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):
December 1, 1998
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 ID No.)
13402 South 71 Highway, Grandview, Missouri 64030
(Address of principal executive of offices) (Zip Code)
Registrant's telephone number,
including area code (816) 761-6314
N/A
(Former name or former address, if changed since last
report)
Item 5. Other Events.
On December 1, 1998, Torotel, Inc. (the
Company) announced the signing of a definitive
merger agreement between it and Electronika, Inc.
(formerly Caloyeras, Inc.), a private manufacturer of
magnetic components. The terms of the merger include:
* Torotel exchanging 1.8 million of its common
shares for all the outstanding Electronika shares.
* Torotel depositing 2.5 million shares of a new
Class A $1.00 Preferred Stock (5 percent cumulative,
non-participating, non-convertible) into escrow for
the benefit of the Electronika shareholders. The
Preferred Stock will be distributed annually over a
five-year period based on Electronika's earnings
performance following the merger.
* Torotel's founding family shareholders (the
Sizemore Family) will form a Voting Trust or similar
arrangement, allowing Peter Caloyeras (Electronika's
founder) to vote 525,165 shares of common stock held
by the Sizemore Family, which will represent 11.4% of
Torotel's outstanding common stock after the merger.
After giving effect to the Merger and the Voting
Trust, the Caloyeras family will hold, or direct the
voting of, 54.9% of Torotel's outstanding common
stock. The term of the Voting Trust will coincide
with the term of the Preferred Stock Escrow Period.
This transaction is subject to, among other things, a
review of Torotel's preliminary Proxy Statement by the
Securities and Exchange Commission (SEC),
satisfactory completion of customary due diligence
investigations by Torotel and Electronika, the receipt
and approval of the disclosure schedules required by
the merger agreement by December 24, 1998, and
approval by Torotel's shareholders.
The statements contained herein are forward-looking
statements within the meaning of the Private
Securities Litigation Reform Act of 1995, and are
subject to the safe harbor created by that Act. There
can be no assurance that the parties will consummate
the transaction contemplated by the definitive merger
agreement.
Item 7. Financial Statements and Exhibits.
(c) Exhibits.
Exhibit Description
1. Press release dated December 1, 1998
2. Merger Agreement dated November 24, 1998
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 hereunto duly authorized.
TOROTEL, INC.
Date: December 7, 1998 By: /s/ H. James Serrone
H. James Serrone
Vice President
of Finance and
Chief Financial
Officer
EXHIBIT INDEX
Exhibit Description
I Press Release dated December 1, 1998
II Merger Agreement date November 24, 1998
Exhibit I
NEWS BULLETIN
TOROTEL, INCORPORATED
FOR IMMEDIATE RELEASE
DECEMBER 1, 1998
TOROTEL AND ELECTRONIKA (CALOYERAS)
SIGN DEFINITIVE MERGER AGREEMENT
KANSAS CITY, MO, December 1 -- Torotel, Inc.
(AMEX:TTL), a manufacturer of power supplies and
magnetic components for power conversion, today
announced the signing of a definitive merger agreement
between it and Electronika, Inc. (formerly Caloyeras,
Inc.), a private manufacturer of magnetic components.
Completion of the merger will depend upon a
review of Torotel's preliminary Proxy Statement by the
Securities and Exchange Commission (SEC), and
approval by Torotel's shareholders. The completion of
the merger also is dependent on the satisfactory
completion of customary due diligence investigations
by Torotel and Electronika, and the receipt and
approval of the disclosure schedules required by the
merger agreement by December 24, 1998. The date of
the shareholders' meeting, as well as the Record Date
for voting at the meeting, should be announced by mid-
December. If all of the approvals are obtained, the
merger should be finalized by mid-February 1999.
These dates are subject to timely clearance by the
SEC. The terms of the merger include:
* Torotel exchanging 1.8 million of its common
shares for all the outstanding Electronika shares.
* Torotel depositing 2.5 million shares of a new
Class A $1.00 Preferred Stock (5 percent cumulative,
non-participating, non-convertible) into escrow for
the benefit of the Electronika shareholders. The
Preferred Stock will be distributed annually over a
five-year period based on Electronika's earnings
performance following the merger.
* Torotel's founding family shareholders (the
Sizemore Family) will form a Voting Trust or similar
arrangement, allowing Peter Caloyeras (Electronika's
founder) to vote 525,165 shares of common stock held
by the Sizemore Family, which will represent 11.4% of
Torotel's outstanding common stock after the merger.
After giving effect to the Merger and the Voting
Trust, the Caloyeras family will hold, or direct the
voting of, 54.9% of Torotel's outstanding common
stock. The term of the Voting Trust will coincide
with the term of the Preferred Stock Escrow Period.
Torotel, Inc. specializes in the design and
manufacture of high-power, high-reliability, high-
density switching power supplies, rack mounted power
supplies, and a broad range of precision
magnetic components used in commercial, industrial and
military electronics. Torotel's products are sold to
original equipment manufacturers for use in computers,
telecommunications systems, digital control devices,
and avionics equipment.
This news release includes forward-looking statements
within the meaning of the Private Securities
Litigation Reform Act of 1995, and are subject to the
safe harbor created by that Act. These statements are
based on assumptions about a number of important
factors and involve risks and uncertainties that could
cause actual results to be different from what is
stated here. The specific risk factor for this
release is that all approvals might not be obtained
for the proposed merger and that the required
disclosure schedules may be disapproved by either
Torotel or Electronika. Other risk factors are
detailed from time to time in Torotel's Securities and
Exchange Commission filings.
Exhibit II
AGREEMENT AND PLAN OF MERGER
AMONG
TOROTEL, INC.
TOROTEL MERGER SUBSIDIARY, INC.
ELECTRONIKA, INC.
AND THE
ELECTRONIKA STOCKHOLDERS
NAMED HEREIN
Dated November 24, 1998
TABLE OF CONTENTS
Page
ARTICLE ITHE MERGER
Section 1.1 The Merger
Section 1.2 Effective Time of the Merger
Section 1.3 Merger Consideration and
Conversion of Shares
Section 1.4 Preferred Shares Escrow.
Section 1.5 Distributions of Preferred
Shares.
Section 1.6 Net Worth Determination.
Section 1.7 Net Worth Adjustment.
Section 1.8 EBITDA.
Section 1.9 Closing
ARTICLE IITHE SURVIVING CORPORATION
Section 2.1 Articles of Incorporation and
Bylaws
Section 2.2 Board of Directors and
Officers
Section 2.3 Employment of Peter Caloyeras
ARTICLE IIIREPRESENTATIONS AND WARRANTIES OF
ELECTRONIKA
Section 3.1 Subsidiaries.
Section 3.2 Organization and
Qualification.
Section 3.3 Capitalization.
Section 3.4 Financial Condition.
Section 3.4.1 Assets and Liabilities at
Closing.
Section 3.4.2 Electronika Financial
Statements.
Section 3.5 Taxes.
Section 3.6 Undisclosed Liabilities.
Section 3.7 Litigation and Claims.
Section 3.8 Properties.
Section 3.9 Contracts and Other
Instruments.
Section 3.10 Validity of Electronika
Material Contracts.
Section 3.11 Charter Instruments.
Section 3.12 Related Party Transactions.
Section 3.13 Employee Benefit Plans.
Section 3.13.1 Arrangements.
Section 3.13.2 ERISA Plans.
Section 3.13.3 Other Employee Fringe
Benefits.
Section 3.13.4 ERISA Affiliate.
Section 3.13.5 Identification of Benefit
Plans.
Section 3.13.6 MEPPA Liability/Post-
Retirement Medical Benefits/
Defined Benefit Plans/Supplemental
Retirement Plans.
Section 3.13.7 Liabilities.
Section 3.14 Patents, Trademarks,
Et Cetera
Section 3.15 Questionable Payments.
Section 3.16 Authority to Merge.
Section 3.17 Year 2000 Compliance.
Section 3.18 Assets of Magnetika/East;
Name Change
Section 3.19 Environmental Matters
Section 3.20 Completeness of Disclosure
ARTICLE IVREPRESENTATIONS AND WARRANTIES
OFPARENT AND ACQUISITION
Section 4.1 Subsidiaries
Section 4.2 Organization and
Qualification
Section 4.3 Capitalization.
Section 4.4 Financial Condition
Section 4.5 Taxes.
Section 4.6 Undisclosed Liabilities.
Section 4.7 Litigation and Claims.
Section 4.8 Properties.
Section 4.9 Contracts and Other
Instruments.
Section 4.10 Validity of Parent Material
Contracts.
Section 4.11 Charter Instruments
Section 4.12 Employee Benefit Plans
Section 4.12.1 Arrangements
Section 4.12.2 ERISA Plans
Section 4.12.3 Other Employee Fringe
Benefits
Section 4.12.4 ERISA Affiliate
Section 4.12.5 Identification of Benefit
Plans
Section 4.12.6 MEPPA Liability/Post-
Retirement Medical Benefits/
Defined Benefit Plans/Supplement
Section 4.12.7 Liabilities
Section 4.13 Patents, Trademarks,
Et Cetera.
Section 4.14 Questionable Payments
Section 4.15 Authority to Merge.
Section 4.16 Environmental Matters
Section 4.17 Related Party Transactions
Section 4.18 Year 2000 Compliance
Section 4.19 Interim Operations of
MergerSub
Section 4.20 Completeness of Disclosure.
ARTICLE VCOVENANTS OF ELECTRONIKA
Section 5.1 Articles of Incorporation and Bylaws
Section 5.2 Shares and Options.
Section 5.3 Dividends and Purchases of Stock.
Section 5.4 Borrowing of Money.
Section 5.5 Access.
Section 5.6 Advice of Changes.
Section 5.7 Confidentiality
Section 5.8 Public Statements.
Section 5.9 Parent Stockholder Approval.
Section 5.10 Conduct of Business.
Section 5.11 Reasonable Efforts.
Section 5.12 Exclusive Dealing
Section 5.13 Obligation to Update Disclosure
Letter
ARTICLE VICOVENANTS OF PARENT AND ACQUISITION
Section 6.1 Stockholder Approval.
Section 6.2 Proxy Statement.
Section 6.3 Articles of Incorporation and Bylaws.
Section 6.4 Shares and Options.
Section 6.5 Dividends and Purchases of Stock.
Section 6.6 Borrowing of Money.
Section 6.7 Access.
Section 6.8 Advice of Changes.
Section 6.9 Confidentiality.
Section 6.10 Public Statements.
Section 6.11 Conduct of Business.
Section 6.12 Reasonable Efforts.
Section 6.13 Exclusive Dealing.
Section 6.14 Business After the Effective Time
Section 6.15 Issuance and Listing of Stock
Section 6.16 Obligation to Update Disclosure
Letter
ARTICLE VIIELECTRONIKA'S CONDITIONS TO CLOSING
Section 7.1 Voting Trust.
Section 7.2 Accuracy of Representations and
Compliance With Conditions.
Section 7.3 Material Adverse Change.
Section 7.4 Other Documents.
Section 7.5 Review of Proceedings.
Section 7.6 Legal Action.
Section 7.7 No Governmental Action.
Section 7.8 Consents Needed
Section 7.9 Other Agreements.
Section 7.10 Closing Certificate
Section 7.11 Parent Disclosure Letter
ARTICLE VIIIPARENT'S AND ACQUISITION'SCONDITIONS
TO CLOSING
Section 8.1 Voting Trust
Section 8.2 Accuracy of Representations and
Compliance With Conditions.
Section 8.3 Material Adverse Change.
Section 8.4 Other Documents.
Section 8.5 Review of Proceedings.
Section 8.6 Legal Action.
Section 8.7 No Governmental Action.
Section 8.8 Fairness Opinion.
Section 8.9 Consents Needed
Section 8.10 Other Agreements
Section 8.11 Stockholder Approval
Section 8.12 Closing Certificate
Section 8.13 Electronika Disclosure Letter
ARTICLE IXTERMINATION
Section 9.1 Mandatory Termination
Section 9.2 Optional Termination
Section 9.3 Effect of Termination
ARTICLE XTRANSFER RESTRICTIONS; GOVERNANCE
Section 10.1 Restrictive Legends.
Section 10.2 Further Restrictions
Section 10.3 Investment Representations.
Section 10.4 Directors.
Section 10.5 Prohibited Stockholder Actions.
Section 10.6 Prohibited Actions by Parent.
Section 10.7 Definition of Independent Approval
Section 10.8 Definition of Affiliate and Family
Members
Section 10.9 Indemnification; Insurance.
ARTICLE XIMISCELLANEOUS
Section 11.1 Survival
Section 11.2 Further Actions
Section 11.3 Modification
Section 11.4 Notices
Section 11.5 Waiver
Section 11.6 Binding Effect
Section 11.7 No Third-Party Beneficiaries
Section 11.8 Separability
Section 11.9 Headings
Section 11.10 Counterparts; Governing Law
Section 11.11 Assignment.
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of
November 24 , 1998 (the Agreement), is entered into
by and among Torotel, Inc., a Missouri corporation
(Parent), Torotel Merger Subsidiary, Inc., a
Missouri corporation and a wholly-owned subsidiary of
Parent (MergerSub), Electronika, Inc., a California
corporation (Electronika), and the stockholders of
Electronika identified on the signature page to this
Agreement (the Electronika Stockholders). MergerSub
and Electronika may sometimes be referred to herein
collectively as the Constituent Corporations.
Parent, MergerSub, Electronika and the Electronika
Stockholders may collectively be referred to herein as
the Parties.
WHEREAS, the Parties desire to enter into this
Agreement pursuant to which Parent will purchase
Electronika by merging Electronika with and into
MergerSub in a tax free reorganization;
WHEREAS, pursuant to the Merger (as defined below),
MergerSub will be the surviving corporation (the
Surviving Corporation), Electronika will cease to
exist and Parent will own 100% of the outstanding
capital stock of MergerSub; and
WHEREAS, pursuant to the Merger, the Electronika
Stockholders will receive, in the aggregate,
(i)1,800,000 shares of the common stock of Parent, par
value $0.50 per share (the Parent Common Stock), and
(ii) 2,500,000 shares of new Class A $1.00 Preferred
Stock of Parent, par value $.50 per share (the Parent
Preferred Stock), which will be deposited in escrow
for the benefit of the Electronika Stockholders. The
rights, preferences and privileges of the Parent
Preferred Stock are as set forth in Exhibit A attached
hereto.
NOW, THEREFORE, in consideration of the foregoing and
the mutual covenants and agreements herein contained,
and intending to be legally bound hereby, the Parties
hereby agree as follows:
ARTICLE I
THE MERGER
Section I.1 The Merger. At the Effective Time (as
defined below), Electronika shall be merged with and
into MergerSub and the separate existence of
Electronika shall thereupon cease (the Merger).
Upon the effectiveness of the Merger, the Surviving
Corporation shall possess all of the rights,
privileges, powers and franchises, of a public as well
as of a private nature, and be subject to all of the
restrictions, disabilities and duties, of each of the
Constituent Corporations; and the rights, privileges,
powers and franchises of each of the Constituent
Corporations, and all property, real, personal, and
mixed, and all that is due to any of the Constituent
Corporations on whatever account, shall be vested in
the Surviving Corporation; but all rights of creditors
and owings upon any property of any of the Constituent
Corporations shall be preserved unimpaired, and all
debts, liabilities and duties of the Constituent
Corporations shall thenceforth attach to the Surviving
Corporation and may be enforced against it to the same
extent as if these debts, liabilities and duties had
been incurred or contracted by it.
Section I.2 Effective Time of the Merger. If all
f the conditions precedent to the Parties' obligations
to consummate the Merger under this Agreement are
satisfied or waived and this Agreement has not been
terminated, the Parties shall cause the Articles of
Merger in the form attached hereto as Exhibit B (the
Articles of Merger) to be properly executed and
filed with the Missouri Secretary of State, in
accordance with Section 351.458 of the Missouri
General and Business Corporation Law, and shall cause
to be filed with the California Secretary of State, in
accordance with Section 1108(d)(1) of the California
General Corporation Law, a copy of the Articles of
Merger certified by the Missouri Secretary of State.
The Merger shall become effective at such time as (i)
the Missouri Secretary of State issues a Certificate
of Merger and (ii) said Certificate of Merger is filed
with, and accepted for filing by, the California
Secretary of State (the Effective Time).
Section I.3 Merger Consideration and Conversion of
Shares. As of the Effective Time, by virtue of the
Merger and without any action on the part of any
holder thereof:
(a) The shares of common stock of MergerSub which
are issued and outstanding immediately prior to the
Effective Time shall not be changed or converted as a
result of the Merger, but shall remain outstanding as
shares of the Surviving Corporation.
(b) All of the outstanding shares of capital stock
of Electronika issued and outstanding immediately
prior to the Effective Time (the Electronika Shares)
shall be converted into the right to receive, in the
aggregate, the following: (i) 1,800,000 newly issued
shares of Parent Common Stock (the Common Shares);
and (ii) 2,500,000 shares of Parent Preferred Stock
(the Preferred Shares). The Preferred Shares shall
be deposited into, and shall be subject to the terms
of, the escrow described in Section 1.4 below and the
Escrow Agreement to be entered into in accordance
therewith. The Common Shares and the Preferred Shares
(together, the Merger Shares) shall be subject to
the restrictions on transfer as described in Article X
below.
(c) Upon surrender to Parent of the certificate or
certificates which, immediately prior to the Effective
Time, represented the Electronika Shares, the
Electronika Stockholders shall be entitled to receive
in exchange therefor, on a pro rata basis (as set
forth on Schedule 1.3 hereto), a certificate or
certificates representing the Merger Shares into which
the Electronika Shares shall have been converted
pursuant to the provisions of Section 1.3(b), subject
to the depositing of the Preferred Shares into escrow
in accordance with Section 1.4.
Section I.4 Preferred Shares Escrow. At the
Effective Time, the Preferred Shares shall be
deposited into escrow (the Escrow), to be held by an
escrow agent mutually acceptable to the parties (the
Escrow Agent), in accordance with the provisions of
an Escrow Agreement in the form attached hereto as
Exhibit C. The Escrow Agreement shall provide for the
distribution to the Electronika Stockholders of the
Preferred Shares, on a pro rata basis, at the
expiration of each of five payment periods, based on
the economic performance of the Surviving Corporation
during each such period, as determined in accordance
with the provisions of Section 1.5 below. The
determination of the number of Preferred Shares to be
distributed shall be made at the completion of each of
five periods (each an Escrow Payment Period and
together the Escrow Period), with (i) the first
Escrow Payment Period commencing at the Effective Time
and ending on the last day of the first fiscal year of
the Surviving Corporation following the Effective
Time, (ii) the next three Escrow Payment Periods being
the next three successive full fiscal years of the
Surviving Corporation immediately following the fiscal
year in which the Effective Time is a part and (iii)
the remaining Escrow Payment Period being nine (9)
months of the fourth fiscal year of the Surviving
Corporation immediately following the fiscal year in
which the Effective Time is a part (provided that for
the calculations to be made pursuant to Section 1.5,
such nine-month period shall be treated as three-
fourths of the full fiscal year). At the end of the
Escrow Period, after taking into account all
distributions to be made pursuant to Section 1.5 and
all Net Worth Adjustments to be made pursuant to
Section 1.7, all Preferred Shares remaining in the
Escrow, if any, shall be canceled and return to the
status of authorized but unissued shares. In no event
shall the Electronika Stockholders (i) be entitled to
receive in excess of 2,500,000 Preferred Shares or
(ii) be required to return to Parent any Common Shares
received by them in the Merger or (except as set forth
in Section 1.7) pay to Parent any other amounts with
respect to the failure of the Surviving Corporation to
attain any financial targets following the Effective
Time.
Section I.5 Distributions of Preferred Shares. The
number of Preferred Shares to be distributed at the
end of each Escrow Payment Period shall be determined
based on the amount of EBITDA (as defined below)
generated by the Surviving Corporation during such
Escrow Payment Period, subject to any Net Worth
Adjustment as provided in Section 1.7 below, as
follows: (i) for each One Dollar ($1.00) of EBITDA
generated by the Surviving Corporation during the
applicable Escrow Payment Period, one Preferred Share
shall be released to the Electronika Stockholders, on
a pro rata basis; and (ii) if the EBITDA for any
Escrow Payment Period is negative, then such negative
amount shall be carried forward to the next Escrow
Payment Period (and succeeding Escrow Payment Periods,
if necessary) and subtracted from the EBITDA for that
next period, such that Preferred Shares shall only be
released when such sum is positive. Within 90 days
after the end of the applicable Escrow Payment Period,
Parent shall prepare and deliver to the Electronika
Stockholders a schedule (the EBITDA Schedule), which
shall set forth in reasonable detail Parent's estimate
of the EBITDA of the Surviving Corporation for such
Escrow Payment Period. The EBITDA Schedule shall (i)
be based upon the books and records of the Surviving
Corporation and the generally accepted accounting
principles used by Parent in the preparation of its
financial statements, (ii) be certified as true and
correct by the Chief Financial Officer of Parent and
(iii) be accompanied by the certification of the
independent auditors of Parent. Upon the receipt by
the Electronika Stockholders of the EBITDA Schedule,
the Electronika Stockholders may have the same
verified by their independent public accountants. If
the EBITDA Schedule as submitted by Parent is
acceptable to the Electronika Stockholders, then such
EBITDA Schedule shall be deemed final and shall be
used to determine the amount of the Preferred Shares
to be released from the Escrow. If the EBITDA
Schedule is not acceptable to the Electronika
Stockholders, the Electronika Stockholders shall
deliver to Parent within 30 days after their receipt
of the EBITDA Schedule a statement describing their
objections thereto (setting forth the amount proposed
as an adjustment thereto and the basis for such
objection). Failure of the Electronika Stockholders
to so object to the EBITDA Schedule as submitted by
Parent shall constitute acceptance thereof by the
Electronika Stockholders. If the Electronika
Stockholders object to such EBITDA Schedule, Parent
and the Electronika Stockholders shall use their
reasonable efforts to resolve any such objections, but
if they do not reach a final resolution within 20 days
after Parent has received the statement of objections,
Parent and the Electronika Stockholders shall select
an independent, nationally recognized accounting firm
(the Accounting Firm) to resolve any remaining
objections. The Accounting Firm shall, within 30 days
after submission to it of any remaining objections,
determine and report to the parties upon the items
objected to and such determination by the Accounting
Firm shall be conclusive and binding upon Parent and
the Electronika Stockholders absent fraud or manifest
error. If the Accounting Firm determines that a net
adjustment should be made to the EBITDA Schedule in
favor of the Electronika Stockholders equal to at
least $25,000, then the costs and fees of the
Accounting Firm shall be borne and paid by Parent;
otherwise, the costs and fees of the Accounting Firm
shall be borne and paid by the Electronika
Stockholders. If Parent fails to deliver an EBITDA
Schedule to the Electronika Stockholders within the
requisite 90-day period, the Electronika Stockholders
may deliver a proposed EBITDA Schedule to Parent, and,
if the EBITDA Schedule so submitted is acceptable to
Parent, then such EBITDA Schedule shall be deemed
final. If said EBITDA Schedule is not acceptable to
Parent, Parent shall follow the same procedures
specified above with respect to the Electronika
Stockholders for objecting to said EBITDA Schedule.
Section I.6 Net Worth Determination. As provided
in Section 3.4.1, Electronika has represented and
warranted that, on the Closing Date (as defined
below), the assets of Electronika will include at
least $400,000 of cash, cash equivalents, accounts
receivable, notes receivable, inventory, work in
process, prepaids, machinery, equipment and deposits,
net of all liabilities of any kind whatsoever (the
Net Worth Amount). If on or before April 30, 1999,
Parent determines that the Net Worth Amount was less
than $400,000, Parent shall prepare and deliver to the
Electronika Stockholders a schedule setting forth
Parent's proposed determination of the Net Worth
Amount as of the Closing Date (the Closing
Schedule). Failure of Parent to deliver a Closing
Schedule to the Electronika Stockholders on or before
such date shall constitute acceptance of the Net Worth
Amount by Parent. The Closing Schedule shall be based
upon the books and records of the Surviving
Corporation and the generally accepted accounting
principles used by Parent in the preparation of its
financial statements and be certified as true and
correct by the Chief Financial Officer of Parent.
Upon the receipt by the Electronika Stockholders of
the Closing Schedule, the Electronika Stockholders may
have the same verified by their independent public
accountants. If the Closing Schedule as submitted by
Parent is acceptable to the Electronika Stockholders,
then such Closing Schedule shall be deemed final and
shall be used to determine the amount of the Net Worth
Adjustment required by Section 1.7. If the Closing
Schedule is not acceptable to the Electronika
Stockholders, the Electronika Stockholders shall
deliver to Parent within 30 days after their receipt
of the Closing Schedule a statement describing their
objections thereto (setting forth the amount proposed
as an adjustment thereto and the basis for such
objection). Failure of the Electronika Stockholders
to so object to the Closing Schedule as submitted by
Parent within said 30-day period shall constitute
acceptance thereof by the Electronika Stockholders.
If the Electronika Stockholders object to such Closing
Schedule, Parent and the Electronika Stockholders
shall use their reasonable efforts to resolve any such
objections, but if they do not reach a final
resolution within 20 days after Parent has received
the statement of objections, Parent and the
Electronika Stockholders shall utilize the Accounting
Firm to resolve any remaining objections. The
Accounting Firm shall, within 30 days after submission
to it of any remaining objections, determine and
report to the parties upon the items objected to and
such determination by the Accounting Firm shall be
conclusive and binding upon Parent and the Electronika
Stockholders absent fraud or manifest error. If the
Accounting Firm determines that a net adjustment
should be made to the Closing Schedule in favor of the
Electronika Stockholders equal to at least $25,000,
then the costs and fees of the Accounting Firm shall
be borne and paid by Parent; otherwise, the costs and
fees of the Accounting Firm shall be borne and paid by
the Electronika Stockholders.
Section I.7 Net Worth Adjustment. If the Net Worth
Amount as shown on the Closing Schedule as finally
determined pursuant to Section 1.6 is less than
$400,000, the number of Preferred Shares to be
distributed from the Escrow during an Escrow Payment
Period shall be reduced, on a dollar-for-dollar basis,
in an amount equal to the difference between the Net
Worth Amount as finally determined and $400,000 (the
Net Worth Adjustment). If the Net Worth Amount as
shown on the Closing Schedule as finally determined
pursuant to Section 1.6 is more than $400,000, the
number of Preferred Shares to be distributed from the
Escrow during an Escrow Payment Period shall be
increased, on a dollar-for-dollar basis, in an amount
equal to the difference between $400,000 and the Net
Worth Amount as finally determined. For example, if
the Net Worth Amount as finally determined pursuant to
Section 1.6 is $200,000 and during the first Escrow
Payment Period the Surviving Corporation has $300,000
in EBITDA, 100,000 Preferred Shares would be released
to the Electronika Stockholders from the Escrow and no
further Net Worth Adjustments would be made during the
Escrow Period. Conversely, if the Net Worth Amount as
finally determined is $500,000 and during the first
Escrow Payment Period the Surviving corporation has
$300,000 in EBITDA, 400,000 Preferred Shares would be
released to the Electronika Stockholders from the
Escrow. If the aggregate amount of EBITDA (as finally
determined pursuant to Section 1.5) generated by the
Surviving Corporation during the Escrow Period is less
than the aggregate amount of the Net Worth Adjustment
(as finally determined pursuant to Section 1.6), any
remaining Net Worth Adjustment that has not been
applied against the Preferred Shares distribution
shall be paid by the Electronika Stockholders, on a
pro rata basis (as set forth on Schedule 1.3 hereto),
to Parent in cash within 30 days after the termination
of the Escrow.
Section I.8 EBITDA. As used herein, the term
EBITDA shall mean, with respect to any fiscal
period, the sum of the Surviving Corporation's net
earnings (or loss) before interest expense, taxes,
depreciation and amortization for said period, as
determined in accordance with generally accepted
accounting principles, exclusive of any mutually
agreeable allocations between Parent and the Surviving
Corporation.
Section 1.9 Closing. The closing of the
transactions contemplated by this Agreement shall take
place on the third business day following the
satisfaction or waiver of all conditions to closing
contained herein at the offices of Shook, Hardy &
Bacon L.L.P., 9401 Indian Creek Parkway, Overland
Park, Kansas 66210, or at such other date, time and
place as the Parties may agree (the Closing). The
date on which the Closing occurs is sometimes referred
to herein as the Closing Date.
ARTICLE II
THE SURVIVING CORPORATION;
EMPLOYMENT OF PETER CALOYERAS
Section II.1 Articles of Incorporation and Bylaws.
The articles of incorporation and the bylaws of
MergerSub as in effect at the Effective Time shall
from and after the Effective Time be the articles of
incorporation and bylaws of the Surviving Corporation,
as the same may be amended from time to time, except
that the name of the Surviving Corporation shall be
changed to Electronika, Inc.
Section II.2 Board of Directors and Officers. The
officers and directors of MergerSub at the Effective
Time shall be the officers and directors of the
Surviving Corporation, each to serve, subject to the
Surviving Corporation's bylaws, until his or her
respective successor shall have been elected and
qualified.
Section II.3 Employment of Peter Caloyeras. From
and after the Effective Time, Peter Caloyeras shall be
the Chairman of the Board and Chief Executive Officer
of Parent and the Surviving Corporation (subject to
his removal by the Board of Directors of Parent and
the Surviving Corporation in accordance with their
respective bylaws), for which he will receive an
annual salary during the Escrow Period of at least
$50,000.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF ELECTRONIKA
Electronika and the Electronika Stockholders shall
deliver to Parent, within 30 days of the execution
hereof, a disclosure letter (the Electronika
Disclosure Letter). Except as specifically set forth
in the Electronika Disclosure Letter, Electronika and
the Electronika Stockholders hereby represent and
warrant to Parent and MergerSub, as follows:
Section III.1 Subsidiaries. (i) has no
subsidiaries and (ii) has no material debt (other than
trade accounts receivable) or equity interest, or
right or option to acquire any debt or equity
interest, in any corporation, partnership, individual,
association, trust or any other entity or organization
(a Person). As of the date hereof, the Electronika
Stockholders own, directly and indirectly, the number
of shares of Parent Common Stock set forth in Schedule
3.1 of the Electronika Disclosure Letter.
Section III.2 Organization and Qualification.
Electronika is a corporation duly organized, validly
existing, and in good standing under the laws of its
jurisdiction of incorporation, with all requisite
power and authority, and all necessary consents,
authorizations, approvals, orders, licenses,
certificates, and permits of and from, and
declarations and filings with, all federal, state,
local, and other governmental authorities and all
courts and other tribunals, to own, lease, license,
and use its properties and assets and to carry on the
business in which it is now engaged and the business
in which it contemplates engaging, except where the
failure to have obtained any of the foregoing would
not have a material adverse effect on its financial
condition, results of operations, business or
prospects (a Material Adverse Effect). Electronika
is duly qualified to transact the business in which it
is engaged and is in good standing as a foreign
corporation in every jurisdiction in which its
ownership, leasing, licensing, or use of property or
assets or the conduct of its business makes such
qualification necessary, except where failure to be so
qualified would not have a Material Adverse Effect.
Schedule 3.2 of the Electronika Disclosure Letter
includes a list of the jurisdictions in which
Electronika is qualified to do business.
Section III.3 Capitalization. The authorized
capital stock of Electronika consists of 20,000
shares of common stock, par value $100.00 per share
(the Electronika Common Stock), of which 1,000
shares are outstanding and 20,000 shares of preferred
stock, no shares of which are outstanding. All such
outstanding shares of Electronika Common Stock were
validly authorized and issued, and are fully paid, and
nonassessable, have not been issued and are not owned
or held in violation of any preemptive right of
stockholders, and are owned of record and beneficially
by the Electronika Stockholders, in each case free and
clear of all liens, security interests, pledges,
charges, encumbrances, stockholders' agreements, and
voting trusts. There is no commitment, plan, or
arrangement to issue, and no outstanding option,
warrant, or other right calling for the issuance of,
any shares of capital stock of Electronika or any
security or other instrument convertible into,
exercisable for, or exchangeable for capital stock of
Electronika. There are no preemptive or similar
rights to subscribe for or to purchase capital stock
of Electronika.
Section III.4 Financial Condition.
Section III.4.1 Assets and Liabilities at Closing.
On the Closing Date, the assets of Electronika will
include at least $400,000 of cash, cash equivalents,
accounts receivable, notes receivable, inventory, work
in process, prepaids, machinery, equipment and
deposits, net of all liabilities of any kind
whatsoever.
Section III.4.2 Electronika Financial Statements.
Electronika has heretofore delivered to Parent (a) its
unaudited balance sheet as at fiscal year-end in each
of the years 1996 and 1997 together with statements of
income for each of the years then ended and (b) its
unaudited balance sheet as at June 30, 1998 (the
Electronika Balance Sheet Date), and unaudited
statements of income for the quarterly period then
ended (collectively, the Electronika Financial
Statements). The balance sheets included in the
Electronika Financial Statements are true, complete
and accurate in all material respects and fairly
present the assets, liabilities and financial
condition of Electronika as at the respective dates
thereof, and the statements of income included in the
Electronika Financial Statements are true, complete
and accurate in all material respects and fairly
present the results of operations for the periods
referred to therein. Each of the Electronika
Financial Statements (a) has been prepared from, is in
accordance with and accurately reflects in all
material respects the books and records of Electronika
and (b) has been prepared in accordance with generally
accepted accounting principals (except as may be
indicated in the notes thereto) consistently applied
throughout the periods involved. Except as set forth
in Schedule 3.4.2 of the Electronika Disclosure
Letter, since June 30, 1998:
(a) There has at no time been a material adverse
change in the financial condition, results of
operations, business, properties, assets, liabilities,
or future prospects of Electronika.
(b) Electronika has not authorized, declared,
paid, or effected any liquidating distribution in
respect of its capital stock or any direct or indirect
redemption, purchase, or other acquisition of any
stock of Electronika.
(c) The operations and business of Electronika
have been conducted in all respects only in the
ordinary course.
(d) There has been no accepted purchase order or
quotation, arrangement, or understanding for future
sale of the products or services of Electronika other
than in the ordinary course of business.
(e) Electronika has not suffered an extraordinary
loss (whether or not covered by insurance) or waived
any right of substantial value.
There is no fact known to Electronika which materially
adversely affects or in the future (as far as the
Electronika Stockholders can foresee) may materially
adversely affect the financial condition, results of
operations, business, properties, assets, liabilities,
or future prospects of Electronika, other than
economic matters of general applicability.
Section III.5 Taxes. Electronika has filed all
income, franchise and other tax returns required to be
filed by it on and before the date hereof. All taxes
imposed by the United States, the State of California
or by any other state, municipality, subdivision, or
other taxing authority, which are due and payable by
Electronika have been paid in full or are adequately
provided for by reserves reflected on the latest
balance sheet included in the Electronika Financial
Statements. All contributions due from Electronika
pursuant to any unemployment insurance or workers
compensation laws and all sales or use taxes which are
due or payable by Electronika have been paid in full.
Electronika has withheld and paid to, or will cause to
be paid to, the appropriate taxing authorities all
amounts required to be withheld from the wages of its
employees under state law and the applicable
provisions of the Internal Revenue Code of 1986, as
amended (the Code). Electronika has furnished to
Parent true and complete copies of the federal income
tax returns and comparable state tax returns of
Electronika covering the years ended December 31, 1996
and 1997, constituting complete and accurate
representations in all material respects of the tax
liabilities of Electronika for the relevant periods
stated therein and accurately setting forth all
relevant material items, including the tax bases of
all assets, where required to be set forth in such tax
returns.
Section III.6 Undisclosed Liabilities. Except as
disclosed in Schedule 3.6 of the Electronika
Disclosure Letter and except for liabilities and
obligations reflected on the latest balance sheet
included in the Electronika Financial Statements or
arising in the ordinary course of business since the
date of such balance sheet, none of which latter
items, individually or in the aggregate, have a
Material Adverse Effect: (a) Electronika is not, and
none of its properties are, subject to any debts,
liabilities or obligations of any nature, whether
accrued, absolute, contingent or otherwise, which are
of a type required to be shown or reflected on
financial statements prepared in a manner consistent
with generally accepted accounting principles; and (b)
Electronika is not, and none of its properties are,
subject to any material debts, liabilities or obli-
gations of any nature, whether accrued, absolute, con-
tingent or otherwise, whether or not of a type which
are required to be shown or reflected on financial
statements prepared in a manner consistent with
generally accepted accounting principles.
Section III.7 Litigation and Claims. There is no
litigation, arbitration, claim, governmental or other
proceeding (formal or informal), or investigation
pending or, to the best knowledge of Electronika,
threatened, or any basis therefor known to
Electronika, with respect to Electronika or any of its
businesses, properties, or assets. Electronika is not
in violation of, or in default with respect to, any
law, rule, regulation, order, judgment, or decree such
as would cause a Material Adverse Effect; nor is
Electronika required to take any action in order to
avoid such violation or default.
Section III.8 Properties. Electronika represents
and warrants as to its properties as follows:
(a) All accounts and notes receivable reflected in
the Electronika Financial Statements, or arising since
the Electronika Balance Sheet Date, have been
collected, or, to the best knowledge of Electronika,
are and will be good and collectible, in each case at
the aggregate recorded amounts thereof without right
of recourse, defense, reduction, return of goods,
counterclaim, offset, or set off on the part of the
obligor, net, in the aggregate, of the applicable
reserve reflected on the Electronika Balance Sheet.
(b) All inventory of raw materials and work in
process of Electronika included in the Electronika
Balance Sheet or acquired since the Electronika
Balance Sheet Date is usable, and all inventory of
finished goods is good and marketable, on a normal
basis in the existing product lines of Electronika.
In no event do such inventories represent more than a
six-month supply measured by the volume of sales or
use for the year ended December 31, 1997. All
inventory is usable and salable in the normal course
of business.
(c) Attached as Schedule 3.8(c) to the Electronika
Disclosure Letter hereto is a true and complete list
of all real and other properties and assets owned by
Electronika or leased or licensed by Electronika from
or to a third party (including inventory but not
including Intangible Assets, as defined in Section
3.14 hereof), including with respect to such
properties and assets owned by Electronika a statement
of cost, book value and (except for land) reserve for
depreciation of each item for tax purposes, and net
book value of each item for financial reporting
purposes, and with respect to such properties and
assets leased or licensed by Electronika, a
description of such lease or license. All such real
and other properties and assets (including
Intangibles) owned by Electronika are reflected on the
Electronika Balance Sheet (except for acquisitions
subsequent to the Electronika Balance Sheet Date and
prior to the Effective Time which are either noted on
Schedule 3.8 or were approved in writing by Parent)
and are owned by Electronika free and clear of all
liens, mortgages, security interests, pledges, charges
and encumbrances other than (a) liens, mortgages,
security interests, pledges, charges or encumbrances
disclosed in the Electronika Financial Statements or
Schedule 3.8(c) of the Electronika Disclosure Letter,
(b) landlords', mechanics', carriers', workers' and
similar statutory liens arising in the ordinary course
of business for sums not delinquent, for which
adequate reserves or other appropriate provisions have
been made in the Electronika Financial Statements, (c)
deed restrictions and similar exceptions to clear
title not incurred in connection with indebtedness
that do not materially impair the existing use or
materially detract from the value of the assets or
property subject thereto, and (d) liens for current
taxes not delinquent, for which adequate reserves or
other appropriate provisions have been made in the
Electronika Financial Statements. All real and other
tangible properties and assets owned, leased, or
licensed by Electronika are in good and usable
condition (reasonable wear and tear, taking into
account the respective ages of the assets involved,
which is not such as to affect adversely the operation
of the business of Electronika, excepted).
(d) No real property owned, leased, or licensed by
Electronika lies in an area which is, or to the
knowledge of Electronika will be, subject to zoning,
use, or building code restrictions which would
prohibit, and to the best knowledge of Electronika, no
state of facts relating to the actions or inaction of
another person or entity or its ownership, leasing,
licensing, or use of any real or personal property
exists which would prevent, the continued effective
ownership, leasing, licensing, or use of such real
property in the business in which Electronika is now
engaged or the business which it now contemplates
engaging.
(e) The assets set forth on Schedule 3.8(c) of the
Electronika Disclosure Letter constitute all such
properties and assets which are necessary for the
operation of the business of Electronika in accordance
with its current methods of operation in all material
respects.
Section III.9 Contracts and Other Instruments.
Schedule 3.9 of the Electronika Disclosure Letter
includes a listing of all oral or written
(a) contracts, commitments, sales orders or purchase
orders, whether or not entered into in the ordinary
course of business, which involve future payments,
performance of services or delivery of goods and/or
materials, to or by Electronika of an amount or value
in excess of $50,000; (b) bonus, incentive
compensation, pension, profit sharing, stock option,
group insurance, medical reimbursement or employee
welfare or benefit plans of any nature whatsoever; (c)
collective bargaining agreements or other contracts or
commitments to or with labor unions or other employee
groups; (d) leases, contracts or commitments affecting
ownership of, title to, use of or any material
interest in real estate; (e) employment contracts or
other contracts, agreements, or commitments to or with
individual employees, consultants or agents of
Electronika that (i) extend for a period of more than
six months from the date hereof, (ii) provide for
earlier termination upon payment of a penalty or the
equivalent thereof or (iii) involve consideration
having a value in excess of $50,000; (f) equipment
leases providing (in any one lease or group of related
leases) for payments in excess of $25,000 per year;
(g) contracts under which the performance of any
obligation of Electronika is guaranteed by any of the
Electronika Stockholders or any third party, including
performance bonding arrangements; (h) contracts or
commitments providing for payments based in any manner
upon the revenues, purchases or profits of
Electronika; (i) bank credit, factoring and loan
agreements, indentures, promissory notes and other
documents representing indebtedness for borrowed
money; (j) patent licensing agreements and all other
agreements with respect to patents, patent
applications, trademarks, service marks, trade names,
technical assistance, special processes, know-how,
copyright or other like items; (k) other contracts and
agreements to which Electronika is a party and which
have not been fully performed, involving consideration
having a value in excess of $50,000 or a remaining
period for performance in excess of nine months; (l)
any non-competition agreements or indemnification
agreements to which Electronika is a party; and (m)
any other contract, agreement, commitment or
understanding that is material to the financial
condition, results of operations, business or
prospects of Electronika. The items described in this
Section 3.9 are referred to herein collectively as the
Electronika Material Contracts. Electronika has
furnished to Parent true and complete copies of the
Electronika Material Contracts.
Section III.10 Validity of Electronika Material
Contracts. All of the Electronika Material Contracts
are valid and binding obligations of Electronika and,
to the best knowledge of Electronika, the other
parties thereto, in accordance with their respective
terms, subject to the applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws
of general application relating to or affecting the
enforcement of the rights of creditors or by equitable
principles, whether enforcement is sought in equity or
at law (the Bankruptcy Exception); there have been
no amendments or modifications to any of the
Electronika Material Contracts (except as set forth in
the copies furnished to Parent); no event has occurred
which is, or, following any grace period or required
notice, would become a material default by Electronika
under the terms of any of the Electronika Material
Contracts; except to the extent specifically reserved
for on the latest balance sheet included in the
Electronika Financial Statements, Electronika is not a
party to any Electronika Material Contract for which
Electronika or the Electronika Stockholders anticipate
expenses materially in excess of revenues or which is
otherwise materially adverse; and Electronika has not
expressly waived any material rights under any
Electronika Material Contract.
Section III.11 Charter Instruments. Electronika
has furnished to Parent complete and correct copies of
its Articles of Incorporation and Bylaws as in effect
on the date hereof. Electronika has heretofore made
available to Parent for its examination copies of the
minute books, stock certificate books and corporate
seal of Electronika. Said minute books are accurate
in all material respects and reflect all resolutions
adopted and all material actions expressly authorized
or ratified by the stockholders and directors of
Electronika. The stock certificate books reflect all
issuances, transfers and cancellations of capital
stock of Electronika.
Section III.12 Related Party Transactions.
Schedule 3.12 of the Electronika Disclosure Letter
contains a description of any transaction, during the
last two years, or proposed transaction, to which
Electronika was or is to be a party in which any of
the following persons had or is to have a direct or
indirect material interest: (1) any director or
officer of Electronika; (2) any Electronika
Stockholder; and (3) any member of the immediate
family (including spouse, parents, children, siblings
and in-laws) of any of the foregoing persons (in each
case, a Related Party). Such description shall
include the name of the person, the relationship to
Electronika, the nature of the person's interest in
the transaction and, the amount of such interest;
provided, however, that no disclosure is required if
the amount involved in the transaction or a series of
similar transactions does not exceed $60,000.
Section III.13 Employee Benefit Plans. As used in
this Section 3.13, the term Benefit Plan means any
plan, program, arrangement, practice or contract which
provides benefits or compensation to or on behalf of
employees or former employees of Electronika or any
ERISA Affiliate (as hereinafter defined), whether
formal or informal, whether or not written, including
but not limited to the following:
Section III.13.1 Arrangements. Any bonus,
incentive compensation, stock option, deferred
compensation, commission, severance, golden parachute
or other compensation plan, rabbi trust, program,
contract, arrangement or practice.
Section III.13.2 ERISA Plans. Any employee
benefit plan (as defined in Section 3(3) of ERISA),
including, but not limited to, any multi-employer
plan (as defined in Section 3(37) and Section
4001(a)(3) of ERISA), defined benefit pension plan,
profit sharing plan, money purchase pension plan,
401(k) plan, savings or thrift plan, stock bonus plan,
employee stock ownership plan, or any plan, fund,
program, arrangement or practice providing for medical
(including post-retirement medical), hospitalization,
accident, sickness, disability, or life insurance
benefits.
Section III.13.3 Other Employee Fringe Benefits.
Any stock purchase, vacation, scholarship, day care,
prepaid legal services, severance pay or other fringe
benefit plan, program, arrangement, contract or
practice.
Section III.13.4 ERISA Affiliate. For purposes of
this Section 3.13, the term ERISA Affiliate means
each trade or business (whether or not incorporated)
which together with Electronika is treated as single
employer under Section 414(b), (c), (m) or (o) of the
Code.
Section III.13.5 Identification of Benefit Plans.
Except as set forth in Section 3.13 of the Electronika
Disclosure Letter, neither Electronika nor any ERISA
Affiliate maintains, has not at any time established
or maintained, and has not at any time been obligated
to make contributions to or under or otherwise
participate in any Benefit Plan.
Section III.13.6 MEPPA Liability/Post-Retirement
Medical Benefits/ Defined Benefit Plans/Supplemental
Retirement Plans. Neither Electronika nor any ERISA
Affiliate maintains, or has at any time established or
maintained, or has at any time been obligated to make
contributions to or under any multi-employer plan.
Neither Electronika nor any ERISA Affiliate maintains,
or has at any time established or maintained, or has
at any time been obligated to make contributions to or
under (i) any plan which provides post-retirement
medical or health benefits, (ii) any organization
described in Sections 501(c)(9) or 501(c)(20) of the
Code, (iii) any defined benefit pension plan subject
to Title IV of ERISA or (iv) any plan which provides
retirement benefits in excess of the limitations of
Section 415 of the Code.
Section III.13.7 Liabilities. The execution and
performance of the transactions contemplated by this
Agreement will not create, accelerate or increase any
obligation to make any payment which, as an excess
parachute payment under Section 280G of the Code,
would not be deductible.
Section III.14 Patents, Trademarks, Et Cetera.
Schedule 3.14 of the Electronika Disclosure Letter
includes a list of all material patents, patent
applications, trade names, trademark registrations and
applications therefor, copyrights, licenses,
franchises and other assets of like kind (Intangible
Assets) and all interests in Intangible Assets which
are owned in whole or in part by or registered in the
name of Electronika. Electronika owns or has the
right to use all Intangible Assets now used in the
conduct of its business. Such Intangible Assets
include all of the proprietary products and
formulations developed by Electronika or used by it in
its business. Electronika is not obligated to pay any
royalty or other fee to any licensor or other third
party with respect to any Intangible Assets.
Electronika has not received any claim alleging any
conflict between any aspect of the business of
Electronika and any Intangible Assets claimed to be
owned by others which, if determined adversely to
Electronika, would have a Material Adverse Effect.
None of the Electronika Stockholders or any Related
Party has any interest in any Intangible Assets which
are presently used by Electronika or which infringe
upon, conflict with or relate to improvements or
modifications of any Intangible Assets presently used
by Electronika. To the best knowledge of Electronika,
there is no infringement by others of any Intangible
Assets of Electronika.
Section III.15 Questionable Payments. Neither
Electronika, nor, to the best knowledge of
Electronika, any director, officer, agent, employee,
or other person associated with or acting on behalf of
Electronika nor any stockholder of Electronika has,
directly or indirectly: used any corporate funds for
unlawful contributions, gifts, entertainment, or other
unlawful expenses relating to political activity; made
any unlawful payment to foreign or domestic government
officials or employees or to foreign or domestic
political parties or campaigns from corporate funds;
violated any provision of the Foreign Corrupt
Practices Act of 1977, as amended; or made any bribe,
payoff, influence payment, kickback, or other unlawful
payment of any kind.
Section III.16 Authority to Merge. Electronika has
full corporate power and authority to execute,
deliver, and perform this Agreement. All necessary
corporate proceedings of Electronika (including
stockholder actions) have been duly taken to authorize
the execution, delivery, and performance of this
Agreement (including without limitation the
consummation of the Merger) by Electronika. This
Agreement (i) has been duly authorized, executed, and
delivered by Electronika, (ii) constitutes the legal,
valid, and binding obligation of Electronika, and
(iii) is enforceable as to it in accordance with its
terms, subject to the Bankruptcy Exception. Except
for the filing of the Articles of Merger with the
Missouri and California Secretaries of State, no
consent, authorization, approval, order, license,
certificate, or permit of or from, or declaration or
filing with, any federal, state, local, or other
governmental authority or any court or other tribunal
is required by Electronika for the execution,
delivery, or performance of this Agreement by
Electronika. No consent of any party to any
Electronika Material Contract is required for the
execution, delivery, or performance of this Agreement;
and the execution, delivery, and performance of this
Agreement will not violate, result in a breach of,
conflict with, or (with or without the giving of
notice or the passage of time or both) entitle any
party to terminate or call a default under, entitle
any party to any material rights or privileges that
such party was not receiving or entitled to receive
immediately before this Agreement was executed under,
or create any obligation on the part of Electronika
that it was not paying or obligated to pay immediately
before this Agreement was executed under, any term of
any Electronika Material Contract, or violate or
result in a breach of any term of the articles of
incorporation (or other charter document) or bylaws of
Electronika, or violate, result in a breach of, or
conflict with any law, rule, regulation, order,
judgment, or decree binding on Electronika, or to
which any of its businesses, properties, or assets are
subject. Neither Electronika nor any of its officers,
directors, employees, or agents has employed any
broker or finder or incurred any liability for any
fee, commission, or other compensation payable by any
person on account of alleged employment as a broker or
finder, or alleged performance of services as a broker
or finder, in connection with or as a result of this
Agreement, the Merger, or the other transactions
contemplated by this Agreement.
Section III.17 Year 2000 Compliance. To the best
knowledge of Electronika, each item of hardware,
software and firmware owned or used by Electronika
(Electronika Information Technology) is able to
accurately process date/time data (including, but not
limited to, calculating, comparing, and sequencing)
from, into, and between the twentieth and twenty-first
centuries and the years 1999 and 2000 and make leap
year calculations independently and to the extent that
other information technology, used in combination with
the Electronika Information Technology, properly
exchanges date/time data with it. If certain items of
the Electronika Information Technology are required to
perform as a system, then this warranty shall apply to
those items of Electronika Information Technology as a
system.
Section III.18 Assets of Magnetika/East; Name
Change. Prior to the Closing Date, Electronika shall
have acquired the business and assets of
Magnetika/East. The business and assets to be
acquired are set forth in Schedule 3.18 of the
Electronika Disclosure Letter. Electronika shall own
such business and assets free and clear of any liens
or encumbrances. Prior to the date hereof,
Electronika changed its corporate name from
Caloyeras, Inc. to Electronika, Inc. Electronika
possesses all of the rights, privileges, powers and
preferences, and is subject to all of the obligations,
restrictions, disabilities and duties, of the former
Caloyeras, Inc.
Section III.19 Environmental Matters
(a) For purposes of this Agreement, the following
terms shall have the following meanings:
(i) Environmental Claims means any and all
administrative, regulatory or judicial actions, suits,
demands, demand letters, claims, liens, notices of
noncompliance or violation, investigations or
proceedings relating to any Environmental Law or
Environmental Permit, including, without limitation,
(A) any and all claims by governmental or regulatory
authorities for enforcement, cleanup, removal,
response, remedial or other actions or damages
pursuant to any applicable Environmental Law, and (B)
any and all claims by any third party seeking damages,
contribution, indemnification, cost recovery,
compensation or injunctive relief resulting from
Hazardous Substances or arising from alleged injury or
threat of injury to the environment.
(ii) Environmental Laws means any federal,
state, or local statute, law, rule, regulation,
ordinance, code or rule of common law in effect as of
the date hereof, and any judicial or administrative
interpretation thereof, including any judicial or
administrative order, consent decree or judgment,
relating to human health and the environment or
Hazardous Substances, including, without limitation,
the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended by the Superfund
Amendments and Reauthorization Act of 1986, 42 U.S.C.
9601, et seq.; the Emergency Planning and Community
Right-to-Know Act, 42 U.S.C. 11001, et seq.; The
Resource Conservation and Recovery Act, 42 U.S.C.
6901 et seq.; the Federal Water Pollution Control Act,
33 U.S.C. 1251 et seq.; the Clean Air Act, as
amended, 42 U.S.C. 7401, et seq.; the Federal
Insecticide, Fungicide and Rodenticide Act, 7 U.S.C.
136, et seq.; the Safe Drinking Water Act, 42 U.S.C.
300f, et seq.; the Toxic Substances Control Act, 15
U.S.C. 2601, et seq.; the Oil Pollution Act of
1990, 33 U.S.C. 1001, et seq.; the Hazardous
Materials Transportation Act, as amended, 49 U.S.C.
1801, et seq.; the Occupational Safety and Health Act,
as amended, 29 U.S.C. 651, et seq.; or the Federal
Food, Drug and Cosmetic Act, as amended, 21 U.S.C.
301, et seq., or any environmental transfer laws which
regulate the transfer of property and the
corresponding state laws, regulations and local
ordinances, etc., which may be applicable, as any such
acts have been or may be amended.
(iii) Environmental Permits means all permits,
approvals, identification numbers, licenses and other
authorizations required under any applicable
Environmental Law.
(iv) Hazardous Substances means (A) any
chemicals, materials or substances defined as or
included in the definition of hazardous substances,
hazardous wastes, hazardous materials, extremely
hazardous wastes, restricted hazardous wastes,
toxic substances, toxic pollutants, hazardous air
pollutants, pollutants, contaminants, toxic
chemicals, petroleum or petroleum products,
toxics, hazardous chemicals, extremely hazardous
substances, pesticides or related materials, as
presently defined in any applicable Environmental Law;
(B) any petroleum or petroleum products, natural or
synthetic gas, radioactive materials, asbestos-
containing materials, urea formaldehyde foam
insulation, and radon; and (C) any other chemical,
material or substance, the presence of which requires
investigation or remediation under any Environmental
Law.
(b) With respect to real property owned or leased
by Electronika, to the best knowledge of Electronika:
(i) Electronika has not violated nor is in violation
in any respect of any applicable Environmental Law;
(ii) Electronika has all Environmental Permits and is
in material compliance with their requirements; (iii)
such real property (including, without limitation,
soils and surface, ground waters and buildings) is not
contaminated with any Hazardous Substances requiring
remediation under applicable Environmental Laws;
(iv) Electronika has not received written notice of
any past, pending or threatened Environmental Claims
or circumstances that could reasonably be anticipated
to form the basis thereof against Electronika;
(v) such real property is not listed on CERCLIS, the
NPL, or any similar state or local listing nor is it
included in an area included in such a list, and
Electronika has not received written notice that such
a listing is pending or contemplated.
Section III.20 Completeness of Disclosure No
representation or warranty by Electronika or the
Electronika Stockholders in this Agreement contains or
at the Effective Time will contain an untrue statement
of material fact or omits or at the Effective Time
will omit to state a material fact required to be
stated therein or necessary to make the statements
made, in the light of the circumstances under which
they were made, not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
PARENT AND ACQUISITION
Parent and MergerSub shall deliver to Electronika and
the Electronika Stockholders, within 30 days of the
execution hereof, a disclosure letter (the Parent
Disclosure Letter). Except as specifically set forth
in the Parent Disclosure Letter, Parent and MergerSub
hereby represent and warrant to Electronika and the
Electronika Stockholders, as follows:
Section IV.1 Subsidiaries. Parent owns all of the
outstanding shares of capital stock of MergerSub,
Torotel Products, Inc., a Missouri corporation, and
OPT Industries, Inc., a New Jersey corporation (each,
a Parent Subsidiary). Other than as described in
the immediately preceding sentence, neither Parent nor
any Parent Subsidiary (i) has any subsidiaries or (ii)
has any material debt (other than trade accounts
receivable) or equity interest, or right or option to
acquire any debt or equity interest, in any Person.
Section IV.2 Organization and Qualification. Each
of Parent and the Parent Subsidiaries is a corporation
duly organized, validly existing, and in good standing
under the laws of its jurisdiction of incorporation,
with all requisite power and authority, and all
necessary consents, authorizations, approvals, orders,
licenses, certificates, and permits of and from, and
declarations and filings with, all federal, state,
local, and other governmental authorities and all
courts and other tribunals, to own, lease, license,
and use its properties and assets and to carry on the
business in which it is now engaged and the business
in which it contemplates engaging, except where the
failure to have obtained any of the foregoing would
not have a Material Adverse Effect. Each of Parent
and the Parent Subsidiaries is duly qualified to
transact the business in which it is engaged and is in
good standing as a foreign corporation in every
jurisdiction in which its ownership, leasing,
licensing, or use of property or assets or the conduct
of its business makes such qualification necessary,
except where the failure to be so qualified would not
have a Material Adverse Effect. Schedule 4.2 of the
Parent Disclosure Letter includes a list of the
jurisdictions in which Parent and/or the Parent
Subsidiaries is qualified to do business.
Section IV.3 Capitalization. As of the date
hereof, the authorized capital stock of Parent
consists of 6,000,000 shares of Parent Common Stock,
of which 2,811,590 shares are issued and outstanding
(as of November 1, 1998). The authorized capital
stock of MergerSub consists of 1,000 shares of common
stock, all of which are owned by Parent, free and
clear of any liens, security interests, pledges,
charges and encumbrances. All such outstanding shares
of Parent Common Stock and MergerSub common stock were
validly authorized and issued, and are fully paid and
nonassessable, and have not been issued and are not
owned or held in violation of any preemptive right of
stockholders. Other than as contemplated hereby and
except as set forth on Schedule 4.3 of the Parent
Disclosure Letter, there is no commitment, plan, or
arrangement to issue, and no outstanding option,
warrant, or other right calling for the issuance of,
any share of capital stock of Parent or any Parent
Subsidiary or any security or other instrument
convertible into, exercisable for, or exchangeable for
capital stock of Parent or any Parent Subsidiary.
There are no preemptive or similar rights to subscribe
for or to purchase capital stock of Parent or any
Parent Subsidiary.
Section IV.4 Financial Condition. Parent has
heretofore delivered to Electronika (a) its Form 10-
KSB for the fiscal year ended April 30, 1998 (the
Form 10-KSB), as filed with the Securities and
Exchange Commission (the SEC) and (b) its Form 10-
QSB for the fiscal quarter ended July 31, 1998 (the
Form 10-QSB), as filed with the SEC. The Form 10-
KSB and the Form 10-QSB, together with all reports,
forms and other documents filed by Parent with the SEC
are referred to herein, collectively as the Parent
SEC Documents. As of their respective dates, the
Parent SEC Documents complied in all material respects
with the requirements of the Securities Act of 1933,
as amended (the Securities Act) or the Securities
Exchange Act of 1934, as amended, as the case may be,
and the rules and regulations of the SEC thereunder
applicable to such Parent SEC Documents. The Parent
SEC Documents, in the aggregate, do not contain any
untrue statement of a material fact or omit to state a
material fact required to be stated therein or
necessary to make the statements therein, in light of
the circumstances under which they were made, not
misleading. The consolidated financial statements of
Parent included in the Parent SEC Documents: (i) are
true and complete as of the respective dates thereof;
(ii) fairly and accurately present the consolidated
financial condition of Parent as of the respective
dates thereof, and the consolidated results of the
operations of Parent for the respective periods
covered thereby; (iii) disclose all liabilities
required to be disclosed therein; and (iv) have been
prepared in accordance with generally accepted
accounting principles applied on a consistent basis
(except as may be indicated therein or in the notes
thereto) and except as the application may be modified
in accordance with generally accepted accounting
principles for interim reporting. Except as set forth
in Schedule 4.4 of the Parent Disclosure Letter, since
July 31, 1998:
(a) There has at no time been a Material Adverse
change in the financial condition, results of
operations, business, properties, assets, liabilities
or future prospects of Parent or any Parent
Subsidiary.
(b) Neither Parent nor any Parent Subsidiary has
authorized, declared, paid, or effected any dividend
or liquidating or other distribution in respect of its
capital stock or any direct or indirect redemption,
purchase, or other acquisition of any stock of Parent
or any Parent Subsidiary.
(c) The operations and business of Parent and all
Parent Subsidiaries have been conducted in all
respects only in the ordinary course.
(d) There has been no accepted purchase order or
quotation, arrangement or understanding for future
sale of the products or services of Parent or any
Parent Subsidiary, other than in the ordinary course
of business.
(e) Neither Parent nor any Parent Subsidiary has
suffered an extraordinary loss (whether or not
covered by insurance) or waived any right of
substantial value.
Other than as disclosed in Parent SEC Documents, there
is no fact known to Parent or any Parent Subsidiary
which materially adversely affects or in the future
(as far as Parent or any Parent Subsidiary can
foresee) may materially adversely affect the financial
condition, results of operations, business,
properties, assets, liabilities, or future prospects
of Parent or any Parent Subsidiary, other than
economic matters of general applicability.
Section IV.5 Taxes. Parent and each Parent
Subsidiary has filed all income, franchise and other
tax returns required to be filed by it on and before
the date hereof. All taxes imposed by the United
States, the State of Missouri or by any other state,
municipality, subdivision, or other taxing authority,
which are due and payable by Parent or any Parent
Subsidiary have been paid in full or are adequately
provided for by reserves reflected on the latest
balance sheet included in the Parent SEC Documents.
All contributions due from Parent or any Parent
Subsidiary pursuant to any unemployment insurance or
workers compensation laws and all sales or use taxes
which are due or payable by Parent or any Parent
Subsidiary have been paid in full. Parent and each
Parent Subsidiary has withheld and paid to, or will
cause to be paid to, the appropriate taxing
authorities all amounts required to be withheld from
the wages of its employees under state law and the
applicable provisions of the Code. Parent has
furnished to Electronika true and complete copies of
the federal income tax returns and comparable state
tax returns of Parent covering the years ended
December 31, 1996 and 1997, constituting complete and
accurate representations in all material respects of
the tax liabilities of Parent for the relevant periods
stated therein and accurately setting forth all
relevant material items, including the tax bases of
all assets, where required to be set forth in such tax
returns.
Section IV.6 Undisclosed Liabilities. Except as
disclosed in the Schedule 4.6 of the Parent Disclosure
Letter or in Parent SEC Documents and except for
liabilities and obligations arising in the ordinary
course of business since July 31, 1998, none of which
latter items, individually or in the aggregate, have a
Material Adverse Effect: (a) neither Parent nor any
Parent Subsidiary is, and none of their properties
are, subject to any debts, liabilities or obligations
of any nature, whether accrued, absolute, contingent
or otherwise, which are of a type required to be shown
or reflected on financial statements prepared in a
manner consistent with generally accepted accounting
principles; and (b) neither Parent nor any Parent
Subsidiary is, and none of their properties are,
subject to any material debts, liabilities or obli-
gations of any nature, whether accrued, absolute, con-
tingent or otherwise, whether or not of a type which
are required to be shown or reflected on financial
statements prepared in a manner consistent with
generally accepted accounting principles.
Section IV.7 Litigation and Claims. Other than as
disclosed in the Parent SEC Documents or as set forth
in Schedule 4.7 of the Parent Disclosure Letter, there
is no litigation, arbitration, claim, governmental or
other proceeding (formal or informal), or
investigation pending, or, to the best knowledge of
Parent, threatened, or any basis therefor known to
Parent or any Parent Subsidiary, with respect to
Parent or any Parent Subsidiary or any of their
respective businesses, properties, or assets. Neither
Parent nor any Parent Subsidiary is in violation of,
or in default with respect to, any law, regulation,
order, judgment, or decree; nor is Parent or any
Parent Subsidiary required to take any action in order
to avoid such violation or default.
Section IV.8 Properties. Each of Parent and
MergerSub represents and warrants as to its properties
as follows:
(a65535 All accounts and notes receivable
reflected on the balance sheet included in the Parent
Form 10-QSB (the Parent Balance Sheet), or arising
since the date of the Parent Balance Sheet (the
Parent Balance Sheet Date), have been collected, or,
to the best knowledge of Parent, are and will be good
and collectible, in each case at the aggregate
recorded amounts thereof without right of recourse,
defense, deduction, return of goods, counterclaim,
offset, or set off on the part of the obligor, net, in
the aggregate, of the applicable reserve reflected in
the Parent Balance Sheet.
(b65535 All inventory of raw materials and work in
process of Parent and each Parent Subsidiary included
in the Parent Balance Sheet or acquired since the
Parent Balance Sheet Date is usable, and all inventory
of finished goods is good and marketable, on a normal
basis in the existing product lines of Parent or any
Parent Subsidiary, as the case may be. In no event do
such inventories represent more than a six-month
supply measured by the volume of sales or use for the
year ended April 30, 1998. All inventory is usable
and saleable in the normal course of business.
(c65535 Attached as Schedule 4.8 to the Parent
Disclosure Letter is a true and complete list of all
real and other properties and assets owned by Parent
and each Parent Subsidiary or leased or licensed by
Parent or any Parent Subsidiary from or to a third
party (including inventory but not including
Intangibles), including with respect to such
properties and assets owned by Parent or by any Parent
Subsidiary a statement of cost, book value and (except
for land) reserve for depreciation of each item for
tax purposes, and net book value of each item for
financial reporting purposes, and with respect to such
properties and assets leased or licensed by Parent or
by any Parent Subsidiary from or to a third party, a
description of such lease or license. All such real
and other properties and assets (including
Intangibles) owned by Parent or any Parent Subsidiary
are reflected on the Parent Balance Sheet (except for
acquisitions subsequent to the Parent Balance Sheet
Date and prior to the Effective Time which are either
noted in Schedule 4.8 hereto or were approved in
writing by Electronika) and are owned by Parent or any
Parent Subsidiary free and clear of all liens,
mortgages, security interests, pledges, charges and
encumbrances other than (a) liens, mortgages, security
interests, pledges, charges or encumbrances disclosed
in the Parent SEC Documents or Schedule 4.8, (b)
landlords', mechanics', carriers', workers' and
similar statutory liens arising in the ordinary course
of business for sums not delinquent, for which
adequate reserves or other appropriate provisions have
been made in the Parent SEC Documents, (c) deed
restrictions and similar exceptions to clear title not
incurred in connection with indebtedness that do not
materially impair the existing use or materially
detract from the value of the assets or property
subject thereto, and (d) liens for current taxes not
delinquent, for which adequate reserves or other
appropriate provisions have been made in the Parent
SEC Documents. All real and other tangible properties
and assets owned, leased, or licensed by Parent or any
Parent Subsidiary are in good and usable condition
(reasonable wear and tear, taking into account the
respective ages of the assets involved, which is not
such as to affect adversely the operation of the
business of Parent or of such Parent Subsidiary,
excepted).
(d65535 No real property owned, leased, or
licensed by Parent or by any Parent Subsidiary lies in
an area which is, or to the knowledge of Parent or any
Parent Subsidiary will be, subject to zoning, use, or
building code restrictions which would prohibit, and
to the best knowledge of Parent, no state of facts
relating to the actions or inaction of another person
or entity or its ownership, leasing, licensing or use
of any real or personal property exists which would
prevent, the continued effective ownership, leasing,
licensing, or use of such real property in the
business in which Parent or any Parent Subsidiary is
now engaged or the business in which it now
contemplates engaging.
(e65535 The assets set forth on Schedule 4.8 of
the Parent Disclosure Letter constitute all such
properties and assets which are necessary for the
operation of the business of Parent and each Parent
Subsidiary in accordance with their current methods of
operation in all material respects.
Section IV.9 Contracts and Other Instruments.
Schedule 4.9 of the Parent Disclosure Letter includes
a listing of all oral or written (a) contracts,
commitments, sales orders or purchase orders, whether
or not entered into in the ordinary course of
business, which involve future payments, performance
of services or delivery of goods and/or materials, to
or by Parent or any Parent Subsidiary of an amount or
value in excess of $50,000; (b) bonus, incentive
compensation, pension, profit sharing, stock option,
group insurance, medical reimbursement or employee
welfare or benefit plans of any nature whatsoever; (c)
collective bargaining agreements or other contracts or
commitments to or with labor unions or other employee
groups; (d) leases, contracts or commitments affecting
ownership of, title to, use of or any material
interest in real estate; (e) employment contracts or
other contracts, agreements, or commitments to or with
individual employees, consultants or agents of Parent
or any Parent Subsidiary that (i) extend for a period
of more than six months from the date hereof, (ii)
provide for earlier termination upon payment of a
penalty or the equivalent thereof or (iii) involve
consideration having a value in excess of $50,000; (f)
equipment leases providing (in any one lease or group
of related leases) for payments in excess of $25,000
per year; (g) contracts under which the performance of
any obligation of Parent or any Parent Subsidiary is
guaranteed by any of the Parent Subsidiaries or
Parent, as applicable, or any third party, including
performance bonding arrangements; (h) contracts or
commitments providing for payments based in any manner
upon the revenues, purchases or profits of Parent or
any Parent Subsidiary; (i) bank credit, factoring and
loan agreements, indentures, promissory notes and
other documents representing indebtedness for borrowed
money; (j) patent licensing agreements and all other
agreements with respect to patents, patent
applications, trademarks, service marks, trade names,
technical assistance, special processes, know-how,
copyright or other like items; (k) other contracts and
agreements to which Parent or any Parent Subsidiary is
a party and which have not been fully performed,
involving consideration having a value in excess of
$50,000 or a remaining period for performance in
excess of nine months; (l) any non-competition
agreements or indemnification agreements to which
Parent or any Parent Subsidiary is a party; and (m)
any other contract, agreement, commitment or
understanding that is material to the financial
condition, results of operations, business or
prospects of Parent or any Parent Subsidiary. The
items described in this Section 4.9 are referred to
herein collectively as the Parent Material
Contracts. Parent has furnished to Electronika true
and complete copies of the Parent Material Contracts.
Section IV.10 Validity of Parent Material
Contracts. All of the Parent Material Contracts are
valid and binding obligations of Parent or the Parent
Subsidiary party thereto and, to the best knowledge of
Parent, the other parties thereto, in accordance with
their respective terms, subject to the Bankruptcy
Exception; there have been no amendments or
modifications to any of the Parent Material Contracts
(except as set forth in the copies furnished to
Electronika); no event has occurred which is, or,
following any grace period or required notice, would
become a material default by Parent or any Parent
Subsidiary under the terms of any of the Parent
Material Contracts; except to the extent specifically
reserved for on the latest balance sheet included in
the Parent SEC Documents, neither Parent nor any
Parent Subsidiary is a party to any Parent Material
Contract for which Parent anticipates expenses
materially in excess of revenues or which is otherwise
materially adverse; and neither Parent nor any Parent
Subsidiary has expressly waived any material rights
under any Parent Material Contract.
Section IV.11 Charter Instruments. Parent and each
Parent Subsidiary have furnished to Electronika
complete and correct copies of their respective
Articles of Incorporation and Bylaws as in effect on
the date hereof. Parent and each Parent Subsidiary
have heretofore made available to Electronika for its
examination copies of their respective minute books,
which are accurate in all material respects and
reflect all resolutions adopted and all material
actions expressly authorized or ratified by the
stockholders and directors of Parent and each Parent
Subsidiary.
Section IV.12 Employee Benefit Plans. As used in
this Section 4.12, the term Benefit Plan means any
plan, program, arrangement, practice or contract which
provides benefits or compensation to or on behalf of
employees or former employees of Parent, any Parent
Subsidiary or any ERISA Affiliate (as hereinafter
defined), whether formal or informal, whether or not
written, including but not limited to the following:
Section 4.12.1 Arrangements. Any bonus, incentive
compensation, stock option, deferred
compensation, commission, severance, golden parachute
or other compensation plan, rabbi trust, program,
contract, arrangement or practice.
Section 4.12.2 ERISA Plans. Any employee benefit
plan (as defined in Section 3(3) of ERISA),
including, but not limited to, any multi-employer
plan (as defined in Section 3(37) and Section
4001(a)(3) of ERISA), defined benefit pension plan,
profit sharing plan, money purchase pension plan,
401(k) plan, savings or thrift plan, stock bonus plan,
employee stock ownership plan, or any plan, fund,
program, arrangement or practice providing for medical
(including post-retirement medical), hospitalization,
accident, sickness, disability, or life insurance
benefits.
Section 4.12.3 Other Employee Fringe Benefits. Any
stock purchase, vacation, scholarship, day care,
prepaid legal services, severance pay or other fringe
benefit plan, program, arrangement, contract or
practice.
Section 4.12.4 ERISA Affiliate. For purposes of this
Section 4.12, the term ERISA Affiliate means
each trade or business (whether or not incorporated)
which together with Parent or any Parent Subsidiary is
treated as single employer under Section 414(b), (c),
(m) or (o) of the Code.
Section 4.12.5 Identification of Benefit Plans.
Except as set forth in Schedule 4.12 of the
Parent Disclosure Letter, neither Parent, any Parent
Subsidiary nor any ERISA Affiliate maintains, has not
at any time established or maintained, and has not at
any time been obligated to make contributions to or
under or otherwise participate in, any Benefit Plan.
Section 4.12.6 MEPPA Liability/Post-Retirement
Medical Benefits/Defined Benefit
Plans/Supplemental Retirement Plans. Neither Parent,
any Parent Subsidiary nor any ERISA Affiliate
maintains, or has at any time established or
maintained, or has at any time been obligated to make
contributions to or under any multi-employer plan.
Neither Parent, any Parent Subsidiary nor any ERISA
Affiliate maintains, or has at any time established or
maintained, or has at any time been obligated to make
contributions to or under (i) any plan which provides
post-retirement medical or health benefits, (ii) any
organization described in Sections 501(c)(9) or
501(c)(20) of the Code, (iii) any defined benefit
pension plan subject to Title IV of ERISA or (iv) any
plan which provides retirement benefits in excess of
the limitations of Section 415 of the Code.
Section 4.12.7 Liabilities. The execution and
performance of the transactions contemplated by this
Agreement will not create, accelerate or increase any
obligation to make any payment which, as an excess
parachute payment under Section 280G of the Code,
would not be deductible.
Section IV.13 Patents, Trademarks, Et Cetera.
Schedule 4.13 of the Parent Disclosure Letter includes
a list of all of Parent's Intangible Assets and all
interests in Intangible Assets which are owned in
whole or in part by or registered in the name of
Parent or any Parent Subsidiary. Parent and each
Parent Subsidiary owns or has the right to use all
Intangible Assets now used in the conduct of its
business. Such Intangible Assets include all of the
proprietary products and formulations developed by
Parent or any Parent Subsidiary or used by it in its
business. Neither Parent nor any Parent Subsidiary is
obligated to pay any royalty or other fee to any
licensor or other third party with respect to any
Intangible Assets. Neither Parent nor any Parent
Subsidiary has received any claim alleging any
conflict between any aspect of the business of Parent
or any Parent Subsidiary and any Intangible Assets
claimed to be owned by others which, if determined
adversely to Parent or any Parent Subsidiary, would
have a Material Adverse Effect. No stockholder or
affiliate of Parent has any interest in any Intangible
Assets which are presently used by Parent or any
Parent Subsidiary or which infringe upon, conflict
with or relate to improvements or modifications of any
Intangible Assets presently used by Parent or any
Parent Subsidiary. To the best knowledge of Parent,
there is no infringement by others of any Intangible
Assets of Parent.
Section IV.14 Questionable Payments. Neither
Parent, any Parent Subsidiary nor, to the best
knowledge of Parent, any director, officer, agent,
employee, or other person associated with or acting on
behalf of Parent or any Parent Subsidiary has,
directly or indirectly: used any corporate funds for
unlawful contributions, gifts, entertainment, or other
unlawful expenses relating to political activity; made
any unlawful payment to foreign or domestic government
officials or employees or to foreign or domestic
political parties or campaigns from corporate funds;
violated any provision of the Foreign Corrupt
Practices Act of 1977, as amended; or made any bribe,
payoff, influence payment, kickback, or other unlawful
payment of any kind.
Section IV.15 Authority to Merge. Parent and
MergerSub each has full corporate power and authority
to execute, deliver, and perform this Agreement. All
necessary corporate proceedings of Parent and
MergerSub have been duly taken to authorize the
execution, delivery, and performance of this Agreement
by Parent and MergerSub (including without limitation
the consummation of the Merger), other than the
approval of the holders of Parent Common Stock. This
Agreement (i) has been duly authorized, executed, and
delivered by Parent and MergerSub, (ii) constitutes
the legal, valid, and binding obligation of Parent and
MergerSub, and (iii) is enforceable as to them in
accordance with its terms, subject to the Bankruptcy
Exception. Except for the filing of the Articles of
Merger with the Missouri and California Secretaries of
State, and except as set forth in Section 7.8, no
consent, authorization, approval, order, license,
certificate, or permit of or from, or declaration or
filing with, any federal, state, local, or other
governmental authority or any court or other tribunal
is required by Parent or MergerSub for the execution,
delivery, or performance of this Agreement by Parent
or MergerSub. No consent of any party to any Parent
Material Contract is required for the execution,
delivery, or performance of this Agreement (except for
such consents disclosed on Schedule 4.15 of the Parent
Disclosure Letter); and the execution, delivery, and
performance of this Agreement will not (if the
consents referred to in such Schedule 4.15 are
obtained prior to the Effective Time) violate, result
in a breach of, conflict with, or (with or without the
giving of notice or the passage of time or both)
entitle any party to terminate or call a default
under, entitle any party to any material rights or
privileges that such party was not receiving or
entitled to receive before this Agreement was executed
under, or create any obligation on the part of Parent
or any Parent Subsidiary that it was not paying or
obligated to pay immediately before this Agreement was
executed under, any Parent Material Contract or
violate or result in a breach of any term of the
articles of incorporation (or other charter document),
or the bylaws of Parent or any Parent Subsidiary, or
violate, result in a breach of, or conflict with any
law, rule, regulation, order, judgment, or decree
binding on Parent or any Parent Subsidiary or to which
any of their respective businesses, properties, or
assets are subject. Neither Parent, any Parent
Subsidiary, nor any of their respective officers,
directors, employees, or agents has employed any
broker or finder or incurred any liability for any
fee, commission, or other compensation payable by any
person on account of alleged employment as a broker or
finder, or alleged performance of services as a broker
or finder, in connection with or as a result of this
Agreement, the Merger, or the other transactions
contemplated by this Agreement.
Section IV.16 Environmental Matters. With respect
to real property owned or leased by Parent or any
Parent Subsidiary, to the best knowledge of Parent:
(i) neither Parent nor any Parent Subsidiary has
violated nor is in violation in any respect of any
applicable Environmental Law; (ii) Parent and each
Parent Subsidiary has all Environmental Permits and is
in material compliance with their requirements; (iii)
such real property (including, without limitation,
soils and surface, ground waters and buildings) is not
contaminated with any Hazardous Substances requiring
remediation under applicable Environmental Laws;
(iv) neither Parent nor any Parent Subsidiary has
received written notice of any past, pending or
threatened Environmental Claims or circumstances that
could reasonably be anticipated to form the basis
thereof against Parent or any Parent Subsidiary;
(v) such real property is not listed on CERCLIS, the
NPL, or any similar state or local listing nor is it
included in an area included in such a list, and
neither Parent nor any Parent Subsidiary has received
written notice that such a listing is pending or
contemplated.
Section IV.17 Related Party Transactions.
Schedule 4.17 of the Parent Disclosure Letter contains
a description of any transaction, during the last two
years, or proposed transaction, to which Parent or any
Parent Subsidiary was or is to be a party in which any
of the following persons had or is to have a direct or
indirect material interest: (1) any director or
officer of Parent; (2) any nominee for election as a
director of Parent; (3) any holder of more than 5% of
Parent's Common Stock; and (4) any member of the
immediate family (including spouse, parents, children,
siblings and in-laws) of any of the foregoing persons
(a Related Party). Such description shall include
the name of the person, the relationship to Parent,
the nature of the person's interest in the transaction
and, the amount of such interest; provided, however,
that no disclosure is required if the amount involved
in the transaction or a series of similar transactions
does not exceed $60,000.
Section IV.19 Year 2000 Compliance To the best
knowledge of Parent, each item of hardware, software
and firmware owned or used by Parent or any Parent
Subsidiary (Parent Information Technology) is able
to accurately process date/time data (including, but
not limited to, calculating, comparing and sequencing)
from, into and between the twentieth and twenty-first
centuries and the years 1999 and 2000 and make leap
year calculations independently and to the extent that
other information technology, used in combination with
the Parent Information Technology, properly exchanges
date/time data with it. If certain items of Parent
Information Technology are required to perform as a
system, then this warranty shall apply to those items
of Parent Information Technology as a system.
Section IV.19 Interim Operations of MergerSub.
MergerSub was formed solely for the purpose of
engaging in the transactions contemplated by this
Agreement, has engaged in no other business activities
and has conducted its operations only as contemplated
by this Agreement.
Section IV.20 Completeness of Disclosure. No
representation or warranty by Parent or MergerSub in
this Agreement contains or will contain an untrue
statement of material fact or omits or at the
Effective Time will omit to state a material fact
required to be stated therein or necessary to make the
statements made, in light of the circumstances under
which they were made, not misleading.
ARTICLE V
COVENANTS OF ELECTRONIKA
During the period from the date of this Agreement and
continuing until the earlier of the termination of
this Agreement or the Effective Time, Electronika and
the Electronika Stockholders agree as follows:
Section V.1 Articles of Incorporation and Bylaws.
No amendment will be made in the articles of
incorporation or bylaws of Electronika.
Section V.2. Shares and Options. No shares of capital
stock of Electronika, options or warrants for such
shares, rights to subscribe to or purchase such
shares, or securities convertible into or exchangeable
for such shares, shall be issued or sold by
Electronika, otherwise than as may be required by this
Agreement or the transactions contemplated hereby.
Section V.3 Dividends and Purchases of Stock. No
liquidation or stock split shall be authorized,
declared, paid, or effected by Electronika in respect
of the outstanding shares of Electronika common stock.
No direct or indirect redemption, purchase, or other
acquisition shall be made by Electronika of shares of
Electronika common stock, except as may be otherwise
required by this Agreement or the transactions
contemplated hereby.
Section V.4 Borrowing of Money. Electronika shall not
borrow money, guarantee the borrowing of money, or
engage in any material transaction or enter into any
material agreement therefor, except for the borrowing
of money under Electronika's loan agreements and lines
of credit, or in the ordinary course of business or as
disclosed in or contemplated by this Agreement or the
transactions contemplated hereby.
Section V.5 Access. Subject to the provisions of
Section 5.7 regarding confidentiality, Electronika
will afford the officers, directors, employees,
counsel, agents, investment bankers, accountants, and
other representatives of Parent free and full access
to its plants, properties, books, and records, will
permit them to make extracts from and copies of such
books and records, and will from time to time furnish
Parent with such additional financial and operating
data and other information as to the financial
condition, results of operations, business,
properties, assets, liabilities, or future prospects
of Electronika as Parent from time to time may
reasonably request. Electronika will cause the
independent certified public accountants of
Electronika to make available to Parent and its
independent certified public accountants the work
papers relating to the preparation, review and/or
examination of any of the financial statements of
Electronika.
Section V.6 Advice of Changes. Electronika will
immediately advise Parent in a detailed written notice
of any fact or occurrence or any pending or threatened
occurrence of which it obtains knowledge and which (if
existing and known at the date of the execution of
this Agreement) would have been required to be set
forth or disclosed in or pursuant to this Agreement,
which (if existing and known at any time prior to or
at the Effective Time) would make the performance by
any party of a covenant contained in this Agreement
impossible or make such performance materially more
difficult than in the absence of such fact or
occurrence, or which (if existing and known at the
Effective Time) would cause a condition to any
parties' obligations under this Agreement not to be
fully satisfied.
Section V.7 Confidentiality. Electronika and the
Electronika Stockholders shall keep confidential all
non-public information of Parent and MergerSub which
is disclosed to Electronika; provided, however, that
such information may be shared (i) with Electronika'
directors, employees, partners, consultants and
advisors to the extent necessary to consummate the
transactions contemplated by this Agreement and (ii)
to the extent Electronika is required by order of a
court of competent jurisdiction (by subpoena or
similar process) to disclose or discuss any
confidential information (provided that in such case,
Electronika shall promptly inform Parent of such
event, shall cooperate, at Parent's expense, with the
Parent in attempting to obtain a protective order or
to otherwise restrict such disclosure and shall only
disclose confidential information to the minimum
extent necessary to comply with any such court order).
If the transactions contemplated by this Agreement are
not consummated, (a) Electronika will not use any such
non-public information to its competitive advantage
unless Electronika independently acquires such
information from another source, and (b) Electronika
will promptly return or destroy all confidential
materials provided to it by or on behalf of Parent or
MergerSub. To the extent non-public information is
provided to any person(s) by Electronika and such
person(s) fail to keep such information confidential
as required by this Section, Electronika will be
deemed to be responsible for and in breach of this
Section 5.7.
Section V.8 Public Statements. Before Electronika
releases any information concerning this Agreement,
the Merger, or any of the other transactions
contemplated by this Agreement, which is intended for
or may result in public dissemination thereof,
Electronika shall cooperate with Parent, shall furnish
drafts of all documents or proposed oral statements to
Parent for comments and shall not release any such
information without the written consent of Parent.
Nothing contained herein shall prevent Electronika
from releasing any information if required to do so by
law.
Section V.9 Parent Stockholder Approval Electronika
shall (i) cooperate with Parent in the preparation and
filing of its Proxy Statement (as defined below) in
connection with the Meeting (as defined below), (ii)
promptly obtain and furnish any information relating
to it and within its control required to be included
in the Proxy Statement and (iii) respond promptly to
any comments or requests made by the SEC with respect
to information respecting Electronika contained in the
Proxy Statement. If at any time prior to the
Effective Time any event relating to Electronika or
any of its affiliates, officers or directors should be
discovered by Electronika which is required to be set
forth in an amendment to the Proxy Statement,
Electronika shall promptly inform Parent. In
addition, Electronika shall correct any information
supplied by it for use in the Proxy Statement which
shall have become, or is, false, incomplete or
misleading.
Section V.10 Conduct of Business. Except (i) as
otherwise required in connection with the transactions
contemplated by this Agreement or (ii) as otherwise
consented to in writing by Parent, Electronika shall,
and the Electronika Stockholders shall cause
Electronika to:
(a65535 Use its reasonable efforts to do all of
the following: conduct its business diligently and
only in the ordinary course, and, without making any
commitment prohibited by this Agreement, preserve its
business organization intact, keep available its
present officers and employees and preserve its
relationships with suppliers, customers and others
having business relations with it;
(b65535 Not (i) enter into, modify or extend the
term of any employment agreement with any of its
officers or employees or increase the rate of
compensation payable or to become payable to any of
its officers or employees over the rates being paid to
them at the date hereof, except for normal merit or
cost of living increases, or (ii) adopt any new
Benefit Plan or amend or otherwise increase or
accelerate the payment or vesting of the amounts
payable or to be payable under any existing Benefit
Plan;
(c65535 Not pay any obligation or liability, fixed
or contingent, other than current liabilities incurred
in the ordinary course of business, or cancel, without
full payment, any debts, claims or other obligations
(including, without limitation, accounts receivable)
owing to it;
(d65535 Not make any material alteration in the
manner of keeping its books, accounts or records or in
the accounting practices therein reflected except as
required by law or generally accepted accounting
principles;
(e65535 Use its reasonable efforts to perform all
of its obligations under any contracts or agreements
to which it is a party or by which any of its
properties are bound (except those being contested in
good faith) and not cancel, amend, modify, renew or
extend any such contracts or agreements that are
material to its business or waive any rights
thereunder;
(f65535 Not enter into any contracts or
commitments that would constitute Electronika Material
Contracts, other than contracts to provide goods and
services entered into in the ordinary course of
business consistent with past practices;
(g65535 Use its reasonable efforts to maintain and
keep in good order and repair, subject to ordinary
wear and tear, taking into account the respective ages
of the assets involved, all of its tangible assets and
properties;
(h65535 Not sell, lease, license or otherwise
dispose of any of its properties and assets (including
any of its Intangible Assets);
(i65535 Use its reasonable efforts to both
maintain in full force and effect all of the insurance
policies in effect as of the date hereof and not take
(or fail to take) any action that would enable
insurers under such policies to avoid liabilities
pursuant to the terms of such policies for claims
arising prior to the Closing Date;
(j65535 Not make any capital expenditures or enter
into any leases for capital equipment or real estate
or commitments with respect thereto, except for
expenditures for ordinary repairs and maintenance and
for capital expenditures not exceeding $10,000 in the
aggregate;
(k65535 Not accept any orders from any of its
customers under conditions relating to price, terms of
payment or like matters materially different from the
conditions regularly and usually specified, or place
any orders for inventory, merchandise or supplies in
exceptional or unusual quantities based on past
operating practices;
(l65535 Not (i) permit any lien to attach upon any
of its properties and assets, whether now owned or
hereafter acquired; (ii) assume, guaranty, endorse or
otherwise become liable or responsible (whether
directly, contingently or otherwise) for the
obligations of any other Person; or (iii) make any
loans, advances or capital contributions to, or
investments in, any other Person;
(m65535 Not initiate, compromise or settle any
material litigation or arbitration proceeding;
(n65535 Not change its Board of Directors; and
(o65535 Not enter into any other transaction or
make or enter into any contract or commitment which is
not in the ordinary course of business.
Section V.11 Reasonable Efforts. Subject to the
other provisions of this Agreement, Electronika shall,
and the Electronika Stockholders shall cause
Electronika to, use its reasonable efforts: (a) to
perform its obligations hereunder; (b) to take, or
cause to be taken, all actions necessary, proper or
advisable to obtain all approvals of governmental
entities and consents of third parties required to be
obtained by or on behalf of Electronika to consummate
the transactions contemplated by this Agreement; and
(c) to satisfy or cause to be satisfied all of the
conditions precedent to its obligations hereunder or
the obligations of Parent and MergerSub hereunder to
the extent that its action or inaction can control or
influence the satisfaction of such conditions.
Section V.12 Exclusive Dealing. Unless this
Agreement has been terminated in accordance with its
terms, neither Electronika, any of its officers,
directors or other representatives, nor any of the
Electronika Stockholders, shall, directly or
indirectly, solicit or encourage inquiries or
proposals from, or participate in any negotiations or
discussions or enter into any agreements or
understandings with, or furnish any information to,
third parties with respect to the sale or other
disposition of any shares of the capital stock of
Electronika, any sale, transfer or other disposition
of any of the business or any substantial portion of
the assets of Electronika (including by way of merger)
or any similar transaction.
Section V.13 Obligation to Update Disclosure
Letter. Electronika and the Electronika Stockholders
shall update and supplement the Electronika Disclosure
Letter, as necessary, to reflect the changes therein
during the period between the date of this Agreement
and the Closing Date (the Updated Electronika
Disclosure Letter). The Updated Electronika
Disclosure Letter shall be acceptable to Parent, in
Parent's reasonable discretion.
ARTICLE VI
COVENANTS OF PARENT AND ACQUISITION
During the period from the date of this Agreement and
continuing until the earlier of the termination of
this Agreement or the Effective Time, Parent agrees as
follows:
Section VI.1 Stockholder Approval Parent shall
hold a meeting of its stockholders, in accordance with
its articles of incorporation, bylaws and the
corporation laws of the State of Missouri, no later
than January 31, 1999 (the Meeting). The Meeting
shall be held, among other things, to consider and
vote upon the approval of the issuance of the Common
Shares to the Electronika Stockholders and the
amendment to the Parent's Articles of Incorporation
creating the Parent Preferred Stock. The board of
directors of Parent shall recommend to its
stockholders that such matters be adopted and
approved; provided that the Board of Directors of
Parent may withdraw such recommendation if (but only
if) such Board of Directors, upon advice of its
outside legal counsel, determines that it is
reasonably likely that a failure to withdraw such
recommendation would constitute a breach of its
fiduciary duties under applicable law. Parent may
also submit additional routine proposals to its
stockholders at the Meeting, separate from the
proposals on the transactions contemplated hereby,
provided that Parent shall consult with Electronika as
to the submission of such proposals. The approval by
Parent's stockholders of such additional proposals
shall not be a condition to the closing of the Merger
under this Agreement.
Section VI.2 Proxy Statement. The information
(except for information supplied by Electronika for
inclusion therein, as to which Parent makes no
representation) in the proxy statement to be provided
to the stockholders of Parent in connection with the
Merger (the Proxy Statement) shall not, on the date
the Proxy Statement is first mailed to stockholders of
Parent, at the time of the meeting of Parent
stockholders and at the Effective Time, contain any
statement which, at such time and in light of the
circumstances under which it shall be made, is false
or misleading with respect to any material fact, or
omit to state any material fact necessary in order to
make the statements made in the Proxy Statement not
false or misleading; or omit to state any material
fact necessary to correct any statement in any earlier
communication with respect to the solicitation of
proxies for the meeting of Parent stockholders which
has become false or misleading. If at any time prior
to the Effective Time any event relating to Parent or
any of its affiliates, officers or directors should be
discovered by Parent which is required to be set forth
in an amendment to the Proxy Statement, Parent shall
promptly inform Electronika.
Section VI.3 Articles of Incorporation and Bylaws. No
amendment will be made in the articles of
incorporation or bylaws of Parent or of any Parent
subsidiary unless required by this Agreement or the
transactions contemplated hereby.
Section VI.4 Shares and Options. Except as required
hereby, no shares of capital stock of Parent or any
Parent subsidiary, options or warrants for such
shares, rights to subscribe to or purchase such
shares, or securities convertible into or exchangeable
for such shares, shall be issued or sold or proposed
to be issued or sold by Parent or any Parent
subsidiary, otherwise than as may be required upon the
exercise of warrants, stock options or related stock
appreciation rights now outstanding.
Section VI.5 Dividends and Purchases of Stock. No
dividend or liquidating or other distribution or stock
split shall be authorized, declared, paid, or effected
by Parent in respect of the outstanding shares of the
Parent Common Stock. No direct or indirect
redemption, purchase, or other acquisition shall be
made by Parent or any Parent subsidiary of shares of
the Parent Common Stock. Nothing in this Section 6.5
shall be construed to prohibit purchases or other
acquisitions of the Parent Common Stock by any Parent
employee benefit plan which was or is now in effect.
Section VI.6 Borrowing of Money. Neither Parent nor
any Parent Subsidiary shall borrow money, guarantee
the borrowing of money, or engage in any material
transaction or enter into any material agreement
therefor, except for the borrowing of money under
Parent's loan agreements or lines of credit, or in the
ordinary course of business or as disclosed in or
contemplated by this Agreement or the transactions
contemplated hereby.
Section VI.7 Access. Subject to the provisions of
Section 6.9 regarding confidentiality, Parent and
MergerSub will afford the officers, directors,
employees, counsel, agents, investment bankers,
accountants, and other representatives of Electronika
free and full access to the plants, properties, books,
and records of Parent and the Parent Subsidiaries,
will permit them to make extracts from and copies of
such books and records, and will from time to time
furnish Electronika with such additional financial and
operating data and other information as to the
financial condition, results of operations, business,
properties, assets, liabilities, or future prospects
of Parent and the Parent Subsidiaries as Electronika
from time to time may reasonably request. Parent will
cause the independent certified public accountants of
Parent and the Parent Subsidiaries to make available
to Electronika and its independent certified public
accountants the work papers relating to the
preparation, review and/or examination of any of the
financial statements of Parent and/or the Parent
Subsidiaries.
Section VI.8 Advice of Changes. Parent will
immediately advise Electronika in a detailed written
notice of any fact or occurrence or any pending or
threatened occurrence of which it obtains knowledge
and which (if existing and known at the date of the
execution of this Agreement) would have been required
to be set forth or disclosed in or pursuant to this
Agreement which (if existing and known at any time
prior to or at the Effective Time) would make the
performance by any Party of a covenant contained in
this Agreement impossible or make such performance
materially more difficult than in the absence of such
fact or occurrence, or which (if existing and known at
the time of the Effective Time) would cause a
condition to any Party's obligations under this
Agreement not to be fully satisfied.
Section VI.9 Confidentiality. Parent and the Parent
Subsidiaries shall keep confidential all non-public
information of Electronika disclosed to Parent or the
Parent Subsidiaries; provided, however, that such
information may be shared (i) with Parent's and the
Parent Subsidiaries' directors, employees, partners,
consultants and advisors to the extent necessary to
consummate the transactions contemplated by this
Agreement and (ii) to the extent Parent or the Parent
Subsidiaries are required by order of a court of
competent jurisdiction (by subpoena or similar
process) to disclose or discuss any confidential
information (provided that in such case, Parent and/or
the Parent Subsidiaries shall promptly inform
Electronika of such event, shall cooperate with
Electronika, at Electronika's expense, in attempting
to obtain a protective order or to otherwise restrict
such disclosure and shall only disclose confidential
information to the minimum extent necessary to comply
with any such court order). If the transactions
contemplated by this Agreement are not consummated,
(a) neither Parent nor the Parent Subsidiaries will
use any such non-public information to its competitive
advantage unless Parent or the Parent Subsidiaries
independently acquire such information from another
source, and (b) Parent and the Parent Subsidiaries
will promptly return or destroy all confidential
materials provided to it by or on behalf of
Electronika. To the extent non-public information is
provided to any person(s) by Parent or the Parent
Subsidiaries and such person(s) fail to keep such
information confidential as required by this Section,
Parent will be deemed to be responsible for and in
breach of this Section 6.9.
Section VI.10 Public Statements. Before Parent
releases any information concerning this Agreement,
the Merger, or any of the other transactions
contemplated by this Agreement, which is intended for
or may result in public dissemination thereof, Parent
shall cooperate with Electronika, shall furnish drafts
of all documents or proposed oral statements to
Electronika for comments, and shall not release any
such information without the written consent of
Electronika. Nothing contained herein shall prevent
Parent from releasing any information if required to
do so by law.
Section VI.11 Conduct of Business. Except (i) as
otherwise required in connection with the transactions
contemplated by this Agreement or (ii) as otherwise
consented to in writing by Electronika, Parent shall
and shall cause each of the Parent Subsidiaries to:
(a65535 Use its reasonable efforts to do all of
the following: conduct its business diligently and
only in the ordinary course, and, without making any
commitment prohibited by this Agreement, preserve its
business organization intact, keep available its
present officers and employees and preserve its
relationships with suppliers, customers and others
having business relations with it;
(b65535 Not (i) enter into, modify or extend the
term of any employment agreement with any of its
officers or employees or increase the rate of
compensation payable or to become payable to any of
its officers or employees over the rates being paid to
them at the date hereof, except for normal merit or
cost of living increases, or (ii) adopt any new
Benefit Plan or amend or otherwise increase or
accelerate the payment or vesting of the amounts
payable or to be payable under any existing Benefit
Plan;
(c65535 Not pay any obligation or liability, fixed
or contingent, other than current liabilities incurred
in the ordinary course of business or payments due
under its existing loan agreements or lines of credit,
or cancel, without full payment, any debts, claims or
other obligations (including, without limitation,
accounts receivable) owing to it;
(d65535 Not make any material alteration in the
manner of keeping its books, accounts or records or in
the accounting practices therein reflected except as
required by law or generally accepted accounting
principles;
(e65535 Use its reasonable efforts to perform all
of its obligations under any contracts or agreements
to which it is a party or by which any of its
properties are bound (except those being contested in
good faith) and not cancel, amend, modify, renew or
extend any such contracts or agreements that are
material to its business or waive any rights
thereunder;
(f65535 Not enter into any contracts or
commitments that would constitute Parent Material
Contracts, other than contracts to provide goods and
services entered into in the ordinary course of
business consistent with past practices;
(g65535 Use its reasonable efforts to maintain and
keep in good order and repair, subject to ordinary
wear and tear, taking into account the respective ages
of the assets involved, all of its tangible assets and
properties;
(h65535 Not sell, lease, license or otherwise
dispose of any of its properties and assets (including
any of its Intangible Assets);
(i65535 Use its reasonable efforts to both
maintain in full force and effect all of the insurance
policies in effect as of the date hereof and not take
(or fail to take) any action that would enable
insurers under such policies to avoid liabilities
pursuant to the terms of such policies for claims
arising prior to the Closing Date;
(j65535 Not make any capital expenditures or enter
into any leases for capital equipment or real estate
or commitments with respect thereto, except for
expenditures for ordinary repairs and maintenance and
for capital expenditures not exceeding $10,000 in the
aggregate;
(k65535 Not accept any orders from any of its
customers under conditions relating to price, terms of
payment or like matters materially different from the
conditions regularly and usually specified, or place
any orders for inventory, merchandise or supplies in
exceptional or unusual quantities based on past
operating practices;
(l65535 Not (i) permit any lien to attach upon any
of its properties and assets, whether now owned or
hereafter acquired; (ii) assume, guaranty, endorse or
otherwise become liable or responsible (whether
directly, contingently or otherwise) for the
obligations of any other Person; or (iii) make any
loans, advances or capital contributions to, or
investments in, any other Person;
(m65535 Not initiate, compromise or settle any
material litigation or arbitration proceeding;
(n65535 Use its reasonable efforts to not change
its Board of Directors; and
(o65535 Not enter into any other transaction or
make or enter into any contract or commitment which is
not in the ordinary course of business.
Section VI.12 Reasonable Efforts. Subject to the
other provisions of this Agreement, Parent shall, and
shall cause each of the Parent Subsidiaries to, use
its reasonable efforts: (a) to perform its obligations
hereunder; (b) to take, or cause to be taken, all
actions necessary, proper or advisable to obtain all
approvals of governmental entities and consents of
third parties required to be obtained by or on behalf
of Parent or any of its subsidiaries to consummate the
transactions contemplated by this Agreement; and (c)
to satisfy or cause to be satisfied all of the
conditions precedent to their obligations hereunder or
the obligations of Electronika hereunder to the extent
that its action or inaction can control or influence
the satisfaction of such conditions.
Section VI.13 Exclusive Dealing Unless this
Agreement has been terminated in accordance with its
terms, neither Parent, nor any of its officers,
directors or other representatives, shall, directly or
indirectly, solicit or encourage inquiries or
proposals from, or participate in any negotiations or
discussions or enter into any agreements or
understandings with, or furnish any information to,
third parties with respect to the sale or other
disposition of any shares of the capital stock of
Parent or any subsidiary of Parent, any sale, transfer
or other disposition of any of the business or any
substantial portion of the assets of Parent or any
subsidiary of Parent (including by way of merger) or
any similar transaction.
Section VI.14 Business After the Effective Time.
During the Escrow Period or such shorter period as
Parent on the advice of counsel believes will not
cause the Merger to fail to qualify as a tax free
reorganization under the federal tax laws as then
construed, the Surviving Corporation will continue the
historic business of Electronika or use a significant
portion of Electronika's historic assets in its
business.
Section VI.15 Issuance and Listing of Stock.
Parent has reserved for issuance and, if, as and when
required by the provisions of this Agreement, will
issue the Merger Shares into and for which the shares
of capital stock of Electronika are to be converted
and exchanged in the Merger, and the Merger Shares,
when so issued, will be validly issued, fully paid and
nonassessable. Parent shall file an application with
the American Stock Exchange (the ASE) to approve the
Common Shares for listing, subject to official notice
of issuance. Parent shall use its reasonable efforts
to cause the Common Shares to be approved for listing
on the ASE, subject to official notice of issuance.
Section VI.16 Obligation to Update Disclosure
Letter. Parent and MergerSub shall update and
supplement the Parent Disclosure Letter, as necessary,
to reflect the changes therein during the period
between the date of this Agreement and the Closing
Date (the Updated Parent Disclosure Letter). The
Updated Parent Disclosure Letter shall be acceptable
to Electronika and the Electronika Stockholders, in
their reasonable discretion.
ARTICLE VII
ELECTRONIKA'S CONDITIONS TO CLOSING
The obligations of Electronika and the Electronika
Stockholders under this Agreement are subject to all
of the following conditions being met or waived as of
the Closing:
Section VII.1 Voting Trust. Certain members of
the Sizemore family (the Sizemore Family) and Peter
Caloyeras shall have entered into a voting trust,
which shall be in form and substance satisfactory to
the parties thereto.
Section VII.2 Accuracy of Representations and
Compliance With Conditions. All representations and
warranties of Parent and MergerSub contained in this
Agreement, as modified by the Updated Parent
Disclosure Letter, shall be accurate in all material
respects as of the Effective Time except as to changes
contemplated or permitted by this Agreement. Parent
and MergerSub shall have performed and complied with
all covenants and agreements in all material respects
and satisfied all conditions required to be performed
and complied with by them at or before the Effective
Time by this Agreement.
Section VII.3 Material Adverse Change. Between the
date hereof and the Closing Date, there shall not have
occurred any material adverse change in the financial
condition or in the results of operations or the
business, properties, assets (tangible or intangible),
liabilities or prospects of Parent and its
subsidiaries, taken as a whole.
Section VII.4 Other Documents. Parent and MergerSub
shall have delivered to Electronika at or prior to the
Effective Time such other documents as Electronika may
reasonably request in order to carry out transactions
contemplated by this Agreement.
Section VII.5 Review of Proceedings. All actions,
proceedings, instruments, and documents required to
carry out this Agreement or incidental thereto and all
other related legal matters shall be subject to the
reasonable approval of counsel to Electronika, and
Parent shall have furnished such counsel such
documents as such counsel may have reasonably
requested for the purpose of enabling them to pass
upon such matters.
Section VII.6 Legal Action. There shall not have been
instituted or threatened any legal proceeding relating
to, or seeking to prohibit or otherwise challenge the
consummation of, the transactions contemplated by this
Agreement, or to obtain substantial damages with
respect thereto.
Section VII.7 No Governmental Action. There shall not
have been any action taken, or any law, rule,
regulation, order, judgment, or decree proposed,
promulgated, enacted, entered, enforced, or deemed
applicable to the transactions contemplated by this
Agreement by any federal, state, local, or other
governmental authority or by any court or other
tribunal, including the entry of a preliminary or
permanent injunction, which, in the reasonable
judgment of Electronika, (i) makes this Agreement, the
Merger, or any of the other transactions contemplated
by this Agreement illegal, (ii) results in a material
delay in the ability of any of the Parties to
consummate the Merger or any of the other transactions
contemplated by this Agreement, or (iii) otherwise
prohibits, restricts, or materially delays
consummation of the Merger or any of the other
transactions contemplated by this Agreement or impairs
the contemplated benefits to the Electronika
Stockholders of this Agreement, the Merger, or any of
the other transactions contemplated by this Agreement.
Section VII.8 Consents Needed. Parent shall have
obtained at or prior to the Effective Time all
consents required for the consummation of the Merger
and the other transactions contemplated by this
Agreement, including without limitation consents from
(i) the New Jersey Department of Environmental
Protection and (ii) any party to any Parent Material
Contract.
Section VII.9 Other Agreements. The Escrow Agreement
and any other agreements between the Parties to be
executed prior to the Effective Time shall have been
authorized, executed, and delivered by the parties
thereto at or prior to the Effective Time, at the
Effective Time shall be in full force, valid, and
binding upon the parties thereto, and shall (subject
to the Bankruptcy Exception) be enforceable by them in
accordance with their terms at the Effective Time.
Section VII.10 Closing Certificate. Electronika and
the Electronika Stockholders shall have received from
Parent and MergerSub a certificate dated the Closing
Date, certifying that the conditions specified in
Sections 7.2, 7.3, 7.6, 7.7 and 7.8 hereof have been
satisfied.
Section VII.11 Parent Disclosure Letter. Parent and
MergerSub shall have delivered to Electronika and the
Electronika Stockholders the Parent Disclosure Letter
by December 23, 1998, and the Parent Disclosure Letter
shall be, in form and substance, acceptable to
Electronika and the Electronika Stockholders in their
sole and absolute discretion. Within ten (10) days
following receipt of the Parent Disclosure Letter,
Electronika and the Electronika Stockholders shall
deliver to Parent and MergerSub a written notice
either accepting or rejecting the Parent Disclosure
Letter. If Electronika and the Electronika
Stockholders reject the Parent Disclosure Letter, or
fail to deliver a notice of acceptance within said 10-
day period, this Agreement shall immediately terminate
and be of no further force and effect as provided in
Section 9.3.
ARTICLE VIII
PARENT'S AND ACQUISITION'S
CONDITIONS TO CLOSING
The obligations of Parent and MergerSub under this
Agreement are subject to all of the following
conditions being met or waived as of the Closing:
Section VIII.1 Voting Trust. Certain members of the
Sizemore Family and Peter Caloyeras shall have entered
into a voting trust, which shall be in form and
substance satisfactory to the parties thereto.
Section VIII.2 Accuracy of Representations and
Compliance With Conditions. All representations and
warranties of Electronika contained in this Agreement,
as modified by the Updated Electronika Disclosure
Letter, shall be accurate in all material respects as
of the Effective Time, except as to changes
contemplated or permitted by this Agreement.
Electronika and the Electronika Stockholders shall
have performed and complied with all covenants and
agreements in all material respects and satisfied all
conditions required to be performed and complied with
by them at or before the Effective Time by this
Agreement.
Section VIII.3 Material Adverse Change. Between the
date hereof and the Closing Date, there shall not have
occurred any material adverse change in the financial
condition or in the results of operations or the
business, properties, assets (tangible or intangible),
prospects, or liabilities of Electronika and its
subsidiaries, taken as a whole.
Section VIII.4 Other Documents. Electronika and the
Electronika Stockholders shall have delivered to
Parent and MergerSub at or prior to the Effective Time
such other documents as Parent may reasonably request
in order to carry out the transactions contemplated by
this Agreement.
Section VIII.5 Review of Proceedings. All actions,
proceedings, instruments, and documents required to
carry out this Agreement or incidental thereto and all
other related legal matters shall be subject to the
reasonable approval of counsel to Parent and
MergerSub, and Electronika shall have furnished such
counsel such documents as such counsel may have
reasonably requested for the purpose of enabling them
to pass upon such matters.
Section VIII.6 Legal Action. There shall not have
been instituted or threatened any legal proceeding
relating to, or seeking to prohibit or otherwise
challenge the consummation of, the transactions
contemplated by this Agreement, or to obtain
substantial damages with respect thereto.
Section VIII.7 No Governmental Action. There shall
not have been any action taken, or any law, rule,
regulation, order, judgment, or decree proposed,
promulgated, enacted, entered, enforced, or deemed
applicable to the transactions contemplated by this
Agreement by any federal, state, local, or other
governmental authority or by any court or other
tribunal, including the entry of a preliminary or
permanent injunction, which, in the reasonable
judgment of Parent, (i) makes this Agreement, the
Merger, or any of the other transactions contemplated
by this Agreement illegal, (ii) results in a material
delay in the ability of any of the parties to
consummate the Merger or any of the other transactions
contemplated by this Agreement, or (iii) otherwise
prohibits, restricts, or materially delays
consummation of the Merger or any of the other
transactions contemplated by this Agreement or impairs
the contemplated benefits to Parent or MergerSub of
this Agreement, the Merger, or any of the other
transactions contemplated by this Agreement.
Section VIII.8 Fairness Opinion. Parent shall have
received the opinion of Stern Brothers Valuation
Advisors, dated as of the date of the Proxy Statement
and for inclusion therein, to the effect that the
Merger and the other transactions contemplated by this
Agreement are fair, from a financial point of view, to
Parent and its stockholders, and such opinion shall
have been confirmed in writing as of the Effective
Time.
Section VIII.9 Consents Needed. Electronika shall
have obtained at or prior to the Effective Time all
consents required for the consummation of the Merger
and the other transactions contemplated by this
Agreement, including without limitation consents from
any party to any Electronika Material Contract.
Parent shall have obtained at or prior to the
Effective Time the consent of the New Jersey
Department of Environmental Protection to the
transactions contemplated hereby.
Section VIII.10 Other Agreements. The Escrow
Agreement and any other agreements to be executed
between the Parties prior to the Effective Time shall
have been duly authorized, executed, and delivered by
the parties thereto at or prior to the Effective Time,
at the Effective Time shall be in full force, valid,
and binding upon the parties thereto, and shall
(subject to the Bankruptcy Exception) be enforceable
by them in accordance with their terms at the
Effective Time.
Section VIII.11 Stockholder Approval. The
stockholders of Parent shall have duly approved, by
the affirmative vote of at least a majority of all
shares of Parent Common Stock outstanding, the
issuance of the Common Shares to the Electronika
Stockholders and the amendment to the Parent's
Articles of Incorporation creating the Parent
Preferred Stock.
Section VIII.12 Closing Certificate. Parent and
MergerSub shall have received from Electronika and the
Electronika Stockholders a certificate dated the
Closing Date, certifying that the conditions specified
in Sections 8.2, 8.3, 8.6, 8.7 and 8.9 hereof have
been satisfied.
Section VIII.13 Electronika Disclosure Letter.
Electronika and the Electronika Stockholders shall
have delivered to Parent and MergerSub the Electronika
Disclosure Letter by December 23,
1998, and the Electronika Disclosure Letter shall be,
in form and substance, acceptable to Parent and
MergerSub in their sole and absolute discretion.
Within ten (10) days following receipt of the
Electronika Disclosure Letter, Parent and MergerSub
shall deliver to Electronika and the Electronika
Stockholders a written notice either accepting or
rejecting the Electronika Disclosure Letter. If
Parent and MergerSub reject the Electronika Disclosure
Letter, or fail to deliver a notice of acceptance
within said 10-day period, this Agreement shall
immediately terminate and be of no further force and
effect as provided in Section 9.3.
ARTICLE IX
TERMINATION
Section IX.1 Mandatory Termination. This Agreement
shall be automatically terminated if (a) the holders
of at least a majority of all shares of Parent Common
Stock outstanding shall not have voted in favor of the
adoption and approval of the matters described in
Section 8.11 hereof (b) Electronika and the
Electronika Stockholders reject the Parent Disclosure
Letter, or fail to deliver a notice of acceptance
within the specified 10-day period, as provided in
Section 7.11, (c) Electronika and the Electronika
Stockholders shall determine, in their reasonable
discretion, that any Updated Parent Disclosure Letter
is not acceptable and shall have delivered a written
notice of rejection to Parent and MergerSub within ten
days following their receipt of the Updated Parent
Disclosure Letter, (d) Parent and MergerSub reject the
Electronika Disclosure Letter, or fail to deliver a
notice of acceptance within the specified 10-day
period, as provided in Section 8.13, or (e) Parent and
MergerSub shall determine, in their reasonable
discretion, that any Updated Electronika Disclosure
Letter is not acceptable and shall have delivered a
written notice of rejection to Electronika and the
Electronika Stockholders within ten days following
their receipt of the Updated Electronika Disclosure
Letter.
Section IX.2 Optional Termination. This Agreement may
be terminated on or before the Effective Time
notwithstanding adoption and approval of this
Agreement, the Merger, and the other transactions
contemplated hereby by the stockholders of the parties
hereto:
(a) by the mutual written consent of Electronika
and Parent;
(b) at the option of either Electronika or Parent
if the Effective Time shall not have occurred on or
before February 28, 1999 (provided that the right to
terminate this Agreement under this Section 9.2(b)
shall not be available to any party whose failure to
fulfill any obligation under this Agreement has been
the cause of or resulted in the failure of the
Effective Time to occur on or before such date);
(c) at the option of Parent, if facts exist which
render impossible the compliance with one or more of
the conditions set forth in Article VIII and such
conditions are not waived by Parent; and
(d) at the option of Electronika, if facts exist
which render impossible the compliance with one or
more of the conditions set forth in Article VII and
such conditions are not waived by Electronika.
Section IX.3 Effect of Termination. If this Agreement
is rightfully terminated as provided for in this
Article IX or pursuant to Sections 7.11 or 8.13:
(a) This Agreement shall forthwith become wholly
void and of no effect without liability on the part of
any Party to this Agreement; provided, however, that
nothing in this Section 9.3 shall release any of the
Parties from liability for a willful failure to carry
out its respective obligations under this Agreement,
and provided further that the provisions of Sections
5.7, 6.9 and 9.3(b) shall remain in full force and
effect and survive any termination of this Agreement;
and
(b) The Parties shall each pay and bear their own
fees and expenses incident to the negotiation,
preparation, and execution of this Agreement and its
respective meetings of stockholders, including fees
and expenses of its counsel, accountants, investment
banking firm, and other experts.
ARTICLE X
TRANSFER RESTRICTIONS; GOVERNANCE
Section X.1 Restrictive Legends. The Merger Shares
shall be subject to a stop-transfer order and the
certificate or certificates evidencing such shares
shall bear a legend substantially in the following
form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE ACT). SAID SECURITIES MAY NOT BE
SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR AN EXEMPTION THEREFROM UNDER THE ACT.
In addition, the certificates representing the Common
Shares shall bear a legend substantially in the
following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE
SUBJECT TO THE TERMS AND CONDITIONS OF AN AGREEMENT
DATED AS OF NOVEMBER 24, 1998 BY AND AMONG TOROTEL,
INC. AND THE HOLDER HEREOF, AMONG OTHERS, A COPY OF
WHICH IS ON FILE WITH THE SECRETARY OF TOROTEL, AND
ARE HELD AND MAY NOT BE TRANSFERRED OR OTHERWISE
DISPOSED OF EXCEPT IN ACCORDANCE THEREWITH.
Subject to the terms and conditions of this Agreement,
the Electronika Stockholders may make any disposition
of the Common Shares or of the Preferred Shares (to
the extent the Preferred Shares have been released
from the Escrow), upon giving to Parent, prior to any
such disposition, (i) written notice describing
briefly the manner in which, and the transferee or
transferees to whom, such proposed disposition is to
be made, and (ii) written evidence of (a) compliance
with the Act, or evidence to the satisfaction of
Parent that there is an available exemption from the
application of the Act, and (b) the transferee's
undertaking to be bound by any applicable terms and
conditions of this Agreement.
Section X.2 Further Restrictions. Notwithstanding
Section 10.1 hereof to the contrary, the Electronika
Stockholders shall not transfer their shares of Parent
Common Stock during the Escrow Period, except to one
or more trusts of which the Electronika Stockholder is
the sole trustee and which was established for the
benefit of such Electronika Stockholder or such
Electronika Stockholder's spouse, ancestors, issue
(including adopted children and step-children) or
spouses of issue (a Living Trust). Subject to
compliance with the provisions of the Securities Act,
the Preferred Shares shall not be subject to any
restriction on transfer once such shares are released
from the Escrow. During the Escrow Period, the
Electronika Stockholders may transfer their interests
in the Preferred Shares held in the Escrow only to a
Living Trust.
Section X.3 Investment Representations. Either the
Electronika Stockholders are accredited investors,
as that term is defined in Rule 501 of the rules and
regulations promulgated by the SEC under the
Securities Act, or the Electronika Stockholders,
either alone or with their qualified purchaser
representative (as defined in Rule 501), have such
knowledge and experience in financial and business
matters that they are capable of evaluating the risks
and merits of an investment in the Merger Shares. The
Electronika Stockholders are acquiring the Merger
Shares in the Merger for investment and not with a
view to the sale thereof other than in compliance with
the requirements of the Securities Act and applicable
Blue Sky laws. At the request of Parent, the
Electronika Stockholders will furnish to Parent
evidence reasonably satisfactory to Parent that the
foregoing representations are true. The Electronika
Stockholders acknowledge that Parent has made
available to them the opportunity to ask questions and
receive answers concerning the terms and conditions of
the Merger and to obtain any additional information
that Parent is required to furnish under the
Securities Act and the rules and regulations
promulgated thereunder.
Section X.4 Directors. Concurrently with the Closing,
(i) the number of members of the Parent Board of
Directors shall be increased to seven, (ii) the
Electronika Stockholders shall be entitled to
designate two members of the seven member Parent Board
of Directors, and (iii) the Parent Board of Directors
shall appoint such designees as directors in order to
fill the existing two vacancies. The Electronika
Stockholders agree not to vote their respective Common
Shares to remove any director of Parent during the
period from the Effective Time to the earlier of
September 30, 1999 or the 1999 annual meeting of
Parent stockholders, except for Cause. For purposes
of this Section 10.4, a removal is for Cause if such
removal is evidenced by a resolution adopted in good
faith by a majority of the Board of Directors of
Parent finding that the director to be removed (a)
committed an act of embezzlement, fraud,
misappropriation or conversion of assets or
opportunities or other dishonesty against Parent or
any Parent Subsidiary, (b) was enjoined by the
Securities and Exchange Commission or any other
industry regulatory authority from being and officer
or director of a publicly-held company, (c) engaged in
conduct demonstrably and materially injurious to
Parent or any Parent Subsidiary, (d) has been
convicted by a court of competent jurisdiction of, or
has pleaded guilty or nolo contendere to, any felony
or misdemeanor involving dishonesty or moral turpitude
or (e) inadequately or improperly performed his duties
as a director of Parent or any Parent Subsidiary to
the detriment of their respective businesses.
Section X.5 Prohibited Stockholder Actions. During the
Escrow Period, neither the Electronika Stockholders
nor any of their affiliates (regardless of whether
such person is an affiliate on the date hereof) shall,
without prior Independent Approval (as hereinafter
defined):
(a) Vote their Common Shares in favor of any
action or agreement, or take any other action, that
would (i) result in a breach of any covenant,
representation or warranty or any other obligation of
Electronika under this Agreement or (ii) impede,
interfere with or discourage the intended purposes of
this Agreement;
(b) Acquire, offer to acquire, or agree to
acquire, directly or indirectly, by purchase or
otherwise, any voting securities or direct or indirect
rights or options to acquire any voting securities of
Parent, other than as a result of a stock split, stock
dividend or similar recapitalization; or
(c) Make or cause to be made any proposal for any
transaction between (i) the Electronika Stockholders
or any of their affiliates and (ii) Parent or any of
its affiliates, including without limitation any
acquisition or disposition of assets, merger, or other
business combination, restructuring, tender offer,
exchange offer, recapitalization or similar
transaction.
Section X.6 Prohibited Actions by Parent. During
the Escrow Period, in addition to any stockholder vote
or vote by the Board of Directors of Parent or any
affiliate that may be required by law, neither Parent
nor any affiliate shall, without prior Independent
Approval:
(a) Enter into, or propose to enter into, any
agreement, arrangement or transaction with the
Electronika Stockholders, the Sizemore Family or any
of their respective affiliates;
(b) Amend the Articles of Incorporation or the
Bylaws of Parent or any affiliate that may benefit the
Electronika Stockholders, the Sizemore Family or any
of their respective affiliates, to the exclusion of,
or disproportionately to, the other stockholders of
Parent;
(c) Approve salary increases or bonus payments to
officers or employees affiliated with the Electronika
Stockholders, the Sizemore Family or any of their
respective affiliates;
(d) Amend, modify, waive or terminate this
Agreement;
(e) Dissolve Parent or any affiliate;
(f) Initiate bankruptcy, insolvency or
reorganization proceedings involving Parent or any
affiliate; or
(g) Withdraw the registration of the Parent Common
Stock under the Exchange Act.
Section X.7 Definition of Independent Approval.
For the purposes of this Agreement, the term
Independent Approval shall mean, either (i) the
approval of a majority of the Board of Directors who
are disinterested with respect to the matter which is
the subject of the Board or stockholder action or (ii)
if there are fewer than two such directors, the
approval of the holders of a majority of the then
outstanding voting securities of the Company held by
persons other than stockholders (including affiliates
and Family Members) interested in such Board or
stockholder action.
Section X.8 Definition of Affiliate and Family
Members. The term affiliate shall mean, with
respect to any Person, any other Person directly or
indirectly controlling, controlled by or under common
control with such Person and, without limiting the
generality of the foregoing, includes (a) any director
or officer of such Person or of any affiliate of such
Person, (b) any such director's or officer's Family
Members, (c) any group, acting in concert, of one or
more of such directors, officers or Family Members,
and (d) any Person owned or controlled by any such
director, officer, Family Member or group which
beneficially owns or holds 10% or more of any class of
equity securities or profits interest. The term
control means the possession, directly or
indirectly, of the power to direct or cause the
direction of the management and policies of an entity,
whether through the ownership of voting securities, by
contract or otherwise. The term Family Member shall
mean any brother, sister, spouse, ancestor or
descendant of an affiliate or of a Person, director of
officer.
Section X.9 Indemnification; Insurance
(a) From and after the Closing Date, Parent 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 or
director of Parent or any of the Parent Subsidiaries
(collectively, the Indemnified Parties and
individually, an Indemnified Party) against all
losses, liabilities, expenses, claims or damages
incurred 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 or officer of Parent 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 and its articles of
incorporation and bylaws in effect on the date 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) The Electronika Stockholders shall cause the
articles of incorporation and bylaws of Parent 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
10.9(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, Parent shall, to the fullest extent
permitted under applicable law, pay as incurred such
Indemnified Party's legal and other expenses
(including the cost of any investigation and
preparation) incurred in connection therewith,
provided the Indemnified Party to whom expenses are
advanced provides an undertaking to repay such
advances if it is ultimately determined that such
Indemnified Party is not entitled to indemnification.
Parent 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 10.9(c).
(d) For six years after the Closing Date, Parent
shall cause policies of directors' and officers'
liability insurance to be maintained by Parent in
amounts not less than 1998 coverage (provided that
Parent 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 Parent's
director and officer liability insurance exceeds 150%
of 1998 premiums (Maximum Premium), Parent 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 and
Parent, retained at Parent's expense.
(f) This Section 10.9 is intended to benefit the
Indemnified Party and their respective heirs,
executors and personal representatives and shall be
binding on the successors and assigns of Parent.
ARTICLE XI
MISCELLANEOUS
Section XI.1 Survival. The representations,
warranties, covenants and agreements made herein shall
survive the Closing of the transactions contemplated
hereby and continue in force and effect only until the
expiration of the Escrow Period.
Section XI.2 Further Actions. At any time and from
time to time, each party agrees, at its expense, to
take such actions and to execute and deliver such
documents as may be reasonably necessary to effectuate
the purposes of this Agreement.
Section XI.3 Modification. This Agreement (including
the documents and instruments referred to herein) sets
forth the entire understanding of the Parties with
respect to the subject matter hereof and supersedes
all existing agreements and understandings, both
written and oral, among them concerning such subject
matter. This Agreement may be amended prior to the
Effective Time (notwithstanding stockholder adoption
and approval) by a written instrument executed by the
Parties with the approval of their respective Boards
of Directors; provided, however, that after approval
of this Agreement and the Merger by the Electronika
Stockholders or the stockholders of Parent, no
amendment shall be made which by law requires further
approval of such stockholders without such further
approval.
Section XI.4 Notices. Any notice or other
communication required or permitted to be given
hereunder shall be in writing and shall be mailed by
certified mail, return receipt requested or by Federal
Express, Express Mail, or similar overnight delivery
or courier service or delivered (in person or by
telecopy, telex, or similar telecommunications
equipment) against receipt to the party to which it is
to be given at the address of such party set forth
below (or to such other address as the party shall
have furnished in writing in accordance with the
provisions of this Section 11.4):
To Parent or MergerSub: Torotel, Inc.
13402 South 71 Highway
Grandview, MO 64030
Attention: Secretary
With a copy to: Shook, Hardy & Bacon
L.L.P.
1010 Grand Boulevard
5th Floor
P.O. Box 15607
Kansas City, MO 64106
Attention: Randall B.
Sunberg, Esq.
To Electronika or the Electronika
Stockholders: Basil Peter Caloyeras
c/o Magnetika, Inc.
2041 W. 139th Street
Gardena, California 90247
With a copy to: Ervin, Cohen & Jessup LLP
Ninth Floor
9401 Wilshire Boulevard
Beverly Hills, CA
90212-2974
Attention: W. Edgar
Jessup, Jr.,
Esq.
Any notice given in accordance with this Section 11.4
shall be deemed duly given when received by the party
for whom it is intended, if personally delivered or
delivered by telecopy, telex or similar
telecommunications equipment, twenty-four (24) hours
after delivery if sent by Federal Express, Express
Mail or similar overnight delivery or courier service
or forty-eight (48) hours after being deposited in the
United States mail, all fees prepaid.
Section XI.5 Waiver. At any time prior to the
Closing, the Parties may, to the extent legally
permitted: (i) extend the time for the performance of
any of the obligations or other acts or any other
party; (ii) waive any inaccuracies in the
representations or warranties of any other party
contained in this Agreement or in any document or
certificate delivered pursuant hereto; (iii) waive
compliance or performance by any other party with any
of the covenants, agreements or obligations of such
party contained herein; and (iv) waive the
satisfaction of any condition that is precedent to the
performance by the party so waiving of any of its
obligations hereunder. Any waiver by any party of a
breach of any term of this Agreement shall not operate
as or be construed to be a waiver of any other breach
of that term or of any breach of any other term of
this Agreement. The failure of a party to insist upon
strict adherence to any term of this Agreement on one
or more occasions will not be considered a waiver or
deprive that party of the right thereafter to insist
upon strict adherence to that term or any other term
of this Agreement. Any waiver must be in writing and
signed by the waiving party.
Section XI.6 Binding Effect. The provisions of
this Agreement shall be binding upon and inure to the
benefit of the Parties hereto and their respective
successors and permitted assigns and shall inure to
the benefit of each Indemnified Party and his, her or
its successors and assigns.
Section XI.7 No Third-Party Beneficiaries. This
Agreement does not create, and shall not be construed
as creating, any rights enforceable by any person not
a party to this Agreement except as specifically
provided herein.
Section XI.8 Separability. If any provision of
this Agreement is deemed to be invalid, illegal, or
unenforceable, the balance of this Agreement shall
remain in effect, and if any provision is inapplicable
to any person or circumstance, it shall nevertheless
remain applicable to all other persons and
circumstances.
Section XI.9 Headings. The headings in this
Agreement are solely for convenience of reference and
shall be given no effect in the construction or
interpretation of this Agreement.
Section XI.10 Counterparts; Governing Law. This
Agreement may be executed in any number of
counterparts, each of which shall be deemed an
original, but all of which together shall constitute
one and the same instrument. This Agreement shall be
governed by and construed in accordance with the laws
of Missouri without giving effect to conflict of laws.
Section XI.11 Assignment. Neither this Agreement
nor any of the rights, interests or obligations
hereunder shall be assigned by any of the Parties
(whether by operation of law or otherwise) without the
prior written consent of the other Parties.
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IN WITNESS WHEREOF, the parties hereto have executed
this Agreement as of the date first set forth above.
TOROTEL, INC.
_/s/ Dale H Sizemore, Jr.___________ _
By: ________________________________
Title: Chairman and CEO_______________
TOROTEL MERGER SUBSIDIARY, INC.
_/s/ Dale H. Sizemore, Jr._________ ___
By: ________________________________
Title: Chairman and CEO_______________
ELECTRONIKA, INC.
_/s/ Basil Peter Caloyeras_______________
By: ________________________________
Title: President_______________________
_/s/ Alexandra Zoe Caloyeras____________
Alexandra Zoe Caloyeras
_/s/ Aliki Sophia Caloyeras______________
Aliki Sophia Caloyeras
_/s/ Basil Peter Caloyeras_______________
Basil Peter Caloyeras
Exhibit A
Designations of Parent Preferred Stock
TOROTEL, INC.
Amendment to Certificate of Incorporation
Exhibit A
Article III
(a) The aggregate number of shares which the
Corporation shall be authorized to issue shall be
Eight Million Five Hundred Thousand (8,500,000) shares
of capital stock, par value $.50 per share, consisting
of Six Million (6,000,000) shares of common stock (the
Common Stock) and Two Million Five Hundred Thousand
(2,500,000) shares of Class A $1.00 Preferred Stock
(the Preferred Stock). No holder of shares of
Common Stock or Preferred Stock shall have any
preemptive right to acquire additional shares of the
Corporation's capital stock. The Common Stock shall
have no preferences, qualifications, limitations,
restrictions or special rights of any character
whatsoever in respect thereof.
(b) The following is a statement of the
designations, powers, privileges and rights, and the
qualifications, limitations and restrictions, in
respect of the Preferred Stock:
(i) Accumulation and Payment of Dividends. The
holders of outstanding shares of Preferred Stock shall
be entitled, in preference to the holders of Common
Stock, to receive, out of any funds legally available
therefor, cumulative mandatory dividends on each share
of Preferred Stock payable in cash at the rate per
annum of $0.05 per share (the Preferred Dividends);
provided, that Preferred Dividends need not be paid in
cash if and to the extent that such payment is
prohibited by law or under the terms of one or more
agreements or instruments evidencing indebtedness for
money borrowed of the Corporation at the time such
payment would otherwise be due, in which case such
Preferred Dividends shall accumulate as provided
herein. Preferred Dividends shall accumulate
commencing as of the date of issuance of the Preferred
Stock, will be payable annually within forty-five (45)
days of the Corporation's fiscal year end and will be
cumulative, to the extent unpaid, whether or not they
have been declared and whether or not there are
profits, surplus or other funds of the Corporation
legally available for the payment of dividends.
Preferred Dividends not paid or paid in an amount less
than the total amount of such dividends at the time
accumulated and payable on all outstanding shares of
Preferred Stock, including fractions, shall be
allocated pro rata on a share-by-share basis among all
such shares at the time outstanding. The amount of
accumulated dividends on any share of Preferred Stock,
or fraction thereof, at any date, shall be the amount
of any dividends payable thereon to and including such
date, whether or not declared, which have not been
paid in cash, with additional dividends accumulating
on any such accumulated but unpaid dividends
(including without limitation, dividends which remain
unpaid as a result of a prohibition against payment in
any agreement for money borrowed) until paid. The
Preferred Dividends shall be cumulative, so that if
any Preferred Dividend shall not have been paid when
due, the deficiency shall be fully paid or declared
and set apart for all outstanding shares of Preferred
Stock before the Corporation pays any dividend on or
redeems or makes any other distribution on its Common
Stock. The Preferred Dividends for any calendar year
on any share of Preferred Stock which is not
outstanding on every day of the year shall be prorated
based on the number of days such share was outstanding
during the year. All numbers relating to the
calculation of dividends pursuant hereto shall be
subject to equitable adjustment in the event of any
stock split, combination, reorganization,
recapitalization, reclassification or other similar
event involving a change in the Preferred Stock.
Other than as provided herein, holders of Preferred
Stock shall have no other right to receive dividends
of the Corporation.
(ii) Redemption. The Preferred Stock shall be
redeemable as follows:
a) The Corporation may redeem Preferred Stock at
any time, at its sole option, in whole or in part, out
of funds legally available therefor, at a per share
redemption price payable in cash equal to the sum of
(x) One Dollar and Ten Cents ($1.10) per share of
Preferred Stock (adjusted appropriately for stock
splits, stock dividends, recapitalizations and the
like with respect to the Preferred Stock) plus (y) all
accumulated, accrued and unpaid dividends thereon,
whether or not declared, in cash to the date of
redemption (the Total Per Share Preference Amount).
b) Any redemption of Preferred Stock shall be
accomplished out of funds legally available for such
purpose, subject to such limitations as may be imposed
under any agreement or instrument evidencing
indebtedness for money borrowed of the Corporation at
the time of such redemption, and shall otherwise be
accomplished in accordance with all applicable laws.
c) If fewer than all of the Preferred Stock at the
time issued and outstanding are to be redeemed, the
shares shall be redeemed from the holders of Preferred
Stock pro rata based on their respective holdings of
such shares.
d) Notice of any redemption of Preferred Stock (a
Redemption Notice) shall be mailed at least ten (10)
but not more than sixty (60) calendar days prior to
the date fixed for redemption to each holder of
Preferred Stock to be redeemed, at such holder's
address as it appears on the books of the Corporation.
In order to facilitate any redemption of Preferred
Stock, the Board of Directors may fix a record date
for the determination of holders of Preferred Stock to
be redeemed, which shall not be less than ten (10) nor
more than thirty (30) calendar days prior to the date
fixed for such redemption. The Redemption Notice
shall include the date fixed for redemption, the Total
Per Share Preference Amount to be paid and the place
at which the preferred stockholders may obtain payment
of the Total Per Share Preference Amount upon
surrender of their share certificates.
e) On or after the redemption date specified in
any Redemption Notice, each holder of shares of
Preferred Stock called to be redeemed shall surrender
the certificate or certificates evidencing such shares
to the Corporation and shall then be entitled to
receive payment of the redemption price for each such
share. If fewer than all the shares represented by
one share certificate are to be redeemed, the
Corporation shall issue a new share certificate for
the shares not redeemed.
f) If funds are available on the date fixed in the
Redemption Notice, then, whether or not the share
certificates are surrendered for payment of the Total
Per Share Preference Amount, on such date the holders
of Preferred Stock to be redeemed on such redemption
date shall cease to be stockholders with respect to
such shares, such shares shall no longer be
transferable on the books of the Corporation and such
holders shall have no interest in or claim against the
Corporation with respect to such shares except the
right to receive payment of the redemption price upon
delivery to the Corporation of (x) the certificates
representing such shares of Preferred Stock, or
fractions thereof, and (y) appropriate endorsements
and transfer documents sufficient to transfer such
shares of Preferred Stock, or fractions thereof, to
the Corporation free of any adverse interest or lien.
The Board of Directors shall cause the transfer books
of the Corporation to be closed as to shares to be
redeemed pursuant hereto. The Corporation shall
return to the status of unauthorized and undesignated
shares each share of Preferred Stock which it shall
redeem or for any other reason acquire.
g) The Corporation shall redeem all of the
outstanding shares of Preferred Stock from funds
lawfully available therefor twenty-one (21) days after
the consummation of any of the following events: (x) a
reorganization, merger or consolidation with one or
more other corporations as a result of which the
Corporation is not the surviving corporation or the
Corporation survives as a subsidiary (at least
majority owned) of another corporation, or (y) the
sale of all or substantially all of the assets and
property of the Corporation to another person or
entity.
(iii) Liquidation, Dissolution or Winding Up.
Upon any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, no
distribution shall be made to the holders of shares of
Common Stock unless, prior thereto, the holders of
shares of Preferred Stock, including any fractional
shares, shall have received per share in cash the
Total Per Share Preference Amount (the Liquidation
Preference). If, upon such liquidation, dissolution
or winding up, the assets thus distributed among the
holders of the Preferred Stock shall be insufficient
to permit the payment to such stockholders of the full
preferential amount set forth herein, then the entire
assets of the Corporation to be distributed shall be
distributed ratably among the holders of the Preferred
Stock. After payment in full of the Liquidation
Preference to holders of all shares of Preferred
Stock, including any fractional shares, the Preferred
Stock shall not be entitled to receive any additional
cash, property or other assets of the Corporation upon
the liquidation, dissolution or winding up of the
Corporation.
(iv) Voting Rights. Except as otherwise required
by law, the holders of shares of Preferred Stock shall
have no voting rights. Notwithstanding the foregoing,
without the affirmative vote or written consent of the
holders of at least a majority of the outstanding
shares of Preferred Stock, voting as a class, the
Corporation shall not:
a) amend or repeal any provision of or add any
provision to the Corporation's Articles of
Incorporation, or in any other manner modify any class
of capital stock, if such action would alter or change
the rights, preferences, privileges or powers of, or
the restrictions provided for the benefit of, the
Preferred Stock so as to affect adversely the
Preferred Stock; or
b) except as provided elsewhere herein, authorize
or issue any additional shares of Preferred Stock or
reissue any shares of Preferred Stock that have been
reacquired by the Corporation, by purchase, redemption
or otherwise; or
c) authorize or create shares of any class of
capital stock having equal priority with the Preferred
Stock or any preference or priority over the Preferred
Stock as to dividends or distribution of assets on
liquidation, dissolution or winding up.
(v) Fractional Shares; Uncertificated Shares. The
Corporation may issue fractional shares of Preferred
Stock. The holders of fractional shares shall be
entitled to all rights as preferred stockholders of
the Corporation to the extent provided herein and
under applicable law in respect of such fractional
shares. Shares of Preferred Stock, or fractions
thereof, may, but need not, be represented by share
certificates. Shares of Preferred Stock, or fractions
thereof, not represented by share certificates
(Uncertificated Shares) shall be registered in the
stock record book of the Corporation. The Corporation
at any time at its sole option may deliver to any
registered holder of Preferred Stock share
certificates to represent Uncertificated Shares
previously issued (or deemed issued) to such holder.
(c) The Board of Directors is authorized in its
discretion to determine, fix and approve the
consideration other than cash for shares which may be
issued, and to determine the fair value to the
Corporation of such consideration.
Exhibit B
Articles of Merger
State of Missouri
Rebecca McDowell Cook, Secretary of State
P.O. Box 778, Jefferson City, MO 65102
Corporate Division
Articles of Merger
(1) That Torotel Acquisition Corp. of Missouri
(2) That Electronika, Inc. of California
are hereby merged and that the above named Torotel
Acquisition Corp. is the surviving corporation.
(4) That the Board of Directors of Torotel
Acquisition Corp. met on and by resolution adopted by
a majority vote of the members of such board approved
the Plan of Merger set forth in these articles.
(5) That the Board of Directors of Electronika, Inc.
met on and by a majority of the members of such board
approved the Plan of Merger set forth in these
articles. The Plan of Merger thereafter was submitted
to a vote at the special meeting of the shareholders
of Torotel Acquisition Corp. held on at and at such
meeting there were 1,000 shares entitled to vote and
1,000 voted in favor and -0- voted against said plan.
The Plan of Merger thereafter was submitted to a vote
at the special meeting of the shareholders of
Electronika, Inc. held on at and at such meeting there
were 1,000 shares entitled to vote and voted in favor
and voted against said plan.
(10) PLAN OF MERGER
(1) Torotel Acquisition Corp. of Missouri is
the survivor.
(2) All of the property, rights, privileges,
leases and patents of Electronika, Inc. are to be
transferred to and become the property of Torotel
Acquisition Corp.the survivor. The officers and board
of directors of the above named corporations are
authorized to execute all deeds, assignments, and
documents of every nature which may be needed to
effectuate a full and complete transfer of ownership.
(3) The officers and board of directors of
Torotel Acquisition Corp. shall continue in office
until their successors are duly elected and qualified
under the provisions of the by-laws of the surviving
corporation.
(4) The outstanding shares of Electronika, Inc.
shall be converted into the right to receive, in the
aggregate: (i) 1,800,000 newly issued shares of
Torotel, Inc.; and (ii) 2,500,000 shares of Class A
$1.00 Preferred Stock of Torotel, Inc. The shares of
Class A $1.00 Preferred Stock shall be deposited into,
and shall be subject to the terms of, an escrow to be
entered into between Torotel, Inc. and the former
shareholders of Electronika, Inc.
(6) The articles of incorporation of the
survivor are/are not amended as follows:
Article 1 shall be amended to read:
The name of the corporation is
Electronika, Inc. (the Corporation).
IN WITNESS WHEREOF, these Articles of Merger have been
executed in duplicate by the aforementioned
corporations as of the day and year hereafter
acknowledged.
CORPORATE SEAL Torotel Acquisition Corp.
By
ATTEST
By
CORPORATE SEAL Electronika, Inc.
By
ATTEST
By
Exhibit C
Escrow Agreement
ESCROW AGREEMENT
THIS ESCROW AGREEMENT (the Agreement) is made and
entered into as of , 1999, by and
among Torotel, Inc., a Missouri corporation (the
Company), the persons listed on the signature page
hereto (collectively, the Holders), and
__________________, as escrow agent (Escrow Agent).
W I T N E S S E T H:
WHEREAS, the Company and the Holders, among others,
have entered into that certain Agreement and Plan of
Merger dated as of November 24, 1998 (the Merger
Agreement), a copy of which has been delivered to
Escrow Agent;
WHEREAS, capitalized terms not defined herein have the
meanings set forth in the Merger Agreement;
WHEREAS, Section 1.4 of the Merger Agreement provides
that, upon consummation of the Merger, the Company
will issue 2,500,000 shares of Class A $1.00 Preferred
Stock (the Escrow Shares) in the names of the
Holders and deliver them to Escrow Agent to be held in
escrow and distributed in accordance with the terms of
this Agreement; and
WHEREAS, Escrow Agent is willing to act as escrow
agent for the Company and the Holders on the terms and
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and
of the mutual covenants and agreements hereinafter set
forth, and of other good and valuable consideration,
the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Establishment of Escrow; Escrow Share
Certificates. Concurrently with the Closing, the
Company will issue the Escrow Shares in the names of
the Holders and cause them to be delivered to Escrow
Agent. Escrow Agent agrees to accept delivery of such
Escrow Shares and to hold such Escrow Shares delivered
to it in escrow subject to the terms and conditions of
this Agreement (the Escrow), until Escrow Agent is
required to release such Escrow Shares, or a portion
of them, pursuant to the terms of this Agreement.
2. Releases from the Escrow.
(a) The Escrow Shares shall be released from the
Escrow and distributed to the Holders at the
expiration of each Escrow Payment Period, as
determined in accordance with the provisions of
subsection (b) below.
(b) Escrow Agent shall release Escrow Shares from
the Escrow and distribute such Escrow Shares to the
Holders, as follows:
(i) Within 90 days after the end of the applicable
Escrow Payment Period, the Company shall prepare and
deliver to Escrow Agent and the Holders the EBITDA
Schedule, which (I) shall take into account any
applicable Net Worth Adjustment, (II) comply with
Section 1.5 of the Merger Agreement and (III) set
forth the Company's determination of the number of
Escrow Shares to be released from the Escrow and
distributed to each of the Holders. If such EBITDA
Schedule as submitted by the Company is acceptable to
the Holders then the Company and the Holders shall
issue a joint escrow release instruction to Escrow
Agent setting forth in detail the number of Escrow
Shares to be released from the Escrow and distributed
to each of the Holders (a Joint Escrow Release
Instruction).
(ii) If the EBITDA Schedule is not acceptable to
the Holders, the Holders shall deliver to Escrow Agent
and the Company within 30 days after their receipt of
the EBITDA Schedule a statement describing their
objections thereto (setting forth the amount proposed
as an adjustment thereto and the basis for such
objection). Failure of the Holders to so object to
the EBITDA Schedule as submitted by the Company shall
constitute acceptance thereof by the Holders;
provided, however, that Escrow Agent shall not be
required to release from the Escrow any of the Escrow
Shares until it has received a Joint Escrow Release
Instruction from the Company and the Holders. If the
Holders object to such EBITDA Schedule, the Company
and the Holders shall use their reasonable efforts to
resolve any such objections, but if they do not reach
a final resolution within 20 days after the Company
has received the statement of objections, the Company
and the Holders shall select an independent,
nationally recognized accounting firm (the Accounting
Firm) to resolve any remaining objections. The
Accounting Firm shall, within 30 days after submission
to it of any remaining objections, determine and
report to the parties upon the items objected to and
such determination by the Accounting Firm shall be
conclusive and binding upon the Company and the
Holders absent fraud or manifest error. Upon receipt
of such report, the Company and the Holders shall
issue a Joint Escrow Release Instruction to Escrow
Agent.
(iii) If the Company fails to deliver an EBITDA
Schedule to the Holders within the requisite 90-day
period, the Holders may deliver a proposed EBITDA
Schedule to Escrow Agent and the Company, and, if the
EBITDA Schedule so submitted is acceptable to the
Company, then the Company and the Holders shall issue
a Joint Escrow Release Instruction to Escrow Agent.
If said EBITDA Schedule is not acceptable to the
Company, the Company shall follow the same procedures
specified above with respect to the Holders for
objecting to said EBITDA Schedule, and upon final
resolution of such EBITDA Schedule, the Company and
the Holders shall issue a Joint Escrow Release
Instruction to Escrow Agent.
(c) At the end of the Escrow Period, after taking
into account all distributions to be made pursuant to
subsection (b) above, all Escrow Shares remaining in
the Escrow, if any, shall be canceled, released from
the Escrow and distributed to the Company, pursuant to
a Joint Escrow Release Instruction issued by the
Company and the Holders.
(d) The EBITDA Schedule shall be prepared, and all
calculations to be made pursuant thereto shall be
made, in accordance with the Merger Agreement.
3. Dividends, Stock Splits and Other
Distributions. Other than taxable dividends (which
shall be distributed to the Holders and shall not be
made part of the Escrow), distributions declared in
respect of the Escrow Shares (including without
limitation stock splits and non-taxable stock
dividends) during the term of this Agreement shall be
made part of the Escrow. If the Escrow Shares are
redeemed, reclassified or changed into other
securities or property pursuant to a redemption,
reclassification of all shares of the Company's
preferred stock or a merger of the Company, then the
redemption amounts paid, or such reclassified shares
or other securities or property, as the case may be,
shall be made part of the Escrow.
4. Voting Rights of Escrow Shares. Each of the
Holders shall have the right to vote his or her pro
rata number of Escrow Shares in the Escrow on any
issues that come for a vote before the preferred
stockholders of the Company.
5. Escrow Agent. Escrow Agent hereby accepts its
obligations under this Agreement, and represents that
it has the legal power and authority to enter into
this Agreement and perform its obligations hereunder.
Escrow Agent may execute any of its duties hereunder
by or through agents or receivers. Escrow Agent
agrees that the Escrow held by Escrow Agent hereunder
shall be segregated from all other property held by
Escrow Agent and shall be identified as being held in
connection with this Agreement. Segregation may be
accomplished by appropriate identification on the
books and records of Escrow Agent. Escrow Agent
agrees that its documents and records with respect to
the transactions contemplated hereby will be available
for examination by authorized representatives of the
Company and the Holders during normal business hours.
Except to the extent specifically required by this
Agreement, Escrow Agent shall not be required to give
any bond or surety or report to any court despite any
statute, custom or rule to the contrary.
6. Compensation of Escrow Agent. Escrow Agent
shall be entitled to receive an annual fee in the
amount and as set forth on Schedule A attached hereto,
and reimbursement for any expenses incurred by Escrow
Agent hereunder. Such compensation and expenses shall
be paid by the Holders.
7. Duties and Adverse Claims. The duties and
obligations of Escrow Agent shall be determined solely
by the express provisions of this Agreement. Escrow
Agent's duties and obligations are purely ministerial
in nature, and nothing herein shall be construed to
give rise to any fiduciary obligations of Escrow
Agent. In the event of any disagreement or the
presentation of any adverse claim or demand in
connection with the disbursement of the Escrow, Escrow
Agent shall, at its option, be entitled to refuse to
comply with any such claims or demands during the
continuance of such disagreement and may refrain from
delivering any item affected hereby, and in so doing,
Escrow Agent shall not become liable to the Company,
the Holders or any other person, due to its failure to
comply with such adverse claim or demand. Escrow
Agent shall be entitled to continue, without
liability, to refrain and refuse to act:
(a) Until authorized to disburse by a court order
or arbitration award from a court or arbitrator having
jurisdiction of the parties and the Escrow, after
which time Escrow Agent shall be entitled to act in
conformity with such adjudication; or
(b) Until all differences shall have been adjusted
by agreement and Escrow Agent shall have been notified
thereof and shall have been directed in writing,
signed jointly or in counterpart by the Company and
the Holders and by all persons making adverse claims
or demands, at which time Escrow Agent shall be
protected in acting in compliance therewith.
If Escrow Agent becomes involved in litigation by
reason of the administration of this Agreement, it is
hereby authorized to deposit with the clerk of the
court in which the litigation is pending any and all
of the Escrow held by it pursuant hereto, and
thereupon Escrow Agent shall stand fully relieved and
discharged of any further duties. Also, if Escrow
Agent is threatened with litigation by reason of this
Agreement, it is hereby authorized to file an
interpleader action in any court of competent
jurisdiction and to deposit with the clerk of the
court, any of the Escrow held by it, and thereupon
Escrow Agent shall stand fully relieved and discharged
of any further duties.
8. No Other Duties. Escrow Agent shall not have
any duties or responsibilities under this Agreement
except as expressly set forth herein. The permissive
right or power to take any action hereunder shall not
be construed as a duty to take action under any
circumstances. Unless specifically required by the
terms of this Agreement, Escrow Agent need not take
notice of or enforce any other document or
relationship, including without limiting the
generality of the foregoing, any contract, settlement,
arrangement, plan, assignment, pledge, release, decree
or the like, but Escrow Agent's duties shall be solely
as set forth in this Agreement.
9. Reliance on Documentary Evidence by Escrow
Agent. Escrow Agent shall be protected in acting upon
any notice, request, consent, order, certificate,
affidavit, letter, telegram, fax, document or other
communication which is believed by Escrow Agent to be
genuine and correct and to have been signed or sent by
the proper party or parties, and may rely on
statements contained therein without further inquiry
or investigation. Escrow Agent shall not be required
to take notice of, or be deemed to have notice of, any
default or other fact or event under this Agreement
unless Escrow Agent shall be specifically notified in
writing of such default, fact or event.
10. Liability of Escrow Agent. Escrow Agent shall
not be liable for any action taken in accordance with
the terms of this Agreement, including without
limitation any release or distribution of the Escrow
in accordance with this Agreement. Escrow Agent shall
not be liable for any other action, or failure to take
action, under or in connection with this Agreement,
except for its own gross negligence or willful
misconduct. Escrow Agent shall not be obligated to
risk its own funds in the administration of the Escrow
and shall have a lien against any of the Escrow in its
possession or control for its fees, expenses and
advancements. Escrow Agent need not take any action
under this Agreement which may involve it in any
expense or liability until indemnified to its
satisfaction for any expense or liability it
reasonably believes it may incur.
11. Indemnification of Escrow Agent. The Company
and the Holders hereby agree, jointly and severally,
to indemnify Escrow Agent, and hold Escrow Agent
harmless, from and against any and all claims, costs,
expenses, demands, judgments, losses, damages and
liabilities (including, without limitation, reasonable
attorneys' fees and disbursements) arising out of or
in connection with this Agreement or any action or
failure to take action by Escrow Agent under or in
connection with this Agreement, except such as may be
caused by the gross negligence or willful misconduct
of Escrow Agent. This indemnification shall survive
the termination of this Agreement. The parties hereto
agree that Escrow Agent does not assume any
responsibility for the failure of any of the parties
to make payments or perform the conditions of this
Agreement or the Merger Agreement, nor shall Escrow
Agent be responsible for the collection of any monies
to be paid to it pursuant hereto. Escrow Agent may
engage legal counsel, who may be counsel for the
Company or the Holders, and shall not be liable for
any act or omission taken or suffered pursuant to the
opinion of such counsel. The fees and expenses of
such counsel shall be deemed to be a proper expense
for which Escrow Agent will have a lien against the
Escrow.
12. Resignation of Escrow Agent. Escrow Agent may
at any time resign by giving thirty (30) days written
notice of such resignation to the Company and the
Holders. Such resignation shall take effect at the
end of such thirty (30) days or upon earlier
appointment of a successor. If Escrow Agent is not
notified of the appointment of a successor agent
within thirty (30) days of its notice of resignation,
Escrow Agent shall deliver all of the Escrow to any
court of competent jurisdiction. Notwithstanding the
foregoing, if Escrow Agent is notified of the
appointment of a successor within thirty (30) days of
its notice of resignation, Escrow Agent shall transfer
all of the Escrow to such successor agent.
13. Arbitration. If the Company and the Holders
shall disagree about any matter respecting this
Agreement or the Merger Agreement (as it relates to
this Agreement), such disputes shall be settled by
arbitration pursuant to the Rules for Commercial
Arbitration of the American Arbitration Association in
the City of Kansas City, Missouri.
14. No Limitation of Rights. The existence or
termination of the escrow arrangement created by this
Agreement shall not affect any rights of the Company
or the Holders under the Merger Agreement.
15. Binding Effect. This Agreement shall be
binding upon and inure to the benefit of the parties
hereto and their respective heirs, executors,
successors and assigns.
16. Notices. All notices, demands, and
communications provided for herein or made hereunder
shall be given by being deposited, certified mail,
postage prepaid, in the United States mail, 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:
To the Company: Torotel, Inc.
13402 South 71 Highway
Grandview, MO 64030
Attention: Secretary
With a copy to: Shook, Hardy & Bacon L.L.P.
1010 Grand Boulevard
5th Floor
P.O. Box 15607
Kansas City, MO 64106
Attention: Randall B.
Sunberg, Esq.
To the Holders: Basil Peter Caloyeras
2041 W. 139th Street
Gardena, CA 90249
With a copy to: Ervin, Cohen & Jessup LLP
Ninth Floor
9401 Wilshire Boulevard
Beverly Hills, CA 90212-2974
Attention: W. Edgar Jessup,
Jr., Esq.
To Escrow Agent:
______________________________
______________________________
______________________________
______________________________
______________________________
17. Amendments. This Agreement may be amended or
modified at any time or from time to time in a writing
executed by each of the Company, the Holders and
Escrow Agent.
18. Governing Law. This Agreement shall be
construed and enforced in accordance with the laws of
Missouri without giving effect to conflict of laws.
19. Counterparts. This Agreement may be executed
in two or more counterparts, each of which shall be
deemed an original, but all of which together shall
constitute one and the same instrument. It shall not
be necessary for every party hereto to sign each
counterpart but only that each party shall sign at
least one counterpart. Any counterpart of this
Agreement that is delivered via telecopier shall be
deemed to have been so delivered with the intention
that such telecopied counterpart shall have the same
effect as an original counterpart hereof.
IN WITNESS WHEREOF, the parties hereto have executed
this Agreement as of the date first set forth above.
TOROTEL, INC.
____________________________________
By: ________________________________
Title: _______________________________
THE HOLDERS
_____________________________________
Alexandra Zoe Caloyeras
_____________________________________
Aliki Sophia Caloyeras
_____________________________________
Basil Peter Caloyeras
ESCROW AGENT
____________________________________
By: ________________________________
Title: _______________________________
Schedule A
Escrow Agent Fees
