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SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO.__ )
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[x] Preliminary Proxy Statement [ ] Confidential, for use by
[ ] Definitive Proxy Statement the Commission Only
[ ] Definitive Additional Materials (As permitted by Rule
[ ] Soliciting Material Pursuant 14a-6(e)(2))
to Rule 14a-11(c) or Rule 14a-12
CALNETICS CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[x] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
Common Stock; Options to purchase Common Stock
- --------------------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
3,263,799*
- --------------------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11(1):
$7.35 (per share of Common Stock)
- --------------------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
$23,185,798**
- --------------------------------------------------------------------------------
5) Total fee paid:
$4,637
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
1) Amount previously paid:
- --------------------------------------------------------------------------------
2) Form, schedule or registration statement no.:
- --------------------------------------------------------------------------------
3) Filing party:
- --------------------------------------------------------------------------------
4) Date filed:
- --------------------------------------------------------------------------------
- ----------
(1) Set forth the amount of which the filing fee is calculated and state how it
was determined.
*Consists of 3,038,799 shares of Common Stock and options to purchase 225,000
shares of Common Stock.
**Includes $850,625 representing the aggregate amount to be paid upon exchange
and cancellation of all stock options for cash.
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CALNETICS CORPORATION
20401 PRAIRIE STREET
CHATSWORTH, CA 91311
August __, 1997
Dear Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders (the
"Special Meeting") of Calnetics Corporation, a California corporation
("Calnetics"), to be held on _______, September __, 1997 at 10:00 a.m., local
time, at the Airtel Plaza Hotel, 7277 Valjean Avenue, Van Nuys, California
91406.
At the Special Meeting, you will be asked to approve and adopt an Agreement
and Plan of Acquisition dated as of July 2, 1997, as amended (the "Acquisition
Agreement"), between Calnetics and Summa Industries, a California corporation
("Summa"), and the transactions contemplated thereby, pursuant to which a new
wholly-owned subsidiary of Summa ("Subsidiary") would be merged (the "Merger")
with and into Calnetics.
Upon completion of the Merger, (i) Calnetics will be the surviving
corporation and will be a wholly-owned subsidiary of Summa, and (ii) each and
every outstanding share of Calnetics Common Stock (other than shares held by
Subsidiary and shares as to which statutory appraisal rights are perfected) will
be converted into the right to receive $7.35 in cash, without interest. See
"Description of the Proposed Merger - Merger Consideration" in the accompanying
Proxy Statement.
A more detailed description of the Acquisition Agreement and the proposed
Merger is set forth in the enclosed Proxy Statement, which you should read
carefully. A Notice of Special Meeting of Shareholders is also enclosed
herewith. Holders of record of shares of Calnetics Common Stock at the close of
business on August 11, 1997, the record date for the Special Meeting, are
entitled to notice of, and to vote at, the Special Meeting and at any
adjournments and/or postponements thereof.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE ACQUISITION AGREEMENT AND
THE MERGER AND UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE TO APPROVE THE
ACQUISITION AGREEMENT AND THE MERGER.
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE SPECIAL MEETING,
WHETHER OR NOT YOU PLAN TO ATTEND. BECAUSE APPROVAL OF AT LEAST A MAJORITY OF
THE OUTSTANDING SHARES OF CALNETICS COMMON STOCK IS REQUIRED TO CONSUMMATE THE
MERGER, AN ABSTENTION OR FAILURE TO VOTE WILL HAVE THE SAME EFFECT AS A VOTE
AGAINST THE MERGER. ACCORDINGLY, YOU ARE REQUESTED TO COMPLETE, DATE AND SIGN
THE ENCLOSED PROXY CARD AND RETURN IT IN THE ENCLOSED ENVELOPE, WHICH REQUIRES
NO POSTAGE IF MAILED IN THE UNITED STATES. IF YOU PLAN TO ATTEND THE SPECIAL
MEETING, YOU MAY REVOKE YOUR PROXY AT ANY TIME BEFORE IT IS VOTED AND VOTE IN
PERSON IF YOU WISH, EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY CARD.
I strongly support Summa's acquisition of Calnetics and join with the other
members of the Board of Directors in enthusiastically recommending this
transaction to you. We urge you to vote to approve the Acquisition Agreement and
the transactions contemplated thereby. If you should have any questions about
the Merger or need assistance in completing your proxy card, please contact Mr.
Trygve Thoresen, Vice-President - Finance and General Counsel, at (818)
886-9819.
Very truly yours,
Clinton G. Gerlach
Chairman of the Board
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CALNETICS CORPORATION
20401 PRAIRIE STREET
CHATSWORTH, CA 91311
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON SEPTEMBER __, 1997
A Special Meeting of Shareholders (the "Special Meeting") of Calnetics
Corporation, a California corporation ("Calnetics"), will be held on _______,
September __, 1997 at 10:00 a.m., local time, at the Airtel Plaza Hotel, 7277
Valjean Avenue, Van Nuys, California 91406, for the following purposes:
1. Considering and voting upon a proposal (the "Proposal") to approve an
Agreement and Plan of Acquisition dated as of July 2, 1997, as amended (the
"Acquisition Agreement"), between Calnetics and Summa Industries, a California
corporation ("Summa"), and the transactions contemplated thereby, pursuant to
which a new wholly-owned subsidiary of Summa ("Subsidiary") would be merged (the
"Merger") with and into Calnetics. The Acquisition Agreement contemplates, among
other things, that (a) Calnetics will be the surviving corporation in the Merger
and will be a wholly-owned subsidiary of Summa, and (b) each and every
outstanding share of Calnetics Common Stock (other than shares held by
Subsidiary and shares as to which statutory appraisal rights are perfected) will
be converted into the right to receive $7.35 in cash, without interest. As a
result of the Merger, the shareholders of Calnetics will not own any stock of
the surviving corporation. A copy of the Acquisition Agreement is attached
hereto as Appendix I.
2. To transact such other business as may properly come before the Special
Meeting and any adjournments and/or postponements thereof.
Holders of record of Calnetics Common Stock at the close of business on
August 11, 1997 (the "Record Date") are entitled to notice of, and to vote at,
the Special Meeting and at any adjournments and/or postponements thereof. The
affirmative vote of a majority of the votes represented by the outstanding
shares of Calnetics Common Stock is required to approve the Proposal. A list of
holders of record of shares of Calnetics Common Stock at the close of business
on the Record Date will be available for inspection at Calnetics' headquarters
during ordinary business hours for the ten-day period prior to the Special
Meeting. Calnetics transfer books will not be closed.
THE BOARD OF DIRECTORS, AFTER CAREFUL REVIEW OF THE ACQUISITION AGREEMENT AND
OTHER FACTORS, BELIEVES THAT THE MERGER IS FAIR TO, AND IN THE BEST INTERESTS
OF, CALNETICS AND ITS SHAREHOLDERS AND HAS UNANIMOUSLY RECOMMENDED THAT
SHAREHOLDERS VOTE "FOR" APPROVAL OF THE PROPOSAL.
By Order of the Board of Directors:
Clinton G. Gerlach
Chairman of the Board and President
Barbara Guyer
Secretary
Chatsworth, California
August ____, 1997
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING IN PERSON, YOU ARE
REQUESTED TO COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT IN
THE ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
IF YOU ATTEND THE SPECIAL MEETING, YOU MAY REVOKE YOUR PROXY AT ANY TIME BEFORE
IT IS VOTED AND VOTE IN PERSON IF YOU WISH, EVEN IF YOU HAVE PREVIOUSLY RETURNED
YOUR PROXY CARD.
PLEASE DO NOT SEND IN ANY STOCK CERTIFICATES AT THIS TIME. IF THE PROPOSAL
IS APPROVED, SHAREHOLDERS WILL RECEIVE APPROPRIATE INSTRUCTIONS FOR
EXCHANGING THEIR STOCK CERTIFICATES FOR CASH.
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CALNETICS CORPORATION
20401 PRAIRIE STREET
CHATSWORTH, CA 91311
---------------
PROXY STATEMENT
---------------
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON SEPTEMBER ___, 1997
INTRODUCTION
GENERAL
This Proxy Statement and the accompanying form of proxy are being sent to
shareholders of Calnetics Corporation, a California corporation ("Calnetics" or
the "Company"), on or about August __, 1997. The accompanying proxy is solicited
by and on behalf of the Board of Directors of the Company for use at the Special
Meeting of Shareholders of the Company to be held at the Airtel Plaza Hotel,
7277 Valjean Avenue, Van Nuys, California on _______, September __, 1997, at
10:00 a.m. local time (the "Special Meeting") and at any adjournments and/or
postponements thereof, for the purpose of considering and voting upon a proposal
to approve and adopt an Agreement and Plan of Acquisition dated as of July 2,
1997, as amended (the "Acquisition Agreement"), between the Company and Summa
Industries, a California corporation ("Summa"), including the transactions
contemplated thereby, providing for the merger (the "Merger") of a new
wholly-owned subsidiary of Summa ("Subsidiary") with and into the Company.
Holders of the Company's Common Stock ("Common Stock") are entitled to one vote
for each share held by them.
As a result of the Merger, (i) Subsidiary will cease to exist and the Company
will continue as the surviving corporation and a wholly-owned subsidiary of
Summa, and (ii) each and every outstanding share of Common Stock (other than
shares held by Subsidiary and shares as to which statutory appraisal rights are
perfected) will be converted into the right to receive a cash payment of $7.35,
without interest (the "Merger Consideration").
The Board of Directors of the Company (the "Board of Directors") has
unanimously approved the Acquisition Agreement and the transactions contemplated
thereby. The Board of Directors unanimously recommends approval and adoption of
the Acquisition Agreement by the shareholders of the Company. For a discussion
of factors considered by the Board of Directors in approving the Acquisition
Agreement and the transactions contemplated thereby, see "Description of the
Proposed Merger-Background of and Reasons for the Merger."
The principal executive offices of the Company are located at 20401 Prairie
Street, Chatsworth, California 91311, and its telephone number is (818)
886-9819.
RECORD DATE
Shareholders of Common Stock of record at the close of business on August 11,
1997 (the "Record Date") are entitled to notice of and to vote on all matters
presented at the Special Meeting and at any adjournments and/or postponements
thereof. On the Record Date, there were 3,038,799 shares of Common Stock
outstanding.
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VOTING; PROXIES
The presence, either in person or by proxy, of persons entitled to vote a
majority of the outstanding shares of Common Stock is necessary to constitute a
quorum for the transaction of business at the Special Meeting and at any
adjournments and/or postponements thereof. On each matter to be considered at
the Special Meeting, shareholders will be entitled to cast one vote for each
share of Common Stock held on the Record Date. In order for the Acquisition
Agreement to be approved and adopted, the votes cast in favor must constitute at
least a majority of the outstanding shares of Common Stock. Due to this required
majority vote, abstentions and failures to vote will have the same effect as a
vote against approval of the Acquisition Agreement and the transactions
contemplated thereby. Subject to satisfaction or waiver of certain conditions
set forth in the Acquisition Agreement, Gerlach Holding Corporation, a Delaware
corporation ("GHC"), has agreed to vote all of its shares of Common Stock in
favor of approval of the Acquisition Agreement and the transactions contemplated
thereby. As of the Record Date, GHC held 1,085,504 shares of Common Stock,
constituting approximately 36% of the shares of Common Stock outstanding on such
date. Mr. Clinton G. Gerlach, Chairman of the Board and President of the
Company, serves as President of GHC.
SHAREHOLDERS ARE URGED, WHETHER OR NOT THEY EXPECT TO ATTEND THE SPECIAL
MEETING, TO COMPLETE, SIGN AND DATE THE ACCOMPANYING PROXY CARD AND RETURN IT
PROMPTLY IN THE ENCLOSED ENVELOPE. If you return an executed proxy and then
attend the Special Meeting in person, you may allow your proxy to remain in
effect, or you may revoke your proxy and vote in person by giving written notice
of such revocation to the Company's Secretary, or by filing a duly executed
proxy bearing a later date, at any time prior to the time the vote is taken.
Attendance at the Special Meeting will not by itself revoke a proxy.
Unless otherwise directed in the accompanying proxy, the persons named
therein will vote each proxy FOR approval of the Acquisition Agreement and the
transactions contemplated thereby. As to any other business that may properly
come before the Special Meeting, the proxy holders will vote in their
discretion. The Company currently does not know of any other such business.
PERSONS MAKING THE SOLICITATION
This solicitation of proxies is being made by the Board of Directors. All
expenses associated with soliciting proxies, including the preparation,
assembly, printing and mailing of this Proxy Statement, will be borne by the
Company. It is contemplated that proxies will be solicited principally through
the use of the mail, but officers, directors and employees of the Company may
solicit proxies personally or by telephone or facsimile, without receiving
additional compensation therefor. The Company will reimburse banks, brokerage
houses and other custodians, nominees and fiduciaries for their reasonable
expenses in forwarding these proxy materials to their principals.
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TABLE OF CONTENTS
<TABLE>
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Page
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<S> <C>
INTRODUCTION.................................................................1
SUMMARY......................................................................5
The Company...............................................................5
Summa.....................................................................5
Subsidiary................................................................5
The Merger................................................................5
Merger Consideration......................................................5
The Special Meeting.......................................................6
Record Date; Quorum.......................................................6
Vote Required.............................................................6
Effective Date and Time...................................................6
Reasons for the Merger....................................................6
Financing the Merger......................................................7
Certain Federal Income Tax Consequences...................................7
Manner of Converting Shares...............................................7
Price Range of Common Stock...............................................7
Fairness Opinion..........................................................7
Conditions to the Merger..................................................8
Amendment; Termination....................................................8
Accounting Treatment......................................................8
Recommendations...........................................................8
Dissenters' Rights........................................................8
SELECTED FINANCIAL DATA.....................................................10
VOTING AND PROXIES..........................................................11
DESCRIPTION OF THE PROPOSED MERGER..........................................12
Background of and Reasons for the Merger.................................12
The Merger...............................................................14
Merger Consideration.....................................................14
Manner of Converting Shares..............................................14
Treatment of Stock Options...............................................15
Fairness Opinion.........................................................15
Additional Conditions to the Merger......................................15
Amendment; Termination...................................................16
Standstill Agreements....................................................17
Interests of Certain Persons in the Merger...............................17
Accounting Treatment.....................................................18
Merger Expenses; Brokerage Fees..........................................18
Approval of the Merger...................................................18
Deregistration of Common Stock...........................................19
RIGHTS OF DISSENTING SHAREHOLDERS...........................................19
SOURCE AND AMOUNT OF FUNDS..................................................20
CERTAIN FEDERAL INCOME TAX CONSEQUENCES.....................................21
COMMON STOCK PRICES AND DIVIDENDS...........................................22
</TABLE>
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<TABLE>
<S> <C>
DESCRIPTION OF CAPITAL STOCK................................................23
OWNERSHIP OF COMMON STOCK...................................................24
INFORMATION CONCERNING THE COMPANY..........................................25
Business.................................................................25
General...............................................................25
History; Growth Strategy..............................................25
Production............................................................26
Raw Materials; Inventories............................................26
Customers and Marketing...............................................26
Backlog; Seasonality..................................................27
Competition...........................................................27
Patents and Trademarks................................................27
Research and Development..............................................27
Legal Proceedings.....................................................27
Tax Examinations......................................................27
Environmental Matters.................................................28
Facilities............................................................28
Employees.............................................................28
Management's Discussion and Analysis of Results of Operations and
Financial Condition...................................................29
General...............................................................29
Results of Operations.................................................30
Liquidity and Capital Resources.......................................31
Recent Accounting Pronouncements......................................32
Management...............................................................33
Directors, Executive Officers and Other Key Employees.................33
Employment Agreements and Compensation Arrangements...................34
Certain Transactions..................................................34
Limitation of Directors' and Officers' Liability and Indemnification..35
CERTAIN INFORMATION CONCERNING SUMMA AND SUBSIDIARY.........................36
EXPERTS.....................................................................36
INDEPENDENT ACCOUNTANTS.....................................................36
SHAREHOLDER PROPOSALS.......................................................36
AVAILABLE INFORMATION.......................................................36
OTHER MATTERS...............................................................37
INDEX TO FINANCIAL STATEMENTS...............................................38
</TABLE>
Appendix I - Agreement and Plan of Acquisition, and Amendment No. 1
thereto
Appendix II - Opinion of Crowell, Weedon & Co.
Appendix III - Chapter 13 of the California General Corporation Code
Law relating to dissenters' rights
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SUMMARY
The following is a brief summary of certain information contained elsewhere
in this Proxy Statement. This summary is necessarily selective and is qualified
in its entirety by the more detailed information appearing elsewhere in this
Proxy Statement and the attached Appendices. Shareholders are urged to carefully
review this entire Proxy Statement, including the Appendices hereto.
THE COMPANY
Calnetics is a publicly-owned California corporation whose Common Stock is
registered under Section 12(g) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and traded on The Nasdaq National Market under
the symbol "CALN." Through its three wholly-owned operating subsidiaries,
Manchester Plastics Co., Inc. ("Manchester Plastics"), Ny-Glass Plastics,
Inc. ("Ny-Glass"), and Agricultural Products, Inc. ("API"), the Company
manufactures molded plastic bobbins, components, filters, fittings, sheet and
tubing primarily for the industrial plastics, building materials and
agricultural irrigation industries. The Company is headquartered at 20401
Prairie Street, Chatsworth, California 91311, and its telephone number is
(818) 886-9819. As of the Record Date, 3,038,799 shares of Common Stock were
issued and outstanding. See "Ownership of Common Stock" and "Information
Concerning the Company."
SUMMA
Summa is a publicly-owned California corporation whose common stock is
registered under Section 12(g) of the Exchange Act, and traded on The Nasdaq
National Market under the symbol "SUMX." Through its three wholly-owned
operating subsidiaries, Summa designs and manufactures injection-molded plastic
optical components for OEM customers in the lighting industry, plastic chains,
belts and customized conveyor components used primarily in the food processing
industry, and components sold to the defense and firefighting industries.
Summa's principal executive offices are located at 21250 Hawthorne Boulevard,
Suite 500, Torrance, California 90503, and its telephone number is (310)
792-7024. See "Certain Information Concerning Summa and Subsidiary."
SUBSIDIARY
CC Acquisition Corp. is a newly-formed California corporation and
wholly-owned subsidiary of Summa ("Subsidiary"), formed solely for the
purpose of consummating the Merger. As a consequence of the Merger,
Subsidary will merge with and into the Company which, as the surviving
corporation in the Merger, will continue to conduct its business and
operations as a wholly-owned subsidiary of Summa through its three operating
subsidiaries. See "Certain Information Concerning Summa and Subsidiary."
THE MERGER
Pursuant to the Acquisition Agreement, the Company and Summa have agreed,
subject to approval of the shareholders of the Company and the satisfaction of
certain other conditions, that Subsidiary will merge with and into the Company.
MERGER CONSIDERATION
At the Effective Time (defined below) of the Merger, (i) Subsidiary will cease
to exist and the Company will continue as the surviving corporation and as a
wholly-owned subsidiary of Summa, and (ii) each and every outstanding share of
Common Stock (other than shares held by Subsidiary and shares as to which
statutory appraisal rights are perfected) will be converted into the right to
receive a cash payment of $7.35, without interest. Holders of options to
purchase shares of Common Stock ("Options") will receive, at their election,
either (i) cash equal to the difference between $7.35 and the exercise price of
such Option multiplied by the number of underlying shares covered by such
Option, (ii) substantially similar options to purchase shares of common stock of
Summa
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with the same aggregate exercise price but in such numbers and at such exercise
prices per share as determined by Summa on or before one business day prior to
the Special Meeting, or (iii) a combination of the foregoing. See "Description
of the Proposed Merger - Merger Consideration; and - Treatment of Stock
Options."
THE SPECIAL MEETING
Proxies are being solicited by the Board of Directors for use at the Special
Meeting to be held at 10:00 a.m, local time, at the Airtel Plaza Hotel, located
at 7277 Valjean Avenue, Van Nuys, California 91406, on September __, 1997, and
at any adjournments and/or postponements thereof, for the purpose of considering
and voting upon approval and adoption of the Acquisition Agreement, as more
particularly described herein and in the Notice of Special Meeting accompanying
this Proxy Statement.
RECORD DATE; QUORUM
Only holders of record of Common Stock at the close of business on the Record
Date, August 11, 1997, are entitled to notice of and to vote on all matters
presented at the Special Meeting and any adjournments and/or postponements
thereof. The presence, either in person or by proxy, of persons entitled to vote
a majority of the outstanding shares of Common Stock is necessary to constitute
a quorum for the transaction of business at the Special Meeting. Holders of
Common Stock are entitled to one vote for each share held by them. On the Record
Date, there were 3,038,799 shares of Common Stock outstanding. See "Voting and
Proxies."
VOTE REQUIRED
The affirmative vote of holders of a majority of the outstanding shares of
Common Stock is required to approve the Merger. Subject to satisfaction or
waiver of certain conditions set forth in the Acquisition Agreement, Gerlach
Holding Corporation, a California corporation ("GHC"), has agreed to vote all of
its shares of Common Stock in favor of approval of the Acquisition Agreement and
the transactions contemplated thereby. As of the Record Date, GHC held 1,085,504
shares of Common Stock, constituting approximately 36% of the shares of Common
Stock outstanding on such date. Mr. Clinton G. Gerlach, Chairman of the Board
and President of the Company, serves as President of GHC. See "Voting and
Proxies."
EFFECTIVE DATE AND TIME
The proposed Merger will be consummated if and on such date (the "Effective
Date") as the Agreement and Plan of Merger (the "Merger Agreement") is executed
and filed with the California Secretary of State (the "Effective Time"). The
Effective Date is currently expected to occur on or shortly after September __,
1997, the date of the Special Meeting, subject to the satisfaction or waiver of
the conditions to the Merger. See "Description of the Proposed Merger - The
Merger."
REASONS FOR THE MERGER
For the past several years, the Company has considered various strategic
alternatives to maximize shareholder value and increase liquidity, while
preserving relationships with customers and employees. Management of the Company
has considered a continued program of acquisitions, potential business
combinations with several other companies, secondary public offerings of
securities and the acquisition of the Company by private investors, among other
transactions. The Board of Directors has determined that the proposed
transaction with Summa offers the best opportunity available to fulfill the
Company's strategic objectives. As a consequence of the Merger, shareholders of
the Company will realize a return on their investments by receipt of the all
cash Merger Consideration.
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In 1991, Summa adopted a strategy of growth through acquisitions of
profitable manufacturing companies with proprietary products or protected market
niches. The acquisition of the Company as a consequence of the Merger will be
the fourth such acquisition that Summa has accomplished, and will enable Summa
to further expand its operations by adding additional product offerings.
FINANCING THE MERGER
It is expected that the Merger Consideration will be financed (the
"Financing") by Summa primarily through borrowings from institutional
lenders. See "Source and Amount of Funds."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The exchange by shareholders of their shares of Common Stock for cash
pursuant to the Merger will be a taxable transaction for federal income tax
purposes and may also be a taxable transaction for state, local, foreign and
other tax purposes. See "Certain Federal Income Tax Consequences." Shareholders
are urged to consult their own tax advisors with respect to the federal, state,
local and other tax consequences of the Merger, including the effects of recent
and potential changes of law.
MANNER OF CONVERTING SHARES
At the Effective Time, each certificate formerly representing shares of
Common Stock (other than shares held by Subsidiary and shares as to which
statutory appraisal rights are perfected) will, automatically without any action
on the part of the holder thereof, be deemed to represent only the right to
receive the Merger Consideration. As soon as reasonably practicable after the
Effective Date (defined below), __________________ (the "Exchange Agent") will
mail a letter of instructions (the "Letter of Transmittal") setting forth the
manner of exchanging Common Stock certificates for the Merger Consideration. The
Merger Consideration will only be paid to holders of record of Common Stock at
the Effective Time, and will only be paid upon surrender to the Exchange Agent
of the certificate(s) representing the shares of Common Stock, together with a
properly completed Letter of Transmittal. It is anticipated that the Exchange
Agent will mail the Merger Consideration to each former shareholder of the
Company who has complied with the foregoing procedures within seven business
days after such compliance. See "Description of the Proposed Merger - Manner of
Converting Shares."
PRICE RANGE OF COMMON STOCK
The Common Stock is traded on The Nasdaq National Market. On July 2, 1997,
the last full trading day prior to the public announcement by the Company and
Summa of the execution of the Acquisition Agreement, the closing price for a
share of Common Stock on The Nasdaq National Market was $5.72. The closing price
for a share of Common Stock on August __, 1997 was $___. See "Common Stock
Prices and Dividends." Shareholders are urged to obtain current market
quotations for the Common Stock.
FAIRNESS OPINION
Crowell, Weedon & Co. ("Crowell Weedon") has delivered to the Board of
Directors a written opinion as of August __, 1997 to the effect that, as of such
date, based upon and subject to various considerations set forth in the opinion,
the Merger Consideration is fair, from a financial point of view, to the
shareholders of the Company. A copy of the opinion of Crowell Weedon, which sets
forth the assumptions made, matters considered and the scope of their review, is
attached to this Proxy Statement as Appendix II and should be read in its
entirety. See "Description of the Proposed Merger Fairness Opinion."
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CONDITIONS TO THE MERGER
The obligations of the Company and/or Summa to consummate the Merger are
subject to fulfillment or waiver of various conditions, including, among others,
(i) approval of the Acquisition Agreement by the shareholders of the Company;
(ii) receipt by Summa of the Financing; (iii) receipt of any required regulatory
approvals; (iv) the fairness opinion given to the Company's Board of Directors
not having been withdrawn; and (v) receipt of all material consents from third
parties required to consummate the Merger. See "Description of the Proposed
Merger - Additional Conditions to the Merger."
AMENDMENT; TERMINATION
The Acquisition Agreement and the Merger Agreement may each be amended by
written agreement of each of the parties before approval by the Company's
shareholders, as well as thereafter if such amendment would not materially and
adversely affect such shareholders. These agreements may be terminated and the
Merger abandoned before the Effective Time for various reasons, including
without limitation, (i) by mutual written consent of the Company and Summa, (ii)
by Summa on or before August 18, 1997 if Summa shall not have made arrangements
reasonably satisfactory to Summa to obtain the Financing on a timely basis, or
by the Company on or within five business days of August 18, 1997 if by such
date Summa shall not have obtained written evidence reasonably satisfactory to
the Company that Summa will be able to obtain the Financing on a timely basis,
(iii) by the Company on or within five business days after September 30, 1997 if
by such date the status of the Financing is not satisfactory to the Company in
its sole discretion; provided that, Summa shall have the right to delay such
termination for thirty days by undertaking to pay the Company $100,000 within 48
hours of notice from the Company that the Acquisition Agreement has been
approved by the Company's shareholders, (iv) by either party if the Merger has
not been consummated by October 31, 1997, except that the foregoing right to
terminate shall not be available to a party whose failure to perform any
covenant or condition within that party's control is the proximate cause of the
failure of the Merger to be consummated by that date, and (v) by either the
Company or Summa in the event that the Board of Directors of either has
determined to enter into a transaction that would be inconsistent with the
Merger and was not initiated by such party, upon payment by the terminating
party to the other of $500,000 as liquidated damages. See "Description of the
Proposed Merger - Amendment; Termination."
ACCOUNTING TREATMENT
The Merger will be accounted for under the "purchase" method of
accounting, in accordance with generally accepted accounting principles. See
"Description of the Proposed Merger - Accounting Treatment."
RECOMMENDATIONS
Management and the Board of Directors believe that the Merger will benefit
the Company's shareholders and is in the best interests of the Company and the
shareholders. The Board of Directors has unanimously approved the Acquisition
Agreement and the transactions contemplated thereby and has unanimously
recommended that the Acquisition Agreement be approved and adopted by the
shareholders. See "Description of the Merger - Background of and Reasons for the
Merger."
DISSENTERS' RIGHTS
Holders of Common Stock who object to the Merger may, under certain
circumstances, and by following the statutorily prescribed procedures set forth
in Chapter 13 of the California General Corporation Law (a copy of which is
attached hereto as Appendix III), receive cash for the "fair market value" of
their shares, which may be higher or lower than the value of the Merger
Consideration. The failure of a dissenting shareholder to follow such procedures
may result in termination or waiver of rights as a dissenter. Since the Common
Stock is traded on The
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Nasdaq National Market, shareholders of the Company who object to the Merger may
vote against the Merger at the Special Meeting but will not be entitled to
dissenters' rights if the Merger is consummated over their objections, unless
the holders of five percent or more of the Common Stock make appropriate demands
under Chapter 13 of the California General Corporation Law. However, the Merger
may be terminated by either the Company or Summa in the event that the holders
of more than five percent of the Common Stock perfect their dissenters' rights.
See "Rights of Dissenting Shareholders."
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SELECTED FINANCIAL DATA
(in thousands)
The selected financial data set forth below for the three years ended June
30, 1995, 1996 and 1997 has been derived from the audited financial statements
of the Company included elsewhere herein. The selected financial data set forth
below for the two years ended June 30, 1993 and 1994 has been derived from the
audited financial statements of the Company that are not included herein. See
"Available Information" regarding sources available to obtain copies of such
audited financial statements. This information should be read in conjunction
with those more detailed financial statements (including the notes thereto) and
with the "Management's Discussion and Analysis of Results of Operations and
Financial Condition" also included elsewhere herein. The results set forth below
are not necessarily indicative of results to be expected for any future period.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED JUNE 30,
--------------------------------------------------------------------
STATEMENT OF INCOME DATA: 1993 1994(1) 1995(2) 1996 1997
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Sales ............... $ 16,564 $ 17,997 $ 29,172 $ 35,194 $ 36,616
Cost of Sales ........... 12,799 13,628 21,739 26,252 26,593
-------- -------- -------- -------- --------
Gross Profit ............ 3,765 4,368 7,433 8,942 10,023
-------- -------- -------- -------- --------
Selling, general and
administrative expense 2,869 3,253 5,188 5,627 6,400
-------- -------- -------- -------- --------
Income from Operations .. 896 1,115 2,245 3,315 3,623
-------- -------- -------- -------- --------
Other income (expense):
Gain on sale of property
and equipment ........ 16 1 7 6 --
Interest and other income 11 65 27 30 49
Interest and other
expenses ............. (53) (42) (534) (416) (323)
-------- -------- -------- -------- --------
Total other income
(expense) ............. (26) 24 (500) (380) (274)
-------- -------- -------- -------- --------
Income before provision
for income taxes ...... 870 1,139 1,745 2,934 3,349
Provision for income
taxes ................. 368 522 739 1,262 1,318
-------- -------- -------- -------- --------
Net income .............. $ 502 $ 617 $ 1,006 $ 1,672 $ 2,031
======== ======== ======== ======== ========
Weighted average number
of shares outstanding 2,879 2,922 3,030 3,058 3,095
======== ======== ======== ======== ========
Net income per common
and equivalent share .. $ 0.17 $ 0.21 $ 0.33 $ 0.55 $ 0.66
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
JUNE 30,
--------------------------------------------------------------------
BALANCE SHEET DATA: 1993 1994 1995 1996 1997
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Total assets ......... $ 7,485 $16,377 $17,123 $18,686 $19,262
Working capital ...... 3,561 6,789 7,234 7,927 9,341
Long-term debt, net of
current portion .... -- 6,285 5,551 4,741 3,746
Shareholders'
equity ............. 5,296 6,100 7,136 8,873 11,187
</TABLE>
- ------------------------
(1) Net sales for fiscal 1994 include two months of API sales, which was
purchased effective as of April 30, 1994.
(2) Reflects the effect of a change in inventory pricing method used for
finished goods from FIFO to LIFO at Manchester Plastics, effective July 1,
1994.
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VOTING AND PROXIES
As of August 11, 1997, the Record Date for the determination of the
shareholders of the Company entitled to notice of, and to vote at, the Special
Meeting, there were 3,038,799 shares of Common Stock outstanding, which were
held of record by a total of approximately _____ shareholders. Each share
entitles the holder to one vote on each matter to come before the Special
Meeting.
The presence in person or by proxy of the holders of a majority of the
outstanding shares of Common Stock is necessary to constitute a quorum for
purposes of the transaction of business at the Special Meeting. The affirmative
vote of the holders of a majority of the outstanding shares of Common Stock is
required to approve and adopt the Acquisition Agreement and the transactions
contemplated thereby, including the Merger. Abstentions and failures to vote
will not be counted as votes either in favor of or against approval of the
Acquisition Agreement. However, because approval of the Acquisition Agreement
requires the affirmative vote of a majority of outstanding shares of Common
Stock, a shareholder who fails to return a proxy or otherwise to vote or who
abstains from voting on the Acquisition Agreement will have effectively voted
against the proposal for purposes of determining the number of votes needed for
approval. Clinton G. Gerlach, Chairman of the Board and President of the
Company, has agreed, on behalf of Gerlach Holding Corporation ("GHC") and as its
President, to vote all shares of Common Stock held by GHC in favor of the
proposal, subject to the satisfaction or waiver of each of the conditions to the
Company's obligations under the Acquisition Agreement. As of the Record Date,
GHC owned 1,085,504 of Common Stock, or approximately 36% of the 3,038,799
shares then outstanding. GHC is owned by the following entities or individuals
by the percentages indicated: The Gerlach Family Trust (52%) and Mr. Gerlach's
son and daughter, Clinton G. Gerlach, II (24%) and Kimberlee Ann Grot (24%). The
affirmative votes of the holders of an additional 433,896 shares of Common Stock
will be required for approval of the Acquisition Agreement by the shareholders.
Proxies for use at the Special Meeting accompany this Proxy Statement.
Properly executed and returned proxies, unless revoked, will be voted as
directed by the shareholder, or, in the absence of such direction, by the
persons named therein FOR the approval and adoption of the Acquisition Agreement
in accordance with the recommendation of the Board of Directors. As to any other
business which may properly come before the Special Meeting, the proxy holders
will vote in accordance with their best judgment. A proxy may be revoked at any
time before it is voted by delivery of written notice of revocation to the
Secretary of the Company, or by delivery of a subsequently dated proxy, or by
attendance at the Special Meeting and voting in person. Attendance at the
Special Meeting without also voting will not in and of itself constitute the
revocation of a proxy.
The Company will bear the costs of printing this Proxy Statement and
soliciting proxies from shareholders. It is expected that proxies will be
solicited by the Company principally through the use of the mail. In addition,
if it should appear desirable to do so, directors, officers and employees of the
Company may, without additional compensation, communicate with shareholders, and
with banks, brokerage houses, nominees and others by telephone, telegraph,
facsimile or in person, to request that proxies be furnished.
SHAREHOLDERS SHOULD NOT SEND ANY CERTIFICATES REPRESENTING COMMON STOCK WITH
THE ENCLOSED PROXY CARD. A LETTER OF TRANSMITTAL WILL BE MAILED BY THE EXCHANGE
AGENT FOLLOWING THE EFFECTIVE TIME OF THE MERGER TO EACH PERSON WHO WAS A HOLDER
OF RECORD OF COMMON STOCK AT THE EFFECTIVE TIME OF THE MERGER. SHAREHOLDERS
SHOULD SEND CERTIFICATES REPRESENTING COMMON STOCK TO THE EXCHANGE AGENT ONLY
AFTER THEY RECEIVE, AND ONLY IN ACCORDANCE WITH, THE INSTRUCTIONS CONTAINED IN
THE LETTER OF TRANSMITTAL.
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DESCRIPTION OF THE PROPOSED MERGER
The following information with respect to the proposed Merger does not
purport to be complete and is qualified in its entirety by reference to the
Acquisition Agreement and the Merger Agreement which are incorporated herein by
this reference.
BACKGROUND OF AND REASONS FOR THE MERGER
HISTORY OF NEGOTIATIONS BETWEEN THE COMPANY AND SUMMA
In 1990, Mr. Clinton Gerlach, Chairman and President of Calnetics, met James
R. Swartwout, President and Chief Executive Officer of Summa. After discussions,
Calnetics entered into a letter of intent with Summa providing for the
acquisition of Summa by Calnetics (the "First Letter of Intent"). Subsequently,
the companies amicably determined not to proceed with the transaction outlined
in the First Letter of Intent. In the ensuing years, Mr. Gerlach and Mr.
Swartwout kept in contact on an infrequent basis, observing the progress of the
operations of both companies. The businesses of Calnetics and Summa have never
been in direct competition, but both companies have occasionally considered the
same acquisition candidates. Throughout the period from 1990 through 1996,
several potential business combinations between Calnetics and Summa were
informally discussed. In December 1996, after the completion of the acquisition
of LexaLite International Corporation, a Delaware corporation, by Summa, Mr.
Gerlach and Mr. Swartwout met to seriously consider whether a business
combination would be in the interests of their respective shareholders. After
months of negotiations, the principal terms and structure of a business
combination were developed.
Because of the length of the negotiations, Mr. Gerlach and Mr. Swartwout
became concerned that rumors concerning a possible business combination of
Calnetics and Summa might start. Therefore, as soon as the principal terms were
agreed upon, a letter of intent was executed (the "Second Letter of Intent"),
and a press release was issued on February 14, 1997. After further negotiation,
and the approval of the proposed merger by the Boards of Directors of both
companies was obtained, subject to satisfactory completion of due diligence on
or before April 30, 1997 (subsequently extended by one week to May 7, 1997),
Calnetics and Summa entered into the definitive Agreement and Plan of
Reorganization, which was executed and announced publicly on March 26, 1997 (the
"First Agreement").
In connection with the First Agreement, in addition to an aggregate of
approximately $3,800,000 in cash, the shareholders of Calnetics would have
received, as a group, a minimum of 1,732,115, up to a maximum of 2,339,975,
shares of Summa common stock and approximately $6,840,000 aggregate principal
amount of subordinated convertible debentures, which would have been convertible
into an additional approximately 855,000 shares of Summa common stock. As a
consequence, the shareholders of Calnetics would have been entitled to receive
approximately 39% of the shares of Summa common stock to be outstanding
immediately following the merger, assuming that the minimum number of shares of
Summa common stock were issued in the merger (approximately 44% if the maximum
number of shares were issued) and immediate full conversion of the debentures
issued in connection therewith. On May 7, 1997, the final day of the extended
due diligence period under the First Agreement, Calnetics and Summa entered into
a mutual agreement of termination thereof.
Several weeks after the termination of the First Agreement, management of
Calnetics and Summa agreed to confer and attempt to negotiate a revised form and
amount of merger consideration. Following weeks of negotiations, on June 24,
1997, Calnetics management received a letter from Summa setting forth a proposal
to purchase all outstanding shares of Calnetics Common Stock for cash. On the
evening of June 24, 1997, the Calnetics Board of Directors met telephonically to
discuss the proposal. The Board of Directors then instructed the management of
Calnetics to continue negotiations with Summa in an attempt to improve the
amount of such cash proposal.
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On June 25, 1997, management of Calnetics and Summa met and negotiated an
increased amount of cash consideration of $7.35 per share. With the assistance
of legal counsel, the managements then negotiated a form of Agreement and Plan
of Acquisition. Subsequently, on the morning of June 30, 1997, the Board of
Directors of Summa met and unanimously approved the form of Acquisition
Agreement and the Merger on the revised terms negotiated by the managements on
June 25, 1997. During the afternoon of July 1, 1997, the Calnetics Board of
Directors met with its legal and investment advisors and, after extended
discussions, presentations by Mr Gerlach and Mr. Thoresen, and presentation by
its investment advisor of an oral opinion regarding the fairness, from a
financial point of view, of the Merger Consideration to the public shareholders,
the Calnetics Board of Directors unanimously approved the form of Acquisition
Agreement and the Merger.
Following approval by both Boards of Directors of the form of Acquisition
Agreement and the Merger, management of Calnetics and Summa negotiated final
changes to the Acquisition Agreement and executed the same on July 2, 1997.
Press releases announcing execution of such definitive agreement were issued by
each company after the close of market on July 2, 1997. Subsequently, effective
July 30, 1997, Calnetics and Summa amended the Acquisition Agreement to modify
the structure to be used to accomplish the Merger.
REASONS FOR THE MERGER
In reaching its determination on June 30, 1997 to approve and adopt the
Acquisition Agreement and recommend approving the Acquisition Agreement and the
Merger to the Calnetics shareholders, the Board of Directors consulted with
management, as well as its legal counsel and financial advisors, and considered
a number of factors before determining that the Merger represented the best
available alternative to enhance shareholder value, including, without
limitation, the following: (i) the presentation by Crowell Weedon with respect
to its determination as to the fairness, from a financial point of view, of the
Merger Consideration to the public shareholders of the Company, and the
analyses, methodologies and conclusions underlying such determination (see
"Description of the Proposed Merger - Fairness Opinion"); (ii) the premium in
existence at the time of discussion of $1.85 per share (approximately 34%),
which represents the difference between the Merger Consideration and the trading
price of the Company's Common Stock at such time; (iii) available strategic
alternatives, including the probability of obtaining a superior offer and the
timing thereof; (iv) the historical and recent sales and earnings of the
Company; (v) the Company's future prospects and potential opportunities; (vi)
the prices and premiums paid in recent acquisitions of companies deemed to be
similar in certain respects to the Company; (vii) the advantages to the
Company's shareholders of an all cash offer for their shares notwithstanding the
tax consequences of such an offer to the Company's shareholders; (viii) the
likelihood that the Merger could be consummated, noting the timing of and
conditions to the Merger, including the necessity of Summa to obtain the
Financing; and (ix) the terms and conditions of the Acquisition Agreement,
including, without limitation the right of the Company to respond to unsolicited
third party offers, subject to liquidated damages of $500,000 in the event of
entering into a transaction inconsistent with the Merger.
The Board of Directors then unanimously concluded that the Merger with Summa
represented the best available alternative to enhance shareholder value. The
Board of Directors did not find it practicable to, and did not attempt to,
assign relative weights to the specific factors considered by it.
In 1991, Summa adopted a strategy of growth through acquisitions, with the
intent of expanding its operations by acquiring additional product offerings,
enhancing gross profit margins, increasing combined sales so that general and
administrative costs will constitute a smaller percentage of total revenues,
enhancing overall profitability, and increasing the market value of Summa common
stock to provide liquidity and value for its shareholders by increasing the
number of outstanding shares in the public float and the trading activity in the
stock. Upon consummation of the Merger, Summa will have six operating
subsidiaries, including Summa's three current wholly-owned operating
subsidiaries.
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THE MERGER
Subject to the conditions and the termination provisions contained in the
Acquisition Agreement, the proposed Merger will become effective at the time
(the "Effective Time") and on the date (the "Effective Date") on which the
Merger Agreement, along with any other required documents, is duly filed with
the Secretary of State of California. It is currently anticipated that, if the
Acquisition Agreement is approved and adopted by the shareholders of the Company
at the Special Meeting, and all other conditions to the Merger have been
fulfilled or waived, the Effective Date will occur on the date that the Special
Meeting has been scheduled, or a date as soon as practicable thereafter. Upon
consummation of the Merger, Subsidiary will merge with and into the Company, the
separate existence of the Subsidiary as a corporation will cease, and the
Company will remain as the surviving corporation and a wholly-owned subsidiary
of Summa. As a consequence of the Merger, all of the currently outstanding
shares of Common Stock will automatically be converted into the right to receive
the Merger Consideration.
MERGER CONSIDERATION
If the Merger is consummated, the Acquisition Agreement provides that each
outstanding share of Common Stock, other than any shares held by Subsidiary and
any shares constituting "dissenting shares" under Chapter 13 of the California
General Corporation Law, will on the Effective Date be converted into the right
to receive $7.35 in cash, without interest.
MANNER OF CONVERTING SHARES
The conversion of shares of Common Stock into the Merger Consideration will
occur at the Effective Date automatically by operation of law, without any
action on the part of the holder thereof and without regard to the date on which
certificates formerly representing shares of Common Stock are physically
surrendered, or on which the Merger Consideration is delivered to former
shareholders of the Company. From and after the Effective Time, each certificate
formerly representing shares of Common Stock (other than any shares held by
Subsidiary and any shares as to which statutory appraisal rights are perfected)
shall be deemed to represent only the right to receive the Merger Consideration.
As soon as practicable after the Effective Date, a Letter of Transmittal will be
mailed to each former shareholder of the Company containing instructions with
respect to the surrender of Common Stock certificates to_______________, which
will act as Exchange Agent for the former shareholders of the Company, in
exchange for the Merger Consideration. The Merger Consideration will only be
paid to holders of record of Common Stock at the Effective Time, and will only
be paid upon surrender to the Exchange Agent of the certificate(s) representing
the shares of Common Stock, together with a properly completed Letter of
Transmittal. If a certificate formerly representing shares of Common Stock has
been stolen or destroyed, the registered holder thereof will be entitled to
receive the Merger Consideration upon delivery to the Exchange Agent of an
affidavit to such effect and posting of a bond in a reasonable amount as
indemnity against any third party claim with respect to such shares. In the
event that a transfer of shares of Common Stock prior to the Effective Date was
not reflected on the Company's stock transfer records, the transferee may be
required, as a condition to exchange, to present the certificate representing
such shares together with all documents required to evidence and effect such
transfer and payment of applicable transfer taxes or evidence that any
applicable stock transfer taxes have been paid. It is anticipated that the
Exchange Agent will mail the Merger Consideration to each former shareholder of
the Company who has complied with the foregoing procedures within seven business
days after such compliance.
TREATMENT OF STOCK OPTIONS
As of the close of business on the Record Date, there were an aggregate of
225,000 shares of Common Stock
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reserved for issuance upon the exercise of outstanding stock options (the
"Options"), at a weighted average exercise price of $3.57 per share. Pursuant to
the terms set forth in the Acquisition Agreement, each holder of Options will
receive, at his or her election, either (i) cash equal to the difference between
$7.35 and the exercise price of such Option multiplied by the number of
underlying shares covered by such Option, (ii) substantially similar options to
purchase shares of common stock of Summa with the same aggregate exercise price
but in such numbers and at such exercise prices per share as determined by Summa
on or before one business day prior to the Special Meeting, or (iii) a
combination of the foregoing. Holders electing to receive cash shall surrender
such Options to the Company for cancellation and payment immediately prior to
the Effective Time.
FAIRNESS OPINION
Among other conditions to the obligation of Calnetics to consummate the
Merger, the Acquisition Agreement specifies that an investment banking firm
acceptable to Calnetics shall have rendered an opinion, prior to the date on
which this Proxy Statement is first mailed, addressed to the Board of Directors
of Calnetics, to the effect that the transaction contemplated by the Acquisition
Agreement is fair, from a financial point of view, to the shareholders of
Calnetics, and that if such firm is engaged and renders the required opinion,
such opinion shall not have been withdrawn as of the Effective Time. After
representatives of Calnetics interviewed several investment banking firms,
Calnetics engaged the investment banking firm of Crowell Weedon to perform a
market test to determine whether certain third parties might be interested in
acquiring Calnetics and, thereafter, to render to the Board of Directors a
"fairness opinion." Crowell Weedon was not asked to recommend the amount of
consideration to be paid to the shareholders of Calnetics as a consequence of
the Merger, which was determined through arms length negotiations between
Calnetics and Summa, and Crowell Weedon did not participate in such
negotiations. Rather, Crowell Weedon was asked to render an opinion as to
whether the consideration agreed upon by the parties was fair, from a financial
point of view, to the shareholders of Calnetics, with no restrictions or
limitations being imposed on Crowell Weedon with respect to their procedures or
investigations of Calnetics. On July 1, 1997, Crowell Weedon presented its
verbal opinion to the Board of Directors to the effect that, as of such date,
the consideration to be received in the proposed Merger is fair, from a
financial point of view, to the shareholders of Calnetics, and on August __,
1997, Crowell Weedon delivered its written opinion to the same effect to the
Board of Directors. In arriving at its opinion, Crowell Weedon reviewed relevant
documents, visited the facilities of, and interviewed the management of
Calnetics and performed extensive financial analyses of Calnetics. These
analyses included the study of the valuation of comparable public companies, the
review of the valuation of comparable merger and acquisition transactions, and
discussions with certain members of the senior management of Calnetics
concerning its past and current business operations, present financial condition
and future prospects. The full text of the written opinion of Crowell Weedon
which sets forth the assumptions made and the factors considered by Crowell
Weedon in rendering its opinion, as well as the limitations on the review
undertaken in connection therewith, is set forth as Appendix II to this Proxy
Statement. This summary is qualified in its entirety by reference to the full
text of such opinion, which should be read carefully by each shareholder of
Calnetics. The opinion of Crowell Weedon is addressed only to the Board of
Directors and is intended to be for the benefit of such Board of Directors, not
for the benefit of shareholders or any other third parties. The opinion of
Crowell Weedon does not constitute a recommendation by Crowell Weedon to any
shareholder of Calnetics as to how to vote on the proposed Merger.
ADDITIONAL CONDITIONS TO THE MERGER
As set forth in the Acquisition Agreement, the obligations of Summa and/or
the Company to consummate the Merger are subject to a number of additional
conditions, including, among others: (i) receipt by Summa of the Financing; (ii)
the Acquisition Agreement and the transactions contemplated thereby shall have
been approved by holders of at least a majority of the shares of the Company's
Common Stock outstanding on the Record Date; (iii) any holders of Options still
outstanding as of the Effective Date shall have entered into written agreement
with
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Summa to exchange such Options for options to purchase Summa common stock; (iv)
the holders of not more than 5% of the Company's Common Stock shall have become
"perfected dissenting shareholders" pursuant to the provisions of Chapter 13 of
the California General Corporation Law (unless such condition is waived by the
Company and Summa); (v) each of the Company and Summa shall have received legal
opinions from the other's legal counsel dated as of the Effective Date regarding
certain matters; (vi) all approvals and authorizations of all governmental
authorities and third parties required for the consummation of the Merger shall
have been received; (vii) no claim, suit or proceeding shall be pending or
threatened and no statue, rule or regulation shall be enacted that presents a
substantial risk of the restraint or prohibition of the Merger or the obtaining
or material damages in connection therewith; (viii) the fairness opinion
delivered to the Board of Directors of the Company shall not have been
withdrawn; (ix) the information contained in this Proxy Statement shall not
contain an untrue statement of material fact nor omit to state a material fact;
and (x) all representations and warranties made by each party to the other in
the Acquisition Agreement shall continue to be accurate in all material
respects, and there shall have been no material adverse change in the business
or financial condition of either party.
At any time before or after the approval of the Acquisition Agreement by the
Company's shareholders, the Board of Directors of either the Company or Summa
may, without shareholder approval, waive compliance with any of the applicable
terms or conditions contained in the Acquisition Agreement, except that the
Merger may not be consummated unless at least a majority of the outstanding
shares of the Company's Common Stock are voted to approve the Acquisition
Agreement.
AMENDMENT; TERMINATION
Both the Acquisition Agreement and the Merger Agreement may be amended by
written agreement of the parties either before or after the approval of the
Merger by the shareholders of the Company, provided that after such approval no
such amendment may be made that will change the amount or kind of consideration
to be received by the Company's shareholders as a consequence of the Merger or,
in the judgment of the Board of Directors, otherwise materially and adversely
affect the rights of the Company's shareholders.
The Acquisition Agreement and the Merger Agreement may be terminated and the
Merger abandoned before the Effective Time (i) by mutual written consent of the
Company and Summa, (ii) by Summa on or before August 18, 1997 if Summa shall not
have made arrangements reasonably satisfactory to Summa to obtain the Financing
on a timely basis, or by the Company on or within five business days of August
18, 1997 if by such date Summa shall not have obtained written evidence
reasonably satisfactory to the Company that Summa will be able to obtain the
Financing on a timely basis, (iii) by the Company on or within five business
days after September 30, 1997 if by such date the status of the Financing is not
satisfactory to the Company in its sole discretion; provided that, Summa shall
have the right to delay such termination for 30 days by undertaking to pay the
Company $100,000 within 48 hours of notice from the Company that the Acquisition
Agreement has been approved by the Company's shareholders, (iv) by either party
if the Merger has not been consummated by October 31, 1997, except that the
foregoing right to terminate shall not be available to a party whose failure to
perform any covenant or condition within that party's control is the proximate
cause of the failure of the Merger to be consummated by that date, (v) by either
party if there shall have occurred a general suspension of trading in, or
limitation on prices for, securities on a securities exchange, a declaration of
a banking moratorium or suspension of payments in respect of banks in the United
States, or a material limitation by any governmental authority on the extension
of credit by banks or other financial institutions, (vi) by either party if the
other fails to perform any material covenant under the Acquisition Agreement,
unless such failure is capable of being cured within thirty business days, or if
any condition is not satisfied and cannot reasonably be satisfied prior to
October 31, 1997, (vii) by the Company if it does not obtain a fairness opinion
reasonably acceptable to it by July 31, 1997, and (viii) by either the Company
or Summa in the event that the Board of Directors of either has determined to
enter into a transaction that would be inconsistent with the Merger and was not
initiated by such party. Any termination described in (ii) above would require
prompt payment by Summa to the Company of $75,000, and any termination described
in (iii) above or in (iv) if due to Summa's failure to obtain Financing would
require prompt payment by Summa to the Company of $150,000. Any
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termination described in (viii) above would be conditioned upon payment by the
terminating party to the other of the sum of $500,000, as liquidated damages in
respect of the loss of the non-terminating party's prospective economic
opportunity and as reimbursement for all expenses incurred in connection with
the proposed Merger.
STANDSTILL AGREEMENTS
In the Acquisition Agreement, the Company and Summa have agreed that before
the Effective Time, unless the Acquisition Agreement is sooner terminated,
neither of them will initiate, directly or indirectly, any business combination,
sale of assets or stock or other transaction that would be inconsistent with the
transactions contemplated by the Acquisition Agreement, including the Merger.
However, either party may respond to third party inquiries and may terminate the
Acquisition Agreement on the terms described above if such party determines to
enter into an inconsistent transaction with a third party that was not initiated
by the terminating party. In addition, the Company and Summa have agreed that if
either of them terminates the Acquisition Agreement, then for the following two
years neither of them may, without the written consent of the Board of Directors
of the other party, acquire, seek, propose or agree to acquire, or cause to be
acquired the assets, business or voting securities of the other party or any
rights or options to acquire such ownership, seek or propose to influence or
control the management or policies of the other party, or enter into
negotiations, discussions, arrangements or understandings with any third party
with respect to any of the foregoing.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendations of the Board of Directors with respect to
the Merger, shareholders should be aware that certain members of the Board of
Directors and the management of the Company have certain interests in the Merger
that are different from, or in addition to, the interests of shareholders
generally.
For information with respect to beneficial ownership of Common Stock by
management and members of the Board of Directors, which Common Stock will be
subject to exchange for the Merger Consideration upon consummation of the
Merger, see "Ownership of Common Stock."
In connection with the Merger, each holder of Options will receive, at his or
her election, either (i) cash equal to the difference between $7.35 and the
exercise price of such Option multiplied by the number of underlying shares
covered by such Option, (ii) substantially similar options to purchase shares of
common stock of Summa with the same aggregate exercise price but in such numbers
and at such exercise prices per share as determined by Summa on or before one
business day prior to the Special Meeting, or (iii) a combination of the
foregoing. Holders electing to receive cash shall surrender such Options to the
Company for cancellation and payment immediately prior to the Effective Time.
See "Description of the Merger Treatment of Stock Options." Of the 225,000
Options outstanding as of the Record Date, Messrs. Hornak, Strawn, Schultz,
Griffith and Thoresen, each of whom is a director and/or executive officer of
the Company, hold Options to purchase 50,000, 50,000, 50,000, 10,000 and 50,000
shares of Common Stock, respectively.
The following lists estimated cash payments that will be made by Summa or, in
the case of Options, by the Company to each of the Company's directors and
executive officers upon consummation of the Merger, which payments include the
total cash payments to each such person for Common Stock deemed beneficially
owned by him or her and assume an election to receive cash for all Options:
Clinton G. Gerlach, $8,639,954; Fred E. Edward, $1,485,170; Peter H. Griffith,
$14,750; Michael A. Hornak, $988,575; Steven L. Strawn, $1,029,000; Trygve M.
Thoresen, $61,250; Teresa Louie, $58,800; and Barbara Guyer, $73,500. The total
cash payments to all of such directors and executive officers as a group equals
$12,391,424. For details relating to beneficial ownership, see the "Ownership of
Common Stock" table and footnotes thereto.
Trygve M. Thoresen, Vice President-Finance and General Counsel of the
Company, is a party to a change-in-
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control agreement with the Company which provides that if termination of his
employment occurs following a "change-in-control" of the Company (as defined in
such agreement) and such termination is by the Company (or its successor) other
than "for cause" (as defined in such agreement) or by Mr. Thoresen for "good
reason" (as defined in such agreement), Mr. Thoresen will be entitled to
receive, among other things, one times the sum of his annual base salary plus
bonus. Under such agreement, the Merger will constitute a change-in-control, and
any change in certain conditions to Mr. Thoresen's employment, including
decreases in compensation and benefits, following the Merger will constitute
"good reason" for Mr. Thoresen to terminate his employment.
ACCOUNTING TREATMENT
The Merger will be accounted for under the purchase method of accounting, in
accordance with generally accepted accounting principles. Under the purchase
method of accounting, the purchase price of the Company, including direct costs
of the Merger, will be allocated to the tangible assets acquired and liabilities
assumed based on their estimated relative fair market values, with the excess
purchase consideration allocated to intangible assets. The results of Summa's
operations will include the results of operations of the Company only from and
after the Effective Time.
MERGER EXPENSES; BROKERAGE FEES
The Company will incur the expenses of printing and filing this Proxy
Statement. Each party will pay all other expenses incurred by it incident to the
Merger and carrying out of the transactions contemplated by the Acquisition
Agreement. The Company estimates that the expenses which it will incur in
connection with the Merger for legal, accounting, investment advisory, filing
fees, printing, mailing and other costs, fees and expenses will aggregate
approximately $150,000. Neither the Company nor Summa has used the services of a
finder or broker in connection with the Merger.
APPROVAL OF THE MERGER
The Board of Directors of the Company believes that the Merger is fair to,
and in the best interests of, the Company and its shareholders. Accordingly, the
Board of Directors has unanimously approved the Acquisition Agreement, the
Merger and all of the other transactions contemplated thereby, and unanimously
recommends that the shareholders vote "FOR" approval of the Acquisition
Agreement and the transactions contemplated thereby.
In addition, the Board of Directors of Summa has unanimously approved the
Acquisition Agreement, the Merger and all of the other transactions contemplated
thereby.
Under California law, the Merger cannot be consummated without the
affirmative vote of the holders of a majority of the outstanding shares of
Common Stock in favor of the Acquisition Agreement and other transactions
contemplated thereby, including the Merger.
Subject to satisfaction or waiver of certain conditions set forth in the
Acquisition Agreement, Gerlach Holding Corporation, a California corporation
("GHC"), has agreed to vote all of its shares of Common Stock in favor of the
approval of the Acquisition Agreement and the transactions contemplated thereby.
As of the Record Date, GHC held 1,085,504 shares of Common Stock, constituting
approximately 36% of the shares of Common Stock outstanding on such date. The
affirmative votes of the holders of an additional 433,896 shares of Common Stock
will be required for approval of the Acquisition Agreement and the transactions
contemplated thereby by the shareholders. Mr. Clinton G. Gerlach, Chairman of
the Board and President of the Company, serves as President of GHC. See "Voting
and Proxies."
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DEREGISTRATION OF COMMON STOCK
Following consummation of the Merger, the shares of Common Stock will cease
to be registered under the Exchange Act and will cease to be publicly traded.
RIGHTS OF DISSENTING SHAREHOLDERS
If the Merger is consummated, holders of Common Stock of the Company who
object to the Merger may be entitled to have the "fair market value" of their
shares at the Effective Date (exclusive of any element of value arising from the
accomplishment or expectation of the Merger) judicially determined and paid to
them by complying with the provisions of Chapter 13 of the California General
Corporation Law ("Chapter 13"). However, because the Common Stock is traded on
The Nasdaq National Market, shareholders of the Company who object to the Merger
may vote against approval and adoption of the Acquisition Agreement at the
Special Meeting but will not be entitled to dissenters' rights if the Merger is
consummated over their objections unless the holders of five percent or more of
the outstanding shares of Common Stock make appropriate demands under Chapter
13.
The following is a brief summary of Chapter 13, which sets forth the
procedures for dissenting from the Merger and demanding statutory dissenters'
rights. This summary is qualified in its entirety by reference to Chapter 13,
the text of which is attached hereto as Appendix III and incorporated herein by
reference. Appendix III should be reviewed carefully by any holder who wishes to
exercise statutory dissenters' rights or who wishes to preserve the right to do
so, because failure to comply with the procedures set forth in Chapter 13 will
result in the loss of dissenters' rights.
Not later than the date of the Special Meeting, a shareholder of the Company
who desires to exercise his or her statutory dissenters' rights must make upon
the Company a demand (addressed and delivered to the Secretary of the Company at
20401 Prairie Street, Chatsworth, California 91311) to purchase and pay to the
shareholder in cash the "fair market value" of all or any portion of the shares
of Common Stock held of record by the shareholder. Such written demand must
contain a statement of what such shareholder claims to be the fair market value
of those shares as of the day before the first public announcement of the
proposed Merger. This statement of fair market value constitutes an offer by the
shareholder to sell such shares at such price. Such written demand must be in
addition to and separate from any proxy or vote against the proposal to approve
the Merger. Voting against the Merger will not constitute the written demand for
payment of the fair market value in cash of any shares that is required by
Chapter 13. The written demand must be executed by or for the shareholders of
record, fully and correctly, as such shareholder's name appears on the
certificate representing such shareholder's shares of Common Stock.
Pursuant to the provisions of Chapter 13, holders of Common Stock desiring to
exercise their statutory dissenters' rights must affirmatively vote against
approval of the Acquisition Agreement and the transactions contemplated thereby
at the Special Meeting. Abstaining from voting or failing to vote on the
proposal to approve the Acquisition Agreement will not constitute a vote against
the Acquisition Agreement and the Merger. Any shareholder who desires to
exercise dissenters' rights should either (i) execute and return a proxy card in
the respective form accompanying this Proxy Statement, specifying that his or
her shares are to be voted against the approval and adoption of the Acquisition
Agreement, or (ii) attend the Special Meeting in person and vote against
approval of the Acquisition Agreement. If a holder of Common Stock returns a
signed proxy but does not specify a vote against approval and adoption of the
Acquisition Agreement or a direction to abstain from voting on the approval of
the Acquisition Agreement, the proxy will be voted FOR approval of the
Acquisition Agreement and the transactions contemplated thereby, which will
waive such holder's dissenters' rights.
If the Acquisition Agreement is approved, the Company will have 10 days after
such approval to send to those shareholders who have made a demand upon the
Company for the fair market value of their shares by the date of
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the Special Meeting and who have voted against the Acquisition Agreement written
notice of such approval, which must be accompanied by a copy of Chapter 13, a
statement of the price determined by the Company to represent the fair market
value of the dissenting shares, and a brief description of the procedure to be
followed if a shareholder desires to exercise dissenters' rights. In order to
preserve his or her dissenters' rights, a shareholder must, within 30 days after
the date on which the notice of approval of the Acquisition Agreement is mailed,
make written demand upon the Company for the purchase of dissenting shares,
specifying their number, and for payment to such shareholder in cash of the fair
market value of such dissenting shares. Within the same 30-day period, the
dissenting shareholder must also surrender to the Company at the office
designated in the notice of approval of the Acquisition Agreement, the
certificates representing the dissenting shares to be stamped or endorsed with a
statement that they are dissenting shares or to be exchanged for certificates of
appropriate denomination so stamped or endorsed. Any shares of Common Stock that
are transferred before their submission for endorsement will lose their status
as dissenting shares.
If the Company denies that shares surrendered are dissenting shares, or if a
shareholder fails to agree with the Company upon the fair market value of his or
her dissenting shares, then the dissenting shareholder must, within six months
after the notice of the approval of the Acquisition Agreement is mailed, either
file a complaint with the Superior Court of the County of Los Angeles requesting
that the Court make such determinations, or intervene in any pending action
brought by any other dissenting shareholder. If such a complaint is not filed or
such intervention in a pending action is not made within the specified six-month
period, the dissenting shareholder will lose his or her dissenters' rights.
No shareholder will be entitled to receive the fair market value of his or
her shares of Common Stock as a consequence of the exercise of dissenters'
rights unless the Merger is consummated. Among other conditions to the
respective obligations of the parties to consummate the Merger, neither party
will be obligated to consummate the Merger (but may do so) if the holders of
more than five percent of the Common Stock of the Company perfect their
dissenters' rights under Chapter 13.
SOURCE AND AMOUNT OF FUNDS
The total amount of funds that will be required to pay shareholders and
holders of options (assuming all such option holders elect to receive cash) in
the Merger is approximately $23.2 million. In addition, Summa will incur fees
and expenses relating to the Merger and obtaining the Financing currently
estimated at approximately $150,000. Summa intends to obtain the funds from a
new credit facility from a financial institution. The proceeds of the new credit
facility will be used to provide the consideration to be paid to the Company's
shareholders, to retire certain existing debt of the Company and of Summa, and
to provide working capital and funds for capital expenditures for the operations
of the subsidiaries of the Company and of Summa. As of August ___, 1997 Summa
was negotiating with several financial institutions.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion of the material United States federal income tax
consequences of the Merger is for general information only. It is based on the
Internal Revenue Code of 1986, as amended (the "Code"), existing and proposed
Treasury Regulations and judicial and administrative determinations, all of
which are subject to change at any time, possibly on a retroactive basis. It
does not discuss the state, local or foreign tax consequences of the Merger, nor
does it discuss tax consequences to categories of shareholders that are subject
to special rules, such as foreign persons, tax-exempt organizations, insurance
companies, banks, persons who received their shares of Common Stock as
compensation and dealers in stocks and securities. Tax consequences may vary
depending on the particular status of an investor. No rulings will be sought
from the Internal Revenue Service (the "Service") with respect to the federal
income tax consequences of the Merger.
PURCHASE OF SHARES
The receipt of the Merger Consideration pursuant to the Merger will be a
taxable transaction for U.S. federal income tax purposes (and may also be a
taxable transaction under applicable state, local and other income tax laws). In
general, for federal income tax purposes, a shareholder will recognize gain or
loss equal to the difference between his or her adjusted tax basis in his or her
shares of Common Stock and the amount of cash received in exchange therefor.
Such gain or loss generally will be capital gain or loss if the shares of Common
Stock were held as capital assets and will be long-term capital gain or loss if,
on the date of sale, the shares of Common Stock were held for more than one
year.
BACKUP WITHHOLDING
Under the Code, the receipt of the Merger Consideration may be subject, under
certain circumstances, to "backup withholding" at a 31% rate. This withholding
generally applies only if the shareholder (i) fails to furnish his or her social
security or other taxpayer identification number ("TIN") within a reasonable
time after the request therefor, (ii) furnishes an incorrect TIN, (iii) is
notified by the Service that he or she has failed to report properly interest or
dividends, or (iv) fails, under certain circumstances, to provide a certified
statement, signed under penalty of perjury, that the TIN provided is the correct
number and that he or she is not subject to backup withholding. Any amount
withheld from a payment to a shareholder under the backup withholding rules is
allowable as a credit against such shareholder's federal income tax liability,
provided that the required information is furnished to the Service. Corporations
and certain other entities described in the Code and Treasury Regulations are
exempt from such withholding if their exempt status is properly established.
Shareholders should consult their tax advisors as to their qualification for
exemption from withholding and the procedure for obtaining such exemption.
GENERAL
The foregoing discussion may not be applicable to shareholders who are
subject to special treatment under U.S. federal income tax law or to holders of
shares of Common Stock acquired upon the exercise of employee stock options or
otherwise as compensation.
THE U.S. FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR
GENERAL INFORMATION ONLY. SHAREHOLDERS ARE URGED TO CONSULT WITH THEIR TAX
ADVISORS TO DETERMINE THE PARTICULAR TAX CONSEQUENCES TO THEM (INCLUDING THE
APPLICATION AND EFFECT OF STATE, LOCAL OR FOREIGN INCOME AND OTHER TAX LAWS) OF
THE MERGER.
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COMMON STOCK PRICES AND DIVIDENDS
Until June 19, 1996, the Common Stock was traded on The Nasdaq SmallCap
Market, but began trading on The Nasdaq National Market on June 20, 1996 under
the symbol "CALN." The following table sets forth the high asked and low bid
quotations for a share of Common Stock for periods through June 19, 1996, and
high and low prices for a share of Common Stock for all periods subsequent to
June 19, 1996. Quotations represent prices between dealers, without retail
markups, markdowns or commissions and may not necessarily represent actual
transactions.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
QUARTER ENDED
- -------------
September 30, 1994 ................... $ 3.50 $2.75
December 31, 1994 .................... 4.50 2.75
March 31, 1995 ....................... 6.25 3.25
June 30, 1995 ........................ 5.75 3.50
QUARTER ENDED
- -------------
September 30,1995 .................... 4.75 3.75
December 31, 1995 .................... 4.25 3.00
March 31, 1996 ....................... 5.13 4.50
June 30, 1996 ........................ 10.25 4.88
QUARTER ENDED
- -------------
September 30,1996 .................... 9.25 7.38
December 31, 1996 .................... 8.00 5.75
March 31, 1997 ....................... 7.38 6.13
June 30, 1997 ........................ 6.50 5.00
</TABLE>
On July 2, 1997, the last full trading day prior to the public announcement
by Summa and Calnetics of the execution of the Acquisition Agreement, the
closing price for a share of Common Stock of the Company on The Nasdaq National
Market was $5.72. On August __, 1997, the closing price for a share of such
Common Stock was $____.
There were ___ shareholders of record as of August 11, 1997. Based solely
upon the number of sets of proxy materials requested by brokers, dealers and
other institutional "street name" holders for the last annual meeting of
shareholders, the Company estimates that there are greater than 600 beneficial
holders of its Common Stock.
To date, the Company has not paid any cash dividends, and the Company
currently does not intend to pay any cash dividends in the foreseeable future.
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DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 20,000,000 shares of
Common Stock, without par value, of which 3,038,799 shares were issued and
outstanding as of the Record Date, and 2,000,000 shares of Preferred Stock,
without par value, of which no shares have been issued or are outstanding.
COMMON STOCK
Holders of Common Stock are entitled to one vote per share on each matter
submitted to a vote of the shareholders of Calnetics, except that cumulative
voting for the election of directors is permitted. Subject to preferences that
may be applicable to the holders of any outstanding Preferred Stock, each holder
of Common Stock is entitled to receive ratably such dividends, if any, as may be
declared by the Board of Directors out of funds legally available therefor. See
"Common Stock Prices and Dividends." Upon the liquidation, dissolution or
winding up of Calnetics, the holders of Common Stock are entitled to share
ratably in all assets of Calnetics which are legally available for distribution,
after payment of all debts and other liabilities and the liquidation preference
of any outstanding Preferred Stock. Holders of Common Stock have no preemptive,
subscription, redemption or conversion rights. The outstanding shares of Common
Stock were validly issued and are fully paid and nonassessable under the laws of
the State of California.
PREFERRED STOCK
The Board of Directors is authorized, subject to any limitations prescribed
by the laws of the State of California, but without further vote or action by
the shareholders, to provide for the issuance of Preferred Stock in one or more
series, to establish from time to time the number of shares to be included in
each such series, to fix the designations, powers, preferences and rights of the
shares of each such series and any qualifications, limitations or restrictions
thereof, and to increase or decrease the number of shares of any such series
(but not below the number of shares of such series then outstanding). The Board
of Directors may authorize and issue Preferred Stock with voting or conversion
rights that could adversely affect the voting power or other rights of the
holders of Common Stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is ChaseMellon
Shareholder Services, 400 South Hope Street, 4th Floor, Los Angeles, California
90071, and its telephone number is: (213) 553-9700.
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OWNERSHIP OF COMMON STOCK
The following table sets forth certain information regarding the beneficial
ownership of Common Stock as of the Record Date by each shareholder known by
Calnetics to be the beneficial owner of more than 5% of its outstanding shares
of Common Stock, each director of Calnetics, and all executive officers and
directors of Calnetics as a group. Except as otherwise indicated in the
footnotes to the following table, each of the persons listed below has sole
voting and investment power with respect to the shares of Common Stock shown as
beneficially owned by such person, subject to applicable community property
laws. Unless otherwise indicated, the address of each shareholder listed is in
care of Calnetics, 20401 Prairie Street, Chatsworth, California 91311.
<TABLE>
<CAPTION>
Shares Percent of
Name Beneficially Owned Class(1)
---- ------------------ ---------
<S> <C> <C>
Clinton G. Gerlach(2)(4)................. 1,175,504 39
Fred E. Edward(3)(4)..................... 202,064 7
Peter H. Griffith(5)..................... -0- *
Michael A. Hornak(6)..................... 134,500 4
Steven L. Strawn(4)(6)................... 140,000 5
Lon Schultz(7)........................... 51,500 2
All Directors and Executive Officers as
a Group (8 persons)(5)(8)................ 1,721,568 57
</TABLE>
- ----------
* Less than one percent.
(1) Beneficial ownership is determined in accordance with the rules and
regulations of the Commission, based upon information furnished by each
person listed. The percentages shown include shares which each named
shareholder has the right to acquire within 60 days of the Record Date. In
calculating percentage ownership, all shares which a named shareholder has
the right to so acquire are deemed outstanding for the purpose of computing
the percentage ownership of that shareholder, but are not deemed outstanding
for the purpose of computing the percentage ownership by any other
shareholder. Listed persons may disclaim beneficial ownership of certain
shares.
(2) Includes 1,085,504 shares held of record by Gerlach Holding Corporation, a
Delaware corporation ("GHC"), owned by the following entities or individuals
by the percentages indicated: The Gerlach Family Trust (52%) and Mr.
Gerlach's son and daughter, Clinton G. Gerlach, II (24%) and Kimberlee Ann
Grot (24%). Each of the GHC shareholders has a right of first refusal on a
prorata basis covering the GHC stock owned by the remaining GHC shareholders
pursuant to a right of first refusal agreement dated July 1, 1992. Also
includes (i) 10,000 shares of Common Stock held of record by the Gerlach
Family Trust and (ii) 80,000 shares of Common Stock held of record by Mr.
Gerlach's nephew, Charles Gerlach, as to which Mr. Gerlach has sole voting
power.
(3) Held of record by the Fred and Evelyn Edward Family Trust, Fred Edward,
Trustee (the "Edward Trust").
(4) GHC has a right of first refusal covering the 202,064 shares of Common Stock
owned by the Edward Trust pursuant to a certain right of first refusal
agreement dated as of March 11, 1988. In addition, pursuant to agreements
Mr. Gerlach, through GHC, has a right of first refusal covering (i) 40,000
shares of Common Stock owned by Steven L. Strawn, Vice President and
Director of Calnetics and (ii) 71,230 shares of Common Stock owned by
another shareholder of Calnetics. GHC has agreed to waive such rights of
first refusal for sales in the Merger.
(5) Excludes an option to purchase 10,000 shares of Common Stock at an exercise
price of $5.875 per share which becomes exercisable in November 1997.
(6) Includes presently exercisable options to acquire 50,000 shares of Common
Stock at an exercisable price of $2.00 per share held by each and, in the
case of Mr. Hornak, includes 3,000 shares held by his son.
(7) Includes presently exercisable options to acquire 50,000 shares of Common
Stock at an exercise price of $3.00 per share.
(8) Excludes an option held by Trygve M. Thoresen, Vice President-Finance and
General Counsel, to acquire 50,000 shares of Common Stock at an exercise
price of $6.125 per share which will become exercisable in equal one-third
increments in January 1998, 1999 and 2000.
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INFORMATION CONCERNING THE COMPANY
BUSINESS
GENERAL
Calnetics, founded in 1960, is a California corporation with its headquarters
located at 20401 Prairie Street, Chatsworth, California 91311 (telephone number
(818) 886-9819). The Company's Common Stock is listed on The Nasdaq National
Market under the symbol "CALN", and its fiscal year-end is June 30th.
All of the manufacturing operations of Calnetics are conducted through its
three wholly-owned subsidiaries (the "Calnetics Subsidiaries"). Manchester
Plastics Co., Inc. ("Manchester Plastics") is a California corporation located
in Chatsworth, California that manufactures proprietary items and custom
products of acrylic, polycarbonate and polystyrene plastic sheet principally for
the building materials and industrial plastics industries. Ny-Glass Plastics,
Inc. ("Ny-Glass") is a California corporation located in Corona, California that
manufactures plastic parts, principally by use of injection molding and
structural foam molding techniques, and performs certain value-added services
for customers in a variety of industries. Agricultural Products, Inc. ("API") is
a California corporation with locations in Ontario, California and Winter Haven,
Florida, that manufactures fittings, filters, plastic tubing and accessories,
principally for irrigation use in the agricultural industry. For the fiscal year
ended June 30, 1997, approximately 70% of Calnetics' net sales of approximately
$36.6 million were of proprietary products. The remaining portion of net sales
for such fiscal year were of custom fabrication and production parts
manufactured to each individual customer's specifications. Such custom parts are
produced for a wide variety of industries, including the electronics industry.
HISTORY; GROWTH STRATEGY
In March 1988, Mr. Clinton G. Gerlach, the Chairman of the Board and
President of Calnetics, either directly or through Gerlach Holding Corporation,
a Delaware corporation of which Mr. Gerlach was then the sole shareholder
("GHC"), acquired an aggregate of 682,004 shares of Calnetics Common Stock. GHC
purchased 300,000 newly-issued shares directly from Calnetics, and the remaining
shares were purchased by Mr. Gerlach and GHC from individual shareholders of
Calnetics. In February 1992, GHC acquired all 403,500 shares of Calnetics Common
Stock then-owned by Mr. Larry Sacks, a former officer and Director of Calnetics,
resulting in aggregate ownership by GHC and Mr. Gerlach of 1,085,504 shares,
representing approximately 36% of the total shares of Calnetics Common Stock
outstanding immediately prior to the mailing of this Proxy Statement. Currently,
the Gerlach Family Trust owns 52% of GHC, with the remaining 48% owned by
Mr. Gerlach's son and daughter.
Beginning in 1988, as part of its growth strategy, the new management of the
Company began to actively review and pursue potential merger and acquisition
candidates consisting principally of privately-held manufacturers in the
plastics industry. As a result of such strategy, the Company has made three
acquisitions since 1988. The following paragraphs provide a brief description of
each such acquisition in chronological order.
MANCHESTER PLASTICS. In September 1989, the Company acquired all of the
outstanding capital stock of Manchester Plastics for a purchase price of
approximately $525,000 in cash, a $110,000 promissory note and approximately
444,000 shares of the Company's Common Stock. Manchester Plastics was then and
currently is located in Chatsworth, California in a leased building. The lease
on such premises is scheduled to expire in December 1999.
NY-GLASS. In June 1992, the Company acquired substantially all of the assets
of Plastic Science, Inc. ("PSI") for a purchase price of approximately $320,000
in cash. In connection with the purchase of such assets, the Company entered
into a ten-year lease for the building in Corona, California where PSI had
formerly conducted its injection molding operations. In September 1992, the
Ny-Glass division of the Company, then located in Paramount, California, was
relocated to Corona, California and consolidated with the assets of PSI, forming
the business currently conducted by the Ny-Glass subsidiary of the Company.
API. Effective April 1994, the Company acquired all of the outstanding
capital stock of API for a purchase price of approximately $4.4 million, payable
$4.0 million in cash and $0.4 million in unsecured notes to the former API
shareholders. In connection with the acquisition, the Company obtained $4.5
million in cash from long-term
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bank financing from two lenders. At the time of this acquisition, API had an
outstanding principal balance of approximately $1.44 million of industrial
revenue bonds, the majority of which are still outstanding as of the date
hereof.
PRODUCTION
Through the Calnetics Subsidiaries, the principal manufacturing operations of
the Company are the extrusion of plastic sheet and tubing and injection and
structural foam molding of numerous plastic parts using various types of resins.
Through its API subsidiary, the Company also assembles certain parts using sonic
welding techniques. Although substantially all extrusions are performed in-house
by the Company, a material amount of injection molding of plastic parts is
performed by third parties, principally for API. Although the Company designs,
repairs, services and maintains molds for its own products and those of its
customers, it does not perform mold-making services. In addition to the
extrusion of sheet and tubing and the injection molding of clear and colored
plastic parts, the Company performs a variety of value-added services, such as
pin-insertion, heat stamping, silk screening, assembly, packaging and short-term
warehousing.
All production occurs at the Company's plants located in Chatsworth, Corona
and Ontario, California and in Winter Haven, Florida. Sheet products are made on
extrusion lines located at the Manchester Plastics plant. Tubing is made on
extrusion lines located at API's two plants, while the sonic welding of fittings
and other agricultural products occurs principally at API's Ontario plant. All
injection molding and structural foam molding occurs at the Ny-Glass plant,
which is ISO 9002 and UL certified, on molding machines ranging from 75 to 800
tons clamping force.
RAW MATERIALS; INVENTORIES
The Company maintains an inventory of raw materials and finished goods for
sale at levels determined to be desirable to enable each Calnetics Subsidiary to
quickly respond to customer demand. Although such raw materials and finished
goods on hand represent a substantial commitment of working capital, the Company
believes that a rapid response to customer catalog orders is essential and that
its inventory practices are not unusual in the industries in which it competes.
The principal raw materials used by the Company with respect to the
manufacture of its products are resins for producing plastic parts. Each
Calnetics Subsidiary maintains what it considers to be a reasonable supply of
raw material resins, typically ranging from 30 to 60 days' supply. These amounts
are not increased except in times of expected shortages. Such resins are
purchased in pelletized form from several different suppliers, such as Dow
Chemical, Muehlstein, Cyro, Union Carbide, DuPont and GE Plastics. The Company
is not currently a party to any long-term agreements for the purchase of resins.
None of the Calnetics Subsidiaries is dependent upon any one supplier for its
present requirements of such resins nor are any such Subsidiaries experiencing
any shortages in supply, although Manchester Plastics experienced nominal
shortages of polycarbonate resin in the 1996 fiscal year. However, there can be
no assurance that shortages in one or more types of resin will not occur from
time to time.
CUSTOMERS AND MARKETING
The Company's largest customer, which is a customer of Ny-Glass, represented
less than five percent of the Company's combined net sales for the last fiscal
year. Although export sales of certain of the Company's products are increasing,
such sales represented less than five percent of the Company's combined net
sales for the last fiscal year. API sells a large percentage of its products to
customers in the Central Valley of California. Although the Company had
previously believed that the floods in such area earlier this calendar year
would have an adverse impact on sales of agricultural irrigation products, a
reduction in sales did not materialize. The Company does not have any government
contracts or any other contracts which are subject to the renegotiation of
profits or termination at the election of the government.
The Company markets its products at all four facilities by use of in-house
sales personnel and a limited number of outside sales representatives and
independent manufacturers representatives.
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BACKLOG; SEASONALITY
Backlog orders consist of written purchase orders and telephone orders
generally confirmed in writing or by substantially concurrent delivery and
acceptance of product. The Company estimates that approximately 90% of its sales
orders are written. The Company normally does not offer cancellation rights and
considers its backlog of orders to be firm. As of June 30, 1997 and 1996, the
Company's backlog for all products was approximately $2,497,000 and $2,508,000,
respectively. The backlog as of the end of the fiscal year on June 30, 1995 was
$2,290,000. Typically, the Company anticipates that approximately 95% of its
backlog at any given time will be filled during the subsequent 12 months.
Historically prior to the 1995 fiscal year, the Company's business was not of
a seasonal nature as neither the Manchester Plastics nor Ny-Glass subsidiaries
experienced seasonality in the sale of their products. However, the business of
the API subsidiary, which was purchased effective two months prior to the 1995
fiscal year, has historically been seasonal in nature, with demand for its
irrigation products highest during the spring and early summer. In fiscal 1997,
the business of the Company reflected this trend, with approximately $17,032,000
of revenue in the first half of the fiscal year (July through December) and
approximately $19,584,000 during the remainder of the fiscal year (January
through June).
COMPETITION
Each of the Calnetics Subsidiaries encounters extensive competition from many
competitors, a substantial number of which are larger and have greater financial
and marketing resources. In addition, the Company believes that the number of
international entities attempting to compete in its markets is increasing.
Although it is difficult to estimate the number of businesses in the plastic
manufacturing industry with which the Company competes, the injection molding
business operated by Ny-Glass appears to have the most competitors, ranging from
numerous small proprietorships to large corporations, while Manchester Plastics
competes principally with a lesser number of large corporations and API competes
principally with a lesser number of corporations of similar and larger size.
Competition is based principally on price, product quality, customer service
and the ability to timely deliver products. The Company believes that each
Calnetics Subsidiary has good relationships with its customers, and that such
Subsidiaries have developed a good following in the respective markets they
serve, including a favorable reputation for prompt and reliable customer service
and quality of products.
PATENTS AND TRADEMARKS
Although the Company has a limited number of domestic patents and trademarks
held by API as well as several trademark applications currently in process, the
Company does not believe that any such patents or trademarks are material to its
businesses or operations.
RESEARCH AND DEVELOPMENT
The Company has not expended a material amount on research and development of
proprietary products in the past several years and currently does not anticipate
any material expenditures in this area. However, the Company does conduct
routine product line analysis to develop additional catalog and custom products
as part of its normal operations, particularly at API and, to a lesser extent,
at Ny-Glass.
LEGAL PROCEEDINGS
In the ordinary course of its business, the Company and/or one or more of the
Calnetics Subsidiaries may become involved in legal proceedings from time to
time. As of the date of mailing of this Proxy Statement, neither the Company nor
any of the Calnetics Subsidiaries is a party to any material pending legal
proceedings.
TAX EXAMINATION
API is in the process of an Internal Revenue Service ("IRS") examination
regarding the tax-exempt status of
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its industrial revenue bond. The IRS has informed the Company that preliminary
findings indicate that the bond may not be tax exempt and thus API may be
required to pay additional interest. The Company believes it has recorded
adequate reserves to cover any potential liability that may result from the
final resolution of this matter.
ENVIRONMENTAL MATTERS
The Company believes that its policy in controlling the use and discharge of
hazardous materials is in compliance with applicable federal, state and local
regulations. As of the date of the mailing of this Proxy Statement, the Company
has not received notice from any governmental authority of any assertion of
material non-compliance with any such laws.
The Company formerly operated a facility on property within an area
subsequently designated as a federal Superfund site located in Southern
California. The Company operated at this facility prior to October 1986. The
Company has learned that hazardous substances have been identified in the
subsurface of the property and that the current owner has been requested by a
state agency to undertake additional investigation at the property. The Company
is also aware that the property has been subject to a general notice letter
issued by the United States Environmental Protection Agency under the federal
Superfund law. The Company, as one of several prior operators of the property,
may be held responsible for the contamination at the site to the extent the
Company caused the contamination. The Company does not believe it is responsible
for any material contamination at the property, and has not been notified or
contacted by any governmental authority in that regard, nor named in any
proceeding relating to the property. However, if the Company were held liable
under federal Superfund law, or other environmental law, the consequences could
be material to the results of operations of the Company. The potential liability
associated with this property cannot be reasonably determined at this time.
FACILITIES
The Company headquarters and the Manchester Plastics corporate offices are
located in the Manchester Plastics plant in Chatsworth, California, consisting
of approximately 60,000 square feet of office and manufacturing space under a
lease that is scheduled to expire in December 1999.
The Ny-Glass corporate offices and plant are located in Corona, California,
in a building consisting of approximately 30,000 square feet of office and
manufacturing space under a lease that is scheduled to expire in May 2002.
The API corporate offices and California plant are located in Ontario,
California, in a building consisting of approximately 50,000 square feet of
office and manufacturing space owned by API, subject to repayment of industrial
revenue bonds. API's Florida plant is located in Winter Haven, Florida, in two
buildings consisting of approximately 28,000 square feet of office and
manufacturing space owned by API, subject to payment of existing mortgages.
In addition to the foregoing properties, additional space has been leased by
the Company at three locations and is being used principally for the warehousing
and storage of inventory. The largest location consists of approximately 15,000
square feet of space leased by API in Ontario, California.
EMPLOYEES
At June 30, 1997, the Company employed approximately 262 employees,
consisting of three employees at corporate headquarters, 12 salaried and 39
hourly employees at Manchester Plastics, approximately 9 salaried and 48 hourly
employees at Ny-Glass and approximately 25 salaried, 91 hourly and 35 temporary
employees at API. None of the foregoing employees is subject to a collective
bargaining agreement. The Company considers the relationship with its employees
to be good, and has not experienced any work stoppage from any labor dispute.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
GENERAL
The following analysis of the financial condition and results of operations
of the Company should be read in conjunction with the Company's consolidated
financial statements and notes thereto and the unaudited "Selected Financial
Data" included elsewhere in this Proxy Statement.
The businesses of the Company are principally concentrated on the manufacture
of various types and sizes of plastic parts, sheet and tubing using several
types of resins. Such parts, sheet and tubing are manufactured using injection
molding, structural foam molding, extrusion and other processes. The sonic
welding of certain parts is performed by the API subsidiary, principally at its
plant in Ontario, California. In addition to the manufacture and molding of
plastic parts, sheet and tubing, each business provides certain value-added
services for its customers, such as mold maintenance and repair, coloring,
pin-insertion, heat stamping, silk screening, assembly, packaging and short-term
warehousing. The following several paragraphs provide an overview as to how and
when the Company became involved in the businesses it currently conducts.
In 1989, the Company acquired all of the outstanding capital stock of
Manchester Plastics. The acquisition expanded the Company's operations to
include the manufacture of acrylic, polycarbonate and polystyrene plastic sheet,
principally for the building materials and industrial plastics industries. The
purchase price paid for this acquisition was approximately $525,000 cash, a
$110,000 promissory note and 444,000 shares of the Company's Common Stock. Prior
to the acquisition, the Company was primarily engaged in the manufacture of
molded plastic components by injection, transfer and compression processes
through its Ny-Glass division. Manchester Plastics operates from a manufacturing
plant with attached offices in Chatsworth, California.
In June 1992, the Company acquired for cash substantially all of the assets
of PSI, a manufacturer of plastic injection molding components located in
Corona, California. The acquisition was accomplished through a subsidiary of the
Company, Ny-Glass, which continued the business of PSI under the Ny-Glass name
in Corona, California. The cash purchase price paid for the assets acquired
amounted to approximately $320,000, $250,000 of which was obtained from a
short-term bank loan, utilizing the Company's then existing credit line of
$1,000,000. Current assets acquired as part of the acquisition amounted to
approximately $350,000 and current liabilities assumed totaled approximately
$305,000. In September 1992, the Company consolidated its Ny-Glass division,
then operating in Paramount, California, into the Corona facility.
Effective in April 1994, the Company acquired of all of the outstanding
capital stock of API. The purchase price was approximately $4.4 million,
consisting of cash of $4.0 million and unsecured promissory notes payable to the
former API shareholders of approximately $400,000. API, which was a closely held
private company, is a manufacturer of plastic water handling products, including
tubing, fittings, filters and drip system accessories with manufacturing plants
in Ontario, California and Winter Haven, Florida. Net assets acquired totaled
approximately $3,530,000, resulting in recording of goodwill of approximately
$875,000 which is being amortized on a straight-line basis over twenty years.
See "Information Concerning the Company - Business - History; Growth Strategy."
Effective July 1, 1994, the Company changed its method of pricing finished
goods inventories at Manchester Plastics from FIFO to LIFO. The change in method
was made to more properly match current expenses with revenues. At June 30,
1997, 1996 and 1995, if the FIFO method had been used to value Manchester
Plastics' finished goods inventories, the stated value of such inventories would
have been approximately $129,000, $421,000 and $408,000 higher, respectively,
and the effect on fiscal 1997 operations would have decreased income before
provision for income taxes by $292,000, and increased such amount by $13,000 and
$408,000 in fiscal 1996 and 1995, respectively, and decreased net income by
$175,000 in fiscal 1997, and increased such amount by $7,000 and $230,000 in
fiscal 1996 and 1995, respectively.
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RESULTS OF OPERATIONS
The following table sets forth certain information derived from the Company's
consolidated statements of income as a percentage of sales for the three years
ended June 30, 1995, 1996 and 1997:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED JUNE 30,
----------------------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Net sales ............................ 100.0% 100.0% 100.0%
Gross profit ......................... 25.5% 25.4% 27.4%
Selling, general and
administrative expense ............ 17.8% 16.0% 17.5%
Income before provision
for income taxes .................. 6.0% 8.3% 9.2%
Net income ........................... 3.5% 4.8% 5.6%
</TABLE>
NET SALES. For the fiscal year ended June 30, 1996, net sales increased 21%,
from $29,172,106 in the 1995 fiscal year to $35,193,973. The increase is
attributed to broader customer acceptance of the Company's products
proportionally obtained by all three subsidiaries.
For the fiscal year ended June 30, 1997, net sales increased 4%, from
$35,193,973 in the 1996 fiscal year to $36,616,238. The increase is principally
attributed to increased orders for API's products in the agricultural irrigation
industry and better economic conditions and growth in the economy as a whole.
Contrary to the Company's expectations, sales of irrigation products at API were
not adversely affected by the floods in the Central Valley in California in
early 1997.
COST OF SALES. As a percentage of sales, cost of sales amounted to 74.6% in
fiscal 1996, as compared to 74.5% for the prior fiscal year.
For the fiscal year ended June 30, 1997, costs of sales, as a percentage of
sales, decreased to 72.6%, as compared to 74.6% for the prior fiscal year. The
decrease is primarily attributed to increased sales volume in the current year
versus the prior fiscal year and the benefits of pricing Manchester Plastics'
finished goods inventory using the LIFO method.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased during the fiscal year ended June 30, 1996 to
$5,627,299, as compared with $5,187,534 for the prior fiscal year. The increase
is attributed to the increased sales volume in fiscal 1996 as compared with
fiscal 1995.
For the fiscal year ended June 30, 1997, selling, general and administrative
expenses increased to $6,400,237, as compared with $5,627,299 for the prior
fiscal year. The increase is primarily attributed to the increased sales volume
in the current fiscal year versus the prior fiscal year and the aborted merger
costs associated with the attempted merger between the Company and Summa
terminated in May 1997.
NET INCOME. For the fiscal year ended June 30, 1996, net income amounted to
$1,671,915 after provision for income taxes of $1,262,000, as compared with
$1,006,066 after a provision for income taxes of $739,000 in the previous fiscal
year. Income per share increased from $0.33 per share in fiscal 1995 to $0.55
per share in fiscal 1996. The increase in net income and income per share is
primarily attributed to increased sales volume at all three Calnetics
subsidiaries.
For the fiscal year ended June 30, 1997, net income amounted to $2,031,022
after provision for income taxes of $1,318,000, as compared with $1,671,915
after a provision for income taxes of $1,262,000 in the previous fiscal year.
Income per share increased from $0.55 per share in fiscal 1996 to $0.66 per
share in fiscal 1997. The increase in net income is primarily attributed to
increased sales volume, principally at API, as well as the benefits of using the
LIFO method of inventory valuation for finished goods at Manchester Plastics,
and the benefit of a California manufacturing tax credit.
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LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1997, the primary source of liquidity for the Company was cash
generated from operations. Working capital at June 30, 1997 increased to
approximately $9,341,000, as compared with approximately $7,926,000 at June 30,
1996, and current ratios were 3.20:1.0 and 2.58:1.0 at June 30, 1997 and 1996,
respectively.
Expenditures for property and equipment were approximately $775,000 for the
fiscal year ended June 30, 1997, as compared with approximately $994,000 for the
fiscal year ended June 30, 1996. The Company has no immediate plans for
significant capital expenditures in fiscal 1998. The Company believes that its
available funds and internally generated cash from operations will be sufficient
to meet its working capital needs in fiscal 1998. Certain loan agreements limit
capital expenditures by the Company to $1,000,000 in 1997 and thereafter.
The Company has a line of credit agreement with a bank under which the
Company may borrow up to $2,500,000 on an unsecured basis. No borrowings were
made against this credit line in fiscal 1997. The agreement expires on December
31, 1997 and bears interest at the bank's reference rate (8.50% at June 30,
1997).
In 1994, Calnetics borrowed $4.5 million to finance the acquisition of its
API subsidiary from two banks at their respective prime rates plus 0.75%. This
term debt is due in installments with a balloon payment of approximately $1.46
million due in August 1999, and has been revised to be unsecured and to bear
interest at prime plus 0.25%. Due to a combination of regular scheduled payments
and certain prepayments, the principal balance of such debt at June 30, 1997 had
been reduced to approximately $2,160,000. Calnetics also issued unsecured notes
payable to former API shareholders in the amount of $402,000 in connection with
the acquisition with a current principal balance of approximately $201,000 and
an interest rate of 7.5%, due in equal principal payments on June of each of the
next two years, interest payable quarterly.
In addition to the foregoing borrowings by Calnetics, the API subsidiary has
outstanding (i) an industrial revenue bond used to finance the building of the
Ontario plant with current principal balance of approximately $1.4 million, with
principal due in installments ranging from $20,000 to $130,000 through December
2021 and interest at an adjustable revenue bond rate (4.15% at June 30, 1997),
and (ii) mortgages payable used to finance the purchase of the Winter Haven
plant with current principal balance of approximately $265,000, principal due in
installments and a balloon payment of approximately $201,000 due in March 2000
and interest at the bank's prime rate plus 0.75%.
Although the impact of inflation is difficult to accurately assess,
management of the Company does not believe that inflation has had a significant
impact on the Company's net sales and revenues, or on income from continuing
operations in the current period, or in the two preceding fiscal years.
As part of the Company's business strategy, the Company frequently evaluates
potential mergers with or acquisitions of companies in the thermoplastics
industry and in other industries which management believes offer significant
growth opportunities. Other than the Merger, the Company has no present
understanding or commitment with respect to any merger or acquisition.
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RECENT ACCOUNTING PRONOUNCEMENTS
For its fiscal year ending June 30, 1997, the Company has adopted the
appropriate disclosure requirements of Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation." SFAS No. 123
established financial accounting and reporting standards for stock-based
employee compensation plans and certain other transactions involving the
issuance of stock. In accordance with the standard, the Company had previously
accounted for stock-based compensation in accordance with Accounting Principles
Board Opinion No. 25, "Accounting for Stock issued to Employees."
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per
Share," which establishes new standards for computing and presenting earnings
per share. In the event that the Merger is not consummated, this statement will
be adopted by the Company for the 1998 fiscal year.
In February 1997, the FASB issued SFAS No. 129, "Disclosure of Information
about Capital Structure," which establishes standards for disclosing information
about an entity's capital structure. In the event that the Merger is not
consummated, this statement will be adopted by the Company for the 1998 fiscal
year.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income,"
which establishes standards for reporting and display of comprehensive income
and its components. In the event that the Merger is not consummated, this
statement will be adopted by the Company for the 1999 fiscal year.
In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information," which establishes standards for reporting
and disclosure of financial information by segment. In the event that the Merger
is not consummated, this statement will be adopted by the Company for the 1999
fiscal year.
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MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND OTHER KEY EMPLOYEES
The following table sets forth certain information concerning the Company's
Directors, executive officers and certain key employees:
<TABLE>
<CAPTION>
NAME POSITIONS WITH THE COMPANY AGE
---- -------------------------- ---
<S> <C> <C>
Clinton G. Gerlach Chairman of the Board, President, 71
and Chief Executive Officer
Fred E. Edward Director 79
Peter H. Griffith Director 38
Michael A. Hornak Vice President and Director 54
Steven L. Strawn Vice President and Director 43
Trygve M. Thoresen Vice President - Finance, General 33
Counsel and Assistant Secretary
Teresa S. Louie Treasurer 43
Barbara Guyer Secretary 34
Lon Schultz President and Director of API 63
</TABLE>
Clinton G. Gerlach has served as the Chairman of the Board, President and
Chief Executive Officer of Calnetics since March of 1988 and as the Chairman of
the Board and Director of Manchester Plastics since September 1989, and as
Director, Chairman of the Board and Chief Executive Officer of Ny-Glass since
June 1992, and as Director and Chairman of the Board of API since June 1994. Mr.
Gerlach was the Chairman of the Board and Chief Executive Officer of Gerlach
Industries, Inc. from November 1983 to December 1986 and was the Chairman of the
Board and Chief Executive Officer of Tannetics, Inc. from August 1969 to
November 1983. From January 1987 to March 1988, Mr. Gerlach was self employed.
Mr. Gerlach retired effective July 24, 1996 as a Director of Zero Corporation (a
manufacturer of cases, cabinets, cooling and cargo enclosures).
Peter H. Griffith has served as Managing Director of Wedbush Morgan
Securities ("Wedbush Morgan") since November 1993. Mr. Griffith also serves
as the Head of Investment Banking and Equity Research for Wedbush Morgan.
From September 1992 to November 1993, Mr. Griffith served as Senior Vice
President, Investment Banking for Wedbush Morgan, and from October 1989 to
September 1992 Mr. Griffith served as Vice President, Investment Banking for
Wedbush Morgan. Prior to October, 1989, Mr. Griffith was a Senior Manager
with Ernst & Young LLP and is a certified public accountant. Mr. Griffith
was elected as a Director by the Board of Directors of the Company on August
30, 1996 to fill a vacancy created by the death of Raymond H. Heller.
Fred E. Edward has been a Director of Calnetics since 1971. Between May 1971
and March 1988, Mr. Edward held various offices with Calnetics, including
Chairman of the Board, President and Chief Executive Officer. For more than the
past five years, Mr. Edward has been and currently is a private investor.
Michael A. Hornak has been a Vice President of Calnetics since 1974 and a
Director of Calnetics since 1984. Mr. Hornak was the President of the Ny-Glass
division from 1985 to June 1992, President and Director of the Ny-Glass
subsidiary since June 1992, and was President of another division of Calnetics
from 1973 to 1985.
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Steven L. Strawn has been a Vice President of Calnetics since September 1989
and Director since February 1992. Mr. Strawn has also been President, Director
and Chief Operations Officer of Manchester Plastics since 1989, the date of the
acquisition, and held various other positions with its predecessor, Manchester
Products, from 1980 to 1989.
Trygve M. Thoresen has been the Vice President-Finance, General Counsel and
Assistant Secretary of Calnetics since January 1997 and is currently a Vice
President and a Director of each subsidiary. From September 1992 until January
1997, Mr. Thoresen was a corporate, mergers and acquisitions and securities
attorney with Gibson, Dunn & Crutcher LLP. From August 1989 until May 1992, Mr.
Thoresen attended Hastings College of the Law. Prior to law school, Mr. Thoresen
was a senior accountant at KPMG Peat Marwick LLP. Mr. Thoresen is also a
certified public accountant in the State of California (currently inactive).
Teresa S. Louie has been with Calnetics since August 1973, was appointed
Treasurer of Calnetics in February 1992 and has held various offices with
Calnetics including Assistant Treasurer, Assistant Secretary and Controller.
Barbara Guyer joined Manchester Plastics in April 1985, was appointed
Treasurer and Controller of Manchester Plastics in February 1992 and was
appointed Secretary of Calnetics in May 1996.
Lon Schultz is the founder, President and a Director of API. API was
formed in 1973 and Mr. Schultz has been the Chief Executive Officer of API
since the date of inception. Mr. Schultz has also been a Director of Story
Plastics, Inc. since 1975.
None of these officers has been involved in any court or administrative
proceeding within the past five years adversely reflecting on his or her ability
or integrity.
EMPLOYMENT AGREEMENTS AND COMPENSATION ARRANGEMENTS
Pursuant to a June 1994 employment agreement, Mr. Schultz agreed to serve as
the President and as a Director of Calnetics' subsidiary, API, for an initial
term of three years commencing on June 20, 1994. The agreement provided for a
monthly salary of $29,167 and maintenance by API during the term of the
agreement of certain existing life insurance policies covering the life of Mr.
Schultz with a 50% beneficiary named by Mr. Schultz. Under the agreement, Mr.
Schultz was entitled to his monthly salary for the remainder of the term of the
agreement if he was terminated without cause. In the event Mr. Schultz is
terminated for cause or due to death or long-term disability, Mr. Schultz or his
estate would be entitled to receive a monthly salary of $16,667 for the
remainder of the initial term of the agreement. Pursuant to an amendment to Mr.
Schultz's employment agreement entered into recently, the term of such
employment agreement has been extended by two years to expire in June 1999. Mr.
Schultz has agreed to serve in his present capacities for a monthly salary of
$18,750 in the first year of such extension and $25,000 in the second year.
Pursuant to a January 1997 change in control agreement, in the event there is
a change in control of Calnetics and, thereafter, Mr. Thoresen is terminated
without cause or resigns for "good reason," Calnetics or its successor will be
required to pay Mr. Thoresen a lump sum distribution equal to one year's salary
and bonus. The Merger constitutes a change in control as defined in such
agreement.
CERTAIN TRANSACTIONS
In connection with the acquisition of API in fiscal year 1994, Calnetics
issued to certain parties related to Mr. Lon Schultz (the Lon Schultz Charitable
Remainder Unitrust and Leslie Schultz) notes payable of approximately $124,000
each as part of the consideration for their shares of API common stock. The
notes payable are five-year unsecured notes with interest payable semi-annually
and principal due in four equal annual installments commencing June 1996.
On June 20, 1994, API and Story Plastics, Inc., a California corporation
("Story"), entered into a four-year Parts Purchase and Supply Agreement whereby
Story agreed to supply various injected molded parts to API and API agreed to
purchase such parts as it reasonably needs based on past purchases of such
parts. The agreement by API to purchase its reasonable needs of such parts from
Story decreases each year, such that by the fourth year API
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is only required to purchase 25% of its reasonable needs from Story. Mr. Schultz
is a Director of Story, owns approximately 9% of its outstanding common stock
and has guaranteed certain payments to a financial institution. For the year
ending June 30, 1997, API purchased $1,581,387 in parts from Story.
LIMITATION OF DIRECTORS' AND OFFICERS' LIABILITY AND INDEMNIFICATION
The Company's Bylaws provide that the Company must indemnify its officers and
directors, and may indemnify its employees and other agents, to the fullest
extent permitted by California law. California law provides that directors of a
California corporation will not be personally liable for monetary damages for
breach of fiduciary duties as directors except for liability as a result of
their duty of loyalty to the corporation for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, unlawful
payments of dividends or stock transactions, unauthorized distributions of
assets, loans of corporate assets to an officer or director, unauthorized
purchase of shares, commencing business before obtaining minimum capital, or any
transaction from which a director derived an improper benefit. Such limitations
do not affect the availability of equitable remedies such as injunctive relief
or rescission. At present, there is no pending litigation or proceeding
involving any director, officer, employee, or agent of the Company where
indemnification will be required or permitted. Insofar as indemnification for
liabilities arising under the Securities Act may be permitted to officers,
directors or persons controlling the Company pursuant to the foregoing
provisions, the Company has been informed that, in the opinion of the
Commission, such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
In addition to the foregoing, the Company has entered into separate
indemnification agreements with each of its directors and executive officers
containing provisions that provide for the maximum indemnification allowed by
the California General Corporation Law and the Company's Bylaws subject to
certain exceptions. The Company also maintains directors and officers liability
insurance.
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CERTAIN INFORMATION CONCERNING SUMMA AND SUBSIDIARY
The principal executive offices of Summa and Subsidiary are located at 21250
Hawthorne Boulevard, Suite 500, Torrance, California 90503, the telephone number
for both companies is (310) 792-7024, and the telecopier number for both
companies is (310) 792-7079. Subsidiary is a newly formed California corporation
and wholly-owned subsidiary of Summa. Subsidiary has not conducted any business
other than in connection with the Merger.
Summa is a publicly-owned California corporation whose common stock is
registered under Section 12(g) of the Exchange Act, and traded on The Nasdaq
National Market under the symbol "SUMX." Through its three wholly-owned
operating subsidiaries, Summa designs and manufactures injection-molded plastic
optical components for OEM customers in the lighting industry, plastic chains,
belts and customized conveyor components used primarily in the food processing
industry, and components sold to the defense and firefighting industries.
Summa is subject to the informational requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and in accordance therewith file
reports, proxy statements and other information with the Securities and Exchange
Commission (the "Commission"). The Commission file numbers for Summa is 1-7755.
Such reports and other information may be inspected and copied at the
Commission's Public Reference Section, Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, where copies can be obtained at prescribed rates, as
well as at the Commission's regional offices at Northwest Atrium Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade
Center, Suite 1300, New York, New York 10048. The Commission also maintains a
website that contains reports, proxy and other information filed electronically
with the Commission, the address of which is http://www.sec.gov. In addition,
this material may also be inspected at the offices of The Nasdaq National Market
at 1735 K Street, N.W., Washington, D.C. 20006, where copies may be obtained at
prescribed rates.
EXPERTS
The consolidated financial statements and schedules of the Company included
in this Proxy Statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their report with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in giving
said reports.
INDEPENDENT ACCOUNTANTS
Arthur Andersen LLP served as the independent certified public accountants
for Calnetics for the fiscal year ending June 30, 1997. A representative of
Arthur Andersen LLP is expected to be present at the Special Meeting and to be
available to respond to any questions directed to Arthur Andersen LLP by
shareholders of the Company. The representative will have an opportunity to make
a statement if Arthur Andersen LLP so desires.
SHAREHOLDER PROPOSALS
If the Merger is not consummated, the Company will hold its 1997 Annual
Meeting of Shareholders of the Company in accordance with the Company's Bylaws
and California law. Subject to the foregoing, if any shareholder intends to
present a proposal at the 1997 Annual Meeting of Shareholders and wishes to have
such proposal considered for inclusion in the proxy materials for such meeting,
such holder must have submitted the proposal to the Secretary of the Company in
writing so that it was received at the executive offices of the Company not
later than May 31, 1997. Such proposals must also meet the other requirements of
the rules of the Commission relating to shareholders' proposals.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange Act,
and in accordance therewith files reports, proxy statements and other
information with the Commission. The Commission file numbers for the Company is
0-8767. Such reports and other information may be inspected and copied at the
Commission's Public Reference Section, Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, where copies can be obtained at prescribed rates, as
well as at the Commission's regional offices at Northwest Atrium Center, 500
West Madison
36
<PAGE> 40
Preliminary Copies
Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, Suite
1300, New York, New York 10048. The Commission also maintains a website that
contains reports, proxy and other information filed electronically with the
Commission, the address of which is http://www.sec.gov. In addition, this
material may also be inspected at the offices of The Nasdaq National Market at
1735 K Street, N.W., Washington, D.C. 20006, where copies may be obtained at
prescribed rates.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN AS CONTAINED HEREIN IN CONNECTION WITH THE MATTERS
DESCRIBED HEREIN, AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY CALNETICS. THIS PROXY STATEMENT
DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE
SECURITIES OFFERED BY THIS PROXY STATEMENT OR A SOLICITATION OF A PROXY IN ANY
JURISDICTION WHERE, OR TO OR FROM ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE
SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROXY STATEMENT NOR ANY
DISTRIBUTION OF SECURITIES MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF.
All reports and documents filed by the Company with the Commission pursuant
to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act are available, without
charge, upon written or oral request from any person, including any beneficial
owner, to whom this Proxy Statement is delivered, to Calnetics Corporation,
20401 Prairie Street, Chatsworth, California 91311, Attention: Investor
Relations; telephone: (818) 886-9819. In order to ensure timely delivery of the
documents, any request should be made by September 1, 1997.
OTHER MATTERS
The Board of Directors is not aware of any other business to be presented for
consideration at the Special Meeting. If any other business should properly come
before such meeting and any adjournment and/or postponement thereof, it is
intended that the proxies will be voted in accordance with the best judgment of
the proxy holders.
By Order of the Board of Directors:
Clinton G. Gerlach, Chairman of the Board
Barbara Guyer, Secretary
Chatsworth, California
August ____, 1997
37
<PAGE> 41
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INDEX TO FINANCIAL STATEMENTS
Report of Independent Public Accountants...................................F-1
Balance Sheets as of June 30, 1996 and 1997................................F-2
Statements of Income for each of the three years ended June 30,
1995, 1996, and 1997.....................................................F-4
Statements of Shareholders Equity for each of the three years
ended June 30, 1995, 1996 and 1997.......................................F-5
Statements of Cash Flows for each of the three years ended June 30,
1995, 1996 and 1997......................................................F-6
Notes to Financial Statements..............................................F-8
38
<PAGE> 42
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Directors and Shareholders of Calnetics Corporation:
We have audited the accompanying consolidated balance sheets of CALNETICS
CORPORATION (a California Corporation) and subsidiaries as of June 30, 1997 and
1996, and the related consolidated statements of income, shareholders' equity
and cash flows for each of the three years in the period ended June 30, 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Calnetics Corporation and
subsidiaries as of June 30, 1997 and 1996, and the results of their operations
and their cash flows for each of the three years in the period ended June 30,
1997, in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index of
financial statements is presented for purposes of complying with the Securities
and Exchange Commission's rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures applied
in the audits of the basic financial statements and, in our opinion, fairly
states in all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Los Angeles, California
July 25, 1997
F-1
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CALNETICS CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - JUNE 30, 1997 AND 1996
ASSETS
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 2,422,119 $ 1,877,633
Accounts receivable, net of allowances of
$316,000 in 1997 and 1996 5,220,127 4,997,471
Inventories 5,391,659 5,470,710
Prepaid expenses 105,487 254,608
Deferred income taxes 451,000 342,000
----------- -----------
Total current assets 13,590,392 12,942,422
----------- -----------
PROPERTY, PLANT AND EQUIPMENT, at cost:
Land 466,288 466,288
Buildings and leasehold improvements 2,277,763 2,269,525
Machinery and equipment 5,292,340 4,587,322
Furniture and fixtures 278,193 248,220
----------- -----------
8,314,584 7,571,355
Less--Accumulated depreciation and
amortization 4,143,601 3,399,998
----------- -----------
4,170,983 4,171,357
----------- -----------
OTHER ASSETS:
Goodwill, net of accumulated amortization of
$403,938 and $331,638 in 1997 and 1996,
respectively 1,328,968 1,401,268
Deposits and other assets 171,822 171,245
----------- -----------
1,500,790 1,572,513
----------- -----------
$19,262,165 $18,686,292
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated balance sheets.
F-2
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Preliminary Copies
CALNETICS CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - JUNE 30, 1997 AND 1996
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term debt $ 150,846 $ 247,187
Accounts payable 2,413,551 3,214,786
Accrued liabilities 900,041 756,050
Accrued compensation and benefits 542,612 411,657
Income taxes payable 242,023 386,021
----------- -----------
Total current liabilities 4,249,073 5,015,701
----------- -----------
LONG-TERM DEBT, net of current portion 3,745,697 4,740,820
----------- -----------
DEFERRED INCOME TAXES 80,000 57,000
----------- -----------
COMMITMENTS AND CONTINGENCIES (Notes 6 and 9)
SHAREHOLDERS' EQUITY:
Preferred stock:
Authorized--2,000,000 shares
Issued and outstanding--0 shares -- --
Common stock, no par value:
Authorized--20,000,000 shares
Issued and outstanding--3,038,799
and 2,959,799 shares in 1997
and 1996, respectively 2,745,947 2,462,345
Retained earnings 8,441,448 6,410,426
----------- -----------
Total shareholders' equity 11,187,395 8,872,771
----------- -----------
$19,262,165 $18,686,292
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated balance sheets.
F-3
<PAGE> 45
Preliminary Copies
CALNETICS CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
NET SALES $ 36,616,238 $ 35,193,973 $ 29,172,106
COST OF SALES 26,592,981 26,252,121 21,739,246
------------ ------------ ------------
Gross profit 10,023,257 8,941,852 7,432,860
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 6,400,237 5,627,299 5,187,534
------------ ------------ ------------
Income from operations 3,623,020 3,314,553 2,245,326
------------ ------------ ------------
OTHER INCOME (EXPENSE):
Gain on sale of property
and equipment -- 5,950 6,500
Interest and other income 49,086 29,803 27,345
Interest expense (323,084) (416,391) (534,105)
------------ ------------ ------------
(273,998) (380,638) (500,260)
------------ ------------ ------------
Income before provision
for income taxes 3,349,022 2,933,915 1,745,066
PROVISION FOR INCOME TAXES 1,318,000 1,262,000 739,000
------------ ------------ ------------
Net income $ 2,031,022 $ 1,671,915 $ 1,006,066
============ ============ ============
Earnings per common share and
common share equivalent $ .66 $ .55 $ .33
============ ============ ============
Weighted average number of shares
outstanding 3,095,219 3,057,984 3,030,283
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-4
<PAGE> 46
Preliminary Copies
CALNETICS CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
Common Stock
-------------------------- Total
Shares Retained Shareholders'
Outstanding Amount Earnings Equity
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
BALANCE, June 30, 1994 2,893,799 $2,367,437 $3,732,445 $ 6,099,882
Net income -- -- 1,006,066 1,006,066
Exercise of stock options 21,000 30,198 -- 30,198
--------- ---------- ---------- -----------
BALANCE, June 30, 1995 2,914,799 2,397,635 4,738,511 7,136,146
Net income -- -- 1,671,915 1,671,915
Exercise of stock options 45,000 64,710 -- 64,710
--------- ---------- ---------- -----------
BALANCE, June 30, 1996 2,959,799 2,462,345 6,410,426 8,872,771
Net income -- -- 2,031,022 2,031,022
Exercise of stock options,
including related income
tax benefit 79,000 283,602 -- 283,602
--------- ---------- ---------- -----------
BALANCE, June 30, 1997 3,038,799 $2,745,947 $8,441,448 $11,187,395
========= ========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE> 47
Preliminary Copies
CALNETICS CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,031,022 $ 1,671,915 $ 1,006,066
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 743,603 758,591 704,497
Provision for doubtful accounts 26,821 98,338 93,531
Gain on sale of property,
plant and equipment -- (5,950) (6,500)
Benefit for deferred income taxes (86,000) (106,000) (64,000)
Change in operating assets and
Liabilities:
Decrease (increase) in:
Accounts receivable (249,477) (647,283) (287,260)
Inventories 79,051 (508,673) (785,506)
Prepaid expenses 149,121 58,388 (164,599)
Deposits and other assets (577) 29,960 (26,429)
Increase (decrease) in:
Accounts payable (801,235) 414,131 839,630
Accrued liabilities and
compensation and benefits 274,946 22,407 (84,661)
Income taxes payable (143,998) 327,828 (137,773)
----------- ----------- -----------
Net cash provided by
operating activities 2,023,277 2,113,652 1,086,996
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of property,
plant and equipment -- 14,600 6,500
Purchases of property, plant and
equipment (670,929) (995,026) (512,153)
----------- ----------- -----------
Net cash used in investing
activities (670,929) (980,426) (505,653)
----------- ----------- -----------
</TABLE>
F-6
<PAGE> 48
Preliminary Copies
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt $(1,091,464) $ (901,277) $ (883,658)
Net proceeds from issuance of
common stock, including related
income tax benefit 283,602 64,710 30,198
----------- ----------- -----------
Net cash used in financing
activities (807,862) (836,567) (853,460)
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 544,486 296,659 (272,117)
CASH AND CASH EQUIVALENTS,
beginning of year 1,877,633 1,580,974 1,853,091
----------- ----------- -----------
CASH AND CASH EQUIVALENTS,
end of year $ 2,422,119 $ 1,877,633 $ 1,580,974
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-7
<PAGE> 49
Preliminary Copies
CALNETICS CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
1. Basis of Presentation
Calnetics Corporation (the Company) is engaged in manufacturing operations
through three wholly owned subsidiaries:
Manchester Plastics, Co., Inc. (Manchester), located in Chatsworth, California,
primarily manufactures proprietary products consisting of acrylic, polycarbonate
and polystyrene plastic sheets for the building material and industrial plastics
industries.
Ny-Glass Plastics, Inc. (Ny-Glass), located in Corona, California, manufactures
custom plastic injection molding components for original equipment manufacturers
and high-quality, close-tolerance molded plastic components for a wide variety
of industries. Approximately one-fifth of its production is proprietary,
consisting of products for the electronic, computer, automotive and other
high-tech industries.
Agricultural Products, Inc. (API), located in Ontario, California and Winter
Haven, Florida, manufactures and distributes various irrigation hoses, fittings
and other products primarily for the agriculture industry.
2. Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those
estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its three wholly owned subsidiaries. All significant intercompany
transactions and accounts have been eliminated.
Credit Risk
The Company's accounts receivable are unsecured and the Company is at risk
to the extent such amounts become uncollectible. Customers are located
primarily throughout the United States.
Revenue Recognition
Revenue on product sales is recognized at the time of shipment.
F-8
<PAGE> 50
Preliminary Copies
Inventories
Inventories include costs of materials, labor and manufacturing overhead,
and are stated at the lower of cost or market using the first-in,
first-out (FIFO) and the last-in, first-out (LIFO) methods. The LIFO
method is used for the finished goods inventory at Manchester and totals
approximately $1,165,000. Inventories consist of the following:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Raw materials $1,536,297 $2,661,261
Finished goods 3,855,362 2,809,449
---------- ----------
$5,391,659 $5,470,710
========== ==========
</TABLE>
At June 30, 1997 and 1996, if the FIFO method had been used to value
Manchester finished goods inventories, the stated value of inventories
would have been higher by approximately $129,000 and $421,000,
respectively. Income before provision for income taxes would have
decreased by $292,000, increased by $13,000 and increased by $408,000 for
1997, 1996 and 1995, respectively. Net income would have decreased by
$175,000, increased by $7,000 and increased by $230,000 for 1997, 1996 and
1995, respectively.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. The Company follows the
policy of capitalizing expenditures that materially increase asset lives
and charging ordinary maintenance and repairs to operations as incurred.
Amounts expensed as maintenance and repairs were approximately $423,000,
$336,000 and $370,000 in 1997, 1996 and 1995, respectively.
When assets are sold or disposed of, the cost and related depreciation are
removed from the accounts and any resulting gain or loss is included in
income.
Property, plant and equipment are depreciated and amortized using the
straight-line and accelerated methods over the following useful lives:
Buildings and improvements 7 - 31.5 years
Leasehold improvements term of lease
Machinery and equipment 3 - 7 years
Furniture and fixtures 5 - 7 years
Goodwill
Goodwill resulted from the purchase of Manchester during 1989 and the
purchase of API in 1994. It is being amortized on a straight-line basis
over 30 years and 20 years, respectively.
F-9
<PAGE> 51
Preliminary Copies
Statements of Cash Flows
For the purposes of the statements of cash flows, the Company considers
all highly liquid investments with an original maturity date of 90 days or
less to be cash and cash equivalents.
Cash paid for income taxes was approximately $1,378,000, $1,041,000 and
$932,000 in 1997, 1996 and 1995, respectively. Cash paid for interest was
approximately $340,000, $445,000 and $511,000 in 1997, 1996 and 1995,
respectively.
Earnings Per Common Share
Earnings per common share and common share equivalent are based on the
weighted average number of shares of common stock and common stock
equivalents (dilutive stock options) outstanding during the related
periods. The weighted average number of common stock equivalent shares
includes shares issuable upon the assumed exercise of stock options, less
the number of shares assumed purchased with the proceeds available from
such exercise. Fully diluted net income per share does not differ
materially from net income per common share and common share equivalent.
Fair Value of Financial Instruments
The carrying amounts of cash, accounts receivable, and accounts payable
approximate fair value because of the short maturity of these financial
instruments. The carrying amounts of long-term debt approximate fair value
because either interest rates fluctuate based on market rates or interest
rates appear to approximate market rates for similar instruments.
New Authoritative Pronouncements
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per
Share," which establishes new standards for computing and presenting
earnings per share. This statement will be adopted by the Company for the
1998 fiscal year.
In February 1997, the FASB issued SFAS No. 129, "Disclosure of Information
about Capital Structure," which establishes standards for disclosing
information about an entity's capital structure. This statement will be
adopted by the Company for the 1998 fiscal year.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," which establishes standards for reporting and display of
comprehensive income and its components. This statement will be adopted by
the Company for the 1999 fiscal year.
In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information," which establishes standards for
reporting and disclosure of financial information by segment. This
statement will be adopted by the Company for the 1999 fiscal year.
3. Line of Credit
The Company has a $2,500,000 unsecured line of credit with a bank. At June 30,
1997, the entire amount was available under this credit arrangement, which
expires on June 20, 1999. Borrowings under this facility bear interest at the
bank's reference rate (8.5 percent at June 30, 1997). The line of credit
agreement includes certain restrictive covenants which are discussed in Note 4
below.
F-10
<PAGE> 52
Preliminary Copies
4. Long-Term Debt
At June 30, 1997 and 1996, long-term debt consists of the following:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Term loans payable to banks, unsecured, interest at the banks' reference
rate (8.5 percent at June 30, 1997) plus .25 or .75 percent, due in
various monthly installments of principal and interest through July 1,
1999, with balloon payments totaling
$1,458,462 due on August 1, 1999 $2,008,329 $2,949,948
Industrial revenue bond payable, principal due in annual sinking fund
installments ranging from $15,000 to $130,000 through December 2021, plus
interest due monthly based on the Issuer's Weekly Adjustable Interest
Rates for Revenue Bonds (4.15 percent at June 30, 1997), secured by a
standby letter of credit issued
by a bank with an annual fee of 1.25 percent 1,420,000 1,440,000
Loans payable to former API shareholders, unsecured, interest payable
semi-annually at 7.50 percent, principal payable in four equal annual
installments of $100,510 through June
1999 201,022 301,532
Mortgage payable to bank, secured by the related building and land,
principal payable in monthly installments of $1,665 plus interest at the
bank's prime rate (8.5 percent at June 30, 1997) plus .75 percent, with a
balloon payment
of $201,415 due on March 5, 2000 254,712 274,687
Other 12,480 21,840
---------- ----------
3,896,543 4,988,007
Less--Current portion of long-term debt 150,846 247,187
---------- ----------
$3,745,697 $4,740,820
========== ==========
</TABLE>
F-11
<PAGE> 53
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The following is a schedule of future principal payments of long-term debt as of
June 30, 1997:
<TABLE>
<S> <C>
1998 $ 150,846
1999 614,700
2000 1,770,997
2001 25,000
2002 1,335,000
----------
$3,896,543
==========
</TABLE>
The line of credit agreement (see Note 3), term loans and notes payable include
certain restrictive financial and non-financial covenants, including certain
cash restrictions and limitations on payment of cash dividends and redemption of
stock. At June 30, 1997, the Company was in compliance with all bank covenants.
5. Income Taxes
The Company accounts for income taxes in accordance with SFAS No. 109.
Under SFAS No. 109, deferred income tax assets or liabilities are computed based
on the temporary difference between the financial statement and income tax bases
of assets and liabilities using the enacted marginal income tax rate in effect
for the year in which the differences are expected to reverse. Deferred income
tax expenses or credits are based on the changes in the deferred income tax
assets or liabilities from period to period.
The exercise of stock options which have been granted under the Company's
various stock option plans give rise to compensation which is includable in the
taxable income of the applicable employees and deductible by the Company for
federal and state tax purposes. Such compensation results from increases in the
fair market value of the Company's common stock subsequent to the date of grant
of the applicable exercised stock options. Accordingly, in accordance with
Accounting Principles Board Opinion No. 25 (APB 25), such compensation is not
recognized as an expense for financial accounting purposes and the related tax
benefits are taken directly to shareholders' equity. The tax benefits arising
from the exercise of stock options were approximately $170,000 in 1997 and not
material in 1996 and 1995.
The components of the deferred income tax asset at June 30, 1997 and 1996 are as
follows:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Allowance for bad debts $127,000 $127,000
Vacation accrual 60,000 56,000
State taxes 95,000 103,000
Inventory reserve 30,000 30,000
Warranty reserve 24,000 26,000
Legal reserve 80,000 -
Other 35,000 -
-------- --------
$451,000 $342,000
======== ========
</TABLE>
The primary component of the deferred income tax liability at June 30, 1997 and
1996 is accelerated tax depreciation.
F-12
<PAGE> 54
Preliminary Copies
The components of the provision (benefit) for income taxes for the years ended
June 30, 1997, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- ---------
<S> <C> <C> <C>
Current
- Federal $ 973,000 $ 1,048,000 $ 621,833
- State 261,000 320,000 181,167
----------- ----------- ---------
1,234,000 1,368,000 803,000
----------- ----------- ---------
Benefit of stock options
exercised
- Federal 143,000 -- --
- State 27,000 -- --
----------- ----------- ---------
170,000 -- --
----------- ----------- ---------
Deferred
- Federal (71,000) (90,000) (49,000)
- State (15,000) (16,000) (15,000)
----------- ----------- ---------
(86,000) (106,000) (64,000)
----------- ----------- ---------
Provision for income taxes $ 1,318,000 $ 1,262,000 $ 739,000
=========== =========== =========
</TABLE>
The components of the provision (benefit) for deferred income taxes for the
years ended June 30, 1997, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- ---------
<S> <C> <C> <C>
Allowance for doubtful accounts $ -- $ (21,000) $ (23,000)
Depreciation 23,000 (40,000) (4,000)
Accrued expenses and reserves (37,000) -- (27,000)
Legal reserve (80,000) -- --
State taxes 8,000 (52,000) (12,000)
Other -- 7,000 2,000
----------- ----------- ---------
$ (86,000) $ (106,000) $ (64,000)
=========== =========== =========
</TABLE>
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A reconciliation of income taxes at the statutory federal income tax rate and
the provisions for income taxes for the years ended June 30, 1997, 1996 and 1995
is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------------------- --------------------- ------------------
Amount % Amount % Amount %
<S> <C> <C> <C> <C> <C> <C>
Income tax at statutory
federal rate $ 1,138,667 34.0% $ 997,531 34.0% $593,322 34.0%
State and local income
taxes, net of federal
income tax effect 204,290 6.1 180,084 6.1 106,449 6.1
State manufacturing
credits (105,000) (3.0) -- -- -- --
Amortization of goodwill 35,033 1.0 35,033 1.2 35,033 2.0
Other items, net 45,010 1.3 49,352 1.7 4,196 0.2
----------- ---- ---------- ---- -------- ----
$ 1,318,000 39.4% $1,262,000 43.0% $739,000 42.3%
=========== ==== ========== ==== ======== ====
</TABLE>
6. Commitments
Purchase Agreement
API has a purchase agreement with one of its vendors through June 1998.
The minimum purchase quantities are based on historical purchase trends as
defined in the agreement and the purchase price of the parts is the list
price as set forth in the agreement and as adjusted in the future based on
the mutual agreement of the parties.
Lease Commitments
The Company leases certain office and manufacturing facilities and
equipment under noncancellable operating leases which expire at various
dates through May 2002. The aggregate minimum future lease payments under
these leases at June 30, 1997 are approximately as follows:
<TABLE>
<CAPTION>
<S> <C>
1998 $ 756,000
1999 740,000
2000 394,000
2001 158,000
2002 152,000
----------
$2,200,000
==========
</TABLE>
Rental expense charged to operations was approximately $717,000, $700,000
and $641,000 for the years ended June 30, 1997, 1996 and 1995,
respectively.
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7. Employee Stock Options
In 1988, the Company established an Employee Stock Option Plan under which
options to purchase a total of 275,000 shares of common stock may be granted to
certain employees as determined by the Company's Board of Directors. Options
granted under this plan vest in equal amounts on the first and second
anniversary dates of the granting of the options. At June 30, 1997, there were
no options outstanding under this plan.
In 1993, the Company established the 1993 Stock Option Plan, which provides for
granting options to purchase up to 250,000 shares of the Company's common stock
to employees, officers, directors and consultants of the Company. Options to
purchase 160,000 shares have been granted and are outstanding under this plan at
June 30, 1997, of which 133,334 are exercisable, expiring at various dates
through November 11, 2006. These options generally vest over a three-year period
from the date of the grant.
In 1995, the Company established the 1995 Stock Option Plan, which provides for
granting options to purchase up to 250,000 shares of the Company's common stock.
Options to purchase 65,000 shares have been granted and are outstanding under
this plan at June 30, 1997, of which none are exercisable, expiring at various
dates through January 28, 2007. These options generally vest over a three-year
period from the date of the grant.
All options have been granted at prices equal to the fair market value of the
common stock at the grant date. A summary of option activities for all plans is
as follows:
<TABLE>
<CAPTION>
Weighted Average
Number Option Exercise
of Shares Prices
--------- ----------------
<S> <C> <C>
Balance, June 30, 1994 245,000 $1.67
Granted 50,000 3.00
Exercised (21,000) 1.44
------- -----
Balance, June 30, 1995 274,000 $1.93
Exercised (45,000) 1.44
------- -----
Balance, June 30, 1996 229,000 2.02
Granted 75,000 6.05
Exercised (79,000) 1.44
------- -----
Balance, June 30, 1997 225,000 $3.57
======= =====
Exercisable, June 30, 1997 133,334 $2.25
======= =====
</TABLE>
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Information about stock options outstanding at June 30, 1997 is summarized as
follows:
<TABLE>
<CAPTION>
Options Outstanding Exercisable
------------------------ -----------------
Weighted Weighted Weighted
Average Average Average
Remaining Exercise Exercise
Exercise Price Number Contract Life Price Number Price
- -------------- ------ ------------- ----- ------ -----
<S> <C> <C> <C> <C> <C>
$2.00 - $3.00 150,000 6.8 years $2.33 133,334 $2.25
5.88 - 6.13 75,000 9.6 years 6.05 - -
</TABLE>
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation," which applies the fair value-based method of accounting for
options granted under stock-based compensation plans beginning fiscal 1997. In
accordance with the issued standard, the Company has elected to continue to
account for stock-based compensation in accordance with APB 25.
The weighted average fair value of options granted during 1997 was $2.76. The
fair value of each option granted is estimated by using the Black-Scholes
pricing model on the date of grant. The following assumptions were used in the
calculation of present value: risk-free interest rate of 5.4 to 5.8 percent,
expected lives of five to six years, expected volatility of 37 percent and no
expected dividends.
Had compensation cost for the Company's stock option plans been determined
consistent with SFAS No. 123, the Company's net income and earnings per share
would have been reduced to the following pro forma amounts:
<TABLE>
<CAPTION>
1997 1996
---------- -------
<S> <C> <C> <C>
Net income As reported $2,031,022 $1,671,915
Pro forma $1,980,022 $1,671,915
Earnings per share As reported $ .66 $ .55
Pro forma $ .65 $ .55
</TABLE>
8. Employee Benefit Plans
API provides a profit-sharing plan and 401(k) plan for its employees. The Board
of Directors can authorize discretionary contributions with no required minimum
contribution. API's contribution to the profit-sharing plan for the periods
ended June 30, 1997, 1996 and 1995 was $120,000 for each period. There were no
API contributions to the 401(k) plan for the periods ended June 30, 1997, 1996
and 1995.
9. Contingencies
Environmental Matters
The Company formerly operated a facility on property within the boundaries
of a federal Superfund site located in Southern California. The Company
operated at this site prior to October 1986. The Company has learned that
hazardous substances have been identified in the subsurface of the property
and that the current owner has been requested by a state agency to
undertake additional investigation at the property. The Company is also
aware that the property has been subject to a general notice letter issued
by the United States Environmental Protection Agency under the federal
Superfund law. The Company may be held responsible for the contamination at
the site to the extent the Company caused the contamination. The Company
does not believe that it is responsible for any material contamination and
has not been notified or
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contacted by the government or named in any proceeding relating to the
property. The potential liability associated with this property cannot be
reasonably determined at this time.
Tax Examination
API is in the process of an Internal Revenue Service (IRS) examination
regarding the tax-exempt status of its industrial revenue bond. The IRS has
informed the Company that preliminary findings indicate that the bond may
not be tax exempt and thus API may be required to pay additional interest.
The Company believes it has recorded adequate reserves to cover any
potential liability that may result from the final resolution of this
matter.
10. Subsequent Event
On July 2, 1997, Summa Industries Inc. (Summa) signed a definitive agreement to
purchase all outstanding stock of the Company for $7.35 per share in cash. This
agreement is subject to shareholder approval and Summa's ability to obtain
financing for the transaction.
11. Unaudited Quarterly Results
Unaudited quarterly results of operations for each of the quarters in the three
years ended June 30, 1997 are presented below:
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C> <C>
Year ended June 30,
1997
Net sales $8,446,000 $8,586,000 $9,261,000 $10,323,000
Gross profit 2,118,000 2,125,000 2,679,000 3,101,000
Net income 404,000 359,000 541,000 727,000
Earnings per share .13 .12 .18 .23
1996
Net sales $8,772,000 $7,627,000 $9,090,000 $9,705,000
Gross profit 1,965,000 1,797,000 2,345,000 2,835,000
Net income 296,000 271,000 444,000 661,000
Earnings per share .10 .09 .14 .22
1995
Net sales $6,647,000 $6,275,000 $7,705,000 $8,545,000
Gross profit 1,590,000 1,579,000 1,992,000 2,272,000
Net income 170,000 179,000 280,000 377,000
Earnings per share .06 .06 .09 .12
</TABLE>
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SCHEDULE II
CALNETICS CORPORATION
AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
Balance Additions
at Charged Deductions Balance
Beginning to from at End of
of Period Expense Allowance Other Period
--------- ------- --------- ----- ---------
<S> <C> <C> <C> <C> <C>
Allowance for
doubtful accounts:
Year ended
June 30, 1997 $316,000 $26,821 $26,821 $ - $316,000
======== ======= ======= ======= ========
Year ended
June 30, 1996 $263,015 $98,338 $45,353 $ - $316,000
======== ======= ======= ======= ========
Year ended
June 30, 1995 $197,525 $93,531 $28,041 $ - $263,015
======== ======= ======= ======= ========
</TABLE>
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Appendix I
AGREEMENT AND PLAN OF ACQUISITION
THIS AGREEMENT AND PLAN OF ACQUISITION (this "Agreement") is made and entered
into effective as of July 2, 1997, by and between CALNETICS CORPORATION, a
California corporation (together with any and all subsidiaries, "Calnetics"),
and SUMMA INDUSTRIES, a California corporation (together with any and all
subsidiaries, "Summa").
R E C I T A L S
A. The authorized capital of Calnetics consists of 20,000,000 shares of
Common Stock, without par value, of which 3,038,799 shares are issued and
outstanding and held of record by a total of approximately 300 shareholders as
of the date hereof, and 2,000,000 shares of Preferred Stock, without par value,
of which no shares have been issued or are outstanding. The Common Stock of
Calnetics is registered under Section 12(g) of the Securities Exchange Act of
1934 (the "Exchange Act") and traded in The Nasdaq National Market under the
symbol "CALN."
B. The authorized capital of Summa consists of 10,000,000 shares of Common
Stock, $.001 par value, of which 4,070,250 shares are issued and outstanding as
of the date hereof and held of record by a total of approximately 600
shareholders as of the date hereof, and 5,000,000 shares of Preferred Stock,
$.001 par value, of which no shares have been issued or are outstanding. The
Common Stock of Summa is registered under Section 12(g) of the Exchange Act and
traded in The Nasdaq National Market under the symbol "SUMX."
C. The respective Boards of Directors of Calnetics and Summa deem it
advisable and generally to the advantage of each corporation, and in the best
interests of their respective shareholders, to cause Calnetics to be merged with
and into a newly-to-be-formed California corporation which will be a
wholly-owned subsidiary ("Subsidiary") of Summa, under and pursuant to the
provisions of the California Corporations Code (the "Merger"). Accordingly, the
respective Boards of Directors of Calnetics and Summa have approved, and the
Board of Directors of Calnetics will recommend for approval of the shareholders
of Calnetics, this Agreement and the Merger contemplated hereby, and have
directed their respective proper officers to execute and deliver this Agreement
and to cause the respective corporations to perform each of their respective
obligations hereunder.
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
agreements, representations, warranties and covenants herein contained, and
subject to the terms and conditions hereinafter set forth, the parties hereto
hereby agree in accordance with the California Corporations Code, the provisions
of the Agreement of Merger (as defined below), and the provisions of this
Agreement, that, at the Effective Time of the Agreement of Merger, Calnetics
shall be merged with and into Subsidiary, such that Subsidiary, as the
"Surviving Corporation" in the Merger, shall continue as a single corporation
existing under the laws of the State of California and as a wholly-owned
subsidiary of Summa, and the parties hereto hereby adopt and agree to the
following agreements, terms, and conditions relating to the Merger and the
manner of carrying the same into effect.
1. DEFINITIONS.
1.1 "Agreement" means, and the words "herein", "hereof", "hereunder"
and words of similar import refer to this instrument and any and all exhibits,
schedules and other attachments hereto, and any amendment hereto.
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1.2 "Agreement of Merger" refers to that certain document of even date
herewith, a copy of which is attached hereto as Exhibit A, the terms of which
are fully incorporated into, and the satisfaction of which is an express
condition of, this Agreement.
1.3 "Calnetics Balance Sheet" means the unaudited consolidated balance
sheet of Calnetics as of March 31, 1997 referred to in Section 6.6 hereof.
1.4 "Calnetics Common Stock" refers to any and all common
stock, without par value, of Calnetics.
1.5 "Calnetics Financial Statements" means the audited and unaudited
consolidated financial statements of Calnetics referred to in Section 6.6
hereof.
1.6 "Calnetics' Property" means any real property and improvements
owned, leased, used, operated or occupied by Calnetics.
1.7 "Calnetics Shareholders" refers collectively to any and all holders
of Calnetics Common Stock of record immediately prior to the Effective Time.
1.8 "Commission" refers to the Securities and Exchange Commission.
1.9 "Effective Date" means the date specified in Section 4.3 hereof.
1.10 "Effective Time" means that time specified in Section 4.3
hereof.
1.11 "Environmental Law" means any federal, state, local or foreign
law, statute ordinance, rule, regulation, or treaty; all judicial
administrative, and regulatory orders, judgments, decrees, permits, and
authorizations; and common law relating to: (1) the protection, investigation,
remediation or restoration of the environment or natural resources, (2) the
handling, use, storage, treatment, disposal, release or threatened release of
any Hazardous Substance; or (3) noise, odor, pollution, contamination, land use,
or any injury or threat of injury to persons or property.
1.12 "Exchange Act" has the meaning set forth in Recital A hereto.
1.13 "Exchange Agent" means Chase Melon Shareholder Services.
1.14 "Hazardous Substance" means any substance, material, or waste that
is: (1) listed, classified or regulated in any concentration pursuant to any
Environmental Law; (2) any petroleum product or by-product, asbestos-containing
material, lead-containing paint or plumbing, polychlorinated biphenyls,
radioactive materials or radon; or (3) any other substance, material, or waste
which may be the subject of regulatory action by any governmental entity
pursuant to any Environmental Law.
1.15 "Proxy Statement" means the proxy statement of Calnetics and all
supplements and amendments thereto, mailed to shareholders of Calnetics in
connection with the Merger.
1.16 "Knowledge" means, with respect to an entity, actual knowledge of
the Chief Executive Officer, the President, the Chief Financial Officer and/or
the Chief Administrative Officer of that entity and, with respect to an
individual, actual knowledge of that individual.
1.17 "Merger" has the meaning set forth in Recital C hereto.
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1.18 "Options" means the outstanding options to purchase shares of
Calnetics Common Stock referred to in Section 6.2(a) hereof.
1.19 "Person" refers to any corporation, trust, partnership,
individual, association or other entity.
1.20 "Subsidiary" has the meaning set forth in Recital C hereto.
1.21 "Summa Common Stock" refers to any and all common stock, $.001 par
value, of Summa.
1.22 "Surviving Corporation" refers to Subsidiary as the survivor
of the Merger.
2. THE SURVIVING CORPORATION.
2.1 Surviving Corporation. The corporation which shall survive
the Merger is Subsidiary (sometimes hereinafter referred to as the "Surviving
Corporation").
2.2 Articles of Incorporation. The Articles of Incorporation of
Subsidiary, as in effect immediately before the Effective Time, shall be the
Articles of Incorporation of the Surviving Corporation from and after the
Effective Time until changed or amended as provided by law or such Articles of
Incorporation.
2.3 Authorized Capitalization of Surviving Corporation. The total
number of shares of all classes of capital stock which the Surviving Corporation
shall have authority to issue shall be 1,000 shares of Common Stock, $.001 par
value per share.
2.4 Bylaws. The Bylaws of Subsidiary, as in effect immediately before
the Effective Time, shall be the Bylaws of the Surviving Corporation until
changed or amended as provided in accordance with law, the Articles of
Incorporation of the Surviving Corporation, or such Bylaws.
2.5 Directors. There shall be (3) directors of the Surviving
Corporation from and after the Effective Time (until changed in accordance with
applicable law and the Articles of Incorporation and Bylaws of the Surviving
Corporation), who shall be the three directors of Subsidiary in office
immediately before the Effective Time.
3. CONVERSION OF SHARES, OPTIONS AND OTHER SECURITIES.
3.1 Manner of Converting Shares. The manner and basis of
converting securities of Calnetics shall be as follows:
3.1.1 Calnetics Common Stock. Each share of Calnetics Common Stock
outstanding on the Effective Date shall, as a consequence of the Merger, be
converted automatically into the right to receive $7.35 in cash.
3.1.2 Options to Purchase Calnetics Common Stock. Each Option (as
defined in Section 6.2(a) below) outstanding at the Effective Time, if any,
shall be canceled as of the Effective Time by agreements with the holder thereof
to accept, in the place thereof, an option to purchase shares of Summa Common
Stock on the terms and at the price determined as provided in Section 10.6
below.
3.1.3 Calnetics Common Stock Owned by Calnetics. All shares of
Calnetics Common Stock owned by Calnetics immediately prior to the Effective
Time, if any, shall be canceled and retired as of the Effective Time, and all
rights in respect thereof shall cease to exist.
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3.2 Surrender and Exchange of Calnetics Common Stock.
(a) As soon as reasonably practicable after the Effective Time, the
Exchange Agent shall mail to each holder of record of Calnetics Common Stock
immediately prior to the Effective Time (excluding any shares of Calnetics
Common Stock which will be canceled pursuant to Section 3.1.3 and any shares
which constitute Perfected Dissenting Shares pursuant to Section 3.3) a letter
of transmittal (the "Letter of Transmittal") stating that the Merger has been
consummated and setting forth instructions for use in effecting the surrender of
the shares of Calnetics Common Stock in exchange for the cash which all holders
of shares of Calnetics Common Stock are entitled to receive as a consequence of
the Merger.
(b) Upon surrender of a certificate formerly representing shares of
Calnetics Common Stock for cancellation to the Exchange Agent, together with a
Letter of Transmittal, duly executed, and such other documents as the Exchange
Agent shall reasonably request, the holder of such certificate shall be entitled
to receive in exchange therefor a check issued by the Exchange Agent in the
amount equal to the cash which such holder has the right to receive pursuant to
the provisions of Sections 3.1.1, less the amount of any required withholding
taxes, and the certificate formerly representing shares of Calnetics Common
Stock so surrendered shall forthwith be canceled. Notwithstanding the
immediately preceding sentence, any Calnetics Shareholder owing 5% or more of
Calnetics Common Stock shall be entitled to receive payment in immediately
available funds against delivery of his or her shares of Calnetics Common Stock
on or after the Effective Time. Until surrendered as contemplated by this
Section 3.2, each certificate formerly representing shares of Calnetics Common
Stock shall be deemed for all purposes at any time after the Effective Time to
evidence solely the right to receive the cash into which such shares of
Calnetics Common Stock have been converted under Section 3.1 hereof.
(c) From and after the Effective Time, there shall be no transfers
on the stock transfer books of Calnetics of the shares of Calnetics Common Stock
which were outstanding immediately prior to the Effective Time. If, after the
Effective Time, certificates representing any such shares are presented to the
Surviving Corporation, they shall be canceled and exchanged for the
consideration, if any, deliverable in respect thereof pursuant to this Agreement
and the Agreement of Merger. In the event that any certificate which formerly
represented shares of Calnetics Common Stock shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such certificate to be lost, stolen or destroyed and, if required by Summa, the
posting by such person of a bond in such reasonable amount as Summa may direct
as indemnity against any claim that may be made against it with respect to such
certificate, the Exchange Agent will issue in exchange for such lost, stolen or
destroyed certificate the applicable Merger consideration.
3.3 Dissenting Shares. Each Calnetics Shareholder, if any, who becomes
entitled, pursuant to the provisions of the California Corporations Code, to the
payment in cash of the "fair market value" of such Shareholder's shares of
Calnetics Common Stock ("Perfected Dissenting Shares"), shall receive payment
therefor from Summa, but only after the value thereof shall have been agreed
upon or finally determined pursuant to such provisions. Perfected Dissenting
Shares acquired by Summa, if any, shall be canceled.
4. SHAREHOLDER APPROVAL AND EFFECTIVE DATE.
4.1 Approval by Calnetics Shareholders. As provided in Section 8.6
below, a special meeting of the Calnetics Shareholders shall be called to be
held in accordance with the California Corporations Code on or before September
30, 1997, subject to adjournment or postponement by Calnetics in its sole
discretion in the event that the Financing (as defined in Section 8.12 below)
has not been delivered by such date to the Exchange Agent as provided in Section
11.8 below, at a time, place and date to be set by the Calnetics Board of
Directors, for the purposes of considering and voting upon a proposal to approve
this Agreement and the Merger contemplated hereby. The Board of Directors of
Calnetics has recommended that the Calnetics Shareholders approve this Agreement
and the Merger.
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By signing this Agreement where indicated on the signature page
hereof, each shareholder of Calnetics who owns or has voting control over 10% or
more of the Common Stock of Calnetics issued and outstanding as of the date
hereof has agreed, subject to the terms and conditions of this Agreement, to
vote all such shares in favor of this Agreement and the Merger at the special
meeting of Calnetics Shareholders .
4.2 Approval by Summa. The Summa Board of Directors has approved this
Agreement, the Merger and the other transactions contemplated thereby, and
Summa, as the sole shareholder of Subsidiary, shall approve, and shall cause the
Board of Directors of Subsidiary to approve, the Agreement of Merger, the Merger
and the other transactions contemplated thereby.
4.3 Effective Date and Time. Upon approval of this Agreement and the
Merger contemplated hereby by the Calnetics Shareholders and Summa as the sole
shareholder of Subsidiary, and provided that the Merger is not thereafter
terminated as provided in Section 12 hereof, the Agreement of Merger, along with
any and all other necessary documents, shall be executed and delivered by each
of Calnetics, Summa and Subsidiary and filed with the California Secretary of
State, in accordance with applicable provisions of the California Corporations
Code. The Merger shall become effective on the date when the Agreement of
Merger, along with any and all other necessary documents, has been duly filed
with the California Secretary of State. The date of such effectiveness is
referred to herein as the "Effective Date," and the time of such effectiveness
is referred to herein as the "Effective Time." Calnetics and Summa shall agree
upon the date on which the Agreement of Merger shall be submitted for filing in
the State of California.
5. EFFECT OF MERGER.
5.1 Cessation of Calnetics' Existence. When the Merger becomes
effective, Calnetics shall be merged with and into Subsidiary, the separate
existence of Calnetics shall cease, and Subsidiary, as the Surviving Corporation
in the Merger, without further action, shall succeed to and shall possess and
enjoy all the rights, privileges, immunities, powers, purposes, and franchises,
both of a public and private nature, and be subject to all restrictions,
disabilities, and duties of Calnetics, and the Merger shall have the effects on
Calnetics and Subsidiary as provided under the California Corporations Code.
5.2 Property. All rights, franchises and interest of Calnetics in and
to every type of property, whether real, personal or mixed, and all debts due to
Calnetics on whatever account, including stock subscriptions and causes of
action, and every other asset of Calnetics, shall be vested in the Surviving
Corporation. All such property, rights, privileges, powers and franchises shall
be thereafter the property of the Surviving Corporation. Title to any real
estate and to any other property, whether by deed or otherwise, under the laws
of the State of California or of any other jurisdiction, that is vested in
Calnetics shall not revert or be in any way impaired by reason of the Merger or
the statutes providing therefor.
5.3 Creditor Rights. All rights of creditors and all liens upon the
property of Calnetics existing immediately prior to the Effective Time shall be
preserved unimpaired, and all debts, liabilities, obligations, penalties and
duties of Calnetics shall thenceforth attach to the Surviving Corporation, and
may be enforced against it to the same extent as if they had been incurred or
contracted by it. No liability or obligation due or to become due, nor any claim
or demand existing against either corporation or any shareholder, officer or
director thereof, shall be impaired by the Merger.
5.4 Legal Actions. No action or proceeding, whether civil or criminal,
pending on the Effective Date by or against either corporation, or any
shareholder, officer, or director thereof, shall abate or be discontinued by the
Merger, but may be enforced, prosecuted, settled, or compromised as if the
Merger had not occurred, or the Surviving Corporation may be substituted in such
action or proceeding in place of Calnetics.
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5.5 Delivery of Documents. At any time, or from time to time, after the
Effective Date, the last acting officers of Calnetics, or the corresponding
officers of the Surviving Corporation, may, in the name of the Surviving
Corporation, execute and deliver all such proper deeds, assignments, and other
instruments and take or cause to be taken all such further or other action as
the Surviving Corporation may deem necessary or desirable in order to vest,
perfect or confirm in the Surviving Corporation title to and possession of all
of Calnetics' property, rights, privileges, immunities, powers, purposes and
franchises, and otherwise to carry out the purposes of this Agreement.
6. REPRESENTATIONS AND WARRANTIES OF CALNETICS.
Calnetics hereby represents and warrants to Summa and Subsidiary as
follows (it being acknowledged that Summa is entering into this Agreement in
material reliance upon each of the following representations and warranties):
6.1 Organization and Corporate Power. Calnetics is a corporation duly
organized, validly existing and in good standing under the laws of the State of
California, and is duly qualified and in good standing to do business as a
foreign corporation in each jurisdiction in which such qualification is required
and where the failure to be so qualified would have a materially adverse effect
upon Calnetics. Calnetics has all requisite corporate power and authority to
conduct its business as now being conducted and to own and lease the properties
which it now owns and leases. The Articles of Incorporation, as amended to date,
certified by the California Secretary of State, the Bylaws of Calnetics, as
amended to date, and the resolutions of Calnetics' Board of Directors
authorizing the execution, delivery and performance of this Agreement, all
certified by the Secretary of Calnetics, which have previously been provided to
Summa by Calnetics, are true and complete copies thereof as currently in effect.
6.2 Capitalization.
(a) The authorized capital stock of Calnetics consists of 20,000,000
shares of Calnetics Common Stock and 2,000,000 shares of preferred stock,
without par value. As of the date hereof, there are 3,038,799 shares of
Calnetics Common Stock issued and outstanding. All of the issued and outstanding
shares of Calnetics Common Stock were validly issued and are fully paid,
nonassessable and free of preemptive rights. In addition, there are currently
outstanding options to purchase from Calnetics an aggregate of 225,000
additional shares of Calnetics Common Stock (the "Options"). Set forth on
Exhibit B attached hereto is a full and complete listing setting forth the name
and address of each holder of all Options that are outstanding as of the date
hereof, the number of shares subject to each such Option, and the exercise price
relating thereto.
(b) Except expressly set forth in Section 6.2(a) above and on
Exhibit B attached hereto, there are no warrants, options, calls, commitments or
other rights to subscribe for or to purchase from Calnetics any capital stock of
Calnetics or any securities convertible into or exchangeable for any shares of
capital stock of Calnetics, or any other securities or agreements pursuant to
which Calnetics is or may become obligated to issue any shares of its capital
stock, nor is there outstanding any commitment, obligation or agreement on the
part of Calnetics to repurchase, redeem or otherwise acquire any of the
outstanding shares of its capital stock.
6.3 Authorization; Government Approvals. Calnetics has full corporate
power and authority to enter into, execute and deliver this Agreement, to
execute all attendant documents and instruments necessary to consummate the
transactions herein contemplated, and to perform its obligations hereunder,
subject to receipt of the requisite approval of the Calnetics Shareholders. This
Agreement (and each and every other agreement, document and instrument to be
executed by Calnetics hereunder) has been effectively authorized by all
necessary action on the part of the Board of Directors of Calnetics, which
authorizations remain in full force and effect, has been duly executed and
delivered by Calnetics, and no other authorizations or proceedings on the part
of Calnetics are required to authorize this Agreement and/or the transactions
contemplated hereby, except for receipt of the
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requisite approval of the Calnetics Shareholders. This Agreement constitutes the
legal, valid and binding obligation of Calnetics, subject to receipt of the
requisite approval of the Calnetics Shareholders, enforceable with respect to
Calnetics in accordance with its terms, except as enforcement hereof may be
limited by bankruptcy, insolvency, reorganization, priority or other laws or
court decisions relating to or affecting generally the enforcement of creditors'
rights or affecting generally the availability of equitable remedies. Other than
in connection with the filing of the Agreement of Merger with the California
Secretary of State and related assumption of tax liabilities, proceedings with
the Commission, and the proceedings contemplated by Section 8.6 hereof, no
authorization, consent or approval of any public body or authority is necessary
for the consummation by Calnetics of the transactions contemplated by this
Agreement.
6.4 No Conflicts. Except as disclosed on the Calnetics Disclosure
Schedule attached hereto as Exhibit C, neither the execution and delivery of
this Agreement, nor the consummation by Calnetics of any of the transactions
contemplated hereby, nor compliance by Calnetics with any of the provisions
hereof, will (i) conflict with or result in a breach of, violation of, or
default under any of the terms, conditions or provisions of any note, debenture,
bond, mortgage, indenture, license, lease, credit agreement or other agreement,
document, instrument or obligation (including, without limitation, any of
Calnetics' charter documents) to which Calnetics is a party or by which any of
its assets or properties may be bound, or (ii) violate any judgment, order,
injunction, decree, statute, rule or regulation applicable to Calnetics or any
of its officers, directors, employees, assets or properties, excluding from the
foregoing clauses (i) and (ii) any conflicts, breaches, violations or defaults
that would not have a materially adverse affect on Calnetics or materially
impair Calnetics' ability to consummate the transactions contemplated hereby, or
for which Calnetics shall have received before the Effective Time appropriate
consents or waivers.
6.5 Subsidiaries. Calnetics has no subsidiaries and no investments,
directly or indirectly, or other financial interest in any other corporation or
business organization, joint venture or partnership of any kind whatsoever
except as reflected in the Calnetics Financial Statements (defined in Section
6.6 below) or as shown on the Calnetics Disclosure Schedule.
6.6 Financial Statements. Attached hereto as Exhibit D are (i) the
audited consolidated financial statements of Calnetics for each of its fiscal
years ended June 30, 1994, 1995 and 1996, consisting of balance sheets as of
such dates, the related statements of income for the periods then ended, and the
notes thereto, certified by Arthur Andersen LLP, and (ii) unaudited consolidated
financial statements of Calnetics for the 9 months ended March 31, 1997,
consisting of the balance sheet as of such date (the "Calnetics Balance Sheet"),
the related statement of income for the period then ended, and the notes
thereto, certified by the chief financial officer of Calnetics. Such financial
statements (and the notes related thereto) are herein sometimes collectively
referred to as the "Calnetics Financial Statements." The Calnetics Financial
Statements (i) are derived from the books and records of Calnetics, which books
and records have been consistently maintained in a manner which reflects, and
such books and records do fairly reflect in all material respects, the assets
and liabilities of Calnetics, (ii) fairly present in all material respects the
financial condition of Calnetics on the respective dates of such statements and
the results of its operations for the periods indicated, except as may be
disclosed in the notes thereto, and (iii) have been prepared in all material
respects in accordance with generally accepted accounting principles
consistently applied throughout the periods involved (except for footnote
disclosures to the unaudited financial statements and as otherwise disclosed in
the notes thereto).
6.7 Absence of Undisclosed Liabilities. Except as and to the extent
reflected or reserved against in the Calnetics Balance Sheet, and as to matters
arising in the ordinary course of its business since the date of the Calnetics
Balance Sheet that are disclosed in the Calnetics Disclosure Schedule, Calnetics
has no liability or obligation (whether accrued, to become due, contingent or
otherwise) which individually or in the aggregate could have a materially
adverse effect on the business, assets or condition (financial or otherwise) of
Calnetics.
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6.8 Absence of Certain Developments. Except as set forth in the
Calnetics Disclosure Schedule, since the date of the Calnetics Balance Sheet
there has been (i) no declaration, setting aside or payment of any dividend or
other distribution with respect to any capital stock of Calnetics, no
redemption, purchase or other acquisition of any shares of Calnetics' capital
stock, and no split-up or other recapitalization relative to any of such capital
stock, nor any action authorizing or obligating Calnetics to do any of the
foregoing; (ii) no loss, destruction or damage to any material property or asset
of Calnetics, whether or not insured; (iii) no acquisition or disposition of
material assets (or any contract or arrangement therefor) or any other material
transaction by Calnetics, otherwise than for fair value and in the ordinary
course of business; (iv) no discharge or satisfaction by Calnetics of any lien
or encumbrance or payment of any material obligation or liability (absolute or
contingent) other than current liabilities shown on the Calnetics Balance Sheet,
or current liabilities incurred since the date thereof in the ordinary course of
business, (v) no sale, assignment or transfer by Calnetics of any of its
tangible or intangible assets including any security interest or other
encumbrance, or waiver by Calnetics of any rights of value which, in any such
case, is outside the ordinary course of business and material to the business of
Calnetics; (vi) no payment or accrual (except consistent with past practices) of
any bonus to or change in the compensation of any director, officer or employee,
whether directly or by means of any bonus, pension plan, contract or commitment;
(vii) no write-off or material reduction in the carrying value of any asset
which is material to the business of Calnetics; (viii) no disposition or lapse
of rights as to any intangible property which is material to the business of
Calnetics; (ix) except for ordinary travel advances, no loans or extensions of
credit to shareholders, officers, directors or employees of Calnetics; (x) no
loss of a customer of or supplier to Calnetics the loss of which could
reasonably be expected to materially adversely affect Calnetics; (xi) no
agreement to do any of the things described in this Section 6.8, or (xii) no
materially adverse change in the condition (financial or otherwise) of Calnetics
or in its assets, liabilities, properties or business.
6.9 Real Property. Set forth in the Calnetics Disclosure Schedule is a
complete and accurate description of each parcel of real property owned by or
leased to and occupied by Calnetics, and Calnetics neither owns or leases, nor
occupies, any other real property. Except as would be disclosed in a reasonably
diligent inspection, to Calnetics' Knowledge, the buildings and all fixtures and
improvements located on such real property are in good operating condition,
ordinary wear and tear excepted. To Calnetics Knowledge, Calnetics is not in
violation of any zoning, building or safety ordinance, regulation or requirement
or other law or regulation applicable to the operation of owned or leased
properties, the violation of which could reasonably be expected to have a
material adverse affect upon Calnetics, its condition (financial or otherwise),
assets, liabilities, properties or business, and Calnetics has not received any
notice of violation with which it has not complied or is not taking steps to
comply. Calnetics has good and marketable title to all such real property owned
by Calnetics, free and clear of all liens, mortgages, encumbrances, easements,
leases, restrictions and claims of any kind whatsoever except for (i) those
matters shown on the Calnetics Disclosure Schedule, (ii) liens for taxes and tax
assessments not yet due and payable; and (iii) mechanics' or similar liens for
materials or services furnished or to be furnished after the date hereof. All
leases of real property to which Calnetics is a party are fully effective in
accordance with their respective terms and afford Calnetics peaceful and
undisturbed possession of the subject matter of the lease, and there exists no
material default on the part of Calnetics or termination thereof, except as may
be set forth in the Calnetics Disclosure Schedule.
6.10 Tangible Personal Property. Set forth in the Calnetics Disclosure
Schedule hereto is a complete list of all items of tangible personal property
(including without limitation all items of tooling) owned, leased or otherwise
used by Calnetics in the current conduct of its business, wherever located,
where the original cost was in excess of $50,000.00. Except as set forth in the
Calnetics Disclosure Schedule, Calnetics has, and at the Effective Date will
have, good and marketable title to, or in the case of leased equipment a valid
leasehold interest in, and is in the possession of, all such items of personal
property owned or leased by it, free and clear of all title defects, mortgages,
pledges, security interests, condition sales agreements, liens, restrictions or
encumbrances whatsoever. Included in the Calnetics Disclosure Schedule is a list
of all outstanding equipment leases and maintenance agreements to which
Calnetics is a party as lessee and which individually provide for future lease
payments in excess of $5,000 per month, with the identities of the other parties
to all such leases and
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agreements shown thereon. All leases of tangible personal property to which
Calnetics is a party and which are material to the business of Calnetics are
fully effective in accordance with their respective terms, and there exists no
material default on the part of Calnetics or termination thereof, except as may
be set forth in the Calnetics Disclosure Schedule. Each item of capital
equipment reflected in the Calnetics Balance Sheet which is used in the current
conduct of Calnetics' business is in good operating and usable condition and
repair, ordinary wear and tear excepted, and is suitable for use in the ordinary
course of Calnetics' business and fit for its intended purposes, except as may
be set forth in the Calnetics Disclosure Schedule.
6.11 Tax Matters. Calnetics has, since its inception, duly and timely
filed all federal, state, county and local tax returns required to have been
filed by it in those jurisdictions where the nature or conduct of its business
required such filing and where the failure to so file would be materially
adverse to Calnetics. Copies of all tax returns for the past three years have
been made available for inspection by Summa prior to the execution hereof. All
federal, state, county and local taxes, including but not limited to those taxes
due with respect to Calnetics' properties, income, gross receipts, excise,
occupation, franchise, permit, licenses, sales, payroll, and inventory due and
payable as of the date of the Effective Date by Calnetics have been paid or
validly extended. The amount reflected in the Calnetics Balance Sheet as
liabilities or reserves for taxes which are due but not yet payable is
sufficient for the payment of all accrued and unpaid taxes of the types referred
to hereinabove. No consent to the application of Section 341(f)(2) of the
Internal Revenue Code of 1986, as amended, has been filed with respect to
Calnetics.
6.12 Accounts Receivable. The accounts receivable reflected in the
Calnetics Balance Sheet constituted all accounts receivable of Calnetics as of
the date thereof, other than accounts receivable fully written off as
uncollectible as of such date in accordance with consistently applied prior
practice. All such accounts receivable arose from valid sales made (as opposed
to consignments) or services rendered in the ordinary course of business, and
are not subject to any return privileges, set-off or counter-claim, except as
disclosed on the Calnetics Disclosure Schedule. Except as disclosed on the
Calnetics Disclosure Schedule, such accounts receivable have been collected in
full since the date of the Calnetics Balance Sheet or, to Calnetics' Knowledge,
are collectible at their full respective amounts (net of allowance for doubtful
accounts established in accordance with consistently applied prior practice).
Based upon the prior experience of Calnetics, the "allowance for doubtful
accounts" shown on the Calnetics Balance Sheet is sufficient to cover all
doubtful accounts.
6.13 Inventories. Calnetics has good and marketable title to all of its
inventories of raw materials, work-in-process and finished goods, including
models and samples, free and clear of all security interests, liens, claims and
encumbrances, except as set forth in the Calnetics Disclosure Schedule. All such
inventories consist of items that are usable and salable in the ordinary course
of business of Calnetics for an amount at least equal to the book value thereto,
plus the costs of disposition thereof, and represent quantities, individually
and in the aggregate, not in excess of one year's requirements for its business
as currently conducted, except as may be set forth in the Calnetics Disclosure
Schedule.
6.14 Contracts and Commitments. Calnetics has no contract, agreement,
obligation or commitment, written or oral, expressed or implied, which involves
a commitment or liability in excess of $100,000 or for a term of more than one
year or whose terms do not permit cancellation without liability on 90 days'
notice or less (other than obligations which are included in accounts payable),
and no union contracts, employee or consultant contracts, loan, credit or other
financing agreements, inventory flooring arrangements, debtor or creditor
arrangements, security agreements, licenses, franchise, manufacturing,
distributorship or dealership agreements, leases, or bonus, health or stock
option plans, except for those described in the Calnetics Disclosure Schedule,
all of which have been made available to Summa prior to the execution hereof. As
of the date hereof, to Calnetics' Knowledge, there exists no circumstances which
would affect the validity or enforceability of any of such contracts and other
agreements in accordance with their respective terms. Except as set forth in the
Calnetics Disclosure Schedule, Calnetics has performed and complied in all
material respects with all obligations required to be performed by it to date
under, and is not in default (without giving effect to any
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required notice or grace period) under, or in breach of, the terms, conditions
or provisions of any of such contracts and other agreements. Except as set forth
in the Calnetics Disclosure Schedule, the validity and enforceability of any
contract or other agreement described herein has not been and shall not in any
manner be affected by the execution and delivery of this Agreement without any
further action. Except as set forth in the Calnetics Disclosure Schedule,
Calnetics has no material contract, agreement, obligation or commitment which
requires or will require future expenditures (including internal costs and
overhead) in excess of reasonably anticipated receipts, nor which is likely to
be materially adverse to Calnetics' business, assets or condition (financial and
otherwise).
6.15 Patents, Trade Secrets and Customer Lists. Except as set forth in
the Calnetics Disclosure Schedule, Calnetics does not have any patents,
applications for patents, trademarks, applications for trademarks, trade names,
brand names, licenses or service marks relating to the business of Calnetics,
nor does any present or former shareholder, officer, director or employee of
Calnetics own any patent rights relating to any products manufactured, rented or
sold by Calnetics. Except as set forth in the Calnetics Disclosure Schedule, to
the Knowledge of Calnetics, Calnetics has the unrestricted right to use, free
and clear of any claims or rights of others, all trade secrets, customer lists,
manufacturing and secret processes, trademarks, trade names, brand names,
licenses and service marks reasonably necessary to the manufacturing and
marketing of all products made or proposed to be made by Calnetics, and, to the
Knowledge of Calnetics, the continued use thereof by Calnetics following the
Effective Date will not conflict with, infringe upon, or otherwise violate any
rights of others. To Calnetics' Knowledge, Calnetics has not used and is not
making use of any confidential information or trade secrets of any present or
past employee of Calnetics that has not been assigned to Calnetics or that
Calnetics does not have the right to use.
6.16 No Pending Material Litigation or Proceedings. Except as set forth
in the Calnetics Disclosure Schedule, there are no actions, suits or proceedings
pending or, to Calnetics' Knowledge, threatened against or directly affecting
Calnetics (including actions, suits or proceedings where liabilities may be
adequately covered by insurance) at law or in equity or before or by any
federal, state, municipal or other governmental department, commission, court,
board, bureau, agency or instrumentality, domestic or foreign, or affecting any
of the shareholders, officers or directors of Calnetics in connection with the
business, operations or affairs of Calnetics, which could reasonably be expected
to result in any material adverse change in the business, properties, assets or
condition (financial or otherwise) of Calnetics, or which question or challenge
the transaction contemplated hereby. Except as set forth in the Calnetics
Disclosure Schedule, to Calnetics' Knowledge, Calnetics has not, during the past
three years, been threatened with any action, suit, proceedings or claim
(including actions, suits, proceedings or claims where its liabilities may be
adequately covered by insurance) for personal injuries allegedly attributable to
products sold or services performed by Calnetics asserting a particular defect
or hazardous property in any of Calnetics' products, services or business
practices or methods, nor has Calnetics been a party to or threatened with
proceedings brought by or before any federal or state agency; and Calnetics has
no Knowledge of any defect or hazardous property, claimed or actual, in any such
product, service, business practice or method. Calnetics is not subject to any
voluntary or involuntary proceeding under the United States Bankruptcy Code and
has not made an assignment for the benefit of creditors.
6.17 Insurance. Calnetics maintains insurance with reputable insurance
companies on such of its equipment, tools, machinery, inventory and properties
as are usually insured by companies similarly situated in the same geographic
location and to the extent customarily insured, and maintains products and
personal liability insurance, and such other insurance against hazards, risks
and liability to persons and property as is customary for companies similarly
situated in the same geographic location. A true and complete listing and
general description of each of Calnetics' insurance policies as currently in
force, including all policies of group medical and/or dental insurance, is set
forth in the Calnetics Disclosure Schedule, copies of all of which have
previously been made available to Summa. All such insurance policies currently
are in full force and effect.
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6.18 Arrangements with Personnel. Except as set forth in the Calnetics
Disclosure Schedule, no shareholder, director, officer or employee of Calnetics
is presently a party to any transaction with Calnetics, including without
limitation any contract, loan or other agreement or arrangements providing for
the furnishing of services by, the rental of real or personal property from or
to, or otherwise requiring loans or payments to, any such shareholder, director,
officer or employee, or to any member of the family of any of the foregoing, or
to Calnetics' Knowledge, to any corporation, partnership, trust or other entity
in which any shareholder, director, officer or employee or any member of the
family of any of them has a substantial interest or is an officer, director,
trustee, partner or employee. There is set forth in the Calnetics Disclosure
Schedule a list showing (i) the name, title, date and amount of last
compensation increase, and aggregate compensation, including amounts paid or
accrued pursuant to any bonus, pension, profit sharing, commission, deferred
compensation or other plans or arrangements in effect as of the date of this
Agreement, of each officer or employee of Calnetics whose salary and other
compensation, in the aggregate, received from Calnetics or accrued is at an
annual rate (or aggregated for the most recently completed fiscal year) in
excess of $100,000, as well as any employment and/or severance agreements
relating to any such persons; (ii) a description of any and all bonus, pension,
profit sharing, commission, deferred compensation or other plans or arrangements
in effect for any of Calnetics' employees as of the date of this Agreement;
(iii) a description of any noncompetition or similar agreements to which
Calnetics or any shareholder, director, officer or employee of Calnetics is a
party; (iv) all powers of attorney from Calnetics to any person or entity; and
(v) the name of each person or entity authorized to borrow money or incur or
guarantee indebtedness on behalf of Calnetics. Calnetics has made available to
Summa copies of all written personnel policies, including without limitation
vacation, severance, bonus, profit sharing and commission policies, applicable
to any of Calnetics' employees. Neither the execution and delivery of this
Agreement by Calnetics, nor the consummation by Calnetics of any of the
transactions contemplated hereby, or compliance by Calnetics with any of the
provisions hereof, shall create any obligation or liability on the part of
Calnetics under any bonus, profit sharing, deferred compensation or other plan
or arrangement in effect as of the date of this Agreement, other than the
vesting of certain outstanding options.
6.19 Labor Relations. Except as set forth in the Calnetics Disclosure
Schedule, Calnetics has never been a party to any collective bargaining
agreement or other contract with a labor union, nor, to Calnetics' Knowledge, is
any union, labor organization or group of employees of Calnetics presently
seeking the right to enter into collective bargaining with Calnetics on behalf
of any of its employees.
6.20 Bank Accounts. All bank and savings accounts, and other accounts
at similar financial institutions, of Calnetics are listed in the Calnetics
Disclosure Schedule, and copies of all signature cards or other documentation
reflecting all individuals who are authorized to withdraw funds from any such
accounts have been made available to Summa.
6.21 Absence of Questionable Payments. Neither Calnetics nor, to
Calnetics' Knowledge, any shareholder, director, officer, agent, employee,
consultant or other person associated with or acting on behalf of any of them,
has (i) used any corporate funds for unlawful contributions, gifts,
entertainment or other unlawful expenses relating to political activity, (ii)
made any direct or indirect unlawful payments to governmental officials or
others from corporate funds, engaged in any payments or activity which would be
deemed a violation of the Foreign Corrupt Practices Act or rules or regulations
promulgated thereunder, or (iii) established or maintained any unlawful or
unrecorded accounts.
6.22 Compliance with Laws. Calnetics holds all licenses, franchises,
permits and authorizations necessary for the lawful conduct of its business as
presently conducted, has complied with all applicable statutes, laws,
ordinances, rules and regulations of all governmental bodies, agencies and
subdivisions having, asserting or claiming jurisdiction over it, with respect to
any part of the conduct of its business and corporate affairs, where the failure
to so hold or comply could reasonably be expected to have a material adverse
affect upon Calnetics' condition (financial or otherwise), business, assets or
properties.
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6.23 Environmental Matters.
(a) To the Knowledge of Calnetics, except as set forth on the
Calnetics Disclosure Schedule:
(i) Calnetics has complied with all applicable Environmental
Laws;
(ii) Calnetics' Property (including soils, groundwater, surface
water, buildings or other structures) is not contaminated with any Hazardous
Substances that may subject Summa to liability under any Environmental Law;
(iii) the properties formerly owned or operated by Calnetics were
not contaminated with Hazardous Substances during the period of ownership or
operation by Calnetics that may subject Calnetics to liability under any
Environmental Law;
(iv) Calnetics is not subject to liability under any
Environmental Law for any Hazardous Substance disposal or contamination on
any third party property;
(v) Calnetics has not been associated with any release or
threat of release of any Hazardous Substance that may subject Calnetics to
liability under any Environmental Law;
(vi) Calnetics has not received any notice, demand, letter, claim
or request for information alleging that Calnetics may be in violation of, or
liable under, any Environmental Law;
(vii) Calnetics is not subject to any orders, decrees,
injunctions or other arrangements with any governmental entity, nor is subject
to any indemnity or other agreement with any third party relating to liability
under any Environmental Law or relating to Hazardous Substances;
(viii) there are no circumstances or conditions involving
Calnetics that could reasonably be expected to result in any claims, liability,
investigations, costs or restrictions on the ownership, use or transfer of any
of Calnetics' Property pursuant to any Environmental Law; and
(ix) Calnetics' Property does not contain any underground storage
tanks, asbestos-containing material, lead-based products, or polychlorinated
biphenyls.
6.24 Relationships with Customers and Suppliers. Except as set forth in
the Calnetics Disclosure Schedule, no present customer or substantial supplier
to Calnetics has indicated an intention to terminate or materially and adversely
alter its existing business relationship therewith, and Calnetics has no reason
to believe that any of the present customers of or substantial suppliers to
Calnetics intends to do so, other than, in each such case, any customer or
substantial supplier the loss of which could not reasonably be expected to
materially adversely affect Calnetics.
6.25 Brokerage. Except as set forth in the Calnetics Disclosure
Schedule, Calnetics has no obligation to any person or entity for brokerage
commissions, finder's fees or similar compensation in connection with the
transactions contemplated by this Agreement.
6.26 Reports Under the Exchange Act. The Calnetics Common Stock is
registered under Section 12(g) of the Exchange Act. Accordingly, Calnetics is
subject to the information requirements of the Exchange Act, and in accordance
therewith files reports and other information with the Commission. Since January
1, 1992, Calnetics has filed with the Commission on a timely basis all such
reports which Calnetics has been required to file under the Exchange Act.
Calnetics has made available to Summa accurate and complete copies of each
registration statement, report, proxy statement, information statement or
schedule, together with all amendments thereto, that were required to be filed
with the SEC by Calnetics since January 1, 1992 (the "Calnetics SEC Documents").
As of their respective dates, the Calnetics SEC Documents complied in all
material
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respects with the applicable requirements of the Securities Act and the Exchange
Act, as the case may be, and none of the Calnetics SEC Documents contained any
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were or are made, not misleading.
6.27 Disclosure. Neither this Agreement nor any certificate, exhibit,
or other written document or statement, furnished to Summa by or on behalf of
Calnetics in connection with the transactions contemplated by this Agreement
contained or contains any untrue statement of a material fact or omitted or
omits to state a material fact necessary to be stated in order to make the
statements contained herein or therein, in the light of the circumstances in
which they were made, not misleading. Calnetics has no Knowledge of any fact
which has not been disclosed in writing to Summa which may reasonably be
expected to materially and adversely affect the business, operations,
properties, assets, condition (financial or other), and/or results of operations
of Calnetics or the ability of Calnetics to perform all of the obligations to be
performed by Calnetics under this Agreement and/or any other agreement between
Summa and Calnetics to be entered into pursuant to any provision of this
Agreement.
7. REPRESENTATIONS AND WARRANTIES OF SUMMA.
Summa represents and warrants to Calnetics as follows (it being
acknowledged and agreed that Calnetics is entering into this Agreement in
material reliance upon each of the following representations and warranties):
7.1 Organization and Corporate Power. Summa is a corporation duly
organized, validly existing and in good standing under the laws of the State of
California, and is duly qualified and in good standing to do business as a
foreign corporation in each jurisdiction in which such qualification is required
and where the failure to be so qualified would have a materially adverse effect
upon Summa. Summa has all requisite corporate power and authority to conduct its
business as now being conducted and to own and lease the properties which it now
owns and leases. The Articles of Incorporation, as amended to date, certified by
the Secretary of State of California, and the Bylaws of Summa, as amended to
date, and the resolutions of Summa's Board of Directors authorizing the
execution, delivery and performance of this Agreement, all certified by the
Secretary of Summa, which have previously been provided to Calnetics by Summa,
are true and complete copies thereof as currently in effect. Subsidiary will be
organized prior to the Effective Time as a duly organized and validly existing
California corporation in good standing under the laws of the State of
California, all of whose capital stock will be issued to and owned, beneficially
and of record, by Summa.
7.2 Capitalization. The authorized capital stock of Summa consists of
10,000,000 shares of Summa Common Stock and 5,000,000 shares of preferred stock,
$.001 par value. As of the date hereof, there are 4,070,250 shares of Summa
Common Stock outstanding, and no shares of preferred stock have been issued or
are outstanding. In addition, there are currently outstanding options and
warrants to purchase from Summa an aggregate of 470,721 additional shares of
Summa Common Stock. Except expressly set forth hereinabove, there are no
warrants, options, calls, commitments or other rights to subscribe for or to
purchase from Summa any capital stock of Summa or any securities convertible
into or exchangeable for any shares of capital stock of Summa, or any other
securities or agreements pursuant to which Summa is or may become obligated to
issue any shares of its capital stock, nor is there outstanding any commitment,
obligation or agreement on the part of Summa to repurchase, redeem or otherwise
acquire any of the outstanding shares of its capital stock.
7.3 Authorization; Government Approvals. Summa has full corporate power
and authority to enter into, execute and deliver this Agreement, to execute all
attendant documents and instruments necessary to consummate the transactions
herein contemplated, and to perform its obligations hereunder. This Agreement
(and each and every other agreement, document and instrument to be executed by
Summa hereunder) has been effectively authorized by all necessary action on the
part of the Board of Directors of Summa, which
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authorizations remain in full force and effect, has been duly executed and
delivered by Summa, and no other authorizations or proceedings on the part of
Summa are required to authorize this Agreement and/or the transactions
contemplated hereby. This Agreement constitutes the legal, valid and binding
obligation of Summa, enforceable with respect to Summa in accordance with its
terms, except as enforcement hereof may be limited by bankruptcy, insolvency,
reorganization, priority or other laws or court decisions relating to or
affecting generally the enforcement of creditors' rights or affecting generally
the availability of equitable remedies. Other than in connection with the filing
of the Agreement of Merger with the California Secretary of State and
proceedings with the Commission, no authorization, consent or approval of any
public body or authority is necessary for the consummation by Summa of the
transactions contemplated by this Agreement.
7.4 No Conflicts. Except as disclosed on the Summa Disclosure Schedule
attached hereto as Exhibit E, neither the execution and delivery of this
Agreement, nor the consummation by Summa of any of the transactions contemplated
hereby, or compliance with any of the provisions hereof, will (i) conflict with
or result in a breach of, violation of, or default under any of the terms,
conditions, or provisions of any note, debenture, bond, mortgage, indenture,
license, lease, credit agreement or other agreement, document, instrument or
obligation (including, without limitation, any of Summa's charter documents) to
which Summa is a party or by which any of its assets or properties may be bound,
or (ii) violate any judgment, order, injunction, decree, statute, rule or
regulation applicable to Summa or any of its officers, directors, employees,
assets or properties, excluding from the foregoing clauses (i) and (ii) any
conflicts, breaches, violations or defaults that would not have a materially
adverse affect on Summa or materially impair Summa's ability to consummate the
transactions contemplated hereby, or for which Summa shall have received before
the Effective Time appropriate consents or waivers.
7.5 No Pending Material Litigation or Proceedings. Except as set forth
in the Summa Disclosure Schedule, there are no actions, suits or proceedings
pending or, to Summa's Knowledge, threatened against or directly affecting Summa
(including actions, suits or proceedings where liabilities may be adequately
covered by insurance) at law or in equity or before or by any federal, state,
municipal or other governmental department, commission, court, board, bureau,
agency or instrumentality, domestic or foreign, or affecting any of the
shareholders, officers or directors of Summa in connection with the business,
operations or affairs of Summa, which could reasonably be expected to have a
material adverse effect on the ability of Summa to consummate the transactions
contemplated hereby. Summa is not subject to any voluntary or involuntary
proceeding under the United States Bankruptcy Code and has not made an
assignment for the benefit of creditors.
7.6 Reports Under the Exchange Act. The Summa Common Stock is
registered under Section 12(g) of the Exchange Act. Accordingly, Summa is
subject to the information requirements of the Exchange Act, and in accordance
therewith files reports and other information with the Commission. Since January
1, 1992, Summa has filed with the Commission on a timely basis all such reports
which Summa has been required to file under the Exchange Act. Summa has made
available to Calnetics accurate and complete copies of each registration
statement, report, proxy statement, information statement or schedule, together
with all amendments thereto, that were required to be filed with the SEC by
Summa since January 1, 1992 (the "Summa SEC Documents"). As of their respective
dates, the Summa SEC Documents complied in all material respects with the
applicable requirements of the Securities Act and the Exchange Act, as the case
may be, and none of the Summa SEC Documents contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were or are made, not misleading.
7.7 Disclosure. Summa has no Knowledge of any fact which has not been
disclosed in writing to Calnetics which may reasonably be expected to materially
and adversely affect the ability of Summa to perform all of the obligations to
be performed by Summa under this Agreement and/or any other agreement between
Summa and Calnetics to be entered into pursuant to any provision of this
Agreement.
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8. COVENANTS OF THE PARTIES PRIOR TO THE EFFECTIVE DATE.
Each of Calnetics and Summa hereby covenants to and agrees with the other
that between the date hereof and the Effective Date:
8.1 Access to Properties and Records. Each party shall give to the
other and its authorized representatives full access, during reasonable business
hours, in such a manner as not unduly to disrupt normal business activities, to
any and all of its premises, properties, contracts, books, records and affairs,
and will cause its senior officers to furnish any and all data and information
pertaining to its business that the other may from time to time reasonably
require. Unless and until the transactions contemplated by this Agreement have
been consummated, each party and its representatives shall hold in confidence
all information so obtained and will use such information solely for the
purposes intended by this Agreement. If the transactions contemplated hereby are
not consummated, each party will return all documents (and copies thereof)
hereinabove referred to and obtained therefrom. Such obligation of
confidentiality shall not extend to any information which is shown to have been
previously (i) known to the party receiving it, (ii) generally known to others
engaged in the trade or business of the disclosing party, (iii) part of public
knowledge or literature without breach of a duty of confidentiality, or (iv)
lawfully received from a third party. Without limiting the generality of the
foregoing, it is understood and agreed that certain information disclosed by
each party to the other, or their respective representatives, may constitute
"material inside information" that has not previously been disclosed to the
public generally. Each party acknowledges that it and its representatives are
aware of the restrictions on the use of such information imposed by federal and
state securities laws, agrees to comply and cause its representatives to comply
with such restrictions, and agrees to indemnify and hold the other party and
each of its directors, officers and employees free and harmless from any and all
liability, cost or expense that any of them may incur or suffer by reason of any
breach by the indemnifying party or any of its authorized representatives of any
of such restrictions. From and after the date hereof and until the Closing or
termination hereof, neither party, nor any of their respective officers,
directors, principal shareholders or other representatives, shall purchase or
sell, directly or indirectly, in the public marketplace or otherwise, any
securities of the other party.
8.2 Corporate Existence, Rights and Franchises. Each party shall take
all necessary actions to maintain in full force and effect its corporate
existence, rights, franchises and good standing. No change shall be made to the
Articles of Incorporation or Bylaws of either party.
8.3 Insurance. Each party shall take all necessary actions to maintain
in force all of its existing insurance policies (or replacements therefor),
subject only to variations in amounts required by the ordinary operation of its
business.
8.4 Conduct of Business in the Ordinary Course. Except as otherwise
expressly provided in this Agreement, neither party shall permit to be done any
act which would result in a material breach of any of the covenants of such
party contained herein or which would cause the representations and warranties
of such party contained herein to become untrue or inaccurate in any material
respect as of any date subsequent to the date hereof. Without limiting the
generality of the foregoing, Calnetics shall take all reasonably necessary
actions to (i) operate its business diligently in the ordinary course of
business as an ongoing concern, and will use its best business efforts to
preserve intact its organization and operations at current levels and to make
available to the Surviving Corporation the services of Calnetics' present
employees and to preserve for the Surviving Corporation the relationships of
Calnetics with its suppliers and customers and others having business
relationships with it; (ii) maintain in good operating condition, ordinary wear
and tear excepted, all of its assets and properties which are in such condition
as of the date hereof; (iii) maintain its books, accounts and records in the
usual, regular and ordinary manner, on a basis consistent with past practice in
recent periods; (iv) refrain from entering into any contract, agreement, lease,
acquisition, sale of assets, capital expenditure or other commitment of a value
in excess of $250,000 (other than purchases and sales of inventory, including
sales orders, in the ordinary course of business), or from modifying, amending,
canceling or terminating any of such contracts, agreements, leases or
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other commitments presently in force, except as expressly contemplated by this
Agreement, without the prior approval of the other party (which approval shall
not be unreasonably withheld and which may be verbal to be promptly followed by
written confirmation); (v) refrain from paying any bonus to any officer or
director or any employee, other than pursuant to any contract, agreement or
arrangement existing on the date of this Agreement or as provided in Section
10.6 below, other than on a basis consistent with past practice, and from
declaring or paying any dividend, or making any other distribution in respect
of, or from redeeming, any of its capital stock; and (vi) refrain from issuing
any capital stock or other securities convertible into or exercisable to
purchase capital stock other than upon exercise of existing options .
8.5 Consents. Each of the parties shall use its best business efforts
to obtain any and all necessary permits, approvals, qualifications, consents or
authorizations from third parties and governmental authorities which are
required to be obtained prior to the Effective Date, and shall use its best
efforts to make or complete all filings, proceedings and waiting periods
required to be made or completed prior to the Effective Date.
8.6 Approval of Calnetics Shareholders. A special meeting of the
Calnetics Shareholders shall be called to be held in accordance with the
California Corporations Code on or before September 30, 1997, subject to
adjournment or postponement by Calnetics in its sole discretion in the event
that the Financing (as defined in Section 8.12 below) has not been delivered by
such date to the Exchange Agent as provided in Section 11.8 below, at a time,
place and date to be set by the Calnetics Board of Directors, for the purposes
of considering and voting upon a proposal to approve this Agreement and the
transactions contemplated hereby. The Calnetics Board of Directors shall
recommend that the Calnetics Shareholders approve this Agreement and the
transactions contemplated hereby. By signing this Agreement where indicated on
the signature page hereof, each shareholder of Calnetics who owns or has voting
control over 10% or more of the Common Stock of Calnetics issued and outstanding
as of the date hereof has agreed (subject to the terms and conditions of this
Agreement) to vote all such shares in favor of the transactions contemplated
hereby at the special meeting of Calnetics Shareholders. Calnetics shall prepare
and mail, or cause to be prepared and mailed to the Calnetics Shareholders, at
least 20 days prior to the special meeting, appropriate notice of the meeting,
together with a copy of the Proxy Statement prepared as provided in Section 8.8
below.
8.7 Approval of Summa and Subsidiary. Summa, as the sole shareholder of
Subsidiary, shall approve, and shall cause the Board of Directors of Subsidiary
to approve, this Agreement and the transactions contemplated hereby.
8.8 Proxy Statement.
(a) Calnetics shall prepare the Proxy Statement to be furnished to
the Calnetics Shareholders as provided in Section 8.6 above, and Summa shall
furnish to Calnetics for inclusion therein all such information relating to
Summa as Calnetics or its counsel reasonably requests. As promptly as
practicable after the date specified in Section 12.1.2(a) below, Calnetics shall
file the Proxy Statement with the Commission and shall use all reasonable
efforts to respond to any comments of the Commission staff and to obtain
clearance from the Commission to mail the Proxy Statement as promptly as
practicable. Calnetics agrees to provide to Summa the opportunity to review and
comment on each form of the Proxy Statement within a reasonable time before
filing, and each responsive correspondence to be sent to the Commission, and
agrees not to file any such documents without Summa's consent. Calnetics shall
(i) include in each form of the Proxy Statement information relating to Summa,
its business and financial condition only as authorized by Summa, and (ii)
promptly provide to Summa copies of all correspondence received from the
Commission with respect to each form of the Proxy Statement and copies of all
responsive correspondence to the Commission. Calnetics agrees to notify Summa of
any stop orders or threatened stop orders with respect to the Proxy Statement.
The Proxy Statement may be filed with the Commission as confidential preliminary
proxy material under Regulation 14A of the Exchange Act.
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(b) Calnetics shall not furnish to the Calnetics Shareholders any
proxy materials relating to this Agreement or the Merger except the Proxy
Statement. Calnetics shall mail to the Calnetics Shareholders (i) as promptly as
practicable after clearance thereof by the Commission the Proxy Statement (the
date of such mailing hereinafter being referred to as the "Mailing Date"), (ii)
as promptly as practicable after receipt thereof, any supplemental or amended
Proxy Statement, and (iii) such other supplementary proxy materials as may be
necessary, in light of the circumstances arising after the mailing of the Proxy
Statement, to make the Proxy Statement, as theretofore supplemented or amended,
complete and correct. The Proxy Statement and all amendments and supplements
thereto shall comply with applicable law and shall be in form and substance
satisfactory to Calnetics and Summa.
(c) Summa and Calnetics each shall advise the other if, at any time
before the Mailing Date of the Proxy Statement, the date of the special meeting
of Calnetics Shareholders to be held pursuant to Section 8.6 hereof, or the
Effective Time, the Proxy Statement contains 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 contained therein, in the light of the
circumstances under which they were made, not misleading. In such event,
Calnetics or Summa, as the case may be, shall provide the other with the
information needed to correct such misstatement or omission.
8.9 Fairness Opinion. Calnetics may, but shall not be obligated to,
obtain on or before July 31, 1997, at its sole cost and expense, a third-party
opinion as to the fairness of the transactions contemplated hereby from a
financial point of view to the shareholders of Calnetics. Should such opinion
not be reasonably acceptable to Calnetics, Calnetics may terminate the
transactions contemplated hereby without further liability or obligation to
Summa except as provided in Section 12.2 hereof.
8.10 No Equitable Conversion. Prior to the Effective Time, neither the
execution of this Agreement nor the performance of any provision contained
herein shall cause either Summa, on the one hand, or Calnetics, on the other
hand, to be or become liable for or in respect of the operations or business of
the other, for the cost of any labor or materials furnished to or purchased by
the other, for compliance with any laws, requirements or regulations of, or
taxes, assessments or other charges now or hereafter due to, any governmental
authority, or for any other charges or expenses whatsoever pertaining to the
conduct of the business or the ownership, title, possession, use or occupancy of
the property of the other.
8.11 Standstill Agreements.
(a) Prior to the Effective Time, unless this Agreement is sooner
terminated as expressly provided herein, neither party shall initiate, directly
or indirectly, any possible business combination, sale of assets or stock, or
other transaction which is inconsistent with the transactions contemplated
thereby. Notwithstanding the foregoing, either party may respond to third party
inquiries subject to the provisions set forth in Section 12.1.7 hereof.
(b) If this Agreement is terminated by either party, then for a
period of two (2) full years from the date of such termination, neither party
shall, directly or indirectly, except as may expressly be permitted in writing
by the other party: (i) acquire or agree, offer, seek or propose to acquire, or
cause to be acquired, ownership of any of the assets or businesses or voting
securities of the other party, or any other rights or options to acquire any
such ownership (including from a third party); (ii) seek or propose to influence
or control the management or policies of the other party; or (iii) enter into
any discussions, negotiations, arrangements or understandings with any third
party with respect to any of the foregoing.
8.12 Financing. Summa shall use its best efforts to obtain the
financing, on terms and conditions reasonably acceptable to Summa (the
"Financing"), required to fund full payment of the cash consideration payable
the Calnetics Shareholders as a consequence of the Merger, and Calnetics shall
provide all reasonable cooperation to Summa in connection therewith.
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9. CONDITIONS TO THE OBLIGATIONS OF EACH PARTY.
The respective obligations of the parties hereto to consummate the
transactions contemplated hereby shall be subject to the fulfillment, at or
prior to the Effective Date, of the following conditions, unless both parties
shall have agreed in writing to waive any of such conditions:
9.1 Regulatory Approvals. There shall have been obtained any and all
permits, approvals and qualifications of, and there shall have been made or
completed all filings, proceedings and waiting periods, required by any
governmental body, agency or regulatory authority which, in the reasonable
opinion of counsel to the parties, are required for the consummation of the
transactions contemplated hereby.
9.2 No Action or Proceeding. No claim, action, suit, investigation or
other proceeding shall be pending or threatened before any court or governmental
agency, and no statute, rule or regulation shall have enacted or entered by a
governmental body of competent jurisdiction, which presents a substantial risk
of the restraint or prohibition of the transactions contemplated by this
Agreement or the obtaining of material damages or other relief in connection
therewith.
9.3 Dissenters' Rights. The number of shares of Calnetics Common Stock
which constitute "Perfected Dissenting Shares" as defined in Section 3.3 hereof
does not exceed five percent (5%) of the total number of shares of Calnetics
Common Stock outstanding on the record date of the meeting of the Calnetics
Shareholders referred to in Section 4.1.
10. CONDITIONS PRECEDENT TO OBLIGATIONS OF SUMMA AND SUBSIDIARY.
The obligation of each of Summa and Subsidiary to consummate the Merger
is expressly subject to the satisfaction, on or before the Effective Date, of
each of the further conditions set forth below, any or all of which may be
waived by Summa in whole or in part without prior notice; provided, however,
that no such waiver of a condition shall constitute a waiver by Summa or
Subsidiary of any other condition or of any of its rights or remedies, at law or
in equity, if Calnetics shall be in default or breach any of the
representations, warranties or covenants of Calnetics under this Agreement:
10.1 Shareholder Approval. The Calnetics Shareholders shall have
approved by the requisite vote the adoption of this Agreement and the
transactions contemplated hereby.
10.2 Proceedings. All corporate and other proceedings taken or to be
taken by Calnetics or any governmental authority in connection with the
transactions contemplated hereby to be consummated at the Effective Date and all
documents incident thereto or required to be delivered prior or at closing will
be reasonably satisfactory in form and substance to Summa and its counsel as may
be required to consummate the transactions contemplated hereby.
10.3 Performance of Agreement; Accuracy of Representations and
Warranties. Calnetics shall have performed in all material respects the
agreements and covenants required to be performed by Calnetics under this
Agreement prior to or on the Effective Date, there shall have been no material
adverse change in the condition (financial or otherwise), assets, liabilities,
earnings or business of Calnetics since the date hereof, and the representations
and warranties of Calnetics contained herein shall, except as contemplated or
permitted by this Agreement or as qualified in a writing dated as of the
Effective Date and delivered by Calnetics to Summa with the approval of Summa
indicated thereon (which writing is to be attached hereto as Exhibit F), be true
in all material respects on and as of the Effective Date as if made on and as of
such date, and Summa shall have received a certificate, dated as of the
Effective Date, signed by the President and Chief Financial Officer of
Calnetics, on behalf of Calnetics, reasonably satisfactory to Summa and its
counsel, to such effect.
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10.4 Opinion of Counsel of Calnetics. Summa and its counsel shall have
received an opinion dated as of the Effective Date from Gibson, Dunn & Crutcher
LLP, counsel to Calnetics, in form and substance reasonably satisfactory to
Summa and its counsel, substantially to the effect that:
10.4.1 Calnetics is a duly incorporated and validly existing
corporation in good standing under the laws of California, and has the corporate
power to enter into this Agreement and consummate the transactions herein;
10.4.2 This Agreement and the Agreement of Merger have been duly
authorized, executed and delivered by Calnetics and each constitutes the legal,
valid and binding obligation of Calnetics, except as the same may be limited by
bankruptcy, insolvency or other similar laws relating to or affecting the
enforcement of creditors' rights or by general principles of equity, whether
considered in a proceeding at law or in equity;
10.4.3 To the best of such counsel's Knowledge, to the extent that the
approval or consent of any governmental agency or body is required for the legal
and valid execution and delivery of this Agreement or the performance of any
obligation of Calnetics under any provision hereof, such consent has been
validly procured; and
10.4.4 Neither the execution of this Agreement nor the performance by
Calnetics of any of its obligations hereunder will violate the Certificate of
Incorporation or the Bylaws of Calnetics.
10.5 Accuracy of Information in Proxy Statement. None of the
information which shall have been furnished by or on behalf of Calnetics or its
management for inclusion in the Proxy Statement shall contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading.
10.6 Exchange of Calnetics Options. Each holder of Options which remain
outstanding as of the Effective Time shall have entered into a written agreement
with Summa to surrender for cancellation all such Options owned beneficially and
of record by such holder effective as of the Effective Time on terms and
conditions set forth therein, in consideration of the execution by each such
holder of a standard Summa "incentive" or "nonstatutory" stock option agreement,
as the case may be (the form of each of which has been provided to Calnetics
prior to the execution and delivery hereof), with Summa effective as of the
Effective Time, pursuant to which such holders would be entitled to purchase
shares of Summa Common Stock on a basis specified by Summa not later than one
business day immediately prior to the date of the special meeting of Calnetics
Shareholders to be held pursuant to Section 8.6 hereof. It is understood and
agreed that any holder of Options may surrender all or any portion of such
Options to Calnetics for cancellation at any time prior to the Effective Time in
consideration of the payment by Calnetics to such holder of cash in an amount
equal to the difference between $7.35 and the exercise price of the Options
surrendered for cancellation multiplied by the number of shares of Calnetics
Common Stock formerly subject to the Options so canceled.
10.7 Consents. Calnetics shall have been obtained any and all material
approvals, consents or authorizations of third parties which, in the opinion of
counsel to Summa, are reasonably required for the consummation of the
transactions contemplated hereby.
10.8 Financing. Summa shall have obtained the Financing specified
in Section 8.12.
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11. CONDITIONS PRECEDENT TO CALNETICS' OBLIGATIONS.
Calnetics' obligation to consummate the Merger is expressly subject to the
satisfaction, on or before the Effective Date, of each of the further conditions
set forth below, any or all of which may be waived by Calnetics in whole or in
part without prior notice; provided, however, that no such waiver of a condition
shall constitute a waiver by Calnetics of any other condition or of any of its
rights or remedies, at law or in equity, if Summa shall be in default or breach
any of the representations, warranties or covenants of Summa under this
Agreement:
11.1 Shareholder Approval. The Calnetics Shareholders shall have
approved by the requisite vote the adoption of this Agreement and the
transactions contemplated hereby.
11.2 Proceedings. All corporate and other proceedings taken or to be
taken by Summa or any governmental authority in connection with the transactions
contemplated hereby to be consummated at the Effective Date and all documents
incident thereto or required to be delivered prior or at closing will be
satisfactory in form and substance to Calnetics and its counsel (including but
not limited to, the recordation of the Agreement of Merger) as may be required
to consummate the transactions contemplated hereby
11.3 Performance of Agreement; Accuracy of Representations and
Warranties. Summa shall have performed the agreements and covenants required to
be performed by Summa under this Agreement prior to or on the Effective Date,
there shall have been no material adverse change in the condition (financial or
otherwise), assets, liabilities, earnings or business of Summa since the date
hereof, and the representations and warranties of Summa contained herein shall,
except as contemplated or permitted by this Agreement or as qualified in a
writing dated as of the Effective Date and delivered by Summa to Calnetics with
the approval of Calnetics indicated thereon (which writing is to be attached
hereto as Exhibit G), be true in all material respects on and as of the
Effective Date as if made on and as of such date, and Calnetics shall have
received a certificate, dated as of the Effective Date, signed by the President
and Chief Financial Officer of Summa, on behalf of Summa, reasonably
satisfactory to Calnetics and its counsel, to such effect.
11.4 Opinion of Counsel for Summa. Calnetics and its counsel shall have
received an opinion, dated as of the Effective Date, from Phillips & Haddan,
counsel to Summa, in form and substance reasonably satisfactory to Calnetics and
its counsel, substantially to the effect that:
11.4.1 Each of Summa and Subsidiary is a duly incorporated and
validly existing corporation in good standing under the laws of California, and
has the corporate power to enter into this Agreement and consummate the
transactions herein;
11.4.2 This Agreement and the Agreement of Merger have been duly
authorized, executed and delivered by Summa and each constitutes the legal,
valid and binding obligation of each of Summa and Subsidiary, except as the same
may be limited by bankruptcy, insolvency or other similar laws relating to or
affecting the enforcement of creditors rights or by general principles of
equity, whether considered in a proceeding at law or in equity;
11.4.3 To the best of such counsel's Knowledge, to the extent that
the approval or consent of any governmental agency or body is required for the
legal and valid execution and delivery by Summa of this Agreement, or the
performance of any obligation of Summa or Subsidiary under any provision hereof,
such consent has been validly procured; and
11.4.4 Neither the execution of this Agreement or the performance by
either Summa or Subsidiary of any of its obligations hereunder, will violate the
Articles of Incorporation or the Bylaws of either Summa or Subsidiary.
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11.5 Accuracy of Information in Proxy Statement. None of the
information which shall have been furnished by or on behalf of Summa or its
management for inclusion in the Proxy Statement shall contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading.
11.6 Consents. Summa shall have obtained any and all material
approvals, consents or authorizations of third parties which, in the opinion of
counsel to Calnetics, are reasonably required for the consummation of the
transactions contemplated hereby.
11.7 Fairness Opinion. If a "fairness opinion" has been provided to the
Board of Directors of Calnetics as provided in Section 8.9 hereof, such opinion
subsequently shall not have been withdrawn.
11.8 Financing. Summa shall have obtained the Financing specified in
Section 8.12, and the proceeds thereof shall have been delivered to the Exchange
Agent.
12. TERMINATION, AMENDMENT AND WAIVER.
12.1 Termination. This Agreement may be terminated at any time prior to
the Effective Date, whether before or after approval by the Calnetics
Shareholders:
12.1.1 By mutual written consent of Calnetics and Summa;
12.1.2 (a) By Summa on or before August 18, 1997, if by such date
Summa shall not have made arrangements reasonably satisfactory to Summa to
obtain the Financing, or by Calnetics on or within five business days after the
close of business on August 18, 1997, if by such date Summa shall not have
obtained written evidence, reasonably satisfactory to Calnetics, that Summa will
be able to obtain the Financing on a timely basis; and (b) by Calnetics on or
within five business days after the close of business on September 30, 1997 if
by such date the status of the Financing is not satisfactory to Calnetics in its
sole discretion; provided, however, that Summa shall have the right to delay the
termination hereof for a period ending 30 days after receipt of written notice
of Calnetics' intention to terminate this Agreement pursuant to this subsection
12.1.2(b) by providing a written undertaking to pay Calnetics the sum of
$100,000 within 48 hours of receipt of written notice from Calnetics that the
transactions contemplated hereby have been duly approved by the Calnetics
Shareholders.
12.1.3 Unilaterally by either Calnetics or Summa (i) if the other
fails to perform any covenant in any material respect in this Agreement, unless
the failure is capable of being and has been cured in all material respects
within 30 business days after the terminating party has delivered written notice
of the alleged failure, or (ii) if any condition to the obligations of that
party is not satisfied (other than by reason of a breach by that party of its
obligations hereunder), and it reasonably appears that the condition cannot be
satisfied prior to the Termination Date, unless the party has earlier waived
such condition;
12.1.4 By either Calnetics or Summa if there shall have occurred (i)
any general suspension of trading in, or limitation on prices for, securities on
any national securities exchange or in the over-the-counter market or quotations
for shares traded thereon as reported by Nasdaq or otherwise, (ii) a declaration
of a banking moratorium or any suspension of payments in respect of banks in the
United States, or (iii) any material limitation (whether or not mandatory) by
any governmental authority on the extension of credit by banks or other
financial institutions.
12.1.5 By either Calnetics or Summa, if the Merger shall not have
been consummated on or before October 31, 1997 (the "Termination Date"), except
that the right to terminate under this Section 12.1.5 shall not be available to
any party whose failure to perform any covenant herein or satisfy any condition
hereof
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within the reasonable control of such party has been the proximate cause of or
resulted in the failure of the Merger to be consummated on or before the
Termination Date;
12.1.6 By Calnetics as provided in Section 8.9 hereof;
12.1.7 By either party, upon the payment by the terminating party to
the other of the sum of $500,000 should the Board of Directors of such party
determine to enter into an inconsistent transaction with a third party.
12.2 Effect of Termination. In the event that this Agreement is
terminated by Summa or Calnetics pursuant to Section 12.1.2(a) above, Summa
shall promptly pay Calnetics the sum of $75,000. In the event that this
Agreement is not terminated pursuant to Section 12.1.2(a) above, and the
Agreement is subsequently terminated by Calnetics pursuant to Section 12.1.2(b)
or by reason of the failure of Summa to consummate the Financing prior to the
date specified in Section 12.1.5 above, Summa shall promptly pay Calnetics the
sum of $150,000. In the event this Agreement is terminated by reason of the
failure of Calnetics to obtain the approval of this Agreement and the
transactions contemplated hereby by the Calnetics Shareholders, Calnetics shall
promptly pay Summa the sum of $150,000. In the event of termination of this
Agreement by either Summa or Calnetics for any other reason as provided in
Section 12.1, this Agreement shall forthwith become void and there shall be no
further obligation or liability on the part of either Calnetics or Summa, or
their respective officers or directors (except as set forth in this Section 12.2
and in Sections 8.1, 8.9, 8.11, 12.1.7, 13.7, 13.8, 13.9 and 13.10 which shall
survive the termination); provided, however, that if either party hereto
willfully fails to perform its obligations hereunder or willfully neglects to
perform acts that are necessary to the fulfillment of conditions set forth
herein or willfully prevents the fulfillment of a condition set forth herein,
the other party may seek any available legal and equitable remedies in addition
to those provided herein.
12.3 Amendment. This Agreement may not be amended or modified except by
an instrument in writing signed on behalf of each of the parties hereto and in
compliance with applicable law.
12.4 Waiver. At any time prior to the Effective Time, the parties
hereto may (i) extend the time for the performance of any of the obligations or
other acts of the other parties hereto, (ii) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant thereto, and (iii) waive compliance with any of the agreements or
conditions contained herein. 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.
13. MISCELLANEOUS.
13.1 Other Documents. Each of the parties hereto shall execute and
deliver such other and further documents and instruments, and take such other
and further actions, as may be reasonably requested of them for the
implementation and consummation of this Agreement and the transactions herein
contemplated.
13.2 Parties in Interest. This Agreement shall be binding upon and
inure to the benefit of the parties hereto, and their respective successors and
permitted assigns, but shall not confer, expressly or by implication, any rights
or remedies upon any other party.
13.3 Governing Law. This Agreement is made and shall be governed
in all respects, including validity, interpretation and effect, by the laws
of the State of California.
13.4 Notices. All notices, requests or demands and other communications
hereunder must be in writing and shall be deemed to have been duly given if
personally delivered or 48 hours after mailing, postage prepaid, to the parties
as follows:
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(a) If to Calnetics, to: Clinton G. Gerlach
Calnetics Corporation
20401 Prairie Street
Chatsworth, California 91311
With copies to: Robert E. Dean, Esq.
Gibson, Dunn & Crutcher LLP
4 Park Plaza
Irvine, California 92614
(b) If to Summa, to: James R. Swartwout
Summa Industries
21250 Hawthorne Boulevard
Suite 500
Torrance, California 90503
With copies to: Michael J. Connell, Esq.
Morrison & Foerster LLP
555 West Fifth Street, Suite 3500
Los Angeles, California 90013-1024
Any party hereto may change its address by written notice to the other party
given in accordance with this Section 13.4.
13.5 Entire Agreement. This Agreement, together with the Agreement of
Merger and each of the other exhibits and schedules attached hereto, contains
the entire agreement between the parties and supersedes all prior agreements,
understandings and writings between the parties with respect to the subject
matter hereof. Each party hereto acknowledges that no representations,
inducements, promises or agreements, oral or otherwise, have been made by any
party, or anyone acting with authority on behalf of any party, which are not
embodied herein or in the Agreement of Merger or in an exhibit or schedule
hereto, and that no other agreement, statement or promise may be relied upon or
shall be valid or binding.
13.6 Headings. The captions and headings used herein are for
convenience only and shall not be construed as a part of this Agreement. In this
Agreement, the term "including" and terms of similar import shall mean
"including without limitation" unless the context requires otherwise.
13.7 Attorneys' Fees. In the event of any litigation between Calnetics
and Summa relating to the subject matter hereof, the non-prevailing party shall
pay the reasonable expenses, including the attorneys' fees, of the prevailing
party in connection therewith.
13.8 Expenses. Except as otherwise expressly provided in Sections 12.1
and 12.2 hereof, each party hereto agrees to pay all of its own expenses and to
save the other party harmless against liability for the payment of any such
expenses arising in connection with the negotiation, execution and consummation
of the transactions contemplated by this Agreement. Without limiting the
generality of the foregoing, all expenses of preparing, filing, printing and
distributing the Proxy Statement and soliciting proxies from the Calnetics
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Shareholders, fees and disbursements of counsel for Calnetics, expenses of any
audits of Calnetics incident to or required by any such filings and expenses of
Calnetics' proxy solicitation, and expenses of complying with the securities or
blue sky laws of any jurisdictions in connection therewith, shall be borne and
paid by Calnetics at Calnetics' sole cost and expense.
13.9 Public Announcements. If any disclosure relating hereto is
believed by either party to be required under applicable securities laws, the
other party shall be given advance notice of such disclosure. Both parties shall
review in advance any proposed public announcement with respect to the
transactions contemplated herein.
13.10 Survival. The representations and warranties of the parties
contained herein and in any other document or instrument delivered pursuant
hereto shall survive any investigations made by or on behalf of any other party
made prior to the Effective Time, but shall not survive beyond the Effective
Time. Nothing contained in this Section 13.10 shall in any way affect any
obligations of any party under this Agreement that are to be performed, in whole
or in part, after the Effective Date, nor shall it prevent or preclude any party
from pursuing any and all available remedies at law or in equity for actual
fraud against any party or parties guilty of such fraud.
13.11 Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original but all of which taken together shall
constitute but one and the same document.
13.12 Assignment. Neither this Agreement, the Agreement of Merger nor
any of the rights, interests or obligations hereunder or thereunder may be
assigned by either party without the prior written consent of the other party.
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Agreement as of the day and year first above written.
SUMMA INDUSTRIES CALNETICS CORPORATION
By: /s/ James R. Swartwout By: /s/ Clinton G. Gerlach
---------------------------- -----------------------------
James R. Swartwout Clinton G. Gerlach
Chief Executive Officer Chief Executive Officer
By signing below, each shareholder who owns or has voting control over 10% or
more of the Calnetics Common Stock outstanding as of the date hereof agrees,
subject to the terms and conditions of the foregoing Agreement, to vote, or
cause to be voted, in favor of this Agreement and the Merger, all of such shares
held of record or beneficially by such shareholder as of the record date for the
special meeting of Calnetics Shareholders referred to in Section 8.6 above:
GERLACH HOLDING CORPORATION
By: /s/ Clinton G. Gerlach
--------------------------------
Clinton G. Gerlach, President
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AMENDMENT NO. 1
TO
AGREEMENT AND PLAN OF ACQUISITION
THIS AMENDMENT NO. 1 (this "Amendment") to that certain Agreement and Plan
of Acquisition dated July 2, 1997 (the "Agreement") by and between CALNETICS
CORPORATION, a California corporation ("Calnetics"), and SUMMA INDUSTRIES, a
California corporation ("Summa"), is entered into effective as of July 30, 1997.
WHEREAS, the parties hereto previously entered into the Agreement
providing, among other things, for the merger ("Merger") of Calnetics with and
into a new wholly-owned subsidiary of Summa ("Subsidiary"); and
WHEREAS, the parties now desire to amend the Agreement to modify the
structure to be used to accomplish the Merger.
NOW, THEREFORE, in consideration of the foregoing recitals and for other
consideration, the value and receipt of which is hereby acknowledged, the
parties hereto hereby agree as follows:
1. Recital C of the Agreement is hereby amended to read in its
entirety as follows:
"C. The respective Boards of Directors of Calnetics and Summa deem
it advisable and generally to the advantage of each corporation, and in the best
interests of their respective shareholders, to cause a newly-to-be-formed
California corporation which will be a wholly-owned subsidiary ("Subsidiary") of
Summa to be merged with and into Calnetics, under and pursuant to the provisions
of the California Corporations Code (the "Merger"). Accordingly, the respective
Boards of Directors of Calnetics and Summa have approved, and the Board of
Directors of Calnetics will recommend for approval of the shareholders of
Calnetics, this Agreement and the Merger contemplated hereby, and have directed
their respective proper officers to execute and deliver this Agreement and to
cause the respective corporations to perform each of their respective
obligations hereunder."
2. The preamble immediately following Recital C of the Agreement is
hereby amended to read in its entirety as follows:
"NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual agreements, representations, warranties and covenants herein contained,
and subject to the terms and conditions hereinafter set forth, the parties
hereto hereby agree in accordance with the California Corporations Code, the
provisions of the Agreement of Merger (as defined below), and the provisions of
this Agreement, that, at the Effective Time of the Agreement of Merger,
Subsidiary shall be merged with and into Calnetics, such that Calnetics, as the
"Surviving Corporation" in the Merger, shall continue as a single corporation
existing under the laws of the State of California and as a wholly-owned
subsidiary of Summa, and the parties hereto hereby adopt and agree to the
following agreements, terms, and conditions relating to the Merger and the
manner of carrying the same into effect."
3. Section 1.22 of the Agreement is hereby amended to read in its
entirety as follows:
"1.22 "Surviving Corporation" refers to Calnetics as the survivor
of the Merger."
4. Section 2.1 of the Agreement is hereby amended to read in its
entirety as follows:
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"2.1 Surviving Corporation. The corporation which shall survive
the Merger is Calnetics (sometimes hereinafter referred to as the "Surviving
Corporation)."
5. A new Section 3.1.4 of the Agreement is hereby inserted to read in
its entirety as follows:
"3.1.4 Conversion of Subsidiary Stock. Each share of Common Stock of
Subsidiary issued and outstanding immediately prior to the Closing shall be
converted, by virtue of the Merger and without any action on the part of the
holder thereof, into one share of Common Stock of the Surviving Corporation."
6. Section 5.1 of the Agreement is hereby amended to read in its
entirety as follows:
"5.1 Cessation of Subsidiary's Existence. When the Merger becomes
effective, Subsidiary shall be merged with and into Calnetics, the separate
existence of Subsidiary shall cease, and Calnetics, as the Surviving Corporation
in the Merger, without further action, shall succeed to and shall continue to
possess and enjoy all the rights, privileges, immunities, powers, purposes, and
franchises, both of a public and private nature, and be subject to all
restrictions, disabilities, and duties of Calnetics, and the Merger shall have
the effects on Calnetics and Subsidiary as provided under the California
Corporations Code."
7. Recital D to Exhibit A of the Agreement is hereby amended to read
in its entirety as follows:
"D. Summa and Calnetics have previously entered into that certain
Agreement and Plan of Acquisition dated as of July 2, 1997 (the "Acquisition
Agreement"), for the purposes of setting forth all of the terms and conditions
upon which Subsidiary would be merged with and into Calnetics (the "Merger") in
accordance with the provisions of the California Corporations Code and the terms
and conditions hereinafter set forth."
8. Section 1.1 to Exhibit A of the Agreement is hereby amended to
read in its entirety as follows:
"1.1 As soon as practicable following the fulfillment (or waiver, to
the extent permitted therein) of the conditions specified in Article IV hereof,
Subsidiary shall merge with and into Calnetics (the "Merger"), with Calnetics to
be the surviving corporation in the Merger."
9. Section 1.3 to Exhibit A of the Agreement is hereby amended to
read in its entirety as follows:
"1.3 Calnetics, as the surviving corporation in the Merger
(hereinafter as such referred to as the "Surviving Corporation"), shall continue
its corporate existence under the laws of the State of California. On the
Effective Date, the separate existence and corporate organization of Subsidiary,
except insofar as it may be continued by operation of law, shall be terminated
and cease."
10. A new Section 3.1(d) to Exhibit A of the Agreement is hereby
inserted to read in its entirety as follows:
"3.1(d) Each share of Common Stock of Subsidiary issued and
outstanding immediately prior to the Closing shall be converted, by virtue of
the Merger and without any action on the part of the holder thereof, into one
share of Common Stock of the Surviving Corporation."
11. Except as expressly modified by the terms of this Amendment, the
Agreement remains in full force and effect as of the date hereof.
12. This Agreement may be executed in counterparts, each of which shall be
deemed an original but all of which taken together shall constitute but one and
the same document.
13. The parties agree that facsimile signatures shall have the same legal
force and effect as originals.
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IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Amendment as of the day and year first above written.
SUMMA INDUSTRIES CALNETICS CORPORATION
By: /s/ James R. Swartwout By: /s/ Clinton G. Gerlach
--------------------------- -------------------------------
James R. Swartwout Clinton G. Gerlach
Chief Executive Officer Chief Executive Officer
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Appendix II
[Crowell, Weedon & Co. Letterhead]
Draft of July 30, 1997
(Date of Proxy)
The Board of Directors
Calnetics Corporation
20401 Prairie Street
Chatsworth, CA 91311
Gentlemen:
Calnetics Corporation ("Calnetics") and Summa Industries ("Summa") entered into
an Agreement and Plan of Acquisition dated July 2, 1997, as amended (the
"Acquisition Agreement"), pursuant to which CC Acquisition Corp. ("Subsidiary"),
a newly formed wholly-owned subsidiary of Summa, will be merged with and into
Calnetics (the "Merger"). Upon the effectiveness of the Merger, Calnetics will
become a wholly owned subsidiary of Summa. Under the terms of the Acquisition
Agreement, the consideration to be paid ("Consideration") for each outstanding
share of Calnetics common stock will be $7.35 in cash. The terms and conditions
of the Merger are more fully set forth in the Acquisition Agreement. You have
requested our opinion ("Opinion") as investment bankers as to the fairness, from
a financial point of view, of the Consideration to be received by the public
holders (excluding the officers and directors of Calnetics) of the Calnetics
common stock (the "Public Shareholders") pursuant to the Acquisition Agreement.
Crowell, Weedon & Co. ("Crowell" or "we"), as part of its investment banking
business, is regularly engaged in the valuation of businesses and their
securities in connection with mergers, acquisitions, private placements and
valuations for estate, corporate and other purposes. Although we have been
engaged to render the Opinion, in the ordinary course of our business as a
broker-dealer, we may actively trade the securities of Calnetics for our own
account or for the account of our customers and, accordingly, at any time hold a
long or short position in such securities.
In arriving at our Opinion, we have, among other things, read, reviewed and
analyzed the Acquisition Agreement and Calnetics' Annual Reports on Form 10-K
for the three fiscal years ended June 30, 1997. In addition, we visited the
facilities of, and held discussions with certain members of the senior
management of Calnetics concerning its past and current business operations,
present financial condition and future prospects. These discussions included a
review of the condition and prospects of the plastics industry in general. We
also held discussions with representativies of Calnetics' independent certified
public accountants. In addition, we reviewed the price and volume trading
history of the common stock of Calnetics; compared the financial position and
operations of Calnetics with those of certain public companies in the plastics
industry which we deemed to be relevant; reviewed the financial terms of certain
business combinations in the plastics industry; and performed such other studies
and analyses and took into account such other matters as we deemed necessary or
advisable.
In connection with our Opinion, we have assumed and relied upon the accuracy and
completeness of all the financial and other information provided or made
available to us by Calnetics, and from other sources, for the purpose of this
Opinion and do not assume any responsibility for independent verification of
such information. We have not conducted nor had conducted for us any evaluation
or appraisal of the assets of Calnetics. We have assumed that information we
have reviewed with respect to the future performance of Calnetics has been
reasonably prepared on bases reflecting management's best estimates and
judgments, and we express no opinion with respect to, and take no responsibility
for, such information or the assumptions indicated therein. We have also taken
into account our assessment of general economic, market and financial conditions
and our experience in other transactions, as well as our experience in
securities valuation and our knowledge of the plastics industry
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The Board of Directors
Calnetics Corporation
(DATE OF PROXY)
Page 2
generally. Our Opinion is necessarily based upon conditions as they exist and
can be evaluated on the date hereof and the information made available to us
through the date hereof. We have also assumed that there have been no material
changes in the assets, financial condition, results of operations, business or
prospects of Calnetics since the date of the most recent financial statements
that Calnetics has made available to us.
Our Opinion as to fairness is limited to the fairness of the Consideration, from
a financial point of view, to the Public Shareholders, and we are not opining in
any other respect whatsoever on the terms of the Merger or the Acquisition
Agreement.
This Opinion is delivered to you based on your understanding that it is for the
benefit and use of the Board of Directors of Calnetics in considering the Merger
and that Calnetics will not use this Opinion for any other purpose and will not
reproduce, disseminate or refer to this Opinion without our prior written
consent. This Opinion may, however, be reproduced in full in the Proxy Statement
of Calnetics to be filed with the Securities and Exchange Commission in
connection with the Merger.
Based upon our review and subject to the foregoing and such other matters as we
consider relevant, and in reliance thereon, it is our opinion, as investment
bankers, that as of the date hereof the Consideration is fair, from a financial
point of view, to the Public Shareholders.
Very truly yours,
Crowell, Weedon & Co.
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Appendix III
CHAPTER 13 OF THE
CALIFORNIA GENERAL CORPORATION LAW
SECTION 1300 REORGANIZATION OR SHORT-FORM MERGER; DISSENTING SHARES; CORPORATE
PURCHASE AT FAIR MARKET VALUE; DEFINITIONS
(a) If the approval of the outstanding shares (Section 152) of a
corporation is required for a reorganization under subdivisions (a) and (b) or
subdivision (e) or (f) of Section 1201, each shareholder of the corporation
entitled to vote on the transaction and each shareholder of a subsidiary
corporation in a short-form merger may, by complying with this chapter, require
the corporation in which the shareholder holds shares to purchase for cash at
their fair market value the shares owned by the shareholder which are dissenting
shares as defined in subdivision (b). The fair market value shall be determined
as of the day before the first announcement of the terms of the proposed
reorganization or short-form merger, excluding any appreciation or depreciation
in consequence of the proposed action, but adjusted for any stock split, reverse
stock split, or share dividend which becomes effective thereafter.
(b) As used in this chapter, "dissenting shares" means shares which come
within all of the following descriptions:
(1) Which were not immediately prior to the reorganization or
short-form merger either (A) listed on any national securities
exchange certified by the Commissioner of Corporations under
subdivision (o) of Section 25100 or (B) listed on the list of OTC
margin stocks issued by the Board of Governors of the Federal Reserve
System, and the notice of meeting of shareholders to act upon the
reorganization summarizes this section and Sections 1301, 1302, 1303
and 1304; provided, however, that this provision does not apply to any
shares with respect to which there exists any restriction on transfer
imposed by the corporation or by any law or regulation; and provided,
further, that this provision does not apply to any class of shares
described in subparagraph (A) or (B) if demands for payment are filed
with respect to 5 percent or more of the outstanding shares of that
class.
(2) Which were outstanding on the date for the determination of
shareholders entitled to vote on the reorganization and (A) were not
voted in favor of the reorganization or, (B) if described in
subparagraph (A) or (B) of paragraph (1) (without regard to the
provisos in that paragraph), were voted against the reorganization, or
which were held of record on the effective date of a short-form
merger; provided, however, that subparagraph (A) rather than
subparagraph (B) of this paragraph applies in any case where the
approval required by Section 1201 is sought by written consent rather
than at a meeting.
(3) Which the dissenting shareholder has demanded that the corporation
purchase at their fair market value, in accordance with Section 1301.
(4) Which the dissenting shareholder has submitted for endorsement, in
accordance with Section 1302.
(c) As used in this chapter, "dissenting shareholder" means the
recordholder of dissenting shares and includes a transferee of record.
SECTION 1301. NOTICE TO HOLDERS OF DISSENTING SHARES IN REORGANIZATIONS; DEMAND
FOR PURCHASE; TIME; CONTENTS
(a) If, in the case of a reorganization, any shareholders of a corporation
have a right under Section 1300, subject to compliance with paragraphs (3) and
(4) of subdivision (b) thereof, to require the corporation to purchase their
shares for cash, such corporation shall mail to each such shareholder a notice
of the approval of the
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reorganization by its outstanding shares (Section 152) within 10 days after the
date of such approval, accompanied by a copy of Sections 1300, 1302, 1303, 1304
and this section, a statement of the price determined by the corporation to
represent the fair market value of the dissenting shares, and a brief
description of the procedure to be followed if the shareholder desires to
exercise the shareholders' right under such sections. The statement of price
constitutes an offer by the corporation to purchase at the price stated any
dissenting shares as defined in subdivision (b) of Section 1300, unless they
lose their status as dissenting shares under Section 1309.
(b) Any shareholder who has a right to require the corporation to purchase
the shareholder's shares for cash under Section 1300, subject to compliance with
paragraphs (3) and (4) of subdivision (b) thereof, and who desires the
corporation to purchase such shares shall make written demand upon the
corporation for the purchase of such shares and payment to the shareholder in
cash of their fair market value. The demand is not effective for any purpose
unless it is received by the corporation or any transfer agent thereof (1) in
the case of shares described in clause (i) or (ii) of paragraph (1) of
subdivision (b) of Section 1300 (without regard to the provisos in that
paragraph), not later than the date of the shareholders' meeting to vote upon
the reorganization, or (2) in any other case within 30 days after the date on
which the notice of the approval by the outstanding shares pursuant to
subdivision (a) or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder.
(c) The demand shall state the number and class of the shares held of
record by the shareholder which the shareholder demands that the corporation
purchase and shall contain a statement of what such shareholder claims to be the
fair market value of those shares as of the day before the announcement of the
proposed reorganization or short-form merger. The statement of fair market value
constitutes an offer by the shareholder to sell the shares at such price.
SECTION 1302. SUBMISSION OF SHARE CERTIFICATES FOR ENDORSEMENT; UNCERTIFICATED
SECURITIES.
Within 30 days after the date on which notice of the approval by the
outstanding shares or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder, the shareholder shall submit to the corporation at
its principal office or at the office of any transfer agent thereof (a) if the
shares are certificated securities, the shareholder's certificates representing
any shares which the shareholder demands that the corporation purchase, to be
stamped or endorsed with a statement that the shares are dissenting shares or to
be exchanged for certificates or appropriate denomination so stamped or endorsed
or (b) if the shares are uncertificated securities, written notice of the number
of shares which the shareholder demands that the corporation purchase. Upon
subsequent transfers of the dissenting shares on the books of the corporation,
the new certificates, initial transaction statement, and other written
statements issued therefor shall bear a like statement, together with the name
of the original dissenting holder of the shares.
SECTION 1303. PAYMENT OF AGREED PRICE WITH INTEREST; AGREEMENT FIXING FAIR
MARKET VALUE; FILING,;TIME OF PAYMENT
(a) If the corporation and the shareholder agree that the shares are
dissenting shares and agree upon the price of the shares, the dissenting
shareholder is entitled to the agreed price with interest thereon at the legal
rate on judgments from the date of the agreement. Any agreements fixing the fair
market value of any dissenting shares as between the corporation and the holders
thereof shall be filed with the secretary of the corporation.
(b) Subject to the provisions of Section 1306, payment of the fair market
value of dissenting shares shall be made within 30 days after the amount thereof
has been agreed or within 30 days after any statutory or contractual conditions
to the reorganization are satisfied, whichever is later, and in the case of
certificated securities, subject to surrender of the certificates therefor,
unless provided otherwise by agreement.
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SECTION 1304. ACTION TO DETERMINE WHETHER SHARES ARE DISSENTING SHARES OR FAIR
MARKET VALUE; LIMITATION; JOINDER; CONSOLIDATION; DETERMINATION OF
ISSUES; APPOINTMENT OF APPRAISERS
(a) If the corporation denies that the shares are dissenting shares, or
the corporation and the shareholder fail to agree upon the fair market value of
the shares, then the shareholder demanding purchase of such shares as dissenting
shares or any interested corporation, within six months after the date on which
notice of the approval by the outstanding shares (Section 152) or notice
pursuant to subdivision (i) of Section 1110 was mailed to the shareholder, but
not thereafter, may file a complaint in the superior court of the proper county
praying the court to determine whether the shares are dissenting shares or the
fair market value of the dissenting shares or both or may intervene in any
action pending on such a complaint.
(b) Two or more dissenting shareholders may join as plaintiffs or be
joined as defendants in any such action and two or more such actions may be
consolidated.
(c) On the trial of the action, the court shall determine the issues. If
the status of the shares as dissenting shares is in issue, the court shall first
determine that issue. If the fair market value of the dissenting shares is in
issue, the court shall determine, or shall appoint one or more impartial
appraisers to determine, the fair market value of the shares.
SECTION 1305. REPORT OF APPRAISERS; CONFIRMATION; DETERMINATION BY COURT;
JUDGMENT; PAYMENT; APPEAL; COSTS
(a) If the court appoints an appraiser or appraisers, they shall proceed
forthwith to determine the fair market value per share. Within the time fixed by
the court, the appraisers, or a majority of them, shall make and file a report
in the office of the clerk of the court. Thereupon, on the motion of any party,
the report shall be submitted to the court and considered on such evidence as
the court considers relevant. If the court finds the report reasonable, the
court may confirm it.
(b) If a majority of the appraisers appointed fail to make and file a
report within 10 days from the date of their appointment or within such further
time as may be allowed by the court or the report is not confirmed by the court,
the court shall determine the fair market value of the dissenting shares.
(c) Subject to the provisions of Section 1306, judgment shall be rendered
against the corporation for payment of an amount equal to the fair market value
of each dissenting share multiplied by the number of dissenting shares which any
dissenting shareholder who is a party, or who has intervened, is entitled to
require the corporation to purchase, with interest thereof at the legal rate
from the date on which judgment was entered.
(d) Any such judgment shall be payable forthwith with respect to
uncertificated securities and, with respect to certificated securities, only
upon the endorsement and delivery to the corporation of the certificates for the
shares described in the judgment. Any party may appeal from the judgment.
(e) The costs of the action, including reasonable compensation to the
appraisers to be fixed by the court, shall be assessed or apportioned as the
court considers equitable, but, if the appraisal exceeds the price offered by
the corporation, the corporation shall pay the costs (including in the
discretion of the court attorneys' fees, fees of expert witnesses and interest
at the legal rate on judgments from the date of compliance with Sections 1300,
1301 and 1302 if the value awarded by the court for the shares is more than 125
percent of the price offered by the corporation under subdivision (a) of Section
1301).
SECTION 1306. PREVENTION OF IMMEDIATE PAYMENT; STATUS AS CREDITORS; INTEREST
To the extent that the provisions of Chapter 5 prevent the payment to any
holders of dissenting shares of their fair market value, they shall become
creditors of the corporation for the amount thereof together with interest at
the
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legal rate on judgments until the date of payment, but subordinate to all other
creditors in any liquidation proceeding, such debt to be payable when
permissible under the provisions of Chapter 5.
SECTION 1307. DIVIDENDS ON DISSENTING SHARES
Cash dividends declared and paid by the corporation upon the dissenting
shares after the date of approval of the reorganization by the outstanding
shares (Section 152) and prior to payment for the shares by the corporation
shall be credited against the total amount to be paid by the corporation
therefor.
SECTION 1308. RIGHTS OF DISSENTING SHAREHOLDERS PENDING VALUATION; WITHDRAWAL OF
DEMAND FOR PAYMENT
Except as expressly limited in this chapter, holders of dissenting shares
continue to have all the rights and privileges incident to their shares, until
the fair market value of their shares is agreed upon or determined. A dissenting
shareholder may not withdraw a demand for payment unless the corporation
consents thereto.
SECTION 1309. TERMINATION OF DISSENTING SHARE AND SHAREHOLDER STATUS
Dissenting shares lose their status as dissenting shares and the holders
thereof cease to be dissenting shareholders and cease to be entitled to require
the corporation to purchase their shares upon the happening of any of the
following:
(a) The corporation abandons the reorganization. Upon abandonment of the
reorganization, the corporation shall pay on demand to any dissenting
shareholder who has initiated proceedings in good faith under this chapter all
necessary expenses incurred in such proceedings and reasonable attorneys' fees.
(b) The shares are transferred prior to their submission for endorsement
in accordance with Section 1302 or are surrendered for conversion into shares of
another class in accordance with the articles.
(c) The dissenting shareholder and the corporation do not agree upon the
status of the shares as dissenting shares or upon the purchase price of the
shares, and neither files a complaint or intervenes in a pending action as
provided in Section 1304, within six months after the date on which notice of
the approval by the outstanding shares or notice pursuant to subdivision (i) of
Section 1110 was mailed to the shareholder.
(d) The dissenting shareholder, with the consent of the corporation,
withdraws the shareholder's demand for purchase of the dissenting shares.
SECTION 1310. SUSPENSION OF RIGHT TO COMPENSATION OR VALUATION PROCEEDINGS;
LITIGATION OF SHAREHOLDERS' APPROVAL
If litigation is instituted to test the efficiency or regularity of the
votes of the shareholders in authorizing a reorganization, any proceedings under
Sections 1304 and 1305 shall be suspended until final determination of such
litigation.
SECTION 1311. EXEMPT SHARES
This chapter, except Section 1312, does not apply to classes of shares
whose terms and provisions specifically set forth the amount to be paid in
respect to such shares in the event of a reorganization or merger.
III-4
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SECTION 1312. RIGHT OF DISSENTING SHAREHOLDER TO ATTACK, SET ASIDE OR RESCIND
MERGER OR REORGANIZATION; RESTRAINING ORDER OR INJUNCTIONS;
CONDITIONS
(a) No shareholder of a corporation who has a right under this chapter to
demand payment of cash for the shares held by the shareholder shall have any
right at law or in equity to attack the validity of the reorganization or
short-form merger, or to have the reorganization or short-form merger set aside
or rescinded, except in an action to test whether the number of shares required
to authorize or approve the reorganization have been legally voted in favor
thereof; but any holder of shares of a class whose terms and provisions
specifically set forth the amount to be paid in respect to them in the event of
a reorganization or short-form merger is entitled to payment in accordance with
those terms and provisions or, if the principal terms of the reorganization are
approved pursuant to subdivision (b) of Section 1202, is entitled to payment in
accordance with the terms and provisions of the approved reorganization.
(b) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, subdivision (a) shall not
apply to any shareholder of such party who has not demanded payment of cash for
such shareholder's shares pursuant to this chapter; but if the shareholder
institutes any action to attack the validity of the reorganization or short-form
merger or to have the reorganization or short-form merger set aside or
rescinded, the shareholder shall not thereafter have any right to demand payment
of cash for the shareholder's shares pursuant to this chapter. The court in any
action attacking the validity of the reorganization or short-form merger or to
have the reorganization or short-form merger set aside or rescinded shall not
restrain or enjoin the consummation of the transaction except upon 10 days'
prior notice to the corporation and upon a determination by the court that
clearly no other remedy will adequately protect the complaining shareholder or
the class of shareholders of which such shareholder is a member.
(c) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, in any action to attack the
validity of the reorganization or short-form merger or to have the
reorganization or short-form merger set aside or rescinded, (1) a party to a
reorganization or short-form merger which controls another party to the
reorganization or short-form merger shall have the burden of proving that the
transaction is just and reasonable as to the shareholders of the controlled
party, and (2) a person who controls two or more parties to a reorganization
shall have the burden of proving that the transaction is just and reasonable as
to the shareholders of any party so controlled.
III-5
<PAGE> 94
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PROXY (THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS)
CALNETICS CORPORATION
20401 PRAIRIE STREET, CHATSWORTH CA 91311
SPECIAL MEETING OF SHAREHOLDERS, ________, SEPTEMBER ___, 1997
The undersigned hereby appoints Barbara J. Guyer and Trygve M. Thoresen, or
either of them, as Proxies, each with the power to appoint his substitute, and
hereby authorizes them to represent and to vote, as designated below, all the
shares of common stock of Calnetics Corporation ("Calnetics") held of record by
the undersigned on August 11, 1997 at the special meeting of shareholders to be
held on September _, 1997, and at any adjournments and/or postponements thereof.
This proxy, when properly executed, will be voted in the manner directed herein
by the undersigned shareholder. If no direction is made, this proxy will be
voted FOR the matters set forth in Item 1.
IMPORTANT - THIS PROXY MUST BE SIGNED AND DATED ON THE REVERSE SIDE
(continued on the reverse side)
Perforation
Fold and detach here
(FRONT OF PROXY CARD)
1. APPROVAL OF AGREEMENT AND PLAN OF ACQUISITION AND MERGER
[ ] FOR approval and adoption of that certain Agreement and Plan of
Acquisition dated July 2, 1997, as amended ("Agreement"), between Calnetics
and Summa Industries ("Summa") and the transactions contemplated thereby,
including the merger ("Merger") of a new wholly-owned subsidiary of Summa
with and into Calnetics.
[ ] AGAINST approval and adoption of the Agreement.
[ ] ABSTAIN from voting for or against approval and adoption of the Agreement.
2. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting and any adjournments and/or
postponements thereof.
DATED:_________________________1997
------------------------------------
Signature
-------------------------------------
Signature if held jointly
Please sign exactly as name appears below.
When shares are held by joint tenants, both
should sign. When signing as attorney, as
executor, administrator, trustee or
guardian, please give full title as such. If
a corporation, please sign in full corporate
name by President or other authorized
officer. If a partnership, please sign in
partnership name by authorized person.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY BY USING THE
ENCLOSED ENVELOPE.
Perforations
Fold and Detach Here
<PAGE> 95
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INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No.
-----------
<S> <C>
23.1 Consent of Arthur Andersen LLP
27.1 Financial Data Schedule
</TABLE>
<PAGE> 1
Preliminary Copies
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use in this Proxy
Statement of our report dated July 25, 1997. It should be noted that we have not
audited any financial statements of the company subsequent to June 30, 1997 or
performed any audit procedures subsequent to the date of our report.
Arthur Andersen LLP
_____________, 1997
Los Angeles, California
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-03-1997
<CASH> 2,422
<SECURITIES> 0
<RECEIVABLES> 5,589
<ALLOWANCES> 316
<INVENTORY> 5,392
<CURRENT-ASSETS> 13,590
<PP&E> 8,315
<DEPRECIATION> 4,144
<TOTAL-ASSETS> 19,262
<CURRENT-LIABILITIES> 4,249
<BONDS> 3,746
0
0
<COMMON> 2,746
<OTHER-SE> 8,441
<TOTAL-LIABILITY-AND-EQUITY> 19,262
<SALES> 36,616
<TOTAL-REVENUES> 36,665
<CGS> 26,593
<TOTAL-COSTS> 32,993
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 316
<INTEREST-EXPENSE> 323
<INCOME-PRETAX> 3,349
<INCOME-TAX> 1,318
<INCOME-CONTINUING> 3,349
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,031
<EPS-PRIMARY> 0.66
<EPS-DILUTED> 0.66
</TABLE>
