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EXHIBIT 1
LETTER AGREEMENT
Letter Agreement dated as of July 24, 1998, by and between Torotel,
Inc., a Missouri corporation, and Caloyeras, Inc. a California corporation.
1. GENERAL. The Proposed Terms Sheet attached to this letter and
incorporated herein by reference sets forth the proposal discussed between us
for a merger of a newly created subsidiary of Torotel, Inc. with Caloyeras, Inc.
(Caloyeras, Inc., d/b/a Electronika, Inc., will also include the business and
assets operating under the name of Magnetika/East). This letter, and the
Proposed Terms Sheet (collectively, the "Proposal"), represents the parties'
intention to negotiate in good faith a definitive Merger Agreement and all of
the documents ancillary thereto (the "Definitive Agreements"), which will
reflect in substance the Proposed Terms Sheet. The parties acknowledge that tax
and accounting issues may require modification of the structure contemplated by
the Proposed Terms Sheet.
2. DUE DILIGENCE ACCESS. The parties agree to allow each other and
their respective representatives access to the books and records (including
without limitation information related to financial, accounting, commercial,
legal, environmental, regulatory and employee benefits matters) of each other
for purposes of conducting a due diligence review and confirming their
understandings as to the status of each other's business, assets and related
liabilities. In connection therewith, the parties and their respective
representatives will be promptly introduced to, and thereafter permitted to
contact and communicate with, upon prior notice to and consent of each other
(which consent shall not be unreasonably withheld, delayed or conditioned), the
other's officers, employees and agents.
3. DEFINITIVE AGREEMENTS. The parties will proceed diligently and in
good faith to negotiate, execute and deliver the Definitive Agreements, subject
in all respects to (i) the approval of the parties hereto, (ii) verification of
legal and factual issues deemed relevant by the parties, (iii) receipt of
requisite regulatory and other third party approvals and consents and (iv) the
satisfaction of the conditions precedent described in the Proposed Terms Sheet.
The Definitive Agreements will contain such representations and warranties,
agreements and covenants, conditions and indemnification provisions as are
customarily found in agreements for a transaction of the size, type and
complexity contemplated by this Proposal.
4. EXPENSES. Each party will bear its own respective costs and expenses
in connection with the proposed transaction, including without limitation the
negotiation and preparation of this Proposal, the negotiation and drafting of
the Definitive Agreements, financial advisory fees, finders fees and the
obtaining of all regulatory and other approvals or consents.
5. NO BINDING OBLIGATION. This proposal is an expression of the intent
of the parties only and is subject to due diligence review and to the other
terms and conditions set forth herein. Except as expressly set forth in
Paragraph 2 and 4, this Proposal does not constitute or
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create, and shall not be deemed to constitute or create, legally binding or
enforceable obligations on the part of any party hereto. No such obligation
shall be created, except by the execution and delivery of the Definitive
Agreements containing such terms and conditions of the proposed transaction as
shall be agreed upon by the parties, and then only in accordance with the terms
and conditions of the Definitive Agreements.
Torotel, Inc.
By: /s/ Xxxx X. Xxxxxxxx, Xx.
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Name: Xxxx X. Xxxxxxxx, Xx.
Title: Chairman
Caloyeras, Inc.
By: /s/ W. Xxxxx Xxxxxx, Xx.
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Name: W. Xxxxx Xxxxxx, Xx.
Title: Assistant Secretary
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TOROTEL, INC.
PROPOSED TERMS SHEET
(JULY 24, 1998)
BUYER: Torotel, Inc. ("TTL")
SELLER(S): Caloyeras, Inc. (dba Electronika, Inc.) which will
include the business and assets operating under the
name of Magnetika/East. ("Target")
PROPOSED
TRANSACTION: A newly created subsidiary of TTL will merge with the
Target in a Forward Triangular Merger (as a tax free
reorganization under Section 368(a)(2)(D) with the
Target being the surviving entity. The Target will own
all business assets of Caloyeras, Inc. (dba
Electronika, Inc.) including the business and assets
operating under the name of Magnetika/East free and
clear of all liens and encumbrances, except for
accruals and payables incurred in the normal course of
business. TTL will exchange (1) 1,800,000 shares of
TTL's common stock and (2) $2,500,000 of TTL's new
Class A Preferred Stock (5%, Cumulative,
non-participating Preferred, callable at 110%, escrowed
- see below) for 100% of the outstanding stock of
Target.
PRICE: The value of the Common Stock (1,800,000 X $.75 =
$1,350,000) plus the $2,500,000 in Preferred Stock
[escrowed - see below] equals a total purchase price
for Target of Three Million, Eight Hundred Fifty
Thousand Dollars ($3,850,000).
EARNINGS
PROTECTION: In order to protect the shareholders of TTL, the
operations of Target will be accounted separately for
the balance of the fiscal year of closing plus three
full fiscal years after the year in which the closing
occurs ("Escrow Period"). At closing, the $2,500,000 of
Preferred Stock will be placed in escrow subject to the
performance of Target during the Escrow Period. At the
end of each fiscal year in Escrow Period, the Preferred
Stock will be released from escrow as follows:
A. The amount of EBIT-DA generated by Target,
after the merger, during each fiscal year,
will be calculated and verified by the
independent auditors.
B. For each One Dollar ($1) of EBIT-DA
calculated in (A) One Dollar ($1) of
Preferred Stock will be released from escrow
within 30 days following the independent
auditors verification of the calculation.
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C. After final year end of the Escrow Period,
any Preferred Stock remaining in escrow,
will be returned to TTL and canceled.
REPS &
WARRANTIES: In the definitive agreements, both parties will make
normal and customary Representations and Warranties for
a transaction of this type. In addition, Target will
warrant that they will own at least Four Hundred
Thousand Dollars ($400,000) of Cash, Accounts
Receivable, Inventory, Work In Process and Deposits, in
excess of liabilities, at the time of closing. Within
twelve months after closing, any amount of assets at
closing that are determined to have been worthless or
any liability of Target that was not disclosed, will
reduce EBITDA for purposes of the calculation of the
amount of Preferred Stock to be released from escrow.
VOTING
TRUST: At closing, a voting trust (or similar arrangement)
will be formed to allow Xxxxx Xxxxxxxxx to vote 525,165
shares of common stock owned by the Xxxxxxxx Family.
This trust will provide that Xx. Xxxxxxxxx has the
power to vote these shares for the Escrow Period. At
the end of the escrow period, the trust will be
liquidated and the voting rights will revert to the
Xxxxxxxx Family. Both the Xxxxxxxx Family and Xx.
Xxxxxxxxx will mutually agree on the trustee of the
trust and on a list of specific matters on which Xx.
Xxxxxxxxx may not vote the trusts shares.
REQUIRED
STEPS: The transaction is subject to the following steps:
A. Further Due Diligence by both parties.
B. Mutually acceptable definitive agreements.
C. A fairness opinion from an independent Investment
Banker.
D. Approval by both parties Board of Directors.
E. Approval by the Securities and Exchange Commission.
F. A shareholder vote approving the transaction.
EXPECTED
CLOSING DATE: October 1, 1998 or as soon as possible.
SCOPE OF
TERMS SHEET: The scope of this Proposed Terms Sheet is
limited to being a basis on which to discuss and
negotiate a potential transaction between the parties.
IT IS NOT INTENDED, NOR IS IT TO BE CONSIDERED, AN
OFFER TO BUY OR SELL STOCK OF ANY PARTY.
CONFIDENTIALITY: This document and all discussions surrounding it are
Strictly Confidential and subject to the written
confidentiality agreement between the parties.
