EXHIBIT 10.1
SETTLEMENT AGREEMENT AND RELEASE
SETTLEMENT AGREEMENT AND RELEASE, dated as of September 16, 1999, by and
among Puroflow Incorporated, a Delaware corporation ("Puroflow"), Xxxxxx X.
Xxxxx ("Xxxxx"), Xxxxxxx X. Xxxxxx ("Figoff"), Xxxxxx X. Xxxxx ("Xxxxx") and
Xxxxx Xxxx Xxxxxxx ("Xxxxxxx") (collectively, Puroflow, Siwek, Figoff, Xxxxx
and Xxxxxxx, are referred to herein as the "Puroflow Parties"), Steel
Partners II, L.P., a Delaware limited partnership ("Steel"), Xxxxxx X.
Xxxxxxxxxxxx ("Xxxxxxxxxxxx"), Xxxxxx Xxxxxxx ("Xxxxxxx"), Xxxxx Xxxxxxxx,
Xx. ("Xxxxxxxx"), Xxxxxx Frankfurt ("Frankfurt"), Steel Partners, L.L.C., a
Delaware limited liability company ("Steel LLC"), and the Full Value
Committee (collectively, Steel, Xxxxxxxxxxxx, Wolosky, Benenson, Frankfurt,
Steel LLC and the Full Value Committee are referred to herein as the "Steel
Parties").
WHEREAS, Steel owns an aggregate of 1,416,000 shares ("Steel Shares") of
common stock of Puroflow, $.01 par value ("Common Stock");
WHEREAS, the Full Value Committee has filed preliminary materials with
the Securities and Exchange Commission in order to solicit proxies (the
"Steel Solicitation") to vote at Puroflow's annual stockholders meeting,
scheduled to be held on October 13, 1999 (as such date is amended in Section
4.1(ii), the "Annual Meeting"), in order to elect a slate of nominees
designated by the Full Value Committee to the Board of Directors of Puroflow
(the "Board");
WHEREAS, the Steel Parties have filed a lawsuit against the Puroflow
Parties in the United States District Court for the District of Delaware,
captioned STEEL PARTNERS II, L.P. V. PUROFLOW INCORPORATED, XXXXXXX X.
XXXXXX, XXXXXX X. XXXXX, XXXXX XXXX XXXXXXX AND XXXXXX X. XXXXX, Civil Action
Xx. 00 000 (X. Del.), alleging violations of certain securities laws and
other allegations (the "Steel Litigation") and Puroflow has filed a lawsuit
against the Steel Parties in Superior Court of the State of California for
the County of Los Angeles entitled PUROFLOW INCORPORATED X. XXXXXX G.
XXXXXXXXXXXX, XXXXXX FRANKFURT, XXXXX XXXXXXXX, XX., XXXXXX XXXXXXX, THE FULL
VALUE COMMITTEE, STEEL PARTNERS II, L.P. AND STEEL PARTNERS L.L.C., Case No.
LC049028, in response thereto and relating to other issues (the "Puroflow
Litigation");
WHEREAS the parties hereto are desirous of entering into an agreement
with respect to the discontinuance of the Puroflow Litigation and the Steel
Litigation, resolving the election of directors and certain other matters.
NOW, THEREFORE, in consideration of the premises and mutual agreements
herein contained, and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereto,
intending to be legally bound, hereby agree as follows:
Section 1. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PUROFLOW
PARTIES. Each of the Puroflow Parties hereby represents, warrants and agrees
that each of the Puroflow Parties has full legal right, power and authority
to execute, deliver and perform this Agreement, and consummate the
transactions contemplated
hereby; the execution and delivery of this Agreement, and the consummation by
Puroflow and the Board of the transactions contemplated hereby have been duly
authorized by all necessary corporate actions; and this Agreement constitutes
valid, legal and binding obligations of each of the Puroflow Parties,
enforceable against each such party in accordance with its terms.
Section 2. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE STEEL
PARTIES. Each of the Steel Parties hereby represents, warrants and agrees
that each of the Steel Parties has full legal right, power and authority to
execute, deliver and perform this Agreement, and consummate the transactions
contemplated hereby; the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate actions; this Agreement constitutes
valid, legal and binding obligations of each of the Steel Parties,
enforceable against each such party in accordance with its terms.
Section 3. TERM OF AGREEMENT.
3.1 INITIAL TERM. The term of this agreement shall commence on the date
hereof and shall conclude on the date following Puroflow's 2000 Annual
Meeting of Stockholders, which the parties hereto agree shall be called on or
before July 31, 2000 (the "Term").
Section 4. BOARD OF DIRECTORS.
4.1 COMPOSITION OF BOARD. (i) Promptly following the date hereof, the
Board of Directors of Puroflow shall be expanded to seven directors. The
four members of the Board of Directors serving prior to the execution hereof
shall remain on the Board (the "Interim Puroflow Nominees"), and three
persons selected by the Steel Parties, who shall be Xxxxxx X. Xxxxxxxxxxxx,
Xxxxxx Frankfurt and Xxxxxx Xxxxxxx, shall be appointed to the Board of
Directors (the "Interim Steel Nominees").
(ii) Following the constitution of the new seven member Board
of Directors, the Board shall set a new meeting date for the Annual Meeting
which date shall be October 21, 1999 and retain the record date of August 30,
1999 set in connection with the Annual Meeting; and (b) nominate a new slate
of five directors for election by the stockholders to the Board of Directors.
Such slate shall consist of three persons nominated by the Puroflow Parties
who shall be Xxxxxxx Xxxxxx, Xxxxx Xxxx Xxxxxxx and Xxxxxx X. Xxxxx (the
"Permanent Puroflow Nominees") and two persons nominated by the Steel Parties
who shall be Xxxxxx X. Xxxxxxxxxxxx and Xxxxxx Frankfurt (the "Permanent
Steel Nominees"). The parties hereto agree that neither Xxxxx nor Wolosky
shall stand for election as a director at the Annual Meeting. Following the
Annual Meeting, Xxxxx shall hold the title of Chairman-Emeritus.
(iii) If any Permanent Puroflow Nominee or Permanent Steel
Nominee elects not to stand for election to the Board of Directors of
Puroflow at the Annual Meeting, then the party hereto that nominated such
permanent nominee shall have the right to nominate a new person to be that
party's permanent nominee. In addition, if during the Term of this Agreement
an Interim Puroflow Nominee, Interim Steel Nominee, Permanent Puroflow
Nominee or Permanent Steel Nominee ceases to serve as a member of the Board
of Directors by reason of death, resignation, removal, disqualification or
for any other reason, then such vacancy on the Board shall be filled by the
party hereto that originally nominated such interim or permanent
2
nominee, as the case may be. A director elected by either the Puroflow
Parties or the Steel Parties to fill such a vacancy shall hold office until
such director's successor shall have been duly elected and qualified.
(iv) During the Term of this Agreement, Puroflow shall use its
best efforts to: (a) maintain the number of directors on the Board at seven
until the Annual Meeting; (b) set and maintain the number of directors on the
Board for and following the Annual Meeting, at five; and (c) cause the
election to the Board, and the continued presence on the Board, of the
Interim Steel Nominees and the Interim Puroflow Nominees (prior to the Annual
Meeting), and the Permanent Steel Nominees and the Permanent Puroflow
Nominees (following the Annual Meeting). Thereafter, in connection with the
2000 Annual Meeting of Stockholders, Puroflow shall take all necessary
actions to nominate the Permanent Steel Nominees and the Permanent Puroflow
Nominees to the slate of directors proposed for election by the Board of
Directors at such meeting. Puroflow and the Puroflow Parties shall take all
other necessary actions to comply with this Section 4.
(v) During the Term of this Agreement, each of the Steel
Parties and the Puroflow Parties shall vote its shares of Common Stock in
favor of the slate of nominees to the Board nominated by Puroflow in
accordance with this Agreement. If for any reason any of the Steel Parties
shall fail to vote its shares of Common Stock in favor of the slate of
nominees to the Board nominated by Puroflow pursuant to this Agreement, then
such Steel Parties member hereby appoints Xxxxxxx X. Xxxxxx and Xxxxxx X.
Xxxxx, and each of them individually (with full power to act without the
other and with power to appoint his substitute), its true and lawful attorney
and proxy to re-vote all shares of Common Stock which such Steel Parties
member is entitled to vote in favor of the nominees to the Board nominated by
Puroflow pursuant to this Agreement. If for any reason any of the Puroflow
Parties shall fail to vote its shares of Common stock in favor of the slate
of nominees to the Board nominated by Puroflow pursuant to this Agreement,
then such Puroflow Parties member hereby appoints Xxxxxx Xxxxxxxxxxxx and
Xxxxxx Frankfurt, and each of them individually (with full power to act
without the other and with power to appoint his substitute), its true and
lawful attorney and proxy to re-vote all shares of Common Stock which such
Puroflow Parties member is entitled to vote in favor of the nominees to the
Board nominated by Puroflow pursuant to this Agreement.
(vi) During the Term hereof, Xxxxx may be retained by Puroflow
to provide such services as shall be deemed necessary, in the discretion of
the President and Chief Executive Officer of Puroflow, from time to time,
including counsel on Securities and Exchange Commission and general corporate
matters. Such services shall be provided by Xxxxx at reasonable and
customary hourly rates for such services.
Section 5. RELEASES.
5.1 RELEASE BY PUROFLOW OF MEMBERS OF THE STEEL PARTIES. Each of the
Puroflow Parties, on behalf of each party and each of their successors and
assigns, releases and discharges each of the Steel Parties, each of their
heirs, executors, administrators, affiliates, successors and assigns
(together, the "Steel Releasees") from all actions, causes of action, suits,
the Puroflow Litigation, debts, dues, sums of money, accounts, reckonings,
bonds, bills, specialties, covenants, contracts, controversies, agreements,
promises, variances, trespasses,
3
damages, judgments, executions, claims, and demands whatsoever, in law or
equity, which against Steel Releasees, each of the Puroflow Parties and their
affiliates, successors and assigns ever had, now have or hereafter can, shall
or may have, for, upon, or by reason of any matter, cause or thing whatsoever
from the beginning of the world to the date of this Agreement. The foregoing
release shall not extend to any actions, causes of action, demands, etc.
arising from the breach or the claimed breach of this Agreement by any member
of the Steel Parties.
5.2 RELEASE BY MEMBERS OF THE STEEL PARTIES OF PUROFLOW. Each of the
Steel Parties, on behalf of each party and each of their successors and
assigns, releases and discharges each of the Puroflow Parties, each of their
heirs, executors, administrators, affiliates, successors and assigns
(together, the "Puroflow Releasees") from all actions, causes of action,
suits, the Steel Litigation, debts, dues, sums of money, accounts,
reckonings, bonds, bills, specialties, covenants, contracts, controversies,
agreements, promises, variances, trespasses, damages, judgments, executions,
claims, and demands whatsoever, in law or equity, which against the Puroflow
Releasees, each of the Steel Parties and their affiliates, successors and
assigns ever had, now have or hereafter can, shall or may have, for, upon, or
by reason of any matter, cause or thing whatsoever from the beginning of the
world to the date of this Agreement. The foregoing release shall not extend
to any actions, causes of action, demands, etc. arising from the breach or
the claimed breach of this Agreement by Puroflow.
5.3 DISMISSAL OF LITIGATION. The parties hereto hereby agree to take
all steps necessary in order to obtain a dismissal of the Puroflow Litigation
and the Steel Litigation, without prejudice.
Section 6. REIMBURSEMENT OF EXPENSES. Simultaneously with the execution
of this Agreement, or as promptly thereafter as is practicable, Puroflow
shall transfer by wire transfer, in accordance with instructions provided by
Steel Partners to Puroflow, $50,000.00 in cash, as reimbursement for actual
out-of-pocket expenses incurred by the Steel Parties for outside services, as
set forth in the invoices previously provided, in connection with or relating
to the Steel Solicitation, including but not limited to fees and expenses
relating to the preparation of proxy material, the Puroflow Litigation, the
Steel Litigation, and the preparation of this Agreement.
Section 7. STANDSTILL AGREEMENT.
7.1 TERMS OF STANDSTILL. Each of the Steel Parties covenants and agrees
that during the Term of this Agreement each party will not, directly or
indirectly: (i) solicit proxies for the election of directors to the Board or
for any other matter; (ii) acquire shares of Common Stock or join with any
other person to form a "group," as defined under Section 13(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") (and the
rules promulgated thereunder) such that following such acquisition of shares
of Common Stock or formation of a group, the Steel Parties would beneficially
hold in excess of 19.99% of the outstanding shares of Common Stock, or (iii)
engage or participate in any tender offer for the shares of Common Stock;
PROVIDED, HOWEVER, that these obligations shall terminate in the event of a
"Change in Control" (as defined herein) of the ownership of Puroflow, in
which Change of Control of the Steel Parties or an affiliate had any
involvement.
4
For purposes of this provision, a "Change in Control" shall be deemed to
have occurred if (i) any person (as that term is used in Sections 13(d) and
14(d) of the Exchange Act), who is not now a current affiliate or a 5% or
more holder, is or becomes the beneficial owner (as that term is used in
Section 13(d) of the Exchange Act, and the rules and regulations promulgated
thereunder) of more than 20% of the shares of capital stock of Puroflow
outstanding and entitled to vote; (ii) more than 66 2/3% of the members of
the Board of Directors of Puroflow shall not be Continuing Directors (which
term, as used herein, means the directors of Puroflow who were members of the
Board of Directors of Puroflow on August 1, 1999), except where such change
in the members of the Board of Directors is a result of the terms of this
Agreement or the resignation of any Interim Steel Nominee or Permanent Steel
Nominee, as the case may be, or (iii) Puroflow shall be merged or
consolidated with, or, in any transaction or series of transactions,
substantially all of the business or assets of Puroflow shall be sold or
otherwise acquired by, another corporation or entity and, as a result
thereof, the stockholders of Puroflow immediately prior thereto shall not
have at least 50% or more of the combined voting power of the surviving,
resulting or transferee corporation or entity immediately thereafter.
Section 8. SHAREHOLDER RIGHTS PLAN.
8.1 AMENDMENT OF THE RIGHTS AGREEMENT. Puroflow will take all necessary
actions to amend the provisions of the Rights Agreement between Puroflow and
Continental Stock Transfer and Trust Company, dated as of May 28, 1999, (the
"Rights Agreement") such that the percentage of Beneficial Ownership stated
within the definition of "Acquiring Person" therein shall be increased from
17.5% to 20%.
Section 9. MISCELLANEOUS.
9.1 SEVERABILITY. If any provision of this Agreement shall be held
invalid or unenforceable, such invalidity or unenforceability shall attach
only to such provision and shall not in any manner render invalid or
unenforceable any other provisions of this Agreement.
9.2 CONSENT TO JURISDICTION. Each of the parties hereto hereby
irrevocably submits to the exclusive jurisdiction of the state and federal
courts of the State of Delaware for the purposes of any action or proceeding
(each a "Claim") arising out of or relating to this Agreement and hereby
waives, and agrees not to assert in any such action or proceeding that it is
not personally subject to the jurisdiction of such courts, that such Claim is
brought in an inconvenient forum or that the venue is proper. Each of the
parties hereto consents to process being served in any such Claim by mailing
a copy thereof to the address in effect for notices to it under this
Agreement and agrees that such service upon receipt shall constitute good and
sufficient service of process and notice thereof. Nothing in this paragraph
shall affect or limit any right to serve legal process in any other manner
permitted by law.
9.3 GOVERNING LAW. This Agreement and the rights and duties of the
parties hereto shall be governed by and construed in accordance with the
internal laws of the State of Delaware, without regard to principles of
conflicts of law.
9.4 ENTIRE AGREEMENT. This Agreement and any and all other documents
delivered in connection therewith set forth the entire understanding of the
parties in respect to the
5
transactions contemplated herein and supersedes all prior agreements,
arrangements and understandings, written or oral, relating to the subject
matter hereof.
9.5 AMENDMENTS AND WAIVERS TO BE IN WRITING. This Agreement may not be
amended, modified or changed, and none of the terms, covenants,
representations, warranties or conditions hereof may be waived, except by a
written instrument signed by the party against whom enforcement of any change
or modification is sought, or in the case of a waiver, by the party waiving
compliance. The failure of any party at any time or times to require
performance of any provision hereof shall in no manner affect the right at a
later time to enforce same.
9.6 NOTICES. Any notice or other communication required or permitted to
be given hereunder shall be in writing and shall be effective (a) when
personally delivered or delivered by telecopy (with confirmation of
transmission) on a business day during normal business hours at the address
or number designated below or (b) on the business day following the date of
mailing by overnight courier, fully prepaid, addressed to such address,
whichever shall first occur. The addresses for such communications shall be:
If to Puroflow or any of the Puroflow Parties:
Puroflow Incorporated
00000 Xxxxxxx Xxxxxx
Xxx Xxxx, Xxxxxxxxxx 00000
Attn: Xxxxxxx X. Xxxxxx
President and Chief Executive Officer
Telecopy: (000) 000-0000
with a copy to:
Xxxx Marks & Xxxxx LLP
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xxxxxx X. Xxxxxxxx, Esq.
Telecopy: (000) 000-0000
If to The Steel Parties
Xxxxxx Xxxxxxxxxxxx
Steel Partners II, L.P.
000 Xxxx 00xx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Telecopy: (000) 000-0000
with a copy to:
Xxxxxx Xxxxxxxx Frome Xxxxxxxxxx & Xxxxxxx LLP
000 Xxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxx Xxxxxxx
Telecopy: (000) 000-0000
6
Any party hereto may from time to time change its address for notices
under this Section 9.6 by giving at least 10 days' notice of such changed
address to the other parties hereto.
9.7 HEADINGS. The headings herein are for convenience only, do not
constitute a part of this Agreement, and shall not be deemed to limit or
affect any of the provisions hereof.
9.8 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors
and assigns.
9.9 FURTHER ASSURANCES. The parties hereto shall execute and deliver
such further documents and do such further acts as any party hereto shall
reasonably require in order to assure and confirm to the parties hereto the
rights hereby created or to facilitate the full performance of the terms of
this Agreement.
9.10 COUNTERPARTS. This Agreement may be executed in as many
counterparts as may be deemed necessary or convenient, and by the different
parties hereto on separate counterparts, each of which, when so executed,
shall be deemed an original, but all of which such counterparts shall
constitute but one and the same agreement. A facsimile signature shall be
deemed an original.
9.11 ASSIGNMENT. Neither this Agreement nor any rights hereunder may be
assigned by either party in whole or in part, without the prior written
consent of the other party.
9.12 EXPENSES. Except as otherwise agreed to by the parties in writing
and as provided in Section 6 of this Agreement, Puroflow shall pay all of its
own expenses incurred in connection with the implementation of this
Agreement, other than fees and expenses of counsel for Steel Parties which:
(i) are covered under Section 6; and (ii) may be incurred by the Steel
Parties in connection with any dispute arising hereunder. Each party hereto
has retained independent counsel and such counsel has advised each party with
respect to the subject matter of this Agreement.
7
IN WITNESS WHEREOF, the parties hereto have executed this Agreement or
have caused this Agreement to be duly executed by their respective authorized
officers as of the date hereof.
THE PUROFLOW PARTIES
PUROFLOW INCORPORATED
By: /s/ Xxxxxxx X. Xxxxxx
------------------------------------
Name: Xxxxxxx X. Xxxxxx
Title: President and Chief Executive
Officer
XXXXXX X. XXXXX
By: /s/ Xxxxxx X. Xxxxx
------------------------------------
XXXXXX X. XXXXX
By: /s/ Xxxxxx X. Xxxxx
------------------------------------
XXXXX XXXX XXXXXXX
By: /s/ Xxxxx Xxxx Xxxxxxx
------------------------------------
XXXXXXX X. XXXXXX
By: /s/ Xxxxxxx X. Xxxxxx
------------------------------------
8
THE STEEL PARTIES
STEEL PARTNERS II, L.P.
By: Steel Partners, L.L.C.,
General Partner
By: /s/ Xxxxxx Xxxxxxxxxxxx
------------------------------------
Name: Xxxxxx Xxxxxxxxxxxx
Title: Chairman
XXXXXX X. XXXXXXXXXXXX
By: /s/ Xxxxxx Xxxxxxxxxxxx
------------------------------------
XXXXXX XXXXXXX
By: /s/ Xxxxxx Xxxxxxx
------------------------------------
XXXXX XXXXXXXX, XX.
By: /s/ Xxxxx Xxxxxxxx, Xx.
------------------------------------
XXXXXX FRANKFURT
By: /s/ Xxxxxx Frankfurt
------------------------------------
9
STEEL PARTNERS L.L.C.
By: /s/ Xxxxxx Xxxxxxxxxxxx
------------------------------------
Name: Xxxxxx Xxxxxxxxxxxx
Title: Chairman
THE FULL VALUE COMMITTEE
By: /s/ Xxxxxx Xxxxxxxxxxxx
------------------------------------
Name: Xxxxxx Xxxxxxxxxxxx
10
