EXHIBIT 2
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION ("AGREEMENT") is made and entered
into as of March 20, 2002, by and among TOROTEL, INC., a Missouri corporation
("TOROTEL"), ELECTRONIKA ACQUISITION CORP., a Nevada corporation and a
wholly-owned subsidiary of Torotel ("NEWCO"), ELECTRONIKA, INC., a California
corporation (the "COMPANY"), and the stockholders of the Company set forth on
the signature page of this Agreement (each a "STOCKHOLDER" and collectively the
"STOCKHOLDERS), with reference to the following facts:
A. The Stockholders own beneficially and of record 100% of the
outstanding capital stock of the Company.
B. The Company is engaged in the manufacture and sale of ballast
transformers used in the aviation industry.
C. The parties intend that this Agreement shall constitute a plan of
reorganization (the "PLAN") of the type described in Section 368(a)(2)(D) of the
Internal Revenue Code of 1986, as amended (the "CODE"). The Plan comprises (a)
the merger (the "MERGER") of the Company into Newco, with Newco continuing as
the surviving corporation, pursuant to this Agreement and the Articles of Merger
in the form attached hereto as EXHIBIT "A" (the "ARTICLES OF MERGER"), on the
terms contained herein and in accordance with the applicable provisions of the
Nevada General Corporation Law (the "NGCL") and the California General
Corporation Law (the "CGCL"), and (b) the conversion of all the outstanding
shares of capital stock of the Company into 2,300,000 newly issued shares of
voting Common Stock of Torotel, subject to adjustment as provided herein.
D. Torotel, Newco, the Company and the Stockholders believe that it is in
their best interests to adopt the Plan and consummate the Plan.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, the parties agree as follows:
1. PLAN.
1.1 ADOPTION OF PLAN. Torotel, Newco, the Company and the Stockholders
hereby adopt the plan of reorganization herein set forth.
1.2 MERGER OF NEWCO INTO THE COMPANY. Subject to the provisions of this
Agreement, the NGCL and the CGCL, at the "EFFECTIVE TIME" (as defined in Section
1.3), the Company shall be merged with and into Newco, and the separate
corporate existence of the Company shall cease. Newco shall be the surviving
corporation in the Merger (hereinafter sometimes called the "SURVIVING
CORPORATION") and shall continue its corporate existence under the laws of the
State of Nevada. The Merger shall have the effects set forth in Section 92A.250
of the NGCL and Section 1107 of the CGCL. In connection with the Merger, the
Articles of Incorporation of
Newco shall be amended to change the name of the Surviving Corporation to
"ELECTRONIKA, INC."
1.3 EFFECTIVE TIME. 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 to be duly executed and filed with the Nevada Secretary of
State pursuant to Section 92A.200 of the NGCL and with the California Secretary
of State pursuant to Section 1108 of the CGCL. The Merger shall become effective
as of the time the Articles of Merger are accepted for filing and officially
filed in the States of Nevada and California. The date and time when the Merger
becomes effective is referred to herein as the "EFFECTIVE TIME". This Agreement
and the Articles of Merger are hereinafter collectively referred to as the
"MERGER AGREEMENTS".
1.4 CONVERSION OF SHARES. As of the Effective Time, by virtue of the
Merger and without any action on the part of any holder thereof:
1.4.1 All of the outstanding shares of capital stock of the Company
issued and outstanding immediately prior to the Effective Time (the "COMPANY
SHARES") shall be converted (in the aggregate) into the right to receive Two
Million Three Hundred Thousand (2,300,000) newly-issued shares of Torotel Common
Stock, $.01 par value per share (the "TOROTEL SHARES"), subject to adjustment as
set forth in Section 2 below.
1.4.2 The shares of Common Stock of Newco 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 shares outstanding as
shares of the Surviving Corporation.
1.5 SURRENDER OF SHARES. Upon surrender to Torotel of the certificates
which, immediately prior to the Effective Time, represented the Company Shares,
the Stockholders, as the holders of all of the Company Shares, shall be entitled
to receive in exchange therefor certificates representing the Torotel Shares
into which the Company Shares shall have been converted pursuant to the
provisions of Section 1.4.1. Until surrendered and exchanged as herein provided,
each outstanding certificate which, prior to the Effective Time, represented
capital stock of the company shall represent for all purposes only the right to
receive the consideration provided in Section 1.4.1. Certificates representing
the Torotel Shares shall be delivered to the Stockholders as soon as practicable
following the Effective Time.
1.6 SECURITIES ACT LEGEND ON TOROTEL SHARES. The Stockholders hereby agree
that they will not offer to sell, transfer or otherwise dispose of any of the
Torotel Shares issued to them in the Merger, except in accordance with the
applicable provisions of the Securities Act of 1933, as amended (the "SECURITIES
ACT") and the "RULES AND REGULATIONS" (as defined in Section 16). Certificates
representing the Torotel Shares initially will bear the following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE SOLD, TRANSFERRED OR
OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER SAID ACT OR UNLESS AN
EXEMPTION FROM SUCH
REGISTRATION IS AVAILABLE IN THE OPINION OF COUNSEL FOR THE ISSUER."
1.7 CAPITAL CHANGES. If Torotel shall combine, subdivide or reclassify its
Common Stock, or shall declare any dividend payable in shares of its Common
Stock, or shall take any other action of a similar nature affecting such
shares, as of a record date between the date hereof and the Effective Time,
the number of Torotel Shares to be issued at the Effective Time shall be
adjusted to such extent as may be necessary to prevent dilution or
enlargement of the rights of the Stockholders.
2. ADJUSTMENT OF MERGER CONSIDERATION.
2.1 MINIMUM NET SALES. If during the five (5) full fiscal years
immediately following the Closing Date (the "MEASUREMENT PERIOD"), the Surviving
Corporation does not generate aggregate "NET SALES" (as defined in Section 16)
of at least Two Million Five Hundred Thousand Dollars ($2,500,000) (the "MINIMUM
NET SALES"), the Stockholders shall pay to Torotel an amount equal to sixty
percent (60%) of the amount by which the actual Net Sales of the Surviving
Corporation during the Measurement Period is less than the Minimum Net Sales
(the "SHORTFALL"). Such Shortfall, if any, shall be paid by the Stockholders to
Torotel within sixty (60) days after the final determination of the Shortfall as
provided in Section 2.2.
2.2 DETERMINATION OF NET SALES. Within ninety (90) days after the end of
each fiscal year, Torotel shall deliver to the Stockholders a statement of the
Surviving Corporation's Net Sales (the "STATEMENT") for the fiscal year then
ended duly certified by the Chief Financial Officer or Chief Executive Officer
of Torotel, together with the audited financial statements of Torotel. The final
Statement also shall include a detailed calculation of the Shortfall, if one
exists. The Stockholders shall have the right to examine and inspect all
financial records of the Surviving Corporation in order to confirm the accuracy
of each Statement. If the Stockholders do not give written notice to Torotel
that they challenge the Statement (including any calculation of a Shortfall)
within 45 days following the Stockholders' receipt of the Statement, the
Stockholders shall be deemed conclusively to have accepted the same. If,
however, the Stockholders challenge the Statement (or any Shortfall calculation)
in writing specifically identifying the disputed item within 45 days of their
receipt of the same, then, unless otherwise resolved by agreement of the parties
within 30 days from the date of Torotel's receipt of the Stockholders' written
dispute notice, or such later date as the parties may mutually agree, the
Statement shall be deemed in dispute, which dispute shall be resolved by the
independent certified public accountants of Torotel, on the one hand, and the
independent certified public accountants of the Stockholders, on the other hand.
If such accountants cannot resolve the disagreement within 30 days of such
submission, or such later date as the parties may mutually agree upon, such
disagreement shall be mutually submitted by the parties to one of the nationally
recognized accounting firms (other than the parties' respective independent
certified public accounts) to be selected by the mutual agreement of such
parties' independent certified public accountants, whose determination shall be
final and binding and shall be rendered within 30 days of the date on which the
matter is submitted to such firm. Any such selected accounting firm shall
determine the issues in dispute after following such procedures, consistent with
the language of this Agreement, as it deems appropriate to the circumstances and
with reference to the amounts at issue. No particular procedures are intended to
be imposed upon such accounting
firm, it being the desire of the parties that any such dispute shall be resolved
as expeditiously and inexpensively as reasonably practicable.
2.3 COVENANTS OF TOROTEL. Torotel agrees that, during the Measurement
Period, (a) it will, in accordance with its reasonable business judgment,
conduct the operations represented by the Company as an ongoing concern
consistent with past practices and as a separate subsidiary of Torotel with no
other operations ; provided, however, that if Torotel deems it to be in the best
interest of the Surviving Corporation and Torotel to conduct other operations
through the Surviving Corporation, such operations shall not be included in the
determination of Net Sales of the Surviving Corporation for purposes of this
Section 2; (b) it shall maintain such separate books and records for the
Surviving Corporation as may be necessary to render a determination of the Net
Sales of the Surviving Corporation practicable and (c) it will not allocate any
corporate expense or otherwise cause the Surviving Corporation to incur any
corporate or other expense not specifically related to the business of the
Surviving Corporation. If Torotel or the Surviving Corporation sells the
operations conducted by the Company prior to the end of the Measurement Period,
the obligations of the Stockholders in this Section 2 shall terminate.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS.
A. The Company and the Stockholders hereby jointly and severally warrant
and represent the following:
3.1 ORGANIZATION AND GOOD STANDING OF THE COMPANY.
3.1.1 The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of California. The Company has
full corporate power and authority to carry on its business as presently
conducted and is entitled to own or lease and operate its properties and assets
now owned or leased and operated by it. The Company is qualified to do business
in the State of California, which is the only jurisdiction in which the
character or location of the assets owned by the Company or the nature of the
business transacted by the Company, or both, requires qualification and where
the failure to be so qualified would have a "MATERIAL ADVERSE EFFECT" (as
defined in Section 16). The Company does not have any equity interest or any
debt interest in any other person.
3.1.2 The Company has furnished to Torotel complete and correct copies
of its Articles of Incorporation and Bylaws as in effect on the date hereof.
3.1.3 The Company has made available to Torotel for its examination
copies of the minute books, stock certificate books and corporate seal of the
Company. Said minute books are accurate in all material respects and reflect all
resolutions adopted and all material actions required to be expressly authorized
or ratified by the stockholders and directors of the Company. The stock
certificate books reflect all issuances, transfers and cancellations of capital
stock of the Company.
3.2 CAPITALIZATION.
3.2.1 The authorized capital stock of the Company consists of 1,000
shares of common stock, without par value, of which 1,000 shares are issued and
outstanding as of the date hereof. All such issued and outstanding shares are
owned of record and beneficially by the Stockholders as set forth on EXHIBIT 3.2
and are validly issued, fully paid and nonassessable.
3.2.2 There are no options, warrants, subscriptions or other rights
outstanding for the purchase of, or any securities convertible into, capital
stock of the Company. No shares of the Company are held as treasury stock, and
there are no agreements, commitments or understandings of any nature whatsoever
that, directly or indirectly, relate to the voting, transfer or control of any
shares of the capital stock of the Company.
3.3 AUTHORITY. The Company has the full corporate power and authority to
execute and deliver the Merger Agreements, to perform the obligations and
covenants set forth therein and to consummate the Merger and the other
transactions contemplated thereby. The execution and delivery of the Merger
Agreements by the Company and the consummation of the transactions contemplated
thereby have been duly authorized by the Board of Directors of the Company and
by the Stockholders in their capacity as the stockholders of the Company, and no
further corporate action is necessary on the part of the Company to make the
Merger Agreements valid and binding upon the Company in accordance with their
terms. This Agreement has been duly executed and delivered by the Company and
the Stockholders and constitutes the valid and binding agreement of each of
them, enforceable against them in accordance with its terms, and, when the
Articles of Merger has been duly executed and delivered, it will constitute the
valid and binding agreement of the Company, enforceable against the Company in
accordance with its terms.
3.4 NO VIOLATION. The execution, delivery and performance of this
Agreement by the Company and the Stockholders are not contrary to the Articles
of Incorporation or Bylaws of the Company and will not result in a violation of
any provision or constitute a default or give any party a right to accelerate
the due date of any indebtedness under any indenture, mortgage, deed of trust or
other material contract or agreement to which the Company, the Stockholders or
any of them are a party or by which any of them are bound.
3.5 FINANCIAL STATEMENTS. The audited financial statements of the Company
(the "COMPANY FINANCIAL STATEMENTS") for the period ended December 31, 2001,
together with the report thereon of Piazza, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇, independent
certified public accountants, in the form attached hereto as EXHIBIT 3.5,
present fairly in all material respects the Company's ballast transformer
business and the financial position and results of operations of the Company as
of the dates and for the periods indicated, in each case in conformity with
generally accepted accounting principles consistently applied during the periods
indicated, all as more particularly set forth in such Company Financial
Statements and the Notes thereto, except as otherwise stated in the Company
Financial Statements or on EXHIBIT 3.5. Each of the balance sheets included in
the Company Financial Statements presents fairly as of its date the financial
condition and assets and liabilities of the Company. Except as and to the extent
reflected or reserved against in such balance sheets (including the Notes
thereto), the Company did not have, as of the date of such balance sheets, any
liabilities or obligations (absolute or contingent) of a nature customarily
reflected in a balance sheet or the notes thereto prepared in accordance with
generally accepted accounting principles. The statements of earnings and
stockholders' equity and statements of
changes in financial position included in the Company Financial Statements
present fairly the results of operations and changes in financial position of
the Company for the periods indicated. Torotel acknowledges that none of the
Company's cash, cash equivalents or accounts receivable relating to periods on
or prior to the Effective Time are being transferred in the Plan, as all of such
cash, cash equivalents and receivables will be distributed to and retained by
the Stockholders. The non-ballast business reflected on the Company Financial
Statements was discontinued by the Company during the fourth quarter of 2000 and
the first quarter of 2001.
3.6 CONTRACTS. Except for the "MAGNETIKA AGREEMENT" (as defined in Section
16) and the other agreements, including purchase orders, listed on EXHIBIT 3.6
(collectively, the "CONTRACTS"), the Company does not have any (a) contracts,
leases, arrangements, commitments, understandings or other agreements, oral or
written, to which the Company is a party or it or its assets are bound and which
have not been fully performed, including purchase orders, sales orders and other
contracts with customers, suppliers, distributors, sales agents and
representatives or (b) bonus, incentive compensation, pension, profit sharing,
stock option, group insurance, medical reimbursement or employee welfare or
benefit plans of any nature whatsoever. All Contracts are valid and binding
obligations of the Company and, to the knowledge of the Company and the
Stockholders, valid and binding obligations of the other parties thereto and
enforceable and in full force and effect in accordance with their respective
terms; there have been no amendments to or modifications to any Contract; no
event has occurred which is, or, following any grace period or required notice,
would become a material default by the Company or, to the knowledge of the
Company and the Stockholders, any other party under the terms of any Contract;
the Company has no reason to believe that any party to any Contract intends to
terminate or curtail its course of business with the Company; and the Company
has not waived any material rights under any Contract. Except for the Magnetika
Agreement (which is to be terminated upon the Closing and replaced by the
Manufacturing Agreement), every Contract may be assigned or otherwise
transferred pursuant to this Agreement or the transactions contemplated hereby
without the consent of any third party. The Company has never and does not
currently own any real property.
3.7 OUTSTANDING INDEBTEDNESS. EXHIBIT 3.7 sets forth a true and complete
schedule of all notes payable and other indebtedness for borrowed money owed by
the Company, including a description of all properties or assets pledged,
mortgaged or otherwise hypothecated (voluntarily or involuntarily) as security
therefor, all of which indebtedness shall be repaid in full prior to the
Effective Time.
3.8 ABSENCE OF UNDISCLOSED LIABILITIES. Except as set forth on EXHIBIT 3.7
(which indebtedness shall be repaid in full by the Company prior to the
Effective Time in accordance with the provisions of Section 3.7), the Company
will not have on the Closing Date, and none of its properties will then be
subject to, any debts, liabilities or obligations of any nature based on facts
existing or events occurring before the Closing Date, whether or not such debts,
liabilities or obligations are required to be shown or reflected on financial
statements prepared in a manner consistent with generally accepted accounting
principles. To the best knowledge of the Company and the Stockholders, there are
no claims pending or threatened against the Company.
3.9 NO LITIGATION. There are no actions, suits or proceedings (whether or
not purportedly on behalf of the Company) pending or, to the best knowledge of
the Company and
the Stockholders, threatened against or affecting the Company, at law or in
equity or before or by any "GOVERNMENT BODY" (as defined in Section 16). To the
best knowledge of the Company and the Stockholders, the Company is not in
default with respect to any judgment, order, writ, injunction, decree or award
of any Government Body.
3.10 TAXES.
3.10.1 The Company has filed all "TAX RETURNS" (as defined in Section
16) required to be filed by it by the date hereof. As of the time of filing, the
Tax Returns correctly reflected in all respects the facts regarding the income,
business, assets, operations, activities and status of the Company and any other
information required to be shown therein. None of the Tax Returns is subject to
audit. All "TAXES" (as defined in Section 16) imposed by the United States, the
State of California and by any other state, municipality, subdivision, or other
taxing authority, which are due and payable by the Company have been timely paid
in full or are adequately provided for by reserves reflected on the latest
balance sheet included in the Company Financial Statements. The Company has made
or will make before the Effective Time provision for all Taxes payable by it for
any period that end before the Effective Time for which Tax Returns have not yet
been filed. There are no agreements, waivers or other arrangements providing for
an extension of time with respect to the assessment or collection of any Taxes
owed by the Company. No deficiency for any Taxes has been proposed, asserted or
assessed against the Company (or any Stockholder or any member of an affiliated
or combined group of which the Company is or has been a member for which the
Company could be liable as it relates to the Company). No claim has ever been
made by an authority in a jurisdiction where the Company does not file Tax
Returns that it is or may be subject to taxation by that jurisdiction. There are
no tax liens on any of the Company's stock or assets.
3.10.2 All contributions due from the Company pursuant to any
unemployment insurance or workers compensation laws and all sales or use Taxes
which are due or payable by the Company have been paid in full. The Company 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.
3.11 NO LABOR PROBLEMS. The Company is not a party to any collective
bargaining agreement and no such agreement determines the terms and conditions
of employment of any employee of the Company. No collective bargaining agent has
been certified as a representative of any employees of the Company, and to the
knowledge of the Company and the Stockholders, no representation campaign or
election is now in progress with respect to any of the Company's employees. The
Company has not been charged with any unresolved unfair labor practices and
there are no material controversies pending or threatened between the Company
and any of its employees. To the best knowledge of the Company and the
Stockholders, the Company has complied in all material respects with all laws
relating to wages, hours, collective bargaining and similar employment matters
the noncompliance with which would have a Material Adverse Effect, and the
Company has paid all social security and similar Taxes that are due and payable
and is not liable for any arrears or wages or any Taxes or material penalties
for failure to comply with any of the foregoing.
3.12 EMPLOYEE BENEFIT PLANS. The Company has never maintained or
contributed to, and does not currently maintain or contribute to, any "employee
pension benefit plan", as such term is defined in Section 3 of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), deferred
compensation, or other employee benefit plan, program or arrangement. The
Company has never maintained, and does not currently maintain any "employee
welfare benefit plan", as such term is defined in Section 3 of ERISA, whether
insured or otherwise.
3.13 CONSENTS. No authorizations, approvals or consents of any person or
Government Body are required for consummation of the transactions contemplated
by this Agreement or the subsequent operation of the business of the Company,
except for the filing of the Articles of Merger as required by the NGCL and the
CGCL.
3.14 BROKERAGE AND FINDER'S FEES. Neither the Company nor the Stockholders
(or any Affiliate of the Stockholders) has incurred any liability to any broker,
finder or agent for any brokerage fees, finder's fees or commissions with
respect to the transactions contemplated by this Agreement.
3.15 ABSENCE OF CERTAIN CHANGES. Since December 31, 2001, there has not
been any material adverse change in the results of operations, financial
condition, liquidity, assets, properties, business or prospects of the Company.
3.16 COMPLIANCE WITH LAW. The Company has operated its business in
compliance in all material respects with all material federal and state
statutes, rules and regulations, including but not limited to environmental and
federal aviation laws, applicable to the Company and its assets.
3.17 INTELLECTUAL PROPERTY. EXHIBIT 3.17 contains a complete and
correct description of the nature of the Company's intellectual property rights.
EXHIBIT 3.17 contains a complete and correct list of all intellectual property
rights which are used in the conduct of the Company's business. The Company is
the owner of all patents, trademarks, trade names, service marks and other
intellectual property rights used in the Company's business. The Company has not
received any notice of any claim of infringement or any other claim or
proceeding relating to any such intellectual property right used in the
Company's business, and, to the Knowledge of the Company and the Stockholders,
there is no basis for any such claim.
3.18 LICENSES AND PERMITS. The Company has obtained all material licenses,
permits, certificates, consents, rights and privileges necessary or appropriate
to the conduct of the Company's business (collectively, "LICENSES," all of which
are listed on EXHIBIT 3.18). The Licenses are valid and in full force now and
will not be rendered invalid as a result of the consummation of the transactions
contemplated by this Agreement. To the best knowledge of the Stockholders and
the Company, nothing will cause the Licenses to become invalid from and after
the Effective Time.
3.19 PRODUCTS LIABILITY. Except for the standard warranty described on
EXHIBIT 3.19, the Company has not given or made any warranties to third parties
with respect to any products sold by it. To the best knowledge of the Company
and the Stockholders, no state of facts or the occurrence of any event exists to
form the basis of any present claim against the Company for product liability on
account of any express or implied warranty which is not fully covered by
insurance. Stockholders agree and acknowledge that they will retain
responsibility, either directly or through the Company's subcontractor,
Magnetika, for any and all warranty claims relating to products sold by the
Company prior to the Closing in accordance with the provisions of Section 12.5
hereof.
3.20 NO MATERIAL MISSTATEMENTS OR OMISSIONS. No representation or warranty
by the Company or the Stockholders in this Agreement, and no exhibit or schedule
furnished or to be furnished by the Company or the Stockholders pursuant hereto,
contains or will contain any untrue statement of a material fact, or omits or
will omit to state a material fact required to be stated therein or necessary to
make the statements or facts contained herein or therein, in light of the
circumstances under which they were made, not misleading.
3.21 ASSETS. The assets of the Company consist of the following: (a) the
intellectual property rights listed on EXHIBIT 3.17, including but not limited
to the drawings for ballast transformers listed on EXHIBIT 16, (b) the licenses
and permits listed on EXHIBIT 3.18, and (c) the Contracts listed on EXHIBIT 3.6.
3.22 INSURANCE. The Company, either directly or through its subcontractor,
Magnetika, carries policies of general liability and other forms of insurance
which are normal and customary for a business of the size and type of the
Company. All of such policies are in full force and effect in accordance with
their terms, no notice of cancellation has been received, and there is no
existing default thereunder, and all premiums to date have been paid in full.
Subject to the limitations on liability set forth in the second sentence of
Section 13.3.3, Stockholders agree and acknowledge that they will retain
responsibility, either directly or through the Company's subcontractor,
Magnetika, for any and all claims relating to products sold by the Company prior
to the Closing, in accordance with the provisions of Section 12.6 hereof.
B. Each of the Stockholders, severally and not jointly, hereby represents
and warrants the following:
3.23 INVESTMENT REPRESENTATIONS. Such Stockholder is an "accredited
investor", as that term is defined in Rule 501 of the Rules and Regulations, and
has such knowledge and experience in financial and business matters that such
Stockholder is capable of evaluating the risks and merits of an investment in
the Torotel Shares. Such Stockholder is acquiring the Torotel 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. Such Stockholder acknowledges that Torotel has made available to him or
her the opportunity to ask questions and receive answers concerning the terms
and conditions of the Plan and to obtain any additional information that Torotel
is required to furnish under Regulation D of the Rules and Regulations.
3.24 NO JOINDER. Such Stockholder has the requisite power to enter into
this Agreement and perform his or her obligations hereunder (including without
limitation to sell and deliver the Company Shares), and no other Person's
joinder as a party hereto is necessary therefor pursuant to any community
property laws or otherwise, and there is no restriction on the power of such
Stockholder to sell and deliver the Company Shares pursuant to any partnership
agreement,
voting trust agreement, irrevocable proxy, shareholders' agreement, trust,
estate planning or other similar document or any prenuptial or post-nuptial
agreement or arrangement.
3.25 TITLE TO SHARES. Such Stockholder is the holder of record and owns
beneficially all of the Company Shares identified as owned by such Stockholder
on Exhibit 3.2, and owns such Company Shares free and clear of all liens,
security interests, encumbrances and restrictions, other than restrictions
contemplated by this Agreement. Stockholder is not a party to any voting trust,
proxy or other agreement with respect to the voting of any of the Company
Shares.
4. ADDITIONAL OBLIGATIONS AND COVENANTS OF THE COMPANY AND STOCKHOLDER. The
Stockholders hereby covenant and agree to do, or to cause the Company to do, the
following:
4.1 CONDUCT OF BUSINESS. Between the date hereof and the Closing Date, the
Stockholders will cause the Company to conduct is business in the ordinary
course of business, consistent with past practices, and will preserve the
organization of the Company intact and maintain the Company's relationships with
its suppliers and customers.
4.2 ACCESS AND INFORMATION. The Company and the Stockholders will afford
to Torotel and Torotel's counsel, accountants and other representatives
reasonable access, throughout the period from the date hereof to the Closing
Date, to all of the Company's properties, books, contracts, commitments, and
records and shall furnish Torotel during such period with all information that
Torotel reasonably may request.
4.3 EFFORTS TO SATISFY CONDITIONS. The Company and the Stockholders shall
use their reasonable efforts to satisfy or cause to be satisfied all of the
conditions precedent to Torotel's obligations under this Agreement, to the
extent that their action or inaction can control or influence the satisfaction
of such conditions.
4.4 CONFIDENTIALITY. The Company and the Stockholders will keep
confidential and will not disclose any information disclosed to them by Torotel
hereunder (other than information which is readily ascertainable from public or
trade sources or is independently developed or is obtained from third parties
without such persons' breaching any duty owed Torotel) to third parties. In
addition, the Company and the Stockholders will not use any such information in
their business or for any purpose other than evaluating the transactions
contemplated by this Agreement.
5. REPRESENTATIONS AND WARRANTIES OF TOROTEL. Torotel hereby represents and
warrants the following:
5.1 ORGANIZATION AND GOOD STANDING.
5.1.1 Torotel is a corporation duly organized, validly existing and in
good standing under the laws of the State of Missouri. Torotel has corporate
power and authority to carry on its business as presently conducted and is
qualified to do business in every jurisdiction in which the character and
location of the assets owned by it or the nature of the business transacted by
it or both require qualification and failure to be so qualified would have a
Material Adverse Effect.
5.1.2 Newco is a corporation duly organized, validly existing and in
good standing under the laws of the State of Nevada, which was organized for the
purpose of acquiring the Company and has conducted no business since its
organization.
5.2 CAPITAL STOCK.
5.2.1 The authorized capital stock of Torotel consists of 6,000,000
shares of Common Stock, $.01 par value per share, of which 2,811,590 shares were
issued and outstanding and 71,205 shares were held in treasury on February 28,
2002. The authorized capital stock of Newco consists of 1,000 shares of voting
common stock, no par value, of which 1,000 shares are issued and outstanding and
held by Torotel on the date hereof.
5.2.2 Except as set forth in the Torotel Reports and on EXHIBIT 5.2,
(a) there are no options, warrants, subscriptions or other rights outstanding
for the purchase of, or any securities convertible into, capital stock of the
Torotel, (b) no shares of Torotel are held as treasury stock, and (c) there are
no agreements, commitments or understandings of any nature whatsoever that,
directly or indirectly, relate to the voting, transfer or control of any shares
of the capital stock of Torotel.
5.3 TOROTEL SUBSIDIARIES. Each subsidiary of Torotel that is a
"significant subsidiary," as defined in Rule 1-02(w) of Regulation S-X of the
Rules and Regulations (each a "TOROTEL SUBSIDIARY" and collectively the "TOROTEL
SUBSIDIARIES"), is duly organized and in good standing under the laws of the
jurisdiction in which it was incorporated or organized, has full corporate power
and authority to carry on its business as now conducted by it and is entitled to
own or lease and operate its properties and assets now owned or leased and
operated by it. Each Torotel Subsidiary is duly qualified and in good standing
as a foreign corporation or other entity in each jurisdiction where the
character or location of the assets owned by it or the nature of the business
transacted by it require such qualification, except where failure to be so
qualified would not have a Material Adverse Effect.
5.4 AUTHORITY. Each of Torotel and Newco has the full corporate power and
authority to execute and deliver the Merger Agreements, to perform the
obligations and covenants set forth therein and to consummate the Merger and the
other transactions contemplated thereby. The execution and delivery of the
Merger Agreements by Torotel and the consummation of the transactions
contemplated thereby have been duly authorized by the Boards of Directors of
Torotel and Newco and by Torotel in its capacity as the sole stockholder of
Newco. No vote of the stockholders of Torotel or further corporate action is
necessary on the part of Torotel or Newco to make this Agreement valid and
binding upon Torotel and Newco in accordance with its terms. This Agreement has
been duly executed and delivered by Torotel and Newco and constitutes the valid
and binding agreement of each of them, enforceable against them in accordance
with its terms, and when the Articles of Merger has been duly executed and
delivered, it will constitute the valid and binding agreement of Newco,
enforceable against Newco in accordance with its terms.
5.5 NO VIOLATION. The execution, delivery and performance of this
Agreement by Torotel and Newco (a) are not contrary to the Articles of
Incorporation or Bylaws of Torotel or of
Newco and (b) will not result in a violation of any provision or constitute a
default or give any party a right to accelerate the due date of any indebtedness
under any indenture, mortgage, deed of trust or other contract or agreement to
which Torotel or Newco is a party or by which Torotel or Newco is bound.
5.6 TOROTEL REPORTS. Torotel has delivered to the Stockholders copies of
Torotel's Annual Reports on Form 10-KSB for the years ended April 30, 1999, 2000
and 2001, Torotel's Quarterly Reports on Form 10-QSB for the quarters ended July
31, 2001, October 31, 2001 and January 31, 2002, and Torotel's definitive Proxy
Statement dated August 17, 2001, for its Annual Meeting of Stockholders held on
September 17, 2001. All of said documents and all periodic reports filed by
Torotel with the Commission after the date hereof are called the "TOROTEL
REPORTS" herein. The Torotel Reports have been or will be duly and timely filed
with the Commission and are or will be when filed in compliance with the Rules
and Regulations. As of their respective dates, none of the Torotel Reports
contained or will contain any untrue statement of a material fact or omitted or
will omit to state a material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading.
5.7 TOROTEL FINANCIAL STATEMENTS. The financial statements contained in
the Torotel Reports (the "TOROTEL FINANCIAL STATEMENTS") filed on or before the
date hereof have been prepared in accordance with the books and records of
Torotel and its subsidiaries and in accordance with generally accepted
accounting principles consistently applied during the periods indicated, all as
more particularly set forth in such financial statements and the Notes thereto.
Each of the balance sheets included in the Torotel Financial Statements presents
fairly as of its date the consolidated financial condition and assets and
liabilities of Torotel and its subsidiaries. Except as and to the extent
reflected or reserved against in such balance sheets (including the Notes
thereto), Torotel (including its subsidiaries) did not have, as of the dates of
such balance sheets, any material liabilities or obligations (absolute or
contingent) of a nature customarily reflected in a balance sheet or the notes
thereto prepared in accordance with generally accepted accounting principles.
The consolidated statements of earnings and stockholders' equity and
consolidated statements of changes in financial position included in the Torotel
Financial Statements present fairly the results of operations and changes in
financial position of Torotel and its subsidiaries for the periods indicated.
5.8 ABSENCE OF CERTAIN CHANGES. Since October 31, 2001, there has not been
any material adverse change in the results of operations, financial condition,
liquidity, assets, properties, business or prospects of Torotel and its
subsidiaries, taken as a whole.
5.9 ISSUANCE OF STOCK. Torotel has reserved for issuance the Torotel
Shares, and the Torotel Shares, when issued in accordance with this Agreement,
will be duly authorized, validly issued, fully paid and nonassessable and,
assuming the accuracy of the representations and warranties of the Stockholders
set forth in Section 3.23, will be issued in compliance with all federal and
state securities laws.
5.10 CONSENTS. No authorizations, approvals or consents of any person or
Government Body are required for consummation by Torotel of the transactions
contemplated by this
Agreement, except for the filing of the Articles of Merger as required by the
NGCL and the CGCL.
5.11 NO LITIGATION. Except as disclosed in the Torotel Reports, (a) there
are no actions, suits or proceedings (whether or not purportedly on behalf of
Torotel or any Torotel Subsidiary) pending or, to the best knowledge of Torotel,
threatened against or affecting Torotel or any Torotel Subsidiary, at law or in
equity or before or by any Government Body and (b) to the best knowledge of
Torotel, neither Torotel nor any Torotel Subsidiary is in default with respect
to any judgment, order, writ, injunction, decree or award of any Government
Body.
5.12 TAXES.
5.12.1 Torotel has filed all Tax Returns required to be filed by it by
the date hereof. All Taxes imposed by the United States and by any other state,
municipality, subdivision, or other taxing authority, which are due and payable
by Torotel or any Torotel Subsidiary have been paid in full or are adequately
provided for by reserves reflected on the latest balance sheet included in the
Torotel Financial Statements. There are no agreements, waivers or other
arrangements providing for an extension of time with respect to the assessment
or collection of any Taxes owed by Torotel or any Torotel Subsidiary.
5.12.2 All contributions due from Torotel or any Torotel Subsidiary
pursuant to any unemployment insurance or workers compensation laws and all
sales or use Taxes which are due or payable by Torotel or any Torotel Subsidiary
have been paid in full. Torotel and each Torotel 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.
5.13 NO LABOR PROBLEMS. Neither Torotel nor any Torotel Subsidiary has been
charged with any unresolved unfair labor practices and there are no material
controversies pending or threatened between Torotel or any Torotel Subsidiary
and any of its employees. To Torotel's knowledge, Torotel and each Torotel
Subsidiary has complied in all material respects with all laws relating to
wages, hours, collective bargaining and similar employment matters the
noncompliance with which would have a Material Adverse Effect, and Torotel and
each Torotel Subsidiary has paid all social security and similar Taxes that are
due and payable and is not liable for any arrears or wages or any Taxes or
material penalties for failure to comply with any of the foregoing.
5.14 NO MATERIAL MISSTATEMENTS OR OMISSIONS. No representation or warranty
by Torotel or Newco in this Agreement, and no exhibit or schedule furnished or
to be furnished to the Company or the Stockholders pursuant hereto, contains or
will contain any untrue statement of a material fact, or omits or will omit to
state a material fact required to be stated therein or necessary to make the
statements or facts contained herein or therein, in the light of the
circumstances under which they were made, not misleading.
5.15 COMPLIANCE WITH LAW. Except as disclosed in the Torotel Reports,
Torotel and each Torotel Subsidiary has operated its business in compliance in
all material respects with all
material federal and state statutes, rules and regulations, including but not
limited to environmental and federal aviation laws, applicable to it and its
assets.
5.16 INTELLECTUAL PROPERTY. Torotel and each Torotel Subsidiary is the
owner of all patents, trademarks, trade names, service marks and other
intellectual property rights used in its business. Neither Torotel nor any
Torotel Subsidiary has received any notice of any claim of infringement or any
other claim or proceeding relating to any such intellectual property right used
in its business, and, to the Knowledge of Torotel, there is no basis for any
such claim.
5.17 LICENSES AND PERMITS. Torotel and each Torotel Subsidiary has obtained
all material Licenses, permits, certificates, consents, rights and privileges
necessary or appropriate to the conduct of its business. All of such Licenses
are valid and in full force now and will not be rendered invalid as a result of
the consummation of the transactions contemplated by this Agreement.
5.18 PRODUCTS LIABILITY. To the best knowledge of Torotel, no state of
facts or the occurrence of any event exists to form the basis of any present
claim against Torotel or any Torotel Subsidiary for product liability on account
of any express or implied warranty which is not fully covered by insurance.
5.19 ABSENCE OF UNDISCLOSED LIABILITIES. Except as set forth in the Torotel
Financial Statements or on EXHIBIT 5.19, neither Torotel nor any Torotel
Subsidiary will have on the Closing Date, and none of their properties will then
be subject to, any debts, liabilities or obligations of any nature based on
facts existing or events occurring before the Closing Date, whether or not such
debts, liabilities or obligations are required to be shown or reflected on
financial statements prepared in a manner consistent with generally accepted
accounting principles, except for current liabilities incurred in the ordinary
course of business consistent with past practices since the date of the Torotel
Financial Statements. To the best knowledge of Torotel, there are no claims
pending or threatened against Torotel or any Torotel Subsidiary asserting the
existence of any such debt, liability or obligation that is not reflected on the
Torotel Financial Statements.
6. ADDITIONAL OBLIGATIONS AND COVENANTS OF TOROTEL AND NEWCO. Torotel and
Newco, jointly and severally, hereby covenant and agree as follows:
6.1 CONDUCT OF BUSINESS. Between the date hereof and the Closing Date,
Torotel will, and will cause each Torotel Subsidiary to, conduct is business in
the ordinary course of business, consistent with past practices, and will
preserve the organization of Torotel and each Torotel Subsidiary intact and
maintain Torotel's and each Torotel Subsidiary's relationships with its
suppliers and customers.
6.2 ACCESS AND INFORMATION. Torotel will afford to the Stockholders and
their counsel, accountants and other representatives reasonable access,
throughout the period from the date hereof to the Closing Date, to all of the
properties, books, contracts, commitments, and records of Torotel and the
Torotel Subsidiaries, and shall furnish the Stockholders during such period with
all information that the Stockholders reasonably may request.
6.3 EFFORTS. Torotel and Newco shall use reasonable efforts to satisfy or
cause to be satisfied all of the conditions precedent to the Company's and the
Stockholders' obligations under this Agreement, to the extent that their action
or inaction can control or influence the satisfaction of such conditions.
6.4 CONFIDENTIALITY. Torotel and Newco will keep confidential and will not
disclose any information disclosed to them by the Stockholders or the Company
hereunder (other than information which is readily ascertainable from public or
trade sources or is independently developed or is obtained from third parties
without such persons' breaching any duty owed to the Company) to third parties.
In addition, Torotel and Newco will not use any such information in their
business or for any purpose other than evaluating the transactions contemplated
by this Agreement unless and until the Closing occurs.
7. CONDITIONS TO EACH PARTY'S OBLIGATIONS. The obligations of each party to
consummate the Plan shall be subject to the satisfaction at or before the
Effective Time of each of the following conditions, except to the extent the
parties may waive any of such conditions in writing:
7.1 GOVERNMENT BODY CONSENTS. All consents, authorizations, orders and
approvals of (or filings or registrations with) any Government Body required in
connection with the execution, delivery and performance of this Agreement,
including the Merger and the issuance of the Torotel Shares, shall have been
obtained or made, except where the failure to have obtained or made any such
consent, authorization, order, approval, filing or registration would not have a
Material Adverse Effect following the Closing.
7.2 INJUNCTION. There shall be no effective injunction, writ or
preliminary restraining order or any order of any nature issued by any
Government Body to the effect that the Plan may not be consummated as herein
provided, no proceeding or lawsuit shall have been commenced by any Government
Body for the purpose of obtaining any such injunction, writ or preliminary
restraining order and no written notice shall have been received from any
Government Body indicating an intent to restrain, prevent, materially delay or
restructure the transactions contemplated by this Agreement.
7.3 ADVERSE ACTION. No bona fide action or proceeding shall be pending or
threatened against any of Torotel, Newco, the Company or Stockholder, where, in
the written opinion of independent legal counsel, an unfavorable judgment,
decree or order would prevent or make unlawful the carrying out of the
transactions contemplated by this Agreement or would compel Torotel's
divestiture of all or any part of the Company Shares or all or a material
portion of the properties or assets of the Company.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF TOROTEL AND NEWCO. The obligations
of Torotel and Newco to consummate the Plan and issue the Torotel Shares are
subject to the satisfaction of each of the additional following conditions at or
prior to the Effective Time, unless waived in writing by Torotel:
8.1 ACCURACY OF WARRANTIES AND REPRESENTATIONS. The representations and
warranties of the Company and the Stockholders herein shall be true and correct
in all material respects on
and as of the Closing Date, with the same force and effect as though such
representations and warranties had been made on and as of the Closing Date, and
the Company and the Stockholders shall perform or shall have performed in all
material respects all covenants required by this Agreement to be performed by
them at or prior to the Closing.
8.2 NO MATERIAL ADVERSE CHANGE. There shall have been no changes after
December 31, 2001, in the results of operations, assets, liabilities, financial
condition or affairs of the Company which in their total effect have a
Materially Adverse Effect.
8.3 SUITABILITY OF FINANCIAL STATEMENTS. Torotel shall have been advised
in writing by ▇▇▇▇▇ ▇▇▇▇▇▇▇ LLP (a copy of which shall be sent to the Company
and the Stockholders) that the Company Financial Statements can be audited in
accordance with generally accepted auditing standards without unreasonable
expense and that, when audited, they will be suitable or readily adaptable for
incorporation in registration statements and annual and other reports to be
filed by Torotel with the Commission.
8.4 MANUFACTURING AGREEMENT. The Manufacturing Agreement between the
Surviving Corporation and Ferrodyne Corporation, d/b/a Magnetika West, Inc., a
California corporation ("MAGNETIKA"), substantially in the form of EXHIBIT 8.4
attached hereto, shall have been executed and delivered by the parties thereto
and shall be in full force and effect. Under the terms of the Manufacturing
Agreement, Magnetika will agree, among other things, to maintain all product
liability insurance for listed part numbers covered by the Manufacturing
Agreement.
8.5 OTHER LEGAL MATTERS. All legal matters in connection with this
Agreement and the transactions contemplated hereby shall have been approved by
counsel for Torotel, and there shall have been furnished to such counsel by the
Company certified copies of such corporate records of the Company and copies of
such other documents as such counsel may reasonably have requested for such
purpose.
9. CONDITIONS PRECEDENT TO OBLIGATION OF THE COMPANY AND THE STOCKHOLDERS. The
obligations of the Company and the Stockholders to consummate the Plan are
subject to the satisfaction of each of the following additional conditions at or
prior to the Effective Time, unless waived in writing by the Company and the
Stockholders:
9.1 ACCURACY OF WARRANTIES AND REPRESENTATIONS. The representations and
warranties of Torotel contained in this Agreement shall be true and correct in
all material respects on and as of the Closing Date, with the same force and
effect as though such representations and warranties had been made on and as of
the Closing Date, and Torotel shall perform or shall have performed in all
material respects all of the covenants required by this Agreement to be
performed by it on or before the Closing.
9.2 NO MATERIAL ADVERSE CHANGE. There shall have been no changes since
October 31, 2001, in the results of operations, assets, liabilities, financial
condition or affairs of Torotel and its subsidiaries, taken as a whole, which in
their total effect have a Material Adverse Effect.
9.3 REGISTRATION RIGHTS AGREEMENT. The Registration Rights Agreement
between Torotel and the Stockholders, substantially in the form of EXHIBIT 9.3
attached hereto, shall have been executed and delivered by the parties thereto
and shall be in full force and effect.
9.4 OTHER LEGAL MATTERS. All legal matters in connection with this
Agreement and the transactions contemplated hereby shall have been approved by
counsel for the Company and Stockholder, and there shall have been furnished to
such counsel by Torotel certified copies of such corporate records of Torotel
and copies of such other documents as such counsel may reasonably have requested
for such purpose.
10. SURVIVAL OF REPRESENTATIONS. The representations, warranties and covenants
made herein shall survive the consummation of the Merger and the transactions
contemplated hereby and continue in force and effect until the 18-month
anniversary of the Closing; provided, however, that (a) the representations,
warranties and covenants regarding tax matters and compliance with laws shall
survive until the expiration of any applicable statute of limitations, and (b)
the representations and warranties set forth in Sections 3.8 shall survive until
the 36-month anniversary of the Closing. No party shall be entitled to recover
against any other party for any misrepresentation or breach of warranty except
to the extent that written notice of any such claim has been delivered to the
party against whom recovery is sought within the applicable period setting forth
in reasonable detail and specifying the nature of the claim being asserted.
11. CLOSING. The closing (the "CLOSING") of the transactions covered by this
Agreement shall take place at 10:00 a.m., on March 29, 2002, at ▇▇▇▇▇, ▇▇▇▇▇ &
▇▇▇▇▇▇ LLP, ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇,
or such other time and place as to which the parties may agree. Regardless of
the actual time of the Closing, the Closing shall be deemed to have occurred
effective at the opening of business on the day the Closing occurs. If the
conditions specified in this Agreement have not been fulfilled by that date, any
party may postpone the Closing for the minimum reasonably necessary period or
periods, in any event not exceeding an aggregate of 30 days, by written notice
to the other parties. Any party exercising such right shall deliver written
notice to the other parties specifying in reasonable detail the condition which
has not been fulfilled, and the other parties will have the right to cure or
correct the matter within the 30-day period. The term "CLOSING DATE" herein
shall mean the last date fixed by mutual agreement or otherwise under this
Section.
12. POST-CLOSING COVENANTS.
12.1 COOPERATION AND ASSISTANCE. Upon request, each of the parties hereto
shall cooperate with the other to the extent reasonably requested in furnishing
information, testimony and other assistance in connection with any actions,
proceedings, arrangements or disputes involving the Company, the Stockholders,
Torotel or Newco which are based upon contracts, arrangements or acts of the
Stockholders or the Company or both which were in effect or occurred on or prior
to the Closing.
12.2 ACCESS TO RECORDS. The Stockholders shall be entitled, after the
Closing, upon reasonable notice and during the regular business hours of
Torotel, to have access to and to make copies of the business records of the
Company which relate to periods prior to the Closing. Torotel shall retain such
business records for a period of five (5) years following the Closing
Date, after which time Torotel may destroy or otherwise dispose of such business
records without the Stockholders' consent.
12.3 BOARD OF DIRECTORS OF THE SURVIVING CORPORATION. Until the expiration
of the Measurement Period, the Board of Directors of the Surviving Corporation
shall consist of one person designated by Torotel and two persons designated by
the Stockholders. Thereafter, the Board of Directors of Torotel shall appoint
the Board of Directors of the Surviving Corporation. The initial members of the
Board of Directors of the Surviving Corporation shall be ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, ▇▇▇▇▇
▇. ▇▇▇▇▇▇▇▇▇ and ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇.
12.4 TAX MATTERS.
12.4.1 CURRENT TAX RETURNS. The Stockholders shall be responsible for
the preparation and filing of all Tax Returns for all taxable periods that end
on or before the Closing Date.
12.4.2 REFUNDS AND CREDITS. Any refunds of Taxes and credits against
Taxes (together in each case with any interest received or credited on or with
respect to such refund or credit) attributable to any taxable period or portion
thereof ending on or before the Closing Date shall be for the account of the
Stockholders.
12.4.3 COOPERATION. Torotel and the Stockholders shall cooperate in
good faith with each other in a timely manner in the preparation and filing of
any Tax Returns of the Company and the handling of any Tax claims or assessments
and other Tax matters to which this Agreement relates, other than Tax claims or
assessments and Tax matters solely involving Torotel and its subsidiaries other
than the Company. Each party agrees to report and consistently treat the
transactions contemplated by this Agreement as a tax-free reorganization under
Section 368(a)(2)(D) of the Code. Each party shall execute and deliver such
powers of attorney and make available such other documents and such personnel as
are necessary to carry out the intent of this Section 12.4.3.
12.5 WARRANTY OBLIGATIONS. In accordance with the provisions of Section
3.19 hereof, the Stockholders, either directly or through the Company's
subcontractor, Magnetika, will retain responsibility for any and all warranty
claims relating to products produced, sold or shipped by the Company prior to
Closing.
12.6 INSURANCE TAIL COVERAGE. In accordance with the provisions of Section
3.22 hereof, but subject to the limitations on liability set forth in the second
sentence of Section 13.3.3, the Stockholders, either directly or through the
Company's subcontractor, Magnetika, will retain responsibility for any and all
claims relating to product sold by the Company or actions taken by the Company
prior to the Closing, and will obtain insurance tail coverage or other
applicable insurance coverage to cover such claims.
12.7 NON-BALLAST BUSINESS. The Stockholders will retain responsibility for
any and all claims relating to the Company non-ballast business, and such claims
shall not be subject to the limitations on liability set forth in the second
sentence of Section 13.3.3 hereof.
13. INDEMNIFICATIONS.
13.1 INDEMNIFICATION BY THE STOCKHOLDERS. Subject to the provisions of
Sections 10 and 13.3, the Stockholders hereby agree to indemnify, defend,
protect and hold harmless Torotel and its Affiliates against any and all
damages, losses, liabilities, costs and expenses (including reasonable
attorneys' fees) arising in connection with or resulting from (a) any breach of
any warranty or representation made by the Company or the Stockholders under
this Agreement, (b) all liabilities relating to the conduct of the Company's
business prior to the Effective Time, including but not limited to liabilities
relating to any product shipped by the Company prior to the Effective Time, and
(c) all liabilities relating to the Company's non-ballast business, which was
discontinued by the Company prior to the date of this Agreement. Such
indemnification shall be solely the responsibility of the Stockholders, and they
shall not have any right to recover any portion of their liability from the
Company, whether by right of indemnification, contribution or otherwise.
13.2 INDEMNIFICATION BY TOROTEL. Subject to the provisions of Sections 10
and 13.3, Torotel hereby agrees to indemnify, defend, protect and hold harmless
the Stockholders and their Affiliates against any and all damages, losses,
liabilities, costs and expenses (including reasonable attorneys' fees) arising
in connection with or resulting from (a) any breach of any warranty or
representation made by Torotel under this Agreement and (b) all liabilities
relating to the conduct of Surviving Corporation's business after the Effective
Time, including but not limited to liabilities relating to any product shipped
by the Surviving Corporation after the Effective Time. The rights to such
indemnification shall accrue solely to the Stockholders, and the Company shall
not have any interest therein.
13.3 INDEMNIFICATION PROCEDURES AND LIMITATIONS. The following provisions
shall apply to all indemnification and hold harmless provisions of this
Agreement:
13.3.1 No party shall be required to indemnify another pursuant hereto
unless the party seeking indemnification (the "INDEMNITEE") shall, with
reasonable promptness, provide the other party (the "INDEMNITOR") with copies of
any claims or other documents received and shall otherwise make available to the
Indemnitor all material relevant information. The Indemnitor shall have the
right to defend any such claim at its expense, with counsel of its choosing, and
the Indemnitee shall have the right, at its expense, using counsel of its
choosing, to join in the defense of any such claim. The Indemnitee's failure to
give prompt notice or to provide copies of documents or to furnish relevant data
shall not constitute a defense in whole or in part to any claim by the
Indemnitee against the Indemnitor except to the extent that such failure by the
Indemnitee shall result in a material prejudice to the Indemnitor.
13.3.2 Except as hereinafter provided, neither party shall settle or
compromise any such claim unless it shall first obtain the written consent of
the other, which shall not be unreasonably withheld. The foregoing
notwithstanding, if suit shall have been instituted against the Indemnitee and
the Indemnitor shall have failed, after the lapse of a reasonable time after
written notice to it of such suit, to take action to defend the same, the
Indemnitee shall have the right to defend the claim (without limiting the right
of the Indemnitor to participate in the defense) and to charge the Indemnitor
with the reasonable cost of any such defense, including reasonable attorneys'
fees, and the Indemnitee shall have the right, after notifying but without
consulting the Indemnitor, to settle or compromise such claim on any terms
reasonably approved by the Indemnitee.
13.3.3 Except as herein provided, neither Torotel nor the Stockholders
shall have any liability for breach of warranty or representation hereunder
except to the extent that the amount of all valid claims for breach of warranty
or representation against it hereunder exceeds an aggregate of $15,000. Except
as herein provided, (a) except for liability for any breach of the warranty and
representation set forth in Section 3.10 , the liability of each Stockholder for
any breach of warranty or representation hereunder shall not exceed the
aggregate value of the Torotel Shares for which the Company Shares owned by such
Stockholder are exchanged in the Merger, for which purpose the Torotel Shares
shall be valued at their "Closing Value" (as defined in Section 16). To the
fullest extent permitted by law, the Stockholders may, at their election,
satisfy any liability they may have hereunder by delivering to Torotel some or
all of the Torotel Shares received by them in the Merger, valued at their
Closing Value. Nothing contained herein shall relieve the Stockholders or
Torotel of any liability they may have for any intentional breach of
representation or warranty or for breach of any covenants or agreements made
herein by such party.
13.3.4 In determining the amount of any damage, loss, liability, cost
or expense suffered by the Indemnitee which gives rise to liability of the
Indemnitor hereunder, there shall be taken into account the amount of any Tax
benefits actually realized by the Indemnitee and its Affiliates attributable to
such damage, loss, liability, cost or expense or derived therefrom in the same
or any past or subsequent taxable period, also taking into account the Tax
treatment of the receipt by the Indemnitee of any payment from the Indemnitor.
13.4 DISPUTE RESOLUTION; ARBITRATION. The parties desire to finally resolve
any and all issues and disputes arising out of or related to this Agreement or
its alleged breach as promptly as practicable and, in any event, within the
survival period specified in Section 10. Torotel and the Stockholders shall
first attempt diligently to resolve any such issue or dispute. They may, if they
desire, attempt to mediate the dispute and shall, if they choose, do so in
accordance with the Commercial Mediation Rules of the American Arbitration
Association ("AAA"), either as written or as modified by mutual agreement. A
written agreement to undertake mediation may be made at any time. If arbitration
proceedings have been instituted, they shall be stayed until the mediation
process is terminated. Any dispute arising out of or related to this Agreement
or its alleged breach that cannot be resolved by mutual agreement (including
mutually agreed mediation) shall be resolved exclusively by final and binding
arbitration, conducted as expeditiously as possible in the City of Los Angeles,
California, in accordance with the Commercial Arbitration Rules of the American
Arbitration Association. The decision of the arbitrator or arbitrators shall be
final, conclusive and binding on all parties. The arbitrators shall prepare an
award in writing which reflects the final decision of the arbitrators and a copy
of such award shall be delivered to each party to the arbitration. Nothing in
this Agreement shall be interpreted to limit any party's right to pursue
preliminary or provisional equitable relief pending the arbitration award,
including specific performance or a temporary restraining order or preliminary
injunctive relief, from a court of competent jurisdiction at any time.
14. TERMINATION. In addition to any party's right to terminate this Agreement
if any condition precedent to its obligations is not satisfied at or before the
Closing, either Torotel or the
Company and the Stockholders may forthwith terminate this Agreement: (a) subject
to clause (b) below, without liability to the other of them if a bona fide
action or proceeding (by and at the sole instance of a party or parties not an
Affiliate or Affiliates of Torotel or the Company) shall be pending against
either party on the date hereof wherein an unfavorable judgment, decree or order
would prevent or make unlawful the carrying out of the transactions contemplated
by this Agreement; or (b) without prejudice to other rights and remedies which
either party may have, if a material default shall be made by the other of them
in the observance or in the due and timely performance of its covenants and
agreements herein contained, or if there shall have been a material breach of
the warranties and representations herein contained.
15. NOTICES. Any and all notices, demands, requests or other communications
hereunder shall be in writing and shall be deemed duly given when personally
delivered to or transmitted by overnight express delivery or by facsimile to and
received by the party to whom such notice is intended, or in lieu of such
personal delivery or overnight express delivery or facsimile transmission, three
(3) business days after deposit in the United States mail, first-class,
certified or registered, postage prepaid, return receipt requested, addressed to
the applicable party at the address provided below. The parties may change their
respective addresses for the purpose of this Section 16 by giving notice of such
change to the other party in the manner which is provided in this Section 16.
The Company or the Stockholders: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Electronika, Inc.
▇▇▇▇ ▇. ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Facsimile No.: ▇▇▇-▇▇▇-▇▇▇▇
Copy to: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
▇▇▇▇▇, ▇▇▇▇▇ & ▇▇▇▇▇▇ LLP
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Facsimile No.: ▇▇▇-▇▇▇-▇▇▇▇
Torotel: Torotel, Inc.
▇▇▇▇▇ ▇▇▇▇▇ ▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, ▇▇.,
President
Facsimile No.: ▇▇▇-▇▇▇-▇▇▇▇
Copy to: ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇, Esq.
Shook, Hardy & Bacon L.L.P.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇., ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Facsimile No.: ▇▇▇-▇▇▇-▇▇▇▇
16. CERTAIN DEFINITIONS. As used herein, the following terms (whether used in
the singular or the plural) have the following meanings:
"AFFILIATE" means, with respect to any Person, any other Person directly or
indirectly controlling, controlled by or under common control with such Person
and, without limiting the generality of the foregoing, includes (a) any director
or officer of such Person or of any Affiliate of such Person, (b) any such
director's or officer's Family Members, (c) any group, acting in concert, of one
or more of such directors, officers or Family Members, and (d) any Person
controlled by any such director, officer, Family Member or group which
beneficially owns or holds 25% 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.
"CLOSING VALUE" means the average of the closing prices of Torotel's Common
Stock as reported on the OTC Bulletin Board website (or any other exchange on
which the Torotel Common Stock is then traded or quoted), for the five trading
days immediately preceding the trading day prior to the date of the Closing.
"COMMISSION" means the U.S. Securities and Exchange Commission.
"GOVERNMENT BODY" means any domestic or foreign federal, state, municipal
or other governmental department, commission, board, bureau, agency or
instrumentality, or other body exercising or entitled to exercise any
administrative, executive, judicial, legislative, police, regulatory or taxing
authority or power of any nature.
"KNOWLEDGE OF THE COMPANY AND THE STOCKHOLDERS" (and similar terms such as
"TO THE BEST KNOWLEDGE OF THE COMPANY AND THE STOCKHOLDERS") means (a) the
actual knowledge of ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ or any other
executive officer of the Company and (b) facts which should have been known by
any such person through the exercise of such person's normal duties.
"KNOWLEDGE OF TOROTEL" (and similar terms such as "TO THE BEST KNOWLEDGE OF
TOROTEL") means (a) the actual knowledge of any executive officer of Torotel or
any Torotel Subsidiary and (b) facts which should have been known to any such
person through the exercise of such person's normal duties.
"MAGNETIKA" means Ferrodyne Corporation, d/b/a "Magnetika West, Inc., a
California corporation".
"MAGNETIKA AGREEMENT" means that certain Manufacturing Agreement effective
August 1, 1998 by and between the Company (as successor in interest to
Caloyeras, Inc., d/b/a "Electronika", a California corporation) and Magnetika.
"MATERIAL ADVERSE EFFECT" means a material adverse effect on the financial
condition, results of operations, business or prospects of the entity referred
to (i.e., the Company or Torotel) and its subsidiaries (i.e., the Torotel
Subsidiaries), taken as a whole.
"NET SALES" means the total sales, less returns, of the products described
on EXHIBIT 16, as determined in accordance with generally accepted accounting
principles consistently applied and in accordance with past practices.
"PERSON" or "PERSON" means an individual, a corporation, a partnership, an
association, a trust or any other entity or organization, including a Government
Body.
"RULES AND REGULATIONS" means the rules and regulations adopted by the
Securities and Exchange Commission under the Securities Act and the Securities
Exchange Act of 1934.
"TAX" (including with correlative meaning, the terms "TAXES" and "TAXABLE")
means any income, gross receipts, ad valorem, premium, excise, value-added,
sales, use, transfer, franchise, license, severance, stamp, occupation, service,
lease, withholding, employment, payroll, premium, property or windfall profits
tax, alternative or add-on-minimum tax, or other tax, fee or assessment,
together with any interest and any penalty, addition to tax or additional amount
imposed by any governmental authority responsible for the imposition of any such
tax.
"TAX RETURN" means any return, report, statement, information statement and
the like required to be filed with any authority with respect to Taxes.
17. ASSIGNMENT. Rights hereunder shall not be assignable and duties hereunder
shall not be delegable by the Company, the Stockholders, Torotel or Newco
without the prior written consent of the other; consent may be withheld for any
reason or without reason. Nothing contained in or implied from this Agreement is
intended to confer any rights or remedies upon any Person other than the parties
hereto and their successors in interest and permitted assignees, unless
expressly stated herein to the contrary.
18. APPLICABLE LAW; JURISDICTION. The provisions of this Agreement and all
rights and obligations hereunder and under all documents, instruments and
agreements executed under or in connection with this Agreement shall be governed
and construed in accordance with the internal laws of the State of Missouri
applicable to contracts made and to be wholly performed within said State.
Notwithstanding the foregoing, the state and federal courts located in the City
of Los Angeles, California shall be the only proper forum for disputes
hereunder.
19. ACCOUNTANTS' AND ATTORNEYS' FEES; EXPENSES. Torotel, the Company and the
Stockholders shall each pay their own accountants' and attorneys' fees, and all
other costs related to the execution and delivery of this Agreement and the
consummation of the Plan. In any litigation or arbitration with respect to any
instrument, document or agreement made under or in connection with this
Agreement, the prevailing party shall be entitled to recover its costs and
reasonable attorneys' fees.
20. SUCCESSORS AND ASSIGNS. All covenants, representations, warranties and
agreements of the parties contained herein shall be binding upon and inure to
the benefit of the parties, their respective heirs, personal representatives and
permitted successors and assigns.
21. COUNTERPARTS; FACSIMILE SIGNATURES. This Agreement may be executed in one
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute
one and the same instrument. This Agreement may be executed by any party by
delivery of a facsimile signature, which signature shall have the same force and
effect as an original signature. Any party which delivers a facsimile signature
shall promptly thereafter deliver an originally executed signature to the other
party(ies); provided, however, that the failure to deliver an original signature
page shall not affect the validity of any signature delivered by facsimile.
22. HEADINGS; SEVERABILITY. Captions and section headings used herein are for
convenience only and are not a part of this Agreement and shall not be used in
construing it. The provisions of this Agreement are severable, and, if any one
or more provisions may be determined to be judicially unenforceable, in whole or
in part, the remaining provisions, and any partially unenforceable provisions,
to the extent enforceable, shall nevertheless be binding and enforceable upon
the parties.
23. AMENDMENTS. No provision or term of this Agreement or any agreement
contemplated herein between the parties hereto may be supplemented, amended,
modified, waived or terminated except in a writing duly executed by the party to
be charged.
24. WAIVERS. At any time prior to the Closing, the parties hereto, 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 agreement on the part of a party hereto to
any such extension or waiver shall be valid only if set forth in an instrument
in writing signed on behalf of such party. A waiver by one party of the
performance of any covenant, agreement, obligation, condition, representation or
warranty shall not be construed as a waiver of any other covenant, agreement,
obligation, condition, representation or warranty. A waiver by any party of the
performance of any act shall not constitute a waiver of the performance of any
other act or an identical act required to be performed at a later time.
25. ENTIRE AGREEMENT. All schedules, exhibits and financial statements provided
for herein are a part of this Agreement. This Agreement and the other agreements
and documents provided for in this Agreement comprise the entire agreement of
the parties and supersede all earlier understandings of the parties with respect
to the subject matter hereof.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
date first above written.
TOROTEL: THE COMPANY:
TOROTEL, INC. ELECTRONIKA, INC.
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
----------------------------------- -------------------------------
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Chairman of the Board ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, President
President and Chief Executive Officer
NEWCO: THE STOCKHOLDERS:
ELECTRONIKA, ACQUISITION CORP.
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
----------------------------------- -----------------------------------
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, President and ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Secretary
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
-----------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
/s/ ▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
-----------------------------------
▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
EXHIBIT A
ARTICLES OF MERGER
OF
ELECTRONIKA, INC.
(A CALIFORNIA CORPORATION)
INTO
ELECTRONIKA ACQUISITION CORP.
(A NEVADA CORPORATION)
Pursuant to Sections 92A.190 and 92A.200 of the Nevada General Corporation
Law ("NGCL") and Sections 1101 and 1108 of the California General Corporation
Law ("CGCL"), the undersigned corporations certify the following:
1. That Electronika Acquisition Corp., a Nevada corporation
("Acquisition"), and Electronika, Inc., a California corporation
("Electronika"), are hereby merged and that Acquisition is the surviving
corporation.
2. That the stockholders and Board of Directors of Electronika, by
unanimous written consents dated March 18, 2002 approved the Agreement and Plan
of Reorganization (the "Plan") in the manner prescribed by Section 1101 of the
CGCL.
3. That the stockholders and Board of Directors of Acquisition, by
unanimous written consents dated March 14, 2002 approved the Plan in the manner
prescribed by Section 92A.120 of the NGCL.
4. That the laws of the state under which each of the above-named
corporations was organized permit such a merger and each of the above-named
corporations has complied with the laws of that state in effecting the merger.
5. That the complete and executed Plan is on file at the registered
office of Acquisition.
6. That the Articles of Incorporation of Acquisition shall be amended to
read as follows:
"1. NAME. The name of the corporation is Electronika, Inc."
IN WITNESS WHEREOF, these Articles of Merger have been executed, signed and
acknowledged by the above-named corporations this 2nd day of April, 2002.
ELECTRONIKA ACQUISITION CORP.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
President
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇
------------------------------
▇▇▇▇▇ ▇▇▇▇▇▇▇
Secretary
ELECTRONIKA, INC.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
President
By: /s/ W. ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇.
------------------------------
W. ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇.
Assistant Secretary
EXHIBIT 3.2
STOCKHOLDERS
NAME NUMBER OF SHARES
---- ----------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ 333 1/3 shares
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ 333 1/3 shares
▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ 333 1/3 shares
--------------
Total 1,000 shares
EXHIBIT 3.5
ELECTRONIKA FINANCIAL STATEMENTS
To be included in a subsequent filing on Form 8-K.
EXHIBIT 3.6
CONTRACTS
1. Manufacturing Agreement effective August 1, 1998 by and between the Company
(as successor in interest to Caloyeras, Inc., d/b/a "Electronika", a California
corporation) and Ferrodyne Corporation, d/b/a "Magnetika West, Inc., a
California corporation".
2. Current open purchase orders have been omitted from this filing due to the
sensitive nature of the information.
EXHIBIT 3.7
OUTSTANDING INDEBTEDNESS
None.
EXHIBIT 3.17
ELECTRONIKA INTELLECTUAL PROPERTY
1. All intellectual property rights associated with the designs for the
ballast transformer products listed on Exhibit 3.16, including without
limitation the designs, drawings specifications and plans associated therewith.
EXHIBIT 3.18
ELECTRONIKA LICENSES
None.
EXHIBIT 3.19
ELECTRONIKA PRODUCT WARRANTY
The Company, through its subcontractor, Magnetika, warrants its products
against all defects in material and workmanship for 1,800 operational hours or
one year, whichever occurs first.
EXHIBIT 5.2
TOROTEL EXCEPTIONS TO CAPITAL STOCK
Torotel has issued 40,000 Options on November 9, 2001 under the Torotel
Incentive Compensation Plan to H. ▇▇▇▇▇ ▇▇▇▇▇▇▇. The following is the Resolution
adopted by the Compensation Committee:
RESOLVED, that H. ▇▇▇▇▇ ▇▇▇▇▇▇▇ hereby be granted Incentive Stock
Options under the TOROTEL 1994 Incentive Compensation Plan in the
amount of 40,000 shares at yesterdays closing price of $.37/share.
Said options to vest 50% on May 1, 2002 and the balance on May 1,
2003.
EXHIBIT 5.19
TOROTEL UNDISCLOSED LIABILITIES
Employment Agreement dated as of March 20, 2002, between Torotel Inc. and
H. ▇▇▇▇▇ ▇▇▇▇▇▇▇, Chief Financial Officer and General Manager.
Employment Agreement dated as of March 20, 2002, between Torotel Inc. and
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, ▇▇., Chief Executive Officer.
EXHIBIT 8.4
MANUFACTURING AGREEMENT
THIS MANUFACTURING AGREEMENT (the "AGREEMENT") is made and entered into
effective April 2, 2002 by and between Electronika, Inc., a Nevada corporation
formerly known as Electronika Acquisition Corp. ("ELECTRONIKA"), and Ferrodyne
Corporation, dba "Magnetika West, Inc." ("MAGNETIKA"), a California corporation,
with reference to the following:
A. Electronika is the owner of all right, title and interest in and to
the designs, drawings, specifications, and intellectual property rights in and
to certain ballast transformers and other electrical and magnetic components
used in commercial aircraft as identified on EXHIBIT A hereto (the "ELECTRONIKA
PRODUCTS"), and has delivered to Magnetika designs and drawings of the
Electronika Products necessary for their manufacture and delivery.
B. Magnetika over the past several years has successfully manufactured
and delivered the Electronika Products on a contract basis to Electronika's
customers. Magnetika and Electronika wish to continue this relationship under
this Agreement.
NOW, THEREFORE, for good and valuable consideration, the parties agree as
follows:
1. CERTAIN ADDITIONAL DEFINITIONS.
1.1 "CUSTOMERS" shall mean the party for whom specified Electronika
Products are manufactured and delivered by Magnetika.
1.2 "ORDER" shall refer to and mean the quantity and description of
the Electronika Products requested by a Customer in accordance with the business
practices customarily used by Magnetika and Electronika. The method for placing
an order and its contents (including delivery schedules) shall be subject to
change from time to time upon the mutual agreement of the parties.
2. INTELLECTUAL PROPERTY RIGHTS OF ELECTRONIKA PRODUCTS. The parties
agree that, as between themselves, Electronika owns all right, title and
interest in and to the intellectual property rights of the Electronika Products,
including without limitation, the exclusive manufacturing rights, designs,
drawings, specifications, trade names and exclusive rights to sell.
3. REQUIREMENTS, MANUFACTURE AND DELIVERY. Electronika agrees to order
all of its Customer's requirements for Electronika Products from Magnetika
except as may be changed by mutual agreement of the parties, and Magnetika will
provide all necessary material, labor, testing, packaging and related services
required to complete the manufacture and delivery of Electronika Products in
accordance with each Customer order. Electronika agrees to pay therefore the
Price as described below. Magnetika agrees that ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ will be
available as a consultant to Electronika from time to time, as mutually agreed
upon by ▇▇. ▇▇▇▇▇▇▇▇▇ and Electronika.
4. QUANTITIES. Electronika will advise Magnetika at mutually acceptable
time intervals and in accordance with existing practices of the quantities of
Electronika Products to be manufactured and delivered provided that such
quantities shall not exceed in any calendar year the quantities manufactured by
Magnetika during the previous calendar year by more than a factor of two (2).
Nevertheless, if Electronika shall require the manufacture and delivery of
greater quantities, Electronika shall provide Magnetika the right of first
refusal to manufacture and deliver such greater quantities on mutually
acceptable terms. Upon any request by Electronika for the manufacture of such
greater quantities, Magnetika shall respond to Electronika promptly; provided,
that if Magnetika has not responded to Electronika within 20 days after any such
request, Electronika shall be free to manufacture such greater quantities itself
or to obtain the required additional quantities from other suppliers or
manufacturers.
5. PRICE AND PAYMENT. Electronika shall pay Magnetika for the
manufacture, testing, packaging, delivery and related services covering
Electronika Products, as follows: 40% of the net sales price of the Electronika
Products, exclusive of taxes, duties, discounts, packing and shipping costs (the
"PRICE"). The current Price for the Electronika Products is set forth on EXHIBIT
A hereto, and such prices shall not be changed except upon the mutual agreement
of the parties. Payments of the Price shall be made by Electronika to Magnetika
within twenty (20) business days following receipt of a monthly invoice to be
delivered by Magnetika to Electronika with respect to all shipments made by
Magnetika during the previous month.
6. ADDITIONAL MONTHLY PAYMENT. In addition to the payment of the Price as
set forth in Section 5, Electronika shall pay to Magnetika on a monthly basis
during the Term the sum of $2,500, regardless of whether any Electronika
Products shall have been order or produced during such month. Such payment shall
accompany the payment of the Price as set forth in Section 5. Notwithstanding
the foregoing, if after the fifth (5th) anniversary of the date of this
Agreement aggregate sales of the Electronika Products during any calendar
quarter are less than $75,000, such additional monthly payment shall no longer
be payable hereunder.
7. WARRANTIES. Magnetika shall warrant the Electronika Products
manufactured by it against all defects in material and workmanship for a period
of one thousand eight hundred (1,800) operational hours or one (1) year,
whichever occurs first; provided that, such warranties shall be limited to the
replacement of defective parts or components and reshipment at no cost to
Electronika or its Customers.
EXCEPT AS SET FORTH ABOVE, MAGNETIKA SHALL NOT BE LIABLE FOR ANY EXPRESS OR
IMPLIED WARRANTIES, INCLUDING WITHOUT LIMITATION THE IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. NEITHER MAGNETIKA NOR ITS
SUBSIDIARIES, SUPPLIERS, OFFICERS, DIRECTORS, AGENTS OR AFFILIATES SHALL BE
LIABLE TO ELECTRONIKA OR ANY THIRD PARTY FOR SPECIAL, CONSEQUENTIAL, INCIDENTAL,
INDIRECT OR OTHER SIMILAR DAMAGES.
8. TERM. This Agreement shall be for an initial term of ten (10) years
and shall continue from year-to-year thereafter unless either party notifies the
other party at least ninety (90) days prior to the expiration of the then
current term of its intention to terminate this Agreement at the expiration of
such term. Notwithstanding the foregoing, either party may terminate this
Agreement upon thirty (30) days written notice to the other party upon the
default of such other party of a material element of this Agreement, which
default is not cured within such thirty (30) day period.
9. COMPETITIVE PRODUCTS. Magnetika agrees that it will not, without the
written consent of Electronika, manufacture or sell Electronika Products except
under the terms of this Agreement and in no event, at any time, in violation of
Electronika's intellectual property rights in the Electronika Products.
10. INSURANCE. Magnetika shall pay for and maintain throughout the term an
aviation products liability insurance policy from a carrier reasonably
acceptable to Electronika with limits of liability of no less than $5,000,000
for each occurrence and in the aggregate (the "POLICY"). Electronika
acknowledges and agrees that ACE USA Indemnity Insurance Company of North
America, Magnetika's current insurance carrier, is an acceptable carrier.
Magnetika shall cause, by endorsement to the Policy, Electronika to be named as
an additional insured and loss payee beneficiary thereunder. Electronika shall
upon request promptly receive certificates of insurance endorsed by the
company(ies) that issued the Policy (or similar proof of insurance reasonably
satisfactory to Electronika) and notices of renewal, significant modification
and lapse. Magnetika shall provide thirty (30) days written prior notice to
Electronika if any Policy is to be cancelled or substantially changed in
relation to the coverage applicable to Electronika or in the case of
non-renewal.
11. ASSIGNABILITY. Without the express written consent of Electronika,
Magnetika shall not assign, in whole or in part any of its rights or obligations
under this Agreement. Electronika, nevertheless, shall have the right to assign
its rights under this Agreement to any third person who agrees, in writing, to
be bound by the terms of this Agreement.
12. GENERAL PROVISIONS.
12.1 Section headings are provided for convenience of reference only
and shall not be considered in the interpretation of this Agreement.
12.2 Any consents, approvals or waivers relating to this Agreement
shall be effective only if given in writing and executed by the duly authorized
representative of the party to be charged.
12.3 This Agreement and any amendments hereto in writing, shall
constitute the entire agreement between the parties relating to the subject
matter hereof, and shall supercede all prior written or oral negotiations,
representations or agreements. No modification, change or amendment of this
Agreement shall be binding on either party unless it is in writing and signed by
both parties.
12.4 Neither party shall be liable hereunder to the other for defaults
or delays caused by circumstances beyond its reasonable control, including but
not limited to, acts of god, weather, shortages of materials, wars, terrorism,
riots, strikes, floods, labor disputes, accidents, and governmental
restrictions; provided that, if any such delay shall continue for a period of
sixty (60) days or more, either party shall have the right to terminate this
Agreement by written notice to the other.
12.5 Magnetika shall comply with all applicable customer requirements
and all applicable federal, state and local rules and regulations.
13. NOTICES. Any and all notices, demands, requests or other
communications hereunder shall be in writing and shall be deemed duly given when
personally delivered to or transmitted by overnight express delivery or by
facsimile to and received by the party to whom such notice is intended, or in
lieu of such personal delivery or overnight express delivery or facsimile
transmission, three (3) business days after deposit in the United States mail,
first-class, certified or registered, postage prepaid, return receipt requested,
addressed to the applicable party at the address provided below. The parties may
change their respective addresses for the purpose of this Section by giving
notice of such change to the other party in the manner which is provided in this
Section.
Electronika: Electronika, Inc.
c/o Torotel, Inc.
▇▇▇▇▇ ▇▇▇▇▇ ▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, ▇▇.
Facsimile No.: ▇▇▇-▇▇▇-▇▇▇▇
Magnetika: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Magnetika, Inc.
▇▇▇▇ ▇. ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Facsimile No.: ▇▇▇-▇▇▇-▇▇▇▇
14. AMENDMENTS. The parties agree to enter into from time to time such
amendments to this Agreement as shall be reasonably appropriate to facilitate
the timely performance of Customer Orders.
15. DISPUTE RESOLUTION; ARBITRATION. The parties desire to finally resolve
any and all issues and disputes arising out of or related to this Agreement or
its alleged breach as promptly as practicable. Electronika and Magnetika shall
first attempt diligently to resolve any such issue or dispute. They may, if they
desire, attempt to mediate the dispute and shall, if they choose, do so in
accordance with the Commercial Mediation Rules of the American Arbitration
Association ("AAA"), either as written or as modified by mutual agreement. A
written agreement to undertake mediation may be made at any time. If arbitration
proceedings have been instituted, they shall be stayed until the mediation
process is terminated. Any dispute arising out of or related to this Agreement
or its alleged breach that cannot be resolved by mutual agreement (including
mutually agreed mediation) shall be resolved exclusively by final and binding
arbitration, conducted as expeditiously as possible in the City of Los Angeles,
California, in accordance with the Commercial Arbitration Rules of the American
Arbitration Association. The decision of the arbitrator or arbitrators shall be
final, conclusive and binding on all parties. The arbitrators shall prepare an
award in writing which reflects the final decision of the arbitrators and a copy
of such award shall be delivered to each party to the arbitration. Nothing in
this Agreement shall be interpreted to limit any party's right to pursue
preliminary or provisional equitable relief pending the arbitration award,
including specific performance or a temporary restraining order or preliminary
injunctive relief, from a court of competent jurisdiction at any time.
16. COUNTERPARTS. This Agreement may be executed in multiple counterparts,
each of which shall be deemed an original Agreement, and all of which shall
constitute one Agreement. This Agreement may be executed by any party by
delivery of a facsimile signature, which signature shall have the same force and
effect as an original signature. Any party which delivers a facsimile signature
shall promptly thereafter deliver an originally executed signature to the other
parties; provided, however, that the failure to deliver an original signature
page shall not affect the validity of any signature delivered by facsimile.
17. APPLICABLE LAW; JURISDICTION. The provisions of this Agreement and all
rights and obligations hereunder and under all documents, instruments and
agreements executed under or in connection with this Agreement shall be governed
and construed in accordance with the internal laws of the State of California
applicable to contracts made and to be wholly performed within said State. The
state and federal courts located in the City of Los Angeles, California shall be
the only proper forum for disputes hereunder.
IN WITNESS WHEREOF, the parties have executed this Agreement effective as
of the date first written above.
ELECTRONIKA, INC.
A NEVADA CORPORATION
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, President
FERRODYNE CORPORATION
D/B/A MAGNETIKA WEST, INC.
A CALIFORNIA CORPORATION
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, President
EXHIBIT A
YEAR 2002 PRICE LIST
The current price list has been omitted from this filing due to the sensitive
nature of the information.
EXHIBIT 9.3
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT ("Agreement") is made and entered into
as of April 2, 2002, by and among TOROTEL, INC., a Missouri corporation
("Parent"), and the stockholders of ELECTRONIKA, INC., a California corporation
("Subsidiary"), identified on EXHIBIT A attached hereto (the "Stockholders).
RECITALS
A. Parent, Electronika Acquisition Corp., a Nevada corporation and wholly
owned subsidiary of Parent (now known as Electronika, Inc. or "Subsidiary"),
Electronika, Inc., a California corporation ("Merger Sub"), and the Stockholders
entered into an Agreement and Plan of Reorganization dated as of March 20, 2002
(the "Reorganization Agreement"), pursuant to which Merger Sub will merge with
and into Subsidiary (the "Merger") and the Stockholders will receive shares of
common stock of Parent ("Parent Common Stock") as Merger consideration on the
closing date of the Reorganization Agreement transaction.
B. Parent has agreed to provide the Stockholders with certain
registration rights as more fully described herein.
AGREEMENT
The parties, intending to be legally bound, agree as follows:
SECTION 1. GENERAL.
1.1 DEFINITIONS. As used in this Agreement the following terms shall
have the following respective meanings:
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"FORM S-3" means such form under the Securities Act as in effect
on the date hereof or any successor registration form under the Securities Act
subsequently adopted by the SEC that permits inclusion or incorporation of
substantial information by reference to other documents filed by the Company
with the SEC.
"REGISTER," "REGISTERED," and "REGISTRATION" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of
effectiveness of such registration statement or document.
"REGISTRABLE SHARES" means the shares of Parent Common Stock
issued to the Stockholders pursuant to the Agreement and any shares of Parent
Common Stock issued in respect thereof as a result of any stock split, stock
dividend, share exchange, merger, consolidation or similar recapitalization;
PROVIDED, HOWEVER, that Registrable Shares shall cease to be Registrable Shares
when (i) a registration statement covering all such Registrable
Shares shall have become effective under the Securities Act, and such
Registrable Shares shall have been disposed of in accordance with the
Registration Statement, (ii) all such Registrable Shares may be transferred
pursuant to Rule 144 under the Securities Act, as such rule may be amended from
time to time, or any successor rule or regulation ("Rule 144") in any single
calendar quarter, or (iii) such securities shall have ceased to be outstanding.
The Stockholders desiring to sell shares pursuant to Rule 144 shall provide such
Rule 144 representation letters in usual and customary form as may reasonably be
requested by Parent's counsel to provide such opinion.
"REGISTRATION EXPENSES" shall mean all expenses incurred by
Parent in complying with Sections 2.2 and 2.3 hereof, including, without
limitation, all registration and filing fees, printing expenses, fees and
disbursements of counsel for Parent, blue sky fees and expenses and the expense
of any special audits incident to or required by any such registration (but
excluding the compensation of regular employees of Parent which shall be paid in
any event by Parent).
"SEC" or "COMMISSION" means the Securities and Exchange
Commission.
"SECURITIES ACT" shall mean the Securities Act of 1933, as
amended.
SECTION 2. REGISTRATION; RESTRICTIONS ON TRANSFER.
2.1 REGISTRATION.
(a) On or after April 2, 2003, upon receipt of a unanimous
request from the Stockholders, Parent shall prepare and file with the
SEC a Form S-3 registration statement (or, if Form S-3 is not then
available to Parent, a registration statement on such other form as is
then available to Parent for the registration for resale of the
Registrable Shares) (the "Registration Statement"), covering the
resale of up to Five Hundred Thousand (500,000) of the Registrable
Shares. Parent shall use its commercially reasonable efforts to cause
the Registration Statement to be declared effective as soon as
practicable after the filing. Subject to the terms of this Agreement,
Parent shall use commercially reasonable efforts to cause the
Registration Statement to remain effective until the earlier of (i)
the date on which all Registrable Shares covered by the Registration
Statement have been sold to the public pursuant to the Registration
Statement or (ii) 180 days after the Registration Statement becomes
effective; PROVIDED, HOWEVER, that the reporting requirements of Rule
144(c) under the Securities Act have been satisfied (the "Registration
Effective Period").
(b) On or after April 2, 2004, upon the receipt of a unanimous
request from the Stockholders, Parent shall prepare and file with the
SEC a Registration Statement covering the resale of all remaining
Registrable Shares. Parent shall use its commercially reasonable
efforts to cause the Registration Statement to be declared effective
as soon as practicable after the filing. Subject to the terms of this
Agreement, Parent shall use commercially reasonable efforts to cause
the Registration Statement to remain effective until the expiration of
the Registration Effective Period.
(c) If (but without any obligation to do so) Parent proposes to
register (including for this purpose a registration effected by Parent
for stockholders other than the Stockholders) any of its stock under
the Securities Act in connection with the public offering of such
securities solely for cash (other than (i) a registration relating
solely to the sale of securities to participants in a Parent stock
plan or a transaction covered by Rule 145 under the Securities Act,
(ii) a registration in which the only stock being registered is common
stock issuable upon conversion of debt securities which are also being
registered, or (iv) any registration on any form which does not
include substantially the same information as would be required to be
included in a registration statement covering the sale of the
Registrable Shares), Parent shall, at such time, promptly give each
Stockholder written notice of such registration. Upon the written
request of each Stockholder given within twenty (20) days after
mailing of such notice by Parent in accordance with Section 3.7,
Parent shall cause to be registered under the Securities Act all of
the Registrable Shares that each such Stockholder has requested to be
registered; PROVIDED, HOWEVER, that if such registration occurs prior
to April 2, 2003, the Stockholder shall be entitled to include in such
registration no more than 500,000 of the Registrable Shares. In
addition, if the total amount of securities, including Registrable
Shares, requested by stockholders to be included in such offering
exceeds the amount of securities sold other than by Parent that the
underwriters reasonably determine is compatible with the success of
the offering, then Parent shall be required to include in the offering
only that number of such securities, including Registrable Shares,
which the
underwriters reasonably determine will not jeopardize the success of
the offering (the securities so included to be apportioned pro rata
among the selling stockholders according to the total amount of
securities entitled to be included therein owned by each selling
stockholder or in such other proportions as shall mutually be agreed
to by such selling stockholders) but in no event shall the amount of
securities of the selling Stockholders included in the offering be
reduced below ten percent (10%) of the total amount of securities
included in such offering.
2.2 EXPENSES OF REGISTRATION. All Registration Expenses incurred by
Parent in connection with any registration, qualification or compliance pursuant
to Section 2.1 herein shall be borne by Parent.
2.3 OBLIGATIONS OF PARENT. Whenever required to effect the
registration of the Registrable Shares pursuant to Section 2.2, Parent shall, as
expeditiously as reasonably possible: (a) Prepare and file with the SEC such
amendments and supplements to such registration statement and the prospectus
used in connection with such registration statement as may be necessary to
comply with the provisions of the Securities Act with respect to the disposition
of all securities covered by such registration statement for the Registration
Effective Period.
(b) Furnish to the Stockholders such number of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they
may reasonably request in order to facilitate the disposition of
Registrable Shares owned by them.
(c) Use all commercially reasonable efforts to register and
qualify the securities covered by such registration statement under
such other securities or Blue Sky laws of such jurisdictions as shall
be reasonably requested by the Stockholders; PROVIDED that Parent
shall not be required in connection therewith or as a condition
thereto to (i) qualify to do business as a foreign corporation in such
states or jurisdictions, (ii) file a general consent to service of
process in any such states or jurisdictions, or (iii) subject itself
to taxation in any such state or jurisdiction by reason of such
registration or qualification.
(d) Notify each Stockholder covered by such registration
statement at any time when a prospectus relating thereto is required
to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in
the light of the circumstances under which such statements were made.
Thereafter, Parent shall use commercially reasonable efforts to
prepare and file with the SEC and furnish to each Stockholder as
promptly as practicable a reasonable number of copies of a supplement
to or an amendment of such prospectus or other such documents as may
be necessary so that, as thereafter delivered to the purchasers of
such Registrable Shares, such prospectus shall not include an 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 not misleading in the light of the circumstances
under which such statements were made.
(e) Use its best efforts to furnish, on the date that such
Registrable Shares are delivered to the underwriters for sale, if such
securities are being sold through underwriters, (i) an opinion, dated
as of such date, of the counsel representing Parent for the purposes
of such registration, in form and substance as is customarily given to
underwriters in an underwritten public offering, addressed to the
underwriters, if any, and (ii) a letter dated as of such date, from
the independent certified public accountants of Parent, in form and
substance as is customarily given by independent certified public
accountants to underwriters in an underwritten public offering
addressed to the underwriters.
2.4 DELAY OF REGISTRATION; FURNISHING INFORMATION.
(a) No Stockholder shall have any right to obtain or seek an
injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this Section 2.
(b) It shall be a condition precedent to the obligations of
Parent to take any action pursuant to Section 2.2 that the
Stockholders shall furnish to Parent such information regarding
themselves, the Registrable Shares held by them and the intended
method of disposition of such securities as shall be required to
effect the registration of their Registrable Shares.
2.5 INDEMNIFICATION. In the event any Registrable Shares are included
in a registration statement under Section 2.1:
(a) To the extent permitted by law, Parent will indemnify and
hold harmless each Stockholder, the partners, officers and directors
of each Stockholder, any underwriter (as defined in the Securities
Act) for such Stockholder and each person, if any, who controls such
Stockholder or underwriter within the meaning of the Securities Act or
the Exchange Act, against any losses, claims, damages or liabilities
(joint or several) to which they may become subject under the
Securities Act, the Exchange Act or other federal or state law,
insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any of the following
statements, omissions or violations (collectively a "Violation") by
Parent: (i) any untrue statement or alleged untrue statement of a
material fact contained in such registration statement, including any
preliminary prospectus or final prospectus contained therein or any
amendments or supplements thereto, (ii) the omission or alleged
omission to state therein a material fact required to be stated
therein, or necessary to make the statements therein not misleading or
(iii) any violation or alleged violation by Parent of the Securities
Act, the Exchange Act, any state securities law or any rule or
regulation promulgated under the Securities Act, the Exchange Act or
any state securities law in connection with the offering covered by
such registration statement; and Parent will pay as incurred to each
such Stockholder, partner, officer, director, underwriter or
controlling person for any legal or other expenses reasonably incurred
by them in connection with investigating or defending any such loss,
claim, damage, liability or action; PROVIDED HOWEVER, that the
indemnity agreement contained in this Section 2.5(a) shall not apply
to amounts paid in settlement of any such loss, claim, damage,
liability or action if such settlement is effected without the consent
of Parent, which consent shall not be unreasonably withheld, nor shall
Parent be liable in any such case for any such loss, claim, damage,
liability or action to the extent that it arises out of or is based
upon a Violation which occurs (i) in reliance upon and in conformity
with written information furnished expressly for use in connection
with such registration by such Stockholder, partner, officer,
director, underwriter or controlling person of such Stockholder, or
(ii) because of Stockholder's failure to send or give a copy of the
final prospectus to the persons asserting an untrue statement or
alleged untrue
statement or omission or alleged omission at or prior to the written
confirmation of the sale of Registrable Securities to such person if
such statement was corrected in such final prospectus and such
Stockholder received the final prospectus in sufficient time to
reasonably make such delivery.
(b) To the extent permitted by law, each Stockholder will
indemnify and hold harmless Parent, each of its directors, its
officers and each person, if any, who controls Parent within the
meaning of the Securities Act, any underwriter and any other
Stockholder selling securities under such registration statement or
any of such other Stockholder's partners, directors or officers or any
person who controls such Stockholder, against any losses, claims,
damages or liabilities (joint or several) to which they may become
subject under the Securities Act, the Exchange Act or other federal or
state law, insofar as such losses, claims, damages or liabilities (or
actions in respect thereto) arise out of or are based upon any
Violation, in each case to the extent (and only to the extent) that
such Violation occurs in reliance upon and in conformity with written
information furnished by such Stockholder under an instrument duly
executed by such Stockholder and stated to be specifically for use in
connection with such registration; and each such Stockholder will pay
as incurred any legal or other expenses reasonably incurred by Parent
or any such director, officer, controlling person, underwriter or
other Stockholder, or partner, officer, director or controlling person
of such other Stockholder in connection with investigating or
defending any such loss, claim, damage, liability or action if it is
judicially determined in a final, non-appealable decision that there
was such a Violation; PROVIDED, HOWEVER, that the indemnity agreement
contained in this Section 2.5(b) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if
such settlement is effected without the consent of the Stockholder,
which consent shall not be unreasonably withheld; and PROVIDED,
FURTHER, that in no event shall any indemnity under this Section
2.5(b) exceed the net proceeds from the offering received by the
Stockholder, except in the case of willful fraud by such Stockholder.
(c) Promptly after receipt by an indemnified party under this
Section 2.5 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in
respect thereof is to be made against any indemnifying party under
this Section 2.5, deliver to the indemnifying party a written notice
of the commencement thereof and the indemnifying party shall have the
right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed,
to assume the defense thereof with counsel mutually satisfactory to
both the indemnifying party and the indemnified party; PROVIDED,
HOWEVER, that an indemnified party shall have the right to retain its
own counsel, with the fees and expenses to be paid by the indemnifying
party, if representation of such indemnified party by the counsel
retained by the indemnifying party would be inappropriate due to
actual or potential differing interests between such indemnified party
and any other party represented by such counsel in such proceeding.
The failure to deliver written notice to the indemnifying party within
a reasonable time of the commencement of any such action, if
materially prejudicial to its ability to defend such action, shall
relieve such indemnifying party of any liability to the indemnified
party under this Section 2.5, but the omission so to
deliver written notice to the indemnifying party will not relieve it
of any liability that it may have to any indemnified party otherwise
than under this Section 2.5.
(d) If the indemnification provided for in this Section 2.5 is
held by a court of competent jurisdiction to be unavailable to an
indemnified party with respect to any losses, claims, damages or
liabilities referred to herein, the indemnifying party, in lieu of
indemnifying such indemnified party thereunder, shall to the extent
permitted by applicable law contribute to the amount paid or payable
by such indemnified party as a result of such loss, claim, damage or
liability in such proportion as is appropriate to reflect the relative
fault of the indemnifying party on the one hand and of the indemnified
party on the other in connection with the Violation(s) that resulted
in such loss, claim, damage or liability, as well as any other
relevant equitable considerations. The relative fault of the
indemnifying party and of the indemnified party shall be determined by
a court of law by reference to, among other things, whether the untrue
or alleged untrue statement of a material fact or the omission to
state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties'
relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission.
(e) The obligations of Parent and Stockholders under this
Section 2.5 shall survive completion of any offering of Registrable
Shares in a registration statement and the termination of this
agreement. No Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified Party,
consent to entry of any judgment or enter into any settlement which
does not include as an unconditional term thereof the giving by the
claimant or plaintiff to such Indemnified Party of a release from all
liability in respect to such claim or litigation.
2.6 RULE 144 REPORTING. With a view to making available to the
Stockholders the benefits of certain rules and regulations of the SEC which may
permit the sale of the Registrable Shares to the public without registration,
Parent agrees to:
(a) Make and keep public information available, as those terms
are understood and defined in Rule 144 or any similar or analogous
rule promulgated under the Securities Act;
(b) File with the SEC, in a timely manner, all reports and other
documents required of Parent under the Exchange Act; and
(c) So long as a Stockholder owns any Registrable Shares,
furnish to such Stockholder forthwith upon request: a written
statement by Parent as to its compliance with the reporting
requirements of said Rule 144 of the Securities Act and of the
Exchange Act; a copy of the most recent annual or quarterly report of
Parent; and such other reports and documents as a Stockholder may
reasonably request in availing itself of any rule or regulation of the
SEC allowing it to sell any such securities without registration.
SECTION 3. MISCELLANEOUS.
3.1 GOVERNING LAW. This Agreement shall be governed by and construed
under the laws of Missouri as applied to agreements among Missouri residents
entered into and to be performed entirely within Missouri.
3.2 SURVIVAL. The representations, warranties, covenants, and
agreements made herein shall survive any investigation made by any Stockholder
and the closing of the transactions contemplated hereby until the end of any
applicable statute of limitations. All statements as to factual matters
contained in any certificate or other instrument delivered by or on behalf of
Parent pursuant hereto in connection with the transactions contemplated hereby
shall be deemed to be representations and warranties by Parent hereunder solely
as of the date of such certificate or instrument.
3.3 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors, and administrators of the
parties hereto and shall inure to the benefit of and be enforceable by each
person who shall be a holder of Registrable Shares from time to time; PROVIDED,
HOWEVER, that prior to the receipt by Parent of adequate written notice of the
transfer of any Registrable Shares specifying the full name and address of the
transferee, Parent may deem and treat the person listed as the holder of such
shares in its records as the absolute owner and holder of such shares for all
purposes, including the payment of dividends or any redemption price.
3.4 ENTIRE AGREEMENT. This Agreement, the Exhibits and the other
documents delivered pursuant thereto constitute the full and entire
understanding and agreement between the parties with regard to the subjects
hereof and no party shall be liable or bound to any other in any manner by any
representations, warranties, covenants and agreements except as specifically set
forth herein and therein.
3.5 SEVERABILITY. In case any provision of the Agreement shall be
invalid, illegal, or unenforceable, the validity, legality, and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.
3.6 AMENDMENT AND WAIVER.
(a) Any provision of this Agreement may be amended and the
observance thereof may be waived (either generally or in a particular
instance and either retroactively or prospectively), only with the
written consent of Parent and the Stockholders owning of record at
least 80% of the Registrable Shares then outstanding. Any amendment or
waiver effected in accordance with this Section 3.6 shall be binding
upon each Stockholder and Parent; PROVIDED, HOWEVER, that no such
amendment or waiver shall disproportionately affect a Stockholder
adversely without such Stockholder's consent. By acceptance of any
benefits under this Agreement, the Stockholders hereby agree to be
bound by the provisions hereunder.
(b) Except as otherwise expressly provided, the obligations of
Parent and the rights of the Stockholders under this Agreement may be
waived only with the written consent of the holders of at least a
majority of the Registrable Shares.
3.7 NOTICES. All notices required or permitted hereunder shall be in
writing and shall be deemed effectively given: (a) upon personal delivery to the
party to be notified, (b) when sent by confirmed telex or facsimile if sent
during normal business hours of the recipient; if not, then on the next business
day, (c) five (5) days after having been sent by registered or certified mail,
return receipt requested, postage prepaid, or (d) one (1) day after deposit with
a nationally recognized overnight courier, specifying next day delivery, with
written verification of receipt. All communications shall be sent to the party
to be notified at the address as set forth on the signature pages hereof or
EXHIBIT A hereto or at such other address as such party may designate by ten
(10) days advance written notice to the other parties hereto.
3.8 ATTORNEYS' FEES. In the event that any dispute among the parties
to this Agreement should result in litigation, the prevailing party in such
dispute shall be entitled to recover from the losing party all fees, costs and
expenses of enforcing any right of such prevailing party under or with respect
to this Agreement, including without limitation, such reasonable fees and
expenses of attorneys and accountants, which shall include, without limitation,
all fees, costs and expenses of appeals.
3.9 TITLES AND SUBTITLES. The titles of the sections and subsections
of this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement. This Agreement may be executed by any
party by delivery of a facsimile signature, which signature shall have the same
force and effect as an original signature. Any party which delivers a facsimile
signature shall promptly thereafter deliver an originally executed signature to
the other party(ies); provided, however, that the failure to deliver an original
signature page shall not affect the validity of any signature delivered by
facsimile.
3.10 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
This Registration Rights Agreement has been executed and delivered as of
the date first stated above.
TOROTEL, INC.
▇▇▇▇▇ ▇▇▇▇▇ ▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, ▇▇.,
President
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, ▇▇.
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Printed Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, ▇▇.
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Title: President
--------------------------------
STOCKHOLDERS:
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
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/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
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/s/ ▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
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EXHIBIT A
STOCKHOLDERS
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
c/o Magnetika, Inc.
▇▇▇▇ ▇. ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
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Facsimile: 212-431-9613
EXHIBIT 16
ELECTRONIKA PRODUCTS
BALLAST TRANSFORMERS FOR DC-8 AND DC-9 AIRCRAFT
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PART NUMBER
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561404-B-2L-3
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561408-B-2L-3
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561408-B-VL-3
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561413-B-2L-3
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BA170-11-3(*)
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BA170-21-3(**)
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BA170-1-3(***)
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BA170-MOD.B-3(***)
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BA170-MOD.C-3(****)
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561404-S-VL-3
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561408-S-VL-4
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561413-S-VL-C3
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561413-S-1L-C3
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(*) Composed of four 561408-s-vl-4's.
(**) Composed of two 561408-s-vl-4's and two 561404-s-vl-3's.
(***) Composed of six 561408-s-vl-4's.
(****) Composed of one 561413-s-1l-c3's and eleven 561413-s-vl-c3's.
COMPONENTS FOR DC-9 AIRCRAFT
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PART NUMBER
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01349 Current Converter
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01350 Current Transformer
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01421 AC-DC Converter
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BALLAST TRANSFORMER FOR DC-10 AIRCRAFT
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PART NUMBER
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561513B1L
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COMPONENT MAINTENANCE MANUALS
Manual Number 33-10-01, Revision B, dated March 17, 2000.