, instrument, order, judgment or decree to which
the Company or any Subsidiary is subject. Except as set forth on the
Restrictions Schedule, none of the Subsidiaries are subject to any restrictions
upon making loans or advances or paying dividends to, transferring property to,
or repaying any Indebtedness owed to, the Company or another Subsidiary.
5E. Financial Statements. The following financial statements have
--------------------
been delivered to the Purchaser by the Company or are attached hereto, as set
forth on the attached "Financial Statements Schedule";
(i) the audited consolidated balance sheets of the Company and
its Subsidiaries as of December 31, 1994 and 1995, and the related
statements of income and cash flows (or the equivalent) for the respective
twelve-month periods then ended; and
(ii) the unaudited consolidated balance sheet of the Company
and its Subsidiaries as of September 29, 1996 (the "September Balance
Sheet") and the related statements of income and cash flows (or the
equivalent) for the period then ended; and
(iii) the unaudited consolidated balance sheet of the Company
and its Subsidiaries as of November 24, 1996 and the related statement of
income (or the equivalent for the eleven-month period then ended.
Each of the foregoing financial statements (including in all cases the notes
thereto, if any) is accurate and complete in all material respects, is
consistent with the books and records of the Company (which, in turn, are
accurate and complete in all material respects) and has been prepared in
accordance with generally accepted accounting principles, consistently applied,
subject in the case of the unaudited financial statements to the absence of
footnote disclosure and changes resulting from normal year-end adjustments for
recurring accruals (none of which would, alone or in the aggregate, be
materially adverse to the financial condition, operating results, assets,
operations or business prospects of the Company and its Subsidiaries taken as a
whole).
-13-
<PAGE>
5F. Absence of Undisclosed Liabilities. Except as set forth on the
----------------------------------
attached "Liabilities Schedule," to the Company's knowledge, the Company and its
Subsidiaries do not have any material obligation or liability (whether accrued,
absolute, contingent, unliquidated or otherwise, whether due or to become due
and regardless of when asserted) arising out of transactions entered into at or
prior to the Closing, or any action or inaction at or prior to the Closing, or
any state of facts existing at or prior to the Closing other than: (i)
liabilities set forth on the September Balance Sheet (including any notes
thereto), (ii) liabilities and obligations which have arisen after the date of
the September Balance Sheet in the ordinary course of business (none of which is
a liability resulting from breach of contract, breach of warranty, tort,
infringement, claim or lawsuit) and (iii) other liabilities and obligations
expressly disclosed in the other Schedules to this Agreement.
5G. No Material Adverse Change. Since the date of the September
--------------------------
Balance Sheet, there has been no material adverse change in the financial
condition, operating results, assets, operations, business prospects, employee
relations or customer or supplier relations of the Company and its Subsidiaries
taken as a whole.
5H. Absence of Certain Developments.
-------------------------------
(i) Except as expressly contemplated by this Agreement or as set
forth on the attached "Developments Schedule," since the date of the September
Balance Sheet, neither the Company nor any Subsidiary have
(a) issued any notes, bonds or other debt securities or any
capital stock or other equity securities or any securities convertible,
exchangeable or exercisable into any capital stock or other equity
securities;
(b) borrowed any amount or incurred or become subject to any
liabilities, except (i) current liabilities incurred in the ordinary course
of business and liabilities under contracts entered into in the ordinary
course of business and (ii) amounts borrowed under the revolving credit
line with Harris Trust and Savings Bank;
(c) discharged or satisfied any Lien or paid any obligation or
liability, other than current liabilities paid in the ordinary course of
business;
(d) declared or made any payment or distribution of cash or
other property to its stockholders with respect to its capital stock or
other equity securities or purchased or redeemed any shares of its capital
stock or other equity securities (including, without limitation, any
warrants, options or other rights to acquire its capital stock or other
equity securities);
-14-
<PAGE>
(e) mortgaged or pledged any of its properties or assets or
subjected them to any Lien, except Liens for current property taxes not yet
due and payable;
(f) sold, assigned or transferred any of its material tangible
assets, except in the ordinary course of business, or canceled any debts or
claims;
(g) sold, assigned or transferred any patents or patent
applications, trademarks, service marks, trade names, corporate names,
copyrights or copyright registrations, trade secrets or other intangible
assets, or disclosed any proprietary confidential information to any
Person;
(h) suffered any extraordinary losses or waived any rights of
value, whether or not in the ordinary course of business or consistent with
past practice;
(i) made capital expenditures or commitments therefor that
aggregate in excess of $2,000,000;
(j) made any loans or advances to, guarantees for the benefit
of, or any Investments in, any Persons in excess of $250,000 in the
aggregate;
(k) suffered any damage, destruction or casualty loss exceeding
in the aggregate $500,000, whether or not covered by insurance;
(l) made any Investment in or taken steps to incorporate any
Subsidiary; or
(m) entered into any other transaction other than in the
ordinary course of business.
(ii) Neither the Company nor any Subsidiary has at any time made any
payments for political contributions or made any bribes, kickback payments or
other illegal payments.
5I. Assets. Except as set forth on the attached "Assets Schedule,"
------
the Company and each Subsidiary have good and marketable title to, or a valid
leasehold interest in, the properties and assets used by them, located on their
premises or shown on the September Balance Sheet or acquired thereafter, free
and clear of all Liens, except for properties and assets disposed of in the
ordinary course of business since the date of the September Balance Sheet and
except for Liens disclosed on the September Balance Sheet (including any notes
thereto) and Liens for current property taxes not yet due and payable. Except
as described on the Assets Schedule, the Company's and each Subsidiary's
buildings, equipment and other tangible assets are in good operating condition
in all material respects and are fit for use in the ordinary course of business.
Except as set forth on
-15-
<PAGE>
the attached "Assets Schedule," the Company and each Subsidiary own, or have a
valid leasehold interest in, all assets necessary for the conduct of their
respective businesses as presently conducted and as presently proposed to be
conducted.
5J. Tax Matters.
-----------
(i) Except as set forth on the attached "Taxes Schedule": the
Company and each Subsidiary have filed all material Tax Returns which they are
required to file under applicable laws and regulations; all such Tax Returns are
true, correct and complete in all material respects. The Company has paid or
made provision for the payment of all Taxes that are due or claimed to be due
from it by any authority. There are no Liens for Taxes upon any assets,
tangible or intangible, of the Company (or any Subsidiary). The reserves for
Taxes reflected on the September Balance Sheet are sufficient for payment of all
unpaid Taxes (whether or not currently disputed) incurred with respect to the
periods ended prior to such date. Except as set forth on the Taxes Schedule,
there are no pending claims or disputes relating to, or claims for, Taxes of the
Company (or any Subsidiary). The Company has not granted any extension of the
period of limitation applicable to any claim for Taxes.
(ii) "Tax" or "Taxes" means federal, state, county, local, foreign
or other income, gross receipts, ad valorem, franchise, profits, sales or use,
transfer, registration, excise, utility, environmental, communications, real or
personal property, capital stock, license, payroll, wage or other withholding,
employment, social security, severance, stamp, occupation, alternative or add-on
minimum, estimated and other taxes of any kind whatsoever (including, without
limitation, deficiencies, penalties, additions to tax, and interest attributable
thereto) whether disputed or not. "Tax Return" means any return, information
report or filing with respect to Taxes, including any schedules attached thereto
and including any amendment thereof.
5K. Contracts and Commitments.
-------------------------
(i) Except as expressly contemplated by this Agreement or as set
forth on the attached "Contracts Schedule" or the attached "Employee Benefits
Schedule," neither the Company nor any Subsidiary is a party to or bound by any
written or oral:
(a) pension, profit sharing, stock option, employee stock
purchase or other plan or arrangement providing for deferred or other
compensation to employees or any other employee benefit plan or
arrangement, or any collective bargaining agreement or any other contract
with any labor union, or severance agreements, programs, policies or
arrangements;
(b) contract for the employment of any officer, individual
employee or other Person on a full-time, part-time, consulting or other
basis providing annual compensation in excess of $250,000 or contract
relating to loans to officers, directors or Affiliates;
-16-
<PAGE>
(c) contract under which the Company or Subsidiary has advanced
or loaned any other Person amounts in the aggregate exceeding $250,000;
(d) agreement or indenture relating to borrowed money or other
Indebtedness or the mortgaging, pledging or otherwise placing a Lien on any
material asset or material group of assets of the Company and its
Subsidiaries;
(e) guarantee of any obligation in excess of $100,000;
(f) lease or agreement under which the Company or any Subsidiary
is lessee of or holds or operates any property, real or personal, owned by
any other party, except for any lease of personal property under which the
aggregate annual rental payments do not exceed $100,000;
(g) lease or agreement under which the Company or any Subsidiary
is lessor of or permits any third party to hold or operate any material
property, real or personal, owned or controlled by the Company or any
Subsidiary;
(h) contract or group of related contracts with the same party
or group of affiliated parties the performance of which involves
consideration in excess of $5,000,000;
(i) assignment, license, indemnification or agreement with
respect to any material intangible property (including, without limitation,
any Intellectual Property);
(j) warranty agreement with respect to its services rendered or
its products sold or leased pursuant to which it has incurred during either
of the last two calendar years, or expects to incur in any future calendar
year, expenses in excess of $100,000;
(k) agreement under which it has granted any Person any
registration rights (including, without limitation, demand and piggyback
registration rights);
(l) sales, distribution or franchise agreement;
(m) agreement with a term of more than six months which is not
terminable by the Company or any Subsidiary upon less than 30 days notice
without a penalty in excess of $200,000, except as otherwise disclosed on
the Contract Schedule;
(n) contract or agreement prohibiting it from freely engaging in
any business or competing anywhere in the world; or
-17-
<PAGE>
(o) any other agreement which is material to its operations and
business prospects or involves a consideration in excess of $250,000
annually.
(ii) All of the contracts, agreements and instruments set forth on
the Contracts Schedule are valid, binding and enforceable in accordance with
their respective terms. The Company and each Subsidiary have performed all
material obligations required to be performed by them and are not in default
under or in breach of nor in receipt of any claim of default or breach under any
material contract, agreement or instrument to which the Company or any
Subsidiary is subject; no event has occurred which with the passage of time or
the giving of notice or both would result in a default, breach or event of
noncompliance by the Company or any Subsidiary under any material contract,
agreement or instrument to which the Company or any Subsidiary is subject;
neither the Company nor any Subsidiary has any present expectation or intention
of not fully performing all such obligations; neither the Company nor any
Subsidiary has knowledge of any breach or anticipated breach by the other
parties to any material contract, agreement, instrument or commitment to which
it is a party; and neither the Company nor any Subsidiary is a party to any
materially adverse contract or commitment.
(ii) The Purchaser's special counsel has been supplied with a true
and correct copy of each of the written instruments, plans, contracts and
agreements and an accurate description of each of the oral arrangements,
contracts and agreements which are referred to on the Contracts Schedule and
requested by the Purchaser or the Purchaser's special counsel, together with all
amend ments, waivers or other changes thereto.
5L. Intellectual Property Rights.
----------------------------
(i) The attached "Intellectual Property Schedule" contains a
complete and accurate list of all (a) patented or registered Intellectual
Property Rights owned or used by the Company or any Subsidiary, (b) pending
patent applications and applications for registrations of other Intellectual
Property Rights owned or filed by the Company or any Subsidiary, (c)
unregistered trade names and corporate names owned or used by the Company or any
Subsidiary and (d) unregistered trademarks, service marks, material copyrights,
mask works and computer software owned or used by the Company or any Subsidiary.
The Intellectual Property Schedule also contains a complete and accurate list of
all licenses and other rights granted by the Company or any Subsidiary to any
third party with respect to any Intellectual Property Rights and all licenses
and other rights granted by any third party to the Company or any Subsidiary
with respect to any Intellectual Property Rights, in each case identifying the
subject Intellectual Property Rights. Except as set forth on the Intellectual
Property Schedule, the Company or one of its Subsidiaries owns all right, title
and interest in and to, or has the right to use pursuant to a valid license, all
Intellectual Property Rights necessary for the operation of the businesses of
the Company and its Subsidiaries as presently conducted and as presently
proposed to be conducted, free and clear of all Liens. Except as set forth on
the Intellectual Property Schedule, the loss or expiration of any Intellectual
Property Right or related
-18-
<PAGE>
group of Intellectual Property Rights owned or used by the Company or any
Subsidiary would not reasonably be expected to have a material adverse effect on
the conduct of the Company's and its Subsidiaries' respective businesses, and no
such loss or expiration is threatened, pending or reasonably foreseeable. The
Company and its Subsidiaries have taken all reasonably necessary and desirable
actions to maintain and protect the Intellectual Property Rights which they own.
(ii) Except as set forth on the Intellectual Property Schedule, (a)
the Company and its Subsidiaries own all right, title and interest in and to, or
have a valid and enforceable license to use, all of the Intellectual Property
Rights listed on such schedule, free and clear of all Liens, (b) there have been
no claims made or threatened against the Company or any Subsidiary contesting
the validity, use, enforceability or ownership of any of the Intellectual
Property Rights, and to the best of the Company's knowledge, there are no valid
grounds for the same, (c) neither the Company nor any Subsidiary has received
any notices of, and neither the Company nor any Subsidiary is aware of any facts
which indicate a likelihood of, any infringement or misappropriation by, or
conflict with, any third party with respect to such Intellectual Property Rights
(including, without limitation, any demand or request that the Company or any
Subsidiary license any rights from a third party), (d) neither the Company nor
any Subsidiary has infringed, misappropriated or conflicted with any
Intellectual Property Rights of other Persons, and neither the Company nor any
Subsidiary is aware of any infringement, misappropriation or conflict which will
result from the continued operation of their businesses as currently conducted
or as currently proposed to be conducted and (e) to the best of the Company's
knowledge, the Intellectual Property Rights owned by or licensed to the Company
or any Subsidiary have not been infringed, misappropriated or conflicted with by
other Persons. Except as set forth in the Intellectual Property Schedule, the
transactions contemplated by this Agreement shall have no material adverse
effect on the Company's or any Subsidiary's right, title and interest in and to
the Intellectual Property Rights.
5M. Litigation, etc. Except as set forth on the attached "Litigation
---------------
Schedule," there are no actions, suits, proceedings, orders, investigations or
claims pending or, to the best of the Company's knowledge, threatened against or
affecting the Company or any Subsidiary (or to the best of the Company's
knowledge, pending or threatened against or affecting any of the officers,
directors or employees of the Company and its Subsidiaries with respect to their
businesses or proposed business activities) at law or in equity, or before or by
any governmental department, commission, board, bureau, agency or
instrumentality (including, without limitation, any actions, suit, proceedings
or investigations with respect to the transactions contemplated by this
Agreement); neither the Company nor any Subsidiary is subject to any arbitration
proceedings under collective bargaining agreements or otherwise or, to the best
of the Company's knowledge, any governmental investigations or inquiries,
(including, without limitation, inquiries as to the qualification to hold or
receive any license or permit); and, to the best of the Company's knowledge,
there is no valid basis for any of the foregoing. Neither the Company nor any
Subsidiary is subject to any judgment, order or decree of any court or other
governmental agency.
-19-
<PAGE>
5N. Brokerage. Except as set forth on the attached "Brokerage
---------
Schedule" or as provided in Section 2L above, there are no claims for brokerage
commissions, finders' fees or similar compensation in connection with the
transactions contemplated by this Agreement based on any arrangement or
agreement binding upon the Company or any Subsidiary. The Company shall pay,
and hold the Purchaser harmless against, any liability, loss or expense
(including, without limitation, reasonable attorneys' fees and out-of-pocket
expenses) arising in connection with any such claim.
5O. Governmental Consent, etc. No permit, consent, approval or
-------------------------
authorization of, or declaration to or filing with, any governmental authority
is required in connection with the execution, delivery and performance by the
Company of this Agreement or the other agreements contemplated hereby, or the
consummation by the Company of any other transactions contemplated hereby or
thereby, except as expressly contemplated herein or in the exhibits hereto.
5P. Insurance. The insurance coverage of the Company and its
---------
Subsidiaries is customary for corporations of similar size engaged in similar
lines of business. Neither the Company nor any Subsidiary is in material
default with respect to its obligations under any insurance policy maintained by
it, each such policy is in full force and effect and neither the Company nor any
Subsidiary has been denied insurance coverage. The Company and its Subsidiaries
do not have any material self-insurance or co-insurance programs, and the
reserves set forth on the September Balance Sheet are adequate to cover all
anticipated liabilities with respect to any such self-insurance or co-insurance
programs.
5Q. Employees. Except as set forth on the attached "Employees
---------
Schedule," the Company is not aware that any executive or key employee of the
Company or any Subsidiary or any group of employees of the Company or any
Subsidiary has any plans to terminate employment with the Company or any
Subsidiary. The Company and each Subsidiary have complied in all material
respects with all laws relating to the employment of labor (including, without
limitation, provisions thereof relating to wages, hours, equal opportunity,
collective bargaining and the payment of social security and other taxes), and
the Company is not aware that it or any Subsidiary has any material labor
relations problems (including, without limitation, any union organization
activities, threatened or actual strikes or work stoppages or material
grievances). Neither the Company, its Subsidiaries nor, to the best of the
Company's knowledge after due inquiry, any of their key employees is subject to
any noncompete, nondisclosure, confidentiality, employment, consulting or
similar agreements relating to, affecting or in conflict in any material respect
with the present or proposed business activities of the Company and its
Subsidiaries, except for agreements between the Company and its present and
former employees.
5R. ERISA.
-----
(i) Multiemployer Plans. The Company does not have any obligation
-------------------
to contribute to (or any other liability, including current or potential
withdrawal liability, with respect
-20-
<PAGE>
to) any "multiemployer plan" (as defined in Section 3(37) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")).
(ii) Retiree Welfare Plans. The Company does not maintain or have
---------------------
any obligation to contribute to (or any other liability with respect to) any
plan or arrangement whether or not terminated, which provides medical, health,
life insurance or other welfare-type benefits for current or future retired or
terminated employees (except for limited continued medical benefit coverage
required to be provided under Section 4980B of the IRC or as required under
applicable state law).
(iii) Defined Benefit Plans. The Company does not maintain,
---------------------
contribute to or have any liability under (or with respect to) any employee plan
which is a tax-qualified "defined benefit plan" (as defined in Section 3(35) of
ERISA), whether or not terminated.
(iv) Defined Contribution Plans. The Company does not maintain,
--------------------------
contribute to or have any liability under (or with respect to) any employee plan
which is a tax-qualified "defined contribution plan" (as defined in Section
3(34) of ERISA), whether or not terminated, other than the 401K Plan (the
"Profit Sharing Plan").
(v) Other Plans. Except as set forth in the "Employee Benefits
-----------
Schedule", the Company does not maintain, contribute to or have any liability
under (or with respect to) any plan or arrangement providing benefits to current
or former employees, including any bonus plan, plan for deferred compensation,
employee health or other welfare benefit plan or other arrangement, whether or
not terminated. Such plans and other arrangements are referred to as the "Other
Plans."
(vi) The Company. For purposes of this paragraph 5R, the term
-----------
"Company" includes all organizations under common control with the Company
pursuant to Section 414(b) or (c) of the IRC.
(vii) Payments and Accruals. With respect to the Profit Sharing Plan
---------------------
and the Other Plans (the "Plans"), all required or recommended (in accordance
with historical practices) payments, premiums, contributions, reimbursements or
accruals for all periods (or partial periods) ending prior to or as of September
29, 1996, have been made or properly accrued on the September Balance Sheet.
None of the Plans has any material unfunded liabilities which are not reflected
on the Latest Balance Sheet.
(viii) Compliance. The Plans and all related trusts, insurance
----------
contracts and funds have been maintained, funded and administered in compliance
in all material respects with the applicable provisions of ERISA, the IRC and
other applicable laws. Neither the Company nor any trustee or administrator of
any Plan has engaged in any transaction with respect to the Plans which could
subject the Company or any trustee or administrator or the Plans, or any party
dealing with any
-21-
<PAGE>
such Plan, nor do the transactions contemplated by this Agreement constitute
transactions which could subject any such party, to either a civil penalty
assessed pursuant to Section 502(i) of ERISA or the tax or penalty on prohibited
transactions imposed by Section 4975 of the IRC. No actions, suits or claims
with respect to the assets of the Plans (other than routine claims for benefits)
are pending or threatened which could result in or subject the Company to any
liability, and there are no circumstances which could give rise to or be
expected to give rise to any such actions, suits or claims.
(ix) Tax Qualification. A favorable determination letter from the
-----------------
IRS has been received by the Company with respect to the Profit Sharing Plan as
amended to comply with the IRS as in effect up to the Tax Reform Act of 1986
stating that it is a qualified plan under Section 401(a) of the IRC and there
are no circumstances which would cause the Profit Sharing Plan to lose such
qualified status.
5S. Compliance with Laws. Except as set forth on the attached
--------------------
"Compliance Schedule," neither the Company nor any Subsidiary has violated any
law or any governmental regulation or requirement which violation has had or
would reasonably be expected to have a material adverse effect upon the
financial condition, operating results, assets, operations or business prospects
of the Company and its Subsidiaries taken as a whole, and neither the Company
nor any Subsidiary has received notice of any such violation.
5T. Environmental and Safety Matters.
--------------------------------
For purposes of this Agreement, the term "Environmental and Safety
Requirements" shall mean all federal, state, local and foreign statutes,
regulations, ordinances and other provisions having the force or effect of law,
all judicial and administrative orders and determinations, all contractual
obligations and all common law, in each case concerning public health and
safety, worker health and safety and pollution or protection of the environment
(including, without limitation, all those relating to the presence, use,
production, generation, handling, transport, treatment, storage, disposal,
distribution, labeling, testing, processing, discharge, Release, threatened
Release, control or cleanup of any hazardous or otherwise regulated materials,
substances or wastes, chemical substances or mixtures, pesticides, pollutants,
contaminants, toxic chemicals, petroleum products or byproducts, asbestos,
polychlorinated biphenyls, noise or radiation); "Release" shall have the meaning
set forth in CERCLA (as defined below); and "Environmental Lien" shall mean any
Lien, whether recorded or unrecorded, in favor of any governmental entity,
relating to any liability of the Company or any Subsidiary arising under any
Environmental and Safety Requirements.
(i) The Company and its Subsidiaries have complied with and are
currently in compliance with all Environmental and Safety Requirements, and
neither the Company nor its Subsidiaries have received any oral or written
notice, report or information regarding any liabilities (whether accrued,
absolute, contingent, unliquidated or otherwise) or any corrective,
investigatory
-22-
<PAGE>
or remedial obligations arising under Environmental and Safety Requirements
which relate to the Company or its Subsidiaries or any of their properties or
facilities, except for any such noncompliance, liability or obligation which has
not had or would not reasonably be expected to have a material adverse effect on
the financial condition, operating results, assets, operations or business
prospects of the Company and its Subsidiaries taken as a whole.
(ii) Without limiting the generality of the foregoing, the Company
and its Subsidiaries have obtained and complied with, and are currently in
compliance with, all permits, licenses and other authorizations that may be
required pursuant to any Environmental and Safety Requirements for the occupancy
of their properties or facilities or the operation of their businesses, except
for any such failure to obtain or comply which has not had or would not
reasonably be expected to have a material adverse effect on the financial
condition, operating results, assets, operations or business prospects of the
Company and its Subsidiaries taken as a whole. A list of all such permits,
licenses and other authorizations which are material to the Company and its
Subsidiaries is set forth on the attached Environmental Schedule.
(iii) Neither this Agreement nor the consummation of the transactions
contemplated by this Agreement shall impose any obligations on the Company and
its Subsidiaries or otherwise for site investigation or cleanup, or notification
to or consent of any government agencies or third parties under any
Environmental and Safety Requirements (including, without limitation, any so
called "transaction-triggered" or "responsible property transfer" laws and
regulations).
(iv) None of the following exists at any property or facility owned,
occupied or operated by the Company or any of its Subsidiaries:
(a) underground storage tanks or surface impoundments;
(b) asbestos-containing materials in any form or condition; or
(c) materials or equipment containing polychlorinated
biphenyls.
(v) Neither the Company nor any of its Subsidiaries has treated,
stored, disposed of, arranged for or permitted the disposal of, transported,
handled or Released any substance (including, without limitation, any hazardous
substance) or owned, occupied or operated any facility or property, so as to
give rise to liabilities of the Company or its Subsidiaries for response costs,
natural resource damages or attorneys fees pursuant to the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"), as
amended, or any other Environmental and Safety Requirements.
(vi) Without limiting the generality of the foregoing, to the best
of the Company's knowledge there are no facts, events or conditions relating to
the past or present properties, facilities
-23-
<PAGE>
or operations of the Company or its Subsidiaries which prevent, hinder or limit
continued compliance with Environmental and Safety Requirements, give rise to
any corrective, investigatory or remedial obligations pursuant to Environmental
and Safety Requirements or give rise to any other liabilities (whether accrued,
absolute, contingent, unliquidated or otherwise) pursuant to Environmental and
Safety Requirements (including, without limitation, those liabilities relating
to onsite or offsite Releases or threatened Releases of hazardous materials,
substances or wastes, personal injury, property damage or natural resources
damage, except for any such noncompliance, obligation or liability which has not
had or would not reasonably be expected to have a material adverse effect on the
financial condition, operating results, assets, operations or business prospects
of the Company and its Subsidiaries taken as a whole.
(vii) Neither the Company nor any of its Subsidiaries has, either
expressly or by operation of law, assumed or undertaken any material liability
or corrective, investigatory or remedial obligation of any other Person relating
to any Environmental and Safety Requirements.
(viii) No Environmental Lien has attached to any property owned,
leased or operated by the Company or any of its Subsidiaries.
5U. Affiliated Transactions. Except as set forth on the attached
-----------------------
"Affiliated Transactions Schedule," to the best of the Company's knowledge, no
officer, director, executive employee or Affiliate of the Company or any
Subsidiary or any individual related by blood, marriage or adoption to any such
individual or any entity which is controlled by any such Person or individual,
is a party to any agreement, contract, commitment or transaction with the
Company or any Subsidiary or has any material interest in any material property
used by the Company or any Subsidiary.
5V. Investment Company. Neither the Company nor any of its
------------------
Subsidiaries is an "investment company" as defined under the Investment Company
Act of 1940.
5W. Solvency, etc. The Company is solvent as of the date of this
--------------
Agreement and shall not become insolvent as a result of the consummation of the
transactions contemplated by this Agreement. The Company is, and after giving
effect to the transactions contemplated by this Agreement shall be, able to pay
its debts as they become due, and the Company's property now has, and after
giving effect to the transactions contemplated hereby shall have, a fair salable
value (determined on a going concern basis) greater than the amounts required to
pay its debts (including a reasonable estimate of the amount of all contingent
liabilities). The Company has adequate capital to carry on its business, and
after giving effect to the transactions contemplated by this Agreement, the
Company shall have adequate capital to conduct its business. No transfer of
property is being made and no obligation is being incurred in connection with
the transactions contemplated by this
-24-
<PAGE>
Agreement with the intent to hinder, delay or defraud either present or future
creditors of the Company.
5X. Margin Securities. Neither the Company nor any of its
-----------------
Subsidiaries is engaged in the business of extending credit for the purpose of
buying or carrying "margin securities" within the meaning of Regulations G, T, U
or X promulgated by the Board of Governors of the Federal Reserve Board, and no
part of the proceeds realized from the sale of the Note shall be used to buy or
carry any such margin securities or used in violation of Regulations G, T, U or
X.
5Y. Disclosure. To the Company's knowledge, neither this Agreement
----------
nor any of the exhibits, schedules, attachments, written statements, documents,
certificates or other items prepared or supplied to the Purchaser by or on
behalf of the Company with respect to the transactions contemplated hereby
contain any untrue statement of a material fact or omit a material fact
necessary to make each statement contained herein or therein not misleading;
provided that with respect to the financial projections furnished to the
Purchaser by the Company, the Company represents and warrants only that such
projections were based upon assumptions reasonably believed by the Company to be
reasonable and fair as of the date the projections were prepared in the context
of the Company's history and current and reasonably foreseeable business
conditions. There is no fact which the Company has not disclosed to the
Purchaser in writing and of which any of its officers, directors or executive
employees is aware (other than general economic conditions) and which has had or
would reasonably be expected to have a material adverse effect upon the existing
or expected financial condition, operating results, assets, customer or supplier
relations, employee relations or business prospects of the Company and its
Subsidiaries taken as a whole.
5Z. Reports with the Securities and Exchange Commission. The Company
---------------------------------------------------
has furnished the Purchaser with complete and accurate copies of its annual
report on Form 10-K for its two most recent fiscal years, all other reports or
documents required to be filed by the Company pursuant to Section 13(a) or 15(d)
of the Securities Exchange Act since the filing of the most recent annual report
on Form 10-K and its most recent annual report to its stockholders. Such
reports and filings do not contain any material false statements or any
misstatement of any material fact and do not omit to state any fact necessary to
make the statements set forth therein not misleading. The Company has made all
filings with the Securities and Exchange Commission which it is required to
make, and the Company has not received any request from the Securities and
Exchange Commission to file any amendment or supplement to any of the reports
described in this paragraph.
Section 6. Representations and Warranties of the Purchaser. As a
-----------------------------------------------
material inducement tot he Company to enter into this Agreement and sell the
Note and Warrant hereunder, the Purchaser hereby represents to the Company as
follows:
6A. Organization and Qualification. The Purchaser is a corporation
------------------------------
or other entity duly organized, validly existing and (where applicable) in good
standing under the Laws of the
-25-
<PAGE>
jurisdiction of its formation and has the power to own its property and to carry
on its business as now being conducted. The Purchaser is duly qualified to do
business and (where applicable) in good standing in every jurisdiction in which
the nature of the business conducted or property owned by it makes such
qualification necessary, except where the failure to so qualify would not
prevent consummation of the transactions contemplated hereby or have a material
adverse effect on the Purchaser's ability to perform its obligations hereunder.
6B. Due Authorization. The execution, delivery and performance of
-----------------
this Agreement and all other agreements and instruments contemplated hereby to
which the Purchaser is a party, have been duly authorized by the Purchaser.
This Agreement and all other agreements and instruments contemplated hereby to
which the Purchaser is a party each constitutes a valid and binding obligation
of the Purchaser, enforceable in accordance with its terms. The execution and
delivery of this Agreement and all other agreements and instruments contemplated
hereby to which the Purchaser is a party and the fulfillment of and compliance
with the respective terms hereof and thereof by the Purchaser, do not and shall
not (i) conflict with or result in a breach of the terms, conditions or
provisions of, (ii) constitute a default under, or (iii) require any
authorization, consent, approval exemption or other action by or notice or
declaration to, or filing with, any court or administrative or governmental body
or agency pursuant to, the organization documents of the Purchaser, or any law,
statute, rule or agency pursuant to, the organizational documents of the
Purchaser, or any law, statute, rule or regulation to which the Purchaser is
subject, or any material agreement, instrument, order, judgment or decree to
which the Purchaser is subject, except for filings after the Closing which may
be required under Section 13(d) of the Securities Exchange Act.
6C. Purchaser's Investment Representations. The Purchaser hereby
--------------------------------------
represents that it is acquiring the Restricted Securities purchased hereunder or
acquired pursuant hereto for its own account with the present intention of
holding such securities for purposes of investment, and that it has no intention
of selling such securities in a public distribution in violation of the federal
securities laws or any applicable state securities laws; provided that nothing
contained herein shall prevent any Purchaser and subsequent holders of
Restricted Securities from transferring such securities in compliance with the
provisions of Section 4 hereof. Each certificate or instrument representing
Restricted Securities shall be imprinted with a legend in substantially the
following form:
"The securities represented by this certificate were originally
issued on December 23, 1996, and have not been registered under
the Securities Act of 1933, as amended. The transfer of the
securities represented by this certificate is subject to the
conditions specified in the Purchase Agreement, dated as of
December 23, 1996 and as amended and modified from time to time,
between the issuer (the "Company") and certain investors, and
the Company reserves the right to refuse the transfer of such
securities until such conditions have been fulfilled with
respect to such transfer. A copy of such conditions shall be
furnished by the Company to the holder hereof upon written
request and without charge."
-26-
<PAGE>
6D. Brokerage. Except as set forth in Section 2L above, there are no
---------
claims for brokerage commissions, finders' fees or similar compensation in
connection with the transactions contemplated by this Agreement and based on any
arrangement or agreement binding upon the Purchaser. The Purchaser shall pay,
and hold the Company harmless against, any liability, loss or expense (including
without limitation reasonable attorneys' fees and out-of-pocket expenses)
arising in connection with any such claim.
6E. Accredited Investor. The Purchaser is an "accredited investor"
-------------------
within the meaning of Rule 501 promulgated under the Securities Act.
Section 7. Definitions.
-----------
7A. Definitions. For the purposes of this Agreement, the following
-----------
terms have the meanings set forth below:
"Affiliate" of any particular Person means any other Person
---------
controlling, controlled by or under common control with such particular Person,
where "control" means the possession, directly or indirectly, of the power to
direct the management and policies of a Person whether through the ownership of
voting securities, contract or otherwise.
"Consolidated Tangible Net Worth" means, as of any date of
-------------------------------
determination, the Company's shareholders' equity less goodwill and other
intangible assets, calculated on a consolidated basis in accordance with
generally accepted accounting principles, consistently applied.
"Event of Default" has the meaning set forth in the Note.
----------------
"Indebtedness" means at a particular time, without duplication, (i)
------------
any indebtedness for borrowed money or issued in substitution for or exchange of
indebtedness for borrowed money, (ii) any indebtedness evidenced by any note,
bond, debenture or other debt security, (iii) any indebtedness for the deferred
purchase price of property or services with respect to which a Person is liable,
contingently or otherwise, as obligor or otherwise (other than trade payables
and other current liabilities incurred in the ordinary course of business which
are not more than six months past due), (iv) any commitment by which a Person
assures a creditor against loss (including, without limitation, contingent
reimbursement obligations with respect to letters of credit), (v) any
indebtedness guaranteed in any manner by a Person (including, without
limitation, guarantees in the form of an agreement to repurchase or reimburse),
(vi) any obligations under capitalized leases with respect to which a Person is
liable, contingently or otherwise, as obligor, guarantor or otherwise, or with
respect to which obligations a Person assures a creditor against loss, (vii) any
indebtedness secured by a Lien on a Person's assets and (viii) any unsatisfied
obligation for "withdrawal liability" to a "multiemployer plan" as such terms
are defined under ERISA.
-27-
<PAGE>
"Intellectual Property Rights" means all of the following owned by,
----------------------------
issued to or licensed to the Company: (i) patents, patent applications, patent
disclosures and inventions, (ii) trademarks, service marks, trade dress, trade
names, logos and corporate names and registrations and applications for
registration thereof together with all of the goodwill associated therewith,
(iii) copyrights (registered or unregistered) and copyrightable works and
registrations and applications for registration thereof, (iv) mask works and
registrations and applications for registration thereof, (v) computer software,
data, data bases and documentation thereof, (vi) trade secrets and other
confidential information (including, without limitation, ideas, formulas,
compositions, inventions (whether patentable or unpatentable and whether or not
reduced to practice), know-how, manufacturing and production processes and
techniques, research and development information, drawings, specifications,
designs, plans, proposals, technical data, copyrightable works, financial and
marketing plans and customer and supplier lists and information), (vii) other
intellectual property rights and (viii) copies and tangible embodiments thereof
(in whatever form or medium).
"Investment" as applied to any Person means (i) any direct or indirect
----------
purchase or other acquisition by such Person of any notes, obligations,
instruments, stock, securities or ownership interest (including partnership
interests and joint venture interests) of any other Person and (ii) any capital
contribution by such Person to any other Person.
"IRC" means the Internal Revenue Code of 1986, as amended, and any
---
reference to any particular IRC section shall be interpreted to include any
revision of or successor to that section regardless of how numbered or
classified.
"IRS" means the United States Internal Revenue Service.
---
"Liens" means any mortgage, pledge, security interest, encumbrance,
-----
lien or charge of any kind (including, without limitation, any conditional sale
or other title retention agreement or lease in the nature thereof), any sale of
receivables with recourse against the Company, any Subsidiary or any Affiliate,
any filing or agreement to file a financing statement as debtor under the
Uniform Commercial Code or any similar statute other than to reflect ownership
by a third party of property leased to the Company or any Subsidiaries under a
lease which is not in the nature of a conditional sale or title retention
agreement, or any subordination arrangement in favor of another Person (other
than any subordination arising in the ordinary course of business).
"Officer's Certificate" means a certificate signed by the Company's
---------------------
president or its chief financial officer, stating that (i) the officer signing
such certificate has made or has caused to be made such investigations as are
reasonably necessary in order to permit him to verify the accuracy of the
information set forth in such certificate and (ii) to the best of such officer's
knowledge, such certificate does not misstate any material fact and does not
omit to state any fact necessary to make the certificate not misleading.
-28-
<PAGE>
"Permitted Senior Indebtedness" has the meaning set forth in paragraph
-----------------------------
3C.
"Permitted Liens" means:
---------------
(i) tax liens with respect to taxes not yet due and payable
or which are being contested in good faith by appropriate proceedings and
for which appropriate reserves have been established in accordance with
generally accepted accounting principles, consistently applied;
(ii) deposits or pledges made in connection with, or to secure
payment of, utilities or similar services, workers' compensation,
unemployment insurance, old age pensions or other social security
obligations;
(iii) purchase money security interests in any property
acquired by the Company or any Subsidiary which secure Indebtedness which
does not, in total, exceed the lesser of $6,000,000 or the aggregate
original purchase price of the property;
(iv) interests or title of a lessor under any lease permitted
by this Agreement;
(v) mechanics', materialmen's or contractors' liens or
encumbrances or any similar lien or restriction created by statute;
(vi) liens in favor of Harris Trust and Savings Bank, as
agent, in the property of the Company and its Subsidiaries (the "Harris
Liens") that are granted at the same time as liens granted to the Purchaser
in the same property which are junior in priority to the Harris Liens;
(vii) easements, rights-of-way, restrictions and other similar
charges and encumbrances not interfering with the ordinary conduct of the
business of the Company and its Subsidiaries or detracting from the value
of the assets of the Company and its Subsidiaries; and
(viii) liens outstanding on the date hereof which secure
Indebtedness and which are described in the schedules to this Agreement.
"Person" means an individual, a partnership, a corporation, a limited
------
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
-29-
<PAGE>
"Potential Event of Default" means any event or occurrence which with
--------------------------
the passage of time or the giving of notice or both would constitute an Event of
Default.
"Qualified Offering" means an offering by the Company of Common Stock
------------------
registered with the Securities and Exchange Commission under the Securities Act
subsequent to the date of this Agreement with an aggregate offering value of
greater than $20 million and an offering price per share of at least (a) 127.5%
of the Conversion Price after December 23, 1996, but prior to December 24, 1997;
(b) 165% of the Conversion Price after December 23, 1997, but prior to December
24, 1998; or (c) 215% of the Conversion Price after December 23, 1998.
"Restricted Securities" means (i) the Note issued hereunder, (ii) the
---------------------
Warrant issued hereunder, (iii) the Common Stock issued upon conversion of Note
or upon exercise of the Warrant and (iv) any securities issued with respect to
the securities referred to in clauses (i), (ii) or (iii) above by way of a stock
dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization. As to any
particular Restricted Securities, such securities shall cease to be Restricted
Securities when they have (a) been effectively registered under the Securities
Act and disposed of in accordance with the registration statement covering them,
(b) been distributed to the public through a broker, dealer or market maker
pursuant to Rule 144 (or any similar provision then in force) under the
Securities Act or become eligible for sale pursuant to Rule 144(k) (or any
similar provision then in force) under the Securities Act or (c) been otherwise
transferred and new certificates for them not bearing the Securities Act legend
set forth in paragraph 7D have been delivered by the Company in accordance with
paragraph 4B. Whenever any particular securities cease to be Restricted
Securities, the holder thereof shall be entitled to receive from the Company,
without expense, new securities of like tenor not bearing a Securities Act
legend of the character set forth in paragraph 7D.
"Securities Act" means the Securities Act of 1933, as amended, or any
--------------
similar federal law then in force.
"Securities and Exchange Commission" includes any governmental body or
----------------------------------
agency succeeding to the functions thereof.
"Securities Exchange Act" means the Securities Exchange Act of 1934,
-----------------------
as amended, or any similar federal law then in force.
"Subsidiary" means, with respect to any Person, any corporation,
----------
limited liability company, partnership, association or other business entity of
which (i) if a corporation, a majority of the total voting power of shares of
stock entitled (without regard to the occurrence of any contingency) to vote in
the election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by that Person or one or more of the other
Subsidiaries of that Person or a combination thereof, or (ii) if a limited
liability company, partnership, association
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<PAGE>
other business entity, a majority of the partnership or other similar ownership
interest thereof is at the time owned or controlled, directly or indirectly, by
any Person or one or more Subsidiaries of that Person or a combination thereof.
For purposes hereof, a Person or Persons shall be deemed to have a majority
ownership interest in a limited liability company, partnership, association or
other business entity if such Person or Persons shall be allocated a majority of
limited liability company, partnership, association or other business entity
gains or losses or shall be or control any managing director or general partner
of such limited liability company, partnership, association or other business
entity.
"Treasury Regulations" means the United States Treasury Regulations
--------------------
promulgated under the IRC, and any reference to any particular Treasury
Regulation section shall be interpreted to include any final or temporary
revision of or successor to that section regardless of how numbered or
classified.
"Underlying Common Stock" means (i) the Common Stock issued or
-----------------------
issuable upon conversion of the Note or upon exercise of the Warrant and (ii)
any Common Stock issued or issuable with respect to the securities referred to
in clause (i) above by way of stock dividend or stock split or in connection
with a combination of shares, recapitalization, merger, consolidation or other
reorganization. For purposes of this Agreement, any Person who holds the Note
or Warrant shall be deemed to be the holder of the Underlying Common Stock
obtainable upon conversion of the Note or exercise of the Warrant in connection
with the transfer thereof or otherwise regardless of any restriction or
limitation on the conversion of the Note or exercise of the Warrant, such
Underlying Common Stock shall be deemed to be in existence, and such Person
shall be entitled to exercise the rights of a holder of Underlying Common Stock
hereunder. As to any particular shares of Underlying Common Stock, such shares
shall cease to be Underlying Common Stock when they have been (a) effectively
registered under the Securities Act and disposed of in accordance with the
registration statement covering them, (b) distributed to the public through a
broker, dealer or market maker pursuant to Rule 144 under the Securities Act (or
any similar provision then in force) or (c) repurchased by the Company or any
Subsidiary.
"Wholly-Owned Subsidiary" means, with respect to any Person, a
-----------------------
Subsidiary of which all of the outstanding capital stock or other ownership
interests are owned by such Person or another Wholly-Owned Subsidiary of such
Person.
Section 8. Miscellaneous.
-------------
8A. Expenses. The Company shall pay, and hold the Purchaser and all
--------
holders of the Note, the Warrant and Underlying Common Stock harmless against
liability for the payment of, (i) the fees and expenses of their special counsel
arising in connection with the negotiation and execution of this Agreement and
the consummation of the transactions contemplated by this Agreement which shall
be payable at the Closing, (ii) the fees and expenses incurred with respect
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<PAGE>
to any amendments or waivers (whether or not the same become effective) under or
in respect of this Agreement, the Note, the Warrant, the Registration Agreement,
the Articles of Incorporation and all other agreements and instruments
contemplated hereby, (iii) stamp and other taxes which may be payable in respect
of the execution and delivery of this Agreement or the issuance, delivery or
acquisition of any Notes or any shares of Common Stock issuable upon conversion
of Note or exercise of the Warrant, (iv) the fees and expenses incurred with
respect to the enforcement of the rights granted under this Agreement, the Note,
the Warrant, the Registration Agreement, the Articles of Incorporation and all
other agreements and instruments contemplated hereby and (v) the reasonable fees
and expenses incurred by each such Person in any filing with any governmental
agency with respect to its investment in the Company or in any other filing with
any governmental agency with respect to the Company which mentions such Person;
provided, however, that the Company shall not be required to pay the fees and
expenses incurred by any such Person in obtaining the authorization, consent or
approval of any governmental agency with respect to its investment in the
Company.
8B. Transaction Fee. The Company shall pay to Nesbitt Burns
---------------
Securities, Inc. a transaction fee in the amount of $480,000 less the amount
payable under 7A(i) above, which shall be payable by a cashiers or certified
check or by wire transfer of immediate funds at the Closing.
8C. Remedies. Each holder of the Note and the Underlying Common
--------
Stock shall have all rights and remedies set forth in this Agreement, the Note
and all rights and remedies which such holders have been granted at any time
under any other agreement or contract and all of the rights which such holders
have under any law. Any Person having any rights under any provision of this
Agreement shall be entitled to enforce such rights specifically, to recover
damages by reason of any breach of any provision of this Agreement and to
exercise all other rights granted by law.
8D. Consent to Amendments. Except as otherwise expressly provided
---------------------
herein, the provisions of this Agreement may be amended and the Company may take
any action herein prohibited, or omit to perform any act herein required to be
performed by it, only if the Company has obtained the written consent of the
holder of the Note; provided that if the Note is no longer outstanding, the
provisions of this Agreement may be amended and the Company may take any action
herein prohibited, only if the Company has obtained the written consent of the
holders of a majority of the Underlying Common Stock. No other course of
dealing between the Company and the holder of any Note, Warrant or Underlying
Common Stock or any delay in exercising any rights hereunder or under the Note
or the Articles of Incorporation shall operate as a waiver of any rights of any
such holders. For purposes of this Agreement, Notes or Underlying Common Stock
held by the Company or any Subsidiaries shall not be deemed to be outstanding.
8E. Survival of Representations and Warranties. All representations
------------------------------------------
and warranties contained herein or made in writing by any party in connection
herewith shall survive the
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<PAGE>
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby, regardless of any investigation made by the
Purchaser or on its behalf.
8F. Successors and Assigns. Except as otherwise expressly provided
----------------------
herein, all covenants and agreements contained in this Agreement by or on behalf
of any of the parties hereto shall bind and inure to the benefit of the
respective successors and assigns of the parties hereto whether so expressed or
not. In addition, and whether or not any express assignment has been made, the
provisions of this Agreement which are for the Purchaser's benefit as a
purchaser or holder of Notes, the Warrants or Underlying Common Stock are also
for the benefit of, and enforceable by, any subsequent holder of such Notes,
such Warrants or such Underlying Common Stock.
8G. Generally Accepted Accounting Principles. Where any accounting
----------------------------------------
determination or calculation is required to be made under this Agreement or the
exhibits hereto, such determination or calculation (unless otherwise provided)
shall be made in accordance with generally accepted accounting principles,
consistently applied, except that if because of a change in generally accepted
accounting principles the Company would have to alter a previously utilized
accounting method or policy in order to remain in compliance with generally
accepted accounting principles, such determination or calculation shall continue
to be made in accordance with the Company's previous accounting methods and
policies.
8H. Severability. Whenever possible, each provision of this
------------
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this Agreement.
8I. Counterparts. This Agreement may be executed simultaneously in
------------
two or more counterparts, any one of which need not contain the signatures of
more than one party, but all such counterparts taken together shall constitute
one and the same Agreement.
8J. Descriptive Headings; Interpretation. The descriptive headings
------------------------------------
of this Agreement are inserted for convenience only and do not constitute a
substantive part of this Agreement. The use of the word "including" in this
Agreement shall be by way of example rather than by limitation.
8K. GOVERNING LAW. THE CORPORATE LAW OF THE STATE OF MINNESOTA SHALL
-------------
GOVERN ALL ISSUES AND QUESTIONS CONCERNING THE RELATIVE RIGHTS AND OBLIGATIONS
OF THE COMPANY AND ITS STOCKHOLDERS. ALL ISSUES AND QUESTIONS CONCERNING THE
CONSTRUCTION, VALIDITY, ENFORCEMENT AND INTERPRETATION OF THIS AGREEMENT AND THE
EXHIBITS AND SCHEDULES HERETO SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF MINNESOTA, WITHOUT GIVING EFFECT TO ANY CHOICE OF
LAW OR CONFLICT OF LAW RULES OR PROVISIONS (WHETHER OF THE STATE OF
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<PAGE>
MINNESOTA OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE
LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF MINNESOTA.
8L. Notices. All notices, demands or other communications to be
-------
given or delivered under or by reason of the provisions of this Agreement shall
be in writing and shall be deemed to have been given when delivered personally
to the recipient, sent to the recipient by reputable overnight courier service
(charges prepaid) or mailed to the recipient by certified or registered mail,
return receipt requested and postage prepaid. Such notices, demands and other
communications shall be sent to the Purchaser and to the Company at the
addresses indicated below:
If to the Company:
Zytec Corporation
7575 Market Place Drive
Eden Prairie, MN 55344
Attention: Ronald D. Schmidt
with a copy to:
Winthrop & Weinstine, P.A.
3200 Minnesota World Trade Center
30 East Seventh Street
St. Paul, MN 55101
Attention: Sherman Winthrop
If to the Purchaser:
BMO Nesbitt Burns Equity Partners, Inc.
111 West Monroe Street
20th Floor
Chicago, IL 60603
Attention: Managing Director
with copy to:
Kirkland & Ellis
200 E. Randolph Drive
Chicago, IL 60601
Attention: Edward T. Swan
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<PAGE>
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.
8M. Consideration for Warrant. The Purchaser and the Company
-------------------------
acknowledge and agree that the fair market value of the Note issued hereunder is
$11,999,000 and the fair market value of the Warrant issued hereunder is $1,000
and that, for all purposes (including tax and accounting), the consideration for
the issuance of the Warrant referred to in paragraph 3I shall be allocated as
set forth in paragraph 1B hereof. The Purchaser and the Company shall file
their respective federal, state and local tax returns in a manner which is
consistent with such valuation and allocation and shall not take any contrary
position with any taxing authority.
8N. No Strict Construction. The parties hereto have participated
----------------------
jointly in the negotiation and drafting of this Agreement. In the event an
ambiguity or question of intent or interpretation arises, this Agreement shall
be construed as if drafted jointly by the parties hereto, and no presumption or
burden of proof shall arise favoring or disfavoring any party by virtue of the
authorship of any of the provisions of this Agreement.
8O. Indemnification.
---------------
(i) General. In consideration of the Purchaser's execution and
-------
delivery of this Agreement and acquiring the Note and the Warrant hereunder and
in addition to all of the Company's other obligations under this Agreement, the
Company shall defend, protect, indemnify and hold harmless the Purchaser and
each other holder of the Note or the Warrant and all of their officers,
directors, employees and agents (including, without limitation, those retained
in connection with the transactions contemplated by this Agreement)
(collectively, the "Indemnitees") from and against any and all actions, causes
of action, suits, claims, losses, costs, penalties, fees, liabilities and
damages, and expenses in connection therewith (irrespective of whether any such
Indemnitee is a party to the action for which indemnification hereunder is
sought), and including reasonable attorneys' fees and disbursements (the
"Indemnified Liabilities"), incurred by the Indemnitees or any of them as a
result of, or arising out of, or relating to (a) any transaction financed or to
be financed in whole or in part, directly or indirectly, with the proceeds of
the issuance of the Note and the Warrant or (b) the execution, delivery,
performance or enforcement of this Agreement and any other instrument, document
or agreement executed pursuant hereto by any of the Indemnitees. To the extent
that the foregoing undertaking by the Company may be unenforceable for any
reason, the Company shall make the maximum contribution to the payment and
satisfaction of each of the Indemnified Liabilities which is permissible under
applicable law.
(ii) Environmental Liabilities. Without limiting the generality of
-------------------------
the indemnity set out in paragraph 7P(i) above, the Company shall defend,
protect, indemnify and hold harmless the Purchaser and all other Indemnitees
from and against any and all actions, causes of action, suits, losses,
liabilities, damages, injuries, penalties, fees, costs, expenses and claims of
any and every kind
-35-
<PAGE>
whatsoever paid, incurred or suffered by, or asserted against, the Purchaser or
any other Indemnitee for, with respect to, or as a direct or indirect result of,
the past, present or future environmental condition of any property owned,
operated or used by the Company, any Subsidiary, their predecessors or
successors or of any offsite treatment, storage or disposal location associated
therewith, including, without limitation, the presence on or under, or the
escape, seepage, leakage, spillage, discharge, emission, release, or threatened
release into, onto or from, any such property or location of any toxic, chemical
or hazardous substance, material or waste (including, without limitation, any
losses, liabilities, damages, injuries, penalties, fees, costs, expenses or
claims asserted or arising under the Comprehensive Environmental Response,
Compensation and Liability Act, any so-called "Superfund" or "Superlien" law, or
any other federal, state, local or foreign statute, law, ordinance, code, rule,
regulation, order or decree regulating, relating to or imposing liability or
standards on conduct concerning, any toxic, chemical or hazardous substance,
material or waste), regardless of whether caused by, or within the control of,
the Company or any Subsidiary.
(iii) Purchaser's Indemnification. The Purchaser shall indemnify and
---------------------------
hold the Company harmless against and from any and all claims, suits, actions,
damages, costs, judgements or other expenses sustained or incurred by the
Company as a result of a breach by the Purchaser of representations and
warranties made by the Purchaser in connection with the transactions
contemplated by this Agreement.
8P. Payment Set Aside. To the extent that the Company makes a
-----------------
payment or payments to the Purchaser hereunder or under the Note or the
Purchaser enforces its rights or exercises its right of setoff hereunder or
thereunder, and such payment or payments or the proceeds of such enforcement or
setoff or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside, recovered from, disgorged by or are
required to be refunded, repaid or otherwise restored to the Company, a trustee,
receiver or any other Person under any law (including, without limitation, any
bankruptcy law, state or federal law, common law or equitable cause of action),
then to the extent of any such restoration the obligation or part thereof
originally intended to be satisfied shall be revived and continued in full force
and effect as if such payment had not been made or such enforcement or setoff
had not occurred.
* * * *
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date first written above.
ZYTEC CORPORATION
By _____________________________________________
Its ____________________________________________
BMO NESBITT BURNS CAPITAL (U.S.), INC.
By _____________________________________________
Its ____________________________________________
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<PAGE>
LIST OF EXHIBITS
----------------
Exhibit A - Form of Note
Exhibit B - Form of Warrant
Exhibit C - Form of Registration Agreement
Exhibit D - Form of Opinion of Counsel
-38-
<PAGE>
LIST OF DISCLOSURE SCHEDULES
----------------------------
Capitalization Schedule
Subsidiary Schedule
Restrictions Schedule
Financial Statements Schedule
Liabilities Schedule
Developments Schedule
Assets Schedule
Taxes Schedule
Contracts Schedule
Intellectual Property Schedule
Litigation Schedule
Brokerage Schedule
Employees Schedule
Employee Benefits Schedule
Compliance Schedule
Environmental Schedule
Affiliated Transactions Schedule
-39-
<PAGE>
EXHIBIT C
The security represented by this instrument was originally issued on
December 23, 1996, and has not been registered under the Securities Act of
1933, as amended. The transfer of such security is subject to the
conditions specified in the Note and Warrant Purchase Agreement, dated as
of December 23, 1996, as amended and modified from time to time, between
the issuer (the "Company") and BMO Nesbitt Burns Capital (U.S.), Inc., and
the Company reserves the right to refuse the transfer of such security
until such conditions have been fulfilled with respect to such transfer.
Upon written request, a copy of such conditions shall be furnished by the
Company to the holder hereof without charge.
This instrument is subject to the terms of a Subordination and
Intercreditor Agreement dated as of December 23, 1996, in favor of Harris
Trust and Savings Bank, as agent, which agreement (as amended in accordance
with its terms) is incorporated herein by reference. Notwithstanding any
statement to the contrary contained in this instrument, no payment on
account of the obligations hereunder, whether of principal, interest or
otherwise, shall be made, paid, received or accepted except in accordance
with the express terms of the Subordination and Intercreditor Agreement.
ZYTEC CORPORATION
CONVERTIBLE SUBORDINATED
PROMISSORY NOTE
-------------------
December 23, 1996 $12,000,000
Zytec Corporation, a Minnesota corporation (the "Company"), hereby
promises to pay to the order of BMO Nesbitt Burns Capital (U.S.), Inc., a
Delaware corporation (the "Purchaser") the principal amount of $12,000,000
together with interest thereon calculated from the date hereof in accordance
with the provisions of this Note.
This Note was issued pursuant to a Note and Warrant Purchase
Agreement, dated as of December 23, 1996 (as amended and modified from time to
time, the "Purchase Agreement"), between the Company and the Purchaser, and this
Note is the "Note" referred to in the Purchase Agreement. The Purchase Agreement
contains terms governing the rights of the holder of this Note, and all
provisions of the Purchase Agreement are hereby incorporated herein in full by
reference. Except as defined in paragraph 8 hereof or unless otherwise indicated
herein, capitalized terms used in this Note have the same meanings set forth in
the Purchase Agreement.
<PAGE>
1. Payment of Interest. Except as otherwise expressly provided in
-------------------
paragraph 3(b) hereof, interest shall accrue at the rate of seven and one-half
percent (7 1/2%) per annum (computed on the basis of a 360-day year and the
actual number of days elapsed in any year) on the unpaid principal amount of
this Note outstanding from time to time, or (if less) at the highest rate then
permitted under applicable law. The Company shall pay to the holder of this
Note all accrued interest on the last day of each December, March, June and
September, beginning March 31, 1997. Unless prohibited under applicable law,
any accrued interest which is not paid on the date on which it is due and
payable shall bear interest at the same rate at which interest is then accruing
on the principal amount of this Note until such interest is paid. Any accrued
interest which for any reason has not theretofore been paid shall be paid in
full on the date on which the final principal payment on this Note is made.
Interest shall accrue on any principal payment due under this Note and, to the
extent permitted by applicable law, on any interest which has not been paid on
the date on which it is due and payable until such time as payment therefor is
actually delivered to the holder of this Note.
2. Payment of Principal.
--------------------
(a) Scheduled Repayment. The Company shall repay the principal
-------------------
amount of $12,000,000 (or such lesser principal amount then outstanding) to the
holder of this Note on December 23, 2001 (the "Scheduled Repayment Date"),
together with all accrued and unpaid interest on the Note.
(b) Optional Repayments.
-------------------
(i) Subject to subparagraphs (b)(ii) and (iii) below, the Company
may, at any time and from time to time repay all or any portion (in whole number
multiples of $1,000,000 only) of the outstanding principal amount of the Note;
provided that (A) such repayment is not prohibited by the provisions of the
Subordination Agreement and (B) the Company has paid all interest on the Note
accrued through the immediately preceding scheduled interest payment date. In
connection with each repayment of principal hereunder, the Company shall also
pay all accrued and unpaid interest on the principal amount of the Notes being
repaid.
(ii) The Company shall send written notice of its election to make a
repayment on the Note to the holder of the Note by registered or certified mail,
return receipt requested, at least 30 days prior to the date of repayment. At
least ten days prior to the date of repayment, the Company shall deliver to the
holder of the Note in person or by registered or certified mail, return receipt
requested, a cashier's or certified check for the full amount which the Company
intends to repay on the Note plus interest accrued on the outstanding principal
amount of the Note through the date of repayment specified in the Company's
notice. Any repayment of the Note shall not be deemed to have been effected
until ten days after the holder of the Note has received a check from the
Company in the amount of such repayment. If the holder of the Note elects to
convert all or a portion of the principal amount of the Note rather than receive
such repayment, the holder shall deliver to the Company in person or by
registered or certified mail, return receipt requested, the Note on or prior to
the date of repayment together with the check received from the Company, if any,
and such conversion shall be effected in accordance with the terms of paragraph
4 hereof.
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<PAGE>
(iii) In the event the Company exercises its right to repay any
portion of this Note in accordance with subparagraph (b)(i) above prior to the
consummation of a Qualified Offering, the Company shall be obligated to pay the
holder of the Note a prepayment premium of 2% per annum of the principal amount
being repaid by the Company from the date of repayment through the Scheduled
Repayment Date.
(c) Mandatory Repayment.
-------------------
(i) If a Change in Ownership has occurred or the Company obtains
knowledge that a Change in Ownership is to occur, the Company shall give prompt
written notice of such Change in Ownership describing in reasonable detail the
definitive terms and date of consummation thereof to the holder of this Note,
but in any event such notice shall not be given later than five days after the
occurrence of such Change in Ownership. The holder of this Note may require the
Company to repay all or any portion of the outstanding principal amount of this
Note, together with (i) all accrued and unpaid interest on the Note and (ii) the
Conversion Fair Value thereof by giving written notice to the Company of such
election prior to the later of (a) 21 days after receipt of the Company's notice
and (b) five days prior to the consummation of the Change in Ownership (the
"Expiration Date"). Upon receipt of such election, the Company shall be
obligated to repay the portion of the Note specified therein on the later of (a)
the occurrence of the Change in Ownership or (b) five days after the Company's
receipt of such election(s). If in any case a proposed Change in Ownership does
not occur or if the holder of this Note elects to rescind a request for
repayment within five days after receipt of notice of the Conversion Fair Value,
all requests for repayment in connection therewith shall be automatically
rescinded. The term "Change in Ownership" means any sale or issuance or series
-------------------
of sales and/or issuances of Common Stock by the Corporation or any holders
thereof which results in any Person or group of affiliated Persons (other than
Ronald D. Schmidt, Lawrence J. Matthews and John M. Steel) owning more than 50%
of the Common Stock outstanding at the time of such sale or issuance or series
of sales and/or issuances.
(ii) If a Fundamental Change is proposed to occur, the Company shall
give written notice of such Fundamental Change describing in reasonable detail
the definitive terms and date of consummation thereof to the not more than 45
days nor less than 20 days prior to the consummation thereof. The holder of this
Note may require the Company to repay all or any portion of this Note, together
with (i) all accrued and unpaid interest on the Note and (ii) the Conversion
Fair Value thereof by giving written notice to the Corporation of such election
prior to the later of (a) ten days prior to the consummation of the Fundamental
Change or (b) ten days after receipt of notice from the Company. Upon receipt of
such election, the Company shall be obligated to repay the principal amount of
the Note specified therein upon the consummation of such Fundamental Change. If
any proposed Fundamental Change does not occur or if the holder of this Note
elects to rescind the request for repayment within five days after receipt of
notice of the Conversion Fair Value, all requests for repayment in connection
therewith shall be automatically rescinded. The term "Fundamental Change"
----------- ------
means (a) a sale or transfer of more than 30% of the assets of the Company and
its Subsidiaries on a consolidated basis (measured by either book value in
accordance with generally accepted accounting principles consistently applied or
fair market value determined in the reasonable good faith judgment of the
Company's board of directors) in any transaction or series of transactions
(other than sales in the ordinary course of business), (b) any merger or
consolidation to which the Company is a party, except for a merger in which the
Company is the surviving corporation and, after giving effect to such
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<PAGE>
merger, no Person or group of affiliated Persons (other than Ronald D. Schmidt,
Lawrence J. Matthews and John M. Steel) shall own more than 50% of the Common
Stock outstanding at the time of such merger and (c) any transaction or
occurrence a result of which the Common Stock is no longer (A) registered
pursuant to the Securities Act of 1934 or (B) quoted in the NASDAQ System.
(iii) Repayments made pursuant to this subparagraph (c) shall not
relieve the Company of its obligation to repay any remaining outstanding
principal amount on the Scheduled Repayment Date.
(iv) For purposes of this subparagraph (c), "Conversion Fair Value"
---------------------
means the fair value of the conversion rights under this Note (or a portion
thereof) determined jointly by the Company and the holder of this Note. If such
parties are unable to reach agreement within a reasonable period of time, such
fair value shall be determined by an appraiser jointly selected by the Company
and the holder of this Note. The determination of such appraiser shall be final
and binding upon the parties, and the fees and expenses of such appraiser shall
be borne by the Company.
(d) Offset. Prior to any prepayment on this Note, the holder of this
------
Note shall have the right (exercisable by notifying the Company at least five
days prior to the payment date) to reduce the principal amount to be paid by the
Company at such time by an amount not exceeding the principal amount of this
Note which has previously been converted by such holder into shares of
Conversion Stock and which has not previously been applied to any such
reduction, except that this right may not be exercised by such holder in
connection with a prepayment by the Company of all the principal amount of this
Note.
(e) Conversion. Notwithstanding any provision contained in this
----------
paragraph 2, the holder of this Note may convert all or any portion of the
outstanding principal amount of this Note until such time as such amount has
been deemed to have been paid.
3. Events of Default.
-----------------
(a) Definition. For purposes of this Note, an Event of Default shall
----------
be deemed to have occurred if
(i) the Company fails to pay when due and payable (whether at
maturity or otherwise) the full amount of interest then accrued on this Note or
the full amount of the scheduled principal payment on this Note, and in the
event of unpaid interest such failure to pay is not cured within five days after
the occurrence thereof;
(ii) the Company fails to perform or observe any other
provision contained in this Note or in the Purchase Agreement, and such failure
is not cured within 15 days after written notice from the Purchaser to the
Company of the occurrence thereof;
(iii) any representation, warranty or information contained in
the Purchase Agreement or required to be furnished to the holder of this Note
pursuant to the Purchase Agreement, or any
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<PAGE>
writing required to be furnished by the Company to the holder of this Note, is
false or misleading in any material respect on the date made or furnished;
(iv) the Company or any Subsidiary makes an assignment for the
benefit of creditors or admits in writing its inability to pay its debts
generally as they become due; or an order, judgment or decree is entered
adjudicating the Company or any Subsidiary bankrupt or insolvent; or any order
for relief with respect to the Company or any Subsidiary is entered under the
Federal Bankruptcy Code; or the Company or any Subsidiary petitions or applies
to any tribunal for the appointment of a custodian, trustee, receiver or
liquidator of the Company or any Subsidiary, or of any substantial part of the
assets of the Company or any Subsidiary, or commences any proceeding (other than
a proceeding for the voluntary liquidation and dissolution of any Subsidiary)
relating to the Company or any Subsidiary under any bankruptcy reorganization,
arrangement, insolvency, readjustment of debt, dissolution or liquidation law of
any jurisdiction; or any such petition or application is filed, or any such
proceeding is commenced, against the Company or any Subsidiary and either (A)
the Company or any such Subsidiary by any act indicates its approval thereof,
consent thereto or acquiescence therein or (B) such petition, application or
proceeding is not dismissed within 60 days;
(v) a judgment in excess of $2,000,000 is rendered against the
Company or any Subsidiary and, within 60 days after entry thereof, such judgment
is not discharged in full or execution thereof stayed pending appeal, or within
60 days after the expiration of any such stay, such judgment is not discharged
in full; or
(vi) the Company or any Subsidiary defaults in the performance
of any obligation if the effect of such default is to cause an amount exceeding
$2,000,000 to become due prior to its stated maturity or to permit the holder or
holders of such obligation to cause an amount exceeding $2,000,000 to become due
prior to its stated maturity.
The foregoing shall constitute Events of Default whatever the reason
or cause for any such Event of Default and whether it is voluntary or
involuntary or is effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body.
(b) Consequences of Events of Default.
---------------------------------
(i) If any Event of Default has occurred and is continuing,
the interest rate on the Note shall increase immediately by an increment of one
percentage point to the extent permitted by law. Thereafter, until such time as
no Events of Default exist, the interest rate shall increase automatically at
the end of each succeeding 60-day period by an additional increment of one
percentage point to the extent permitted by law (but in no event shall the
interest rate exceed 11 1/2%). Any increase of the interest rate resulting from
the operation of this subparagraph shall terminate as of the close of business
on the date on which no Events of Default exist (subject to subsequent increases
pursuant to this subparagraph).
-5-
<PAGE>
(ii) If an Event of Default of the type described in
subparagraph 3(a)(iv) has occurred, the aggregate principal amount of this Note
(together with all accrued interest thereon and all other amounts due and
payable with respect thereto) shall become immediately due and payable without
any action on the part of the holder of this Note, and the Company shall
immediately pay to the holder of this Note all amounts due and payable with
respect to this Note.
(iii) If any Event of Default (other than under subparagraph
3(a)(iv)) has occurred and is continuing, the holder of this Note may declare
all or any portion of the outstanding principal amount of this Note (together
with all accrued interest thereon and all other amounts due and payable with
respect thereto) to be immediately due and payable. If any holder of this Note
demands immediate payment of all or any portion of this Note, the Company shall
immediately pay to such holder all amounts due and payable with respect to this
Note.
(iv) The holder of this Note shall also have any other rights
which such holder may have been afforded under any contract or agreement at any
time and any other rights which such holder may have pursuant to applicable law.
(v) The Company hereby waives diligence, presentment, protest
and demand and notice of protest and demand, dishonor and nonpayment of this
Note, and expressly agrees that this Note, or any payment hereunder, may be
extended from time to time and that the holder hereof may accept security for
this Note or release security for this Note, all without in any way affecting
the liability of the Company hereunder.
4. Conversion.
----------
(a) Conversion Procedure.
--------------------
(i) Upon the occurrence (or the expected occurrence as
described in (iii) below) of any Conversion Event, the holder of this Note shall
be entitled to convert all or any portion of the outstanding principal amount of
this Note into a number of shares of Conversion Stock computed by dividing the
principal amount designated by such holder to be converted by the Conversion
Price then in effect; provided that all of such shares of Conversion Stock are
(or are expected to be) distributed, disposed of, sold or canceled in connection
with such Conversion Event.
(ii) For purposes of this paragraph 4A, a "Conversion Event"
shall mean (a) any public offering or public sale of securities of the Company
(including a public offering registered under the Securities Act of 1933 and a
public sale pursuant to Rule 144 of the Securities and Exchange Commission or
any similar rule then in force), (b) any sale or transfer of securities of the
Company to a Person or group of Persons (within the meaning of the Securities
Exchange Act of 1934, as amended (the "1934 Act")) if, after such sale or
transfer, such Person or group of Persons in the aggregate would own or control
securities of the Company which possess in the aggregate the ordinary voting
power to elect a majority of the Company's directors (provided that such sale
has been approved by the Company's Board of Directors or a committee thereof),
(c) any sale or transfer of securities of the Company to a Person or group of
Persons
-6-
<PAGE>
(within the meaning of the 1934 Act) if, after such sale or transfer, such
Person or group of Persons in the aggregate would own or control securities of
the Company (excluding any Conversion Stock being disposed of in connection with
such Conversion Event) which possess in the aggregate the ordinary voting power
to elect a majority of the Company's directors, (d) any sale or transfer of
securities of the Company to a Person or group of Persons (within the meaning of
the 1934 Act) if, after such sale or transfer, such Person or group of Persons
would not, in the aggregate, own, control or have the right to acquire more than
two percent (2%) of the outstanding securities of any class of voting securities
of the Company, (e) a merger, consolidation or similar transaction involving the
Company if, after such transaction, a Person or group of Persons (within the
meaning of the 1934 Act) in the aggregate would own or control securities which
possess in the aggregate the ordinary voting power to elect a majority of the
surviving corporation's directors (provided that the transaction has been
approved by the Company's Board of Directors or a committee thereof) and (f) any
liquidation, dissolution or winding up of the Company.
(iii) The holder of this Note shall be entitled to convert all
or any portion of the outstanding principal amount of this Note in connection
with any Conversion Event if such holder reasonably believes that such
Conversion Event shall be consummated, and a written request for conversion from
the holder of this Note to the Company stating such holder's reasonable belief
that a Conversion Event shall occur shall be conclusive and shall require the
Company to effect such conversion in a timely manner so as to enable each such
holder to participate in such Conversion Event. If any portion of the
outstanding principal amount of this Note is converted into shares of Conversion
Stock in connection with a Conversion Event and such shares of Conversion Stock
are not actually distributed, disposed of, sold or canceled pursuant to such
Conversion Event, such shares of Conversion Stock shall be promptly converted
back into the principal amount of this Note so converted.
(iv) Except as otherwise expressly provided herein, each
conversion of this Note shall be deemed to have been effected as of the close of
business on the date on which this Note has been surrendered for conversion at
the principal office of the Company. At such time as such conversion has been
effected, the rights of the holder of this Note as such holder to the extent of
the conversion shall cease, and the Person or Persons in whose name or names any
certificate or certificates for shares of Conversion Stock are to be issued upon
such conversion shall be deemed to have become the holder or holders of record
of the shares of Conversion Stock represented thereby.
(v) As soon as possible after a conversion has been effected
(but in any event within five business days in the case of clause (A) below),
the Company shall deliver to the converting holder:
(A) a certificate or certificates representing the number of
shares of Conversion Stock (excluding any fractional share) issuable by
reason of such conversion in such name or names and such denomination or
denominations as the converting holder has specified;
(B) payment in an amount equal to the sum of all accrued
interest with respect to the principal amount converted, which has not been
paid prior thereto, plus the amount payable under subparagraph (vi) below;
and
-7-
<PAGE>
(C) a new Note representing any portion of the principal
amount which was represented by the Note surrendered to the Company in
connection with such conversion but which was not converted;
provided that, if the shares of Conversion Stock so issued are converted
back into principal of this Note pursuant to (iii) above, the converting
holder shall return all certificates, payments and Notes delivered pursuant
to (A), (B) and (C) above to the Company, and the Company shall promptly
deliver to the converting holder the Note surrendered for conversion.
(vi) If any fractional share of Conversion Stock would, except
for the provisions hereof, be deliverable upon conversion of this Note, the
Company, in lieu of delivering such fractional share, shall pay an amount equal
to the Market Price of such fractional share as of the date of such conversion.
(vii) The issuance of certificates for shares of Conversion
Stock upon conversion of this Note shall be made without charge to the holder
hereof for any issuance tax in respect thereof or other cost incurred by the
Company in connection with such conversion and the related issuance of shares of
Conversion Stock. Upon conversion of this Note, the Company shall take all such
actions as are necessary in order to insure that the Conversion Stock issuable
with respect to such conversion shall be validly issued, fully paid and
nonassessable.
(viii) The Company shall not close its books against the transfer
of Conversion Stock issued or issuable upon conversion of this Note in any
manner which interferes with the timely conversion of this Note. The Company
shall assist and cooperate with any holder of this Note required to make any
governmental filings or obtain any governmental approval prior to or in
connection with the conversion of this Note (including, without limitation,
making any filings required to be made by the Company).
(ix) The Company shall at all times reserve and keep available
out of its authorized but unissued shares of Conversion Stock, solely for the
purpose of issuance upon the conversion of the Note, such number of shares of
Conversion Stock issuable upon the conversion of all outstanding Notes. All
shares of Conversion Stock which are so issuable shall, when issued, be duly and
validly issued, fully paid and nonassessable and free from all taxes, liens and
charges. The Company shall take all such actions as may be necessary to assure
that all such shares of Conversion Stock may be so issued without violation of
any applicable law or governmental regulation or any requirements of any
domestic securities exchange upon which shares of Conversion Stock may be listed
(except for official notice of issuance which shall be immediately delivered by
the Company upon each such issuance).
(b) Conversion Price.
----------------
(i) The initial Conversion Price shall be $13.68. In order to
prevent dilution of the conversion rights granted under the Notes, the
Conversion Price shall be subject to adjustment from time to time pursuant to
this paragraph 4(b).
-8-
<PAGE>
(ii) If and whenever on or after the original date of issuance
of this Note the Company issues or sells, or in accordance with paragraph 4(c)
is deemed to have issued or sold, any shares of Common Stock for a consideration
per share less than the Conversion Price in effect immediately prior to such
time, then immediately upon such issue or sale the Conversion Price shall be
reduced to the Conversion Price determined by dividing (A) an amount equal to
the sum of (x) the product derived by multiplying the Conversion Price in effect
immediately prior to such issue or sale by the number of shares of Common Stock
Deemed Outstanding immediately prior to such issue or sale, plus (y) the
consideration, if any, received by the Company upon such issue on sale, by (B)
the number of shares of Common Stock Deemed Outstanding immediately after such
issue or sale.
(c) Effect on Conversion Price of Certain Events. For purposes of
--------------------------------------------
determining the adjusted Conversion Price under paragraph 4(b), the following
shall be applicable:
(i) Issuance of Rights or Options. If the Company in any
-----------------------------
manner grants or sells any Options and the price per share for which Common
Stock is issuable upon the exercise of such Options, or upon conversion or
exchange of any Convertible Securities issuable upon exercise of such Options,
is less than the Conversion Price in effect immediately prior to the time of the
granting or sale of such Options, then the total maximum number of shares of
Common Stock issuable upon the exercise of such Options, or upon conversion or
exchange of the total maximum amount of such Convertible Securities issuable
upon the exercise of such Options, shall be deemed to be outstanding and to have
been issued and sold by the Company at the time of the granting or sale of such
Option for such price per share. For purposes of this paragraph, the "price per
share for which Common Stock is issuable upon exercise of such Options or upon
conversion or exchange of such Convertible Securities" is determined by dividing
(A) the total amount, if any, received or receivable by the Company as
consideration for the granting or sale of such Options, plus the minimum
aggregate amount of additional consideration payable to the Company upon the
exercise of all such Options, plus in the case of such Options which relate to
Convertible Securities, the minimum aggregate amount of additional
consideration, if any, payable to the Company upon the issuance or sale of such
Convertible Securities and the conversion or exchange thereof, by (B) the total
maximum number of shares of Common Stock issuable upon the exercise of such
Options or upon the conversion or exchange of all such Convertible Securities
issuable upon the exercise of such Options. No adjustment of the Conversion
Price shall be made upon the actual issuance of such Common Stock or of such
Convertible Securities upon the exercise of such Options or upon the actual
issuance of such Common Stock upon conversion or exchange of such Convertible
Securities. Notwithstanding the foregoing, no adjustment of the Conversion Price
shall be made pursuant to paragraph 4(b) as a result of (w) the granting of
stock options under qualified stock options plans approved by the Board of
Directors of the Company, at exercise prices not less than the fair market value
of the Common Stock at the date of grant, (x) the actual issuance of Common
Stock upon the exercise of such stock options, (y) the issuance of Common Stock
pursuant to the Company's Employee Stock Purchase Plan or (z) the issuance of
Common Stock to non-employee directors pursuant to the Company's director stock
grant program.
(ii) Issuance of Convertible Securities. If the Company in any
----------------------------------
manner issues or sells any Convertible Securities and the price per share for
which Common Stock is issuable upon conversion or exchange thereof is less than
the Conversion Price in effect immediately prior to the time of
-9-
<PAGE>
such issue or sale, then the maximum number of shares of Common Stock issuable
upon conversion or exchange of all such Convertible Securities shall be deemed
to be outstanding and to have been issued and sold by the Company at the time of
the issuance or sale of such Convertible Securities for such price per share.
For the purposes of this paragraph, the "price per share for which Common Stock
is issuable upon conversion or exchange thereof" is determined by dividing (A)
the total amount received or receivable by the Company as consideration for the
issue or sale of such Convertible Securities, plus the minimum aggregate amount
of additional consideration, if any, payable to the Company upon the conversion
or exchange thereof, by (B) the total maximum number of shares of Common Stock
issuable upon the conversion or exchange of all such Convertible Securities. No
adjustment of the Conversion Price shall be made upon the actual issue of such
Common Stock upon conversion or exchange of such Convertible Securities, and if
any such issue or sale of such Convertible Securities is made upon exercise of
any Options for which adjustments of the Conversion Price had been or are to be
made pursuant to other provisions of this paragraph 4(c), no further adjustment
of the Conversion Price shall be made by reason of such issue or sale.
(iii) Change in Option Price or Conversion Rate. If the
-----------------------------------------
purchase price provided for in any Option, the additional consideration (if any)
payable upon the issue, conversion or exchange of any Convertible Security, or
the rate at which any Convertible Security is convertible into or exchangeable
for Common Stock changes at any time, the Conversion Price in effect at the time
of such change shall be adjusted immediately to the Conversion Price which would
have been in effect at such time had such Option or Convertible Security
originally provided for such changed purchase price, additional consideration or
changed conversion rate, as the case may be, at the time initially granted,
issued or sold. For purposes of this paragraph 4(c), if the terms of any Option
or Convertible Security which was outstanding as of the date of issuance of this
Note are changed in the manner described in the immediately preceding sentence,
then such Option or Convertible Security and the Common Stock deemed issuable
upon exercise, conversion or exchange thereof shall be deemed to have been
issued as of the date of such change; provided that no such change shall at any
time cause the Conversion Price hereunder to be increased.
(iv) Treatment of Expired Options and Unexercised Convertible
--------------------------------------------------------
Securities. Upon the expiration of any Option or the termination of any right to
- ----------
convert or exchange any Convertible Securities without the exercise of such
Option or right, the Conversion Price then in effect hereunder shall be adjusted
immediately to the Conversion Price which would have been in effect at the time
of such expiration or termination had such Option or Convertible Securities, to
the extent outstanding immediately prior to such expiration or termination,
never been issued. For purposes of this paragraph 4(c), the expiration or
termination of any Option or Convertible Security which was outstanding as of
the date of issuance of this Note shall not cause the Conversion Price hereunder
to be adjusted unless, and only to the extent that, a change in the terms of
such Option or Convertible Security caused it to be deemed to have been issued
after the date of issuance of this Note.
(v) Calculation of Consideration Received. If any Common
-------------------------------------
Stock, Options or Convertible Securities are issued or sold or deemed to have
been issued or sold for cash, the consideration received therefor shall be
deemed to be the net amount received by the Company therefor. In case any Common
Stock, Options or Convertible Securities are issued or sold for a consideration
other than cash, the
-10-
<PAGE>
amount of the consideration other than cash received by the Company shall be the
fair value of such consideration, except where such consideration consists of
securities, in which case the amount of consideration received by the Company
shall be the Market Price thereof as of the date of receipt. In case any Common
Stock, Options or Convertible Securities are issued to the owners of the non-
surviving entity in connection with any merger in which the Company is the
surviving entity, the amount of consideration therefor shall be deemed to be the
fair value of such portion of the net assets and business of the non-surviving
entity as is attributable to such Common Stock, Options or Convertible
Securities, as the case may be. The fair value of any consideration other than
cash and securities shall be determined jointly by the Company and the holders
of a majority of the outstanding principal amount of the Notes. If such parties
are unable to reach agreement within a reasonable period of time, such fair
value shall be determined by an appraiser jointly selected by the Company and
the holders of a majority of the outstanding principal amount of the Notes. The
determination of such appraiser shall be final and binding upon the parties, and
the fees and expenses of such appraiser shall be borne by the Company.
(vi) Integrated Transactions. In case any Option is issued in
-----------------------
connection with the issue or sale of other securities of the Company, together
comprising one integrated transaction in which no specific consideration is
allocated to such Options by the parties thereto, the Options shall be deemed to
have been issued without consideration.
(vii) Treasury Shares. The number of shares of Common Stock
---------------
outstanding at any given time does not include shares owned or held by or for
the account of the Company or any Subsidiary, and the disposition of any shares
so owned or held shall be considered an issue or sale of Common Stock.
(viii) Record Date. If the Company takes a record of the holders
-----------
of Common Stock for the purpose of entitling them (A) to receive a dividend or
other distribution payable in Common Stock, Options or in Convertible Securities
or (B) to subscribe for or purchase Common Stock, Options or Convertible
Securities, then such record date shall be deemed to be the date of the issue or
sale of the shares of Common Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other distribution or the
date of the granting of such right of subscription or purchase, as the case may
be.
(d) Subdivision or Combination of Common Stock. If the Company at
------------------------------------------
any time subdivides (by any stock split, stock dividend or otherwise) one or
more classes of its outstanding shares of Common Stock into a greater number of
shares, the Conversion Price in effect immediately prior to such subdivision
shall be proportionately reduced, and if the Company at any time combines (by
reverse stock split or otherwise) one or more classes of its outstanding shares
of Common Stock into a smaller number of shares, the Conversion Price in effect
immediately prior to such combination shall be proportionately increased.
(e) Reorganization, Reclassification, Consolidation, Merger or Sale.
---------------------------------------------------------------
Any recapitalization, reorganization, reclassification, consolidation, merger,
sale of all or substantially all of the Company's assets or other transaction,
which in each case is effected in such a manner that holders of Common Stock are
entitled to receive (either directly or upon subsequent liquidation) stock,
securities or
-11-
<PAGE>
assets with respect to or in exchange for Common Stock is referred to herein as
an "Organic Change." Prior to the consummation of any Organic Change, the
Company shall make lawful and adequate provision (in form and substance
satisfactory to the holder of this Note) to insure that the holder of this Note
shall thereafter have the right to acquire and receive, in lieu of or addition
to (as the case may be) shares of Conversion Stock immediately theretofore
acquirable and receivable upon the conversion of such holder's Note, such shares
of stock, securities or assets as may be issued or payable with respect to or in
exchange for the number of shares of Conversion Stock immediately theretofore
acquirable and receivable upon conversion of such holder's Note had such Organic
Change not taken place. In any such case, appropriate provision (in form and
substance satisfactory to the holders of a majority of the outstanding principal
amount of this Note) shall be made with respect to such holder's rights and
interests to insure that the provisions of this paragraph 4 and paragraphs 5 and
6 shall thereafter be applicable in relation to any shares of stock, securities
or assets thereafter deliverable upon the conversion of this Note. The Company
shall not effect any such consolidation, merger or sale, unless prior to the
consummation thereof, the successor entity (if other than the Company) resulting
from consolidation or merger or the entity purchasing such assets assumes by
written instrument (in form reasonably satisfactory to the holders of a majority
of the outstanding principal amount of this Note), the obligation to deliver to
each such holder such shares of stock, securities or assets as, in accordance
with the foregoing provisions, such holder may be entitled to acquire.
(f) Certain Events. If any event occurs of the type contemplated by
--------------
the provisions of this paragraph 4 but not expressly provided for by such
provisions (including, without limitation, the granting of stock appreciation
rights, phantom stock rights or other rights with equity features), then the
Company's board of directors shall make an appropriate adjustment in the
Conversion Price so as to protect the rights of the holder of this Note;
provided that no such adjustment shall increase the Conversion Price as
otherwise determined pursuant to this paragraph 4 or decrease the number of
shares of Conversion Stock issuable upon conversion of the Note.
(g) Notices.
-------
(i) Immediately upon any adjustment of the Conversion Price,
the Company shall send written notice thereof to the holder of this Note,
setting forth in reasonable detail and certifying the calculation of such
adjustment.
(ii) The Company shall send written notice to the holder of
this Note at least 20 days prior to the date on which the Company closes its
books or takes a record (A) with respect to any dividend or distribution upon
the Common Stock, (B) with respect to any pro rata subscription offer to holders
of Common Stock or (C) for determining rights to vote with respect to any
Organic Change, dissolution or liquidation.
(iii) The Company shall also give at least 20 days prior written
notice of the date on which any Organic Change, dissolution or liquidation shall
take place.
5. Liquidating Dividends. If the Company declares a dividend upon
---------------------
the Common Stock payable otherwise than in cash out of earnings or earned
surplus (determined in accordance with generally
-12-
<PAGE>
accepted accounting principles, consistently applied) except for a stock
dividend payable in shares of Common Stock (a "Liquidating Dividend"), then the
Company shall pay to the holder of this Note at the time of payment thereof the
Liquidating Dividend which would have been paid to the holder of this Note on
the Conversion Stock had this Note been fully converted immediately prior to the
date on which a record is taken for such Liquidating Dividend, or, if no record
is taken, the date as of which the record holders of Common Stock entitled to
such dividends are to be determined; provided that if the Liquidating Dividends
consist of voting securities, the Company shall make available to the holder of
this Note, at such holder's request, Liquidating Dividends consisting of non-
voting securities which are otherwise identical to the Liquidating Dividends
consisting of voting securities and which non-voting securities are convertible
into such voting securities on a share-for-share basis.
6. Purchase Rights. If at any time the Company grants, issues or
---------------
sells any Options, Convertible Securities or rights to purchase stock, warrants,
securities or other property pro rata to the record holders of any class of
Common Stock (the "Purchase Rights"), then the holder of this Note shall be
entitled to acquire, upon the terms applicable to such Purchase Rights, the
aggregate Purchase Rights which such holder could have acquired if such holder
had held the number of shares of Conversion Stock acquirable upon conversion of
such holder's Note immediately before the date on which a record is taken for
the grant, issuance or sale of such Purchase Rights, or, if no such record is
taken, the date as of which the record holders of Common Stock are to be
determined for the grant, issue or sale of such Purchase Rights; provided that
if the Purchase Rights involve voting securities, the Company shall make
available to the holder of this Note, at such holder's request, Purchase Rights
involving non-voting securities which are otherwise identical to the Purchase
Rights involving voting securities and which non-voting securities are
convertible into such voting securities on a share-for-share basis.
7. Amendment and Waiver. Except as otherwise expressly provided
--------------------
herein, the provisions of this Note may be amended and the Company may take any
action herein prohibited, or omit to perform any act herein required to be
performed by it, only if the Company has obtained the written consent of the
holders of a majority of the outstanding principal amount of this Note.
8. Definitions. For purposes of this Note, the following
-----------
capitalized terms have the following meaning.
"Common Stock" means any class of the Company's Common Stock and any
------------
capital stock of any class of the Company hereafter authorized which is not
limited to a fixed sum or percentage of par or stated value in respect to the
rights of the holders thereof to participate in dividends or in the distribution
of assets upon any liquidation, dissolution or winding up of the Company.
"Common Stock Deemed Outstanding" means, at any given time, the number
-------------------------------
of shares of Common Stock actually outstanding at such time, plus the number of
shares of Common Stock deemed to be outstanding pursuant to paragraphs 4(c)(i)
and 4(c)(ii) hereof, regardless of whether or not the Options and Convertible
Securities are actually exercisable at such time, but excluding any shares of
Common Stock issuable upon conversion of the Notes.
-13-
<PAGE>
"Convertible Securities" means any stock or securities (directly or
----------------------
indirectly) convertible into or exchangeable for Common Stock.
"Conversion Stock" means shares of the Company's authorized but
----------------
unissued Common Stock; provided that if there is a change such that the
securities issuable upon conversion of the Note are issued by an entity other
than the Company or there is a change in the class of securities so issuable,
then the term "Conversion Stock" shall mean one share of the security issuable
upon conversion of this Note if such security is issuable in shares, or shall
mean the smallest unit in which such security is issuable if such security is
not issuable in shares.
"Market Price" of any security means the average of the closing prices
------------
of such security's sales on all domestic securities exchanges on which such
security may at the time be listed, or, if there has been no sales on any such
exchange on any day, the average of the highest bid and lowest asked prices on
all such exchanges at the end of such day, or, if on any day such security is
not so listed, the average of the representative bid and asked prices quoted in
the NASDAQ System as of 4:00 P.M., New York time, or, if on any day such
security is not quoted in the NASDAQ System, the average of the highest bid and
lowest asked prices on such day in the domestic over-the-counter market as
reported by the National Quotation Bureau, Incorporated, or any similar
successor organization, in each such case averaged over a period of 21 days
consisting of the day as of which "Market Price" is being determined and the 20
consecutive business days prior to such day. If at any time such security is
not listed on any securities exchange or quoted in the NASDAQ System or the
over-the-counter market, the "Market Price" shall be the fair value thereof
determined jointly by the Company and the holder of this Note. If such parties
are unable to reach agreement within a reasonable period of time, such fair
value shall be determined by an appraiser jointly selected by the Company and
the holder of this Note. The determination of such appraiser shall be final and
binding upon the parties, and the fees and expenses of such appraiser shall be
borne by the Company.
"Options" means any rights or options to subscribe for or purchase
-------
Common Stock or Convertible Securities.
"Person" means an individual, a partnership, a corporation, a limited
------
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
"Subordination Agreement" means the Subordination and Intercreditor
-----------------------
Agreement dated as of the date hereof, between the Company, Harris Trust and
Savings Bank and the Purchaser.
"Subsidiary" means, with respect to any Person, any corporation,
----------
limited liability company, partnership, association or other business entity of
which (i) if a corporation, a majority of the total voting power of shares of
stock entitled (without regard to the occurrence of any contingency) to vote in
the election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by that Person or one or more of the other
Subsidiaries of that Person or a combination thereof, or (ii) if a limited
liability company, partnership, association or other business entity, a majority
of the partnership or other similar ownership interest thereof is at the time
owned or controlled, directly or indirectly, by any Person
-14-
<PAGE>
or one or more Subsidiaries of that Person or a combination thereof. For
purposes hereof, a Person or Persons shall be deemed to have a majority
ownership interest in a limited liability company, partnership, association or
other business entity if such Person or Persons shall be allocated a majority of
limited liability company, partnership, association or other business entity
gains or losses or shall be or control any managing director or general partner
of such limited liability company, partnership, association or other business
entity.
9. Cancellation. After all principal and accrued interest at any
------------
time owed on this Note has been paid in full, this Note shall be surrendered to
the Company for cancellation and shall not be reissued.
10. Payments. All payments to be made to the holder of this Note
--------
shall be made in the lawful money of the United States of America in immediately
available funds.
11. Place of Payment. Payments of principal and interest shall be
----------------
delivered to BMO Nesbitt Capital (U.S.), Inc. at the following address:
BMO Nesbitt Burns Equity Partners, Inc.
111 West Monroe
20th Floor East
Chicago, Illinois 60603
Attention: Managing Director
or to such other address or to the attention of such other person as specified
by prior written notice to the Company.
12. Business Days. If any payment is due, or any time period for
-------------
giving notice or taking action expires, on a day which is a Saturday, Sunday or
legal holiday in the State of Minnesota or the State of Illinois, the payment
shall be due and payable on, and the time period shall automatically be extended
to, the next business day immediately following such Saturday, Sunday or legal
holiday, and interest shall continue to accrue at the required rate hereunder
until any such payment is made.
13. Usury Laws. It is the intention of the Company and the holder of
----------
this Note to conform strictly to all applicable usury laws now or hereafter in
force, and any interest payable under this Note shall be subject to reduction to
the amount not in excess of the maximum legal amount allowed under the
applicable usury laws as now or hereafter construed by the courts having
jurisdiction over such matters. If the maturity of this Note is accelerated by
reason of an election by the holder hereof resulting from an Event of Default,
voluntary prepayment by the Company or otherwise, then earned interest may never
include more than the maximum amount permitted by law, computed from the date
hereof until payment, and any interest in excess of the maximum amount permitted
by law shall be canceled automatically and, if theretofore paid, shall at the
option of the holder hereof either be rebated to the Company or credited on the
principal amount of this Note, or if this Note has been paid, then the excess
shall be rebated to the Company. The aggregate of all interest (whether
designated as interest, service charges, points or otherwise) contracted for,
chargeable, or receivable under this Note shall under no circumstances exceed
the maximum legal rate upon
-15-
<PAGE>
the unpaid principal balance of this Note remaining unpaid from time to time. If
such interest does exceed the maximum legal rate, it shall be deemed a mistake
and such excess shall be canceled automatically and, if theretofore paid,
rebated to the Company or credited on the principal amount of this Note, or if
this Note has been repaid, then such excess shall be rebated to the Company.
14. Governing Law. All questions concerning the construction,
-------------
validity, enforcement and interpretation of this Note shall be governed by the
internal law of the State of Minnesota without giving effect to any choice of
law or conflict of law provision or rule (whether of the State of Minnesota or
any other jurisdictions) that would cause the application of the laws of any
jurisdiction other than the State of Minnesota.
-16-
<PAGE>
IN WITNESS WHEREOF, the Company has executed and delivered this Note
on December __, 1996.
ZYTEC CORPORATION
Attest By ________________________________
_________________________ Its _______________________________
-17-
<PAGE>
EXHIBIT D
The security represented by this certificate was originally
issued on December 23, 1996, and has not been registered
under the Securities Act of 1933, as amended. The transfer of
such security is subject to the conditions specified in the
Purchase Agreement, dated as of December 23, 1996 (as amended
and modified from time to time), between the issuer hereof
(the "Company") and the initial holder hereof, and the
Company reserves the right to refuse the transfer of such
security until such conditions have been fulfilled with
respect to such transfer. Upon written request, a copy of
such conditions shall be furnished by the Company to the
holder hereof without charge.
ZYTEC CORPORATION
STOCK PURCHASE WARRANT
----------------------
Date of Issuance: December 23, 1996 Certificate No. W-1
This Warrant is being issued simultaneously with the issuance of the
Company's 7 1/2% Convertible Subordinated Promissory Note in the principal
amount of $12,000,000 (the "Note") pursuant to the Note and Warrant Purchase
Agreement dated as of December 23, 1996 (the "Purchase Agreement"), between
Zytec Corporation, a Minnesota corporation (the "Company"), and BMO Nesbitt
Burns Capital (U.S.), Inc., a Delaware corporation (the "Purchaser").
For value received, the Company hereby grants to the Purchaser or its
registered assigns (the "Registered Holder") the right to purchase from the
Company after an Optional Repayment of any portion of the principal amount of
the Note a number of shares of the Company's Warrant Stock equal to the
aggregate number of shares of Warrant Stock into which the Repaid Notes were
convertible as of the date of the Optional Repayment thereof at a price per
share equal to $13.68 (such price as adjusted and readjusted from time to time
in accordance with Section 2 hereof, the "Exercise Price").
Certain capitalized terms used herein are defined in Section 5 hereof.
The amount and kind of securities obtainable pursuant to the rights granted
hereunder and the purchase price for such securities are subject to adjustment
pursuant to the provisions contained in this Warrant.
For income tax purposes, the value of this Warrant as of the date
hereof is $1,000.
This Warrant is subject to the following provisions:
<PAGE>
Section 1. Exercise of Warrant.
-------------------
1A. (i) Exercise Period. Upon the occurrence of an Exercise
---------------
Event, the Registered Holder may exercise, in whole or in part (but not as to a
fractional share of Warrant Stock), the purchase rights represented by this
Warrant provided that all of such shares of Warrant Stock are (or are expected
to be) distributed, disposed of, sold or canceled in connection with such
Exercise Event at any time on and after:
(1) an Optional Repayment of the portion of the Note to which such
rights relate prior to the completion by the Company of a
Qualified Offering; or
(2) an Optional Repayment of the portion of Note to which such rights
relate at a time after the completion of a Qualified Offering if
the Company has not authorized the issuance of a separate class
of non-voting common stock into which the Note would be
convertible and which would be convertible (subject to regulatory
restrictions) on a share-for-share basis into the Company's
voting common stock;
to and including the earlier of (A) the Scheduled Repayment Date or (B) the date
30 days after the holder of the Warrant has received notice that the Company has
(x) completed a Qualified Offering, if such Qualified Offering had not been
completed prior to the date of the Optional Repayment and (y) authorized the
issuance of a separate class of non-voting common stock into which the Note
would be convertible and which would be convertible (subject to regulatory
restrictions) on a share-for-share basis into the Company's voting common stock
(the "Exercise Period"). The Company shall give the Registered Holder written
notice of the expiration of the Exercise Period at least 30 days but not more
than 90 days prior to the end of the Exercise Period.
(ii) Exercise Event. For purposes of this paragraph 1A, an
--------------
Exercise Event" shall mean (a) any public offering or public sale of securities
of the Company (including a public offering registered under the Securities Act
of 1933 and a public sale pursuant to Rule 144 of the Securities and Exchange
Commission or any similar rule then in force), (b) any sale or transfer of
securities of the Company to a Person or group of Persons (within the meaning of
the Securities Exchange Act of 1934, as amended (the "1934 Act")) if, after such
sale or transfer, such Person or group of Persons in the aggregate would own or
control securities of the Company which possess in the aggregate the ordinary
voting power to elect a majority of the Company's directors (provided that such
sale has been approved by the Company's Board of Directors or a committee
thereof), (c) any sale or transfer of securities of the Company to a Person or
group of Persons (within the meaning of the 1934 Act) if, after such sale or
transfer, such Person or group of Persons in the aggregate would own or control
securities of the Company (excluding any Warrant Stock being disposed of in
connection with such Exercise Event) which possess in the aggregate the ordinary
voting power to elect a majority of the Company's directors, (d) any sale or
transfer of securities of the Company to a Person or group of Persons (within
the meaning of the 1934 Act) if, after such sale or transfer, such Person or
group of Persons would not, in the aggregate, own, control or have the
-2-
<PAGE>
right to acquire more than two percent (2%) of the outstanding securities of any
class of voting securities of the Company, (e) a merger, consolidation or
similar transaction involving the Company if, after such transaction, a Person
or group of Persons (within the meaning of the 1934 Act) in the aggregate would
own or control securities which possess in the aggregate the ordinary voting
power to elect a majority of the surviving corporation's directors (provided
that the transaction has been approved by the Company's Board of Directors or a
committee thereof) and (f) any liquidation, dissolution or winding up of the
Company.
(iii) The Registered Holder shall be entitled to exercise all or
any portion of the Warrant in connection with any Exercise Event if such holder
reasonably believes that such Exercise Event shall be consummated, and a written
request for exercise from the Registered Holder to the Company stating such
holder's reasonable belief that an Exercise Event shall occur shall be
conclusive and shall require the Company to effect such exercise in a timely
manner so as to enable such holder to participate in such Exercise Event. If
any portion of the Warrant is exercised for shares of Warrant Stock in
connection with an Exercise Event and such shares of Warrant Stock are not
actually distributed, disposed of, sold or canceled pursuant to such Exercise
Event, such shares of Warrant Stock shall be promptly converted back into the
portion of the Warrant so exercised.
1B. Exercise Procedure.
------------------
(i) This Warrant shall be deemed to have been exercised when the
Company has received all of the following items (the "Exercise Time"):
(a) a completed Exercise Agreement, as described in paragraph 1C
below, executed by the Person exercising all or part of the purchase rights
represented by this Warrant (the "Purchaser");
(b) this Warrant;
(c) if this Warrant is not registered in the name of the Purchaser,
an Assignment or Assignments in the form set forth in Exhibit II hereto
----------
evidencing the assignment of this Warrant to the Purchaser, in which case
the Registered Holder shall have complied with the provisions set forth in
Section 7 hereof; and
(d) either (1) a check payable to the Company in an amount equal to
the product of the Exercise Price multiplied by the number of shares of
Warrant Stock being purchased upon such exercise (the "Aggregate Exercise
Price") or (2) a written notice to the Company that the Purchaser is
exercising the Warrant (or a portion thereof) by authorizing the Company to
withhold from issuance a number of shares of Warrant Stock issuable upon
such exercise of the Warrant which when multiplied by the Market Price of
the Common Stock is equal to the Aggregate Exercise Price (and such
withheld shares shall no longer be issuable under this Warrant).
-3-
<PAGE>
(ii) Certificates for shares of Warrant Stock purchased upon
exercise of this Warrant shall be delivered by the Company to the Purchaser
within five business days after the date of the Exercise Time. Unless this
Warrant has expired or all of the purchase rights represented hereby have been
exercised, the Company shall prepare a new Warrant, substantially identical
hereto, representing the rights formerly represented by this Warrant which have
not expired or been exercised and shall, within such five-day period, deliver
such new Warrant to the Person designated for delivery in the Exercise
Agreement.
(iii) The Warrant Stock issuable upon the exercise of this Warrant
shall be deemed to have been issued to the Purchaser at the Exercise Time, and
the Purchaser shall be deemed for all purposes to have become the record holder
of such Warrant Stock at the Exercise Time.
(iv) The issuance of certificates for shares of Warrant Stock upon
exercise of this Warrant shall be made without charge to the Registered Holder
or the Purchaser for any issuance tax in respect thereof or other cost incurred
by the Company in connection with such exercise and the related issuance of
shares of Warrant Stock. Each share of Warrant Stock issuable upon exercise of
this Warrant shall, upon payment of the Exercise Price therefor, be fully paid
and nonassessable and free from all liens and charges with respect to the
issuance thereof.
(v) The Company shall not close its books against the transfer of
this Warrant or of any share of Warrant Stock issued or issuable upon the
exercise of this Warrant in any manner which interferes with the timely
exercise of this Warrant. The Company shall from time to time take all such
action as may be necessary to assure that the par value per share of the
unissued Warrant Stock acquirable upon exercise of this Warrant is at all times
equal to or less than the Exercise Price then in effect.
(vi) The Company shall assist and cooperate with any Registered
Holder or Purchaser required to make any governmental filings or obtain any
governmental approvals prior to or in connection with any exercise of this
Warrant (including, without limitation, making any filings required to be made
by the Company).
(vii) Notwithstanding any other provision hereof, if an exercise of
any portion of this Warrant is to be made in connection with a registered public
offering or the sale of the Company, the exercise of any portion of this Warrant
may, at the election of the holder hereof, be conditioned upon the consummation
of the public offering or sale of the Company in which case such exercise shall
not be deemed to be effective until the consummation of such transaction.
(viii) The Company shall at all times reserve and keep available out
of its authorized but unissued shares of Warrant Stock solely for the purpose of
issuance upon the exercise of the Warrants, such number of shares of Warrant
Stock issuable upon the exercise of all outstanding Warrants. All shares of
Warrant Stock which are so issuable shall, when issued, be duly and validly
issued, fully paid and nonassessable and free from all taxes, liens and charges.
The Company shall take all such actions as may be necessary to assure that all
such shares of Warrant Stock may be so issued without violation of any
applicable law or governmental regulation or any requirements of
-4-
<PAGE>
any domestic securities exchange upon which shares of Common Stock may be listed
(except for official notice of issuance which shall be immediately delivered by
the Company upon each such issuance). The Company shall not take any action
which would cause the number of authorized but unissued shares of Warrant Stock
to be less than the number of such shares required to be reserved hereunder for
issuance upon exercise of the Warrant.
1C. Exercise Agreement. Upon any exercise of this Warrant, the
------------------
Exercise Agreement shall be substantially in the form set forth in Exhibit I
---------
hereto, except that if the shares of Warrant Stock are not to be issued in the
name of the Person in whose name this Warrant is registered, the Exercise
Agreement shall also state the name of the Person to whom the certificates for
the shares of Warrant Stock are to be issued, and if the number of shares of
Warrant Stock to be issued does not include all the shares of Warrant Stock
purchasable hereunder, it shall also state the name of the Person to whom a new
Warrant for the unexercised portion of the rights hereunder is to be delivered.
Such Exercise Agreement shall be dated the actual date of execution thereof.
1D. Fractional Shares. If a fractional share of Warrant Stock would,
-----------------
but for the provisions of paragraph 1A, be issuable upon exercise of the rights
represented by this Warrant, the Company shall, within five business days after
the date of the Exercise Time, deliver to the Purchaser a check payable to the
Purchaser in lieu of such fractional share in an amount equal to the difference
between the Market Price of such fractional share as of the date of the Exercise
Time and the Exercise Price of such fractional share.
Section 2. Adjustment of Exercise Price and Number of Shares. In
-------------------------------------------------
order to prevent dilution of the rights granted under this Warrant, the Exercise
Price shall be subject to adjustment from time to time as provided in this
Section 2, and the number of shares of Warrant Stock obtainable upon exercise of
this Warrant shall be subject to adjustment from time to time as provided in
this Section 2.
2A. Adjustment of Exercise Price and Number of Shares upon Issuance of
------------------------------------------------------------------
Common Stock.
- ------------
(i) If and whenever on or after the Date of Issuance of this
Warrant the Company issues or sells, or in accordance with paragraph 2B is
deemed to have issued or sold, any shares of Common Stock for a consideration
per share less than the Exercise Price in effect immediately prior to such time,
then immediately upon such issue or sale the Exercise Price shall be reduced to
the Exercise Price determined by dividing:
(A) the sum of (x) the product derived by multiplying the Exercise Price
in effect immediately prior to such issue or sale times the number of
shares of Common Stock Deemed Outstanding immediately prior to such
issue or sale, plus (y) the consideration, if any, received by the
Company upon such issue or sale, by
(B) the number of shares of Common Stock Deemed Outstanding immediately
after such issue or sale.
-5-
<PAGE>
Upon each such adjustment of the Exercise Price hereunder, the number of shares
of Warrant Stock acquirable upon exercise of this Warrant shall be adjusted to
the number of shares determined by multiplying the Exercise Price in effect
immediately prior to such adjustment by the number of shares of Warrant Stock
acquirable upon exercise of this Warrant immediately prior to such adjustment
and dividing the product thereof by the Exercise Price resulting from such
adjustment.
2B. Effect on Exercise Price of Certain Events. For purposes of
------------------------------------------
determining the adjusted Exercise Price under paragraph 2A, the following shall
be applicable:
(i) Issuance of Rights or Options. If the Company in any manner
-----------------------------
grants or sells any Options and the price per share for which Common Stock is
issuable upon the exercise of such Options, or upon conversion or exchange of
any Convertible Securities issuable upon exercise of such Options, is less than
the Exercise Price in effect immediately prior to the time of the granting or
sale of such Options, then the total maximum number of shares of Common Stock
issuable upon the exercise of such Options, or upon conversion or exchange of
the total maximum amount of such Convertible Securities issuable upon the
exercise of such Options, shall be deemed to be outstanding and to have been
issued and sold by the Company at such time for such price per share. For
purposes of this paragraph, the "price per share for which Common Stock is
issuable upon exercise of such Options or upon conversion or exchange of such
Convertible Securities" is determined by dividing (A) the total amount, if any,
received or receivable by the Company as consideration for the granting or sale
of such Options, plus the minimum aggregate amount of additional consideration
payable to the Company upon the exercise of all such Options, plus in the case
of such Options which relate to Convertible Securities, the minimum aggregate
amount of additional consideration, if any, payable to the Company upon the
issuance or sale of such Convertible Securities and the conversion or exchange
thereof, by (B) the total maximum number of shares of Common Stock issuable upon
exercise of such Options or upon the conversion or exchange of all such
Convertible Securities issuable upon the exercise of such Options. No further
adjustment of the Exercise Price shall be made upon the actual issuance of such
Common Stock or of such Convertible Securities upon the exercise of such Options
or upon the actual issuance of such Common Stock upon conversion or exchange of
such Convertible Securities. Notwithstanding the foregoing, no adjustment of
the Exercise Price shall be made pursuant to this Section 2 as a result of (w)
the granting of stock options under qualified stock options plans approved by
the Board of Directors of the Company, at exercise prices not less than the fair
market value of the Common Stock at the date of grant, (x) the issuance of
Common Stock upon the exercise of such stock options, or (y) the issuance of
Common Stock pursuant to the Company's Employee Stock Purchase Plan or (z) the
issuance of Common Stock to non-employee directors pursuant to the Company's
director stock grant program.
(ii) Issuance of Convertible Securities. If the Company in any
----------------------------------
manner issues or sells any Convertible Securities and the price per share for
which Common Stock is issuable upon conversion or exchange thereof is less than
the Exercise Price in effect immediately prior to the time of such issue or
sale, then the maximum number of shares of Common Stock issuable upon conversion
or exchange of such Convertible Securities shall be deemed to be outstanding and
to have been issued and sold by the Company at such time for such price per
share. For the purposes of this paragraph, the "price per share for which
Common Stock is issuable upon conversion or exchange
-6-
<PAGE>
thereof" is determined by dividing (A) the total amount received or receivable
by the Company as consideration for the issue or sale of such Convertible
Securities, plus the minimum aggregate amount of additional consideration, if
any, payable to the Company upon the conversion or exchange thereof, by (B) the
total maximum number of shares of Common Stock issuable upon the conversion or
exchange of all such Convertible Securities. No further adjustment of the
Exercise Price shall be made upon the actual issue of such Common Stock upon
conversion or exchange of such Convertible Securities, and if any such issue or
sale of such Convertible Securities is made upon exercise of any Options for
which adjustments of the Exercise Price had been or are to be made pursuant to
other provisions of this paragraph 2B, no further adjustment of the Exercise
Price shall be made by reason of such issue or sale.
(iii) Change in Option Price or Conversion Rate. If the purchase
-----------------------------------------
price provided for in any Options, the additional consideration, if any, payable
upon the issue, conversion or exchange of any Convertible Securities, or the
rate at which any Convertible Securities are convertible into or exchangeable
for Common Stock changes at any time, the Exercise Price in effect at the time
of such change shall be adjusted immediately to the Exercise Price which would
have been in effect at such time had such Options or Convertible Securities
still outstanding provided for such changed purchase price, additional
consideration or changed conversion rate, as the case may be, at the time
initially granted, issued or sold and the number of shares of Non-Voting Common
issuable hereunder shall be correspondingly adjusted; provided that if such
adjustment would result in an increase of the Exercise Price then in effect,
such adjustment shall not be effective until 30 days after written notice
thereof has been given by the Company to all holders of the Warrants. For
purposes of this paragraph 2B, if the terms of any Option or Convertible
Security which was outstanding as of the date of issuance of this Warrant are
changed in the manner described in the immediately preceding sentence, then such
Option or Convertible Security and the Common Stock deemed issuable upon
exercise, conversion or exchange thereof shall be deemed to have been issued as
of the date of such change; provided that no such change shall at any time cause
the Exercise Price hereunder to be increased.
(iv) Treatment of Expired Options and Unexercised Convertible
--------------------------------------------------------
Securities. Upon the expiration of any Option or the termination of any right
- ----------
to convert or exchange any Convertible Securities without the exercise of such
Option or right, the Exercise Price then in effect and the number of shares of
Warrant Stock acquirable hereunder shall be adjusted immediately to the Exercise
Price and the number of shares which would have been in effect at the time of
such expiration or termination had such Option or Convertible Securities, to the
extent outstanding immediately prior to such expiration or termination, never
been issued; provided that if such expiration or termination would result in an
increase in the Exercise Price then in effect, such increase shall not be
effective until 30 days after written notice thereof has been given to all
holders of the Warrants. For purposes of this paragraph 2B, the expiration or
termination of any Option or Convertible Security which was outstanding as of
the date of issuance of this Warrant shall not cause the Exercise Price
hereunder to be adjusted unless, and only to the extent that, a change in the
terms of such Option or Convertible Security caused it to be deemed to have been
issued after the date of issuance of this Warrant.
-7-
<PAGE>
(v) Calculation of Consideration Received. If any Common Stock,
-------------------------------------
Options or Convertible Securities are issued or sold or deemed to have been
issued or sold for cash, the consideration received therefor shall be deemed to
be the net amount received by the Company therefor. In case any Common Stock,
Options or Convertible Securities are issued or sold for a consideration other
than cash, the amount of the consideration other than cash received by the
Company shall be the fair value of such consideration, except where such
consideration consists of securities, in which case the amount of consideration
received by the Company shall be the Market Price thereof as of the date of
receipt. In case any Common Stock, Options or Convertible Securities are issued
to the owners of the non-surviving entity in connection with any merger in which
the Company is the surviving entity the amount of consideration therefor shall
be deemed to be the fair value of such portion of the net assets and business of
the non-surviving entity as is attributable to such Common Stock, Options or
Convertible Securities, as the case may be. The fair value of any consideration
other than cash or securities shall be determined jointly by the Company and the
Registered Holders of Warrants representing a majority of the shares of Warrant
Stock obtainable upon exercise of such Warrants. If such parties are unable to
reach agreement within a reasonable period of time, such fair value shall be
determined by an appraiser jointly selected by the Company and the Registered
Holders of Warrants representing a majority of the shares of Warrant Stock
obtainable upon exercise of such Warrants. The determination of such appraiser
shall be final and binding on the Company and the Registered Holders of the
Warrants, and the fees and expenses of such appraiser shall be paid by the
Company.
(vi) Integrated Transactions. In case any Option is issued in
-----------------------
connection with the issue or sale of other securities of the Company, together
comprising one integrated transaction in which no specific consideration is
allocated to such Options by the parties thereto, the Options shall be deemed to
have been issued without consideration.
(vii) Treasury Shares. The number of shares of Common Stock
---------------
outstanding at any given time does not include shares owned or held by or for
the account of the Company or any Subsidiary, and the disposition of any shares
so owned or held shall be considered an issue or sale of Common Stock.
(viii) Record Date. If the Company takes a record of the holders of
-----------
Common Stock for the purpose of entitling them (A) to receive a dividend or
other distribution payable in Common Stock, Options or in Convertible Securities
or (B) to subscribe for or purchase Common Stock, Options or Convertible
Securities, then such record date shall be deemed to be the date of the issue or
sale of the shares of Common Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other distribution or the
date of the granting of such right of subscription or purchase, as the case may
be.
2C. Subdivision or Combination of Common Stock. If the Company at
------------------------------------------
any time subdivides (by any stock split, stock dividend or otherwise) one or
more classes of its outstanding shares of Common Stock into a greater number of
shares, the Exercise Price in effect immediately prior to such subdivision shall
be proportionately reduced and the number of shares of Warrant Stock obtainable
upon exercise of this Warrant shall be proportionately increased. If the
Company at any
-8-
<PAGE>
time combines (by reverse stock split or otherwise) one or more classes of its
outstanding shares of Common Stock into a smaller number of shares, the Exercise
Price in effect immediately prior to such combination shall be proportionately
increased and the number of shares of Warrant Stock obtainable upon exercise of
this Warrant shall be proportionately decreased.
2D. Reorganization, Reclassification, Consolidation, Merger or Sale.
---------------------------------------------------------------
Any recapitalization, reorganization, reclassification, consolidation, merger,
sale of all or substantially all of the Company's assets or other transaction,
which in each case is effected in such a way that the holders of Common Stock
are entitled to receive (either directly or upon subsequent liquidation) stock,
securities or assets with respect to or in exchange for Common Stock is referred
to herein as an "Organic Change." Prior to the consummation of any Organic
Change, the Company shall make appropriate provision (in form and substance
satisfactory to the Registered Holders of the Warrants representing a majority
of the Warrant Stock obtainable upon exercise of all Warrants then outstanding)
to insure that each of the Registered Holders of the Warrants shall thereafter
have the right to acquire and receive, in lieu of or addition to (as the case
may be) the shares of Warrant Stock immediately theretofore acquirable and
receivable upon the exercise of such holder's Warrant, such shares of stock,
securities or assets as may be issued or payable with respect to or in exchange
for the number of shares of Warrant Stock immediately theretofore acquirable and
receivable upon exercise of such holder's Warrant had such Organic Change not
taken place. In any such case, the Company shall make appropriate provision (in
form and substance satisfactory to the Registered Holders of the Warrants
representing a majority of the Warrant Stock obtainable upon exercise of all
Warrants then outstanding) with respect to such holders' rights and interests to
insure that the provisions of this Section 2 and Sections 3 and 4 hereof shall
thereafter be applicable to the Warrants. The Company shall not effect any such
consolidation, merger or sale, unless prior to the consummation thereof, the
successor entity (if other than the Company) resulting from consolidation or
merger or the entity purchasing such assets assumes by written instrument (in
form and substance satisfactory to the Registered Holders of Warrants
representing a majority of the Warrant Stock obtainable upon exercise of all of
the Warrants then outstanding), the obligation to deliver to each such holder
such shares of stock, securities or assets as, in accordance with the foregoing
provisions, such holder may be entitled to acquire.
2E. Certain Events. If any event occurs of the type contemplated by
--------------
the provisions of this Section 2 but not expressly provided for by such
provisions (including, without limitation, the granting of stock appreciation
rights, phantom stock rights or other rights with equity features), then the
Company's board of directors shall make an appropriate adjustment in the
Exercise Price and the number of shares of Warrant Stock obtainable upon
exercise of this Warrant so as to protect the rights of the holders of the
Warrants; provided that no such adjustment shall increase the Exercise Price or
decrease the number of shares of Warrant Stock obtainable as otherwise
determined pursuant to this Section 2.
-9-
<PAGE>
2F. Notices.
-------
(i) Immediately upon any adjustment of the Exercise Price, the
Company shall give written notice thereof to the Registered Holder, setting
forth in reasonable detail and certifying the calculation of such adjustment.
(ii) The Company shall give written notice to the Registered Holder
at least 20 days prior to the date on which the Company closes its books or
takes a record (A) with respect to any dividend or distribution upon the Common
Stock, (B) with respect to any pro rata subscription offer to holders of Common
Stock or (C) for determining rights to vote with respect to any Organic Change,
dissolution or liquidation.
(iii) The Company shall also give written notice to the Registered
Holders at least 20 days prior to the date on which any Organic Change,
dissolution or liquidation shall take place.
Section 3. Liquidating Dividends. If at any time on or after the
---------------------
date this Warrant becomes exercisable the Company declares or pays a dividend
upon the Common Stock payable otherwise than in cash out of earnings or earned
surplus (determined in accordance with generally accepted accounting principles,
consistently applied) except for a stock dividend payable in shares of Common
Stock (a "Liquidating Dividend"), then the Company shall pay to the Registered
Holder of this Warrant at the time of payment thereof the Liquidating Dividend
which would have been paid to such Registered Holder on the Warrant Stock had
this Warrant been fully exercised immediately prior to the date on which a
record is taken for such Liquidating Dividend, or, if no record is taken, the
date as of which the record holders of Common Stock entitled to such dividends
are to be determined; provided that if the Liquidating Dividends consist of
voting securities, the Company shall make available to the Registered Holder of
this Warrant, at such holder's request, Liquidating Dividends consisting of
non-voting securities (except as otherwise required by law) which are otherwise
identical to the Liquidating Dividends consisting of voting securities and which
non-voting securities are convertible into such voting securities on a
share-for-share basis.
Section 4. Purchase Rights. If at any time on or after the date this
---------------
Warrant becomes exercisable the Company grants, issues or sells any Options,
Convertible Securities or rights to purchase stock, warrants, securities or
other property pro rata to the record holders of any class of Common Stock (the
"Purchase Rights"), then the Registered Holder of this Warrant shall be entitled
to acquire, upon the terms applicable to such Purchase Rights, the aggregate
Purchase Rights which such holder could have acquired if such holder had held
the number of shares of Warrant Stock acquirable upon complete exercise of this
Warrant immediately before the date on which a record is taken for the grant,
issuance or sale of such Purchase Rights, or, if no such record is taken, the
date as of which the record holders of Common Stock are to be determined for the
grant, issue or sale of such Purchase Rights; provided that if the Purchase
Rights involve voting securities, the Company shall make available to the
Registered Holder of this Warrant, at such holder's request, Purchase Rights
involving non-voting securities (except as otherwise required by law) which are
otherwise identical to the Purchase Rights involving voting securities and which
non-voting securities are convertible or exchangeable into such voting
securities on a share-for-share basis.
-10-
<PAGE>
Section 5. Definitions. The following terms have meanings set forth
-----------
below:
"Common Stock" means, collectively, the Company's Common Stock and any
------------
capital stock of any class of the Company hereafter authorized which is not
limited to a fixed sum or percentage of par or stated value in respect to the
rights of the holders thereof to participate in dividends or in the distribution
of assets upon any liquidation, dissolution or winding up of the Company.
"Common Stock Deemed Outstanding" means, at any given time, the number
-------------------------------
of shares of Common Stock actually outstanding at such time, plus the number of
shares of Common Stock deemed to be outstanding pursuant to paragraphs 2B(i) and
2B(ii) hereof regardless of whether the Options or Convertible Securities are
actually exercisable at such time, but excluding any shares of Common Stock
issuable upon exercise of the Warrants; provided that the number of shares of
Common Stock Deemed Outstanding as of any date shall always be equal to the
number of shares of Common Stock Deemed Outstanding determined as of such date
pursuant to the Note.
"Convertible Securities" means any stock or securities (directly or
----------------------
indirectly) convertible into or exchangeable for Common Stock.
"Market Price" means as to any security the average of the closing
------------
prices of such security's sales on all domestic securities exchanges on which
such security may at the time be listed, or, if there have been no sales on any
such exchange on any day, the average of the highest bid and lowest asked prices
on all such exchanges at the end of such day, or, if on any day such security is
not so listed, the average of the representative bid and asked prices quoted in
the NASDAQ System as of 4:00 P.M., New York time, on such day, or, if on any day
such security is not quoted in the NASDAQ System, the average of the highest bid
and lowest asked prices on such day in the domestic over-the-counter market as
reported by the National Quotation Bureau, Incorporated, or any similar
successor organization, in each such case averaged over a period of 21 days
consisting of the day as of which "Market Price" is being determined and the 20
consecutive business days prior to such day; provided that if such security is
listed on any domestic securities exchange the term "business days" as used in
this sentence means business days on which such exchange is open for trading. If
at any time such security is not listed on any domestic securities exchange or
quoted in the NASDAQ System or the domestic over-the-counter market, the "Market
Price" shall be the fair value thereof determined jointly by the Company and the
Registered Holders of Warrants representing a majority of the Warrant Stock
purchasable upon exercise of all the Warrants then outstanding; provided that if
such parties are unable to reach agreement within a reasonable period of time,
such fair value shall be determined by an appraiser jointly selected by the
Company and the Registered Holders of Warrants representing a majority of the
Warrant Stock purchasable upon exercise of all the Warrants then outstanding.
The determination of such appraiser shall be final and binding on the Company
and the Registered Holders of the Warrants, and the fees and expenses of such
appraiser shall be paid by the Company.
"Optional Repayment" means a repayment of all or any portion of the
------------------
Notes pursuant to Section 2(b) of the Note.
-11-
<PAGE>
"Options" means any rights or options to subscribe for or purchase
-------
Common Stock or Convertible Securities.
"Person" means an individual, a partnership, a joint venture, a
------
corporation, a limited liability company, a trust, an unincorporated
organization and a government or any department or agency thereof.
"Qualified Offering" means an offering by the Company of Common Stock
------------------
registered with the Securities and Exchange Commission under the Securities Act
subsequent to the date of this Warrant with an aggregate value of greater than
$20 million at or above an offering price of (a) 127.5% of the Exercise Price
after December 23, 1996 but prior to December 24, 1997; (b) 165% of the Exercise
Price after December 23, 1997, but prior to December 24, 1998; or (c) 215% of
the Exercise Price after December 23, 1998.
"Repaid Notes" means the aggregate principal amount of the Note repaid
------------
by the Company pursuant to any Optional Redemption.
"Repayment Date" and "Scheduled Repayment Date" shall have the
-------------- ------------------------
meanings set forth in the Note payable to the Investor.
"Warrant Stock" means shares of the Company's Common Stock; provided
-------------
that if there is a change such that the securities issuable upon exercise of the
Warrant or conversion of the Note are issued by an entity other than the Company
or there is a change in the type or class of securities so issuable, then the
term "Warrant Stock" shall mean one share of the security issuable upon exercise
of the Warrant or conversion of the Note if such security is issuable in shares,
or shall mean the smallest unit in which such security is issuable if such
security is not issuable in shares.
Other capitalized terms used in this Warrant but not defined herein
shall have the meanings set forth in the Purchase Agreement.
Section 6. No Voting Rights; Limitations of Liability. This Warrant
------------------------------------------
shall not entitle the holder hereof to any voting rights or other rights as a
stockholder of the Company. No provision hereof, in the absence of affirmative
action by the Registered Holder to purchase Warrant Stock, and no enumeration
herein of the rights or privileges of the Registered Holder shall give rise to
any liability of such holder for the Exercise Price of Warrant Stock acquirable
by exercise hereof or as a stockholder of the Company.
Section 7. Warrant Transferable. Subject to the transfer conditions
--------------------
referred to in the legend endorsed hereon, this Warrant and all rights hereunder
are transferable, in whole or in part, without charge to the Registered Holder,
upon surrender of this Warrant with a properly executed Assignment (in the form
of Exhibit II hereto) at the principal office of the Company.
----------
Section 8. Warrant Exchangeable for Different Denominations. This
------------------------------------------------
Warrant is exchangeable, upon the surrender hereof by the Registered Holder at
the principal office of the
-12-
<PAGE>
Company, for new Warrants of like tenor representing in the aggregate the
purchase rights hereunder, and each of such new Warrants shall represent such
portion of such rights as is designated by the Registered Holder at the time of
such surrender; provided that, as long as any shares of Warrant Stock remain
outstanding, this Warrant shall only be exchangeable in connection with the
exchange of the certificate representing such shares of Warrant Stock pursuant
to the Company's Articles of Incorporation. The date the Company initially
issues this Warrant shall be deemed to be the "Date of Issuance" hereof
regardless of the number of times new certificates representing the unexpired
and unexercised rights formerly represented by this Warrant shall be issued. All
Warrants representing portions of the rights hereunder are referred to herein as
the "Warrants."
Section 9. Replacement. Upon receipt of evidence reasonably
-----------
satisfactory to the Company (an affidavit of the Registered Holder shall be
satisfactory) of the ownership and the loss, theft, destruction or mutilation of
any certificate evidencing this Warrant, and in the case of any such loss, theft
or destruction, upon receipt of indemnity reasonably satisfactory to the Company
(provided that if the holder is a financial institution or other institutional
investor its own agreement shall be satisfactory), or, in the case of any such
mutilation upon surrender of such certificate, the Company shall (at its
expense) execute and deliver in lieu of such certificate a new certificate of
like kind representing the same rights represented by such lost, stolen,
destroyed or mutilated certificate and dated the date of such lost, stolen,
destroyed or mutilated certificate.
Section 10. Notices. Except as otherwise expressly provided herein,
-------
all notices referred to in this Warrant shall be in writing and shall be
delivered or sent by registered or certified mail, return receipt requested,
postage prepaid and shall be deemed to have been given when so delivered or
deposited in the U.S. Mail (i) to the Company, at its principal executive
offices and (ii) to the Registered Holder of this Warrant, at such holder's
address as it appears in the records of the Company (unless otherwise indicated
by any such holder).
Section 11. Amendment and Waiver. Except as otherwise provided
--------------------
herein, the provisions of the Warrants may be amended and the Company may take
any action herein prohibited, or omit to perform any act herein required to be
performed by it, only if the Company has obtained the written consent of the
Registered Holders of Warrants representing a majority of the shares of Warrant
Stock obtainable upon exercise of the Warrants; provided that no such action may
change the Exercise Price of the Warrants or the number of shares or class of
stock obtainable upon exercise of each Warrant without the written consent of
the Registered Holders of Warrants representing a majority of the shares of
Warrant Stock obtainable upon exercise of the Warrants.
Section 12. Descriptive Headings; Governing Law. The descriptive
-----------------------------------
headings of the several Sections and paragraphs of this Warrant are inserted for
convenience only and do not constitute a part of this Warrant. All questions
concerning the construction, validity, enforcement and interpretation of this
Warrant shall be governed by the internal law of the State of Minnesota, without
giving effect to any choice of law or conflict of law provision or rule (whether
of the State of Minnesota or any other jurisdictions) that would cause the
application of the laws of any jurisdictions other than the State of Minnesota.
-13-
<PAGE>
* * * *
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed
and attested by its duly authorized officers under its corporate seal and to be
dated the Date of Issuance hereof.
ZYTEC CORPORATION
By_____________________________
Its____________________________
[Corporate Seal]
Attest:
_____________________________
Secretary
-14-
<PAGE>
EXHIBIT I
EXERCISE AGREEMENT
------------------
To: Dated:
The undersigned, pursuant to the provisions set forth in the attached
Warrant (Certificate No. W-____), hereby agrees to subscribe for the purchase of
______ shares of the Warrant Stock covered by such Warrant and makes payment
herewith in full therefor at the price per share provided by such Warrant.
Signature __________________________
Address ____________________________
EXHIBIT II
ASSIGNMENT
----------
FOR VALUE RECEIVED, _____________________________ hereby sells,
assigns and transfers all of the rights of the undersigned under the attached
Warrant (Certificate No. W-_____) with respect to the number of shares of the
Warrant Stock covered thereby set forth below, unto:
Names of Assignee Address No. of Shares
- ----------------- ------- -------------
Dated: Signature _________________________
_________________________
Witness _________________________
-15-
<PAGE>
EXHIBIT E
ZYTEC CORPORATION
REGISTRATION AGREEMENT
----------------------
THIS AGREEMENT is made as of December 23, 1996, between Zytec
Corporation, a Minnesota corporation (the "Company"), BMO Nesbitt Burns Capital
-------
(U.S.), Inc., a Delaware corporation (the "Investor"), and each of the other
--------
individuals and entities set forth under the heading of "Management
Stockholders" on the attached "Schedule of Management Stockholders"
-----------------------------------
(collectively, the "Management Stockholders").
-----------------------
The Company and the Investor are parties to a Note and Warrant
Purchase Agreement of even date herewith (the "Purchase Agreement"). In order
------------------
to induce Investor to enter into the Purchase Agreement, the Company has agreed
to provide the registration rights set forth in this Agreement. The execution
and delivery of this Agreement is a condition to the Closing under the Purchase
Agreement. Unless otherwise provided in this Agreement, capitalized terms shall
have the meanings set forth in Section 8 hereof.
---------
The parties hereto agree as follows:
1. Demand Registrations.
--------------------
(a) Requests for Registration. Subject to subsections (c) and (d)
-------------------------
below, the holders of a majority of the Investor Registrable Securities may
request registration under the Securities Act of all or any portion of their
Registrable Securities on any registration form available to the Company;
provided that the aggregate offering value of the Registrable Securities
requested to be registered in any Demand Registration must equal at least
$5,000,000. All registrations requested pursuant to this Section 1(a) are
------------
referred to herein as "Demand Registrations". Each request for a Demand
--------------------
Registration shall specify the approximate number of Registrable Securities
requested to be registered and the anticipated per share price range for such
offering. Within ten days after receipt of any such request, the Company shall
give written notice of such requested registration to all other holders of
Registrable Securities and, subject to Section 1(c) below, shall include in such
------------
registration all Registrable Securities with respect to which the Company has
received written requests for inclusion therein within 15 days after the receipt
of the Company's notice. All Demand Registrations shall be underwritten
registrations.
(b) Registration Expenses. The holders of a majority of the Investor
---------------------
Registrable Securities shall be entitled to request two registrations in which
the Company shall pay all Registration Expenses. Such registration shall be on
Form S-3 or any successor form, if permitted, or such appropriate registration
form as shall be selected by the Company; provided that if the managing
underwriters advise the Company that in their opinion a different registration
form is required, the Company shall use such registration form chosen by the
managing underwriters. A registration shall not count as one of the permitted
Demand Registrations until it has become effective and a registration shall not
count as one of the permitted Demand Registrations unless the
<PAGE>
holders of Investor Registrable Securities are able to register and sell at
least 90% of the Registrable Securities requested to be included in such
registration; provided that in any event the Company shall pay all Registration
Expenses in connection with any registration initiated as a Demand Registration
whether or not it has become effective and whether or not such registration has
counted as one of the permitted Demand Registrations, unless such registration
has not become effective because the holders of a majority of the Investor
Registrable Securities have withdrawn the registration for reasons attributable
only to the holders of such Investor Registrable Securities.
(c) Priority on Demand Registrations. The Company shall not include
--------------------------------
in any Demand Registration any securities which are not Registrable Securities
without the prior written consent of the holders of a majority of the Investor
Registrable Securities included in such registration. If a Demand Registration
is an underwritten offering involving (i) a directed placement to less than 50
Accredited Investors, (ii) the registration of all of the Registrable Securities
then held by the Investor or (iii) the final Demand Registration available to
the holders of the Investor Registrable Securities, and the managing
underwriters advise the Company in writing that in their opinion the number of
Registrable Securities and, if permitted hereunder, other securities requested
to be included in such offering exceeds the number of Registrable Securities and
other securities, if any, which can be sold in an orderly manner in such
offering within a price range acceptable to the holders of a majority of the
Investor Registrable Securities initially requesting registration, the Company
shall include in such registration (x) first, the Investor Registrable
Securities requested to be included in such registration, (y) second, the
Management Registrable Securities requested to be included in such registration,
pro rata among the holders of such Management Registrable Securities on the
basis of the number of shares owned by such holder (unless otherwise agreed to
by such holders) and (z) third, other securities requested to be included in
such registration. If a Demand Registration is an underwritten offering not
involving clauses (i), (ii) or (iii) above and the managing underwriters advise
the Company in writing that in their opinion the number of Registrable
Securities and, if permitted hereunder, other securities requested to be
included in such offering exceeds the number of Registrable Securities and other
securities, if any, which can be sold in an orderly manner in such offering
within a price range acceptable to the holders of a majority of the Investor
Registrable Securities initially requesting registration, the Company shall
include in such registration (x) first, the Registrable Securities requested to
be included in such registration, pro rata (based upon the number of Registrable
Securities requested to be registered) among the holders of the Investor
Registrable Securities as a group and the holders of the Management Registrable
Securities as a group (with the Management Registrable Securities included in
such registration selected pro rata among the holders of the Management
Registrable Securities requesting to be included in such registration on the
basis of the number of shares owned by each such holder, unless otherwise agreed
to by such holders); provided that the holders of Investor Registrable
Securities shall not be reduced to less than 50% of such offering and (y)
second, other securities requested to be included in such registration.
(d) Restrictions on Demand Registrations. The Company shall not be
------------------------------------
obligated to effect any Demand Registration within 270 days after the effective
date of a previous Demand Registration or a previous registration in which the
holders of Registrable Securities were given piggyback rights pursuant to
Section 2.
- ---------
-2-
<PAGE>
(e) Selection of Underwriters. The Company shall have the right to
-------------------------
select the investment banker(s) and manager(s) to administer any offering,
subject to the approval of the holders of a majority of the Investor Registrable
Securities included in any Demand Registration which shall not be unreasonably
withheld.
(f) Other Registration Rights. Except as provided in this Agreement,
-------------------------
the Company shall not grant to any Persons the right to request the Company to
register any equity securities of the Company, or any securities convertible or
exchangeable into or exercisable for such securities, without the prior written
consent of the holders of a majority of the Investor Registrable Securities;
provided that the Company may grant rights to other Persons to (i) participate
in Piggyback Registrations so long as such rights are subordinate to the rights
of the holders of Investor Registrable Securities with respect to such Piggyback
Registrations as set forth in Sections 2(c) and 2(d) hereof and (ii) request
------------- ----
registrations so long as the holders of Investor Registrable Securities are
entitled to participate in any such registrations with such Persons pro rata on
the basis of the number of shares owned by each such holder.
2. Piggyback Registrations.
-----------------------
(a) Right to Piggyback. Whenever the Company proposes to register
------------------
any of its securities under the Securities Act (other than pursuant to a Demand
Registration) and the registration form to be used may be used for the
registration of Registrable Securities (a "Piggyback Registration"), the Company
----------------------
shall give prompt written notice (in any event within three business days after
its receipt of notice of any exercise of demand registration rights other than
under this Agreement) to all holders of Investor Registrable Securities of its
intention to effect such a registra tion and shall include in such registration
all Investor Registrable Securities with respect to which the Company has
received written requests for inclusion therein within 15 days after the receipt
of the Company's notice.
(b) Piggyback Expenses. The Registration Expenses of the holders of
------------------
Investor Registrable Securities shall be paid by the Company in all Piggyback
Registrations.
(c) Priority on Primary Registrations. If a Piggyback Registration
---------------------------------
is an underwritten primary registration on behalf of the Company, and the
managing underwriters advise the Company in writing (with a copy to each party
requesting registration of Investor Registerable Securities) that in their
opinion the number of securities requested to be included in such registration
exceeds the number which can be sold in such offering without adversely
affecting the marketability of the offering, the Company shall include in such
registration (i) first, the securities the Company proposes to sell, (ii)
second, the Investor Registrable Securities requested to be included in such
registration, pro rata among the holders of such Investor Registrable Securities
on the basis of the number of shares owned by each such holder, and (iii) third,
other securities requested to be included in such registration.
(d) Priority on Secondary Registrations. If a Piggyback Registration
-----------------------------------
is an underwritten secondary registration on behalf of holders of the Company's
securities, and the managing underwriters advise the Company in writing that in
their opinion the number of securities
-3-
<PAGE>
requested to be included in such registration exceeds the number which can be
sold in such offering without adversely affecting the marketability of the
offering, the Company shall include in such registration (i) first, the
securities requested to be included therein by the holders requesting such
registration and the holders of the Investor Registrable Securities requested to
be included in such registration, pro rata among the holders of such securities
on the basis of the number of shares owned by each such holder, and (ii) second,
other securities requested to be included in such registration.
(e) Selection of Underwriters. If any Piggyback Registration is an
-------------------------
underwritten offering, the Company shall select the investment banker(s) and
manager(s) for the offering.
(f) Other Registrations. If the Company has previously filed a
-------------------
registration statement with respect to Registrable Securities pursuant to
Section 1 or pursuant to this Section 2, and if such previous registration has
- --------- ---------
not been withdrawn or abandoned, the Company shall not file or cause to be
effected any other registration of any of its equity securities or securities
convertible or exchangeable into or exercisable for its equity securities under
the Securities Act, whether on its own behalf or at the request of any holder
or holders of such securities, until a period of at least 120 days has elapsed
from the effective date of such previous registration.
3. Holdback Agreements.
-------------------
(a) Each holder of Registrable Securities shall not effect any public
sale or distribution (including sales pursuant to Rule 144) of equity securities
of the Company, or any securities convertible into or exchangeable or
exercisable for such securities, during the seven days prior to and the 90-day
period beginning on the effective date of any underwritten Demand Registration
or any underwritten Piggyback Registration in which Registrable Securities are
included (except as part of such underwritten registration), unless the
underwriters managing the registered public offering otherwise agree.
(b) The Company (i) shall not effect any public sale or distribution
of its equity securities, or any securities convertible into or exchangeable or
exercisable for such securities, during the seven days prior to and during the
90-day period beginning on the effective date of any underwritten Demand
Registration or any underwritten Piggyback Registration (except as part of such
underwritten registration), unless the underwriters managing the registered
public offering otherwise agree, and (ii) shall cause each holder of at least 5%
(on a fully-diluted basis) of its Common Stock, or any securities convertible
into or exchangeable or exercisable for Common Stock, purchased from the Company
at any time after the date of this Agreement (other than in a registered public
offering) to agree not to effect any public sale or distribution (including
sales pursuant to Rule 144) of any such securities during such period (except as
part of such underwritten registration, if otherwise permitted), unless the
underwriters managing the registered public offering otherwise agree.
4. Registration Procedures. Whenever the holders of Registrable
-----------------------
Securities have requested that any Registrable Securities be registered pursuant
to this Agreement, the Company shall use its best efforts to effect the
registration and the sale of such Registrable Securities in accordance with the
intended method of disposition thereof (including the registration of the Note
-4-
<PAGE>
or the Warrant held by a holder of Registrable Securities requesting
registration as to which the Company has received reasonable assurances that
only Registrable Securities shall be distributed to the public), and pursuant
thereto the Company shall as expeditiously as possible:
(a) prepare and file with the Securities and Exchange Commission a
registration statement with respect to such Registrable Securities and use its
best efforts to cause such registration statement to become effective (provided
that before filing a registration statement or prospectus or any amendments or
supplements thereto, the Company shall furnish to the counsel selected by the
holders of a majority of the Registrable Securities covered by such registration
statement copies of all such documents proposed to be filed, which documents
shall be subject to the review and comment of such counsel);
(b) notify each holder of Registrable Securities of the effectiveness
of each registration statement filed hereunder and prepare and file with the
Securities and Exchange Commission such amendments and supplements to such
registration statement and the prospectus used in connection therewith as may be
necessary to keep such registration statement effective for a period of not less
than 120 days (subject to extension pursuant to Section 7) and comply with the
---------
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement during such period in
accordance with the intended methods of disposition by the sellers thereof set
forth in such registration statement;
(c) furnish to each seller of Registrable Securities such number of
copies of such registration statement, each amendment and supplement thereto,
the prospectus included in such registration statement (including each
preliminary prospectus) and such other documents as such seller may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by such seller;
(d) use its best efforts to register or qualify such Registrable
Securities under such other securities or blue sky laws of such jurisdictions as
any seller reasonably requests and do any and all other acts and things which
may be reasonably necessary or advisable to enable such seller to consummate the
disposition in such jurisdictions of the Registrable Securities owned by such
seller (provided that the Company shall not be required to (i) qualify generally
to do business in any jurisdiction where it would not otherwise be required to
qualify but for this subsection, (ii) subject itself to taxation in any such
jurisdiction or (iii) consent to general service of process in any such
jurisdiction);
(e) notify each seller of such Registrable Securities, at any time
when a prospectus relating thereto is required to be delivered under the
Securities Act, of the happening of any event as a result of which the
prospectus included in such registration statement contains an untrue statement
of a material fact or omits any fact necessary to make the statements therein
not misleading, and, at the request of any such seller, the Company shall
prepare a supplement or amendment to such prospectus so that, as thereafter
delivered to the purchasers of such Registrable Securities, such prospectus
shall not contain an untrue statement of a material fact or omit to state any
fact necessary to make the statements therein not misleading;
-5-
<PAGE>
(f) cause all such Registrable Securities to be listed on each
securities exchange on which similar securities issued by the Company are then
listed and, if not so listed, to be listed on the NASD automated quotation
system and, if listed on the NASD automated quotation system, use its best
efforts to secure designation of all such Registrable Securities covered by such
registra tion statement as a NASDAQ "national market system security" within
the meaning of Rule 11Aa2-1 of the Securities and Exchange Commission or,
failing that, to secure NASDAQ authorization for such Registrable Securities
and, without limiting the generality of the foregoing, to arrange for at least
two market makers to register as such with respect to such Registrable
Securities with the NASD;
(g) provide a transfer agent and registrar for all such Registrable
Securities not later than the effective date of such registration statement;
(h) enter into such customary agreements (including underwriting
agreements in customary form) and take all such other actions as the holders of
a majority of the Registrable Securities being sold or the underwriters, if any,
reasonably request in order to expedite or facilitate the disposition of such
Registrable Securities (including, without limitation, effecting a stock split
or a combination of shares);
(i) make available for inspection by any seller of Registrable
Securities, any underwriter participating in any disposition pursuant to such
registration statement and any attorney, accountant or other agent retained by
any such seller or underwriter, all financial and other records, pertinent
corporate documents and properties of the Company, and cause the Company's
officers, directors, employees and independent accountants to supply all
information reasonably requested by any such seller, underwriter, attorney,
accountant or agent in connection with such registration statement;
(j) otherwise use its best efforts to comply with all applicable
rules and regulations of the Securities and Exchange Commission, and make
available to its security holders, as soon as reasonably practicable, an
earnings statement covering the period of at least twelve months beginning with
the first day of the Company's first full calendar quarter after the effective
date of the registration statement, which earnings statement shall satisfy the
provisions of Section 11(a) of the Securities Act and Rule 158 thereunder;
(k) permit any holder of Registrable Securities which holder, in its
sole and exclusive judgment, might be deemed to be an underwriter or a
controlling person of the Company, to participate in the preparation of such
registration or comparable statement and to require the insertion therein of
material, furnished to the Company in writing, which in the reasonable judgment
of such holder and its counsel should be included;
(l) in the event of the issuance of any stop order suspending the
effectiveness of a registration statement, or of any order suspending or
preventing the use of any related prospectus or suspending the qualification of
any common stock included in such registration statement for sale in any
jurisdiction, the Company shall use its best efforts promptly to obtain the
withdrawal of such order;
-6-
<PAGE>
(m) use its best efforts to cause such Registrable Securities covered
by such registration statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary to enable the sellers
thereof to consummate the disposition of such Registrable Securities;
(n) obtain one or more cold comfort letters, dated the effective date
of such registration statement (and if such registration includes an
underwritten public offering, dated the date of the closing under the
underwriting agreement), signed by the Company's independent public accountants
in customary form and covering such matters of the type customarily covered by
cold comfort letters as the holders of a majority of the Registrable Securities
being sold reasonably request (provided that such Registrable Securities
constitute at least 10% of the securities covered by such registration
statement); and
(o) provide a legal opinion of the Company's outside counsel, dated
the effective date of such registration statement (and, if such registration
includes an underwritten public offering, dated the date of the closing under
the underwriting agreement), with respect to the registration statement, each
amendment and supplement thereto, the prospectus included therein (including the
preliminary prospectus) and such other documents relating thereto in customary
form and covering such matters of the type customarily covered by legal opinions
of such nature.
5. Registration Expenses.
---------------------
(a) All expenses incident to the Company's performance of or
compliance with this Agreement, including without limitation all registration
and filing fees, fees and expenses of compliance with securities or blue sky
laws, printing expenses, messenger and delivery expenses, fees and disbursements
of custodians, and fees and disbursements of counsel for the Company and all
independent certified public accountants, underwriters (excluding discounts and
commissions) and other Persons retained by the Company (all such expenses being
herein called "Registration Expenses"), shall be borne as provided in this
---------------------
Agreement, except that the Company shall, in any event, pay its internal
expenses (including, without limitation, all salaries and expenses of its
officers and employees performing legal or accounting duties), the expense of
any annual audit or quarterly review, the expense of any liability insurance and
the expenses and fees for listing the securities to be registered on each
securities exchange on which similar securities issued by the Company are then
listed or on the NASD automated quotation system.
(b) In connection with any Demand Registration and any Piggyback
Registration, each holder of Registrable Securities included in such
registration shall pay the fees and disbursements of its counsel and any
underwriting discounts or commission relating to such holder's Registerable
Securities.
(c) To the extent Registration Expenses are not required to be paid
by the Company, each holder of securities included in any registration hereunder
shall pay those Registration Expenses allocable to the registration of such
holder's securities so included, and any Registration Expenses not so allocable
shall be borne by all sellers of securities included in such registration in
proportion to the aggregate selling price of the securities to be so registered.
-7-
<PAGE>
6. Indemnification.
---------------
(a) Indemnification Obligation of the Company. The Company agrees to
-----------------------------------------
indemnify, to the extent permitted by law, each holder of Registrable
Securities, its officers and directors and each Person who controls such holder
(within the meaning of the Securities Act) against all losses, claims, damages,
liabilities and expenses caused by any untrue or alleged untrue statement of
material fact contained in any registration statement, prospectus or preliminary
prospectus or any amendment thereof or supplement thereto or any omission or
alleged omission of a material fact required to be stated therein or necessary
to make the statements therein not misleading, except insofar as the same are
caused by or contained in any information furnished in writing to the Company by
such holder expressly for use therein or by such holder's failure to deliver a
copy of the registration statement or prospectus or any amendments or
supplements thereto after the Company has furnished such holder with a
sufficient number of copies of the same. In connection with an underwritten
offering, the Company shall indemnify such underwriters, their officers and
directors and each Person who controls such underwriters (within the meaning of
the Securities Act) to the same extent as provided above with respect to the
indemnification of the holders of Registrable Securities.
(b) Indemnification of the Company. In connection with any
------------------------------
registration statement in which a holder of Registrable Securities is
participating, each such holder shall furnish to the Company in writing such
information and affidavits as the Company reasonably requests for use in
connection with any such registration statement or prospectus and, to the extent
permitted by law, shall indemnify the Company, its directors and officers and
each Person who controls the Company (within the meaning of the Securities Act)
against any losses, claims, damages, liabilities and expenses resulting from any
untrue or alleged untrue statement of material fact contained in the
registration statement, prospectus or preliminary prospectus or any amendment
thereof or supplement thereto or any omission or alleged omission of a material
fact required to be stated therein or necessary to make the statements therein
not misleading, but only to the extent that such untrue statement or omission is
contained in any information or affidavit so furnished in writing by such
holder; provided that the obligation to indemnify shall be individual, not joint
and several, for each holder and shall be limited to the net amount of proceeds
received by such holder from the sale of Registrable Securities pursuant to such
registration statement.
(c) Indemnification Procedures. Any Person entitled to
--------------------------
indemnification hereunder shall (i) give prompt written notice to the
indemnifying party of any claim with respect to which it seeks indemnification
(provided that the failure to give prompt notice shall not impair any Person's
right to indemnification hereunder to the extent such failure has not prejudiced
the indemnifying party) and (ii) unless in such indemnified party's reasonable
judgment a conflict of interest between such indemnified and indemnifying
parties may exist with respect to such claim, permit such indemnifying party to
assume the defense of such claim with counsel reasonably satisfactory to the
indemnified party. If such defense is assumed, the indemnifying party shall not
be subject to any liability for any settlement made by the indemnified party
without its consent (but such consent shall not be unreasonably withheld). An
indemnifying party who is not entitled to, or elects not to, assume the defense
of a claim shall not be obligated to pay the fees and expenses of more than one
counsel for all parties indemnified by such indemnifying party with respect to
such
-8-
<PAGE>
claim, unless in the reasonable judgment of any indemnified party a conflict of
interest may exist between such indemnified party and any other of such
indemnified parties with respect to such claim.
(d) Other Indemnification Provisions. The indemnification provided
--------------------------------
for under this Agreement shall remain in full force and effect regardless of any
investigation made by or on behalf of the indemnified party or any officer,
director or controlling Person of such indemnified party and shall survive the
transfer of securities. The Company also agrees to make such provisions, as are
reasonably requested by any indemnified party, for contribution to such party in
the event the Company's indemnification is unavailable for any reason.
7. Participation in Underwritten Registrations. No Person may
-------------------------------------------
participate in any registration hereunder which is underwritten unless such
Person (i) agrees to sell such Person's securities on the basis provided in any
underwriting arrangements approved by the Person or Persons entitled hereunder
to approve such arrangements (including, without limitation, pursuant to the
terms of any over-allotment or "green shoe" option requested by the managing
underwriter(s), provided that no holder of Registrable Securities will be
required to sell more than the number of Registrable Securities that such holder
has requested the Company to include in any registration) and (ii) completes and
executes all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents reasonably required under the terms of such
underwriting arrangements. Each Person that is participating in any
registration hereunder agrees that, upon receipt of any notice from the Company
of the happening of any event of the kind described in Section 4(e) above, such
------------
Person will forthwith discontinue the disposition of its Registrable Securities
pursuant to the registration statement until such Person's receipt of the copies
of a supplemented or amended prospectus as contemplated by such Section 4(e).
------------
In the event the Company shall give any such notice, the applicable time period
mentioned in Section 4(b) during which a Registration Statement is to remain
------------
effective shall be extended by the number of days during the period from and
including the date of the giving of such notice pursuant to this Section 7 to
---------
and including the date when each seller of a Registrable Security covered by
such registration statement shall have received the copies of the supplemented
or amended prospectus contemplated by Section 4(e).
------------
8. Definitions.
-----------
"Accredited Investor" has the meaning set forth in 17 CFR 230.501(a)
-------------------
(Rule 501(a) promulgated by the Securities and Exchange Commission under the
Securities Act).
"Investor Registrable Securities" means (i) any Common Stock issued
-------------------------------
upon conversion of the Note or the exercise of the Warrant issued pursuant to
the Purchase Agreement and (ii) any other Common Stock issued or issuable with
respect to the securities referred to in clause (i) above by way of a stock
dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization. For purposes
of this Agreement, a Person shall be deemed to be a holder of Investor
Registrable Securities, and the Investor Registrable Securities shall be deemed
to be in existence, whenever such Person has the right to acquire directly or
indirectly such Investor Registrable Securities (upon conversion or exercise in
connection with a transfer of securities or otherwise, but disregarding any
restrictions or limitations upon the exercise
-9-
<PAGE>
of such right), whether or not such acquisition has actually been effected, and
such Person shall be entitled to exercise the rights of a holder of Investor
Registrable Securities hereunder.
"Management Registrable Securities" means (i) any shares of Common
---------------------------------
Stock held by any Management Stockholder as of the date hereof and (ii) any
other Common Stock issued or issuable with respect to the securities referred to
in clause (i) above by way of a stock dividend or stock split or in connection
with a combination of shares, recapitalization, merger, consolidation or other
reorganization.
"Person" means an individual, a partnership, a joint venture, a
------
corporation, a trust, an unincorporated organization and a government or any
department of agency thereof.
"Registrable Securities" means (i) the Investor Registrable Securities
----------------------
and (ii) the Management Registrable Securities. As to any particular
Registrable Securities, such securities shall cease to be Registrable Securities
when they have been distributed to the public pursuant to an offering registered
under the Securities Act or sold to the public through a broker, dealer or
market maker in compliance with Rule 144 under the Securities Act (or any
similar rule then in force) or repurchased by the Company or any Subsidiary.
"Securities Act" means the Securities Act of 1933, as amended, or any
--------------
similar federal law then in force.
"Securities and Exchange Commission" includes any governmental body or
----------------------------------
agency succeeding to the functions thereof.
"Securities Exchange Act" means the Securities Exchange Act of 1934,
-----------------------
as amended, or any similar federal law then in force.
Unless otherwise stated, other capitalized terms contained in this
Agreement have the meanings set forth in the Purchase Agreement.
9. Miscellaneous.
-------------
(a) No Inconsistent Agreements. The Company shall not hereafter
--------------------------
enter into any agreement with respect to its securities which is inconsistent
with or violates the rights granted to the holders of Registrable Securities in
this Agreement.
(b) Adjustments Affecting Registrable Securities. The Company shall
--------------------------------------------
not take any action, or permit any change to occur, with respect to its
securities which would materially adversely affect the ability of the holders of
Registrable Securities to include such Registrable Securities in a registration
undertaken pursuant to this Agreement or which would materially adversely affect
the marketability of such Registrable Securities in any such registration
(including, without limitation, effecting a stock split or a combination of
shares).
-10-
<PAGE>
(c) Remedies. Any Person having rights under any provision of this
--------
Agreement shall be entitled to enforce such rights specifically to recover
damages caused by reason of any breach of any provision of this Agreement and to
exercise all other rights granted by law. The parties hereto agree and
acknowledge that money damages may not be an adequate remedy for any breach of
the provisions of this Agreement and that any party may in its sole discretion
apply to any court of law or equity of competent jurisdiction (without posting
any bond or other security) for specific performance and for other injunctive
relief in order to enforce or prevent violation of the provisions of this
Agreement.
(d) Amendments and Waivers. Except as otherwise provided herein, the
----------------------
provisions of this Agreement may be amended or waived only upon the prior
written consent of the Company and holders of a majority of the Registrable
Securities. The failure of any party to enforce any of the provisions of this
Agreement shall in no way be construed as a waiver of such provisions and shall
not affect the right of such party thereafter to enforce each and every
provision in accordance with its terms.
(e) Successors and Assigns. All covenants and agreements in this
----------------------
Agreement by or on behalf of any of the parties hereto shall bind and inure to
the benefit of and be enforceable by the respective successors and assigns of
the parties hereto whether so expressed or not. In addition, and whether or not
any express assignment has been made, the provisions of this Agreement which are
for the benefit of purchasers or holders of Registrable Securities are also for
the benefit of, and enforceable by, any subsequent holder of Registrable
Securities, subject to the provisions respecting the minimum numbers or
percentages of shares of Registrable Securities required in order to be entitled
to certain rights, or take certain actions, contained herein.
(f) Severability. Whenever possible, each provision of this
------------
Agreement shall be interpreted in such manner as to be effective and valid
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision or the effectiveness or validity of any provision in any
other jurisdiction, and this Agreement shall be reformed, construed and enforce
in such jurisdiction as if such invalid, illegal or unenforceable provision had
never been contained herein.
(g) Counterparts. This Agreement may be executed simultaneously in
------------
two or more counterparts, any one of which need not contain the signatures of
more than one party, but all such counterparts taken together shall constitute
one and the same Agreement.
(h) Descriptive Headings. The descriptive headings of this Agreement
--------------------
are inserted for convenience only and do not constitute a part of this
Agreement.
(i) GOVERNING LAW. ALL ISSUES AND QUESTIONS CONCERNING THE
-------------
CONSTRUCTION, VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS AGREEMENT AND THE
EXHIBITS AND SCHEDULES HERETO SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF MINNESOTA, WITHOUT GIVING EFFECT TO ANY CHOICE OF
LAW OR CONFLICT OF LAW RULES OR PROVISIONS
-11-
<PAGE>
(WHETHER OF THE STATE OF MINNESOTA OR ANY OTHER JURISDICTION) THAT WOULD CAUSE
THE APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF
MINNESOTA.
(j) Notices. All notices, demands or other communications to be
-------
given or delivered under or by reason of the provisions of this Agreement shall
be in writing and shall be deemed to have been given when delivered personally
to the recipient, sent to the recipient by reputable overnight courier service
(charges prepaid) or mailed to the recipient by certified or registered mail,
return receipt requested and postage prepaid. Such notices, demands and other
communications shall be sent to the parties at the addresses indicated below:
If to the Company:
Zytec Corporation
7575 Market Place Drive
Eden Prairie, MN 55344
Attention: Ronald D. Schmidt
with a copy to:
Winthrop & Weinstine, P.A.
3200 Minnesota World Trade Center
St. Paul, MN 55101
Attention: Sherman Winthrop
If to the Investor:
BMO Nesbitt Burns Capital (U.S.), Inc.
111 West Monroe Street
20th Floor
Chicago, IL 60603
Attention: Managing Director
with copy to:
Kirkland & Ellis
200 E. Randolph Drive
Chicago, IL 60601
Attention: Edward T. Swan
If to the Management Stockholders:
To the address indicated on the attached
Schedule of Management Stockholders
-12-
<PAGE>
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.
* * * * *
-13-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Registration
Agreement on the date first written above.
ZYTEC CORPORATION
By _______________________________________________
Its ______________________________________________
BMO NESBITT BURNS CAPITAL (U.S.), INC.
By _______________________________________________
Its ______________________________________________
<PAGE>
[CONTINUATION OF SIGNATURE PAGE TO REGISTRATION AGREEMENT]
__________________________________________________
Ronald D. Schmidt
__________________________________________________
Lawrence J. Matthews
__________________________________________________
John M. Steel
<PAGE>
[CONTINUATION OF SIGNATURE PAGE TO REGISTRATION AGREEMENT]
SCHMIDT FAMILY LIMITED PARTNERSHIP
By _______________________________________________
Its ______________________________________________
__________________________________________________
Alice M. Schmidt
__________________________________________________
Gail M. Matthews
<PAGE>
SCHEDULE OF MANAGEMENT STOCKHOLDERS
-----------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Management Stockholder Number of Registrable Securities
- ---------------------- --------------------------------
- --------------------------------------------------------------------------------
<S> <C>
Ronald D. Schmidt 543,050
10407 Fawns Way
Eden Prairie, MN 55347-5117
- --------------------------------------------------------------------------------
Schmidt Family Limited Partnership 400,000
10407 Fawns Way
Eden Prairie, MN 55347-5117
- --------------------------------------------------------------------------------
Alice M. Schmidt 2,200
10407 Fawns Way
Eden Prairie, MN 55347-5117
- --------------------------------------------------------------------------------
Lawrence J. Matthews 870,620
7601 Fifth Avenue South
Richfield, MN 55423
- --------------------------------------------------------------------------------
John M. Steel 644,952
9986 Oak Shore Drive
Lakeville, MN 55044
- --------------------------------------------------------------------------------
Gail M. Steel 200,000
9986 Oak Shore Drive
Lakeville, MN 55044
- --------------------------------------------------------------------------------
</TABLE>
