UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
____________________
TOROTEL, INC.
(Exact name of registrant as specified
in its charter)
Missouri 44 - 0610086
(State of Incorporation) (I.R.S. Employer
Identification Number)
13402 South 71 Highway
Grandview, Missouri 64030
(816) 761-6314
(Address including zip code and telephone
number, including area code of
registrants principal executive offices.)
____________________
H. James Serrone
Vice President Finance and Chief Financial Officer
13402 South 71 Highway
Grandview, Missouri 64030
(816) 761-6314
(Name, address including zip code, and
telephone number, including area code, of
agent for service.)
______________________________
Copy to:
Randall B. Sunberg, Esq.
Shook, Hardy & Bacon L.L.P.
1010 Grand Boulevard, 5th Floor
P.O. Box 15607
Kansas City, Missouri 64106-0607
(816) 474-6550
______________________________
Approximate date of commencement of proposed sale to
the public: From time to time after this
Registration Statement becomes effective.
______________________________
If the only securities being registered on this Form
are being offered pursuant to dividend or interest
reinvestment plans, check the following box. [ ]
If any of the securities being registered on this
Form are to be offered on a delayed or continuous
basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in
connection with dividend or interest reinvestment
plans, check the following box. [X]
If this Form is filed to register additional
securities for an offering pursuant to Rule 462(b)
under the Securities Act, check the following box and
list the Securities Act registration statement number
of the earlier effective registration statement for
the same offering. [ ]
If this Form is a post-effective amendment filed
pursuant to Rule 462(c) under the Securities Act,
check the following box and list the Securities Act
registration statement number of the earlier
effective registration statement for the same
offering. [ ]
If delivery of the prospectus is expected to be made
pursuant to Rule 434, check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C> <C> <C>
Title of
Each Class Proposed Proposed Amount
of Securities Max Off Max Agg of
to be Amount to be Price Per Offering Regist.
Registered Registered Share Price Fee
Common Stock, 100,000 shrs Market $131,250 $36.49
par value price at
$.50 per time of
share sale
</TABLE>
________________________
The Registrant hereby amends this Registration
Statement on such date or dates as may be necessary
to delay its effective date until the Registrant
shall file a further amendment which specifically
states that this Registration Statement shall
thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until
the Registration Statement shall become effective on
such date as the Commission, acting pursuant to said
Section 8(a), may determine.
TOROTEL, INC.
13402 South 71 Highway
Grandview, Missouri 64030
(816) 761-6314
100,000 Shares of Common Stock
The Securities: Sales of the
Common Stock:
Common
Stock 100,000 shares If the Fund exercises its
right to purchase the
Par common stock, it may
Value $.50 per share resell that stock to you
pursuant to this
Listing of the Securities: registration.
Exchange: American Stock Sales Price: Fair market
Exchange value on
the date of
Symbol: TTL purchase
The Registration: Before you purchase any
of the common stock you
The Torotel Settlement should read this pros-
Fund (the Fund) holds a pectus in its entirety
warrant which gives it and pay particular
the right to purchase attention to the
100,000 shares of common discussion of Risk
stock. We are registering Factors beginning on
those shares for sale by page three.
the fund.
___________________________
The information in this Neither the Securities
prospectus is not and Exchange Commission
complete and may be nor any state securities
changed. No one may sell commission has approved
these securities until the or disapproved these
registration statement securities or passed
filed with the Securities upon the accuracy or
and Exchange Commission is adequacy of this pros-
effective. This pros- pectus. Any represent-
pectus is not an offer to ation to the contrary
sell these securities and is a criminal offense.
is not soliciting an offer
to buy these securities
in any state where the
offer or sale is not
permitted.
January ___, 1999
PROSPECTUS
TOROTEL, INC.
Registration of
100,000 Shares of Common Stock
As part of the settlement of certain litigation, the
Company agreed to issue to the Fund a warrant to
purchase 100,000 shares of the Companys common stock
at an exercise price of $.75 per share (the Warrant).
The Company is hereby registering the 100,000 shares
underlying the Warrant (the Shares). The common
stock of the Company is traded on the American Stock
Exchange (the AMEX) under the symbol TTL. The
closing sale price for the Companys common stock on
_____________ was $_____ per share.
No person has been authorized to give you any
information or to make any representations to you
regarding the Company or the offering made by this
prospectus other than the information and
representations contained or incorporated by
reference in this prospectus. If such information or
representations are made to you, you should not rely
on them as having been authorized by the Company or
by any other person. All information contained in
this prospectus represents the Company only as of the
date of this prospectus. This prospectus may be
delivered to potential investors, such as yourself,
and sales or distributions and resales may be made to
you pursuant to this prospectus even though a change
in the affairs of the Company may have occurred since
the date this prospectus. This prospectus does not
constitute an offer to sell or a solicitation of any
offer to buy any security other than the securities
covered by this prospectus (the Shares). Also, this
prospectus does not constitute an offer to you or
solicitation of you, if you are in a jurisdiction in
which such an offer or solicitation would be
unlawful.
THE COMPANY
The Company conducts business through two wholly-
owned subsidiaries, Torotel Products, Inc. (Torotel
Products) and OPT Industries, Inc. (OPT). The term
Company as used herein includes Torotel, Inc. and its
subsidiaries, unless the context requires otherwise.
Torotel Products specializes in the custom design and
manufacture of precision magnetic components,
consisting of transformers, inductors, reactors,
chokes and toroidal coils. These components modify
and control electrical voltages and currents in
electronic devices. Torotel Products sells these
magnetic components to original equipment
manufacturers, who use them in products such
as aircraft navigational equipment, voice and data
secure communications, telephone and avionics
equipment, and conventional missile guidance systems.
For example, if a product containing one of these
components receives an electrical voltage or current
which is too high for proper operation of the
product, the component would modify and control the
electrical voltage or current to allow proper
operation of the product.
OPT specializes in the custom design and manufacture
of high power, switching power supplies and a broad
line of magnetic components. OPT sells these
products to a predominantly U.S. customer base in the
computer, telecommunications, industrial and military
markets. The switching power supplies are used in
large computer, telecommunications, industrial and
military systems to convert available power to lower
voltages to be used by other parts of the systems.
Additional information regarding the Company can be
found in the documents incorporated into this
prospectus as described below in the section entitled
INCORPORATION BY REFERENCE.
ELECTRONIKA MERGER
The Company has entered into an Agreement and Plan of
Merger (the Merger Agreement) with Electronika, Inc.,
a California corporation (Electronika), and the
shareholders of Electronika. Pursuant to the Merger
Agreement, Electronika will be merged (the Merger)
with and into a Torotel Merger Subsidiary, a wholly-
owned subsidiary of the Company (MergerSub). The
consummation of the Merger is subject to the
satisfaction of a number of conditions, including
approval by the Torotel Shareholders.
The following is a description of the terms of the
Merger Agreement which has been attached to this
prospectus. Because this is only a brief
description, it is qualified by the terms and
provisions of the Merger Agreement which you should
read in its entirety to assure that you have a
complete understanding of the Merger transaction.
At the effective time of the Merger the following
actions, events and results will occur:
1. Electronika will be merged with and into
MergerSub;
2. Electronika will cease to exist as a separate
corporation;
3. MergerSub will be the successor or surviving
corporation in the Merger;
4. MergerSub will continue to be governed by the
laws of the State of Missouri; and
5. the separate corporate existence of MergerSub
shall continue unaffected by the Merger, except that
MergerSub will have all of the rights, privileges and
assets of Electronika and it will be subject to all
of the obligations, disabilities and liabilities of
Electronika.
Pursuant to the Merger, the Company (or its
subsidiaries) will receive the
following:
1. all of the rights, privileges and assets of
Electronika and it will be subject to all of the
obligations, disabilities and liabilities of
Electronika (Electronika has represented that it will
have a net worth of at least $400,000 at the
effective time of the Merger); and
2. the services of Peter Caloyeras, the founder of
Electronika, as the Chairman of the Board and Chief
Executive Officer of the Company and MergerSub (for
which Mr. Caloyeras will receive an annual salary of
at least $50,000).
Pursuant to the Merger, the shareholders of
Electronika will receive the following:
1. 1,800,000 shares of common stock of the Company;
2. up to 2,500,000 shares of Class A $1.00 Preferred
Stock of the Company (one share of the preferred
stock will be distributed to the shareholders of
Electronika for each dollar of EBITDA (net earnings
(or loss) before interest expense, taxes,
depreciation and amortization) generated by
MergerSub; the rights and privileges of the preferred
stock are described in the Merger Agreement which you
should read in its entirety); and
3. the power to vote, for a limited time, 525,165
shares of common stock of the Company held by various
family members of the founder of the Company (which
will result in a temporary change of control of the
Company).
RISK FACTORS
In addition to reading this prospectus in its
entirety, you should carefully consider the following
Risk Factors before investing in the Shares:
Recent Losses from Operations. Historically, the
Company has relied on funds generated internally and
bank borrowings to meet its normal operating
requirements and to service its bank indebtedness.
For the fiscal year ended April 30, 1998, the Company
incurred a pretax loss of $1,295,000. This amount
consisted of $790,000 in actual operating losses and
$505,000 in special charges (see section entitled
Legal Proceedings below). While management does
not anticipate any further significant special
charges, it also does not anticipate any substantial
increase in the present rate of sales during the next
few months. As a result, further operating losses
are likely.
Risks Regarding the Electronika Merger. For
information regarding the Merger Agreement and
proposed Merger, please read the Section entitled
ELECTRONIKA MERGER. If the Merger with Electronika
is completed, you should consider the following
additional risk factors:
Dilution. Pursuant to the Merger, the Company will
issue 1,800,000 shares of its common stock to the
shareholders of Electronika. As of November 1, 1998
there were 2,811,590 shares of common stock of the
Company outstanding. The issuance of common stock to
the shareholders of Electronika will dilute your
percentage interest in the Company by 39%. For
example, if immediately before the Merger you held 1%
of the Companys common stock, after the Merger your
percentage interest in the Company would be diluted
to 0.61%.
Superior Rights of Preferred Stock. Pursuant to the
Merger, the Company will issue 2,500,000 shares of
new class A $1.00 Preferred Stock to the shareholders
of Electronika. The holders of the preferred stock
will have rights to distributions of dividends, and
rights upon a dissolution or liquidation of the
Company, superior to yours. These superior rights
will require the Company to pay annual dividends on
the preferred stock, plus any accrued and unpaid
dividends thereon, before any amount may be paid to
you in recognition of your Shares. Also, these
superior rights will require the Company to redeem
the preferred stock in full, including any accrued
and unpaid dividends thereon, before any amounts may
be paid to you upon a dissolution or liquidation of
the Company. The rights and privileges of the
preferred stock are described in the Merger Agreement
attached hereto which you should read in its
entirety.
Change in Control. Pursuant to the Merger, from the
date the Merger becomes effective through the ninth
month of the fourth fiscal year of the Company
following the effective date of the Merger, the
shareholders of Electronika will hold, or have the
right to direct the voting of, approximately 54.9% of
the common stock of the Company. However, after the
ninth month of the fourth fiscal year of the Company
following the effective date of the Merger, the
shareholders of Electronika only will hold, or have
the right to direct the voting of, approximately 43%
of the common stock of the Company. During the
period in which the shareholders of Electronika hold
54.9% of the common stock of the Company, any attempt
to change control by you and other shareholders of
the Company who are not affiliated with the
shareholders of Electronika is unlikely to be
successful because the shareholders of Electronika
will control the voting power of more than a majority
of the outstanding shares of common stock of the
Company.
Composition of Board of Directors. The business and
affairs of the Company are directed by its board of
directors. After the Merger, the Companys board of
directors will appoint two representatives of the
shareholders of Electronika to the Companys board.
Pursuant to the Merger Agreement among the Company,
MergerSub and Electronika, the shareholders of
Electronika have agreed not to remove any of the
Companys directors prior to the Companys 1999
annual meeting of shareholders. Thereafter, although
two members of the Companys board must be
independent directors pursuant to the rules and
regulations of the American Stock Exchange, the
shareholders of Electronika will have the power to
elect a majority of the Companys board of directors.
Therefore, they will have the ability to control the
business and affairs of the Company.
Dependence on Key Management. The Company is
dependent upon its key officers for the management of
its business. Pursuant to the Merger Agreement,
Peter Caloyeras, the founder of Electronika and the
father of the shareholders of Electronika, will be
appointed as the Chairman of the Board and Chief
Executive Officer of the Company. The Company and
Mr. Caloyeras have not entered into an employment
agreement with respect to his services to the
Company; therefore, Mr. Caloyeras can resign from his
position at any time. In addition, Mr. Caloyeras
will not be devoting his full business time to the
Company, as he will continue to be involved in the
pursuit of his other business interests, including
business interests that may be competitive with the
business of the Company. The inability or refusal of
Mr. Caloyeras to act in the above position, the fact
that Mr. Caloyeras will not be devoting his full
business time the Company, or the fact that Mr.
Caloyeras may continue to pursue business interests
that are competitive with the business of the
Company, may have an adverse effect on the
performance of the Company and negatively affect the
value of your Shares.
Uncertainty Regarding the Merger. The Company and
Electronika entered into the Merger Agreement
expecting that the Merger will result in enhanced
operations, cost savings and synergies for the two
companies. However, there can be no assurance that
such enhanced operations, cost savings or synergies
will be realized. Integrating the operations and
management of the Company and Electronika will be a
complex process, and there can be no assurance that
this integration will be completed rapidly or will
result in the achievement of all of the anticipated
synergies and other benefits expected to be realized
from the Merger. Moreover, the integration of the
Company and Electronika will require significant
management attention, which may temporarily distract
management from its usual focus on the daily
operations of the combined company. These risks may
cause the value of your Shares to decline.
Expenses of the Merger. The Company and Electronika
estimate that, as a result of the Merger, the
combined company will incur consolidation and
integration expenses of approximately $25,000. In
addition, it is expected that the Company and
Electronika will incur Merger-related expenses of
approximately $158,000, consisting of investment
banking, legal and accounting fees and financial and
other related charges. The combined company expects
to account for the above-referenced expenses in
fiscal 1999 and 2000. The amount of these charges is
a preliminary estimate and is subject to change.
Additional unanticipated expenses may be incurred in
connection with the integration of the businesses of
the Company and Electronika. These charges may have
an adverse effect on the value of your Shares.
Potential Delisting of the Companys Common Stock.
The Companys common stock (which includes the
Shares) is listed on the AMEX. Based on the
consolidated operating results and balance sheet for
the fiscal year ended April 30, 1998, the Company has
fallen below the AMEX guidelines for continued
listing. Company officials met with AMEX officials
on September 24, 1998 to discuss the Companys
financial position, its future operating plans, and
to discuss the reasons why the Companys common stock
should continue to be listed on the AMEX. As a
result of that meeting, the Companys common stock
will continue to be listed on the AMEX through March
17, 1999. However, it is not known at this time
whether the Companys common stock (including the
Shares) will continue to be listed on the AMEX after
March 17, 1999. Continued listing will depend upon a
favorable review by AMEX officials of the proposed
Merger (for a discussion of the proposed Merger
please read the Section entitled ELECTRONIKA MERGER).
Delisting could have a negative effect on you because
the Company would no longer be subject to various
AMEX disclosure and corporate governance rules and
the Shares may not be as easily traded due to a less
liquid market.
Uncertainty Regarding Bank Financing. The Company
relies heavily on its revolving credit agreement with
Phillipsburg National Bank & Trust Company (PNBT) to
service its operating costs. As of October 31, 1998,
the Company was in violation of two financial
covenants under the terms of the credit agreement.
However, PNBT previously waived compliance with these
provisions through December 31, 1998, which was the
expiration date of the credit agreement. PNBT has
renewed the Companys line of credit for $1.7 million
through February 28, 1999. In addition, PNBT
commenced a review of the entire credit arrangement
upon signing of the Merger Agreement (please read the
Section entitled ELECTRONIKA MERGER for a discussion
of the Merger). While PNBT has expressed a
willingness to continue as the Companys primary
lender, the renewal of the credit line will be
subject to, among other things, satisfactory review
of the Companys operating plans, cash needs,
available collateral, and the status of the possible
Merger. If PNBT decides not to renew the credit
line, it could affect the Companys ability to
continue as a going concern. If the Company loses
its current financing and is unable to find similar
financing you could suffer a loss of your entire
investment in the Shares.
Legal Proceedings.
On May 6, 1997, Torotel Products was accepted into
the Voluntary Disclosure Program of the United States
Department of Defense resulting from its failure to
perform certain required thermal shock
testing as frequently as required and for
inaccurately certifying that all required testing had
been performed. As a result of the Companys
investigation into the testing deficiencies, the
Company recorded an estimated charge of $416,000
against earnings in its fiscal fourth quarter ended
April 30, 1997. Because the investigation was
ongoing, the Company subsequently determined that
there also were some deficiencies in performing some
required electrical testing as frequently as
required. As a result, the Company recorded an
additional charge of $70,000 against earnings in the
first quarter of the fiscal year ended April 30,
1998. The Company does not anticipate incurring any
additional significant charges related to the
investigation; however, the aggregate amount of the
estimated penalty is still subject to fluctuation as
further investigation is conducted. If additional
investigation uncovers further deficiencies in the
Companys testing, the Company could suffer
additional losses which may adversely affect the
value of your Shares. At this time, the Company is
not certain when payment of the damage amount will be
required; however, the Company does not anticipate
making any payments during the fiscal year ending
April 30, 1999. See also the Section entitled
Selling Security Holders.
Risk of Year 2000 Failures. The Company is presently
assessing its Year 2000 readiness. Extensive testing
has been performed on the main operating system and
its software applications (which serve both operating
subsidiaries), and it has been determined that the
main operating system and its software applications
are Year 2000 compliant. Both operating subsidiaries
are now in the process of polling significant
suppliers and customers to determine the extent to
which either operation is vulnerable to those third
parties' failure to remedy their own Year 2000
issues. In addition, various equipment is being
tested to verify its Year 2000 functionability. The
cost of these efforts to date has been, and the
Company believes these costs should remain, minimal.
However, there can be no guarantee that the systems
of major suppliers, vendors, and customers will be
timely converted and those parties' failure may have
a material adverse effect on the Company.
Doubts Regarding The Companys Ability to Continue as
a Going Concern. The report of the independent
certified public accountants of the Company, dated as
of June 19, 1998, notes that the Company has
sustained losses in 1998 and 1997 and its ability to
obtain adequate financing is uncertain. Because of
these factors, the accountants stated that there are
substantial doubts about the Companys ability to
continue as a going concern. If the Company is
unable to continue as a going concern, you may lose
your entire investment in the Shares.
Dilution from Outstanding Warrants. In 1994 the
Company acquired OPT. In connection with that
acquisition, warrants to purchase 66,667 shares of
the Companys common stock at an exercise price of
$1.50 per share were issued to Chemical Bank New
Jersey N.A. The warrants expire on September 1,
2003. As of April 30, 1998, there had been no
dilutive effect from the warrants. If the warrants
are exercised and shares of the Companys common
stock are issued for $1.50 per share at a time when
the market price per share is above $1.50, you would
suffer a dilution in the value of the equity you hold
in the Company because the shares would be selling
for less than market value.
Lack of Dividends. The Companys credit agreement
with PNBT prohibits the payment of cash dividends on
its common stock (including the Shares), without the
prior consent of PNBT. Also, the Company has not
paid cash dividends on its common stock in the past
and does not intend to do so in the future.
Therefore, it is unlikely that you will receive cash
dividends on an investment in the Shares.
Product Liability. The Company sells a limited
number of flight-critical components to aircraft
manufacturers. A failure of one of these components
could lead to product liability for the Company.
While the Company believes it is adequately insured
against such liability, a significant judgment
against the Company could negatively effect the value
of your Shares.
Competition. Many of the markets in which the
Company competes are highly competitive. The ability
of the Company to compete depends, among other
things, upon its on-time delivery performance,
customized product engineering and technical support,
marketing capabilities, and manufacturing efficiency.
Because the Company operates in a highly competitive
market, its market share is susceptible to decline
which would likely cause the value of your Shares to
decline.
USE OF PROCEEDS
Upon the exercise of the Warrant (which may be
exercised in part), the Company will receive $.75 for
each Share underlying the exercise. Thus, if the
Warrant is exercised in full, the Company will
receive $75,000. These proceeds have not been
allocated for any specific purpose, but will be used
for the general purposes of the Company. The
principal reason for the offering is to allow the
Fund to resell the Shares.
OFFERING PRICE
The Shares will be sold by the Fund through a broker
at the current market price on the date of any
particular sale.
SELLING SECURITY HOLDERS
On June 18, 1996, a lawsuit was filed against Torotel
Products alleging racial discrimination in hiring.
On July 23, 1998, the U.S. District Court for the
Western District of Missouri approved a settlement to
end the lawsuit. As part of the settlement, the Fund
was established, pursuant to which the Company would
contribute, among other things, the Warrant. Upon
exercise of the Warrant, the Fund will own the
Shares. All of the Shares are being offered pursuant
to this prospectus. Therefore, the Fund will own no
shares of the Companys common stock after the
offering is complete. The Fund has no relationship
with the Company other than the settlement of the
above-described lawsuit.
PLAN OF DISTRIBUTION
The distribution of the Shares being registered will
be made by the Company. The Shares will not be
offered through an underwriter. The Common Stock
trades on the AMEX. The transfer agent and registrar
of the Common Stock is UMB, n.a.
INCORPORATION BY REFERENCE AND
AVAILABLE INFORMATION
The following reports of the Company are specifically
incorporated into this prospectus by reference:
1. Annual report on Form 10-KSB for the fiscal year
ended April 30,1998;
2. All other reports filed pursuant to Section 13(a)
or 15(d) of the Securities Exchange Act of 1934, as
amended (the Exchange Act) since the end of the
fiscal year covered by the document referred to in
(1) above.
3. The description of the Companys Common Stock
contained in the Form 8-A registration statement
filed with the Securities and Exchange Commission
pursuant to Section 12 of the Exchange Act, including
any amendments or reports updating such description.
In addition, all documents filed by the Company
pursuant to Sections 13(a), 13(c), 14 or 15(d) of the
Exchange Act prior to the termination of this
offering are deemed to be incorporated into this
prospectus by reference.
The Company will provide you with a copy of any or
all of the information that has been incorporated
into this prospectus by reference but not delivered
with it. You may request this information either in
writing or orally. This information will be provided
to you at no cost to you. Your requests should be
directed to:
H. James Serrone
13402 South 17 Highway
Grandview, Missouri 64030
(816) 761-6314
The Company is subject to the information reporting
requirements of the Exchange Act. In accordance with
those requirements the Company files annual and
quarterly reports, proxy statements, prospectuses and
other information with the Securities and Exchange
Commission. You can read and copy those filings at
the Securities and Exchange Commissions Public
Reference Room at 450 Fifth Street, N.W., Washington,
D.C. 20549. You can get information on the operation
of the Public Reference Room by calling the
Securities and Exchange Commission at 1-800-SEC-0330.
You can also obtain many of these reports on the
Securities and Exchange Commissions Internet site at
http://www.sec.gov.
DISCLOSURE OF THE SECURITIES AND EXCHANGE
COMMISSIONs POSITION ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES
Article XII of the Companys articles of
incorporation, as amended, provides for
indemnification against legal fees for directors and
officers who are made parties to legal actions by
reason of the fact that they are or were a director
or officer of the Company or are or were acting as a
director or officer of another company at the request
of the Company. Indemnification is provided if the
director or officer acted in good faith and in a
manner he or she reasonably believed to be in or not
opposed to the best interests of the Company. In the
case of criminal proceedings, indemnification is
provided if the director or officer had no reasonable
cause to believe his or her action was unlawful. The
determination of a legal proceeding against a
director or officer does not of itself create a
presumption that the director or officer is not
eligible for indemnification in such matter.
No indemnification will be provided to directors or
officers in respect of any claim as to which they
have been found liable for negligence or misconduct
in the performance of their duty to the Company
unless the court in which the action was brought
determines that indemnification is proper.
Insofar as indemnification for liabilities arising
under the Securities Act of 1933, as amended (the
Securities Act ), may be permitted to directors,
officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise,
the Company has been advised that, in the opinion of
the Securities and Exchange Commission such
indemnification is against public policy as expressed
in the Securities Act and is therefore,
unenforceable.
LEGAL MATTERS
Certain legal matters with respect to the validity of
the Shares will be passed upon by Shook, Hardy &
Bacon L.L.P., 1010 Grand Blvd., 5th Floor, Kansas
City, Missouri 64106.
EXPERTS
The financial statements and schedule incorporated by
reference in this prospectus and elsewhere in the
registration statement have been audited by Grant
Thornton LLP, independent public accountants, as
indicated in their reports with respect thereto, and
are included herein in reliance upon the authority of
said firm as experts in accounting and auditing.
EXPENSES RELATED TO THE
ISSUANCE OF THE SHARES
Fees and Expenses:
<TABLE>
<S> <C>
Registration Fees $ 36.49
Legal and Accounting Fees 10,000.00
Listing Fees 2,000.00
Total Fees and Expenses $ 12,036.49
Expenses to be paid by
the settlement fund $ -0-
</TABLE>
DIRECTOR AND OFFICER INDEMNIFICATION
Article XII of the Companys articles of
incorporation, as amended, provides for
indemnification against legal fees for directors and
officers of the Company in their capacity as such.
Please read the Section entitled DISCLOSURE OF THE
SECURITIES AND EXCHANGE COMMISSIONs POSITION ON
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES for a
description of such indemnification.
EXHIBITS
2 The Agreement and Plan of Merger among the
Company, MergerSub and Electronika.
4.1 The registration statement on Form 8-A for
the common stock of the Company incorporated herein
by reference.
4.2 Pages 1-4 of the bylaws of the Company dated
May 22, 1969 defining the rights of holders of the
Companys common stock.
4.3.1 Page 1 of the amendment to the bylaws of the
Company dated May 17, 1985 defining the rights of
holders of the Companys common stock.
4.3.2 Page 1 of the amendment to the bylaws of the
Company dated December 17, 1985 defining the rights
of holders of the Companys common stock.
4.4 Pages 2 and 6 of the amendment to the
articles of incorporation of the Company dated May
24, 1969 (specifically Articles 3, 6, 9 and 10).
5* Opinion of Shook, Hardy & Bacon L.L.P.
regarding the legality of the common stock.
23(i)* Consent of Shook, Hardy & Bacon L.L.P.
(contained in Exhibit 5).
23(ii)* Consent of Grant Thornton LLP.
24 Powers of attorney (contained on the
signature pages hereto).
* To be filed by amendment.
UNDERTAKINGS
(a) The Company hereby undertakes:
(1) To file, during any period in which offers or
sales are being made, a post-effective amendment to
this registration statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act;
(ii) To reflect in the prospectus any facts or
events arising after the effective date of this
registration statement (or the most recent post-
effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in
the information set forth herein or therein.
Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the
total dollar value of securities offered would not
exceed that which was registered) and any deviation
from the low or high end of the estimated maximum
offering range may be reflected in the form of
prospectus filed with the Securities and Exchange
Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent
no more than a 20% change in the maximum aggregate
offering price set forth in the Calculation of
Registration Fee table in the effective
registration statement; and
(iii) To include any material information with
respect to the plan of distribution not previously
disclosed in this registration statement or any
material change to such information in this
registration statement;
Provided, however, that paragraphs (a)(1)(i) and
(a)(1)(ii) do not apply if the information required
to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed
with or furnished to the Securities and Exchange
Commission by the Company pursuant to Section 13 or
Section 15(d) of the Exchange Act that are
incorporated by reference in this registration
statement.
(2) That, for the purpose of determining any
liability under the Securities Act each such post-
effective amendment shall be deemed to be a new
registration statement relating to the securities
offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a
post-effective amendment any of the securities being
registered which remain unsold at the termination of
the offering.
(b) The Company hereby undertakes that, for
purposes of determining any liability under the
Securities Act, each filing of the Companys annual
report pursuant to Section 13(a) or Section 15(d) of
the Exchange Act (and, where applicable, each filing
of an employee benefit plans annual report pursuant
to section 15(d) of the Exchange Act) that is
incorporated by reference in this registration
statement shall be deemed to be a new registration
statement relating to the securities offered therein,
and the offering of such securities at that time
shall be deemed to be the initial bona fide offering
thereof.
(c) Insofar as indemnification for liabilities
arising under the Securities Act may be permitted to
directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or
otherwise, the Company has been advised that in the
opinion of the Securities and Exchange Commission
such indemnification is against public policy as
expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for
indemnification against such liabilities (other than
the payment by the Company of expenses incurred or
paid by a director, officer or controlling person of
the Company in the successful defense of any action,
suit or proceeding) is asserted by such director,
officer or controlling person in connection with the
securities being registered, the Company will, unless
in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such
indemnification by it is against public policy as
expressed in the Securities Act and will be governed
by the final adjudication of such issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of
1933, the Company certifies that it has reasonable
grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly
caused this registration statement to be signed on
its behalf by the undersigned, thereunto duly
authorized, in the City of Kansas City, State of
Missouri, on December 29, 1998.
TOROTEL, INC.
By: /s/ Dale H. Sizemore
Name: Dale H. Sizemore, Jr.
Title: Chairman and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person
whose signature appears below constitutes and
appoints Dale H. Sizemore, Jr. his or her true and
lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for them and in
their name, place and stead, in any and all
capacities, to sign any and all amendments (including
post-effective amendments) to this registration
statement and to file the same with all exhibits
thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting
unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and
thing requisite and necessary to be done, as fully to
all intents and purposes as he or she might or could
do in person, hereby ratifying and confirming all
that said attorney-in-fact and agent, or his or her
substitute or substitutes, may lawfully do or cause
to be done by virtue hereof.
Pursuant to the requirements of the Securities Act,
this registration statement has been signed by the
following persons in the capacities and on the dates
indicated.
SIGNATURE TITLE DATE
/s/ Christian T. Hughes President, 12/29/98
Christian T. Hughes Chief
Operating Officer
and Director
/s/ Ronald L. Benjamin Director 12/29/98
Ronald L. Benjamin
/s/ Dr. Thomas L. Lyon,
Jr. Director 12/29/98
Dr. Thomas L. Lyon, Jr.
/s/ Richard A. Sizemore Director 12/29/98
Richard A. Sizemore
/s/ H. James Serrone Vice
President
of Finance 12/29/98
H. James Serrone and Chief
Financial Officer
INDEX OF EXHIBITS
Exhibit
2 The Agreement and Plan of Merger among the
Company, MergerSub and Electronika.
4.1 The registration statement on Form 8-A for
the common stock of the Company incorporated herein
by reference. *
4.2 Pages 1-4 and 10 of the bylaws of the Company
dated May 22, 1969 defining the rights of holders of
the Companys common stock.
4.3.1 Page 1 of the amendment to the bylaws of the
Company dated May 17, 1985 defining the rights of
holders of the Companys common stock.
4.3.2 Page 1 of the amendment to the bylaws of the
Company dated December 17, 1985 defining the rights
of holders of the Companys common stock.
4.4 Pages 2 and 6 of the amendment to the
articles of incorporation of the Company dated May
24, 1969 (specifically Articles 3, 6, 9 and 10).
5 Opinion of Shook, Hardy & Bacon L.L.P.
regarding the legality of the common stock. **
23(i) Consent of Shook, Hardy & Bacon L.L.P.
(contained in Exhibit 5). **
23(ii) Consent of Grant Thornton LLP. **
24 Powers of attorney (contained on the
signature pages hereto).
* Incorporated herein by reference.
** To be filed by amendment.
EXHIBIT 2
AGREEMENT AND PLAN OF MERGER
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
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 Changes.
Section 3.19 Environmental Matters.
Section 3.20 Completeness of Disclosure.
ARTICLE IVREPRESENTATIONS AND WARRANTIES OF PARENT
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 V COVENANTS 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. 29
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 VII ELECTRONIKAs 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 VIII PARENTs AND ACQUISITIONsCONDITIONS 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 IX TERMINATION
Section 9.1 Mandatory Termination.
Section 9.2 Optional Termination.
Section 9.3 Effect of Termination.
ARTICLE X TRANSFER 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 XI MISCELLANEOUS
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
of 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
Parents 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
Parents 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 Corporations 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 Corporations 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. Electronika (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:
(a65535 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.
(b65535 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.
(c65535 The operations and business of
Electronika have been conducted in all respects only
in the ordinary course.
(d65535 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.
(e65535 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.6 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
obligations of any nature, whether accrued, absolute,
contingent 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:
(a65535 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.
(b65535 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.
(c65535 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).
(d65535 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.
(e65535 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 persons 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.
(a65535 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.
(b65535 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:
(a65535 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.
(b65535 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.
(c65535 The operations and business of Parent and
all Parent Subsidiaries have been conducted in all
respects only in the ordinary course.
(d65535 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.
(e65535 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 obligations of any nature,
whether accrued, absolute, contingent 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).
(d) 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.
(e) 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 VI.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 VI.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 VI.13 Patents, Trademarks, Et Cetera.
Schedule 4.13 of the Parent Disclosure Letter
includes a list of all of Parents 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 Parents 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
persons 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.18 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 Electronikas 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 Parents 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:
(a) 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;
(b) 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;
(c) 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;
(d) 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;
(e) 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;
(f) 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;
(g) 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;
(h) Not sell, lease, license or otherwise dispose
of any of its properties and assets (including any of
its Intangible Assets);
(i) 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;
(j) 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;
(k) 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;
(l) 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;
(m) Not initiate, compromise or settle any
material litigation or arbitration proceeding;
(n) Not change its Board of Directors; and
(o) 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 Parents 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 Parents 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 Parents 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 Parents 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 Partys 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 Parents 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 Electronikas 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:
(a) 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;
(b) 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;
(c) 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;
(d) 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;
(e) 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;
(f) 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;
(g) 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;
(h) Not sell, lease, license or otherwise dispose
of any of its properties and assets (including any of
its Intangible Assets);
(i) 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;
(j) 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;
(k) 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;
(l) 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;
(m) Not initiate, compromise or settle any
material litigation or arbitration proceeding;
(n) Use its reasonable efforts to not change its
Board of Directors; and
(o) 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 Electronikas 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
ELECTRONIKAs 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. 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
deliverto 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
PARENTs AND ACQUISITIONs
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 Parents
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 transferees 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 Stockholders 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 directors or
officers 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 Partys 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 Parents
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 Parents 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, CA 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.
[The remainder of this page intentionally left blank]
IN WITNESS WHEREOF, the parties hereto have executed
this Agreement as of
the date first set forth above.
TOROTEL, INC.
____________________________________
By: ________________________________
Title: _______________________________
TOROTEL MERGER SUBSIDIARY, INC.
____________________________________
By: ________________________________
Title: _______________________________
ELECTRONIKA, INC.
_____________________________________
By: ________________________________
Title: _______________________________
_____________________________________
Alexandra Zoe Caloyeras
_____________________________________
Aliki Sophia Caloyeras
_____________________________________
Basil Peter Caloyeras
Exhibit A
Designations of Parent Preferred Stock
Exhibit B
Articles of Merger
Exhibit C
Escrow Agreement
EXHIBIT 4.2
PAGES 1-4 AND 10 OF THE
BYLAWS OF THE COMPANY
DATED MAY 22, 1969
BY-LAWS
OF
TOROTEL, INC.
ARTICLE VII
OFFICES
The principal office of the corporation in the State
of Missouri shall be located in Grandview, Missouri.
The Corporation may have such other offices, either
within or without the State of Missouri, as the
business of the corporation may require from time to
time.
The registered office of the Corporation required by
The General and Business Corporation Law of Missouri
to be maintained in the State of Missouri, may be,
but need not be, identical with the principal; office
in the State of Missouri, and the address of the
registered office may be changed from time to time by
the Board of Directors.
ARTICLE VIII
SHAREHOLDERS
Section 1. ANNUAL MEETING. The annual meeting of
the Shareholders shall be held on the first Monday of
August in each year beginning with the year 1970 for
the purpose of electing Directors and for the
transaction of such other business as may come before
the meeting. If the day fixed for the annual meeting
shall be a legal holiday, such meeting shall be held
on the next succeeding business day. If the election
of directors shall not be held on the day designated
herein for any annual meeting, or at any adjournment
thereof, the Board of directors shall cause the
election to be held at a special meeting of the
Shareholders as soon thereafter as conveniently may
be.
Section 2. SPECIAL MEETING. Special meeting of the
Shareholders may be called by the President, by the
Board of Directors or by the holders of not less than
one-fifth of all the outstanding shares of the
corporation.
Section 3. PLACE OF MEETING. The Board of Directors
may designate any place, either within or without the
State of Missouri, as the place of meeting for any
annual meeting of the Shareholders or for any special
meeting of the Shareholders called by the Board of
Directors. The Shareholders may designate any place,
either within or without the State of Missouri, as
the place for the holding of such meeting, and may
include the same in a waiver of notice of any
meeting. If no designation is made, or if a special
meeting be otherwise called; the place of meeting
shall be the registered office of the corporation in
the State of Missouri, except as otherwise provided
in Section 5 of this Article.
Section 4. NOTICE OF MEETINGS. Written or printed
notice stating the place, day and hour of the meeting
and, in case of a special meeting, the purpose or
purposes for which the meeting is called, shall be
delivered not less than ten nor more than fifty (50)
days before the date of the meeting, either
personally or by mail, by or at the direction of the
President, or the Secretary, or the officer or
persons calling the meeting, to each Shareholder of
record entitled to vote at such meeting. If mailed,
such notice shall be deemed to be delivered when
deposited in the United States mail in a sealed
envelope addressed to the Shareholder at his address
as it appears on the records of the corporation, with
postage thereon prepaid. Notice shall be published
to the extent required by the laws of the State of
Missouri.
Section 5. MEETING OF ALL SHAREHOLDERS. If all of
the Shareholders shall meet at any time and place,
either within or without the State of Missouri, and
consent to the holding of a meeting, such meeting
shall be valid, without call or notice, and at such
meeting any corporate action may be taken.
Section 6. VOTING LISTS. At least ten days before
each meeting of Shareholders, the officer or agent
having charge of the transfer book for shares of the
corporation shall make a complete list of the
Shareholders entitled to vote at such meeting,
arranged in alphabetical order with the address of,
and the number of shares held by, each Shareholder,
which list, for a period of ten days prior to such
meeting, shall be kept on file at the registered
office of the corporation and shall be subject to
inspection by any Shareholder at any time during
usual business hours. Such list shall also be
produced and kept open at the time and place of the
meeting and shall be subject to the inspection of any
Shareholder during the whole time of the meeting.
The original share ledger or transfer book, or a
duplicate thereof kept in this state, shall be prima
facie evidence as to who are the Shareholders
entitled to examine such list or share ledger or
transfer book or to vote at any meeting of
Shareholders.
Section 7. QUORUM. A majority of the outstanding
shares of the corporation, represented in person or
by proxy, shall constitute a quorum at any meeting of
the Shareholders; provided, that if less than a
majority of the outstanding shares are represented at
said meeting, a majority of the shares so represented
may adjourn the meeting, from time to time, without
further notice, to a date not longer than ninety days
from the date originally set for such meeting.
Section 8. PROXIES. At all meetings of
Shareholders, a Shareholder may vote by proxy
executed in writing by the Shareholder or by his duly
authorized attorney-in-fact. Such proxy shall be
filed with the Secretary of the corporation before or
at the time of the meeting. No proxy shall be valid
after eleven months from the date of its execution,
unless otherwise provided in the
proxy.
Section 9. VOTING OF SHARES. Subject to the
provisions of Section 12, each outstanding share of
capital stock having voting rights shall be entitled
to one vote upon each matter submitted to a vote at a
meeting of Shareholders.
Section 10. VOTING OF SHARES BY CERTAIN HOLDERS.
Shares standing in the name of another corporation,
domestic or foreign, may be voted by such officer,
agent, or proxy as the Bylaws of such corporation may
prescribe, or, in the absence of such provision, as
the Board of Directors of such corporation may
determine.
Shares standing in the name of a deceased person may
be voted by his administrator or executor, either in
person or by proxy. Shares standing in the name of a
guardian, curator, or trustee may be voted by such
fiduciary, either in person or by proxy, but not
guardian, curator, or trustee shall be entitled, as
such fiduciary, to vote shares held by him without a
transfer of such shares into his name.
Shares standing in the name of a receiver may be
voted by such receiver, and shares held by or under
the control of a receiver may be voted by such
receiver without the transfer thereof into his name
if authority so to do be contained in an appropriate
order of the court by which such receiver was
appointed.
A Shareholder whose shares are pledged shall be
entitled to vote such shares until the shares have
been transferred into the name of the pledgee, and
the thereafter the pledgee shall be entitled to vote
the shares so transferred.
Section 11. CUMULATIVE VOTING. In all elections for
Directors, every Shareholder shall have the right to
vote, in person or by proxy, the number of shares
owned by him, for as many persons as there are
Directors to be elected, or to cumulate said shares,
and give one candidate as many votes as the number of
Directors multiplied by the number of his shares
shall equal, or to distribute them on the same
principal among as many candidates as he shall see
fit.
Section 12. INFORMAL ACTION BY SHAREHOLDERS. Any
action which may be taken at a meeting of the
Shareholders may be taken without a meeting if a
consent in writing, setting forth the action so
taken, shall be signed by all of the Shareholders
entitled to vote with respect to the subject matter
thereof.
ARTICLE IX
DIRECTORS
Section 1. GENERAL POWERS. The business and affairs
of the corporation shall be managed by its Board of
Directors.
Section 2. NUMBER, ELECTION AND TERM. The number of
Directors of the corporation shall be seven (7), each
of whom shall be elected at the annual meeting of the
Shareholders for a term of one year and each of whom
shall hold office until his successor has been
elected and has qualified.
Section 3. REGULAR MEETINGS. A regular meeting of
the Board of Directors shall be held without other
notice than this Bylaw, immediately after, and at the
same place as, the annual meeting of Shareholders.
The Board of Directors may provide, by resolution,
the time and place, either within or without the
State of Missouri, for the holding of additional
regular meetings with notice of such resolution to
all Directors.
Section 4. SPECIAL MEETINGS. Special meetings of
the Board of Directors may be called by or at the
request of the President or any two Directors. The
person or persons authorized to call special meetings
of the Board of Directors may fix any place in the
United States, either within or without the State of
Missouri, as the place for holding any special
meeting of the Board of Directors called them.
Section 5. NOTICE. Notice of any special meeting
shall be given at least five days previously thereto
by written notice delivered personally or mailed to
each Director at his business address, or by telegram
provided, however, that if the designated meeting
place is without the State of Missouri, an additional
five days notice shall be given. If mailed, such
notice shall be deemed to be delivered when deposited
in the United States mail in a sealed envelope so
addressed, with postage thereon prepaid. If notice
be given by telegram, such notice shall be deemed to
be delivered when the telegram is delivered to the
telegraph company. Any Director may waivewith the
number of shares and date of issue shall be entered
on the books of the corporation. All certificates
surrendered to the corporation for transfer shall be
canceled and no new certificate shall be issued until
the former certificate for a like number of shares
shall have been surrendered and canceled, except that
in case of a lost, destroyed or mutilated certificate
a new one may be issued therefor upon such terms and
indemnity to the corporation as the Board of
Directors may prescribe.
Section 2. TRANSFERS OF SHARES -- TRANSFER AGENT --
REGISTRAR. Transfers of shares of stock shall be
made on the stock record or transfer books of the
corporation only by the person named in the stock
certificate, or by his attorney lawfully constituted
in writing, and upon surrender of the certificate
therefor. The stock record book and other transfer
records shall be in the possession of the Secretary
or of a transfer agent or transfer clerk for the
corporation. The corporation, by resolution of the
Board, may from time to time appoint a transfer agent
or transfer clerk, and, if desired, a registrar,
under such arrangements and upon such terms and
conditions as the Board deems advisable, but until
and unless the Board appoints some other person, firm
or corporation as its transfer agent or transfer
clerk (and upon the revocation of any such
appointment, thereafter until a new appointment is
similarly made) the Secretary of the corporation
shall be the transfer agent or transfer clerk of the
corporation without the necessity of any formal
action of the Board, and the Secretary, or any person
designated by him, shall perform all of the duties
thereof.
Section 3. TREASURY STOCK. All issued and
outstanding stock of the corporation that may be
purchased or otherwise acquired by the corporation
shall be treasury stock, and shall be subject to
disposal by action of the Board of Directors. Such
stock shall neither vote nor participate in dividends
while held by the corporation.
Section 4. CLOSING OF TRANSFER BOOKS OR FIXING OF
RECORD DATE. The Board of Directors of the
corporation may close its stock transfer books for a
period not exceeding fifty (50) days preceding the
date of any meeting of Shareholder, or the date for
the payment of any dividend or for the allotment of
rights, or the date when any change or conversion or
exchange of shares shall be effective; or, in lieu
thereof, may fix in advance a date, not exceeding
fifty (50) days preceding the date of any meeting of
Shareholders, or to the date for the payment of any
dividend or for the allotment of rights, or to the
date when any change or reconversion or exchange of
shares shall be effective, as the record date for the
determination of Shareholders
EXHIBIT 4.3.1
PAGE 1 OF THE
AMENDMENT TO THE BYLAWS OF THE COMPANY
DATED MAY 17, 1985
AMENDMENT TO BY-LAWS OF TOROTEL, INC.
ADOPTED BY BOARD ACTION ON MAY 17, 1985
ARTICLE II
Section 1. ANNUAL MEETING. The Annual Meeting of
the Shareholders shall be held on the third Monday in
September in each year, beginning with the year 1986,
for the purpose of electing Directors and for the
transaction of such other business as may come before
the Meeting. If the day fixed for the Annual Meeting
shall be a legal holiday, such meeting shall be held
on the next succeeding business day. If the election
of Directors shall not be held on the day designated
herein for any Annual Meeting, or at any adjournment
thereof, the Board of Directors shall cause the
election to be held at a Special Meeting of the
Shareholders as soon thereafter as conveniently may
be held.
ARTICLE VIII
FISCAL YEAR
The fiscal year of the Corporation will begin on the
first day of May in each year starting in 1985 and
end on the last day of April in each year.
EXHIBIT 4.3.2
PAGE 1 OF THE
AMENDMENT TO THE BYLAWS OF THE COMPANY
DATED DECEMBER 17, 1985
AMENDMENT TO BYLAWS
TOROTEL, INC.
Adopted December 17, 1985, by Board of Directors
ARTICLE III
Section 8. VACANCIES. In case of the death or
resignation or disqualification of one or more of the
Directors, a majority of the survivors or remaining
Directors, even if such majority does not constitute
a quorum, may fill such vacancy or vacancies until
the successor or successors are elected at the next
annual meeting of the Shareholders. A Director
elected to fill a vacancy shall serve as such until
the next annual meeting of the Shareholders. In the
event the Shareholders do not elect a full slate of
seven (7) Directors at the annual meeting or the
number of Directors falls below seven (7) for
whatever reason between annual meetings, the
remaining Directors may establish any number of three
(3), four (4), five (5) or six (6) Directors to
constitute the complete Board of Directors until the
next annual meeting without need to fill vacant
Director positions and attendance at meetings of a
majority of the existing Directors at any such
designated, reduced size Board of Directors shall
constitute a quorum in accord with Section 6 of this
Article III.
EXHIBIT 4.4
PAGES 2 & 6 OF THE
AMENDMENT TO THE BYLAWS OF THE COMPANY
DATED MAY 24, 1969
ARTICLE THREE
The aggregate number of shares which the Corporation
shall be authorized to issue shall be One Million
Five Hundred Thousand (1,500,000) shares of Common
Stock of the par value of One Dollar ($1.00) per
share and there shall be no preemptive rights for any
shareholder arising therefrom and no preferences or
qualifications or limitations or restrictions or
special rights of any character whatsoever in respect
to said shares.
ARTICLE FOUR
The number of shares to be issued before the
corporation shall commence business is Fifty (50)
shares having a total value of $5,000.00. Five
Thousand and No/100 Dollars ($5,000.00) has been paid
up in lawful money of the United States.
ARTICLE SIX
The number of Directors for the Corporation who shall
be elected from time to time by the Shareholders is
seven (7).
ARTICLE EIGHT
The Corporation is formed for the following purposes:
A. To buy, utilize, lease, rent, import, export,
franchise, operate, manufacture, produce, design,
prepare, assemble, fabricate, improve, develop, sell,
lease, mortgage, pledge, hypothecate, distribute and
otherwise deal in, at wholesale, retail or otherwise,
and as principal, agent or otherwise, all
commodities, goods, wares, merchandise, devices,
apparatus, equipment and all other personal property,
whether tangible or intangible, of every kind,
without limitation as to description, location or
amount, including specifically, but not limited to,
electronic component parts and telecommunication
component parts.nature. The enumeration of purposes
and powers herein shall not be deemed to exclude or
in any way limit by inference any purposes or powers
which this Corporation has power to exercise, whether
expressly by the laws of the State of Missouri, now
or hereafter in effect, or implied by any reasonable
construction of such laws.
FURTHER RESOLVED, that the existing Articles of
Incorporation of TOROTEL, INC. be and the same are
hereby amended to include two new Articles which
shall be designated Article Nine and Article Ten
which shall read as follows:
ARTICLE NINE
Both the Shareholders and the Board of Directors
shall have equal power to make, alter, amend, suspend
or repeal By-Laws for the Corporation from time to
time; provided, however, that the power of the
Directors to alter, amend, suspend or repeal the By-
Laws or any portion thereof may be denied as to any
By-Laws or portion thereof enacted by the
Shareholders if at the time of such enactment the
Shareholders shall so expressly provide.
ARTICLE TEN
These Articles of Incorporation may be amended in any
respect from time to time by the Shareholders as
provided by the laws of the State of Missouri.
4. On the date of the foregoing resolutions
amending the Articles of Incorporation of TOROTEL,
INC., the total number of outstanding shares of the
corporation amounted to 99,800 and all 99,800 shares
were entitled to vote in regard to such amendment.
5. Of the 99,800 shares entitled to vote on the
foregoing resolutions of amendment, there were 97,425
shares voted for amendment and no shares were voted
against amendment.
