UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): January 23, 1997
TOROTEL, INC.
(Exact name of registrant as specified in its charter)
Missouri
(State or other jurisdiction of incorporation)
2-33256 44-0610086
(Commission File Number) (IRS Employer Identification No.)
13402 South 71 Highway, Grandview, Missouri 64030
(Address of principal executive offices) (Zip Code)
(816) 761-6314
Registrant's telephone number, including area code
N/A
(Former name or former address, if changed since last report)
Item 5. Other Events.
On January 23, 1997, Torotel, Inc. announced that it
has entered into a definitive agreement to sell newly issued shares of
common stock (which would represent approximately 44 percent of
then-outstanding shares) to Brockson Technologies Group LLC for
approximately $2.174 million. In connection with this sale, Brockson
also will purchase, at the same price per share, stock from the
founder's family shareholders of Torotel. After purchasing these
shares, Brockson will then own more than 50 percent of the
outstanding Torotel shares. Brockson also will have the contingent
right to receive, for no further consideration, additional shares of
common stock from the company in the event that Torotel
experiences any extraordinary costs or expenses related to its recently
disclosed product testing failures.
These transactions are subject to, among other things,
regulatory approvals, the approval of the Torotel shareholders, and
Brockson obtaining financing. The founder's family shareholders of
Torotel have agreed to vote all of their shares in favor of the
transaction with Brockson.
Item 7. Financial Statements and Exhibits.
(c) Exhibits.
Exhibit Description
1. Press release dated January 23, 1997.
2. Investment Agreement dated January 23, 1997 (scheduled omitted).
SIGNATURE
Pursuant to the requirements of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned hereunder duly authorized.
TOROTEL, INC.
By: /s/ H. James Serrone
H. James Serrone
Vice President of Finance and
Chief Financial Officer
Dated: January 23, 1997
EXHIBIT INDEX
Exhibit Description Page
1. Press release dated January 23, 1997 1
2. Investment Agreement dated January 22, 1997 2
(schedules omitted)
INVESTMENT AGREEMENT FOR THE PURCHASE OF 2,173,861 SHARES ISSUED BY
TOROTEL, INC. TO BROCKSON TECHNOLOGIES GROUP LLC
Dated this 23rd day of January, 1997
TABLE OF CONTENTS
ARTICLE I. PURCHASE OF SHARES BY INVESTOR 1
1.1 Issuance of Shares 1
1.2 Consideration for Shares 1
1.3 Additional Shares 1
ARTICLE II. THE CLOSING 2
ARTICLE III. COMPANY'S CONDITIONS TO CLOSING 2
3.1 Assuming of Representations; Compliance with Covenants 2
3.2 Manager's Certificate 2
3.3 LLC Resolutions 3
3.4 Proceedings and Documents 3
3.5 Required Simultaneous Transaction 3
3.6 No Proceedings 3
3.7 Company Stockholder Approval 3
3.8 Fairness Opinion 3
3.9 Other Matters 3
3.10 Government Approvals 3
3.11 Agreement Not Terminated 3
ARTICLE IV. INVESTOR'S CONDITIONS TO CLOSING 4
4.1 Assuming of Representations; Compliance with Covenants 4
4.2 Officer's Certificate 4
4.3 Corporate Resolutions 4
4.4 Proceedings and Documents 4
4.5 Required Simultaneous Transaction 4
4.6 Government Approvals 4
4.7 Other Matters 4
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF
COMPANY 5
5.1 Representations And Warranties 5
ARTICLE VI. REPRESENTATIONS AND WARRANTIES OF
INVESTOR 5
6.1 Organization 5
6.2 Authorization of Transaction 5
6.3 Noncontravention 5
6.4 Accredited Investor 5
6.5 Investment Purposes 5
6.6 Prior Ownership of Shares 6
6.7 Proxy Statement 6
6.8 Financing 6
ARTICLE VII. COVENANTS 6
7.1 Interim Operations 6
7.2 Access and Information 8
7.3 Special Company Meeting 8
7.4 Proxy Statement 8
7.5 Additional Agreements 8
9
7.6 Directors 9
7.7 Disclosure of Offers; Standstill 10
7.8 Indemnification; Insurance 11
7.9 Prior Ownership of Shares 12
7.10 Publicity 12
7.11 Commitment Letters; Escrow. 12
7.12 Environmental Compliance 12
ARTICLE VIII. TRANSFERABILITY 12
8.1 Transferability 12
8.2 Restrictive Legends 13
ARTICLE IX. REGISTRATION RIGHTS 13
ARTICLE X. ADDITIONAL PROVISIONS 13
10.1 Expenses 13
10.2 Survival 13
10.3 Indemnification 14
10.4 Successors and Assigns 15
10.5 Notices 15
10.6 No Waiver, Remedies Cumulative 16
10.7 Amendments and Waivers 16
10.8 Integration 16
10.9 Separability 16
10.10 Headings 16
10.11 Governing Law 16
10.12 No Third-Party Beneficiaries 16
10.13 Prohibition on Assignment 16
EXHIBITS
A. Representations and Warranties
B. Registration Rights
INVESTMENT AGREEMENT
THIS INVESTMENT AGREEMENT is made and entered
into as of this 23rd day of January, 1997, by and among Torotel, Inc., a
Missouri corporation ("Company") and Brockson Technologies Group LLC,
a Delaware limited liability company ("Investor").
RECITALS
WHEREAS, the Investor desires to purchase 2,173,861
shares ("Shares") of newly issued common stock, par value $.50 per share, of
the Company ("Common Stock"), plus the Additional Shares (defined in
Section 1.3) upon the terms and conditions contained herein; and
WHEREAS, subject to the representations, covenants and
conditions contained herein, the Company desires for the Investor to
purchase the Shares and to make such investment;
NOW, THEREFORE, in consideration of the mutual
covenants herein contained, the receipt and sufficiency of which are hereby
acknowledged,
IT IS HEREBY AGREED AND STIPULATED AS
FOLLOWS:
AGREEMENT
ARTICLE I. PURCHASE OF SHARES BY INVESTOR
I.1 Issuance of Shares. Subject to the terms, covenants
and conditions hereof, at the Closing, the Company will issue and sell to the
Investor the Shares.
I.2 Consideration for Shares. The purchase price to be
paid by the Investor at the Closing for the Shares and the Additional Shares
is an aggregate of $2,184,730.31. The consideration will be paid by wire
transfer to the Company's account, against receipt by the Investor of the
Shares.
I.3 Additional Shares. On November 25, 1996 the
Company announced the discovery of certain potential liabilities relating to
product testing. Company shall issue a number of additional shares
("Additional Shares") of Common Stock for each $1.00 of liability incurred
("Extraordinary Costs") by the Company in excess of $100,000, related to
such product testing failures as described in the chart set forth below.
"Extraordinary Costs" means the direct costs, including legal fees and
penalties, if any, incurred in connection with product testing failures.
Extraordinary Costs do not include the indirect cost of damage to goodwill or
loss of business or customers arising out of or relating to such product
testing failures. Extraordinary Costs shall be reduced by any recovery from
third persons of damages relating to Company product testing failures, as
determined by the Independent Directors (as defined herein). The Company
shall pursue such recoveries unless the Independent Directors determine that
such pursuit would not be in the best interests of the Company.
Extraordinary Costs shall be increased by any loss, cost, damage or expense
(including legal fees) incurred as a result of any action brought against the
Company by third persons against whom the Company pursues recovery of
product testing related damages if such action is brought following the
Company's pursuit of or determination to pursue such recovery (regardless of
whether such claim against the Company by such third person is related to
product testing or any other matter). Additional Shares will be issued on the
date upon which a majority of the Independent Directors (as defined herein)
determines that the Company has settled substantially all product testing
failure liabilities and has received substantially all third party recoveries
in connection therewith; provided, however, that the Additional Shares shall
be issued on such earlier date, based on the Independent Directors' then best
estimate of Extraordinary Costs including third party recoveries, on which
Investor's ownership of Common Stock is reduced below five percent (5%) of
Common Stock then outstanding.
<TABLE>
<C> <C>
Per Share Closing Price of Common Stock Number of Shares of Common
on date Independent Directors determine Stock issued to Investor for
Extraordinary Costs each $1.00 of Extraordinary Costs
less than $ 3.00 1.00
$ 3.01 - $ 4.00 .99
$ 4.01 - $ 5.00 .98
$ 5.01 - $ 6.00 .97
$ 6.01 - $ 7.00 .96
$ 7.01 - $ 8.00 .95
$ 8.01 - $ 9.00 .94
$ 9.01 - $10.00 .93
$10.01 - $11.00 .92
$11.01 - $12.00 .91
greater than $12.00 .90
</TABLE>
ARTICLE II. THE CLOSING
Subject to the conditions hereof, the transactions described
herein will be closed (the "Closing") at 10:00 A.M. at the offices of the
Company on the second business day following the first date on which the
conditions to closing set forth in Article III and Article IV hereof shall
first have been satisfied or waived, or at such other time and place as the
parties hereto may agree. The "Closing Date" shall be the date the Closing
occurs.
ARTICLE III. COMPANY'S CONDITIONS TO CLOSING
The obligations of the Company to issue the Shares to
Investor are subject to the following conditions:
III.1 Assuming of Representations; Compliance with
Covenants. The accuracy in all material respects, on and as of the Closing
Date, of the representations and warranties by the Investor contained herein
and to the performance by the Investor of all the terms, covenants and
conditions on its part to be performed hereunder on or prior to the Closing
Date.
III.2 Manager's Certificate. The Investor shall have
delivered to the Company a Certificate signed by its Manager, to the
following effect: (i) that all of the representations and warranties of the
Investor contained in this Investment Agreement are true, correct and
complete in all material respects as of the Closing Date; and (ii) that the
Investor has complied with and performed all of the terms, covenants and
agreements contained in the Investment Agreement which are to be complied
with or performed by the Investor on or before the Closing Date.
III.3 LLC Resolutions. A certified copy of the
resolutions adopted by the Investor's Manager authorizing and approving (i)
the execution, performance and delivery of this Investment Agreement, (ii)
the purchase of the Shares to be issued hereunder, and (iii) the other
transactions contemplated hereby, shall have been delivered to the Company.
III.4 Proceedings and Documents. All proceedings taken
or to be taken in connection with the transactions contemplated by this
Investment Agreement to be consummated at, or prior to, the execution and
Closing hereof and all other documents, schedules, exhibits, opinions and
certificates in connection therewith shall each be satisfactory in form and
substance to the Company, and the Company shall have received copies of all
such documents and all other documents which the Company has requested
in connection with said transactions and of all corporate proceedings in
connection therewith, in form and substance satisfactory to the Company.
III.5 Required Simultaneous Transaction. The
simultaneous closing of a transaction between the Investor and various
members of the Sizemore Family in which the Investor will purchase not less
than 510,506 shares of the Company stock, at the same price per share to be
paid hereunder for the Shares.
III.6 No Proceedings. No action, suit, or proceeding shall
be pending or threatened before any court or quasi-judicial or administrative
agency of any federal, state, local, or foreign jurisdiction or before any
arbitrator challenging or seeking to prevent consummation of any of the
transactions contemplated by this Agreement.
III.7 Company Stockholder Approval. The transactions
contemplated by this Agreement shall have been approved by a majority of
the Company's stockholders present in person or by proxy at a meeting duly
called and convened for that purpose.
III.8 Fairness Opinion. The board of directors of
Company shall have received from Stern Bros. Valuation Advisors a written
opinion, dated as of the date hereof, reasonably satisfactory in form and
substance to such board, to the effect that the transaction is fair to the
public shareholders of the Company from a financial point of view.
III.9 Other Matters. All actions to be taken by Investor
in connection with consummation of the transactions contemplated hereby
and all certificates, opinions, instruments, and other documents required to
effect the transactions contemplated hereby will be satisfactory in form and
substance to Company.
III.10 Government Approvals. The governmental
approvals described on Schedule 5.4 shall have been received or such
approvals are not required for Closing.
III.11 Agreement Not Terminated. The Company Board
of Directors shall not have terminated this Agreement pursuant to Section
7.7.
Company may waive any condition specified in this Article
III if it executes a writing so stating at or prior to the Closing.
ARTICLE IV. INVESTOR'S CONDITIONS TO CLOSING
The obligations of the Investor to purchase the Shares are
subject to the following conditions:
IV.1 Assuming of Representations; Compliance with
Covenants. The accuracy in all material respects, on and as of the Closing
Date, of the representations and warranties by the Company contained herein
as if such representations and warranties were made by the Company on and
as of the Closing Date and to the performance by the Company of all the
terms, covenants and conditions on its part to be performed hereunder on or
prior to the Closing Date.
IV.2 Officer's Certificate. The Company shall have
delivered to the Investor a Certificate signed by its President, to the
following effect: (i) that all of the representations and warranties of the
Company contained in this Investment Agreement are true, correct and complete
in all material respects as of the Closing Date; and (ii) that the Company has
complied with and performed all of the terms, covenants and agreements
contained in the Investment Agreement which are to be complied with or
performed by the Company on or before the Closing Date.
IV.3 Corporate Resolutions. A certified copy of the
resolutions adopted by the Company's Board of Directors authorizing and
approving (i) the execution, performance and delivery of this Investment
Agreement, (ii) the issuance of the Shares to be issued hereunder, and (iii)
the other transactions contemplated hereby, shall have been delivered to the
Investor.
IV.4 Proceedings and Documents. All proceedings taken
or to be taken in connection with the transactions contemplated by this
Investment Agreement to be consummated at, or prior to, the execution and
Closing hereof and all other documents, schedules, exhibits, opinions and
certificates in connection therewith shall each be satisfactory in form and
substance to the Investor, and the Investor shall have received copies of all
such documents and all other documents which the Investor has requested in
connection with said transactions and of all corporate proceedings in
connection therewith, in form and substance satisfactory to the Investor.
IV.5 Required Simultaneous Transaction. The
simultaneous closing of a transaction between the Investor and various
members of the Sizemore Family in which the Investor will purchase not less
than 510,506 shares of the Company stock at the same price per share to be
paid hereunder for the Shares.
IV.6 Government Approvals. The Company shall have
received all governmental approvals required for the consummation of the
transactions contemplated hereby.
IV.7 Other Matters. All actions to be taken by Company
in connection with consummation of the transactions contemplated hereby
and all certificates, opinions, instruments, and other documents required to
effect the transactions contemplated hereby will be satisfactory in form and
substance to Investor.
Investor may waive any condition specified in this Article
III.
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF
COMPANY
V.1 Representations And Warranties. The Company
makes the representations and warranties set forth in Exhibit A (which is
incorporated herein and made a part hereof) to the Investor, each of which is
true and correct on the date hereof and shall survive the Closing of the
transactions provided for herein as set forth in Section 10.2.
ARTICLE VI. REPRESENTATIONS AND WARRANTIES OF
INVESTOR
Investor represents and warrants to Company that the
statements contained in this Article VI are true, correct and complete as of
the date of this Agreement and shall survive the Closing of the transactions
provided for herein as set forth in Section 10.2.
VI.1 Organization. Investor is a limited liability
company, duly organized, validly existing, and in good standing under the
laws of Delaware. Investor has no subsidiaries. Schedule 6.1 sets forth the
members and managers, if any, of Investor. Since the date of its
organization, Investor has not engaged in any activities other than in
connection with or as contemplated by this Agreement or in connection with
arranging any financing required to consummate the transactions
contemplated hereby.
VI.2 Authorization of Transaction. The execution and
delivery of this Agreement, and the consummation of the transactions
contemplated hereby, are within the power and authority of the Investor and
have been fully authorized by all necessary action on the part of the Investor.
This Agreement has been duly executed and delivered by the Investor and
constitutes the legal, valid, binding and enforceable obligation of the
Investor, subject to applicable bankruptcy, insolvency and similar laws
affecting creditors' rights generally, and subject, as to enforceability, to
general principles of equity (regardless of whether enforcement is sought in a
proceeding in equity or at law).
VI.3 Noncontravention. (A) Neither the execution and
the delivery of this Agreement, nor the consummation of the transactions
contemplated hereby, will (i) violate any constitution, statute, regulation,
rule, injunction, judgment, order, decree, ruling, charge, or other restriction
of any government, governmental agency, or court to which Investor is subject
or any provision of the charter or bylaws of Investor or (ii) conflict with,
result in a breach of, constitute a default under, result in the acceleration
of, create in any party the right to accelerate, terminate, modify, or cancel,
or require any notice under any agreement, contract, lease, license,
instrument or other arrangement to which Investor is a party or by which it
is bound or to which any of its assets is subject; and (B) Investor is not
required to give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any government or governmental agency
in order for the Investor to consummate the transactions contemplated by this
Agreement.
VI.4 Accredited Investor. The Investor is an "Accredited
Investor" within the meaning of Rule 501(a) under the Securities Act of
1933, as amended ("Securities Act").
VI.5 Investment Purposes. The Investor is acquiring the
Shares solely for its own account and not with a view to the distribution
thereof. The Investor acknowledges that the Shares have not and will not be
registered under the Securities Act and agrees that it will only reoffer or
resell the Shares purchased under this Investment Agreement (1) in compliance
with the requirements of Rule 144 promulgated under the Securities Act, (2)
in accordance with any other available exemption from the requirements of
Section 5 of the Securities Act, or (3) pursuant to a valid registration
statement under the Securities Act.
VI.6 Prior Ownership of Shares. As of the date of this
Agreement, neither Investor nor any of its affiliates (as that term is defined
under Rule 501(a) of the Securities Act; each an "Affiliate") own beneficially
or otherwise, any shares of Common Stock. Neither Investor nor any of its
Affiliates (as defined herein) have entered into any agreement with, or are
otherwise affiliated in any manner with, Peter B. Caloyeras, an individual
who has filed a Schedule 13D with respect to ownership of Common Stock.
VI.7 Proxy Statement. None of the information provided
by Investor for use in the proxy statement shall, at the time filed with the
Commission or at any time thereafter through and including the Closing
Date, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made,
not misleading.
VI.8 Financing. Upon the terms and subject to the
conditions of this Agreement, Investor shall have available all necessary
funds to satisfy its obligation to pay the Purchase Price and to effect the
required simultaneous transaction.
ARTICLE VII. COVENANTS
VII.1 Interim Operations. During the period from the date
of this Agreement to the Closing Date, an interim transaction team composed
of H. James Serrone, Ronald Benjamin and Don Jackson shall periodically
meet to discuss the operations and transition of the Company and the
fulfillment of the covenants contained herein. Except as specifically
contemplated by this Agreement, or as set forth on Schedule 7.1, or as
otherwise consented to in advance by Investor in writing (which consent shall
not be unreasonably delayed, conditioned or withheld):
(a) Conduct of Business. The Company will, and will
cause each of its Subsidiaries to, conduct their respective businesses only in,
and not take any action except in, the ordinary and usual course of business
and consistent with past practice. The Company will use reasonable efforts
to preserve intact the business organization of the Company and each of its
Subsidiaries, to keep available the service of its and their present officers
and key employees and to preserve the goodwill of those having business
relationships with it or its Subsidiaries.
(b) Articles and By-Laws. The Company will not and
will not permit any of its Subsidiaries to make any change or amendment to
their respective articles of incorporation or by-laws (or comparable governing
instruments).
(c) Capital Stock. The Company will not, and will not
permit any of its Subsidiaries to, issue or sell any shares of capital stock or
any other securities of any of them (other than pursuant to previously granted
outstanding stock options) or issue or grant any securities convertible into or
exchangeable for, or options, warrants to purchase, scrip, rights to subscribe
for, calls or commitments of any character whatsoever relating to, or enter
into any contract, understanding or arrangement with respect to the issuance
of, any shares of capital stock or any other securities of any of them or
purchase or enter into any arrangement or contract with respect to the
purchase or voting of shares of their capital stock, or adjust, split, combine
or reclassify any of their capital stock or other securities or make any other
changes in their capital structures.
(d) Dividends. The Company will not declare, set
aside, pay or make any dividend or other distribution or payment (whether in
cash, stock or property) with respect to, or purchase or redeem, any shares of
the capital stock of any of them.
(e) Employee Plans, Compensation, Etc. The Company
will not, and will not permit any of its Subsidiaries to, amend any Benefit
Plan or to adopt any arrangement which would be a "Benefit Plan" or, except
as provided in Schedule 7.1 or pursuant to collective bargaining agreements
as presently in effect, increase the compensation or fringe benefits of any
director or officer or pay any benefit to any director or officer not required
by any existing plan or arrangement or take any action or grant any benefit to
any director or officer not required under the terms of any existing
agreements, trusts, plans, funds or other such arrangements or enter into any
contract, agreement, commitment or arrangement to do any of the foregoing.
(f) Debt. The Company and its Subsidiaries will not,
(a) assume any indebtedness or, except in the ordinary course of business for
working capital purposes under existing facilities, incur any indebtedness or
(b) except in the ordinary course of business consistent with past practice,
make any loans, advances or capital contributions to, or investments (other
than short-term investments pursuant to customary cash management
systems of the Company) in, any other person other than such of the
foregoing as are made by the Company to, in or from a wholly owned
Subsidiary of the Company. The Company will not enter into any new credit
agreements or enter into any amendments or modifications of any existing
credit agreements.
(g) Representation and Warranty. The Company will
promptly advise Investor of any information which becomes known to it or
any Subsidiary that would make any representation or warranty of the
Company herein not true or not correct.
(h) Acquisitions. The Company and its Subsidiaries
will not acquire (i) by merging or consolidating with, or by purchasing the
stock or assets of, or by any other manner, any business or any corporation,
partnership, association or other business organization or division thereof or
(ii) any assets, except purchases of raw materials, inventory items or supplies
in the ordinary course of business consistent with past practice.
(i) Asset Sales. The Company and its Subsidiaries will
not sell, lease, mortgage or otherwise encumber or otherwise dispose of any
of its properties or assets, except sales of inventory in the ordinary course
of business consistent with past practice.
(j) Tax Settlements. The Company and its Subsidiaries
will not make any tax election or settle or compromise any income tax or
other tax liability or refund.
(k) Other Settlements. The Company and its
Subsidiaries will not pay, discharge or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction, in the ordinary
course of business consistent with past practice or in accordance with their
terms.
(l) Agreements. The Company and its Subsidiaries
will not enter into any agreement which is not cancellable on thirty days
notice without cost to the Company or any agreement the total consideration
of which exceeds $25,000, other than agreements entered in the ordinary
course for purchase of inventory and supplies consistent with past practice
and the sale of products of the Company and its Subsidiaries to customers.
VII.2 Access and Information. Company will (and will
cause each of its Subsidiaries to) afford to Investor and its representatives
(including without limitation directors, officers and employees of Investor
and its affiliates, and counsel, accountants and other professionals retained
by Investor) such access during regular business hours to its books, records
(including without limitation tax returns and the Company will use
reasonable efforts to provide access to work papers of independent auditors),
agreements, properties (including without limitation for the purpose of
making any reasonable Phase I and Phase II environmental investigations),
personnel, suppliers and customers as Investor reasonably requests.
VII.3 Special Company Meeting. The Company shall
take all action necessary, in accordance with applicable law and its articles
of incorporation and bylaws, to convene a special meeting of the Company
shareholders ("Special Company Meeting") as promptly as practicable for the
purpose of approving the transactions contemplated by this Agreement.
VII.4 Proxy Statement.
A. The Company shall prepare and file with the
Commission the Proxy Statement as required by the Securities Exchange Act
of 1934, as amended ("Exchange Act"), the rules and regulations
promulgated thereunder and applicable state law, and shall hold the
shareholders' meeting contemplated by the Proxy Statement as promptly as
practicable.
B. The appointment of designees of the Investor to the
Board of Directors of the Company shall be subject to Section 14(f) of the
Exchange Act, and Rule 14f-1 promulgated thereunder. As promptly as
practicable following the date of this Agreement, the Investor shall supply to
the Company in writing (and be solely responsible for) any information with
respect to it and its nominees, officers, directors and Affiliates required by
Section 14(f) and Rule 14f-1. The term "Affiliates" in this Agreement has
the meaning set forth in the regulations to the Exchange Act.
C. The Investor shall (i) cooperate with the Company
in the preparation and filing of the Proxy Statement, (ii) promptly obtain and
furnish any information within its control required to be included in the
Proxy Statement and (iii) respond promptly to any comments or requests
made by the Commission with respect to the Proxy Statement.
D. The Company or the Investor, as the case may be,
shall correct any information supplied by it for use in the Proxy Statement
which shall have become, or is, false, incomplete or misleading.
VII.5 Additional Agreements. Subject to the terms and
conditions herein provided including without limitation Section 7.6(c), each
of the parties hereto agrees to use its commercially reasonable efforts to take
promptly, or cause to be taken, all actions and to do promptly, or cause to be
done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated
by this Agreement, including using its commercial reasonable efforts to
obtain all necessary actions or non-actions, extensions, waivers, consents and
approvals from all applicable governmental entities, effecting all necessary
registrations and filings.
VII.6 Directors.
(a) Concurrently with the payment for Shares, (i)
Investor shall be entitled to designate four members of the five member
Company Board, (ii) the Company Board shall appoint such designees as
directors, and (iii) the Company shall accept the resignations of all persons
who are directors of the Company, other than one current board member of
Brockson's selection (provided, however, that if the current director selected
by the Investor does not desire to continue as a director, then the Company
(acting through its Board of Directors as it exists immediately prior to the
Closing) shall select another individual who would qualify as an Independent
Director, as defined below, so long as such individual is reasonably
acceptable to Investor), which resignations have been tendered to the
Company, subject to the terms of this Section 7.8, concurrently with the
Company's execution hereof.
(b) The Company's obligations to appoint designees of
the Investor to the Company Board and to accept resignations as provided
above, shall be subject to Section 14(f) of the Exchange Act, and Rule 14f-1
promulgated thereunder. The Company shall promptly take all actions
required pursuant to Section 14(f) and Rule 14f-1 in order to fulfill its
obligations under this Section 7.6 and shall include in the Proxy Statement
mailed to stockholders such information with respect to the Company and its
officers and directors as is required under Section 14(f) and Rule 14f-1 to
fulfill its obligations under this Section 7.6. Investor shall supply to the
Company and be solely responsible for any information with respect to
Investor and its nominees, officers, directors and affiliates required by
Section 14(f) and Rule 14f-1.
(c) Notwithstanding the foregoing, it is understood that
for a period of two (2) years following the Closing Date, the Company's
Board of Directors shall always have at least two (2) members who are not, at
any time (including after the Closing Date), officers of the Company,
Affiliates of Investor or owners of an equity interest in any Company
shareholder which owns 10% or more of the Shares (each, an "Independent
Director"). Each such Independent Director designated by the Investor as of
the Closing Date shall be acceptable to the Company (acting through its
Board of Directors as it exists immediately prior to Closing), which consent
shall not be unreasonably withheld. Any replacement of an Independent
Director shall be acceptable to a majority of the then-current Independent
Directors, which consent shall not be unreasonably withheld. Investor shall
designate one current Company board member to continue to serve on the
board for a period of three years as an Independent Director (provided,
however, that if the current director selected by the Investor does not desire
to continue as a director, then the Company (acting through its Board of
Directors as it exists immediately prior to the Closing) shall select another
individual who would qualify as an Independent Director, so long as such
individual is reasonably acceptable to Investor).
(d) After the Closing Date, in addition to any
shareholder vote or vote by the Board of Directors of the Company which
may be required by law, prior approval of either (i) a majority of the
Independent Directors or (ii) a majority of the shareholders of the Company
who are not Affiliates of Investor, shall be required in order to authorize any
of the following actions or matters:
(1) Except as set forth in Article IX and
Exhibit B, filing of a registration statement with the Commission
with respect to the Shares;
(2) Entering into, or proposing to enter into, of
any agreement, arrangement or transaction with the Investor or any
of its Affiliates;
(3) Approval of the initial salaries (other than
the initial salaries approved by the Board of Directors of the
Company prior to the Closing), salary increases and bonus payments
to officers or employees who are affiliates of the Investor or any of
its Affiliates.
(4) Amendment to, or modification, waiver or
termination of, this Agreement.
(5) Withdrawal of the registration of the
Common Stock under the Exchange Act; and
(6) Removal of the Common Stock from listing
on the American Stock Exchange.
(e) After the Closing Date, neither the Investor nor any
of its Affiliates (regardless of whether such person is an Affiliate on the
date hereof) shall, without prior approval of (i) a majority of the Independent
Directors or (ii) a majority of the shareholders of the Company who are not
Affiliates of Investor, vote its Shares in favor of any action or agreement, or
take any other action, that would (1) result in a breach of any covenant,
representation or warranty or any other obligation of the Investor under this
Agreement or (2) impede, interfere with or discourage the intended purposes
of Section 7.6(d) hereof.
VII.7 Disclosure of Offers; Standstill. The Company
shall disclose to the Investor all offers or proposals of whatever kind
(whether written or oral) which it receives from any person concerning the
possible sale, merger or other acquisition of the Company or its business, or
any portion thereof and which it deems to be bona fide. Promptly after any
officer or director of the Company becomes aware of any such offer or
proposal made to any of its shareholders, the Company shall advise the
Investor of the same. The Company will not solicit proposals from other
prospective purchasers of the Company. In the event that (A) the Company
Board of Directors for any reason withdraws or modifies its approval of or
recommendation to shareholders concerning the transactions contemplated
hereby or (B) the Company receives an unsolicited proposal and its Board of
Directors determines that the exercise of their fiduciary duties requires any
member of the board of directors or any executive officer of the Company to
provide material non-public information to or to conduct discussions with
another prospective purchaser, or any member of the board of directors or
any executive officer of the Company otherwise provides such material non-
public information or conducts such discussions concerning the sale of the
Company or an investment in a controlling interest in the Company, then in
either event, Company shall immediately pay a fee of $200,000 to the
Investor, whereupon the Company Board of Directors may terminate this
Agreement; if the transaction nonetheless closes, Investor shall return such
$200,000 fee to the Company at Closing. In the event the Company enters
into a letter of intent or similar document or definitive agreement with any
such other party at any time prior to six months following termination of this
Investment Agreement by Company pursuant to this Section, then the
Company shall immediately pay to Investor a fee of $200,000, less any
amount previously paid pursuant to the immediately preceding sentence.
VII.8 Indemnification; Insurance.
(a) From and after the Closing Date, the Company shall
indemnify and hold harmless each person who is, or has been at any time
prior to the date hereof or who becomes prior to the Closing Date, an officer,
director or employee of the Company or any of its subsidiaries (collectively,
the "Indemnified Parties" and individually, an "Indemnified Party") against
all losses, liabilities, expenses, claims or damages in connection with any
claim, suit, action, proceeding or investigation based in whole or in part on
the fact that such Indemnified Party is or was a director, officer or employee
of the Company or any of its subsidiaries and arising out of acts or omissions
occurring prior to and including the Closing Date (including but not limited
to the transactions contemplated by this Agreement) to the fullest extent
permitted by Missouri law (but excluding claims by the Company against
such persons for recoveries pursuant to Section 1.3 hereof), for a period of
not less than six years following the Closing Date; provided that in the event
any claim or claims are asserted or made within such six-year period, all
rights to indemnification in respect of any such claim or claims shall continue
until final disposition of any and all such claims.
(b) Investor shall cause the Articles of Incorporation
and Bylaws of the Company and its subsidiaries to include provisions for the
limitation of liability of directors and indemnification of the Indemnified
Parties to the fullest extent permitted under applicable law and consistent
with Section 7.8(a) and shall not permit the amendment of such provision in
any manner adverse to the Indemnified Parties, as the case may be, without
the prior written consent of such persons, for a period of six years from and
after the date hereof.
(c) Without limitation of the foregoing, in the event any
such Indemnified Party is or becomes involved in any capacity in any action,
proceeding or investigation in connection with any matter, including without
limitation, the transactions contemplated by this Agreement, occurring prior
to, and including, the Closing Date, the Company shall pay as incurred such
Indemnified Party's legal and other expenses (including the cost of any
investigation and preparation) incurred in connection therewith. The
Company shall pay all expenses, including attorneys' fees, that may be
incurred by an Indemnified Party in enforcing the indemnity and other
obligations provided for in this Section 7.8(c) or any action involving an
Indemnified Party resulting from the transactions contemplated by this
Agreement.
(d) For six years after the Closing Date, the Investor
shall cause policies of directors' and officers' liability insurance to be
maintained by the Company in amounts not less than 1996 coverage
(provided that the Company may substitute therefor policies of at least the
same coverage containing terms and conditions which are substantially
equivalent) with respect to matters occurring prior to the Closing Date, to the
extent such policies are available. Notwithstanding the foregoing, if annual
premiums for the Company's director and officer liability insurance exceeds
150% of 1996 premiums ("Maximum Premium"), the Company shall only be
obligated to purchase such insurance coverage as may be purchased by a
premium payment equal to the Maximum Premium.
(e) Any determination to be made as to whether any
Indemnified Party has met any standard of conduct imposed by law shall be
made by legal counsel reasonably acceptable to such Indemnified Party,
Investor and the Company, retained at the Company's expense.
(f) This Section 7.8 is intended to benefit the
Indemnified Parties and their respective heirs, executors and personal
representatives and shall be binding on the successors and assigns of the
Investor and the Company.
VII.9 Prior Ownership of Shares. Neither the Investor nor
any of its Affiliates shall acquire any shares of Common Stock prior to the
Closing Date.
VII.10 Publicity. Neither the Company nor the Investor
shall make any public statement regarding the transactions contemplated by
this Agreement without the consent of the other, except as in accordance with
law or requirements of the Commission or, in the case of the Company, the
American Stock Exchange. Copies of all public statements regarding the
transactions or the Company shall be provided to the other party prior to
public disclosure, and each party shall use best efforts to provide such
statements not less than forty-eight hours prior to public disclosure.
VII.11 Commitment Letters; Escrow. Not later than forty-
five days following execution and delivery of this Agreement and the
definitive agreements governing the terms of the transaction described in
Section 4.5, Investor shall deliver to Company copies of commitment letters
procured by Investor respecting Investor's financing for the consummation of
the transactions contemplated hereby. Immediately following delivery to the
Company of commitment letters sufficient for the financing of the
transactions contemplated hereby, Investor shall deposit $200,000 with a
mutually acceptable escrow agent. Such deposit shall be paid to Company
as liquidated damages if (1) Investor is unconditionally obligated under this
agreement to purchase the Shares and fails to do so at Closing and (2) all of
Investor's conditions to Closing requiring performance by any person other
than Investor have been satisfied by such person or waived by Investor and
(3) each of the selling shareholders in the transaction described in Section
4.5 are ready, willing and able to consummate such transaction in accordance
with the terms thereof. Such deposit shall be returned to Investor on the
earlier of (1) Closing, (2) breach or violation by the Company of any of the
terms of this Agreement, which, if such breach or violation occurred on the
Closing Date would result in a failure of Investor's closing condition set
forth in Section 4.1 and such breach or violation shall not have been waived by
Investor, (3) breach or violation by the selling shareholders in the
transaction described in Section 4.5 of any of the terms thereof, (4) the
shareholders of Company failing to approve the transactions contemplated
hereby at a special meeting of shareholders called for such purpose, or (5)
June 30, 1997 (which
date shall be extended to the extent Investor is able to procure extensions of
the financing commitments described above). Upon distribution of the
$200,000 deposit to Investor, Company may, at its option, terminate this
Agreement.
VII.12 Environmental Compliance. The Company shall
engage Sitex Environmental or similar nationally recognized environmental
consultant to conduct Phase I and, upon request of Investor, Phase II,
environmental audit and analysis as directed by Investor. In the event
Investor fails to deliver commitment letters as required by the first sentence
of Section 7.11, Investor shall reimburse Company for up to $40,000 of the
expenses incurred for such environmental audit and analysis.
ARTICLE VIII. TRANSFERABILITY
VIII.1 Transferability. Subject to Section 6.5 hereof, the
Investor may sell, transfer or dispose of all or a portion of any Shares
beneficially owned. If any person acquiring Shares from the Investor, other
than in a transaction pursuant to Rule 144 under the Securities Act or in a
bona fide public offering, in which the underwriters are instructed to achieve
as wide a distribution as practicable, would, to the best knowledge of the
Investor after reasonable inquiry, beneficially own five percent or more of the
Common Stock on a fully diluted basis, such person as a condition to the
transfer shall agree to be bound by the provisions hereof.
VIII.2 Restrictive Legends. The certificate(s) evidencing
the Shares shall bear the following legends unless and until such time as the
Investor or any transferee delivers an opinion of counsel reasonably
acceptable to the Company and its counsel to the effect that such legend is
not required under this Agreement or that this Agreement has been
terminated in accordance with its terms, and, in the case of a transferee, that
such transfer is not in violation of this Agreement and that the transferee is
not subject to or bound by the provisions of this Agreement, and stating the
basis therefor:
"THE SHARES REPRESENTED BY THIS CERTIFICATE
ARE SUBJECT TO THE TERMS AND CONDITIONS OF
AN INVESTMENT AGREEMENT DATED AS OF
JANUARY 22, 1997 BY AND AMONG TOROTEL, INC.
AND BROCKSON TECHNOLOGIES GROUP LLC,
COPIES OF WHICH ARE ON FILE WITH THE
SECRETARY OF TOROTEL, AND ARE HELD AND
MAY NOT BE SOLD, ASSIGNED, TRANSFERRED,
PLEDGED, HYPOTHECATED, ENCUMBERED,
OTHERWISE GRANTED AS SECURITY, OR
OTHERWISE DISPOSED OF EXCEPT IN
ACCORDANCE THEREWITH.
NO REGISTRATION OR TRANSFER OF THE
SECURITIES WILL BE MADE ON THE BOOKS OF
TOROTEL UNLESS SUCH TRANSFER IS MADE IN
CONNECTION WITH AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933
OR PURSUANT TO AN EXEMPTION FROM
APPLICABLE FEDERAL AND STATE
REQUIREMENTS.
The Company is hereby authorized to place "stop transfer"
instructions on its records or to instruct any transfer agent to prevent the
transfer of Shares except in conformity with this Investment Agreement.
ARTICLE IX. REGISTRATION RIGHTS
Investor shall have the rights described in Appendix B to
require the Company to register, under the Securities Act, as amended, and
relevant state securities laws, Shares held by the Investor.
ARTICLE X. ADDITIONAL PROVISIONS
X.1 Expenses. Except as otherwise expressly provided
in this Agreement, each party hereto shall pay its own expenses incidental to
the preparation of this Agreement, the carrying out of the provisions hereof
and the consummation of the transactions contemplated hereby.
X.2 Survival. The representations, warranties and
covenants (other than in Section 7.6 or 7.8) made herein shall survive the
Closing of the transactions contemplated hereby and continue in force and
effect only until the second anniversary of the Closing Date. The
indemnification obligations under Section 10.3 and the provisions of Section
7.7 and 7.8 shall survive any termination of this Agreement.
X.3 Indemnification.
(a) The Company agrees to indemnify the Investor
against any losses, claims, damages, liabilities and expenses
(including, without limitation, reasonable attorneys' fees and
expenses) (collectively, the "Claims") incurred by the Investor
arising out of or as a result of any breach of the representations,
warranties or covenants of the Company contained herein or in any
document executed herewith; provided, however, that such
indemnification shall not apply to any such Claims arising from any
unexcused breach by the Investor of its obligations under this
Agreement.
(b) The Investor agrees to indemnify the Company
against any Claims incurred by the Company arising out of or as a
result of any breach of the representations, warranties or covenants
of the Investor contained herein or in any document executed
herewith; provided, however, that such indemnification shall not
apply to any such Claims arising from any unexcused breach by the
Company of its obligations under this Agreement.
(c) Notwithstanding the provisions of this Section 10.3,
neither party shall be entitled to be indemnified hereunder for any
portion of the amount of any Claim with respect to which such
person has previously received or will receive payment from any
insurer.
(d) Notwithstanding the provisions of this Section 10.3,
no indemnifying party shall be liable to an indemnified party
pursuant to this Section 10.3 with respect to any Claim unless
written notice of such Claim shall have been given to such
indemnifying party on or prior to the second anniversary of the
Closing Date, except for Claims relating to (i) title to the Shares or
the Additional Shares or the breach of a covenant contained in
Section 7.6 or 7.8 as to which Claims may be made at any time and
(ii) tax matters as to which written notice of such Claims shall have
been given on or prior to the date on which any statute of limitation
expires with respect to any taxable year ending on or including the
Closing Date.
(e) Notwithstanding the provisions of this Section 10.3,
the Investor shall be entitled to assert a Claim against the Company
(i) only to the extent of Investor's 42% ownership in the Company
purchased pursuant to this Agreement with respect to the initial
$42,000 recoverable hereunder (equating to $100,000 in claims) and
(ii) only to the extent of Investor's 54% total ownership interest in
the Company with respect to all other claims.
(f) Notwithstanding the provisions of this Section 10.3,
the amount of the Investor's Claims against the Company shall be
reduced for any tax benefits accruing to the Company pursuant to
such Claims to the extent of the Investor's ownership in the
Company purchased pursuant to this Agreement.
(g) Notwithstanding the provisions of this Section 10.3,
Investor shall not assert a Claim against the Company for breach of
representation to the extent that Investor had actual knowledge of the
inaccuracy at Closing of such representation.
(h) The right of an indemnified party to be indemnified
under this Section 10.3 shall not limit, reduce or otherwise affect the
rights and remedies of such indemnified party under this Agreement.
(i) THE INDEMNIFICATION OBLIGATIONS OF
THE COMPANY SET FORTH IN THIS SECTION 10.3
SHALL BE JOINT AND SEVERAL OBLIGATIONS OF THE
COMPANY AND EACH OF ITS SUBSIDIARIES. IN NO
EVENT SHALL ANY OFFICER, DIRECTOR, OR
SHAREHOLDER OF THE COMPANY, HAVE ANY
PERSONAL LIABILITY WHATSOEVER TO INVESTOR OR
ANY OTHER PERSON ARISING OUT OF THE
TRANSACTIONS CONTEMPLATED BY THIS
INVESTMENT AGREEMENT.
(j) No Claim for indemnification shall be made with
respect to any matter as to which the Claim (or series of related
Claims with respect to related matters) does not exceed $10,000.
X.4 Successors and Assigns. This Investment
Agreement shall be binding upon and inure to the benefit of the Investor, the
Company and their respective successors and assigns, and any subsequent
holder of any Shares issued hereunder.
X.5 Notices. All notices, demands, and communications
provided for herein or made hereunder shall be delivered, or mailed first class
with postage prepaid, or telegraphed, addressed in each case as follows, until
some other address shall have been designated in a written notice given in
like manner, and shall be deemed to have been given or made when so
delivered or mailed or telegraphed:
(a) if to the Company: Torotel, Inc.
13402 South 71 Highway
Grandview, MO 64030
Attention: H. James Serrone, CFO
Telecopy: (816) 763-2278
with a copy to: Shook Hardy & Bacon LLP
One Kansas City Place
1200 Main Street
Kansas City, MO 64105
Attention: Randall B. Sunberg
Telecopy: (816) 421-5547
(b) if to Investor: Brockson Technologies Group LLC
4350 East Camelback, Suite 200F
Phoenix, AZ 85108
Attention: John F. Trotter
Telecopy: (602) 840-3282
with a copy to: Foley & Lardner
Firstar Center
777 East Wisconsin Avenue
Milwaukee, WI 53202-5367
Attention: Martin D. Mann
Telecopy: (414) 297-4900
X.6 No Waiver, Remedies Cumulative. Any term or
condition of this Agreement may be waived at any time by the party that is
entitled to the benefit thereof, but no such waiver shall be effective unless
set forth in a written instrument duly executed by or on behalf of the party
waiving such term or condition. No waiver by any party of any term or
condition of this Agreement, in any one or more instances, shall be deemed to
be or construed as a waiver of the same or any other term or condition of this
Agreement on any future occasion. All remedies, either under this
Agreement or by law or otherwise afforded, shall be cumulative and not
alternative.
X.7 Amendments and Waivers. This Investment
Agreement may not be changed or amended orally, and no waiver hereunder
may be oral, but any change or amendment hereto or any waiver hereunder
must be in writing and signed by the party or parties against whom such
change, amendment or waiver is sought to be enforced; provided, however,
that after approval of the Agreement by the stockholders of the Company, no
amendment may be made which materially adversely affects the stockholders
of the Company without the further approval of the stockholders of the
Company (other than the Investor or Affiliates of the Investor).
X.8 Integration. This Investment Agreement, the
appendices and exhibits annexed hereto and documents, schedules and
certificates referred to herein contain the entire agreement between the
Company and the Investor with respect to the transactions contemplated
herein, other than the Confidentiality Agreement dated as of December 12,
1995; and none of the parties shall be bound by nor shall be deemed to have
made any representations and/or warranties except those contained herein
and therein.
X.9 Separability. If any provision of this Investment
Agreement is held for any reason to be unenforceable by a court of competent
jurisdiction, the remainder of this Investment Agreement shall, nevertheless,
remain in full force and effect in such jurisdiction.
X.10 Headings. The headings in this Investment
Agreement are intended solely for convenience of reference and shall be
given no effect in the construction or interpretation of this Agreement.
X.11 Governing Law. This Investment Agreement is
made in the State of Missouri and shall be governed by and construed in
accordance with the internal laws of the State of Missouri.
X.12 No Third-Party Beneficiaries. Except as set forth in
Section 7.8 of this Agreement, nothing in this Agreement, express or implied,
is intended to confer upon any other person, other than the parties hereto, any
rights or remedies of any nature whatsoever under or by reason of this
Agreement.
X.13 Prohibition on Assignment. This Agreement and
the rights, privileges, covenants, and other agreements set forth herein shall
not be assignable or transferable.
IN WITNESS WHEREOF, the parties hereto have executed
this Agreement, as of the date first above written.
TOROTEL, INC. ("Company")
By:/s/ Christian T. Hughes
Christian T. Hughes,, President and Chief
Operating Officer
BROCKSON TECHNOLOGIES GROUP LLC ("Investor")
By:/s/ John F. Trotter
John F. Trotter, Manager
EXHIBIT A
REPRESENTATIONS AND WARRANTIES
5. Representations and Warranties of Company.
Company represents and warrants to Investor that the statements
contained in this Exhibit A are true, correct and complete as of the date of
this Agreement, except as set forth in the disclosure schedule accompanying
this Agreement (the "Disclosure Schedule"). The Disclosure Schedule with
respect to Company will be arranged in paragraphs corresponding to the
lettered and numbered paragraphs contained in this Exhibit A.
5.1 Organization, Qualification, and Corporate Power. Each of
Company and its Subsidiaries is a corporation duly organized, validly
existing, and in good standing under the laws of the jurisdiction of its
incorporation. Each of Company and its Subsidiaries is duly authorized to
conduct business and is in good standing under the laws of each jurisdiction
where such qualification is required, except where the failure to be so duly
authorized, in good standing, or qualified would not have a material adverse
effect on the business, results of operations or financial condition of the
Company and its subsidiaries, taken as a whole. The terms "material adverse
effect", "material" and similar terms used in this Agreement shall mean any
matter, action, inaction or circumstance with respect to which the Claim (as
defined in Section 10.3), when combined with all other Claims arising
hereunder, is in excess of $100,000; provided, however, that in calculating
the aggregate amount of Claims, Claims less than $10,000 shall not be
included in such calculation. Each of Company and its Subsidiaries has full
corporate power and authority to carry on the businesses in which it is
engaged and to own and use the properties owned and used by it, except
where such failure would not have a material adverse effect. Company
beneficially owns all of the outstanding capital stock of each of its
Subsidiaries.
5.2 Capitalization. The entire authorized capital stock of
Company consists of 6,000,000 Company Shares, of which 2,807,767
Company Shares were issued and outstanding, and 71,205 Company Shares
were held in treasury, as of January 22, 1997. All of the issued and
outstanding Company Shares have been duly authorized and are validly
issued, fully paid, and nonassessable. Except as set forth in the Disclosure
Schedule, there are no outstanding options, warrants, purchase rights,
subscription rights, conversion rights, exchange rights, or other contracts,
plans or commitments that could require Company to issue, sell, or otherwise
cause to become outstanding any of its capital stock. There are no
outstanding or authorized stock appreciation, phantom stock, profit
participation, or similar rights with respect to Company.
5.3 Authorization of Transaction. The execution and delivery of
this Agreement, the issuance and sale of the Shares to the Investor and the
compliance by the Company with the provisions hereof are within the
corporate power and authority of the Company, and, subject to the receipt of
shareholder approval as set forth in Section 3.7 hereof, have been duly
authorized by all necessary corporate action on the part of the Company.
This Agreement has been duly executed and delivered by the Company and
constitutes the legal, valid, binding and enforceable obligation of the
Company, subject to applicable bankruptcy, insolvency and similar laws
affecting creditors' rights generally, and subject, as to enforceability, to
general principles of equity (regardless of whether enforcement is sought in a
proceeding in equity or at law).
5.4 Noncontravention. Neither the execution and the delivery of
this Agreement, nor the consummation of the transactions contemplated
hereby, will (i) violate any constitution, statute, regulation, rule,
injunction, judgment, order, decree, ruling, charge, or other restriction of
any government, governmental agency, or court to which any of Company and its
Subsidiaries is subject or any provision of the charter or bylaws of any of
Company and its Subsidiaries or (ii) conflict with, result in a breach of,
constitute a default under, result in the acceleration of, create in any
party the right to accelerate, terminate, modify, or cancel, or require any
notice under any agreement, contract, lease, license, instrument or other
arrangement to
which any of Company and its Subsidiaries is a party or by which it is bound
or to which any of its assets is subject (or result in the imposition of any
Security Interest upon any of its assets), except for any violations,conflicts,
breaches, defaults, accelerations, terminations, modifications, cancellations,
notices or Security Interests which would not have a material adverse effect.
None of Company and its Subsidiaries is required to give any notice to, make
any filing with, or obtain any authorization, consent, or approval of any
government or governmental agency in order to consummate the transactions
contemplated by this Agreement.
5.5 Filings with the SEC. Company has made all filings with
the SEC that it has been required to make under the Securities Act and the
Exchange Act (collectively the "Public Reports"). Each of the Public Reports
has complied with the Securities Act and the Securities Exchange Act in all
material respects; and (ii) none of the Public Reports, as of their respective
dates, contained any untrue statement of a material fact or omitted to state a
material fact necessary in order to make the statements made therein, in light
of the circumstances under which they were made, not misleading.
5.6 Financial Statements. Company has filed a Quarterly
Report on Form 10-QSB for the fiscal quarter ended October 31, 1996 (the
"Most Recent Fiscal Quarter End"), and an Annual Report on Form 10-KSB
for the fiscal year ended April 30, 1996. The financial statements included in
or incorporated by reference into these Public Reports (including the related
notes and schedules) have been prepared in accordance with GAAP applied
on a consistent basis throughout the periods covered thereby (except as may
be noted therein), present fairly the financial condition of Company and its
Subsidiaries as of the indicated dates and the results of operations of
Company and its Subsidiaries for the indicated periods, are correct and
complete in all material respects, and are consistent with the books and
records of Company and its Subsidiaries; provided, however, that the interim
statements are subject to normal year-end adjustments.
5.7 Events Subsequent to Most Recent Fiscal Quarter End.
Since the Most Recent Fiscal Quarter End, there has not been (a) any
material adverse change in the business, financial condition, operations or
results of operations, of Company and its Subsidiaries taken as a whole, (b)
in the case of the Company, any declaration, setting aside or payment of any
dividend or any other distribution with respect to its capital stock, or (c)
any change by the Company in accounting principles or methods.
5.8 Undisclosed Liabilities. None of Company or its
Subsidiaries has any liability (whether known or unknown, whether asserted
or unasserted, whether absolute or contingent, whether accrued or unaccrued,
whether liquidated or unliquidated, whether due or to become due), including
any liability for taxes, which would be required to be disclosed in audited
financial statements (including the notes thereto) by GAAP, except for (i)
liabilities set forth in the balance sheet dated as of the Most Recent Fiscal
Quarter End (including in any notes thereto), (ii) liabilities which have
arisen after the Most Recent Fiscal Quarter End in the ordinary course of
business
(none of which results from, arises out of, relates to, is in the nature of, or
was caused by any breach of contract, breach of warranty, tort, infringement,
or violation of law), (iii) liabilities set forth on the Disclosure Schedule,
(iv) liabilities disclosed in the Public Reports or (v) liabilities that are
not material to the financial condition of the Company and its subsidiaries
taken as a whole.
5.9 Litigation. Except as disclosed in the Company Public
Reports, there are no claims, actions, suits, investigations or proceedings
pending or, to the knowledge of Company, threatened against Company or
any of is Subsidiaries or any of their respective properties at law or in
equity, before or by any federal, state, municipal or other governmental
agency or authority, or before any arbitration board or panel.
5.10 Tax Matters.
(a) Filing of Timely Tax Returns. Company and each
of its Subsidiaries have filed (or there has been filed on its behalf) all
material Tax Returns (as hereinafter defined) required to be filed by each of
them under applicable law. All such Tax Returns were and are in all material
respects true, complete and correct and filed on a timely basis, except to the
extent adequate reserves have been taken as set forth in subsection (b) below.
Company has delivered to Buyer correct and complete copies of all Tax
Returns, examination reports, statements of deficiencies assessed against or
agreed to by any of Company and its Subsidiaries since May 1, 1993 and all
Tax Rulings and Closing Agreements.
(b) Payment of Taxes. Company and each of its
Subsidiaries have, within the time and in the manner prescribed by law, paid
all material Taxes (as hereinafter defined) that are currently due and payable
except for which adequate reserves have been taken.
(c) Tax Reserves. Company and its Subsidiaries have
established on their books and records reserves adequate to pay all material
Taxes and reserves for deferred income taxes in accordance with GAAP.
(d) Tax Liens. There are no Tax liens upon the assets
of Company or any of its Subsidiaries except liens for Taxes not yet due.
(e) Withholding Taxes. Company and each of its
Subsidiaries have complied in all material respects with the provisions of the
Code relating to the withholding of Taxes, as well as similar provisions under
any other laws, and have, within the time and in the manner prescribed by
law, withheld from any employee wages and any amounts owed to any
independent contractor, creditor, stockholder, or other third party and paid
over to the proper governmental authorities all amounts required.
(f) Extensions of Time for Filing Tax Returns. Neither
Company nor any of its Subsidiaries has requested any extension of time
within which to file any Tax Return, which Tax Return has not since been
timely filed.
(g) Waivers of Statute of Limitations. Neither
Company nor any of its Subsidiaries has executed any outstanding waivers or
comparable consents regarding the application of the statute of limitations
with respect to any Taxes or Tax Returns.
(h) No Deficiency. No deficiency for any Taxes has
been proposed, asserted or assessed in writing against Company or any of its
Subsidiaries that has not been resolved and paid in full.
(i) Audit, Administrative and Court Proceedings. No
audits or other administrative proceedings or court proceedings are presently
pending with regard to any Taxes or Tax Returns of Company or any of its
Subsidiaries.
(j) Powers of Attorney. No power of attorney currently
in force has been granted by Company or any of its Subsidiaries concerning
any Tax matter.
(k) Tax Rulings. Neither Company nor any of its
Subsidiaries has received a Tax Ruling (as hereinafter defined) or entered
into a Closing Agreement (as hereinafter defined) with any taxing authority
that would have a continuing adverse effect after the Closing Date.
(l) Tax Sharing Agreements. Neither Company nor
any Subsidiary is a party to any agreement relating to allocating or sharing of
Taxes.
(m) Code Sections 280G and 162(m). Neither Company
nor any of its Subsidiaries is a party to any agreement, contract, or
arrangement that could result, on account of the transactions contemplated
hereunder, separately or in the aggregate, in the payment of any "excess
parachute payments" within the meaning of Section 280G of the Code or
nondeductible compensation under Code Section 162(m).
(n) Liability for Others. None of Company or any of its
Subsidiaries (A) has any liability for Taxes of any person other than
Company and its Subsidiaries (i) under Treasury Regulations
Section 1.1502-6 (or any similar provision of state, local or foreign law) as a
transferee or successor, (ii) by contract, or (iii) otherwise or (B) is a party
to any Tax allocation or sharing agreement.
(o) Continuity of Business Enterprises. Company
operates at least one significant historic business line, or owns at least a
significant portion of its historic business assets, in each case within the
meaning of Treasury Reg. Section 1.368-1(d).
(p) Other. None of the Company and its Subsidiaries
has filed a consent under Code Section 341(f) concerning collapsible
corporations. None of the Company and its Subsidiaries has been a United
States real property holding corporation within the meaning of Code Section
897(c)(2) during the applicable period specified in Code Section
897(c)(1)(A)(ii). Each of the Company and its Subsidiaries has disclosed on
its tax returns all positions taken therein that could give rise to a
substantial understatement of tax within the meaning of Code Section 6662 or
similar provision of state, local, or foreign Tax law.
(q) As used in this Agreement:
(i) "Taxes" means any Federal, state, county,
local or foreign taxes, charges, fees, levies, or other assessments,
including all net income, gross income, sales and use, ad valorem,
transfer, gains, profits, excise, franchise, real and personal property,
gross receipts, capital stock, production, business and occupation,
disability, employment, payroll, license, estimated, stamp, custom
duties, severance or withholding taxes or charges imposed by any
governmental entity, and includes any interest and penalties (civil or
criminal) on or additions to any such taxes;
(ii) "Tax Return" means a report, return or
other information required to be supplied to a governmental entity
with respect to Taxes including, where permitted or required,
combined or consolidated returns for a group of entities;
(iii) "Tax Ruling" means a written ruling of a
taxing authority relating to Taxes; and
(iv) "Closing Agreement" means a written and
legally binding agreement with a taxing authority relating to Taxes.
5.11 Labor Matters. There are no collective bargaining or other
labor union agreements to which the Company or any of its Subsidiaries is a
party or by which any of them is bound. Neither the Company nor any of its
Subsidiaries has encountered any labor union organizing activity, or had any
actual or, to the knowledge of the Company, threatened employee strikes,
work stoppages, slowdowns or lockouts.
5.12 ERISA Compliance.
(a) Schedule 3.12 contains a list and brief description
of all "employee pension benefit plans" (as defined in Section 3(2) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"))
(sometimes referred to herein as "Pension Plans"), "employee welfare benefit
plans" (as defined in Section 3(1) of ERISA) and all other bonus, pension,
profit sharing, deferred compensation, incentive compensation, stock
ownership, stock purchase, stock option, phantom stock, retirement,
vacation, severance, disability, death benefit, Christmas bonus,
hospitalization, medical or other plan, arrangement or understanding
(whether or not legally binding) providing benefits to any current or former
employee or director of the Company or any of its Subsidiaries (collectively,
"Benefit Plans") maintained, or contributed to, by the Company or any of its
Subsidiaries for the benefit of any officers or employees of the Company or
any of its Subsidiaries currently or within the last three years. The Company
has delivered, or will deliver within five days after the date hereof, to
Investor
true, complete and correct copies of (1) each Benefit Plan (or, in the case of
any unwritten Benefit Plans, descriptions thereof), (2) the most recent annual
report on Form 5500 filed with the Internal Revenue Service with respect to
each Benefit Plan (if any such report was required), (3) the most recent
summary plan description for each Benefit Plan for which such summary
plan description is required, and (4) each trust agreement and group annuity
contract relating to any Benefit Plan.
(b) All Pension Plans which are intended to be qualified
under Section 401(a) of the Code have been the subject of determination
letters from the Internal Revenue Service to the effect that such Pension
Plans are qualified and exempt from federal income taxes under Section
401(a) and 501(a), respectively, of the Code, and no such determination letter
has been revoked nor, to the knowledge of the Company, has revocation been
threatened, nor has any such Pension Plan been amended since the date of its
most recent determination letter or application therefore in any respect that
would adversely affect its qualification or materially increase its costs.
(c) No Pension Plan that the Company or any of its
Subsidiaries maintains, or to which the Company or any of its Subsidiaries is
or was previously obligated to contribute, is or was a defined benefit pension
plan. None of the Company, any of its Subsidiaries, any officer of the
Company or any of its Subsidiaries or any of the Benefit Plans which are
subject to ERISA, including the Pension Plans, or any trusts created
thereunder, or any trustee or administrator thereof, has engaged in a
"prohibited transaction" (as such term is defined in Section 406 of ERISA or
Section 4975 of the Code) or any other breach of fiduciary responsibility that
could subject the Company, any of its Subsidiaries or any officer of the
Company or any of its Subsidiaries to a material tax or penalty on prohibited
transactions imposed by such Section 4975 or to any material liability under
Section 502(i) or (1) of ERISA.
(d) With respect to any Benefit Plan that is an employee
welfare benefit plan, (i) no such Benefit Plan is unfunded or funded through
a welfare benefits fund, as such term is defined in Section 419(e) of the Code,
(ii) each such Benefit Plan that is a group health plan, as such term is
defined in Section 5000(b)(1) of the Code, complies in all material respects
with the applicable requirements of Section 4980B(f) of the Code, and (iii)
each such
Benefit Plan (including any such Plan covering retirees or other former
employees) may be amended or terminated without material liability to the
Company or any of its Subsidiaries on or at any time after the Effective Time.
(e) Each Benefit Plan conforms in all material respects
in form and operation to all applicable laws and regulations, and all reports
or information relating to such Benefit Plan required to be filed with any
governmental entity or disclosed to participants have been timely filed and
disclosed. No Benefit Plan holds any employer security or employer real
property within the meaning of Section 407 of ERISA.
(f) The consummation of the transactions contemplated
by this Agreement will not (i) entitle any current or former employee of the
Company or any Subsidiary thereof to severance pay, unemployment
compensation or any other payment or (ii) accelerate the time of payment or
vesting, or increase the amount of compensation due to any such employee or
former employee.
(g) Neither the Company nor any of its Subsidiaries has
announced a plan to create or a legally binding commitment to amend any
Benefit Plan or to create any new arrangement which would be a Benefit
Plan.
(h) All insurance premiums with respect to any Benefit
Plan have been paid in full. There are no retrospective adjustments provided
for under any insurance contracts maintained pursuant to any Benefit Plan
with regard to policy years or other periods ending on or before the date
hereof.
(i) No Benefit Plan or the deduction of any
contributions thereto by the Company or any of its Subsidiaries has been the
subject of audit by the Internal Revenue Service or the Department of Labor,
and no litigation or asserted claims exist against the Company or any of its
Subsidiaries or any Benefit Plan or fiduciary with respect thereto (other than
such benefit claims as are made in the normal operation of a Benefit Plan).
To the knowledge of the Company, there are no facts which would give rise
to or could give rise to any action, suit, grievance, arbitration or other
claim.
(j) To the knowledge of the Company, no Benefit Plan
covers current or former employees or directors who are not residents of the
United States of America.
(k) Each of the foregoing representations in this Section
5.12 to the extent it relates to events or circumstances at the Company's OPT
Industries, Inc. subsidiary prior to the acquisition of OPT Industries, Inc. by
the Company are limited to the knowledge of the Company and its
Subsidiaries.
5.13 Environmental Matters.
(a) To the knowledge of the Company and its
Subsidiaries, except as would not have a material adverse effect, the
Company and each of its Subsidiaries are in compliance with all applicable
federal, state, regional and local laws, statutes, ordinances, judgments,
rulings and regulations relating to any matters of pollution, protection of the
environment or environmental regulation or control (collectively,
"Environmental Laws"). Neither the Company nor any of its Subsidiaries
has received any written notice (i) of any violation of an Environmental Law
or (ii) of the institution of any suit, action, claim, proceeding or
investigation by any Governmental Entity or any third party of any such
violation.
(b) To the knowledge of the Company and its
Subsidiaries, except as would not have a material adverse effect, neither the
Company nor any of its Subsidiaries has (i) released or disposed of any
Hazardous Substances (as hereinafter defined) on, under, from or at any of
the Company's or any of its Subsidiaries' properties or any other properties,
other than in compliance with the Environmental Laws (ii) received any
written notice (w) of any violation of any Environmental Law or any other
law, statute, rule or regulation regarding Hazardous Substances on or under
any of the Company's or any of its Subsidiaries' properties or any other
properties, (x) of the institution or pendency of any suit, action, claim,
proceeding or investigation by any Governmental Entity or any third party of
any such violation, (y) of any actual or potential liability for the response
to or remediation of Hazardous Substance at or arising from any of the
Company's or any of its Subsidiaries' properties or any other properties, or
(z) of any actual or potential liability for the costs of response to or
remediation of Hazardous Substances at or arising from any of the Company's
or any of its Subsidiaries' properties or any other properties. For purposes
of this Agreement, the term "Hazardous Substance" shall mean any toxic or
hazardous materials or substances, including asbestos, chemicals, flammable
explosives, radioactive materials, petroleum and petroleum products and any
substances defined as, or included in the definition of, "hazardous
substances", "hazardous wastes", "hazardous materials" or "toxic substances"
under any Environmental Law.
(c) To the knowledge of the Company and its
Subsidiaries, (i) no Environmental Law imposes any obligation upon the
Company or its Subsidiaries arising out of or as a condition to any
transaction contemplated hereby, including, without limitation, any
requirement to modify or to transfer any permit or license, any requirement to
file any notice or other submission with any Governmental Entity, the
placement of any notice, acknowledgement, or covenant in any land records,
or the modification of or provision of notice under any agreement, consent
order, or consent decree and (ii) no lien has been placed upon any of the
Company's properties or its Subsidiaries' properties under any Environmental
Law.
5.14 Material Contracts and Agreements.
(a) Except as entered into in the ordinary course of
business consistent with past practice, there are no contracts or agreements
that are material to the business, financial condition, properties, assets,
liabilities or results of operations of the Company and its Subsidiaries taken
as a whole. For purposes of this Agreement, any contract with a current or
former officer, director or management employee shall be material.
(b) As of the date hereof, (a) no default by the
Company, and to the Company's knowledge no default by any other party, in
performance or failure to perform under, and no anticipatory breach of, any
of the contracts listed on Schedule 5.14 has occurred or is continuing, and
none of the parties to any such contract has alleged that the other has
defaulted in performance or failed to perform, other than (i) a default in
payment that shall not have continued more than 90 days from the date on
which the payment was originally due pursuant to the terms of the applicable
contracts, and (ii) a default or failure that is immaterial with respect to all
such contracts (provided that all such immaterial defaults or failures in the
aggregate are immaterial with respect to all such contracts when taken in the
aggregate), (b) there are no legal, administrative or other proceedings
threatened, pending or outstanding relating to the performance or status of
any of such contracts, and (c) the Company has not received notice of any
anticipatory breach, pending dispute or anticipated litigation arising from or
relating to any of such contracts, or notice that any of such contracts has
been or will be cancelled, revoked or otherwise terminated.
(c) Neither the Company nor any Subsidiary is subject
to any agreement which restricts competition with any other person or
provides that the Company or any Subsidiary may not engage in any business
or sell or distribute any product or service.
5.15 Intellectual Property. The Company and its Subsidiaries
own, or are licensed or otherwise have the right to use, all patents,
trademarks, trade names, service marks, copyrights, in each case whether
granted or applied for, and all other proprietary intellectual property rights
and computer programs which are material to the business, financial
condition or results of operations of the Company and its Subsidiaries taken
as a whole. No claims are pending or, to the knowledge of the Company,
threatened that the Company is infringing or otherwise adversely affecting
the rights of any person with regard to any patent, license, trademark, trade
name, service mark, copyright or other intellectual property right. To the
knowledge of the Company, no person is infringing the rights of the
Company with respect to any patent, license, trademark, trade name, service
mark, copyright or other intellectual property right.
5.16 Certain Fees. With the exception of the engagement of
Stern Bros. Valuation Advisors by Company, none of Company and its
Subsidiaries has any liability or obligation to pay any fees or commissions to
any financial advisor, broker, finder, or agent with respect to the
transactions contemplated by this Agreement.
5.17 Company Board of Directors Action. The Board of
Directors of Company (at a meeting duly called and held) has by the requisite
vote of all directors present (a) determined that the transactions contemplated
hereby are advisable and in the best interests of the Company and its
shareholders (other than the Sizemore family members), (b) approved this
Agreement, the issuance of the Shares to Investor and the other transactions
contemplated by this Agreement, (c) resolved, subject to their fiduciary duties
under applicable law, to recommend approval of the transactions
contemplated by this Agreement by the shareholders of the Company and
directed that such approval be submitted for consideration by the Company
stockholders at the special meeting, and (d) adopted a resolution to elect not
to be subject, to the extent permitted by applicable law, to any state takeover
law that may purport to be applicable to the transactions contemplated by
this Agreement. At such a meeting, the Board received the opinion of Stern
Bros. Valuation Advisors that the investment contemplated hereby is fair to
the Company and its shareholders from a financial point of view.
5.18 Proxy Statement. The Proxy Statement distributed to the
Company's stockholders in connection with the issuance of the Shares
contemplated by the Investment Agreement, including any amendments or
supplements thereto, shall not, at the time filed with the Commission, and at
any time thereafter through and including the closing date, contain any untrue
statement of material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they are made, not misleading.
Notwithstanding
the foregoing, Company makes no representation or warranty with respect to
any information provided by Investor for use in the Proxy Statement.
5.19 Good Title. The Company and each Subsidiary have good
and marketable title in fee simple to all of the Company's real property and
good title to all personal property, in each case free and clear of all liens,
encumbrances and defects, and (ii) any real or personal property held under
lease by the Company or any Subsidiary are held under a valid and
enforceable lease.
EXHIBIT B
DEMAND REGISTRATION RIGHTS
1.1 Demand Registration. At any time after the second
anniversary of the Closing Date, the Investor may demand registration under
the Securities Act of shares of Common Stock owned by it on Form S-1 or
any similar long-form registration ("Long-Form Registration") or Form S-2
or S-3 or any similar short-form registration ("Short-Form Registration").
The registration requested pursuant to this Section 1.1 is referred to herein
as "Demand Registration." In the event of a Demand Registration, Investor
shall have the right to include in said registration shares held by it without
cost other than (i) underwriters discounts, and (ii) fees and expenses of
Investor's own counsel.
(a) Number of Registrations. The Investor shall be
entitled to demand two Long-Form or Short-Form Registrations. A
registration will count as the Demand Registration when it has
become effective or is withdrawn prior to effectiveness at the request
of Investor; provided that in any event, the Company will pay all
registration expenses in connection with any registration initiated as
the Demand Registration as provided in Section 1.5;
(b) Priority on Demand Registrations. If the Demand
Registration is an underwritten offering, and the managing
underwriters advise the Company in writing that in their opinion the
number of shares of Common Stock requested to be included
exceeds the number of shares of Common Stock which can be sold in
such offering, the Company will include in such registration prior to
the inclusion of any securities which are not shares of Common
Stock owned by the Investor the number of shares of Investor's
Common Stock requested to be included which in the opinion of
such underwriters can be sold, and the balance of the shares of
Common Stock which the Investor requested to be included in such
offering shall be withheld from sale for a period of time requested by
the underwriters, but not to exceed one hundred eighty (180) days
from the effective date of the registration statement;
(c) Restrictions on Demand Registration. The
Company will not be obligated to effect the Demand Registration
unless (i) the number of shares to be registered in such offering
exceeds 1,086,930, (ii) the price to be paid per share in such offering
exceeds $1.005, and (iii) one hundred eighty (180) days have expired
since the effective date of a registration in which the Investor was
given "piggyback rights" pursuant to Section 1.2 hereof. The
Company may postpone the filing or the effectiveness of a
registration statement for the Demand Registration if the
Independent Directors shall determine that such Demand
Registration might have an adverse effect on any proposal or plan by
the Company to engage in any acquisition of assets (other than in the
ordinary course of business) or any merger, consolidation, tender
offer or similar transaction or would otherwise be seriously
detrimental to the Company or its shareholders; provided that in such
event, the Investor will be entitled to withdraw such request and that,
if such request is withdrawn, such Demand Registration will not be
considered as a Demand Registration;
(d) Selection of Underwriters. The Company will have
the right to select the investment banker(s) and manager(s) to
administer the offering, subject to the Investor's approval which will
not be unreasonably withheld.
1.2 Participation in Registered Offerings ("Piggyback
Rights"). If the Company at any time or times after the second anniversary of
the Closing Date proposes or is required to register any of its Common Stock
or other equity securities for public sale for cash under the Securities Act
(other than a registration on Form S-4 or Form S-8), or any applicable state
securities law, it will at each such time or times give written notice (a
"Notification") to the Investor of its intention to effect such registration
and, subject to the following, will include in such registration (to the
extent the Company proceeds with such registration) the shares of Common
Stock of
the Company with respect to which the Company has received a written
request for inclusion therein within 10 days after receipt by Investor (or its
transferees) of the Notification (a "Piggyback Registration"). If a Piggyback
Registration is an underwritten primary registration on behalf of the
Company, and the managing underwriter advises the Company in writing
that in its opinion the number of shares requested to be included in such
registration exceed the number which can be sold in such offering without a
material and adverse effect on the offering, the Investor and each other
shareholder exercising demand rights to include shares in the registration
statement (but not the Company to the extent it desires to include shares for
its own account) shall reduce on a pro rata basis the number of their shares to
be included in the registration statement as required by the underwriter to the
extent necessary to permit the sale or the disposition (in accordance with the
intended method of disposition thereof as aforesaid) by the Company of the
securities so registered.
1.3 Obligations of Investor. It shall be a condition
precedent to the obligation of the Company to register any Common Stock
pursuant to Section 1.1 or 1.2 that the Investor (or its transferees, as the
case may be) shall (i) furnish to the Company such information regarding the
Common Stock held and the intended method of disposition thereof and other
information concerning the Investor as the Company shall reasonably request
and as shall be required in connection with the registration statement to be
filed by the Company; (ii) agree to abide by such additional or customary
terms affecting the proposed offering as reasonably may be requested by the
managing underwriter of such offering, including a requirement, if
applicable, to withhold from the public market for a period of at least 180
days after any such offering, any shares excluded from the offering at the
instance of the underwriter as permitted under Sections 1.1 or 1.2 hereof; and
(iii) agree in writing in form satisfactory to the Company to pay all
underwriting discounts and commissions applicable to the securities being
sold by the Investor.
1.4 Registration Proceedings. If and whenever the
Company is required by the provisions of Section 1.1 or 1.2 to effect the
registration of the Common Stock under the Securities Act, until the
securities covered by such registration statement have been sold or for six (6)
months after effectiveness, whichever is the shorter period of time, the
Company shall:
(a) Prepare and file with the SEC a registration
statement with respect to such securities and use its reasonable best
efforts to cause such registration statement to become and remain
effective until the distribution contemplated by the registration
statement has been completed;
(b) Prepare and file with the SEC such amendments to
such registration statement and supplements to the prospectus
contained therein as may be necessary to keep such registration
statement effective until the distribution contemplated by the
registration statement has been completed;
(c) Furnish to the security holders participating in such
registration and to the underwriters of the securities being registered
such reasonable number of copies of the registration statement,
preliminary prospectus, final prospectus and such other documents
as such underwriters may reasonably request in order to facilitate the
public offering of such securities;
(d) Use its reasonable best efforts to register or qualify,
not later than the effective date of the registration statement, the
securities covered by such registration statement under such state
securities or "Blue Sky" laws of such jurisdictions as such
participating holders may reasonably request, except that the
Company shall not for any purpose be required to execute a general
consent to service of process or to qualify to do business as a foreign
corporation in any jurisdiction wherein it is not so qualified, and
except that the Company shall not be required to so register or
qualify in more than ten (10) such jurisdictions if in the good faith
judgment of the Independent Directors such additional registrations
or qualifications would be unreasonably expensive or harmful to the
consummation of the proposed offering;
(e) Notify the security holders participating in such
registration, promptly after it shall receive notice thereof, of the time
when such registration statement has become effective or a
supplement to any prospectus forming a part of such registration
statement has been filed;
(f) Notify such holders promptly of any request by the
SEC for the amending or supplementing of such registration
statement or prospectus or for additional information;
(g) Prepare and file with the SEC, promptly upon the
request of any such holders, any amendments or supplements to such
registration statement or prospectus which, in the opinion of counsel
for such holders, are required under the Securities Act or the rules
and regulations thereunder in connection with the distribution of
Common Stock by such holders;
(h) Prepare and promptly file with the SEC and
promptly notify such holders of the filing of such amendment or
supplement to such registration statement or prospectus as may be
necessary to correct any statements or omissions if, at the time when
a prospectus relating to such securities is required to be delivered
under the Securities Act, any event shall have occurred as the result
of which any such prospectus or any other prospectus as then in
effect would include an untrue statement of a material fact or omit to
state any material fact necessary to make the statements therein, in
light of the circumstances in which they were made, not misleading;
(i) In case any of such holders or any underwriter for
any such holders is required to deliver a prospectus at a time when
the prospectus then in circulation is not in compliance with the
Securities Act, the Company will prepare and file such supplements
or amendments to such registration statement and such prospectus or
prospectuses as may be necessary to permit compliance with the
requirements of the Securities Act;
(j) Advise such holders, promptly after it shall receive
notice or obtain knowledge thereof, of the issuance of any stop order
by the SEC suspending the effectiveness of such registration
statement or the initiation or threatening of any proceeding for that
purpose and promptly use its reasonable best efforts to prevent the
issuance of any stop order or to obtain its withdrawal if such stop
order should be issued;
(k) Not file any amendment or supplement to such
registration statement or prospectus which does not comply, to the
knowledge of the Company, in all material respects with the
requirements of the Securities Act or the rules and regulations
thereunder; and
(l) At the request of any such holder, (i) use its
reasonable best efforts to obtain and furnish on the effective date of
the registration statement or, if such registration includes an
underwritten public offering, at the closing provided for in the
underwriting agreement, a customary opinion, dated such date, of the
counsel representing the Company for the purposes of such
registration, addressed to the underwriters, if any, and to the holder
or holders making such request, stating that such registration
statement has become effective under the Securities Act and (ii) use
its reasonable best efforts to obtain customary letters dated on such
effective date, and such closing date, if any, from the independent
certified public accountants of the Company, addressed to the
underwriters, if any, and to the holder or holders making such
request, stating that they are independent certified public accountants
within the meaning of the Securities Act and dealing with such
matters as the underwriters may request, or, if the offering is not
underwritten, stating that in the opinion of such accountants, the
financial statements and other financial data pertaining to the
Company included in the registration statement or the prospectus or
any amendment or supplement thereto comply in all material respects
with the applicable accounting requirements of the Securities Act.
1.5 Expenses. With respect to each inclusion of
Common Stock in a registration statement pursuant to Section 1.1 or 1.2
hereof, all registration expenses, fees, costs and expenses of and incidental
to such registration, inclusion and public offering in connection therewith
shall be borne by the Company; provided, however, that holders participating in
the registration shall bear their pro rata share of the underwriting discount
and commissions and shall bear any fees and disbursements of accountants
and counsel retained by them (other than accountants and counsel also
retained by the Company). The fees, costs and expenses of registration to be
borne by the Company shall include, without limitation, all registration,
filing and NASD fees, printing expenses, fees and disbursements of counsel and
accountants for the Company (including the cost of any special audit
requested in order to effect such registration), fees and disbursements of
counsel for the underwriter or underwriters of such securities (if the
Company and/or selling security holders are required to bear such fees and
disbursements), all legal fees and disbursements and other expenses of
complying with state securities or "Blue Sky" laws of any jurisdiction in
which the securities to be offered are to be registered or qualified, and the
premiums and other costs of policies of insurance against liability arising out
of such public offering which the Company determines to obtain.
1.6 Indemnification of Investor. Subject to the
conditions set forth below, in connection with any registration of Securities
pursuant to Section 1.1 or 1.2 above, the Company agrees to indemnify and
hold harmless each person selling securities pursuant to said Sections and
each person, if any, who controls any such seller, within the meaning of
Section 15 of the Securities Act, as follows:
(a) Against any and all loss, claim, damage and expense
whatsoever arising out of or based upon (including, but not limited
to, any and all expense whatsoever reasonably incurred in
investigating, preparing or defending any litigation, commenced or
threatened in writing, or any claim whatsoever based upon) any
untrue or alleged untrue statement of a material fact contained in any
preliminary prospectus (if used prior to the effective date of the
registration statement), the registration statement or the prospectus
(as from time to time amended and supplemented), or in any
application or other document executed by the Company or based
upon written information furnished by the Company filed in any
jurisdiction in order to qualify the Company's securities under the
securities laws thereof; or the omission or alleged omission
therefrom of a material fact required to be stated therein or necessary
to make the statements therein not misleading; or any other violation
of applicable federal or state statutory or regulatory requirements or
limitations relating to action or inaction by the Company in the
course of preparing, filing, or implementing such registered offering;
provided, however, that the indemnity agreement contained in this
subsection 1.6(a) shall not apply to any loss, claim, damage, liability
or action arising out of or based upon any untrue or alleged untrue
statement or omission made in reliance upon and in conformity with
any information furnished in writing to the Company by or on behalf
of any seller expressly for use in connection therewith or arising out
of any action or inaction of any such seller;
(b) Subject to the provision contained in subsection
1.6(a) above, against any and all loss, liability, claim, damage and
expense whatsoever to the extent of the aggregate amount paid in
settlement of any litigation, commenced or threatened in writing, or
of any claim whatsoever based upon any such untrue statement or
omission or any such alleged untrue statement or omission
(including, but not limited to, any and all expense whatsoever
reasonably incurred in investigating, preparing or defending against
any such litigation or claim) if such settlement is effected with the
written consent of the Company;
(c) In no case shall the Company be liable under this
indemnity agreement with respect to any claim made against any
seller or any such controlling person unless the Company shall be
notified, by letter or by telegram confirmed by letter, of any action
commenced against such persons, promptly after such person shall
have been served with the summons or other legal process giving
information as to the nature and basis of the claim, but failure to so
notify the Company shall not relieve it from any liability which it
may have otherwise than on account of this indemnity agreement.
The Company shall be entitled to participate at its own expense in
the defense of any suit brought to enforce any such claim, but if the
Company elects to assume the defense, such defense shall be
conducted by counsel chosen by it, provided that such counsel is
reasonably satisfactory to the sellers or controlling persons,
defendants in any suit so brought. In the event the Company elects
to assume the defense of any such suit and retain such counsel, the
sellers or controlling persons, defendants in the suit, shall, after the
date they are notified of such election, bear the fees and expenses of
any counsel thereafter retained by them as well as any other expenses
thereafter incurred by them in connection with the defense thereof.
1.7 Indemnification of Company. Each person selling
securities in any registered offering pursuant to Section 1.1 or Section 1.2
hereof, severally and individually agrees to indemnify and hold harmless the
Company, each underwriter for the offering, and each of their officers,
directors and agents and each other person, if any, who controls the Company
within the meaning of Section 15 of the Securities Act against any and all
losses, liabilities, claims, damages and expenses as are indemnified by the
Company under Section 1.6; provided, however, that such indemnification by
such sellers shall be limited to statements or omissions, if any, made (or in
settlement of any litigation effected with the written consent of such seller's
alleged to have been made) in any preliminary prospectus, the registration
statement or prospectus or any amendment or supplement thereof or any
application or other document in reliance upon, and in conformity with,
written information furnished in respect of such seller by or on behalf of such
seller expressly for use in any preliminary prospectus, the registration
statement or prospectus or any amendment or supplement thereof, or in any
such application or other document or arising out of any action or in action of
such seller in implementing such registered offering. In case any such action
shall be brought against the Company, or any other person so indemnified, in
respect of which indemnity may be sought against any seller such seller shall
have the rights and duties given to the Company, and each other person so
indemnified shall have the rights and duties given to the several sellers, by
the provisions of subsection 1.6(c). The person indemnified agrees to notify
the sellers promptly after the assertion of any claim against the person
indemnified in connection with the sale of securities.
