<PAGE>
As filed with the Securities and Exchange Commission on October 15, 1996
Registration No. 333-11571
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1
to
FORM S-4
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
SUMMA INDUSTRIES
(Exact name of registrant as specified in its charter)
California 3089 95-1240978
- ------------------ ------------------------- ---------------------
(State or other (Primary Standard (I.R.S. Employer
jurisdiction Industrial Classification Identification Number)
of incorporation) Code Number)
21250 HAWTHORNE BOULEVARD, SUITE 500, TORRANCE, CALIFORNIA 90503; (310) 792-7024
(Address and telephone number of registrant's principal executive offices)
JAMES R. SWARTWOUT, PRESIDENT
SUMMA INDUSTRIES
21250 HAWTHORNE BOULEVARD, SUITE 500, TORRANCE, CALIFORNIA 90503; (310) 792-7024
(Name, address and telephone number of agent for service)
Copies to:
James M. Phillips, Jr., Esq.
Phillips & Haddan
4695 MacArthur Court, Ste. 840
Newport Beach, California 92660
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the Registration Statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G check the following box: [ ]
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
================================================================================
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CROSS-REFERENCE SHEET TO FORM S-4 OF
SUMMA INDUSTRIES
PART I. INFORMATION REQUIRED IN THE PROSPECTUS
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ITEM OF FORM S-4 CAPTION IN JOINT PROXY STATEMENT/PROSPECTUS
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A. INFORMATION ABOUT THE TRANSACTION
1. Forepart of Registration Statement and Facing Page; Cross-Reference Sheet; Outside Front Cover
Outside Front Cover Page of Prospectus Page of Joint Proxy Statement/Prospectus; Risk Factors
2. Inside Front and Outside Back Cover Available Information; Table of Contents
Pages of Prospectus
3. Risk Factors, Ratio of Earnings to Summary; N/A
Fixed Charges and Other Information.
4. Terms of the Transaction Summary; Description of the Proposed Merger
5. Pro Forma Financial Information Summary; Summa and LexaLite Pro Forma
Financial Information
6. Material Contacts with the Company Summary; Description of the Proposed Merger;
Being Acquired
7. Additional Information Required for *
Reoffering by Persons and Parties
Deemed to be Underwriters
8. Interests of Named Experts and Legal Matters; Experts
Counsel
9. Disclosure of Commission Position on Management of Summa - Limitation of Directors' and
Indemnification for Securities Act Officers' Liability and Indemnification
Liabilities
B. INFORMATION ABOUT THE REGISTRANT
10. Information with Respect to *
S-3 Registrants
11. Incorporation of Certain Information *
by Reference
12. Information with Respect to S-2 or *
S-3 Registrants
13. Incorporation of Certain Information *
by Reference
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14. Information with Respect to Summary; Description of the Proposed Merger; Summa
Registrants Other than S-3 Common Stock Prices and Dividends; Summa Selected
or S-2 Registrants Financial Data; Summa Management's Discussion and Analysis of Summa's
Results of Operations and Financial Condition; Summa and LexaLite
Comparative Per Share Data; Summa and LexaLite Pro Forma Financial
Information; Information Concerning Summa
C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED
15. Information with Respect to *
S-3 Companies
16. Information with Respect to S-2 or *
S-3 Companies
17. Information with Respect to Companies Summary; Description of the Proposed Merger; LexaLite
Other than S-2 or S-3 Companies Common Stock Prices and Dividends; LexaLite Selected
Financial Data; LexaLite Management's Discussion and
Analysis of LexaLite's Results of Operations and Financial
Condition; Summa and LexaLite Comparative Per Share Data;
Summa and LexaLite Pro Forma Financial Information;
Information Concerning LexaLite
D. VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies, Consents or Summary; Description of the Proposed Merger; Information
Authorizations are to be Solicited Concerning Summa; Information Concerning LexaLite; Other Matters
19. Information if Proxies, Consents or *
Authorizations are not to be Solicited
in an Exchange Offer
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<PAGE>
[SUMMA INDUSTRIES LETTERHEAD]
October 17, 1996
Dear Shareholder:
I am pleased to invite you to attend SUMMA INDUSTRIES' Annual Meeting of
Shareholders which will be held on Thursday, November 21, 1996. In addition to
the election of directors, you are being asked to vote on the merger of a new
subsidiary of SUMMA INDUSTRIES with and into LexaLite International Corporation
of Charlevoix, Michigan which will become a wholly-owned subsidiary of SUMMA
INDUSTRIES, upon shareholder approval of the merger. LexaLite is a manufacturer
of engineered plastic optical components.
SUMMA INDUSTRIES' Board of Directors voted UNANIMOUSLY in favor of the merger
-----------
with LexaLite, and recommends that shareholders vote FOR this proposal.
---
This transaction, which follows our recent divestiture of Morehouse-COWLES,
Inc., will complete the transformation of SUMMA INDUSTRIES from a machinery
builder to a manufacturer of proprietary industrial components -- primarily of
plastic materials. I believe this transaction is the most important event in
SUMMA's 54-year history. It will more than double the number of shares
outstanding, without diluting earnings per share (on an historical pro-forma
basis), and create an enterprise with substantially increased sales, profit and
net worth. I URGE YOU TO CAREFULLY REVIEW THE ENCLOSED PROXY STATEMENT AND JOIN
ME IN VOTING FOR THE LEXALITE MERGER.
---
THE DETAILS OF THE MERGER, INCLUDING INFORMATION ABOUT LEXALITE, SUMMA AND
VARIOUS RISK FACTORS, ARE DISCUSSED IN THE ENCLOSED JOINT PROXY
STATEMENT/PROSPECTUS AND NOTICE OF ANNUAL MEETING OF SHAREHOLDERS.
YOUR VOTE IS IMPORTANT. This transaction can only be approved if more than 50%
- ----------------------
of all outstanding shares are voted FOR the merger. Therefore, if you do not
---
vote, it will have the same effect as voting against the merger. PLEASE READ
THE ENCLOSED PROXY STATEMENT, AND MARK, SIGN, DATE AND MAIL YOUR PROXY TODAY.
Your prompt response will help SUMMA save the money associated with follow-up
solicitation efforts.
Very truly yours,
James R. Swartwout
Chairman of the Board and CEO
<PAGE>
SUMMA INDUSTRIES
21250 Hawthorne Boulevard, Suite 500
Torrance, California 90503
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON NOVEMBER 21, 1996
To the Shareholders of
Summa Industries
October 17, 1996
NOTICE IS HEREBY GIVEN that the Annual Meeting of the Shareholders (the "Summa
Annual Meeting") of Summa Industries, a California corporation ("Summa"), will
be held on November 21, 1996, at 2:00 p.m., local time, at the Mariott Hotel,
3635 Fashion Way, Torrance, California (near the southeast corner of Hawthorne
and Torrance Boulevards, behind the Computax Building) for the following
purposes:
(1) To consider and vote upon a proposal to approve the merger (the "Merger")
of Charlevoix The Beautiful, Inc., a newly-to-be-formed California
corporation and wholly-owned subsidiary of Summa ("Subsidiary"), with and
into LexaLite International Corporation, a Delaware corporation
("LexaLite"), pursuant to the Agreement of Merger in the form attached to
this Joint Proxy Statement/Prospectus as Appendix I and the Agreement and
Plan of Reorganization by and between Summa and LexaLite dated as of July
18, 1996 (the "Reorganization Agreement"), all as described in more detail
in the attached Joint Proxy Statement/Prospectus which accompanies this
Notice. In approving the Merger, the shareholders of Summa will also
approve, among other things, an amendment to the Articles of Incorporation
of Summa to establish a 9-member Board of Directors divided into three
classes serving staggered 3-year terms (Summa currently has an 8-member
Board divided into two classes), and the adoption by Summa of the LexaLite
Employee Stock Ownership Plan, as amended, all as more particularly
described in the Joint Proxy Statement/Prospectus;
(2) To elect three directors to serve 3-year terms if the Merger is approved
and consummated, including two incumbent directors whose terms are
expiring and Josh Barnes, the Chief Executive Officer and a director of
LexaLite, and three incumbent directors to serve 2-year terms. If the
Merger is not approved, to elect the four incumbent directors whose terms
are expiring to serve as directors for new 2-year terms; and
(3) To transact such other business as may properly come before the Summa
Annual Meeting or any adjournment or postponement thereof.
The Board of Directors has fixed October 14, 1996 as the record date for the
determination of shareholders of Summa entitled to notice of and to vote at the
Summa Annual Meeting, or at any continuance or adjournment thereof, and only
shareholders of record at the close of business on that date will be entitled to
vote at the Summa Annual Meeting.
All shareholders are cordially invited to attend the Summa Annual Meeting in
person. HOWEVER, WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE
COMPLETE, SIGN, DATE AND RETURN YOUR PROXY IN THE ENCLOSED ENVELOPE. If you
attend the Summa Annual Meeting, you may vote in person if you wish, even though
you have previously returned your proxy.
The attached Joint Proxy Statement/Prospectus also constitutes the Prospectus
of Summa with respect to the shares of Summa Common Stock issuable to the
shareholders of LexaLite as a consequence of the proposed Merger.
By Order of the Board of Directors,
Paul A. Walbrun, Secretary
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LEXALITE INTERNATIONAL CORPORATION
October 17, 1996
Dear Stockholder:
You are cordially invited to attend a special meeting of stockholders of
LexaLite International Corporation ("LexaLite") to be held at 10:00 a.m., local
time, on November 16, 1996 at the Charlevoix Country Club, one-quarter (1/4)
mile east of Waller Road, on U.S. 31, north of Charlevoix.
At this Special Meeting, you will be asked to approve the merger (the
"Merger") of a wholly-owned subsidiary of Summa Industries, a California
corporation, with and into LexaLite pursuant to the Agreement of Merger attached
as Appendix I to the Joint Proxy Statement/Prospectus which accompanies this
letter. Also enclosed herewith is a copy of the Agreement and Plan of
Reorganization dated as of July 18, 1996 by and between Summa and LexaLite. As
a consequence of the Merger, the outstanding shares of LexaLite Common Stock
will be converted into shares of Summa Common Stock. The Board of Directors of
LexaLite has carefully reviewed and considered the terms and conditions of the
Merger and has received the opinion of Wedbush Morgan Securities as to the
fairness of the Merger to the stockholders of LexaLite from a financial point of
view. The full text of the opinion of Wedbush Morgan is attached as Appendix II
to the Joint Proxy Statement/Prospectus. All of the Directors on the Board of
LexaLite have joined in concluding that the Merger is fair to, and in the best
interests of, LexaLite and its stockholders and we recommend that you vote FOR
approval of the Merger.
If the Merger is approved and consummated, LexaLite will become a wholly-owned
subsidiary of Summa, and each share of LexaLite Common Stock outstanding at the
time the Merger becomes effective will be converted into 1.5 shares (subject to
possible upward adjustment) of Summa Common Stock, all as more fully described
in the accompanying Joint Proxy Statement/Prospectus and the Agreement and Plan
of Reorganization. The Merger is discussed in both and you are urged to review
them carefully.
Under Delaware law, the Merger must be approved by the affirmative vote of the
holders of at least a majority of the outstanding shares of LexaLite Common
Stock. Your vote is important! Therefore, whether or not you personally will
attend the Special Meeting, please vote by promptly completing, signing, dating
and mailing the enclosed proxy form. You may always revoke your proxy at or
before the time of the Special Meeting should you wish to vote in person.
PLEASE DO NOT SEND IN ANY STOCK CERTIFICATES AT THIS TIME. Promptly after the
Merger is consummated, you will be sent instructions regarding the mechanics of
exchanging LexaLite stock certificates, that are currently in your possession,
for the new certificates representing shares of Summa Common Stock.
Warm regards,
LEXALITE INTERNATIONAL CORPORATION
Josh T. Barnes, Chief Executive Officer
<PAGE>
LEXALITE INTERNATIONAL CORPORATION
10163 US 31 North
Charlevoix, Michigan 49720-0498
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON NOVEMBER 16, 1996
To the Stockholders of
LexaLite International Corporation
October 17, 1996
NOTICE IS HEREBY GIVEN that a Special Meeting of the Stockholders (the
"LexaLite Special Meeting") of LexaLite International Corporation, a Delaware
corporation ("LexaLite"), will be held on November 16, 1996, at 10:00 a.m.,
local time, at the Charlevoix Country Club, located at 9600 Clubhouse Drive,
Charlevoix, Michigan 49720, for the following purposes:
(1) To consider and vote upon a proposal to approve the merger (the "Merger")
of Charlevoix the Beautiful, Inc., a newly-to-be-formed and wholly-owned
subsidiary of Summa Industries, a California corporation ("Summa"), with
and into LexaLite pursuant to the Agreement of Merger in the form attached
to this Joint Proxy Statement/Prospectus as Appendix I and the Agreement
and Plan of Reorganization by and between Summa and LexaLite dated as of
July 18, 1996, all as described in more detail in the attached Joint Proxy
Statement/Prospectus which accompanies this Notice; and
(2) To transact such other business as may properly come before the LexaLite
Special Meeting or any adjournment or postponement thereof.
The Board of Directors of LexaLite has fixed October 14, 1996 as the record
date for the determination of stockholders of LexaLite entitled to notice of and
to vote at the LexaLite Special Meeting, or at any continuance or adjournment
thereof, and only stockholders of record at the close of business on that date
will be entitled to vote at the LexaLite Special Meeting.
All stockholders are cordially invited to attend the LexaLite Special Meeting
in person. HOWEVER, WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE
COMPLETE, SIGN, DATE AND RETURN YOUR PROXY IN THE ENCLOSED ENVELOPE. If you
attend the LexaLite Special Meeting, you may vote in person if you wish, even
though you have previously returned your proxy.
The attached Joint Proxy Statement/Prospectus is a joint proxy statement of
LexaLite and Summa for their respective stockholder meetings and constitutes the
Prospectus of Summa with respect to the shares of Summa Common Stock issuable to
the stockholders of LexaLite as a consequence of the proposed Merger.
By Order of the Board of Directors,
Patricia A. DeYoung, Secretary
<PAGE>
SUMMA INDUSTRIES
LEXALITE INTERNATIONAL CORPORATION
________________________
JOINT PROXY STATEMENT
________________________
PROSPECTUS OF SUMMA INDUSTRIES
_______________________
This Joint Proxy Statement/Prospectus is being furnished to shareholders of
Summa Industries, a California corporation ("Summa"), in connection with the
solicitation of proxies by the Board of Directors of Summa for use at the
Special Meeting of Shareholders of Summa to be held on November 21, 1996, at the
Mariott Hotel, 3635 Fashion Way, Torrance, California, at 2:00 p.m. local time,
and at any continuation or adjournment thereof (the "Summa Annual Meeting"). As
of October 14, 1996, the record date for the Summa Annual Meeting, there were
1,603,483 shares of Summa's Common Stock outstanding. At the Summa Annual
Meeting, the shareholders of Summa will be asked to consider and vote upon a
proposal to approve a merger (the "Merger") of Charlevoix the Beautiful, Inc., a
newly-to-be-formed and wholly-owned subsidiary of Summa ("Subsidiary"), with and
into LexaLite pursuant to the Agreement of Merger (the "Merger Agreement")
attached hereto as Appendix I and on the further terms, and subject to the
conditions, set forth in the Agreement and Plan of Reorganization dated as of
July 18, 1996 by and between Summa and LexaLite (the "Reorganization
Agreement"). Upon consummation of the Merger, which would be effective upon
filing of the Merger Agreement, or a certificate of merger with respect thereto,
in the offices of the Secretaries of State of California and Delaware,
Subsidiary would be merged with and into LexaLite, which would be the surviving
corporation in the Merger and which would continue to carry on the business and
affairs of LexaLite as a wholly-owned subsidiary of Summa. As a consequence of
the Merger, the former stockholders of LexaLite would receive an aggregate of
2,252,241 shares (subject to possible upward adjustment) of Summa's Common
Stock. In addition, the Articles of Incorporation of Summa will be amended to
establish a 9-member Board of Directors divided into three classes serving
staggered 3-year terms, and Summa would adopt the LexaLite Employee Stock
Ownership Plan, as amended. See "Description of the Proposed Merger."
This Joint Proxy Statement/Prospectus is also being furnished to stockholders
of LexaLite International Corporation, a Delaware corporation ("LexaLite"), in
connection with the solicitation of proxies by the Board of Directors of
LexaLite for use at the Special Meeting of Stockholders of LexaLite to be held
on November 16, 1996, at the Charlevoix Country Club, located at 9600 Clubhouse
Drive, Charlevoix, Michigan 49720, at 10:00 a.m., local time, and at any
continuation or adjournment thereof (the "LexaLite Special Meeting"). As of
October 14, 1996, the record date for the LexaLite Special Meeting, there were
1,479,672 shares of LexaLite's Common Stock outstanding (excluding 21,822 shares
earned and issuable under the LexaLite Stock Award Bonus Plan). At the LexaLite
Special Meeting, the stockholders of LexaLite will be asked to consider and vote
upon a proposal to approve the Merger of Subsidiary with and into LexaLite
pursuant to the terms and conditions of the Reorganization Agreement and the
Merger Agreement.
THE BOARDS OF DIRECTORS OF BOTH SUMMA AND LEXALITE UNANIMOUSLY HAVE APPROVED
THE MERGER AND RECOMMENDED THAT THE SHAREHOLDERS OF SUMMA AND STOCKHOLDERS OF
LEXALITE VOTE IN FAVOR OF THE PROPOSED MERGER.
This Joint Proxy Statement/Prospectus also constitutes a Prospectus of Summa
which is a part of a Registration Statement on Form S-4 that Summa has filed
with the Securities and Exchange Commission with respect to the shares of
Summa's Common Stock issuable to the stockholders of LexaLite as a consequence
of the proposed Merger. Summa's principal executive offices are located at
21250 Hawthorne Boulevard, Suite 500, Torrance, California 90503, its telephone
number is (310) 792-7024, and its telecopier number is (310) 792-7079.
THE SECURITIES TO BE ISSUED PURSUANT TO THE MERGER HAVE NOT BEEN APPROVED
OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS JOINT PROXY STATEMENT.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This Joint Proxy Statement/Prospectus is first being mailed to shareholders of
Summa and stockholders of LexaLite on or about October 17, 1996. All
information herein with respect to each of Summa and Subsidiary has been
furnished by Summa, and all information herein with respect to LexaLite has been
furnished by LexaLite.
SEE "RISK FACTORS" BEGINNING AT PAGE 12 FOR A DISCUSSION OF CERTAIN MATTERS
THAT SHOULD BE CONSIDERED BY THE STOCKHOLDERS OF LEXALITE AND THE SHAREHOLDERS
OF SUMMA WITH RESPECT TO THE MERGER AND AN INVESTMENT IN SUMMA FOLLOWING THE
MERGER.
The date of this Joint Proxy Statement/Prospectus is October 17, 1996
<PAGE>
AVAILABLE INFORMATION
Summa is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act"), and in accordance therewith files
reports, proxy statements and other information with the Commission. Such
reports and other information can be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street N.W.,
Washington, D.C. 20549, and at the Commission's regional offices at 230 South
Dearborn Street, Chicago, Illinois 60604 and 75 Park Place, New York, New York
10007. Copies of such material may also be obtained from the Public Reference
Section of the Commission, 450 Fifth Street N.W., Washington, D.C. 20549, at
prescribed rates.
Summa has filed with the Commission under the Securities Act of 1933, as
amended (the "Securities Act"), a Registration Statement on Form S-4 with
respect to the shares of Summa Common Stock issuable to the stockholders of
LexaLite as a consequence of the proposed Merger. This Joint Proxy
Statement/Prospectus also constitutes the Prospectus of Summa included as a part
of the Registration Statement, but does not contain all of the information set
forth in the Registration Statement. Statements contained in this Joint Proxy
Statement/Prospectus as to the contents of any contract or other document
referred to herein are not necessarily complete, and in each instance reference
is made to the copy of such contract or other document filed as an exhibit to
the Registration Statement, each such statement being qualified in all respects
by such reference. The Registration Statement in full, including the exhibits
and schedules thereto, may be inspected without charge at the office of the
Commission located at 450 Fifth Street, N.W., Washington, D.C. 20549. Copies
thereof may also be obtained from the commission upon payment of prescribed fees
by writing to the Commission at the above address. Summa will provide, without
charge, upon written or oral request of any shareholder of Summa or stockholder
of LexaLite, a copy of the Reorganization Agreement which has been filed as an
exhibit to the Registration Statement and to which the Merger Agreement set
forth in Appendix I is attached as Exhibit A. Requests should be addressed to
Summa, 21250 Hawthorne Boulevard, Suite 500, Torrance, California 90503,
Attention: James R. Swartwout; telephone: (310) 792-7024. So that timely
delivery of the documents can be made, such requests should be made by November
7, 1996.
NO PERSON HAS BEEN 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 REPRESENTATION MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY SUMMA OR LEXALITE. THIS JOINT
PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, THE SECURITIES OFFERED BY THIS JOINT PROXY
STATEMENT/PROSPECTUS OR A SOLICITATION OF A PROXY IN ANY JURISDICTION WHERE, OR
TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS JOINT PROXY STATEMENT/PROSPECTUS NOR ANY
DISTRIBUTION OF SECURITIES MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE
AN IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF.
2
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TABLE OF CONTENTS
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AVAILABLE INFORMATION................................................... 2
SUMMARY................................................................. 5
Annual Meeting of Summa Shareholders............................. 5
Special Meeting of LexaLite Stockholders......................... 5
The Proposed Merger.............................................. 5
Summary Historical Financial Information......................... 10
Summary Pro Forma Combined Financial Information................. 11
Comparative Per Share Financial Information...................... 11
RISK FACTORS............................................................ 12
VOTING AND PROXIES...................................................... 16
OWNERSHIP OF SUMMA'S COMMON STOCK....................................... 17
OWNERSHIP OF LEXALITE'S COMMON STOCK.................................... 18
DESCRIPTION OF THE PROPOSED MERGER...................................... 19
Purpose and Background of the Merger............................. 19
The Merger....................................................... 21
Manner and Basis of Converting Shares............................ 21
Treatment of Stock Options....................................... 22
Fairness Opinion................................................. 22
Additional Conditions to the Merger.............................. 22
Amendment or Termination......................................... 24
Standstill Agreement............................................. 24
Interests of Certain Persons in the Merger....................... 24
Affiliates' Restrictions on Resale of Summa's Common Stock....... 25
Accounting Treatment............................................. 25
Merger Expenses; Brokerage Fees.................................. 25
Certain Federal Income Tax Considerations........................ 25
Approval of the Merger........................................... 26
Rights of Dissenting Stockholders................................ 27
THE COMBINED COMPANIES.................................................. 29
SUMMA AND LEXALITE PRO FORMA FINANCIAL INFORMATION...................... 30
SUMMA COMMON STOCK PRICES AND DIVIDENDS................................. 31
DESCRIPTION OF SECURITIES............................................... 34
Summa Capital Stock.............................................. 34
LexaLite Capital Stock........................................... 34
Comparison of Rights of LexaLite and Summa Shareholders.......... 35
INFORMATION CONCERNING SUMMA............................................ 37
Business......................................................... 37
General...................................................... 37
Products..................................................... 37
Marketing.................................................... 38
Raw Materials................................................ 39
Backlog...................................................... 39
Competitive Conditions....................................... 39
Patents, Trademarks and Licenses............................. 40
Legal Proceedings............................................ 40
Employees.................................................... 40
Facilities................................................... 40
Summa Selected Financial Data.................................... 41
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3
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Summa Management's Discussion and Analysis of Summa's Results
of Operations and Financial Condition................................. 42
Results of Operations.............................................. 42
Liquidity and Capital Resources.................................... 43
Pending Accounting Pronouncements.................................. 44
Sale of Discontinued Operations.................................... 44
Management of Summa.................................................... 45
Executive Officers and Directors................................... 45
Compensation of Officers and Directors............................. 46
Employment Agreement............................................... 47
401(k) Plans....................................................... 47
Stock Options...................................................... 47
Limitation of Directors' and Officers' Liability and
Indemnification................................................... 48
Compensation Committee Report...................................... 48
Stock Performance Graph............................................ 49
INFORMATION CONCERNING LEXALITE.......................................... 50
Business............................................................... 50
General............................................................ 50
Products........................................................... 50
Research and Development........................................... 50
Manufacturing...................................................... 51
Marketing.......................................................... 51
Raw Materials...................................................... 51
Backlog............................................................ 51
Competitive Conditions............................................. 51
Patents, Trademarks and Licenses................................... 51
Compliance with Environmental Regulations.......................... 52
Legal Proceedings.................................................. 52
Employees.......................................................... 52
Facilities......................................................... 52
LexaLite Selected Financial Data....................................... 53
LexaLite Management's Discussion and Analysis of LexaLite's
Results of Operations and Financial Condition..................... 54
Results of Operations.............................................. 54
Liquidity and Capital Resources.................................... 54
Inflation.......................................................... 54
Management of LexaLite................................................. 55
Executive Officers and Directors................................... 55
Compensation of Officers and Directors............................. 56
Employment Arrangement............................................. 57
Stock Award Bonus Plan............................................. 57
Stock Options...................................................... 57
Certain Transactions............................................... 58
Employee Stock Ownership Plan...................................... 58
401(k) Plan........................................................ 59
Limitation of Directors' and Officers' Liability and
Indemnification................................................... 59
ELECTION OF SUMMA DIRECTORS.............................................. 60
OTHER MATTERS............................................................ 60
LEGAL MATTERS............................................................ 60
EXPERTS.................................................................. 61
INDEPENDENT ACCOUNTANTS.................................................. 61
SHAREHOLDER PROPOSALS.................................................... 61
INDEX TO FINANCIAL STATEMENTS............................................ 62
</TABLE>
Appendix I - Agreement of Merger by and among Summa Industries, Charlevoix
the Beautiful, Inc. and LexaLite International Corporation
Appendix II - Opinion of Wedbush Morgan Securities
Appendix III - Provisions of Delaware General Corporation Law Relating to
Appraisal Rights
4
<PAGE>
SUMMARY
The following is a brief summary of certain information contained
elsewhere in this Joint Proxy Statement/Prospectus. This summary is necessarily
selective and is qualified in its entirety by the more detailed information
appearing elsewhere in this Joint Proxy Statement/Prospectus and the attached
Appendices. See "Risk Factors" for certain information that should be
considered by the stockholders of LexaLite and the shareholders of Summa.
ANNUAL MEETING OF SUMMA SHAREHOLDERS
Proxies are being solicited by the Board of Directors of Summa for use at
the Annual Meeting of the Shareholders of Summa (the "Summa Annual Meeting") to
be held at 2:00 p.m., local time, at the Mariott Hotel, 3635 Fashion Way,
Torrance, California, on November 21, 1996, and at any continuation or
adjournment thereof, for the purpose of considering and voting upon a proposed
merger (the "Merger") of Charlevoix the Beautiful, Inc., a newly-to-be-formed
California corporation and wholly-owned subsidiary of Summa ("Subsidiary"), with
and into LexaLite International Corporation, a Delaware corporation
("LexaLite"), all as more particularly described herein and in the Notice of
Annual Meeting accompanying this Joint Proxy Statement/Prospectus. In approving
the Merger, the shareholders of Summa will also approve, among other things, an
amendment to the Articles of Incorporation of Summa to establish a 9-member
Board of Directors divided into three classes serving staggered 3-year terms
(Summa currently has an 8-member Board divided into two classes), and the
adoption by Summa of the LexaLite Employee Stock Ownership Plan, as amended, all
as more particularly described herein. If the Merger is approved, the
shareholders of Summa also will be asked to elect three directors to serve 3-
year terms, including two incumbent directors whose terms are expiring and Josh
T. Barnes, the Chief Executive Officer and a director of LexaLite, and three
additional incumbent directors to serve 2-year terms. If the Merger is not
approved, only the four incumbent directors whose terms are expiring will be
nominated for election to serve as directors for new 2-year terms. The record
date for determining the shareholders of Summa entitled to notice of and to vote
at the Summa Annual Meeting is October 14, 1996.
SPECIAL MEETING OF LEXALITE STOCKHOLDERS
Proxies are being solicited by the Board of Directors of LexaLite for use
at a Special Meeting of the Stockholders of LexaLite (the "LexaLite Special
Meeting") to be held at 10:00 a.m., local time, at the Charlevoix Country Club,
located at 9600 Clubhouse Drive, Charlevoix, Michigan 49720, on November 16,
1996, and at any continuation or adjournment thereof, for the purpose of
considering and voting upon the proposed Merger, as more particularly described
herein and in the Notice of Special Meeting accompanying this Joint Proxy
Statement/Prospectus. The record date for determining the stockholders of
LexaLite entitled to notice of and to vote at the LexaLite Special Meeting is
October 14, 1996.
THE PROPOSED MERGER
Pursuant to the Reorganization Agreement dated as of July 18, 1996, Summa
and LexaLite have agreed, subject to the approval of the shareholders of Summa
and the stockholders of LexaLite and the satisfaction of certain other
conditions, that Subsidiary will merge with and into LexaLite on the terms and
conditions more particularly described herein.
SUMMA Summa is a publicly-owned California corporation whose Common Stock
is registered under Section 12(g) of the Securities Exchange Act of
1934, as amended, and traded on The Nasdaq National Market under the
symbol, "SUMX". Through its two wholly-owned operating
subsidiaries, Summa designs and manufacturers material handling
components, some of which Summa initially developed in plastic,
including plastic chains, belts and customized components, water
cannons for fire fighting in harsh environments, and proprietary
pneumatic/hydraulic actuators and other components for defense
aircraft. As of October 14, 1996, the record date for the Summa
Annual Meeting, 1,603,483 shares of the Common Stock of Summa were
issued and outstanding.
5
<PAGE>
LEXALITE LexaLite is a privately held Delaware corporation headquartered in
Charlevoix, Michigan. LexaLite designs and manufactures injection-
molded plastic optical components for OEM customers in the lighting
industry. As of October 14, 1996, the record date for the LexaLite
Special Meeting, 1,479,672 shares of the Common Stock of LexaLite
were issued and outstanding (excluding 21,822 shares earned and
issuable under the LexaLite Stock Award Bonus Plan).
SUBSIDIARY Charlevoix the Beautiful, Inc. is a California corporation which
has recently been organized as a wholly-owned subsidiary of Summa
solely for the purpose of entering into the Merger. As a
consequence of the Merger, Subsidiary will merge with and into
LexaLite which, as the surviving corporation in the Merger, will
continue to conduct its business and operations as a wholly-owned
subsidiary of Summa.
REASONS FOR In 1991, Summa adopted a strategy of growth through acquisitions of
THE MERGER profitable manufacturing companies with proprietary products or
protected market niches. The acquisition of LexaLite as a
consequence of the Merger will be the third such acquisition that
Summa has accomplished. For the past several years, the LexaLite
Board of Directors has considered various strategic alternatives to
maximize stockholder value and increase liquidity, while preserving
the culture of the organization and considering the interests of
employees, customers and the community. The LexaLite Board evaluated
an initial public offering, outside equity investment, and potential
business combinations with other companies. The LexaLite Board
determined that the proposed transaction with Summa offered the best
opportunity available to fulfill the Board's strategic objectives.
The acquisition of LexaLite as a consequence of the Merger will
provide Summa with a third operating subsidiary, thereby enabling
Summa to further expand its operations by adding additional product
offerings. Among other perceived benefits to the Summa
shareholders, the number of shares of Summa Common Stock in the
public float, as well as the number of Summa shareholders, will
increase significantly, which may enhance the marketability of the
Summa Common Stock and provide increased liquidity for all Summa
shareholders. Even though the number of outstanding shares will
increase substantially, the acquisition of LexaLite is not expected
to be dilutive of Summa's earnings per share.
The stockholders of LexaLite will retain the opportunity to continue
to share in any growth of LexaLite's businesses that might be
achieved following the Merger, although the value of their
investment will no longer be dependent solely upon the success or
failure of LexaLite, since the market value of the shares of Summa's
Common Stock that they will receive as a consequence of the Merger
will reflect the results of operations in several different
businesses. In addition, by receiving registered stock of a
publicly-held company, it is believed that the stockholders of
LexaLite will be better able to liquidate some or all of their
investment when they choose to do so. Moreover, since the Merger is
intended to qualify as a "tax-free reorganization", no taxable event
should occur unless and until a former LexaLite stockholder decides
to sell at a future date shares of the Summa Common Stock received
as a consequence of the Merger. Management of both Summa and
LexaLite believes that the shareholders of each company will benefit
from the proposed Merger.
TERMS OF Upon the Effective Date (as defined below) of the Merger, Subsidiary
THE MERGER will be merged with and into LexaLite, and each outstanding share of
LexaLite's Common Stock will be converted into one and one-half
(1.5) shares of Summa's Common Stock, such that the holders of
LexaLite's Common Stock immediately prior to the Merger will
receive, as a group, an aggregate of 2,252,241 shares of Summa's
Common Stock (including 32,733 shares earned and issuable under the
LexaLite Stock Award Bonus Plan). If the average closing price of
Summa's Common Stock for the 5-day trading period ending three days
prior to the LexaLite Special Meeting is less than
6
<PAGE>
$6.66, LexaLite may terminate the transactions contemplated by
the Reorganization Agreement unless Summa agrees to increase the
number of shares of Summa's Common Stock issuable as a
consequence of the Merger to that total number which would have
an aggregate market value (based on such average closing price)
of $15,000,000. See "Description of the Proposed Merger - Manner
and Basis of Converting Shares."
Outstanding stock options to purchase up to 104,550 shares of
LexaLite's Common Stock, at the weighted average exercise price
of $8.13 per share, will be exchanged for options to purchase up
to 156,825 shares of Summa's Common Stock, for the same
aggregate exercise prices. See "Description of the Proposed
Merger -Treatment of Stock Options." In addition, Summa has
agreed to issue 30,000 additional shares of Summa Common Stock
to a financial intermediary for services rendered in connection
with the proposed Merger.
Accordingly, the former stockholders of LexaLite as a group
would own approximately 58% of the 3,855,724 shares of Summa's
Common Stock to be outstanding immediately following the Merger,
before taking into account the total of 156,825 shares issuable
upon exercise of the options to purchase Summa's Common Stock
that will be held by former stockholders of LexaLite following
the Merger. The percentage ownership by the former stockholders
of LexaLite would be decreased upon the exercise of options to
purchase up to 425,000 shares of Summa's Common Stock granted or
to be granted under Summa's stock option plans (options to
purchase 245,473 shares are currently outstanding), and upon the
issuance of additional shares of Summa's Common Stock following
the Merger, if any, to make further acquisitions or raise
additional equity capital.
FAIRNESS Wedbush Morgan Securities ("Wedbush Morgan") has delivered to
OPINION the Boards of Directors of both LexaLite and Summa a written
opinion dated as of October 11, 1996, to the effect that, based
upon and subject to various considerations set forth in the
opinion, the Merger is fair from a financial point of view to
both the stockholders of LexaLite and the shareholders of Summa.
A copy of the opinion of Wedbush Morgan, which sets forth the
assumptions made, matters considered and the scope of their
review, is attached to this Joint Proxy Statement/Prospectus as
Appendix II and should be read in its entirety. See "Description
of the Proposed Merger -Fairness Opinion."
CONDITIONS TO Consummation of the Merger is subject to various conditions,
THE MERGER; including, among others, approval of the Merger by the
AMENDMENT; shareholders of Summa and the stockholders of LexaLite, and the
TERMINATION receipt of any required regulatory approvals. The Reorganization
Agreement and the Merger Agreement may each be amended by
written agreement of each of the parties before approval by the
Summa shareholders and the LexaLite stockholders, as well as
thereafter if such amendment would not materially and adversely
affect the shareholders of Summa or the stockholders of
LexaLite, as the case may be. These agreements may also be
terminated and the Merger abandoned before the Effective Date by
the mutual consent of the Boards of Directors of each of the
parties, or by the Board of Directors of either party if the
Merger has not been consummated by January 31, 1997, except that
the foregoing right to terminate is not 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. In addition, the
Reorganization Agreement and the transactions contemplated
thereby may be terminated by either LexaLite or Summa in the
event that the Board of Directors of either has determined that
consummation of the Merger could reasonably be expected to cause
the directors of the terminating party to violate their
fiduciary duties under applicable law. Any termination as
described in the preceding sentence 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, plus
reimbursement of all out-of-pocket expenses reasonably incurred
by the non-terminating party through the date of such
termination. See "Description of the Proposed Merger-Additional
Conditions to the Merger; Amendment or Termination."
7
<PAGE>
CERTAIN Based upon certain assumptions, it is expected that the merger
FEDERAL will constitute a tax-free reorganization under Section 368 of
INCOME TAX the Internal Revenue Code of 1986, as amended (the "Code"), such
CONSEQUENCES that (i) the stockholders of LexaLite who receive shares of
Summa's Common Stock will reorganize no gain or loss for federal
income tax purposes as a cnsequence of the Merger, (ii) the tax
basis of Summa's Common Stock received by those shareholders
will be the same as the tax basis of the shares of LexalIte's
Common Stock exchanged therefor, and (iii) the holding period of
Summa's Common Stock received will include the holding period of
LexaLite's Common Stock exchanged therefor. However, no opinions
of counsel or rulings from the Internal Revenue Service have
been or will be obtained as to any of the federal tax
consequences of the Merger. See "Description of the Proposed
Merger -- Certain Federal Income Tax Considerations."
COMPARISON The rights of holders of Summa Common Stock differ in certain
OF RIGHTS OF respects from the rights of holders of LexaLite Common Stock,
LEXALITE AND including the fact that Summa is subject to the informational
SUMMA requirements of the Exchange Act and that Summa Common Stock is
SHAREHOLDERS traded on The Nasdaq national Market. See "Description of
Securities -- Comparison of Rights of LexaLite and Summa
Shareholders."
RESALE OF The shares of Summa's Common Stock to be received by the
SUMMA COMMON stockholders of LexaLite as a consequence of the Merger will be
STOCK registered under the Securities Act of 1933, as amended (the
"Securities Act") and thus will be freely transferable by all of
the former stockholders of lexaLite except for those former
stockholders who become "affiliates" of Summa following the
Merger. See "Description of the Merger -- Affiliate's
Restrictions on Resale of Summa's Common Stock."
DISSENTERS' Holders of LexaLite's Common Stock who object to the Merger may
RIGHTS under certain circumstances, and by following prescribed
statutory procedures, receive cash for their shares. The failure
of a dissenting shareholder to follow such procedures, described
more fully elsewhere in this Joint Proxy Statement/Prospectus,
may result in termination or waiver of rights as a dissenter.
The Merger may be terminated by Summa in the event that the
holders of more than 2% of LexaLite's Common Stock perfect their
dissenters' rights as described herein. See "Description of the
Proposed Merger - Rights of Dissenting LexaLite Stockholders."
RECENT MARKET The Common Stock of Summa is traded on The Nasdaq National
PRICES Market. On July 18, 1996, the last full trading day prior to the
public announcement by Summa and LexaLite of their mutual
execution of the Reorganization Agreement, the closing sale
price for a share of Summa's Common Stock was $6.00. On October
11, 1996, the closing price for a share of Summa's Common Stock
on The Nasdaq National Market was $6.13. See "Summa Common Stock
Prices and Dividends."
EFFECTIVE DATE The Merger will be consummated if and on such date as the
executed Merger Agreement is filed with the California Secretary
of State and a certificate of merger with respect thereto is
filed with the Delaware Secretary of State (the "Effective
Date"). The Effective Date is currently expected to occur on or
shortly after November 21, 1996, the date of the Summa Annual
Meeting, subject to approval of the Merger by the Summa
shareholders and the LexaLite stockholders and the satisfaction
or waiver of the other conditions to the Merger. See
"Description of the Proposed Merger - The Merger."
RECOMMENDATIONS The Boards of Directors of Summa and LexaLite have both
Unanimously approved the Merger as in the best interests of
their respective corporations, shareholders and stockholders,
and have recommended that the Merger be approved by their
respective shareholders and stockholders.
VOTE The affirmative vote of holders of a majority of the outstanding
REQUIRED shares of both the Summa Common Stock and the LexaLite Common
Stock is required to approve the merger. Of the 1,603,483 shares
of Summa's Common Stock outstanding as of the record date for
the Summa Annual meeting, directors and executive officers of
Summa who owned or had voting control over an aggregate of
247,356 shares, or approximately 15.4%, have indicated their
intention to vote in
8
<PAGE>
favor of the proposed Merger. The affirmative votes of the
holders of an additional 554,386 shares of Summa's Common Stock
will be required for approval of the Merger by the shareholders
of Summa. Of the 1,479,672 shares of LexaLite's Common Stock
outstanding as of the record date for the LexaLite Special
Meeting, the directors and executive officers of LexaLite owned
or had voting control over approximately 48.9%. Each of these
directors and executive officers has indicated an intention to
vote in favor of the proposed Merger. The affirmative votes of
the holders of an additional 15,562 shares of LexaLite's Common
Stock will be required for approval of the Merger by the
stockholders of LexaLite.
AMENDMENT In approving the Merger, the shareholders of Summa will also
OF SUMMA approve an amendment to the Articles of Incorporation of Summa
ARTICLES OF to establish a 9-member Board of Directors divided into three
INCORPORATION; classes serving staggered 3-year terms. Summa's Board of
ELECTION OF Directors currently consists of eight members divided into two
DIRECTORS classes, with half of the members elected to serve 2-year terms
at each annual meeting. If the Merger is approved and
consummated, Josh T. Barnes, the Chief Executive Officer and a
director of LexaLite, will be nominated for election at the
Summa Annual Meeting to serve as a director of Summa for a 3-
year term, along with two incumbent directors of Summa whose
current terms are expiring, and three additional incumbent
directors will be elected to serve new 2-year terms. Otherwise,
only the four incumbent directors whose terms are expiring will
be nominated for election at the Summa Annual Meeting, each to
serve new 2-year terms. See "Description of the Proposed Merger-
Approval of the Merger."
ADOPTION OF In approving the Merger, the shareholders of Summa also will
LEXALITE approve the adoption by Summa of the Employee Stock Ownership
ESOP Plan ("ESOP") of LexaLite, as amended, so that the ESOP Trustee
will be required to purchase shares of Summa's Common Stock in
the market whenever it receives a cash contribution to the ESOP.
Alternately, Summa will be able to make direct contributions of
Common Stock to the ESOP as determined by the Board of
Directors. Additionally, Summa would be able, but not obligated,
to expand the ESOP to include employees of other Summa
subsidiaries.
9
<PAGE>
SUMMARY HISTORICAL FINANCIAL INFORMATION
(in thousands)
The following tables summarize information set forth in the audited financial
statements of Summa, in the audited financial statements of LexaLite, and in the
respective notes thereto, which are included elsewhere in this Joint Proxy
Statement/Prospectus, and should be read in conjunction with those financial
statements and related notes and with the separate "Summa Management's
Discussion and Analysis of Summa's Results of Operations and Financial
Condition" and "LexaLite Management's Discussion and Analysis of LexaLite's
Results of Operations and Financial Condition" also included elsewhere herein.
SUMMA INDUSTRIES
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
-------------------------------
INCOME STATEMENT DATA: 1994 1995 1996
- ---------------------- ---- ---- ----
<S> <C> <C> <C>
Net sales................................ $10,279 $10,247 $12,742
Income from continuing operations before
provision for taxes..................... 1,146 1,158 1,344
Income from continuing operations........ 501 676 803
Income (loss) from discontinued
operations, net of effect of income tax. 118 (28) (235)
Cumulative effect of accounting change... 100 - -
Net income............................... $ 719 $ 648 568
======= ======= =======
Weighted average number of shares........ 1,548 1,553 1,603
BALANCE SHEET DATA:
- ------------------
Total assets............................. $10,009 $11,278 $11,825
Working capital.......................... 2,086 1,882 2,975
Long-term debt........................... 305 400 300
Shareholders' equity..................... $ 7,224 $ 7,930 $ 8,644
</TABLE>
LEXALITE INTERNATIONAL CORPORATION
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------
INCOME STATEMENT DATA: 1994 1995 1996
- ---------------------- -------- ------- -------
<S> <C> <C> <C>
Net Sales.................................. $26,771 $33,235 $36,088
Income before provision for income taxes... 1,814 2,224 2,550
Net income................................. $ 1,183 $ 1,422 $ 1,588
======= ======= =======
Weighted average number of shares......... 1,385 1,427 1,477
BALANCE SHEET DATA:
- -------------------
Total assets............................... $17,147 $23,388 $24,109
Working capital............................ 2,249 3,060 3,599
Long-term debt............................. 5,670 10,490 8,264
Stockholders' equity....................... $ 5,983 $ 7,714 $ 9,505
</TABLE>
10
<PAGE>
SUMMARY PRO FORMA COMBINED FINANCIAL INFORMATION
(in thousands)
The following information has been derived from and should be read in
conjunction with the separate audited historical financial statements of Summa
and LexaLite, the unaudited pro forma combined financial statements of Summa and
LexaLite, and the respective notes thereto, which are included elsewhere in this
Joint Proxy Statement/Prospectus. The pro forma combined income statement data
gives effect to the Merger as if it had occurred on September 1, 1995. The pro
forma combined balance sheet gives effect to the Merger as if it had occurred on
August 31, 1996. The pro forma financial information should not be construed to
be indicative of the actual financial condition or results of operations of
Summa on a consolidated basis after consummation of the Merger.
<TABLE>
<CAPTION>
YEAR ENDED
AUGUST 31, 1996
---------------
<S> <C>
INCOME STATEMENT DATA:
- ---------------------
Net sales $48,831
Income from continuing operations before
provision for taxes $ 3,758
Net income from continuing operations $ 2,309
Weighted average number of shares 3,794
</TABLE>
<TABLE>
<CAPTION>
AS OF
BALANCE SHEET DATA: AUGUST 31, 1996
- ------------------ ---------------
<S> <C>
Total assets $39,234
Working capital $ 6,124
Long-term debt $ 8,564
Shareholders' equity $19,149
</TABLE>
COMPARATIVE PER SHARE FINANCIAL INFORMATION
The following information has been derived from and should be read in
conjunction with the separate audited historical financial statements of Summa
and LexaLite, the unaudited interim financial statements of Summa, the unaudited
pro forma combined financial statements of Summa and LexaLite, and the
respective notes thereto, which are included elsewhere in this Joint Proxy
Statement/Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED
SUMMA - HISTORICAL: AUGUST 31, 1996
- ------------------- ---------------
<S> <C>
Net income per share from continuing operations $ .50
Cash dividends per share -
Book value per share $5.39
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
LEXALITE - HISTORICAL: JUNE 30, 1996
- ---------------------- ---------------
<S> <C>
Net income per share $1.08
Cash dividends per share -
Book value per share $6.51
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
PRO FORMA COMBINED: AUGUST 31, 1996
- ------------------- ---------------
<S> <C>
Net income per share from continuing operations $ .61
Cash dividends per share -
Book value per share $4.97
</TABLE>
11
<PAGE>
RISK FACTORS
In evaluating whether to approve the Merger, the stockholders of LexaLite and
the shareholders of Summa should carefully consider the following factors in
addition to the other information presented in this Joint Proxy
Statement/Prospectus and the documents incorporated by reference herein. The
statements contained in this Joint Proxy Statement/Prospectus that are not
purely historical are forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934, including but not limited to statements regarding Summa's expectations,
hopes, beliefs, intentions or strategies regarding the future. Actual results
could differ materially from those projected in any forward-looking statements
as a result of a number of factors, including those detailed in this "Risk
Factors" portion of this Joint Proxy Statement/Prospectus as well as those set
forth elsewhere in this Joint Proxy Statement/Prospectus. The forward-looking
statements are made as of the date of this Joint Proxy Statement/Prospectus and
neither Summa nor LexaLite assumes any obligation to update the forward-looking
statements, or to update the reasons why actual results could differ materially
from those projected in the forward-looking statements.
GROWTH THROUGH ACQUISITIONS STRATEGY; MANAGEMENT OF GROWTH
Although Summa has been in business for more than 50 years, prior to 1991 it
was engaged in only one business, the manufacture of process equipment, which
was unprofitable from 1983 to 1990, in which year it had revenues of only
$3,257,000. In 1991, Summa adopted a strategy for growth through acquisitions
of profitable manufacturing companies with proprietary products or protected
market niches. See "Description of the Proposed Merger - Purpose and Background
of the Merger." GST Industries, Inc. was acquired in 1991 and KVP Systems, Inc.
was acquired in 1993. In June 1996, the unprofitable process equipment business
was sold. Therefore, although GST and KVP had each been established for over 15
years prior to their acquisition by Summa, the continuing businesses of Summa
have been operating under their current ownership structure for only five years
and three years respectively. For these reasons, among others, there can be no
assurance that Summa will be able to sustain rates of revenue growth and
profitability in future periods which are comparable to those experienced in the
past two years.
The success of Summa's strategy for growth through acquisitions will depend
to a large extent on the ability of Summa to identify suitable candidates for
acquisition, and to negotiate acceptable terms and conditions upon which a
target company would be acquired. Furthermore, with a developing focus on
businesses which manufacture engineered plastic components, the number of
opportunities which meet this acquisition criteria will be smaller. In
addition, with the increased size of Summa, larger acquisition candidates will
have to be sought in the future to sustain the growth rate of Summa and the
number of such candidates will be smaller. Competition for such acquisitions
may be greater and there is no assurance Summa will be able to successfully
compete with larger companies and buyer groups. There can be no assurance that
the terms upon which a prospective company can be acquired will be favorable to
Summa, or that Summa will not encounter unforeseen difficulties and liabilities
in connection with any such acquisition. Although typically the existing
management of an acquired company would be retained to manage day to day
operations, it is anticipated that the business of an acquired company could be
expanded through enhanced financial, marketing and administrative support to be
furnished by the executive officers of Summa. However, any such expansion could
place a significant strain on Summa's management and resources, require Summa to
implement additional operating, marketing and financial controls, and
necessitate that Summa hire additional personnel, which could have a significant
adverse effect on Summa's operating results. It is also likely that any such
acquisition would require Summa to raise additional capital to finance the
acquisition or provide working capital to the acquired company. If this
additional capital were raised through debt financings, Summa would incur
substantial additional interest expense; sales of additional equity to raise the
needed capital would dilute, on a pro-rata basis, the percentage ownership of
all holders of Summa Common, including the former stockholders of LexaLite.
There can however, be no assurance that sufficient financing will be available
to Summa to implement its acquisition strategy on terms and conditions that are
acceptable to Summa, if at all.
INTEGRATION OF BUSINESSES
Since it is expected that the operations of LexaLite will not be combined with
those of any of Summa's other operating subsidiaries as a consequence of the
Merger, the achievement of most of the perceived advantages of the Merger will
not be measured by the ability of the combined companies to eliminate
overlapping facilities or personnel or achieve other efficiencies or economies
of scale. Rather, the success of the acquisition will depend more on the
continuing compatibility of the management of both Summa and LexaLite. It is
anticipated, however, that a number of administrative issues such as tax and
legal, personnel policies, and shareholder relations will be handled primarily
at the Summa level,
12
<PAGE>
thereby permitting the management of LexaLite to devote more time and attention
to sales and marketing, product development, and customer service. There can be
no assurance that there will be no changes in either company's operations,
marketing or sales following the Merger, that the combined entities will be able
to attain shareholder values greater than if the two companies operated
independently, or that the other perceived benefits of the Merger will be
realized.
BUSINESS CONCENTRATION RISK
LexaLite sells its products and services primarily to manufacturers of
lighting fixtures, of which there is a limited number. As a consequence, a
significant portion of LexaLite sales are to a relatively-few customers. See,
"Information Concerning LexaLite - Markets." GST, although its sales will
represent only approximately 4% of the combined company's sales, has a high
concentration of sales for one airplane system even though several customers are
involved. That airplane, the F-16, is very mature and sales of parts for it are
expected to decline. The largest customer of any unit of the consolidated
company will represent approximately 10% of combined company's sales and there
can be no assurance that sales to several significant customers might not be
simultaneously adversely effected.
FLUCTUATIONS IN REVENUES AND EARNINGS
Although none of the businesses to be conducted by Summa following the Merger
are considered to be seasonal, each involves the sale of components to be
incorporated into capital equipment provided by its customers, the demand for
which depends upon a number of factors beyond the control of Summa. Among other
factors which would affect the demand for the products offered by Summa,
economic conditions generally, including the availability of credit, as well as
market conditions particular to various of the industries in which Summa
products are sold, can be expected to have a significant impact upon the
decisions of prospective customers as to the timing of purchases of additional
or replacement products. For these and other reasons, it is possible that
Summa's quarterly revenues and profitability on a consolidated basis may
fluctuate from time to time, although the likelihood of extreme changes may be
mitigated by the fact that the operating subsidiaries sell components into
several different markets. Moreover, there can be no assurance that a major
economic downturn or severe tightening of credit would not adversely affect the
demand for all of Summa's products concurrently.
GENERAL RISKS OF BUSINESS
Any future success that Summa might enjoy will depend upon many factors
including factors which may be beyond the control of Summa or which cannot be
predicted at this time. These factors may include changes in the markets for
the products offered by Summa through its operating subsidiaries, increased
levels of competition including the entry of additional competitors and
increased success by existing competitors, changes in general economic
conditions, increases in operating costs including costs of production,
supplies, personnel, equipment, import duties and transportation, reduced
margins caused by competitive pressures and other factors, and increases in
governmental regulation imposed under federal, state or local laws, including
regulations applicable to environmental, labor and trade matters.
COMPETITION; NEW PRODUCT DEVELOPMENT; PROPRIETARY RIGHTS
The markets for each of the products that will be manufactured and sold by
each of Summa's operating subsidiaries following the Merger are characterized by
extensive competition. There are a number of companies that currently offer
competing products, and it can be expected that additional competing products
will be introduced by other companies in the future. Many of Summa's existing
and potential competitors have greater financial, marketing, and research
capabilities than Summa. The performance of Summa will depend on the ability of
Summa to develop and market new products that will gain customer acceptance and
loyalty, as well as its ability to adapt its product offerings to meet changing
pricing considerations and other market factors. Summa's operating performance
would be adversely affected if Summa were to incur delays in developing new
products or if such products did not gain market acceptance. Therefore, there
can be no assurance that Summa's existing or future products will be
sufficiently successful to enable Summa to effectively compete in its
prospective market or, should Summa's product offerings meet with significant
customer acceptance, that one or more current or future competitors will not
introduce products which render Summa's products noncompetitive. Both Summa and
LexaLite hold numerous patents on products which they have developed or
acquired. The extent to which these patents provide a commercial advantage or
inhibit the development of competing products
13
<PAGE>
varies. To a large extent, however, Summa will be required to rely upon common
law concepts of confidentiality and trade secret laws, as well as economic
barriers created by the required investments in tooling and technical personnel
and the development of customer relationships, to protect its proprietary
products.
DEPENDENCE ON MANAGEMENT
Implementation of Summa's strategy for growth through acquisitions will depend
to a significant extent upon the continued services of Mr. Swartwout and his
ability to identify appropriate candidates for acquisition, to negotiate deals
acceptable to the Board of Summa and the shareholders of Summa, and supervise
the management of a variety of operating subsidiaries. Summa also will continue
to depend upon other members of its senior administrative staff, and upon the
continuing services of the key management employees of each of the companies it
acquires. The loss of the services of one or more of these key employees could
have a material adverse affect upon Summa. All of LexaLite's executive officers
have indicated their intention to continue in their present positions. However,
there can be no assurance that Summa will be successful in retaining its key
employees, or in attracting and retaining any additional personnel it requires.
KEY TECHNICAL PERSONNEL
Several key engineers who have designed many of Summa's products are in the
latter stages of their careers. Karl V. Palmaer was the founder of KVP Systems,
Inc. and is now a product development consultant to and a director of Summa.
Robert L. Green founded GST Industries, Inc. and is currently its President and
a Vice President of Summa. Josh T. Barnes founded LexaLite and is currently its
Chief Executive Officer. After the Merger, Mr. Barnes will be on the Board of
Directors of Summa and will serve on a consulting basis at LexaLite. Messrs.
Palmaer, Green and Barnes are 75, 74 and 68 years old, respectively. There is
no assurance that these key individuals will continue to contribute at the same
level in the future that they do currently and there is no assurance that the
product inventors and designers within Summa and LexaLite, or inventors and
designers recruited in the future, can perform those functions as innovatively
and effectively as these three individuals.
SALE OF DISCONTINUED OPERATIONS
On June 17, 1996, Summa sold all of the issued and outstanding capital stock
of Morehouse-COWLES, Inc., the subsidiary through which Summa had conducted its
process equipment business since 1991, when Summa embarked on its strategy of
growth through acquisitions. For the nine months ended May 31, 1996, Morehouse-
COWLES, Inc. operated at a loss before income taxes of approximately $421,000,
on sales of approximately $5,638,000. In connection with the sale, Summa
received $750,000 in cash, a ten-year subordinated promissory note, in the
original principal amount of $1,771,000, that is secured by a pledge of both the
stock and assets of Morehouse-COWLES, Inc., and a ten-year lease on Summa's
facilities in Fullerton, California. See "Summa Management's Discussion and
Analysis of Summa's Results of Operations and Financial Condition - Sale of
Discontinued Operations." In the event that the new owners of Morehouse-COWLES,
Inc. are unable to return its operations to a level of profitability sufficient
to meet the obligations incurred in the transaction, there is a risk that the
new owners may default in payments under the lease or on the subordinated note
given as part of the purchase price, in which event Summa might incur
substantial losses and/or be required to foreclose on the note and resume the
responsibility for the business and operations of Morehouse-COWLES, Inc. which
could be encumbered by debt owed by the new owners, including amounts borrowed
to finance the purchase of the stock of Morehouse-COWLES, INC. from Summa.
LITIGATION
Summa has encountered lawsuits from time to time in the ordinary course of its
business. See, "Information Concerning Summa - Legal Proceedings." Although
Summa has obtained liability insurance coverage for each of the past five years,
such insurance may not be available in the future at economically feasible
premium rates. Additionally, some lawsuits which have been filed against Summa
in the past have contained claims the subject of which was not covered by
insurance. Such excluded claims could be filed in the future. Any losses that
Summa may suffer from current or future lawsuits, and the effect such litigation
may have upon the reputation and marketability of Summa's products, may have a
material adverse impact on the financial condition and prospects of Summa.
14
<PAGE>
LIMITED PRIOR MARKET; POSSIBLE VOLATILITY OF SUMMA'S STOCK PRICE; SHARES
ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been a limited public market for Summa's
Common Stock. As of October 14, 1996, there were 1,603,483 shares of Summa's
Common Stock outstanding, of which a total of 1,356,127 shares were held by non-
affiliates of Summa. For the first nine months of 1996, the closing sales price
for a share of Summa's Common Stock ranged from a low of $3.88 to a high of
$6.25, on an average weekly trading volume of approximately 17,600 shares. On
October 11, 1996, the closing price for a share of Summa's Common Stock on the
Nasdaq National Market was $6.13. The effective price per share at which shares
of Summa's Common Stock will be issued as a consequence of the Merger should not
be considered an indication of any price at which Summa's Common Stock may trade
in the future. The market price of Summa's Common Stock will be subject to
change as a result of market conditions and other factors and no assurance can
be given that Summa's Common Stock can be resold at a price equal to or greater
than the price at the time of the Merger. The stock markets have experienced
extreme price and volume fluctuations during certain periods. These broad
market fluctuations and other factors may adversely affect the market price of
Summa's Common Stock for reasons unrelated to Summa's operating performance.
See "Summa Common Stock Prices and Dividends."
Although the number of shares of Summa's Common Stock outstanding in the
public float, and the number of Summa shareholders will increase significantly
following the Merger, there can be no assurance that a more active trading
market for the Summa Common Stock will develop or be sustained following the
Merger. Moreover, since the shares issuable as a consequence of the Merger
generally will be freely tradeable, sales of these shares by former stockholders
of LexaLite may cause substantial fluctuations in the market price of Summa's
Common Stock over short time periods. A number of the former stockholders of
LexaLite have indicated an intention to sell, as soon as practicable following
the Merger, all or a portion of the shares of Summa's Common Stock issuable to
them as a consequence of the Merger. In addition, of the 1,529,895 shares of
Summa's Common stock currently outstanding which were issued more than three
years ago, 1,312,926 are not held by "affiliates" of Summa, and can therefore be
sold under Rule 144 without regard to the volume limitations thereof. Summa has
also registered 421,000 shares issuable upon exercise of options granted and to
be granted under its stock option plans. Sales of substantial amounts of
Summa's Common Stock by the former stockholders of LexaLite, under Rule 144 or
otherwise, or even the potential for such sales, could have a depressive effect
on the market price of shares of Summa's Common Stock and could impair Summa's
ability to raise capital through the sale of its equity securities.
ABILITY TO ISSUE PREFERRED STOCK; ANTI-TAKEOVER DEVICES
Summa is authorized to issue up to 5,000,000 shares of Preferred Stock in one
or more series, the terms of which may be determined at the time of issuance by
the Board of Directors, without further action by Summa's shareholders, and may
include voting rights, preferences as to dividends and liquidation, conversion
and redemptive rights and sinking fund provisions. Although Summa has no
present plans to issue any additional shares of Preferred Stock, the issuance of
Preferred Stock in the future could affect the rights of the holders of Summa's
Common Stock and thereby reduce the value of the Common Stock. In particular,
specific rights granted to future holders of Preferred Stock could be used to
restrict Summa's ability to merge with or sell its assets to a third party, or
otherwise delay, discourage, or prevent a change in control of Summa. In
addition, Summa's Articles of Incorporation and bylaws provide for elimination
of cumulative voting and the classification of the Board of Directors,
provisions which are also likely to delay, discourage, or prevent a change in
control of Summa.
LACK OF DIVIDENDS.
Summa has not paid any cash dividends on its Common Stock since 1983 and does
not anticipate that it will pay dividends in the foreseeable future. Instead,
Summa intends to apply any earnings to the expansion and development of its
business. See "Summa Common Stock Prices and Dividends."
15
<PAGE>
VOTING AND PROXIES
As of October 14, 1996, the record date for the determination of the
shareholders of Summa entitled to notice of, and to vote at, the Summa Annual
Meeting, there were 1,603,483 shares of Summa's Common Stock outstanding, which
were held of record by a total of 484 shareholders. Each share entitles the
holder to one vote on each matter to come before the Summa Annual Meeting.
As of October 14, 1996, the record date for the determination of the
stockholders of LexaLite entitled to notice of, and to vote at, the LexaLite
Special Meeting, there were 1,479,672 shares of LexaLite's Common Stock
outstanding (excluding 21,822 shares earned and issuable under the LexaLite
Stock Award Bonus Plan), which were held of record by a total of 44
stockholders, including the LexaLite ESOP. Each share entitles the holder to
one vote on each matter to come before the LexaLite Special Meeting.
The presence in person or by proxy of the holders of a majority of the
outstanding shares of Summa's Common Stock and LexaLite's Common Stock is
necessary to constitute a quorum for purposes of transaction of business at the
Summa Annual Meeting and the LexaLite Special Meeting, respectively. The
affirmative vote of the holders of a majority of the outstanding shares of
Summa's Common Stock and the affirmative vote of the holders of a majority of
the outstanding shares of LexaLite's Common Stock is required to approve the
proposed Merger. Abstentions, failures to vote and broker non-votes will not be
counted as votes either in favor of or against approval of the proposed Merger.
Because approval of the proposed Merger requires the affirmative vote of a
majority of outstanding shares of Summa Common Stock and LexaLite Common Stock,
however, a Summa shareholder or a LexaLite stockholder who fails to return a
proxy or otherwise to vote or who abstains from voting on the proposed Merger
will have effectively voted against the proposal for purposes of determining the
number or votes needed for approval.
In the event that the shareholders of Summa approve the Merger, three
individuals will be nominated by the Board of Directors of Summa for election to
serve 3-year terms on the Board of Directors, including Messrs. Horst and
Swartwout, incumbent directors whose terms are expiring as of the Summa Annual
Meeting, and Josh T. Barnes, the Chief Executive Officer and a director of
LexaLite. In addition, three additional incumbents, Messrs. Morris, Palmaer and
Roth will be nominated for election to serve new 2-year terms on the Summa Board
of Directors. Should the shareholders of Summa fail to approve the Merger, only
the four incumbent directors whose terms are expiring, Messrs. Morris, Horst,
Swartwout and Palmaer will be nominated for election to new 2-year terms on the
Board of Directors of Summa. In accordance with Summa's Articles of
Incorporation, there will be no cumulative voting for the election of directors.
Accordingly, the six nominees (if the Merger is approved) or four nominees (if
the Merger is not approved), as the case may be, receiving the highest number of
votes at the Summa Annual Meeting, will be elected. In the event that the
Merger is not consummated for any reason, despite the approval thereof by the
shareholders of Summa, the amendment of Summa's Articles of Incorporation to
establish a 9-member classified board of directors will not be implemented and
only the four incumbent directors whose terms are expiring will deemed to have
been elected to the Summa Board of Directors, each to serve a new 2-year term.
Proxies for use at the Summa Annual Meeting and at the LexaLite Special
Meeting accompany copies of this Joint Proxy Statement/Prospectus. Properly
executed and returned proxies, unless revoked, will be voted as directed by the
Summa Shareholder or the LexaLite Stockholder, as the case may be, or, in the
absence of such direction, by the persons named therein FOR the approval of the
proposed Merger in accordance with the recommendation of the Board of Directors
of each of Summa and LexaLite and FOR the election as a director of Summa of
each individual nominated therefor by the Board of Directors of Summa. As to
any other business which may properly come before either the Summa Annual
Meeting or the LexaLite 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
Summa or the Secretary of LexaLite, as the case may be, or by delivery of a
subsequently dated proxy, or by attendance at the Summa Annual Meeting or the
LexaLite Special Meeting and voting in person. Attendance at the Summa Annual
Meeting or the LexaLite Special Meeting without also voting will not in and of
itself constitute the revocation of a proxy.
The respective costs of soliciting proxies will be borne by Summa and
LexaLite. It is expected that proxies will be solicited by LexaLite exclusively
by mail. Summa has engaged The Altman Group, Inc. to assist Summa in soliciting
proxies. In addition, if it should appear desirable to do so, directors,
officers and employees of Summa or LexaLite may communicate with their
respective shareholders and stockholders, and with banks, brokerage houses,
nominees and others by telephone, telegraph, or in person, to request that
proxies be furnished.
16
<PAGE>
OWNERSHIP OF SUMMA'S COMMON STOCK
The following table sets forth certain information regarding the ownership of
Summa Common Stock as of October 14, 1996 by each shareholder known by Summa to
be the beneficial owner of more than 5% of its outstanding shares of Common
Stock, each director of Summa, and all executive officers and directors of Summa
as a group. Each of the shareholders has sole voting and investment power with
respect to the shares he beneficially owns, subject to applicable community
property laws. Unless otherwise indicated, the address of each shareholder
listed is in care of Summa, 21250 Hawthorne Boulevard, Suite 500, Torrance,
California 90503.
<TABLE>
<CAPTION>
SHARES PERCENT
BENEFICIALLY OF
NAME OWNED CLASS (1)
- ---- ------------ ---------
<S> <C> <C>
Luis A. and Jacqueline E. Hernandez...... 157,589 9.8
3060 Gainsborough Road
Pasadena, California 91107
Catherine M. Samuelson (2)............... 83,883 5.2
545 Laguna Road
Pasadena, California 91105
Coalson C. Morris (3).................... 10,945 0.7
Dale H. Morehouse (3)(4)(5).............. 99,622 6.2
Michael L. Horst(3)...................... 13,057 0.8
William R. Zimmerman (3)................. 10,025 0.6
James R. Swartwout (3)................... 73,479 4.5
David McConaughy (3)..................... 12,500 0.8
Karl V. Palmaer (3)...................... 140,228 8.6
Byron C. Roth (3)........................ 10,000 0.6
All directors and executive
officers as a group (8 persons).......... 369,856 21.4
</TABLE>
- -----------------------------------------
(1) Beneficial ownership is determined in accordance with the rules and
regulations of the Securities and Exchange Commission, based on 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 date
hereof. 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) Held as Trustee for the Catherine M. Samuelson Trust.
(3) Includes currently exercisable stock options.
(4) Includes shares held as Trustee for the Morehouse Family Revocable Living
Trust.
(5) Includes shares held as Trustee for Dale H. Morehouse, Inc. Defined Benefit
Pension Trust.
17
<PAGE>
OWNERSHIP OF LEXALITE'S COMMON STOCK
The following table sets forth certain information regarding the ownership of
LexaLite's Common Stock as of October 14, 1996 by each stockholder known by
LexaLite to be the beneficial owner of more than 5% of its outstanding shares of
Common Stock, each director of LexaLite, executive officer, and all executive
officers and directors of LexaLite as a group. Each of the named stockholders
has sole voting and investment power with respect to the shares he beneficially
owns, subject to applicable community property laws. Unless otherwise
indicated, the address of each stockholder listed is in care of LexaLite, 10163
US 31 North, Charlevoix, Michigan 49720-0498.
<TABLE>
<CAPTION>
Shares Percent
Beneficially of
Name Owned Class (1)
- --------------------- ---------- ---------
<S> <C> <C>
Arthur R. Marshall (2)....................... 165,000 11.2
Josh T. Barnes (2)(4)(5)..................... 165,905 11.2
Wilfred G. Cryderman (2)..................... 165,000 11.2
Ann R. Kendall............................... 100,000 6.8
Stanley Lundsten............................. 50,000 3.4
John Altman.................................. - -
Thomas M. Phillips (3)(5).................... 45,483 3.1
Sherwood A. Mitter (3)(5).................... 7,415 .5
Patricia A. DeYoung (3)(4)(5)................ 25,472 1.7
Employee Stock Ownership Trust (6)........... 501,998 33.9
All directors and executive
officers as a group (8 persons) (2)(3)(4)(5). 724,275) 48.9
</TABLE>
- ----------------------------------------------
(1) Beneficial ownership is determined in accordance with the rules and
regulations of the Securities and Exchange Commission, based on information
furnished by each person listed. The percentages shown include shares which
each named stockholder has the right to acquire within 60 days of the date
hereof. In calculating percentage ownership, all shares which a named
stockholder has the right to so acquire are deemed outstanding for the
purpose of computing the percentage ownership of that stockholder, but are
not deemed outstanding for the purpose of computing the percentage ownership
by any other stockholder. Listed persons may disclaim beneficial ownership
of certain shares.
(2) Includes shares held in one or more revocable living trusts of which the
director is a beneficiary.
(3) Includes shares earned and reserved, to be issued pursuant to the Stock
Award Bonus Plan.
(4) Includes stock held on behalf of the individual in a section 401(k) Plan.
(5) Includes stock held on behalf of the individual in the LexaLite Employee
Stock Ownership Trust.
(6) See "Information Concerning LexaLite - Employee Stock Ownership Plan."
18
<PAGE>
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
Reorganization Agreement and related Merger Agreement.
PURPOSE AND BACKGROUND OF THE MERGER
SUMMA STRATEGY FOR GROWTH THROUGH ACQUISITIONS
- ----------------------------------------------
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's
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.
The first acquisition consummated by Summa following the adoption of this
strategy occurred in October 1991, when Summa purchased all of the outstanding
capital stock of GST Industries, Inc. GST has two divisions, the Stang
Industrial Products Division which manufactures and sells water cannons for
firefighting and the GST Industries Division which manufactures and sells
proprietary sub-systems and components for the defense aircraft industry,
primarily for the F-16 and derivative aircraft. As the purchase price for the
stock of GST, Summa paid an aggregate $2.3 million in cash, and gave the GST
shareholders subordinated promissory notes in an aggregate principal amount of
$200,000, with interest only payable thereon at the rate of 10% per annum at the
end of the first and second years and all principal payable at the end of the
second year following the closing. In addition, through August 31, 1996, the
former shareholders of GST have earned contingent performance payments in the
cumulative aggregate amount of $2,025,000. The obligation for the contingent
payments expires October 31, 1996. The acquisition was partially funded by
borrowings under Summa's credit facility with Community Bank, which were
subsequently repaid.
At the time of the GST acquisition, Summa also formed a wholly-owned
subsidiary, Morehouse-COWLES, Inc., to which it transferred all of the operating
assets of its industrial process equipment business. In June 1996, Morehouse-
COWLES, Inc. was subsequently sold to a private investment group. See "Summa
Management's Discussion and Analysis of Summa's Results of Operation and
Financial Condition - Sale of Discontinued Operations."
In July 1993, Summa acquired all of the outstanding capital stock of KVP
Systems, Inc. which designs, manufactures and markets material handling
components, including injection-molded plastic conveyor belting. Belts which
can operate on a curve were pioneered by KVP. In connection with this
acquisition, which was accomplished through the merger of KVP with and into a
newly formed and wholly-owned subsidiary of Summa, an aggregate of 555,275
shares of Summa's common stock was issued to the shareholders of KVP in a
transaction registered under the Securities Act. In addition, Karl V. Palmaer,
the founder of KVP, joined the Board of Directors of Summa, on which he
continues to serve.
Consequently, upon consummation of the Merger, Summa will have three wholly-
owned operating subsidiaries, GST Industries, Inc., KVP Systems, Inc. and
LexaLite International Corporation. In evaluating future acquisitions, Summa
will endeavor to identify target companies that manufacture industrial products
which have a proprietary advantage because of patent protection, brand
recognition, unique manufacturing requirements, or other comparable
characteristics. It is anticipated that target companies typically will have
been profitable in recent periods, particularly if the acquisition is to be made
through the issuance of Summa Common Stock, so that the acquisition will not
have an immediate dilutive affect on post-acquisition, consolidated earnings per
share. In addition, since it is intended that each acquired company will be
maintained as a separate operating unit in most instances, existing management
of each target company will be extensively evaluated in an attempt to ascertain
whether such management possesses the capability and compatibility to continue
to manage the day to day operations of the target company following the
acquisition. Perhaps most importantly, Summa will seek to determine that there
is a significant likelihood that the acquisition can be expected to result in a
sustainable increase in earnings per share within 12 months of the closing.
19
<PAGE>
INTRODUCTION OF SUMMA AND LEXALITE
- ----------------------------------
Following more than thirty years of continuing success in the design,
fabrication and marketing of components to the Lighting Industry, including
several recent years of growth and expansion, the LexaLite Board of Directors
considered several strategic directions for LexaLite. Criteria considered
critical in their evaluations included liquidity of stock, without the expense
and uncertainty of a public offering, fair value for stockholders, avoidance of
a taxable event, and, most importantly, assurance that any considered
transaction would reasonably continue the growth of LexaLite's ongoing business
in the same locations and minimal personnel disruption.
Indications of interest in all, or substantially all, of LexaLite's stock or
assets were evaluated by its Board over a period of time, with each being
discarded or declined due to not meeting all required conditions and not being
in the best interest of stockholders and employees.
Late in 1995, a broker, familiar with Summa, became aware that LexaLite was
willing to evaluate a transaction that met their criteria. In January of 1996,
the broker introduced Summa to LexaLite, with subsequent visits by Mr. Swartwout
and Mr. Barnes to their respective facilities in California and Michigan.
Negotiations occurred over a period of six months, during which time LexaLite
considered other offers and negotiated with other potential buyers. On May 7,
1996, Summa made a first formal offer to acquire LexaLite on a stock-for-stock
basis.
Following extensive negotiations and a number of revisions to the terms
originally proposed by Summa, on May 11, 1996, an Agreement in Principle was
approved by the Boards of Directors of both parties. On July 18, 1996, Summa
and LexaLite executed the Definitive Reorganization Agreement which provides,
among other things, for the acquisition of all of LexaLite's outstanding stock
through the merger (the "Merger") of a newly formed and wholly owned subsidiary
of Summa ("Subsidiary") with and into LexaLite.
As a consequence of the Merger, the shareholders of LexaLite will receive
shares of Summa's Common Stock which together will constitute approximately 58%
of the shares of Summa's Common Stock to be outstanding immediately following
the Merger. The percentage of shares of Summa's Common Stock to be received by
the stockholders of LexaLite as a consequence of the Merger, in relation to the
percentage of such outstanding shares to be retained by the current shareholders
of Summa immediately following the Merger, was determined as the result of
negotiations between the management of Summa and the management of LexaLite. In
the course of such negotiations, numerous factors were taken into consideration
by both Summa and LexaLite, including recent market prices for shares of Summa's
Common Stock, an evaluation of the assets, obligations, operations and earnings
of, and judgments with respect to the prospects for, both Summa and LexaLite,
and other offers for the purchase of LexaLite, with each party giving varying
degrees of emphasis upon such factors. In addition, the respective Board of
Directors of each company also gave consideration to certain internal
projections by the management of both Summa and LexaLite. These internal
projections were based upon assumptions and estimates which the respective
management of the two companies believe to be reasonable, but are not included
herein nor intended as public representations of future performance by either
party.
REASONS FOR THE MERGER
- ----------------------
Management of Summa believes that the acquisition of LexaLite through the
proposed Merger is consistent with the Summa strategy for growth through
acquisitions. Among other perceived benefits to the Summa shareholders, the
number of shares of Summa's Common Stock in the public float, as well as the
number of Summa shareholders, will increase significantly. As reflected in the
table under the caption." Summa and LexaLite Comparative Per Share Data," the
acquisition of LexaLite is not expected to be dilutive of Summa's earnings per
share. Although no assurance can be given, for these and other reasons it is
anticipated that the public market for Summa's Common Stock will be enhanced,
thereby providing increased liquidity for the shareholders of Summa.
Because the primary manufacturing technology of LexaLite, injection-molding of
engineering plastic components, is the same as that of Summa's largest
subsidiary, KVP Systems, Inc., this transaction will give Summa the opportunity
to develop a strategic focus for future business development and acquisitions --
"engineered plastic components for
20
<PAGE>
industrial and commercial markets." This focus will increase the likelihood
that operating synergies could be achieved from future acquisitions.
Additionally, the investment community may perceive the combined company as a
business with a strategic focus as opposed to a conglomerate, which may result
in a higher valuation of Summa's stock.
The combined company will have substantially more shares outstanding and
substantially higher sales, earnings, assets and net worth than Summa has now.
The increased size of the enterprise could make investment in the shares of
Summa attractive to some institutional investors who might currently not
consider the stock. This could increase the demand for the stock, resulting in
more liquidity and higher stock prices.
LexaLite will have enhanced access to capital for continued growth in the
future. Since Summa has negligible debt, the combined company will have a
substantially stronger consolidated balance sheet than LexaLite has alone, which
will result in increased borrowing capacity. Additionally, because the combined
company will be publicly traded, it could raise additional capital by a
subsequent equity offering. Also, LexaLite has an ESOP which is required to buy
back any of the stock distributed to employees if they so demand. Since the
combined company will be publicly traded, this requirement will be eliminated
(after a three-year contractual extension). This will eliminate a long-term
commitment, the required funds for which can instead be reinvested in the
business.
The Merger is expected to provide the stockholders of LexaLite with many of
the same benefits as are anticipated would be realized by the shareholders of
Summa. For example, the stockholders of LexaLite will retain the opportunity to
continue to share in any growth of LexaLite's business that might be achieved
following the Merger, although the value of their investment will no longer be
dependent solely upon the success or failure of LexaLite, since the market value
of the shares of Summa's Common Stock that they will receive as a consequence of
the Merger will reflect the results of operations in several different
businesses. In addition, by receiving registered stock of a publicly-held
company, it is believed that the stockholders of LexaLite will be better able to
liquidate some or all of their investment when they choose to do so. Moreover,
since the Merger is intended to qualify as a "tax-free reorganization", no
taxable event should occur unless and until a former LexaLite stockholder
decides to sell, at a future date, shares of Summa's Common Stock received as a
consequence of the Merger. LexaLite's Board of Directors also considered
Summa's stated intention that, after consummation of the Merger, LexaLite's
corporate headquarters will remain in Charlevoix, Michigan, and that LexaLite's
business will be carried on under its present name and with substantially the
same management at its present facilities.
THE MERGER
Subject to the conditions and the termination provisions contained in the
Reorganization Agreement, the proposed Merger will become effective at the time
and on the date on which the Merger Agreement and a certificate of merger with
respect thereto, along with any other required documents, are duly filed with
the Secretary of State of California and the Secretary of State of Delaware,
respectively. It is currently anticipated that, if the proposed Merger is
approved by the shareholders of Summa at its Annual Meeting and the stockholders
of LexaLite at its Special Meeting, and all other conditions of the Merger have
been fulfilled or waived, the Effective Date will occur on the date that the
Summa Annual Meeting has been scheduled, or a date as soon as practicable
thereafter. Upon consummation of the Merger, Subsidiary will merge with and
into LexaLite. As a result of the Merger, Subsidiary as a corporation will
cease to exist and LexaLite will remain as the surviving corporation and a
wholly-owned subsidiary of Summa, and each currently outstanding share of
LexaLite's Common Stock will automatically be converted into shares of Summa's
Common Stock on the basis described below.
MANNER AND BASIS OF CONVERTING SHARES
If the Merger is consummated, the Reorganization Agreement provides that each
outstanding share of LexaLite's Common Stock, other than any shares constituting
"dissenting shares" under Section 262 of the Delaware General Corporate Law,
will on the Effective Date be converted into one and one-half (1.5) shares of
Summa's Common Stock. However, in the event that the average closing price of
Summa's Common Stock on The Nasdaq National Market is less than $6.66 per share
during the 5 consecutive trading days ending on and including the third trading
day prior to the date
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of the LexaLite Special Meeting, LexaLite may notify Summa of LexaLite's
intention to terminate the Reorganization Agreement and the transactions
contemplated thereby unless Summa agrees, as described below, to increase the
number of shares of Summa's Common Stock issuable to the stockholders of
LexaLite as a consequence of the Merger. Upon receipt of such notification,
Summa may elect either to terminate the Reorganization Agreement or to increase
the number of shares of Summa's Common Stock issuable to the stockholders of
LexaLite as a group to that total number of shares which would have an aggregate
value (based upon the average closing price calculated as described above) equal
to $15,000,000. Summa has indicated that it is unlikely that Summa would elect
to increase the number of shares of Summa's Common Stock issuable as a
consequence of the Merger if the increased number of shares would exceed
3,000,000, including shares to be issuable upon exercise of options to be held
by former option-holders of LexaLite. The conversion of shares of LexaLite's
Common Stock into shares of Summa's Common Stock will occur on the Effective
Date 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 LexaLite's Common Stock are physically surrendered, or on which
certificates for shares of Summa's Common Stock are delivered to former LexaLite
stockholders.
As soon as practicable after the Effective Date, a letter of transmittal will
be mailed to each former stockholder of LexaLite containing instructions with
respect to the surrender of LexaLite stock certificates to U.S. Stock Transfer
Corporation, which will act as Exchange Agent for the former stockholders of
LexaLite, in exchange for certificates representing the number of shares of
Summa's Common Stock into which their LexaLite shares have been converted.
However, it will not be necessary for stockholders of LexaLite to exchange their
existing stock certificates for stock certificates of Summa. In the event that
a transfer of shares of LexaLite's Common Stock prior to the Effective Date was
not reflected on LexaLite'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.
TREATMENT OF STOCK OPTIONS
As of the close of business on October 14, 1996 there were an aggregate of
104,550 of LexaLite's Common Stock reserved for issuance upon the exercise of
outstanding stock options, at a weighted average exercise price of $8.13 per
share. See "Information Concerning LexaLite - Management - Stock Options."
Pursuant to the provisions of the Reorganization Agreement, upon consummation of
the Merger each of these options will be exchanged on the Effective Date for
options to purchase one and one-half (1.5) shares of Summa's Common Stock,
subject to possible upward adjustment, for each share of LexaLite's Common Stock
subject thereto, at the same aggregate price. Consequently, immediately
following consummation of the Merger, former option holders of LexaLite will
hold, in the aggregate, options to purchase a total of 156,825 shares of Summa's
Common Stock, subject to possible upward adjustment.
As of the close of business on October 14, 1996, there were 237,473 shares of
Summa's Common Stock reserved for issuance upon the exercise of outstanding
stock options, at a weighted average exercise price of $4.05 share. Each of
these options will continue to be outstanding following the Merger on the terms
and conditions as in effect immediately prior thereto without modification. An
additional 187,527 shares are reserved for issuance upon exercise of stock
options that may be granted under the Summa existing stock option plans. See
"Information Concerning Summa - Management - Stock Options."
FAIRNESS OPINION
Among other conditions to the respective obligations of LexaLite and Summa to
consummate the Merger, the Reorganization Agreement specifies that an investment
banking firm mutually acceptable to Summa and LexaLite shall have rendered an
opinion, prior to the date on which this Joint Proxy Statement/Prospectus is
first mailed, which is not subsequently withdrawn, addressed to the Boards of
Directors of both LexaLite and Summa, to the effect that the terms and
conditions upon which the Merger is to be consummated pursuant to the
Reorganization Agreement are fair from a financial point of view to both the
stockholders of LexaLite and the shareholders of Summa. After representatives
of both LexaLite and Summa had jointly interviewed a number of independent
investment banking firms, the parties mutually engaged the investment banking
firm of Wedbush Morgan Securities ("Wedbush Morgan") to render the "fairness"
opinion specified by the Reorganization Agreement. Wedbush Morgan was not asked
to recommend the amount of consideration to be paid to the stockholders of
LexaLite as a consequence of the Merger, which was determined through
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arms length negotiations between Summa and LexaLite, and Wedbush Morgan did not
participate in such negotiations. Rather, Wedbush Morgan 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 both the stockholders of LexaLite and the
shareholders of Summa, with no restrictions or limitations being imposed on
Wedbush Morgan with respect to their procedures or investigations of Summa or
LexaLite. On October 11, 1996, Wedbush Morgan delivered its written opinion to
the Boards of Directors of LexaLite and Summa to the effect that the terms and
conditions of the proposed Merger are fair from a financial point of view to the
stockholders of LexaLite and the shareholders of Summa. In arriving at its
opinion, Wedbush Morgan reviewed relevant documents, visited the facilities of,
and interviewed the managements of both Summa and LexaLite and performed
extensive financial analyses of Summa and LexaLite. These analyses included the
study of the valuation of public market comparable companies, the review of the
valuation of comparable merger and acquisition transactions, and the analysis of
the relevant contribution of key financial performance criteria by Summa and
LexaLite to the consolidated enterprise. Wedbush Morgan also took note of the
fact that KVP Systems, Inc., a wholly-owned subsidiary of Summa, and Summa, are
respondents and counter-claimants in a patent infringement lawsuit. Their
opinion is based on the assumption that the outcome of such legal proceedings
would not have a material adverse effect on the financial position of Summa. The
full text of the written opinion of Wedbush Morgan, which sets forth the
assumptions made and the factors considered by Wedbush Morgan in rendering its
opinion, as well as the limitations on the review undertaken in connection
therewith, is set forth as Appendix II to this Joint Proxy Statement/Prospectus
and should be read in its entirety. The opinion of Wedbush Morgan is addressed
only to the Boards of Directors of LexaLite and Summa and is intended to be for
the benefit of such Boards of Directors, not for the benefit of stockholders or
shareholders or any other third parties. The opinion of Wedbush Morgan does not
constitute a recommendation by Wedbush Morgan to any stockholder of LexaLite or
shareholder of Summa as to how to vote on the proposed Merger.
ADDITIONAL CONDITIONS TO THE MERGER
As set forth in the Reorganization Agreement, the obligations of Summa and
LexaLite to consummate the Merger are subject to a number of additional
conditions, including, among others: (1) the Registration Statement of which
this Joint Proxy Statement/Prospectus is a part shall have been declared
effective by the Commission, thereby registering the shares of Summa's Common
Stock issuable to the stockholders of LexaLite as a consequence of the Merger
under the Securities Act; (2) the Merger shall have been approved by holders of
at least a majority of the shares of LexaLite's Common Stock outstanding on the
record date for the LexaLite Special Meeting; (3) the Merger shall have been
approved by holders of at least a majority of the shares of Summa's Common Stock
outstanding on the record date for the Summa Annual Meeting; (4) the holders of
not more than 2% of LexaLite's Common Stock shall have become "perfected
dissenting stockholders" pursuant to the provisions of the Delaware General
Corporate Law; (5) all former LexaLite Stockholders who will become "affiliates"
of Summa as a consequence of the merger (as such term is defined in Rule 145
under the Securities Act) shall have entered into an agreement restricting their
ability to engage in resales or transfers of Summa's Common Stock following the
Merger; (6) all approvals and authorizations of all governmental authorities
required for the consummation of the Merger, and for the issuance of the shares
of Summa's Common Stock issuable as a consequence thereof, shall have been
received; (7) all of the shares of Summa's Common Stock issuable to the
stockholders of LexaLite as a consequence of the Merger shall have been listed
for trading on The Nasdaq National Market; and (8) all representations and
warranties made by each party to the other in the Reorganization 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 Merger by the shareholders of
Summa and the stockholders of LexaLite, the Board of Directors of either Summa
or LexaLite may, without shareholder or stockholder approval, waive compliance
with any of the applicable terms or conditions contained in the Reorganization
Agreement, except that the Merger may not be consummated unless at least a
majority of the outstanding shares of both LexaLite's Common Stock and Summa's
Common Stock are voted in favor of the Merger.
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AMENDMENT OR TERMINATION
Both the Reorganization Agreement and the Merger Agreement may be amended by
written agreement between the parties either before or after the approval of the
Merger by the stockholders of LexaLite and the shareholders of Summa, 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 LexaLite stockholders as a
consequence of the Merger, alter in any manner the Certificate of Incorporation
of LexaLite, or, in the judgment of the LexaLite Board of Directors or the Summa
Board of Directors, as the case may be, otherwise materially and adversely
affect the respective rights of the LexaLite stockholders or the Summa
shareholders.
The Reorganization Agreement and the Merger Agreement may each be terminated
at any time before or after approval by the shareholders of Summa and the
stockholders of LexaLite, by mutual agreement of the Boards of Directors of
LexaLite and Summa, or by the Board of Directors of either party if the Merger
has not been consummated by January 31, 1997, except that the foregoing right to
terminate is not 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. In addition, the Reorganization
Agreement and the transactions contemplated thereby may be terminated by either
LexaLite or Summa in the event that the Board of Directors of either has
determined that consummation of the Merger could reasonably be expected to cause
the directors of the terminating party to violate their fiduciary duties under
applicable law. Any termination as described in the preceding sentence 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, plus reimbursement of all out-of-
pocket expenses reasonably incurred by the non-terminating party through the
date of such termination.
STANDSTILL AGREEMENT
In the Reorganization Agreement, LexaLite and Summa have agreed that before
the effective time of the Merger, unless the Reorganization Agreement is sooner
terminated, neither of them will entertain, negotiate or discuss with any third
party, directly or indirectly, any business combination, sale of assets or stock
or other transaction that would be inconsistent with the transactions
contemplated by the Reorganization Agreement, including the Merger. In
addition, LexaLite and Summa have agreed that if either of them terminates the
Reorganization Agreement, then for the following three 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 the
foregoing.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Pursuant to the Reorganization Agreement, and as a condition to the
obligations of the parties to consummate the transactions contemplated thereby,
Josh T. Barnes, who is the founder, Chief Executive Officer and a director of
LexaLite, shall have agreed to continue his employment by LexaLite for an
indeterminate period of time following the Merger, on the same terms and
conditions (except that Mr. Barnes will serve as Executive Director rather than
Chief Executive Officer of LexaLite), including compensation and benefit levels,
in effect immediately prior to the Merger. For a description of the terms and
conditions upon which Mr. Barnes is currently employed by LexaLite, see
"Management of LexaLite - Employment Arrangement." The Design and Consulting
Agreement between LexaLite and Business Activities Corporation, which is owned
by Mr. Barnes, will continue in force following the Merger. In addition, the
existing Non-Compete Agreement between LexaLite and Mr. Barnes will be revised,
effective upon consummation of the Merger, to provide for the payment to Mr.
Barnes of $15,000 per quarter for 20 consecutive quarters from and after the
date on which the Non-Compete Agreement becomes effective. See "Information
Concerning LexaLite -Management of LexaLite - Certain Transactions."
The Reorganization Agreement provides that, as a condition of LexaLite's
obligation to consummate the Merger, Josh T. Barnes must have been elected to
the Board of Directors of Summa, effective as of the Effective Date of the
Merger, to serve in that capacity until changed in accordance with applicable
law and the Articles of Incorporation and Bylaws of Summa. Mr. Barnes will
receive no additional compensation for his services as a director.
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The Reorganization Agreement further provides that, after the Merger, Mr.
Barnes and Thomas M. Phillips, President and a director of LexaLite, will
continue as directors of LexaLite, along with Mr. Swartwout, until changed in
accordance with applicable law and the Certificate of Incorporation and Bylaws
of LexaLite. For a description of arrangements between LexaLite and certain of
the executive officers and directors of LexaLite that will survive the Merger,
see "Information Concerning LexaLite - Management of LexaLite - Certain
Transactions."
In connection with the Merger, the holders of all outstanding options to
purchase shares of LexaLite's Common Stock will surrender their options for
cancellation, in consideration of the grant by Summa of options to purchase one
and one-half (1.5) shares of Summa's Common Stock, subject to possible upward
adjustment, for each share of LexaLite's Common Stock subject to their
outstanding LexaLite options, at the same aggregate exercise prices. See
"Description of the Merger - Treatment of Stock Options and Stock Awards." Of
the outstanding options to purchase LexaLite's Common Stock, Josh T. Barnes
holds options to purchase 18,500 shares. See "Information Concerning LexaLite -
Management - Stock Options."
AFFILIATES' RESTRICTIONS ON RESALE OF SUMMA'S COMMON STOCK
The shares of Summa's Common Stock to be issued in the Merger will be
registered under the Securities Act, pursuant to the Registration Statement on
Form S-4 of which this Joint Proxy Statement/Prospectus is a part, thereby
allowing such securities to be traded without restriction by all former holders
of LexaLite's Common Stock who do not become "affiliates" of Summa as a
consequence of the Merger, as such term is defined for purposes of Rule 145
under the Securities Act. As a condition to the Merger, Josh T. Barnes, who
will join the Board of Directors of Summa and will acquire approximately 6.5% of
Summa's Common Stock outstanding immediately following the Merger, will be
required to execute an "affiliate agreement" pursuant to which he will agree not
to publicly sell or otherwise dispose of any of Summa's Common Stock received in
the Merger except in transactions permitted by the resale provisions of Rule
144.
ACCOUNTING TREATMENT
The Merger will be accounted for as a "purchase" by Summa of the net assets of
LexaLite in accordance with generally accepted accounting principles.
Accordingly, the purchase price will be allocated to the assets and liabilities
acquired based on fair values, and the results of LexaLite's operations will be
included in the consolidated results of operations of Summa only from and after
the Effective Date of the Merger.
MERGER EXPENSES; BROKERAGE FEES
Each party will pay all of its own expenses incurred incident to the
preparation and carrying out of the transactions contemplated by the
Reorganization Agreement. Summa estimates that the expenses it will incur in
connection with the Merger, including effecting compliance with federal and
state securities law registrations, other filings, legal, accounting, exchange
agent, printing, mailing and other costs, fees and expenses, will aggregate
approximately $100,000. LexaLite estimates that the expenses which it will
incur in connection with the Merger for legal, accounting and other fees and
expenses will aggregate approximately $400,000.
In addition to the foregoing expenses, upon consummation of the Merger Summa
and LexaLite have agreed to issue an aggregate of 30,000 shares of Summa's
Common Stock to Synergy, Inc., and pay Synergy, Inc. $42,000 in cash, in
satisfaction of any and all claims that Synergy, Inc. might have against Summa
and LexaLite in respect of brokerage or finder's fees in connection with the
Merger.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
Set forth below is a summary of certain federal income tax consequences of the
Merger to LexaLite stockholders under the Internal Revenue Code of 1986, as
amended (the "Code"). The discussion does not deal with all the tax
consequences of the Merger that may be relevant to particular LexaLite
stockholders, such as dealers in securities, foreign persons or certain persons
who acquired LexaLite stock (or options to acquire stock) as consideration for
the performance of services.
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Based upon certain assumptions, it is expected that the Merger will qualify as
a "reorganization" within the meaning of Section 368(a)(1)(A) of the Code, and
that accordingly:
(a) No gain or loss will be recognized for federal income tax purposes by
stockholders of LexaLite upon their receipt of shares of Summa's Common Stock in
exchange for their LexaLite Common Stock;
(b) Each former LexaLite stockholder's aggregate adjusted basis in the shares
of LexaLite's Common Stock exchanged in the Merger will be carried over to the
shares of Summa's Common Stock received in the Merger;
(c) The holding period for the shares of Summa's Common Stock received in the
Merger is expected to include the holding period for LexaLite's Common Stock
exchanged therefor, provided LexaLite's Common Stock is held as a capital asset
as of the Effective Date;
(d) Upon the subsequent sale of each share of Summa's Common Stock received by
former LexaLite stockholders in the Merger, gain or loss will be recognized.
Such gain or loss will be measured by the difference between the amount received
therefor and the adjusted basis of such share. If such share is a capital asset
in the hands of the selling stockholder, such gain or loss will be capital gain
or loss which will be long term or short term depending upon the holding period;
and
(e) Cash received by a LexaLite stockholder who exercises his or her
dissenters' appraisal rights, or in lieu of fractional shares, will generally be
taxable as capital gain or loss, depending upon the stockholder's basis in the
shares and assuming that such shares are capital assets in his hands.
BECAUSE OF THE UNCERTAINTY OF SEVERAL OF THE TAX CONSEQUENCES OF THE MERGER,
IT IS STRONGLY URGED THAT ALL LEXALITE STOCKHOLDERS CONSULT THEIR OWN TAX
ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE MERGER, INCLUDING
THE APPLICABLE FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS.
APPROVAL OF THE MERGER
The Boards of Directors of LexaLite, Summa, and Subsidiary have each
unanimously approved the Reorganization Agreement, the related Merger Agreement,
and the transactions contemplated thereby. In addition, Summa, as the sole
shareholder of Subsidiary, has also previously approved the Merger. Under
Delaware and California law, the Merger cannot be consummated without the
affirmative vote of the holders of a majority of the outstanding shares of
LexaLite's Common Stock and of Summa's Common Stock in favor of the Merger
Agreement and the transactions contemplated thereby.
In approving the Merger, the shareholders of Summa will also approve, among
other things, an amendment to the Articles of Incorporation of Summa to
establish a 9-member Board of Directors divided into three classes serving
staggered 3-year terms. Summa's Board of Directors currently consists of eight
members divided into two classes, with half of the members elected to serve 2-
year terms at each annual meeting of shareholders. Accordingly, should the
shareholders of Summa approve the Merger, the period of time required for Summa
shareholders who oppose the policies of Summa's Board of Directors to remove a
majority of the Board will be extended from two to three years, unless they can
show cause and obtain the required vote under California law.
Each of the executive officers and directors of LexaLite has indicated his
intention to vote or cause to be voted all of the shares of LexaLite's Common
Stock owned by him, or over which he has voting control, in favor of the Merger.
As of the record date for the LexaLite Special Meeting, these individuals owned
or had voting control over an aggregate of 676,007 shares, or approximately
48.9% of the outstanding shares of LexaLite's Common Stock. Accordingly,
approval of the Merger by the stockholders of LexaLite will require the
affirmation vote of the holders of an additional 15,562 shares of LexaLite's
Common Stock.
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Executive officers and directors of Summa who, as of the record date for the
Summa Annual Meeting, together owned or had voting control over an aggregate of
247,356 shares of Summa's Common Stock, or approximately 15.4% of the shares
outstanding, have indicated their intention to vote or cause to be voted all of
the shares of Summa's Common Stock owned by them, or over which they have voting
control, in favor of the Merger. The affirmative vote of an additional
554,386 shares of Summa's Common Stock will therefor be required for the
approval of the Merger by the shareholders of Summa.
RIGHTS OF DISSENTING LEXALITE STOCKHOLDERS
If the Merger is consummated, holders of LexaLite's Common Stock, in respect
of which appraisal rights have been perfected and not withdrawn or lost, will be
entitled to have the "fair value" of their shares of LexaLite's Common Stock 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 Section 262 of the Delaware General
Corporation Law. The following is a brief summary of Section 262 which sets
forth the procedures for dissenting from the Merger and demanding statutory
appraisal rights. This summary is qualified in its entirety by reference to
Section 262, the text of which is attached hereto as Appendix III. Appendix III
should be reviewed carefully by any holder who wishes to exercise statutory
appraisal rights or who wishes to preserve the right to do so because failure to
comply with the procedures set forth in Section 262 will result in the loss of
appraisal rights.
Holders of LexaLite's Common Stock of record who desire to exercise their
appraisal rights must satisfy all of the following conditions. A written demand
for appraisal of shares of LexaLite's Common Stock must be filed with LexaLite
before the taking of the vote on the proposal to approve and adopt the Merger
Agreement. Such written demand for appraisal of shares must be in addition to
and separate from any proxy or vote abstaining from voting on or voting against
the proposal to approve and adopt the Merger Agreement. Voting against,
abstaining from voting on or failing to vote on the proposal to approve and
adopt the Merger Agreement will not constitute a demand for appraisal within the
meaning of Section 262.
Holders of LexaLite's Common Stock electing to exercise their appraisal rights
under Section 262 must not vote for approval and adoption of the Merger
Agreement. If a holder of LexaLite's Common Stock returns a signed proxy but
does not specify a vote against approval and adoption of the Merger Agreement or
a direction to abstain from voting on the approval and adoption of the Merger
Agreement, the proxy will be voted for approval and adoption of the Merger
Agreement, which will have the effect of waiving such holder's appraisal rights.
A demand for appraisal must be executed by or for the stockholders of record,
fully and correctly, as such stockholder's name appears on the certificate
representing such stockholder's shares of LexaLite's Common Stock.
A stockholder who elects to exercise appraisal rights should mail or deliver
his written demand to LexaLite International Corporation, 10163 US 31 North,
Charlevoix, Michigan 49720-0498, Attention: Secretary. A written demand may
also be delivered to Secretary at the LexaLite Special Meeting prior to the vote
on the Merger Agreement. The written demand for appraisal should comply with
the preceding paragraphs, and should specify the stockholder's name and mailing
address and the number of shares of LexaLite's Common Stock owned by such
stockholder and should state that the holder is thereby demanding appraisal of
his shares. It is the responsibility of each stockholder electing appraisal
rights to ensure that the written demand is received by LexaLite before the
taking of the vote on the Reorganization Agreement and Merger Agreement at the
LexaLite Special Meeting. Within ten days after the Effective Date, LexaLite,
as the surviving corporation, must provide notice of the Effective Date to all
holders of LexaLite's Common Stock who timely complied with Section 262 and did
not either vote for, or return a signed proxy which did not specify a vote
against or a direction to abstain from voting on, approval and adoption of the
Merger Agreement.
A stockholder who makes a written demand for appraisal of shares of LexaLite's
Common Stock must continuously hold such shares through the Effective Date.
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Within 120 days after the Effective Date, either LexaLite, as the surviving
corporation, or any stockholder who has complied with the required conditions of
Section 262 may file a petition in a Delaware court demanding a determination of
the fair value of the shares of the dissenting stockholders. If a petition for
an appraisal is timely filed, after a hearing on such petition, the Delaware
court will determine which stockholders are entitled to appraisal rights and
will appraise the shares of LexaLite's Common Stock owned by such stockholders,
determining the fair value of such shares, exclusive of any element of value
arising from the accomplishment or expectation of the Merger, together with a
fair rate of interest to be paid, if any, upon the amount determined to be the
fair value. In determining fair value, the court is to take into account all
relevant factors. The cost of the appraisal proceeding may be determined by the
Delaware court and taxed against the parties as the court deems equitable in the
circumstances. Upon application of a dissenting stockholder, the court may
order that all or a portion of the expenses incurred by any dissenting
stockholder in connection with the appraisal proceeding, including, without
limitation, reasonable attorneys' fees and the fees and expenses of experts, be
charged pro rata against the value of all shares of LexaLite's Common Stock
entitled to appraisal. In the absence of such a determination or assessment,
each party bears his own expenses.
Any stockholder who has duly demanded appraisal in compliance with Section 262
will not, after the Effective Date, be entitled to vote for any purpose the
shares of LexaLite's Common Stock subject to such demand or to receive payment
of dividends or distributions on such shares, except for dividends and
distributions payable to stockholders of record at a date prior to the Effective
Date.
At any time within 60 days after the Effective Date, any stockholder shall
have the right to withdraw his demand for appraisal and to accept the terms
offered in the Merger; after this period, the stockholder may withdraw his
demand for appraisal only with the consent of LexaLite, as the surviving
corporation. If no petition for appraisal is filed with the Delaware court
within 120 days after the Effective Date, stockholders' rights to appraisal
shall cease. Inasmuch as LexaLite, as the surviving corporation, has no
obligation, and does not intend, to file such a petition, any stockholder who
desires such a petition to be filed is advised to file it on a timely basis.
However, no petition timely filed in the Delaware court demanding appraisal
shall be dismissed as to any stockholder without the approval of the Delaware
court, and such approval may be conditioned upon such terms as the Delaware
court deems just.
Since Summa's Common Stock is traded on The Nasdaq National Market,
shareholders of Summa who object to the Merger may vote against the Merger at
the Summa Annual 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 Summa's outstanding Common Stock make appropriate demands under
Chapter 13 of the California General Corporation Law.
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THE COMBINED COMPANIES
Once the Merger is consummated, LexaLite, as the surviving corporation in the
Merger, will continue its business and operations as a wholly-owned operating
subsidiary of Summa. As stated in the Reorganization Agreement, it is the
intention of the parties that the corporate headquarters of LexaLite remain in
Charlevoix, Michigan, and that LexaLite's corporate name will remain unchanged,
for an indefinite period of time following the Merger. As a condition to the
respective obligations of the parties to consummate the Merger, Josh T. Barnes
is to be added to the Board of Directors of Summa, and the Board of Directors of
LexaLite immediately following the Merger is to be composed of James R.
Swartwout, the President and Chief Executive Officer of Summa, Thomas M.
Phillips, the President of LexaLite, and Josh T. Barnes, the current Chief
Executive Officer of LexaLite. See "Description of the Merger - Interests of
Certain Persons in the Merger."
As one of three operating subsidiaries of Summa immediately following the
Merger, LexaLite will operate on a semi-autonomous basis in much the same way as
the other two operating subsidiaries of Summa currently function. The
management of each operating subsidiary has independent profit and loss
responsibility, subject to the achievement of specified objectives and
compliance with budgetary goals set forth in an operating plan developed each
year in consultation with Mr. Swartwout, the Chief Executive Officer of Summa,
and presented to the Summa Board of Directors for approval on an annual basis.
Summa has no employees other than Mr. Swartwout, Paul A. Walbrun, its
Controller, and an administrative assistant. The corporate staff does not
direct operations of subsidiaries on an ongoing basis but, in addition to
planning and financial oversight, provides financing, conducts Summa's
acquisition program and business development activities, and handles investor
relations matters. In addition, from time to time the corporate staff is active
in non-operational business activities such as risk management and employee
benefit program management. Summa assesses corporate charges on a basis
established annually, related to asset utilization by subsidiaries.
29
<PAGE>
SUMMA AND LEXALITE PRO FORMA FINANCIAL INFORMATION
Summa Industries
Unaudited Pro Forma Condensed Consolidated Financial Statements
The accompanying unaudited pro forma condensed consolidated financial
statements reflect the acquisition by Summa of all the issued and outstanding
capital stock of LexaLite as a consequence of the Merger of Subsidiary with and
into LexaLite. The transaction will be accounted as a purchase by Summa of the
net assets of LexaLite.
The unaudited pro forma condensed consolidated balance sheet is based upon
Summa's historical audited consolidated balance sheet at August 31, 1996 and
LexaLite's historical audited balance sheet as of June 30, 1996, and is
presented as if the transaction had been consummated on August 31, 1996.
The unaudited pro forma condensed consolidated statement of income for the
year ended August 31, 1996 gives effect to the merger of Subsidiary and LexaLite
as if the transaction had occurred at September 1, 1995, the beginning of
Summa's fiscal year ended August 31, 1996. The unaudited pro forma condensed
consolidated income statement combines the audited historical consolidated
results of operations of Summa for the year ended August 31, 1996 and the
audited historical results of the operations of LexaLite for the year ended June
30, 1996.
The pro forma adjustments are based upon available information and upon
certain assumptions which the respective management of Summa and LexaLite
believes are reasonable. However, the unaudited pro forma condensed
consolidated financial statements do not purport to be indicative of the results
which would have been achieved if the transaction had been completed on the
respective dates above or the results which may be achieved in the future.
30
<PAGE>
SUMMA INDUSTRIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AUGUST 31, 1996
<TABLE>
<CAPTION>
PRO FORMA
SUMMA LEXALITE ADJUSTMENTS COMBINED
----- -------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash $ 567,000 $ 620,000 $ --- $ 1,187,000
Accounts receivable 1,627,000 6,364,000 --- 7,991,000
Inventories 2,186,000 1,511,000 50,000 (1) 3,747,000
Prepaid expenses and other 656,000 679,000 --- 1,335,000
----------- ------------ ----------- -----------
Total current assets 5,036,000 9,174,000 50,000 14,260,000
----------- ------------ ----------- -----------
Property, plant and equipment 6,060,000 24,453,000 (8,177,000) (2) 22,336,000
Less accumulated depreciation (2,082,000) (11,427,000) 11,427,000 (3) (2,082,000)
----------- ------------ ----------- -----------
Net property, plant and
equipment 3,978,000 13,026,000 3,250,000 20,254,000
Other assets 1,865,000 1,909,000 --- 3,774,000
Goodwill and other intangibles 946,000 --- --- 946,000
----------- ------------ ----------- -----------
Total assets $11,825,000 $ 24,109,000 $ 3,300,000 $39,234,000
=========== ============ =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 812,000 $ 2,027,000 --- 2,839,000
Accrued liabilities 1,249,000 2,348,000 500,000 (4) 4,097,000
Current maturities of long-term
debt --- 1,200,000 --- 1,200,000
----------- ------------ ----------- -----------
Total current liabilities 2,061,000 5,575,000 500,000 8,136,000
Bonds payable --- 5,000,000 --- 5,000,000
Other long-term debt and
deferred credits and other 1,300,000 (2)
long term liabilities 1,120,000 4,029,000 500,000 (5) 6,949,000
----------- ------------ ----------- -----------
Total liabilities 3,181,000 14,604,000 2,300,000 20,085,000
----------- ------------ ----------- -----------
Shareholders' equity
Common stock 6,157,000 2,158,000 8,347,000 (6) 16,662,000
Retained earnings 2,487,000 7,347,000 (7,347,000) (6) 2,487,000
----------- ------------ ----------- -----------
Total shareholders' equity 8,644,000 9,505,000 1,000,000 19,149,000
----------- ------------ ----------- -----------
Total liabilities and share-
holders' equity $11,825,000 $ 24,109,000 $ 3,300,000 $39,234,000
=========== ============ =========== ===========
</TABLE>
31
<PAGE>
SUMMA INDUSTRIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED AUGUST 31, 1996
<TABLE>
<CAPTION>
PRO FORMA
SUMMA LEXALITE ADJUSTMENTS COMBINED
----------- -------- ----------- ----------
<S> <C> <C> <C> <C>
Net Sales $12,742,000 $36,089,000 $ --- $48,831,000
Cost and expenses:
Cost of sales 6,847,000 26,964,000 50,000 (7) 33,861,000
Selling and administrative
and other operating expense 4,551,000 5,886,000 87,000 (8) 10,524,000
Interest and other expense --- 688,000 --- 688,000
----------- ----------- --------- -----------
Total cost and expenses 11,398,000 33,538,000 137,000 45,073,000
----------- ----------- ---------- -----------
Income from continuing operations
before provision for taxes 1,344,000 2,551,000 (137,000) 3,758,000
Provision for income taxes 541,000 963,000 (55,000) (9) 1,449,000
----------- ----------- ----------- -----------
Income from continuing operations $ 803,000 $ 1,588,000 $ (82,000) $ 2,309,000
=========== =========== =========== ===========
Income per common and equivalent
share from continuing operations $ .50 $ 1.08 $ .61
=========== =========== ===========
Weighted average shares
outstanding 1,603,000 1,477,000 714,000 (6) 3,794,000
=========== =========== =========== ===========
</TABLE>
The pro forma condensed consolidated financial statements give effect to certain
pro forma adjustments, as follows:
(1) Adjustment of work in process and finished goods inventory to eliminate
manufacturing profit.
(2) Adjustment of property, plant and equipment to estimated fair value
including deferred tax effect.
(3) Reset of accumulated depreciation of acquired assets to zero.
(4) Accrual of transaction fees and related costs.
(5) Accrual of contingent liability in connection with Employee Stock Ownership
Plan repurchase obligations.
(6) Adjustment to reflect the acquisition of LexaLite for 2,252,241 shares of
Summa at an assigned value of $6.66 per share, less a discount of 30%.
(7) Charge cost of sales with write-up of inventory to fair value.
(8) Record additional depreciation expense.
(9) Record tax effect of (7) and (8).
32
<PAGE>
SUMMA COMMON STOCK PRICES AND DIVIDENDS
Summa's Common Stock is traded on The Nasdaq National Market under the symbol
"SUMX." The following table sets forth the high and low closing prices for a
share of Summa's Common Stock on The Nasdaq National Market for the periods
indicated.
<TABLE>
<CAPTION>
QUARTER ENDED HIGH LOW
------------- ----- -----
<S> <C> <C>
November 1994...................... $6.50 $5.25
February 1995...................... 6.00 4.75
May 1995........................... 5.50 4.75
August 1995........................ 5.25 4.75
QUARTER ENDED
-------------
November 1995...................... 5.25 3.75
February 1996...................... 5.00 3.88
May 1996........................... 6.25 5.13
August 1996........................ 6.00 5.50
QUARTER ENDED
-------------
November 1996 (through October 11). 6.13 5.50
</TABLE>
On October 11, 1996, the closing price for a share of Summa's Common Stock was
$6.13.
The approximate number of holders of record of Summa Common Stock as of
October 14, 1996, was 484. In addition, Summa estimates that there are
approximately 600 additional shareholders whose shares are held in "street
name."
Summa has not paid a cash dividend since the fiscal year ended August 31,
1983. Summa intends to retain earnings, if any, for use in its business and
currently does not intend to pay cash dividends on its Common Stock in the
foreseeable future.
33
<PAGE>
DESCRIPTION OF SECURITIES
SUMMA'S CAPITAL STOCK
The authorized capital stock of Summa consists of 10,000,000 shares of Common
Stock, $.001 par value, of which 1,603,483 shares were issued and outstanding as
of October 14, 1996, and 5,000,000 shares of Preferred Stock, $.001 par value,
of which no shares have been issued or are outstanding.
COMMON STOCK
- ------------
Holders of the Summa Common Stock are entitled to one vote per share on each
matter submitted to a vote of the shareholders of Summa, and there is no
cumulative voting for the election of directors. Subject to preferences that
may be applicable to the holders of any outstanding Preferred Stock, each holder
of Summa 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 "Summa Common Stock Prices and Dividends." Upon the liquidation,
dissolution, or winding up of Summa, the holders of Summa Common Stock are
entitled to share ratably in all assets of Summa 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 Summa
Common Stock have no preemptive, subscription, redemption or conversion rights.
The outstanding shares of Summa Common Stock are, and the shares to be issued to
the stockholders of LexaLite as a consequence of the Merger will be, when issued
and delivered, validly issued, fully paid and nonassessable.
PREFERRED STOCK
- ---------------
The Board of Directors is authorized, subject to any limitations prescribed by
the laws of the State of California, but without further action by Summa's
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) without any
further vote or action by the shareholders. 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. In addition, the issuance of Preferred Stock may have the effect of
delaying, deferring or preventing a change in control of Summa. Summa has no
current plans to issue any shares of Preferred Stock.
TRANSFER AGENT AND REGISTRAR
- ----------------------------
The transfer agent and registrar for Summa's Common Stock is U. S. Stock
Transfer Corporation, 1745 Gardena Avenue, Glendale, California 91204, telephone
number, (818) 502-1404.
LEXALITE'S CAPITAL STOCK
The authorized capital of LexaLite consists of 2,000,000 shares of Common
Stock, $1.00 par value, of which 1,479,672 shares are issued and outstanding as
of October 14, 1996 (excluding the additional 21,822 shares earned and issuable
under the LexaLite Stock Award Bonus Plan).
Each share of LexaLite's Common Stock is entitled to participate equally in
dividends as and when declared by the Board of Directors of LexaLite, after
payment of any dividends on any shares of capital stock that may then be
outstanding and subject to limitations on dividends imposed by applicable law
and agreements with LexaLite's lenders, and is entitled to share equally in the
distribution of assets in the event of liquidation, after payment of any
liquidation preference on any shares of capital stock that may then be
outstanding. All shares of LexaLite's Common Stock, when issued and fully paid,
are nonassessable and not subject to redemption or conversion and have no
conversion rights. Holders of LexaLite Common Stock have no preemptive right to
subscribe for any additional shares of any class of capital stock of LexaLite,
whether now or later authorized.
34
<PAGE>
COMPARISON OF RIGHTS OF LEXALITE AND SUMMA SHAREHOLDERS
If the Merger is consummated, LexaLite stockholders will become holder of
shares of Summa's Common Stock. LexaLite is incorporated under Delaware law.
Summa is incorporated under California law. While the rights and privileges of
stockholders of a Delaware corporation (such as LexaLite) are, in many
instances, comparable to those of shareholders of a California corporation (such
as Summa), there are differences. The following is a summary of some of these
differences.
Shareholder Vote Required for Extraordinary Transactions. Both California and
--------------------------------------------------------
Delaware generally require that a majority of the stockholders approve major
corporate transactions such as mergers. However, with certain exceptions,
California law requires that mergers, reorganizations, and similar transactions
be approved by a majority vote of each class of shares outstanding. Therefore,
if Summa issues shares of its Preferred Stock, the holders of such stock would
vote separately as a class on mergers and other major transactions. In that
event, such holders, even if not in the majority overall, would be able to
control the outcome of voting. However, the California statute also provides
that, with certain exceptions and unless otherwise required in the corporation's
articles of incorporation, no class vote of preferred shares is required if
their rights, preferences and privileges will not change in the transaction.
Summa's Articles do not alter this rule.
Dissenters' and Appraisal Rights. Under both California and Delaware law, a
--------------------------------
shareholder of a corporation participating in certain major corporate
transactions, such as a merger, consolidation or sale of all or substantially
all of the assets of a corporation, may, under varying circumstances, be
entitled to dissenters' or appraisal rights pursuant to which he may receive
cash in the amount of the fair market value of his shares in lieu of the
consideration he would otherwise receive in the transaction. Under Delaware
law, appraisal rights are not available to stockholders whose stock is publicly
held and will be converted in the transaction into stock that is publicly held.
Shareholders of a California corporation that is publicly traded (such as Summa)
generally do not have dissenters' rights unless the holders of at least five
percent of the class claim the right or the corporation or any law restricts the
transfer of such shares. Even in that event, however, dissenters' rights are
unavailable if the corporation or its shareholders, or both, immediately before
the reorganization or immediately after the reorganization will own more than
five-sixths of the voting equity securities (including convertible securities)
of the surviving corporation or its parent. With respect to the Merger,
LexaLite stockholders have appraisal rights and Summa shareholders will not,
unless the holders of five percent or more of Summa's outstanding Common Stock
seek to perfect their dissenters' rights. See "Description of the Proposed
Merger - Rights of Dissenting LexaLite Stockholders."
Removal of Directors. Under Delaware law, directors may be removed, with or
--------------------
without cause, by the holders of a majority of the shares entitled to vote at an
election of directors. However, unless the corporation's certificate of
incorporation provides otherwise, if the corporation's board of directors is
classified, directors may be removed only for cause. LexaLite's Board of
Directors is not classified. Also, in the case of a corporation having
cumulative voting, if less than the entire board is to be removed, no director
may be removed without cause if the votes cast against his removal would be
sufficient to elect him if then cumulatively voted at an election of the entire
board of directors, or, if there are classes of directors, at any election of
the class of directors of which he is a part. LexaLite's Certificate of
Incorporation does not provide for cumulative voting.
Under California law, any director or the entire board of directors may be
removed, with or without cause, upon the vote of a majority of the outstanding
shares entitled to vote. However, in the case of a corporation, such as Summa,
whose Board of Directors is classified, a director may not be removed if the
number of votes cast against his removal would be sufficient to elect the
director under cumulative voting at an election at which the same total number
of votes were cast (or, if the action is taken by written consent, all shares
entitled to vote were voted) and either the number of directors elected at the
most recent annual meeting, or if greater, the number of directors for whom
removal is being sought, were then being elected.
Classified Board of Directors. A classified board is one for which a certain
-----------------------------
number, but not all, of the directors are elected on a rotating basis each year.
A classified board makes changes in the composition of the board of directors
more difficult, and thus a potential change in control of a corporation more
difficult. Delaware law permits, but does not require, a classified board of
directors, divided into as many as three classes. LexaLite's Board of Directors
is not classified.
35
<PAGE>
California law permits a "listed" corporation to divide its Board of Directors
into as many as three classes. Summa is a "listed" corporation and its Articles
of Incorporation divide its Board into two classes, each of which will serve
two-year terms. If the Merger is approved by Summa's shareholders and
Consummated, Summa's Articles of Incorporation will be amended to establish a
nine (9) member Board of Directors divided into three classes serving staggered
three-year terms. See "Description of the Proposed Merger - Approval of the
Merger."
Ability to Issue Preferred Stock. Summa is authorized to issue up to
--------------------------------
5,000,000 shares of Preferred Stock in one or more series, the terms of which
may be determined at the time of issuance by its Board of Directors, without
further action by the shareholders, and may include voting rights, preferences
as to dividends and liquidation, conversion and redemptive rights and sinking
fund provisions. Although Summa has indicated that it has no present plans to
issue any additional shares of Preferred Stock, the issuance of Preferred Stock
in the future could affect the rights of the holders of Summa's Common Stock and
thereby reduce the value of the Common Stock. In particular, specific rights
granted to future holders of Preferred Stock could be used to restrict Summa's
ability to merge with or sell its assets to a third party, or otherwise delay,
discourage or prevent a change in control of Summa. LexaLite has no authorized
classes of capital stock other than the Common Stock.
Other Differences. Summa is subject to the information and reporting
-----------------
requirements of the Securities Exchange Act of 1934 (the "Exchange Act"), which
requires Summa periodically to provide certain specified information to its
shareholders and to file specified reports with the Securities and Exchange
Commission. In addition, shares of Summa Common Stock are traded on The Nasdaq
National Market. LexaLite is not subject to the informational and reporting
requirements of the Exchange Act and no active market for its Common Stock
exists.
36
<PAGE>
INFORMATION CONCERNING SUMMA
BUSINESS
General
- -------
Summa Industries ("Summa") was incorporated in California in 1942. Through
1990, the principal business of Summa was limited to the design, manufacture and
sale of chemical process equipment. In 1991, Summa adopted a strategy of growth
through acquisitions, and completed the first such acquisition in November 1991
by acquiring all of the outstanding capital stock of GST Industries, Inc., a
California corporation engaged in the manufacture and sale of industrial
firefighting equipment and aerospace components and sub-assemblies. In fiscal
1992, Summa also formed another wholly-owned subsidiary, Morehouse-COWLES, Inc.,
a California corporation, to which all of the operating assets involved in the
conduct of the chemical process equipment business were contributed. In July
1993, Summa acquired KVP Systems, Inc., a manufacturer of engineered plastic
conveyer components. In May 1994, Summa acquired certain assets and operations
of Armenco Engineering which were integrated into those of Morehouse-COWLES. On
June 17, 1996, Summa completed a sale of all of the issued and outstanding stock
of Morehouse-COWLES, Inc. Consequently, Summa currently serves as a holding
company whose businesses are conducted primarily through its two wholly-owned
subsidiaries, KVP Systems, Inc. and GST Industries, Inc.
The principal executive offices of Summa are located at 21250 Hawthorne
Boulevard, Suite 500, Torrance, California 90503, its telephone number is (310)
792-7024, and its telecopier number is (310) 792-7079.
Products
- --------
The principal products currently offered by Summa, through its two
operating subsidiaries, include material handling components manufactured by KVP
Systems, Inc., industrial firefighting equipment produced by the Stang division
of GST Industries, Inc. ("GST"), and aerospace assemblies fabricated by GST.
Material Handling Components. Summa's material handling components business
is conducted by its wholly-owned subsidiary, KVP Systems, Inc., located in
Rancho Cordova, California. Its products are engineered plastic components which
form conveyer belts and chains. The components in KVP's product line, many of
which are patented, are constructed of non-toxic, non-corrosive plastic
materials and are designed to be easily cleaned, meeting FDA-USDA requirements
and specifications. The components are available in materials which can
withstand temperatures ranging from 150 degrees Fahrenheit below zero to 350
degrees Fahrenheit, a temperature typically required for sterilization. The
components do not require lubrication and thus offer the advantage of operation
free from contaminants such as grease, oil, and metal particles. Because KVP's
components are lightweight, they require less energy to operate than steel
belts, and are quieter in operation and easier to service in place than metal
belts.
Industrial Firefighting Equipment. The industrial firefighting business is
conducted by the STANG Industrial Products Division ("Stang") of GST Industries,
Inc., which was acquired by Summa in November 1991. Stang products have been
sold in the market for over 20 years. Stang designs, manufactures and sells
monitors, also known as water cannons, that are used for firefighting and to
disperse toxic gas clouds, as well as in hydraulic mining and digester cleaning.
These monitors are designed to equalize reactive forces so that the monitors can
be aimed with minimal force. Summa believes that Stang has proprietary designs
which provide superior performance to products offered by competitive
manufacturers. Stang monitors can be mounted on vehicles, standpipes, hydrants
or vessels, including fireboats, and can be controlled manually or hydraulically
via remote actuators provided by Stang as options.
Aerospace Assemblies. Summa's aerospace business is conducted by GST
Industries, Inc., a wholly-owned subsidiary located in Santa Ana, California,
which was acquired in November 1991. GST has been in this business of
designing, manufacturing and selling hydraulic actuators and other parts and
sub-assemblies for use in aircraft and similar activities for more than 20
years.
37
<PAGE>
The following table sets forth certain information with respect to the
contribution to consolidated sales and operating income generated by KVP and GST
during the three years ended August 31, 1996, as well as the dollar value of the
assets identified to each subsidiary:
BUSINESS SEGMENT SUMMARY
<TABLE>
<CAPTION>
MATERIAL HANDLING FIREFIGHTING AEROSPACE
COMPONENTS EQUIPMENT ASSEMBLIES
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FISCAL YEAR ENDED AUGUST 31, 1996
Sales $8,124,000 $2,740,000 $1,878,000
Operating Income 850,000 327,000 391,000
Identifiable Assets 5,706,000 771,000 691,000
FISCAL YEAR ENDED AUGUST 31, 1995
Sales $6,567,000 $2,096,000 $1,584,000
Operating Income 903,000 158,000 388,000
Identifiable Assets 4,554,000 683,000 669,000
FISCAL YEAR ENDED AUGUST 31, 1994
Sales $5,061,000 $3,075,000 $2,143,000
Operating Income 591,000 260,000 435,000
Identifiable Assets 3,903,000 729,000 884,000
================================================================================================
</TABLE>
Marketing
- ---------
Ultimate users of KVP components in food processing include companies such
as Beatrice/Hunt Wesson, Campbell Soup, Comstock Food, Kellogg's and Jeno's. In
bakery applications, the ultimate users include Sara Lee, Pepperidge Farms and
Lenders. In poultry applications, ultimate users include Foster Farms, Tyson
Foods, Pilgrims Pride and Con Agra. In freezing applications, ultimate users
include Baskin Robbins, Tombstone Pizza, Stouffer's and Swanson's. The
components also have applications in the pharmaceutical, industrial and
electronics industries. Products are sold directly and through independent
representatives and distributors, world-wide.
The primary markets for the Stang products are the oil, gas and
petrochemical industry, municipalities which use fireboats, the mining industry,
and the municipal waste water treatment market. These products are sold through
independent manufacturers' representatives world-wide.
Summa does not believe that revenues attributable to sales of any of the
products manufactured by its industrial firefighting equipment or material
handling component operating subsidiaries are dependent upon sales to one or a
small number of customers, although in a given year one or a small number of
customers may account for a significant portion of sales. In the fiscal year
ended August 31, 1996, the largest customer in the above named segments
accounted for 5% of total company sales, while in fiscal years 1995 and 1994,
sales to a single customer accounted for 7% and 4% of total sales, respectively.
Most of the sales of the aerospace assemblies segment are of products for
the F-16 and derivative aircraft to a foreign government engaged in a U.S.
sanctioned cooperative aircraft manufacturing program, Lockheed Aircraft, and
the Department of Defense. Because the F-16 is a mature program which is being
phased out, Summa faces a possible loss of most of its defense related business
over the next several years. The sales of the aerospace assemblies segment
represent 15%, 15% and 21% of consolidated sales of Summa for 1996, 1995 and
1994, respectively, and the sales to the largest customer for the years ended
August 31, 1996, 1995 and 1994 were 6%, 7% and 10%, respectively.
38
<PAGE>
The following table sets forth the dollar amount of export sales by
geographic area for the most recent three fiscal years ended August 31, 1996:
<TABLE>
<CAPTION>
1996 1995 1994
- -------------------------------------------------------
<S> <C> <C> <C>
Canada $ 724,000 $ 341,000 $ 220,000
Latin America 72,000 -0- 101,000
Asia 938,000 800,000 1,868,000
Europe 909,000 769,000 186,000
Other 125,000 131,000 56,000
- -------------------------------------------------------
$2,768,000 $2,041,000 $2,431,000
=======================================================
</TABLE>
Raw materials
- -------------
Summa purchases materials and parts, including pelletized plastic resins,
castings, forgings, steel, valves and controls from various suppliers. Summa
does not believe that it is dependent upon any single supplier or manufacturer
for any of its present principal requirements for materials or parts, and
experienced no significant difficulty in obtaining such parts and materials
during the fiscal year ended August 31, 1996. Lead times for special
components, such as custom hydraulic power units, can be as long as four months.
Backlog
- -------
On August 31, 1996, Summa's continuing businesses had a backlog of orders,
believed to be firm, in the amount of $2,475,000, as compared to a backlog of
$2,924,000 as of August 31, 1995. Of the backlog at the end of fiscal 1996,
$280,000 was attributable to orders for material handling components, $487,000
was attributable to orders for firefighting equipment and $1,708,000 was
attributable to orders for aerospace assemblies. A portion of Summa's August
31, 1996 backlog consisted of products to be manufactured to custom designs
suited for a particular customer's application or physical requirements.
Because the length of time between entering an order, shipping the product and
recording a sale can vary significantly from product to product, Summa believes
that its backlog levels should not necessarily be relied upon as an indicator of
sales volume for a specific future period. The aerospace assembly backlog is
comprised of some long-term contracts, which are scheduled to ship through 1997.
Competitive Conditions
- ----------------------
Summa faces vigorous competition with respect to each of the products
manufactured by its operating subsidiaries, both from firms which market similar
products nationally and internationally, and in certain geographic areas from
local manufacturers. Many of these competitors have financial and marketing
resources that are significantly greater than those available to Summa.
In general, Summa believes that its trade names and reputation are
significant to its competitive position in all segments. With respect to all
segments, Summa believes that price is a significant element of competition.
However, factors such as engineering, performance, availability and reliability
are considered in the purchasing process.
39
<PAGE>
Patents, Trademarks and Licenses
- --------------------------------
Summa has been granted numerous U.S. patents (and related foreign patents)
covering certain of its products. These patents expire on dates ranging from
present to 2010. Summa has active patent applications. The expiration of these
patents is not expected to have a material adverse effect on its business.
Summa has foreign and domestic trade name and trademark registrations
covering the names and logos which appear on its products. In its opinion, its
trademarks are helpful in enabling it to maintain its present competitive
position.
Legal Proceedings
- -----------------
At August 31, 1996, Summa was a party to two civil lawsuits. In Laitram, et
-----------
al. v. KVP Systems, Inc., and counterclaims filed in the U.S. District Court in
- ------------------------
Eastern Louisiana in September 1993. The plaintiffs claim KVP has infringed upon
two patents. The venue has been changed to Federal District Court in Sacramento,
California. Summa contends the claims are invalid, and has filed counterclaims
that Laitram has sued in bad faith and has acted in restraint of free trade. The
case is in the advanced stage of discovery and is expected to be heard in court
during fiscal 1997. Since the case involves a number of complex factual and
legal issues, it is impossible to predict the outcome. Although Summa believes
it has a reasonable expectation of prevailing, because no reserve therefor has
been established, and in the absence of applicable insurance, the consequences
of an adverse determination would be borne by Summa.
In Wright v. Stang, et al., a piece of pipe, to which a water cannon
-------------------------
manufactured by Stang was attached, broke, knocking a fireman down. Since Stang
did not make or supply the pipe which failed, the case was dismissed.
Subsequently, the plaintiff filed an appeal of the dismissal. The Company has
product liability insurance of $2,000,000 covering the period in which the
incident took place, with no other claims in that policy year.
Employees
- ---------
At August 31, 1996, Summa employed 98 persons, including the three
employees of the parent company, 64 employees at KVP, of whom 16 were involved
in sales and marketing, 40 in manufacturing, 8 in general administration, and 29
employees at GST, of whom 4 were involved in sales and marketing, 21 in
manufacturing, and 4 in general administration. None of Summa's employees is
covered by a collective bargaining agreement. Summa considers its relationship
with its employees to be good.
Facilities
- ----------
Summa leases 28,000 square feet of office and manufacturing space in an
industrial park in Santa Ana, California. The lease expires in October 1996 and
includes an option to extend one year. Summa leases 48,000 square feet of
office and manufacturing space in an industrial park in Rancho Cordova,
California. The lease expires in February 2001. Summa's material handling
component business, conducted by KVP Systems, Inc., relocated in January 1966 to
this larger facility to provide for expanding operations. Summa leases
approximately 300 square feet of office space in Torrance, California. The
lease expires in June 1997.
Summa believes that in general the facilities are adequate for present and
foreseeable needs and that the expiring leases can be renegotiated or alternate
facilities can be leased on favorable terms, as necessary.
Summa owns approximately 63,000 square feet of factory and office space on
approximately 3.4 acres in Fullerton, California which it leases to Morehouse-
COWLES, Inc., a former subsidiary of Summa. The lease expires in July 2006.
40
<PAGE>
SUMMA SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The selected financial data set forth below for the three years ended
August 31, 1994, 1995 and 1996 has been derived from the audited consolidated
financial statements of Summa included elsewhere herein and should be read in
conjunction with those financial statements (including the notes thereto) and
with the "Summa Management's Discussion and Analysis of Summa's Results of
Operations and Financial Condition" also included elsewhere herein. The selected
financial data set forth below for the years ended August 31, 1992 and 1993 have
been derived from audited consolidated financial statements of Summa that are
not included herein.
<TABLE>
<CAPTION>
STATEMENT OF INCOME DATA: FISCAL YEARS ENDED AUGUST 31,
- ------------------------- ----------------------------------------------------------------------
1992 1993 1994 1995 1996
----------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales................................... $4,095 $5,284 $10,279 $10,247 $12,742
Cost and expenses:
Cost of sales.............................. 2,406 3,016 5,510 5,609 6,847
Selling, general and
administrative............................ 1,285 1,700 3,623 3,480 4,566
Interest-net............................... 16 -- -- -- (15)
------ ------ ------ ------ ------
Total costs and expenses from
continuing operations................... 3,707 4,716 9,133 9,089 11,398
------ ------ ------ ------ ------
Income from continuing operations
before provision for taxes,
extraordinary item and cumulative
effect of accounting change................ 388 568 1,146 1,158 1,344
Provision for income taxes.................. 150 355 645 482 541
------ ------ ------- ------- -------
Income from continuing operations
before extraordinary item and
cumulative effect of accounting change.... 238 213 501 676 803
Income (loss) from discontinued
operations, net of the effect
of income tax.............................. 152 179 118 (28) (235)
Extraordinary item, tax benefit of
net operating loss carryforward............ 208 321 --- --- ---
Cumulative effect of accounting change...... --- --- 100 --- ---
------ ------ ------- ------- -------
Net income.................................. $ 598 $ 713 $ 719 $ 648 $ 568
====== ====== ======= ======= =======
Weighted average number of shares........... 973 1,020 1,548 1,553 1,603
Income per common and equivalent share
Income from continuing operations
before extraordinary item and
and cumulative effect of
accounting change........................ $ .24 $ .21 $ .32 $ .44 $ .50
Income (loss) from discontinued
operations, net of the effect
of income tax............................ .16 .18 .08 (.02) (.15)
Extraordinary item........................ .21 .31 --- --- ---
Cumulative effect of accounting change.... --- --- .06 --- ---
------ ------ ------- ------- -------
Net income per common and
equivalent share......................... $ .61 $ .70 $ .46 $ .42 $ .35
====== ====== ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
BALANCE SHEET DATA: AUGUST 31,
--------------------------------------------------------------------
1992 1993 1994 1995 1996
-------- ------ ------- ------- --------
<S> <C> <C> <C> <C> <C>
Assets....................................... $4,628 $8,758 $10,009 $11,278 $11,825
Working capital.............................. 1,315 2,203 2,086 1,882 2,975
Long-term debt............................... 450 415 305 400 300
Shareholders' equity......................... 3,009 6,505 7,224 7,930 8,644
</TABLE>
41
<PAGE>
SUMMA MANAGEMENT'S DISCUSSION AND ANALYSIS OF
SUMMA'S RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations
- ---------------------
The following table sets forth certain statements of income information for
continuing operations as a percentage of sales for the three years ended August
31, 1994, 1995 and 1996, as well as Summa's effective income tax rate for each
period presented. As discussed in more detail below, Summa's statements of
income have been restated to reflect the discontinuance of operations and
subsequent sale of the Morehouse-COWLES industrial process equipment business.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED AUGUST 31,
------------------------------
1994 1995 1996
--------- -------- ------
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Gross profit 46.4% 45.3% 46.3%
S,G&A expense 35.3% 34.0% 35.7%
Profit from continuing
operations before tax 11.1% 11.3% 10.5%
Income from continuing
operations before
cumulative effect of
accounting change 4.9% 6.6% 6.3%
Effective tax rate 56.3% 41.6% 40.3%
</TABLE>
Sales. For the year ended August 31, 1995, total sales were virtually
unchanged from the prior fiscal year. A decrease in the sales of Stang (without
benefit of a large 1994 contract) and a decrease in the shipments of the
defense business were offset by strong growth in the material handling
components business of KVP Systems, Inc. KVP's sales growth is attributable to
growing acceptance of its products and the market for its products, an expanded
sales organization and new product development.
For the year ended August 31, 1996, sales increased by $2,495,000, or 24%,
over the prior fiscal year, primarily due to continued growth in sales in the
material handling components business and increased sales by Stang as a result
of participation in increased building and expansion activity in the
petrochemical industry.
Gross Profit. Gross profit decreased both in dollar amount (by $131,000, or
3%,) and as a percentage of sales (by 1%) during the year ended August 31, 1995.
This decrease in the gross profit and gross margin was attributable primarily to
the absence in fiscal 1995 of the higher than normal gross margin on the large
Stang contract realized in fiscal 1994.
Gross profit for the year ended August 31, 1996 was $5,895,000, an increase
of $1,257,000, or 27%, over the level of gross profit generated during the year
ended August 31, 1995. The increase in gross profit is primarily due to the
growth in the material handling components business and increased sales by
Stang. As a percentage of sales, the gross profit margin increased from 45.3%
for the year ended August 31, 1995 to 46.3% for the year ended August 31, 1996,
primarily due to improved margins at Stang related to higher volume.
Selling, General and Administrative Expense. For the year ended August 31,
1995, selling, general and administrative expense decreased by $143,000, or 4%.
This reduction in net selling, general and administrative expense was the result
of a decrease of $442,000 in the amount of contingent performance payments
accrued for the former shareholders of GST as a consequence of decreased sales
and profitability of Stang and the GST defense business, along with a decrease
in commissions on the reduced level of Stang sales, partially offset by
increased sales and marketing costs incurred by KVP in expanding its sales
organization.
42
<PAGE>
Selling, general and administrative expenses for the year ended August 31,
1996 increased by $1,071,000, or 31%, when compared to total operating expenses
for fiscal year 1995, and as a percentage of sales, increased from 34.0% to
35.7%, largely reflecting increases in sales and marketing expenses at KVP
associated with expanding the sales organization and due to increased contingent
performance payments related to increased sales and profitability at GST and
Stang.
Effective Tax Rate. The effective income tax rate, which is a composite of
federal and state taxes, decreased from 56.3% for fiscal 1994 to 41.6% in fiscal
1995, primarily as a result of a decrease in non-deductible contingent
performance accruals due the former shareholders of GST. (See Note 8 in Notes
to Consolidated Financial Statements.) In fiscal 1996, the effective tax rate
decreased further to 40.3% as there were no non-deductible contingent
consideration accruals.
Backlog. Backlog increased slightly during fiscal 1995, to $2,924,000 at
August 31, 1995. By August 31, 1996, backlog had decreased to $2,475,000
primarily as a result of decreased backlog in the defense business. The open
order backlog, believed to be firm, is comprised of orders for components and
spare parts, with scheduled deliveries from September 1996 through fiscal 1998.
However, Summa faces a probable loss of most of its defense related business
over the next several years, as mature programs are wound down. Because Summa
has historically booked some disproportionately large orders during its fiscal
years, and because backlog is usually not material except in the defense
business, the amount of firm order backlog at year-end cannot necessarily be
used as an indicator of future sales volume.
Liquidity and Capital Resources
- -------------------------------
Cash provided by operating activities is Summa's most important source of
liquidity. However, during the year ended August 31, 1995, Summa used $235,000
of cash, primarily because cash used by discontinued operations of $894,000
related to inventory growth more than offset cash provided by continuing
operations of $659,000.
Net cash provided by operating activities for the year ended August 31,
1996 was $1,577,000, substantially from continuing operations. The improved cash
flows are primarily attributable to lower growth in inventories, lower payments
of accrued contingent performance payments and lower required tax payments.
Additionally, $608,000, net of fees and cash retained by Morehouse-COWLES, was
received as partial consideration for the sale of Morehouse-COWLES, Inc.
The investment in property, plant and equipment in the years ended August
31, 1995 and 1996 relates primarily to the acquisition of molds for new products
in the material handling components business. Summa expects to continue to
invest heavily in tooling for new products.
Summa has a revolving line of credit facility of $2,000,000 with an
expiration date of January 1, 1997. The line of credit is secured by all the
assets of Summa. The outstanding balance bears interest at one-quarter
percentage point above the bank's prime rate. There were no borrowings under the
Company's line of credit at August 31, 1996, a reduction of $938,000 from the
August 31, 1995 amount due.
During the fiscal year ended August 31, 1995, working capital of Summa's
continuing operations decreased by $204,000, or 10%, from $2,086,000 at August
31, 1994 to $1,882,000 at August 31, 1995. This decrease was attributable
primarily to increased utilization of Summa's line of credit to finance the
working capital needs of the discontinued business unit, which more than offset
increases in inventories and accounts receivable associated with higher levels
of sales by KVP Systems, Inc. By August 31, 1996, Summa's working capital had
increased to $2,975,000, reflecting decreased utilization of the line of credit.
Asset utilization for the fiscal years ended August 31, 1995 and 1996, is
illustrated in the following table:
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
---------------------
1995 1996
--------- ---------
<S> <C> <C>
Average working capital turnover 5.2 times 5.2 times
Average accounts receivable turnover 7.8 times 8.4 times
Average inventory turnover 3.7 times 3.5 times
</TABLE>
43
<PAGE>
At August 31, 1996, Summa was not committed to any outside supplier for major
capital expenditures, and it believes its present capacity, augmented by
anticipated continued investment in new product tooling for the materials
handling components business will be sufficient to meet demand for its products
with a competitive lead time and to produce quality products in a cost-effective
manner. Summa believes that cash flows from operations will be sufficient to
fund working capital and planned capital expenditure requirements for the next
twelve months.
The Company has a strategy of growth by acquisition. Although there are no
plans to make a specific acquisition for cash, in the event such a plan were
adopted, an alternate source of funds to accomplish the acquisition would have
to be developed. The Company has 10,000,000 shares of common stock authorized,
of which 1,603,483 shares were outstanding at August 31, 1996 and 5,000,000
shares of "blank check" preferred stock authorized of which none is outstanding.
The Company could issue additional shares of common or preferred stock to raise
funds.
Pending Accounting Pronouncements
- ---------------------------------
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 121 "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." SFAS No. 121
requires that long-lived assets and certain identifiable intangibles to be held
and used be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable based on
the estimated future cash flows (undiscounted and without interest charges).
SFAS No. 121 also requires that long-lived assets and certain identifiable
intangibles to be disposed of be reported at the lower of carrying amount or
fair value less costs to sell. Summa plans to adopt SFAS No. 121 as of
September 1, 1996 and believes the effect of adoption will not be material to
the financial statements.
In October 1995, the Financial Accounting Standards Board issued SFAS No. 123
"Accounting for Stock-Based Compensation." Under SFAS No. 123, companies have
the option to implement a fair value-based accounting method or continue to
account for employee stock options and stock purchase plans using the intrinsic
value-based method of accounting as prescribed by Accounting Principles Board
(APB) Opinion No. 25 "Accounting for Stock Issued to Employees." Entities
electing to remain under APB Opinion No. 25 must make pro forma disclosures of
net income or loss and earnings per share as if the fair value-based method of
accounting defined in SFAS No. 123 had been applied. SFAS No. 123 is effective
for financial statements for fiscal years beginning after December 15, 1995.
The Company has tentatively determined it will continue to account for stock
options under APB Opinion No. 25.
Sale of Discontinued Operations
- -------------------------------
On June 17, 1996, Summa completed the sale of all of the issued and
outstanding capital stock of Morehouse-COWLES, Inc. to a private investment
group based in Michigan. In exchange for all of the capital stock of Morehouse-
COWLES, Inc., Summa was paid $750,000 in cash and will be paid an additional
$1,771,000 on the terms and conditions set forth in a subordinated promissory
note. The subordinated note provides for the payment of interest monthly at the
rate of 7% per annum through June, 2001, and at the rate of 9% per annum through
June 2006, and provides for monthly principal payments commencing July 2001
utilizing a 10-year amortization schedule with all unpaid interest and principal
due and payable by June 30, 2006. The note is subordinated to the investors'
bank credit agreement, permits optional prepayments, contains certain covenants
and default provisions and remedies, is secured by a pledge of all of the
outstanding capital stock of Morehouse-COWLES purchased by the investors, as
well as by the assets of Morehouse-COWLES, Inc. Additionally, the investment
group entered into a new lease with the wholly-owned subsidiary of Summa that
holds title to Summa's Fullerton facilities, in which the operations of
Morehouse-COWLES also have been conducted. The lease is for a period of ten
years, with an option to extend the term of the lease for an additional five
years. The monthly rent, on a "triple-net basis" will be $4,000 during the
first five years of the lease, increasing to $5,500 per month during the second
five years of the original lease term.
On January 30, 1996, Summa had previously announced that it had entered into
a letter of intent to sell Morehouse-COWLES to another prospective purchaser.
Accordingly, Morehouse-COWLES, Inc. has been treated for accounting purposes as
a discontinued operation in the interim financial statements of Summa published
since that date. For the nine months ended May 31, 1996, Morehouse-COWLES, Inc.
lost $421,000 before income taxes, on sales of $5,638,000, compared to net
income of $7,000 before taxes on sales of $6,048,000 for the nine months ended
May 31, 1995.
44
<PAGE>
MANAGEMENT OF SUMMA
Executive Officers and Directors.
- ---------------------------------
The following table sets forth certain information concerning Summa's
executive officers and directors:
<TABLE>
<CAPTION>
NAME POSITIONS WITH SUMMA AGE
---- -------------------- ---
<S> <C> <C>
James R. Swartwout Chairman, President, 50
Chief Executive Officer
and Chief Financial Officer
Coalson C. Morris Director 80
Dale H. Morehouse Director 63
Michael L. Horst Director 50
William R. Zimmerman Director 69
David McConaughy Director 64
Karl V. Palmaer Director 75
Byron C. Roth Director 33
Paul A. Walbrun Vice President, Controller 54
and Secretary
</TABLE>
James R. Swartwout has been Chairman of the Board of Directors since August
1990, and Chief Executive Officer since July 1990. Prior to that he was
President and Chief Operating Officer since August 1989. He joined Summa in
October 1988 as its Executive Vice President and Chief Operating Officer.
Before joining Summa, Mr. Swartwout was a principal in a private leveraged
buyout venture. From April, 1985 to October, 1988, Mr. Swartwout was Executive
Vice President of Delphian Corporation, Sunnyvale, California, a manufacturer of
analytical instruments, and had held management positions at Farr Company, El
Segundo, California, a manufacturer of industrial filtration systems.
Coalson C. Morris has been a director of Summa since 1968. He also currently
serves on the Board of Directors of PMC Mortgage Corporation.
Dale H. Morehouse has served as a director since 1975 and as Chairman of the
Board and Chief Executive Officer of Summa from February 1987 until August 1990.
He held several offices with Summa from 1983 to 1987. Mr. Morehouse currently
is retired.
Michael L. Horst has been a director of Summa since 1978. He is an
independent consultant specializing in strategic planning in real estate. He
was formerly a Senior Vice President of PBR, a community planning consulting
firm. In addition, Mr. Horst is a founding principal of International Tourism
and Resort Advisors, a resort development consulting firm, serves as a lecturer
at the University of Southern California, and is a founder of Shenoa, a retreat
and learning center.
William R. Zimmerman, the President of Zimmerman Holdings, Inc., a private
investment company, has served on the Board of Summa since 1987. He is a former
executive officer of Monogram Industries, Inc., Swedlow, Inc., and Avery
International.
David McConaughy has been on the Board of Summa since 1990. Mr. McConaughy is
currently the majority owner and President of Data Management Resources, which
supplies and maintains integrated business management systems. Previously, Mr.
McConaughy, who holds a PhD. in Administrative Science and Economics, was on the
faculty of the University of Southern California Graduate School of Business,
and has had a strategic planning consulting practice.
45
<PAGE>
Karl V. Palmaer is a founder of KVP Systems, Inc., and has been on the Board
of Summa since 1993. Mr. Palmaer is active as a technical consultant to KVP
Systems, Inc.
Byron C. Roth has been President of Cruttenden Roth, Investment Bankers since
1993. Previously, he was Managing Director of Corporate Finance there. Prior
to joining Cruttenden, Mr. Roth was Vice President, Corporate Finance, with R.G.
Dickinson and Company.
Paul A. Walbrun has been Vice President, Controller and Secretary of Summa
since October 1994 and was Vice President, Controller of Summa's former
subsidiary, Morehouse-COWLES, Inc., from July 1994 until June 1996 when it was
sold. Before joining Summa, Mr. Walbrun was Director of Financial Reporting
with Bird Medical Technologies, Inc. and Controller of Stackhouse, Inc., a Bird
Medical Technologies manufacturing subsidiary.
Dale H. Morehouse and Michael L. Horst are cousins. Karl V. Palmaer is the
father of Eric K. Palmaer, a Vice President of Summa. There are no other family
relationships among any of the executive officers and directors of Summa.
The Board of Directors has an Audit Committee consisting of Messrs.
McConaughy, Horst and Roth. There are no other committees. The function of the
Audit Committee is to advise the Board on audit matters affecting Summa,
including recommendations as to the appointment of independent auditors of Summa
and reviewing with such auditors the scope and result of their examination of
the financial statements of Summa. During the fiscal year ended August 31,
1995, this Committee held one meeting attended by all members.
Compensation of Officers and Directors.
- ---------------------------------------
The following summary compensation table sets forth the information regarding
compensation for services in all capacities paid or accrued for the fiscal years
indicated by Summa to its Chief Executive Officer. No other executive officer
of the Company received cash compensation in excess of $100,000 for the fiscal
year ended August 31, 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
---------------------------------- -------------------- -------
STOCK L/TIP
NAME AND SALARY BONUS OTHER AWARDS OPTIONS PAYOUTS ALL OTHER
PRINCIPAL POSITION YEAR $ $ $ $(1) # $ COMPENSATION(2)
- ------------------ ---- ------- ----- ----- ------ ------- ------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
James R. Swartwout, 1996 135,000 - -0- -0- -0- -0- 9,152
Chairman, Chief 1995 132,083 26,250 -0- 23,500 -0- -0- 9,150
Executive Officer and 1994 121,792 33,600 -0- 12,000 -0- -0- 8,934
Chief Financial
Officer
</TABLE>
- -----------------------------
(1) Includes stock awards of 5,000 shares in 1995 and 2,000 shares in 1994,
valued at the average of the high and low trading price of Summa's Common
Stock on the respective dates of award.
(2) Includes payments for a long term disability insurance policy and
contributions under Summa's 401(k) Plan.
Non-employee directors receive a fee of $300 for each Board Meeting attended
and are reimbursed for travel expenses connected with a Board Meeting. No
additional fees are paid to directors for serving on committees. During the
fiscal year ended August 31, 1996, each of the seven outside directors was
awarded an option to purchase 2,500 shares of the Company's common stock at an
exercise price of $4.75, the closing price of the stock on the date of the
grant.
46
<PAGE>
Employment Agreement.
- --------------------
In March, 1994, the Company entered into an employment agreement with James R.
Swartwout under which he is to be paid an annual base salary to be determined by
the Board of Directors, and an annual bonus of up to 40% of his base salary, to
be determined by the Board of Directors based upon the performance of Summa
during the preceding fiscal year, payable in cash or stock at his election. In
the event of his termination, other than for cause, Mr. Swartwout is entitled to
severance pay equal to six months of his current compensations. In the event of
a "change in control" of Summa (defined as the acquisition by a person or group
of either 30% or more of Summa's voting power or the right to elect a majority
of the directors of Summa, the sale of 50% or more of the total fair market
value of the Company's assets, or a specified change in the composition of
Summa's Board of Directors), and regardless of whether his employment is
terminated as a result of such event, Mr. Swartwout would be entitled to receive
as a special bonus an amount equal to two year's base salary at the level then
being paid to him. Mr. Swartwout has stated that such a special bonus will not
be payable to him as a consequence of the Merger.
401(k) Plans
- ------------
Summa has adopted Section 401(k) Plans benefitting substantially all employees
in compliance with relevant ERISA regulations. The plans allow employees to
defer specified percentages of their compensation, as defined, in a tax-exempt
trust. The Company is required to make matching contributions, as defined, to
the plan and may make additional profit-sharing contributions at the discretion
of the Board of Directors. The total company contribution to all employees'
401(k) accounts in fiscal 1996 was $83,000.
Stock Options
- -------------
In 1984, the Board of Directors and shareholders of Summa approved the Summa
Industries 1984 Stock Option Plan (the "1984 Plan"), under which options to
acquire an aggregate of 25,000 shares of Summa's Common Stock may be granted to
key employees, as determined by the Compensation Committee of the Board of
Directors. At August 31, 1996, options to acquire 24,625 shares of Common Stock
had been granted, including options to purchase 12,500 shares granted to Mr.
Swartwout. The price at which the options may be exercised ranges from $1.50 to
$5.00, the market price of the stock on the date of grant. During the fiscal
year ended August 31, 1996, options for 1,125 shares became exercisable. At
August 31, 1996, options for 14,875 shares were exercisable, and 5,375 had been
exercised.
In December 1991, the Board of Directors and shareholders approved the Summa
Industries 1991 Stock Option Plan (the "1991 Plan") under which options to
acquire an aggregate of 150,000 shares of Summa's Common Stock may be granted to
key employees, directors, consultants, vendors, and others, as determined by the
Board of Directors. At August 31, 1996, options to acquire 125,000 shares of
Summa's Common Stock had been granted, including options to purchase 25,000
shares granted to Mr. Swartwout. Options to acquire 25,000 shares of Summa's
Common Stock remain available for future grant. The price at which the options
may be exercised ranges from 2.72 to 6.00, the market price of the stock on the
date of grant. During the fiscal year ended August 31, 1996, options for 21,188
shares became exercisable. At August 31, 1996 options for 90,497 shares were
exercisable, but none had been exercised.
In December 1995, the Board of Directors and shareholders of Summa approved
the Summa Industries 1995 Stock Option Plan (the "1995 Plan") under which
options to acquire an aggregate of 250,000 shares of Summa's Common Stock may be
granted to key employees, directors, consultants, vendors, customers and others,
as determined by the Board of Directors. At August 31, 1996, options to acquire
101,223 shares of Summa's Common Stock have been granted to ten employees and
seven directors. Options to acquire 148,777 shares of Summa's Common Stock
remain available for future grant. The price at which options may be exercised
ranges from $3.613 to $5.10. During the fiscal year ended August 31, 1996,
options for 96,207 shares became exercisable. At August 31, 1996, options for
96,207 shares were exercisable, but none had been exercised.
No options were granted to Mr. Swartwout under the 1984 Plan, the 1991 Plan or
the 1995 Plan during the fiscal year ended August 31, 1996.
47
<PAGE>
The following table sets forth information regarding options exercised
during the year ended August 31, 1996 by the executive officer of the Company
identified in the Summary Compensation Table set forth above, as well as the
aggregate value of unexercised options held by such executive officer at August
31, 1996. The Company has no outstanding stock appreciation rights, either
freestanding or in tandem with options.
AGGREGATED OPTION EXERCISES LAST FISCAL YEAR AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FISCAL YEAR END AT FISCAL YEAR END ($) (1)
SHARES --------------------------- ---------------------------
ACQUIRED ON VALUE
NAME EXERCISE (#) REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ------------ -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
James R. Swartwout -- -- 37,500 -- $113,350 --
</TABLE>
- ----------------------------
(1) Calculated based on the closing price of the Company's Common Stock as
reported on The NASDAQ National Market System on August 31, 1996, which was
$6.00 per share.
Limitation of Directors' and Officers' Liability and Indemnification
- --------------------------------------------------------------------
Summa's Bylaws provide that Summa 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 Summa pursuant to the foregoing provisions,
Summa has been informed that, in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
COMPENSATION COMMITTEE REPORT
Report on Annual Compensation of Executive Officers
- ---------------------------------------------------
It is the policy of the Company's Compensation Committee to establish
compensation levels for the executive officers, which reflect the Company's
overall performance and their performance, responsibilities and contributions to
the long-term growth and profitability of the Company. The committee determines
compensation based on its evaluation of the Company's overall performance,
including various quantitative factors, primarily the Company's financial
performance, sales and earnings against the Company's operating plan, as well as
various qualitative factors such as new product development, the Company's
product and service quality, the extent to which the executive officers have
contributed to forming a strong management team and other factors which the
committee believes are indicative of the Company's ongoing ability to achieve
its long-term growth and profit objectives.
48
<PAGE>
The principal component of the compensation of the executive officers is
their base salaries. The committee also retains the discretion to award bonuses
based on corporate or individual performance. The committee evaluates the
practices of various industry groups, market data, including data obtained from
time to time from outside compensation consultants, and other economic
information to determine the appropriate ranges of base salary levels which will
enable the Company to retain and incentivize the executive officers. Throughout
the year, the committee members review the corporate and individual performance
factors described above. The committee, based upon its review of performance
for the previous year and its review of the Company's operating plan,
establishes salary levels and awards any bonuses to the executive officers.
The Compensation Committee also considers grants of stock options for the
Company's key employees, including executive officers. The purpose of the stock
option program is to provide incentives to the Company's management to work to
maximize shareholder value. The option program also utilizes vesting periods to
encourage key employees to continue in the employ of the Company. Individual
amounts of annual stock option grants are derived based upon review of
competitive compensation practices with respect to the same or similar executive
positions, overall corporate performance and individual performance.
STOCK PERFORMANCE GRAPH
The graph set forth below shows the Company's composite return as an index
assuming $100 invested on August 31, 1991. Also depicted are the CRSP indices
for The Nasdaq Stock Market (U.S. companies), and a peer group, Nasdaq Non-
Financial Stocks. The graph is based upon information provided to the Company
by the Center for Research in Security Prices ("CRSP").
Comparison of Five year-Cumulative Total Returns
Performance Graph for
SUMMA INDUSTRIES
Prepared by the Center for Research in Security Prices
Produced on 09/13/96 including data to 08/30/96
<TABLE>
<CAPTION>
Measurement Period SUMMA NASDAQ NASDAQ NON-
(Fiscal Year Covered) INDUSTRIES STOCK MARKET FINANCIAL
- --------------------- ---------- ------------ ----------
<S> <C> <C> <C>
Measurement Pt- 08/30/91 $100 $100 $100
FYE 08/31/92 $113.3 $108.5 $103.2
FYE 08/31/93 $160.0 $143.1 $135.6
FYE 08/31/94 $153.3 $148.9 $138.1
FYE 08/31/95 $133.3 $200.5 $188.7
FYE 08/31/96 $160.0 $226.2 $208.4
</TABLE>
Notes:
A. The lines represent monthly index levels derived from compounded daily
returns that include all dividends.
B. The indexes are reweighted daily, using the market capitalization on the
previous trading day.
C. If the monthly interval, based on the fiscal year-end, is not a trading
day, the preceding trading day is used.
D. The index level for all series was set to $100.00 on 08/30/91.
49
<PAGE>
INFORMATION CONCERNING LEXALITE
BUSINESS
General
- -------
LexaLite International Corporation was incorporated in Michigan in 1963 and
subsequently reincorporated in Delaware. LexaLite designs, manufactures and
markets plastic optical components (refractors and reflectors), and other molded
plastic products.
The principal executive office of LexaLite is located at 10163 US 31 North,
Charlevoix, Michigan 49720-0498, and its telephone number is (616) 547-6584.
Products
- --------
The original products of LexaLite were plastic lamp covers for street
lights, used to replace glass covers which were subject to vandalism.
Subsequently, LexaLite developed prismatic lenses, refractors and reflectors
molded from clear plastic, which are used in commercial and industrial lighting
fixtures and in similar applications such as lighted navigational aids, traffic
signals and vehicles. On a selective basis, LexaLite also makes non-optical
molded plastic products.
Most of the products are injection molded from optical grade polycarbonate
or acrylic. The principal advantages of the products made by LexaLite over more
traditional glass or metal components are lighter weight, superior optical
performance and in certain instances, lower cost. The design of optical
components is very specialized, and LexaLite has developed an elite capability
in this field. Additionally, LexaLite has an excellent tool manufacturing
department which is necessary because tooling for injection molding is complex
and must be manufactured to close tolerances.
Research and Development
- ------------------------
LexaLite has consistently invested heavily in research and development of
products and manufacturing methods. For the years ended June 30, 1994, 1995 and
1996, LexaLite spent $554,000, $671,000 and $885,000, respectively, on research
and development. This activity is conducted at two facilities, located and
staffed separately from the corporate headquarters:
Lighting Research Center ("LRC"). The staff at LRC designs optical
surfaces using computer aided design techniques. Prototypes of products are
fabricated and photometric performance testing is conducted in one of the best
equipped lighting test facilities in the world.
LexaLite Scientific Center ("LSC"). This facility was created in 1994 to
develop confidential products and methods. Currently, LexaLite is developing
components for an innovative high-performance flat-screen display under contract
to a unit of AlliedSignal. LexaLite is also developing an automated vapor-
deposition coating process for its own use, which is expected to materially
reduce the cost and increase the photometric performance of development plastic
"canister" components to be used in recessed lighting fixtures. If successful,
this product could result in a significant increase in LexaLite sales because
these components are generally made of metal by others.
Injection molds or tools are made by a LexaLite division known as
Charlevoix Tool and Engineering ("CTE") which both contracts outside and has
expert toolmakers on staff. CTE is located at the main plant in Charlevoix,
Michigan.
Manufacturing
- -------------
LexaLite has developed elite injection molding capability. Products are
made on modern molding machines which range from 28 to 1500 tons clamping force.
Ancillary equipment and special operations include automatic resin feed systems,
two color molding, insert molding, robotics, painting, vacuum deposition coating
with reflective metallic films, assembly, packaging and warehousing. LexaLite
operates on a just-in-time system with many of its customers and inventories are
managed to minimal levels. Inventory turns approximately 17 times a year. All
of LexaLite's manufacturing plants are registered to ISO 9002.
50
<PAGE>
Marketing
- ---------
The majority of LexaLite's sales are to OEM lighting fixture manufacturers.
LexaLite seeks to maintain a "strategic partnership" relationship with its
customers and has a direct sales force of seven persons who operate out of two
manufacturing plants in Michigan and Tennessee. Additionally, LexaLite sells
some product through commissioned sales representatives in selected geographic
areas and business situations, including international.
For the year ended June 30, 1996, 91% of sales were made directly and 9% of
sales were through commercial manufacturers' representatives. LexaLite
differentiates between product sales and sales of tooling. Of product sales for
June 30, 1996, 50.4% of sales were of products made from LexaLite proprietary
tooling, 31.5% were of optical components manufactured for a single customer
using tooling owned by others, and 14.6% of product sales were of non-optical
components. Sales of all optical components are considered strategic. The non-
optical products are manufactured to expand the business relationship with
customers for strategic products or to balance the utilization of manufacturing
capacity.
LexaLite products are installed in high-bay manufacturing plants,
warehouses, retail stores, gasoline stations, parking lots, and other types of
buildings, in traffic signals, marine navigation aids and vehicles. Because the
products are components, they are virtually always sold to OEM manufacturers.
These include major industrial companies such as Hubbell, Lithonia division of
National Service Industries, Inc., Cooper, Thomas Industries, and GE as well as
many less well recognized companies. For the year ended June 30, 1996, LexaLite
had 322 active accounts. Sales to the largest five customers were 15.4%, 12.8%,
9.6%, 8.5% and 3.6% of product and tooling sales, respectively. Product sales
comprise 92.6% of total net sales. These customers have all been active
accounts for more than ten years. Sales outside the United States were 8.2% of
total sales.
Sales are somewhat related to commercial building construction but are
generally not seasonal.
Raw Materials
- -------------
LexaLite purchases pelletized resins from major suppliers such as Bayer, GE
Plastics, ICI and others. Certain of these resins may be in short supply from
time to time, but LexaLite has been able to obtain an adequate supply of resin
during such periods to meet its manufacturing commitments, because it is a
significant consumer of the materials. LexaLite believes it is one of the
largest users of optical grade polycarbonate and acrylic in the world.
Occasionally, LexaLite uses smaller quantities of other resins such as ABS,
polypropylene and nylon.
Backlog
- -------
Since LexaLite's lead time for producing components is only two to four
weeks, backlog is usually minimal and typically represents approximately one and
one-half (1.5) months of product sales. The backlog of orders for tooling, as
opposed to products, the lead time for which is four to ten months, varies
widely. At June 30, 1996, the backlog of firm orders for new tooling was
$804,000, approximately six months of planned tooling sales. Tooling sales
typically are about 3.5% of product sales.
Competitive Conditions
- ----------------------
A significant number of custom injection molders, some of which are larger
than LexaLite, make optical components. Management believes that none of these
companies regards optical components as a strategic business focus and none has
developed optical design expertise to a significant extent. On the other hand,
virtually all of LexaLite's customers have both optical design capability and
injection molding machines and also conduct operations for themselves which
LexaLite regards as within its strategic activity.
Patents, Trademarks and Licenses
- --------------------------------
LexaLite has numerous domestic and foreign patents, some of which are
believed by management to protect commercial products from imitative
competition.
51
<PAGE>
LexaLite develops many products independently for sale to multiple
customers. Products are also developed jointly with specific instructions under
various arrangements which could include exclusivity, a license to LexaLite to
make sales to third parties or other special agreements. The consultative
nature of these development efforts is part of the strategic value-added nature
of LexaLite's business and the confidentiality of these activities is ardently
maintained.
Compliance with Environmental Regulations
- -----------------------------------------
LexaLite monitors environmental compliance via a full-time environmental
engineer, reporting directly to a vice-president. LexaLite believes that it is
in compliance with all requirements set forth by the E.P.A. and the states of
Michigan and Tennessee relating to air quality, water quality and hazardous
waste management and disposal.
Legal Proceedings
- -----------------
LexaLite was not a party to any material pending or threatened litigation
at June 30, 1996.
Employees
- ---------
At June 30, 1996, LexaLite had approximately 100 salaried and 168 hourly
employees, none of whom is represented by a labor union. LexaLite considers its
relationship with its employees to be excellent. The headquarters is located in
a small town in Northwest Michigan with a limited labor pool, and is one of the
largest employers in the area. Occasionally, LexaLite has had to recruit
individuals for key positions from outside the area and has incurred some delays
in filling these positions. In 1985, LexaLite opened a branch plant near
Nashville, Tennessee, in an area which, at the time, had a labor surplus.
Subsequently, a number of other employers have opened plants in that area and
management does not currently consider a labor surplus to exist there.
Facilities
- ----------
LexaLite owns four separate facilities. The original plant and corporate
headquarters which has been expanded several times over the years, comprises
94,000 square feet of manufacturing and office space on 14 acres of land on the
shore of Lake Michigan in Charlevoix, Michigan. The LexaLite Research Center
comprises 14,700 square feet of office, testing and light manufacturing area on
three-quarters of an acre of land in Charlevoix, Michigan. The LexaLite
Scientific Center comprises 27,500 square feet of office and manufacturing area
on 11 acres of land in a business park in Charlevoix, Michigan. The facility
was constructed with utilities in place so that it can be modularly expanded as
required. The Tennessee plant comprises 55,000 square feet of office and
manufacturing area on 24 acres of land in Dickson, Tennessee. Substantially all
of LexaLite's properties are pledged to secure debt. The LexaLite Scientific
Center was built with the proceeds of a Michigan Industrial Revenue Bond.
52
<PAGE>
LEXALITE SELECTED FINANCIAL DATA
(in thousands)
The selected financial data set forth below for the three years ended June
30, 1994, 1995 and 1996 has been derived from the audited financial statements
of LexaLite included elsewhere herein. The selected financial data set forth
below for the two years ended June 30, 1992 and 1993, has been derived from the
unaudited financial statements of LexaLite and, in the opinion of management,
includes all adjustments necessary for a fair presentation of the results for
such periods. The selected financial data set forth below should be read in
conjunction with those financial statements (including the notes thereto) and
with the "LexaLite Management's Discussion and Analysis of LexaLite's Results of
Operations and Financial Condition" also included elsewhere herein.
<TABLE>
<CAPTION>
STATEMENT OF INCOME DATA: FISCAL YEARS ENDED JUNE 30,
- ------------------------- -------------------------------------------------
1992 1993 1994 1995 1996
------- ------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
Net sales............................... $17,584 $22,210 $26,771 $33,235 $36,089
Cost and expenses:
Cost of sales......................... 13,496 16,346 20,100 25,321 26,964
Selling, general and administrative... 2,348 3,490 3,833 4,518 5,002
Research and development.............. 387 413 554 671 884
Interest - net........................ 434 433 483 563 721
Other expense......................... 93 180 (13) (62) (33)
------- ------- ------- ------- -------
Total costs and expenses.............. 16,758 20,862 24,957 31,011 33,538
Income before provision for
income taxes.......................... 826 1,348 1,814 2,224 2,551
Provision for income taxes.............. 334 624 631 80 963
------- ------- ------- ------- -------
Net income.............................. $ 492 $ 724 $ 1,183 $ 1,422 $ 1,588
======= ======= ======= ======= =======
Depreciation and amortization
included in costs, above.............. $ 939 $ 983 $ 1,168 $ 1,632 $ 1,773
</TABLE>
BALANCE SHEET DATA:
- -------------------
<TABLE>
<CAPTION>
JUNE 30,
-------------------------------------------------
1992 1993 1994 1995 1996
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Assets.................................. $10,000 $12,388 $17,147 $23,388 $24,109
Working capital......................... 1,613 2,549 2,249 3,060 3,599
Long-term debt.......................... 3,343 4,087 5,670 10,490 8,264
Shareholders' equity.................... $ 4,192 $ 4,774 $ 5,983 $ 7,714 $ 9,505
</TABLE>
53
<PAGE>
LEXALITE'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF
LEXALITE'S RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations
- ---------------------
Net Sales. For the fiscal year ended June 30, 1996, net sales
increased approximately 8.6%. A reduction in sales to one customer of non-
optical components of $463,000 was more than offset by increases in sales of
proprietary lighting products and revenues from design and development services.
Sales of the proprietary "800 Series" products, large scale refractors for high-
bay lighting fixtures, increased $2.4 million or 36% during 1996. Revenues from
design and development services increased $425,000 or 94% in 1996.
In 1995, net sales increased approximately 24.1%. Sales to the
lighting industry as well as sales of consulting and development services,
accounted for the increase. Sales of the "800 Series" products increased $2.4
million or 52% in 1995.
Gross Margin. Gross margin as a percent of sales was 25.3%, 23.8% and
24.9% in the respective years. The modest decline in 1995 margins versus 1994
reflects increased resin prices that could not be immediately passed on to
customers offset partially by the favorable impact of higher volumes on overhead
allocation. The slight improvement in 1996 reflects the favorable impact of
increased revenues in the higher margin proprietary products and service lines
mentioned above.
Operating Expenses. As a percentage of sales, selling, general and
administrative expenses remained relatively stable at 13.9%, 13.6% and 14.3% in
1996, 1995 and 1994, respectively. The decline in selling, general and
administrative expenses as a percentage of sales in 1995 reflects LexaLite's
increased sales which outpaced increases in operating expenses in that
year.
Research and development costs were 2.5%, 2.0% and 2.1% of sales in
1996, 1995, and 1994, respectively. The increase in 1996 is attributable to
LexaLite's investment in LexaLite Scientific Center which was opened in the
beginning of 1996.
Interest Expense. In 1996, interest expense was $721,000, an increase
of $158,000 from 1995, reflecting an increase in debt assumed to expand the
LexaLite Scientific Center. Approximately $185,000 of interest costs were
capitalized in 1995 during the construction of the facility. Approximately 53%
of the debt is comprised of Michigan Industrial Revenue Bonds which bear an
average interest rate of approximately 6%, substantially below commercial
lending rates.
Income Taxes. The effective tax rates were 37.7%, 36.1% and 34.8% in
1996, 1995, and 1994, respectively. The variance from the federal statutory
rate is primarily due to the effect of state income taxes.
Net Income. In 1996, LexaLite reported net income of $1,588,000 or
4.4% of sales versus $1,422,000 or 4.3% of sales in 1995, and $1,183,000 or 4.4%
of sales in 1994. Improvements in net income are primarily volume related.
Liquidity and Capital Resources.
- --------------------------------
During 1996, working capital increased $539,000, or 18%. The current
ratio remained constant at 1.6 and the quick ratio remained at 1.2 for 1996 and
1995.
LexaLite's most important sources of liquidity are cash provided by
operating activities and credit arrangements with a bank. Cash flow from
operations has been $3,327,000 and $2,754,000 during 1996 and 1995,
respectively. In addition, LexaLite has available credit facilities totaling
$4,250,000. Plans for capital additions of approximately $2,600,000 in 1997 are
anticipated to be financed through cash flows from operations and the existing
credit facilities.
If LexaLite were to increase its expansion of facilities and its sales
were to continue to grow as they have in the last three years, LexaLite would
approach its debt capacity, in which case an alternate source of funds would
have to be developed. Management believes the proposed merger with Summa could
provide the opportunity to raise additional equity capital for the future.
Inflation
- ---------
Over the recent year, LexaLite has experienced pricing pressures on
certain plastic resins. LexaLite has been relatively successful in negotiating
price contracts with its vendors as well as passing on a portion of the price
increases to its customers. Management does not expect inflation to have a
significant impact on LexaLite's future gross margins.
54
<PAGE>
MANAGEMENT OF LEXALITE
Executive Officers and Directors
- --------------------------------
The following table sets forth certain information concerning LexaLite's
executive officers and directors:
<TABLE>
<CAPTION>
NAME POSITION AGE
---- -------- ---
<S> <C> <C>
Arthur R. Marshall Chairman of the Board 75
Josh T. Barnes Chief Executive Officer, and Director 68
Wilfred G. Cryderman Director 73
Ann R. Kendall Director 72
Stanley Lundsten Director 84
John Altman Director 58
Thomas M. Phillips President, Director 56
Patricia A. DeYoung Chief Administrative Officer, Secretary 42
and Director
Sherwood Mitter Treasurer and Director of Corporate 46
Finance
</TABLE>
Arthur R. Marshall was an original investor in LexaLite and has been a
director since 1963. He has owned several businesses, some jointly with Mr.
Cryderman. Mr. Marshall is retired.
Josh T. Barnes is the founder of LexaLite and has been the entrepreneurial
driving force behind its growth and success and has been a director since 1963.
Prior to forming LexaLite in 1963, Mr. Barnes and Stanley Lundsten were
associated as product developers and sales representatives for various thermoset
and thermoplastic manufacturers. Mr. Barnes is a registered professional
mechanical engineer (Michigan), holds degrees from Lawrence Institute of
Engineering (Civil) and the U.S. Army Corps of Engineers Officer Training
School. Mr. Barnes is a member of the Illuminating Engineering Society, the
Society of Plastic Engineers and holder of several lighting related patents. He
has long been active in the community and is currently Mayor of Charlevoix.
Wilfred G. Cryderman was an original investor in LexaLite and has been a
director since 1963. He has owned several businesses, some jointly with Mr.
Marshall. Mr. Cryderman is retired, although he has worked as an independent
consultant (dba Imcon) to manufacturing for the past several years.
Ann R. Kendall received her stock holdings through a marriage dissolution
settlement, and has been on the LexaLite Board of Directors since 1974. Ms.
Kendall is a retired librarian from a private school, Detroit Country Day, in
Birmingham, Michigan.
Stanley Lundsten was an original investor in LexaLite and has been a
director since 1963. Mr. Lundsten owned Lundsten Plastics and is currently
retired.
John Altman holds degrees that include a BA and an Honorary Doctorate of
Humane Letters from Miami University. He is also a graduate of Fuller
Theological Seminary and the Harvard Graduate School of Business Management
program. He was previously sole owner, founder, partner or significant
shareholder in six businesses, including co-founder of Continental Polymers. A
member of the LexaLite Board of Directors since 1994, Dr. Altman has had a long-
standing business relationship with LexaLite.
55
<PAGE>
Thomas M. Phillips joined LexaLite in 1992 as its President and was elected
to the Board of Directors in 1994. He is a graduate of the University of
Wisconsin. His extensive career in quality control, manufacturing management
and general management includes assignments at American Motors Corporation,
Sheller Globe Corporation, The Becker Group and Signet Industries. Mr. Phillips
is President of the Charlevoix Chamber of Commerce and Vice President of the
Northwest Michigan Industrial Association.
Patricia A. DeYoung joined LexaLite in 1979 as an administrative secretary
and has assumed increased responsibility throughout her tenure. She has been
Corporate Secretary of LexaLite since 1988, and in 1990, she was elected to the
Board of Directors. Ms. DeYoung is Chairperson of the Northwest Michigan
Industrial Association Workers Compensation Fund.
Sherwood A. Mitter joined LexaLite in November 1994 as Director of
Corporate Finance and Treasurer. Ms. Mitter is a graduate of Ferris State
University with a Bachelor of Science degree in Accounting. She also attended
and taught at Northwestern Michigan College, where she earned two (2) Associate
of Applied Science degrees. Ms. Mitter is a C.P.A., certified in the State of
Michigan since 1989. Her prior position was In Charge Accountant with a local
C.P.A. firm.
Compensation of Officers and Directors
- --------------------------------------
The following summary compensation table sets forth the information
regarding compensation for services in all capacities paid or accrued for the
fiscal years indicated by LexaLite to its Chief Executive Officer, President and
Chief Administrative Officer. No other executive officer of LexaLite received
cash compensation in excess of $100,000 for the fiscal year ended June 30, 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
---------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
----------------------------------- ----------------------- -------
L/TIP
NAME AND SALARY BONUS OTHER STOCK AWARDS OPTIONS PAYOUTS ALL OTHER
PRINCIPAL POSITION YEAR $ $ $ $(1) # $ COMPENSATION
- ------------------ ---- ------- ------ ------- ------------ -------- ------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Josh T. Banes, Chief 1996 60,000 64,248 -0- -0- 3,500 -0- 168,918(2)(3)
Executive Officer
Thomas M. Phillips, 1996 102,000 76,516 -0- 125,619 -0- 83,453 53,804(3)
President
Patricia A. DeYoung, 1996 60,000 51,977 -0- 94,219 2,500 18,588 23,083(3)
Chief Administrative
Officer
</TABLE>
- -----------------------------
(1) Includes the dollar value of shares of LexaLite Common Stock awarded under
Stock Award Bonus Plan described below.
(2) Includes consulting fees and commission to Business Activities Corporation
for the fiscal year ended June 30, 1996.
(3) Includes for the fiscal year ended June 30, 1996 (i) matching contributions
by LexaLite under the LexaLite 401(k) Profit-Sharing Plan, including $8,189
and $6,500 for Mr. Barnes and Ms. DeYoung, respectively, (ii) matching
contributions by LexaLite under the LexaLite Cafeteria Plan for insurance
premium payments, including $2,906, $3,399 and $3,034 for Mr. Barnes, Mr.
Phillips and Ms. DeYoung, respectively, (iii) amounts allocated under the
LexaLite Employee Stock Ownership Plan, including $3,360, $3,391 and $3,453
for Mr. Barnes, Mr. Phillips and Ms. DeYoung, respectively, (iv) imputed
income from premiums paid by LexaLite for term life insurance maintained by
LexaLite, including $1,890, $675 and $86 for Mr. Barnes, Mr. Phillips and
Ms. DeYoung, respectively, and (v) amounts paid to participants in the
Stock Award Bonus Plan to pay withholding taxes relating to shares awarded,
including $46,339 and $10,010 for Mr. Phillips and Ms. DeYoung,
respectively.
All non-employee Directors are paid $5,000 per year, payable $1,250 per
quarter, which includes the cost of travel to meetings held within the state in
which the Director is then residing, and otherwise is in addition to the actual
costs of travel to and from meetings. A fee of $1,250 applies to any special
meetings or to meetings that exceed four (4) in any calendar year.
56
<PAGE>
Employment Arrangement
- ----------------------
Josh T. Barnes currently serves as Chief Executive Officer of LexaLite on
terms and conditions adopted by LexaLite's Board of Directors as of September
17, 1993. These resolutions confirm Mr. Barnes as an "at-will" employee of
LexaLite and grant both Mr. Barnes and LexaLite the right to terminate his
employment at any time. In the resolutions, a salary for Mr. Barnes of $60,000
per year is established, subject to annual review by LexaLite's Board of
Directors, and reimbursement of his necessary costs and expenses, including the
costs of suitable transportation, is authorized. In addition, the terms under
which Mr. Barnes will be paid incentive annual bonuses are set forth. LexaLite
is not obligated to provide Mr. Barnes any specific severance compensation in
the event his employment is terminated by either Mr. Barnes or LexaLite, except
that his salary and benefits would continue for six months following
termination. However, the resolutions state that each party expects that the
manner, notice and terms of termination of Mr. Barnes' employment would
recognize the many years of Mr. Barnes' service to LexaLite. For a description
of certain modifications to these arrangements which will become effective upon
consummation of the Merger, see "Description of the Proposed Merger - Interests
of Certain Persons in the Merger." In addition, Mr. Barnes has entered into a
Non-Compete Agreement with LexaLite, which will be triggered by and survive the
termination of his employment with LexaLite. See "Management of LexaLite -
Certain Transactions." The Non-Compete Agreement will also be modified in
connection with the Merger. See "Description of the Proposed Merger - Interests
of Certain Persons in the Merger."
Stock Award Bonus Plan
- ----------------------
The Board of Directors of LexaLite has established a Stock Award Bonus Plan,
the purpose of which is to permit grants of shares to key officers of LexaLite,
as a means of retaining and rewarding them for long-term performance and to
increase their ownership in LexaLite. Shares awarded under the Plan are based
on discretionary percentage of aggregate stock value growth, as defined by the
Plan. The awards vest in three annual installments and are paid in the form of
stock and cash. For the fiscal year ended June 30, 1996, an aggregate of 20,893
shares of LexaLite's Common Stock was granted to three key executives including
8,357 shares granted to Mr. Phillips and 6,268 shares granted Ms. DeYoung. In
July 1996, non-qualified stock options to purchase 54,000 shares of Common Stock
at the price of $9.00 per share were granted to four key executives in
consideration of the termination of the Stock Award Bonus Plan described herein,
including options to purchase 15,000, 15,000, 12,000 and 12,000 shares were
granted to Mr. Barnes, Mr. Phillips, Ms. DeYoung and Ms. Mitter, respectively.
The options will vest over a period of four years provided the key executives
continue to serve as employees or consultants to LexaLite.
Stock Options
- -------------
LexaLite has two existing stock option programs, the intent of which is to
retain and reward key employees for their performance and also to provide a
means for ownership outside the ESOP. The original plan, a non-qualified stock
option plan, has only one remaining open grant. In November 1993, the Board
authorized options as of January 1994 to be granted to key employees. Options
are exercisable beginning three years from the effective date of the grant for a
period of six months. Options were granted at $5.89/share, the per share price
at the time of the option grant. A total of 29,000 shares were granted to key
employees, and as of October 14, 1996, 24,500 option shares were outstanding.
Ms. DeYoung was granted an option to purchase 2,500 shares. No options were
granted to Mr. Barnes or Mr. Phillips.
In November 1995, the Board ratified a ten-year option plan pursuant to
which qualified options to purchase up to an aggregate of 100,000 shares of
LexaLite's Common Stock may be granted to certain key employees, effective
January 1995. Options are exercisable beginning three years from the effective
date of the grant for a period of six months. Options were granted effective at
$7.85/share, the per share price at the time of the option grant. A total of
6,050 shares were granted to 15 employees, and as of October 14, 1996, 6,050
option shares were outstanding. Mr. Barnes was granted an option to purchase
1,000 shares at $8.64/share, a price which was 110% of the per share price at
time of grant due to his percentage ownership LexaLite. No options were granted
to Mr. Phillips or Ms. DeYoung.
In May 1996, the Board approved a second grant under the qualified stock
option plan for key employees effective January 1996. Options were granted at
$8.48/share, the per share price at the time of the option grant. A total of
20,000 shares were granted to 30 employees, and as of October 14, 1996, 20,000
option shares were outstanding. Mr. Barnes was granted an option to purchase
2,500 shares at $9.33/share, a price which was 110% of current per share price
at time of option grant due to his percentage ownership LexaLite. No options
were granted to Mr. Phillips or Ms. DeYoung.
For a description of certain options granted in connection with termination
of LexaLite's Stock Award Bonus Plan, effective July 1, 1996, in anticipation of
the Merger, see "Stock Award Bonus Plan."
57
<PAGE>
Certain Transactions
- --------------------
Josh T. Barnes, LexaLite's Chief Executive Officer, owns and operates
Business Activities Corporation (B.A.C.), a Michigan corporation. LexaLite pays
commissions to B.A.C. for sales of "800 Series" proprietary product, pursuant to
a Design and Consulting Agreement effective January 1, 1993. LexaLite paid
B.A.C. commissions of $85,000, $107,000, and $131,000 for the fiscal years 1994,
1995 and 1996, respectively. In the opinion of the management of LexaLite, the
commissions paid to B.A.C. are comparable to those that could be arranged with
an unrelated party.
Mr. Barnes currently has a Non-Compete Agreement with LexaLite to become
effective in the event of termination of employment and/or the Consulting
Agreement between LexaLite and B.A.C. This Agreement provides for payments
equal to the higher of (1) the amount then currently being paid by LexaLite for
similar covenants; (2) the amount last paid for such covenants if none now exist
or; (3) $3,500 per month, payable the first day of each month. The Agreement
expires ten (10) years following the date of the first such payment. For a
description of modifications to the Non-Compete Agreement that will become
effective upon consummation of the Merger, see "Description of the Merger -
Interests of Certain Persons in the Merger."
Arthur R. Marshall, a Director and Chairman of the LexaLite Board of
Directors, currently is paid $30,000 annually, in monthly payments, pursuant to
a Non-Compete Agreement originally effective in 1989 and renewed annually
thereafter. Mr. Marshall's Non-Compete Agreement will terminate upon
consummation of the Merger.
Wilfred G. Cryderman, a Director, is currently paid $30,000 annually, in
monthly payments, pursuant to a Non-Compete Agreement originally effective in
1989 and renewed annually thereafter. Mr. Cryderman's Non-Compete Agreement
will terminate upon consummation of the Merger.
Deakin Business Services (D.B.S.) provides cleaning services to the LexaLite
office facilities located in Charlevoix, Michigan. As outside contractors, the
D.B.S. contracts are competitively bid annually and subject to only reasonable
notice for termination. Thomas M. Phillips, President of LexaLite, has a
relationship by marriage to the ownership of D.B.S. (parent of spouse).
Patricia A. DeYoung, Chief Administrative Officer of LexaLite, owns
Austrasia Export Corporation, originally started in 1980 by Josh T. Barnes
(C.E.O.) and ultimately sold to Ms. DeYoung. Austrasia has a Sales
Representation Agreement with LexaLite for certain non-O.E.M. sales not
otherwise serviced by LexaLite, paying list price to LexaLite for products sold
to these selected customers. Sales for fiscal years 1995 and 1996 were $32,843
and $11,674, respectively.
Employee Stock Ownership Plan
- -----------------------------
LexaLite has an Employee Stock Ownership Plan, the primary purpose being to
provide retirement benefits to substantially all of its employees. Benefits are
payable in the form of LexaLite's Common Stock, which under specific conditions
LexaLite is obligated to repurchase. LexaLite provides a discretionary
contribution to the ESOP as determined by the Board of Directors which is then
allocated to the participants' accounts annually based on hours of service,
compensation and vesting parameters. An employee typically becomes 100% vested
following five years of service. In fiscal year 1995, the total company
contribution to the Plan was $278,000. In fiscal year 1996, the total company
contribution to the Plan was $143,000, with 191 active participants.
The LexaLite ESOP is administered by an Administrator, currently Josh T.
Barnes, the Chief Executive Officer and a director of LexaLite. NBD Bank, N.A.,
serves as the trustee of the ESOP Trust, which holds shares of LexaLite Common
Stock for the ESOP. The trustee has voting and limited investment power over
shares held by the ESOP Trust that have not been allocated to individual
accounts. The Administrator has the power to direct the trustee as to the
voting of shares held by the ESOP Trust that have not been allocated to
individual accounts. The Administrator has the power to direct the trustee as
to the voting of shares held by the ESOP Trust that have not been allocated to
individual accounts. In addition, the Administrator has the power to direct the
trustee as to the voting of shares held by the ESOP Trust that have been
allocated to individual accounts unless the ESOP Trust receives a loan or other
extension of credit to purchase LexaLite Common Stock or more than 10% of the
ESOP's assets are invested in LexaLite Common Stock, in which event participants
have the right to vote the shares allocated to their accounts on any corporate
matter involving the merger, consolidation, recapitalization, reclassification,
liquidation or dissolution of LexaLite or the sale of substantially all of
LexaLite's assets or any similar transaction. The trustee and the Administrator
disclaim beneficial ownership of shares held by the ESOP Trust (except shares
58
<PAGE>
allocated to the person's individual account under the ESOP), and the ESOP
shares are not reported as beneficially owned by the trustee or the
Administrator as individuals unless the shares have been allocated to the
person's individual account under the ESOP.
The LexaLite ESOP currently provides that the right of participants to
receive cash (determined in accordance with a specified formula) in lieu of
shares of LexaLite's Common Stock will terminate if the shares owned by the ESOP
trust were publicly traded, a circumstance that would result upon issuance of
registered shares of Summa's Common Stock in exchange therefor as a consequence
of the Merger. However, the Reorganization Agreement specifies that the
LexaLite ESOP will be modified following the Merger to provide current
participants who receive distributions of shares of stock pursuant to the
provisions of the ESOP during the three full years following the Merger with the
option to cause the ESOP to purchase the shares of Summa's Common Stock issued
for their respective accounts as a consequence of the Merger at a price
determined in accordance with the existing formula, rather than receive a
distribution of the shares which must then be sold in the public marketplace.
In addition, the Reorganization Agreement provides that the shareholders of
Summa will be asked to approve the adoption by Summa of the LexaLite ESOP,
modified as described above and as may further be required, in order to permit
the employees of Summa and its other operating subsidiaries to participate
therein in accordance with such provisions for contribution as may be adopted by
the respective boards of directors of Summa and its other operating
subsidiaries, to provide that future contributions thereto may be made either in
cash or in shares of Summa's Common Stock, and to authorize the ESOP to borrow
money for the purchase of Common Stock either in the public market or directly
from ESOP participants. Accordingly, by approving the Merger the shareholders
of Summa will also approve the adoption by Summa of the LexaLite ESOP as a Summa
ESOP, modified as summarized above.
401(k) Plan
- -----------
LexaLite has adopted a Section 401(k) Plan benefitting substantially all
employees in compliance with relevant ERISA regulations. The Plan allows
employees to defer specified percentages of their compensation, as defined, in a
tax-exempt trust. LexaLite is required to make matching contributions, as
defined, to the Plan and may make additional profit-sharing contributions at the
discretion of the Board of Directors. The total LexaLite contribution to all
employees' 401(k) accounts in fiscal 1996 was $289,500.
Limitation of Directors' and Officers' Liability and Indemnification
- --------------------------------------------------------------------
As permitted by Delaware law, LexaLite's Certificate of Incorporation
eliminates, with certain exceptions, the personal liability of a director to the
corporation or its stockholders for monetary damages for breach of the
director's fiduciary duty as a director. A director's monetary liability is not
limited, however, with respect to (a) breaches of the director's duty of loyalty
to the corporation or its stockholders; (b) acts or omissions not in good faith
or involving intentional misconduct or a knowing violation of law; (c) unlawful
dividends, stock repurchases or redemptions; or (d) transactions from which the
director received an improper personal benefit. A LexaLite director's monetary
liability also is not limited with respect to violations of federal or state
securities laws. The limitations on director liability included in LexaLite's
Certificate of Incorporation do not affect the availability of non-monetary
remedies such as injunctive relief or rescission.
LexaLite's Bylaws provide that LexaLite must indemnify its directors,
officers, employees and agents to the fullest extent permitted by Delaware law.
Delaware generally permits indemnification of expenses incurred in the defense
or settlement of a derivative or third-party action, provided there is a
determination by a majority vote of disinterested directors (even though less
than a quorum) or, if there are no such directors, or if such directors so
direct, by independent legal counsel in a written opinion, or by the
stockholders, that the person seeking indemnification acted in good faith and in
a manner he reasonably believed to be in or not opposed to the best interests of
the corporation and, with respect to a criminal proceedings, which he had no
reasonable cause to believe his conduct was unlawful. Without court approval,
however, no indemnification may be made in respect of any derivative action in
which the person is adjudged liable to the corporation. Delaware law requires
indemnification of expenses when the individual being indemnified has
successfully defended the action on the merits or otherwise. LexaLite's Bylaws
provide that its indemnification requirements are not exclusive of any other
rights to which an indemnified person may be entitled under any Bylaw,
agreement, vote of stockholders or disinterested directors or otherwise, both as
to action in the indemnified person's official capacity and as to action in
another capacity while a director, officer, employee or agent of LexaLite.
LexaLite's Bylaws further provide that its indemnification requirements continue
with respect to a person who has ceased to be a director, officer, employee or
agent of LexaLite and will inure to the benefit of the heirs, executors and
administrators of that person.
59
<PAGE>
ELECTION OF SUMMA DIRECTORS
In the event that the shareholders of Summa approve the Merger, Summa's
current Board of Directors will nominate three (3) individuals, Michael L.
Horst, James R. Swartwout, and Josh T. Barnes, for election as directors of
Summa at the Summa Annual Meeting, each to serve as such for a three-year term
and until their respective successors are elected and qualified. Messrs. Horst
and Swartwout are both members of Summa's Board of Directors whose current terms
are expiring as of the Summa Annual Meeting. Mr. Barnes is the Chief Executive
Officer and a director of LexaLite. In addition, three additional incumbents,
Coalson C. Morris, Karl V. Palmaer and Byron C. Roth, will be nominated for re-
election by Summa's current Board of Directors of Summa at the Summa Annual
Meeting, each to serve as such for a two-year term and until their respective
successors are elected and qualified.
Should the shareholders of Summa fail to approve the Merger, only the four
incumbent directors whose terms are expiring as of the Summa Annual Meeting,
Messrs. Morris, Horst, Swartwout, and Palmaer will be nominated by Summa's
current Board of Directors for re-election at the Summa Annual Meeting, each to
serve a new two-year term and until their respective successors are elected and
qualified.
In accordance with Summa's Articles of Incorporation, there will be no
cumulative voting for the election of directors. Accordingly, the six nominees
(if the Merger is approved) or four nominees (if the Merger is not approved), as
the case may be, receiving the highest number of votes at the Summa Annual
Meeting, will be elected. In the event that the Merger is not consummated for
any reason, despite the approval thereof by the shareholders of Summa, the
amendment of Summa's Articles of Incorporation to establish a 9-member
classified board of directors will not be implemented and only the four
incumbent directors whose terms are expiring will deemed to have been elected to
the Summa Board of Directors, each to serve a new 2-year term.
For additional information regarding the incumbent directors of Summa who
will be nominated for re-election as directors at the Summa Annual Meeting, see
"Information Concerning Summa - Management of Summa." For additional
information regarding Mr. Barnes, see "Information Concerning LexaLite -
Management of LexaLite. Although it is not presently contemplated that any
nominee will decline or be unable to serve as a Director, in either such event,
the proxies will be voted by the proxy holders for such other persons as may be
designated by the present Board of Directors should any nominee become
unavailable to serve.
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the executive officers and directors of Summa, and
persons who own more than ten percent of a registered class of Summa's equity
securities, to file reports of ownership and changes in ownership (Forms 3, 4
and 5) with the Securities and Exchange Commission. Executive officers,
directors and greater-than-ten-percent shareholders are required to furnish
Summa with copies of all such forms which they file. To Summa's knowledge,
based solely on Summa's review of such reports or written representations from
certain reporting persons that no Forms 5 were required to be filed by those
persons, Summa believes that during the year ended December 31, 1995, all filing
requirements applicable to its executive officers, directors, and other persons
subject to Section 16 of the Exchange Act were complied with.
OTHER MATTERS
Neither the Board of Directors of Summa nor the Board of Directors of
LexaLite is aware of any other business to be presented for consideration at the
Summa Annual Meeting or the LexaLite Special Meeting, respectively. If any
other business should properly come before either meeting, the proxies will be
voted in accordance with the best judgment of the proxy holders.
LEGAL MATTERS
Phillips & Haddan, Newport Beach, California, counsel to Summa, has rendered
an opinion to Summa (which has been filed as an exhibit to the Registration
Statement of which this Joint Proxy Statement/Prospectus is a part), to the
effect that Summa's Common Stock to be issued as a consequence of the Merger
will, when issued the shares as described herein, be validly issued and fully
paid and nonassessable. Pointner, Joseph & Corcoran, P.C. will pass on certain
legal matters in connection with the Merger for the stockholders of LexaLite.
60
<PAGE>
EXPERTS
The consolidated financial statements and schedules included in this Joint
Proxy Statement/Prospectus and elsewhere in the Registration Statement have been
audited by Arthur Andersen LLP, independent public accountants, as indicated in
their reports with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
INDEPENDENT ACCOUNTANTS
Arthur Andersen LLP served as Summa's independent certified public
accountants for the fiscal year ending August 31, 1996. A representative of
Arthur Andersen LLP is expected to be present at the Summa Annual Meeting, and
to be available to respond to any shareholder questions directed to Arthur
Andersen LLP. This representative will have an opportunity to make a statement
if Arthur Andersen LLP so desires.
SHAREHOLDER PROPOSALS
In order to be considered for inclusion in the Summa's proxy statement and
form of proxy relating to the next annual meeting of Summa's shareholders,
proposals by Summa's shareholders intended to be presented at such annual
meeting must be received by the Company no later than ninety (90) days prior to
October 14, 1997.
61
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
SUMMA INDUSTRIES Page
----
<S> <C>
Report of Independent Public Accountants................................................................... F-1
Consolidated Balance Sheets as of August 31, 1995 and 1996................................................. F-2
Consolidated Statements of Income for each of the three years ended
August 31, 1994, 1995 and 1996.......................................................................... F-3
Consolidated Statements of Shareholders' Equity for each of the three years ended
August 31, 1994, 1995 and 1996.......................................................................... F-4
Consolidated Statements of Cash Flows for each of the three years ended August 31, 1994, 1995 and 1996..... F-5
Notes to Consolidated Financial Statements................................................................. F-6
LEXALITE INTERNATIONAL CORPORATION
Report of Independent Public Accountants................................................................... F-14
Balance Sheets as of June 30, 1995 and 1996................................................................ F-15
Statements of Income for each of the three years ended June 30, 1994, 1995 and 1996........................ F-16
Statements of Changes in Stockholders' Equity for each of the three years ended June 30, 1994, 1995, 1996.. F-17
Statements of Cash Flows for each of the three years ended June 30, 1994, 1995 and 1996.................... F-18
Notes to Financial Statements.............................................................................. F-19
</TABLE>
62
<PAGE>
Report of Independent Public Accountants
TO: THE BOARD OF DIRECTORS AND SHAREHOLDERS OF SUMMA INDUSTRIES
We have audited the accompanying consolidated balance sheets of SUMMA INDUSTRIES
(a California corporation) and subsidiaries as of August 31, 1995 and 1996 and
the related consolidated settlements of income, shareholders' equity and cash
flows for each of the three years in the period ended August 31, 1996. These
financial statements are the responsibilty 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 disclosure 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 SUMMA INDUSTRIES and
subsidiaries as of August 31, 1995 and 1996, and the results of their operations
and their cash flows for each of the three years in the period ended August 31,
1996, in conformity with generally accepted accounting principles.
As discussed in Note 7 to the consolidated financial statements, effective
September 1, 1993, the Company changed its method of accounting for income
taxes.
ARTHUR ANDERSEN LLP
Orange County, California
October 3, 1996
F-1
<PAGE>
SUMMA INDUSTRIES
CONSOLIDATED BALANCE SHEETS AT AUGUST 31
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS 1995 1996
- -----------------------------------------------------------------------------------------------------------------------------------
Current assets:
Cash and cash equivalents $ 182,000 $ 567,000
Accountants receivable, net of allowance for doubtful accounts
of $59,000 in 1995 and $51,000 in 1996 1,396,000 1,627,000
Inventories 1,685,000 2,186,000
Prepaid expenses and other 318,000 212,000
Deferred tax assets 381,000 444,000
- -----------------------------------------------------------------------------------------------------------------------------------
Total current assets 3,962,000 5,036,000
- -----------------------------------------------------------------------------------------------------------------------------------
Property, plant and equipment, at cost:
Land 550,000 550,000
Building and leasehold improvements 1,208,000 1,278,000
Machinery and equipment 3,153,000 3,911,000
Office furniture and equipment 247,000 321,000
- -----------------------------------------------------------------------------------------------------------------------------------
5,158,000 6,060,000
Less: Accumulated depreciation and amortization 1,554,000 2,082,000
- -----------------------------------------------------------------------------------------------------------------------------------
Net property, plant and equipment 3,604,000 3,978,000
- -----------------------------------------------------------------------------------------------------------------------------------
Other assets 28,000 1,865,000
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets of discontinued operations 2,702,000 -
- -----------------------------------------------------------------------------------------------------------------------------------
Goodwill and other intangibles, net 982,000 946,000
- -----------------------------------------------------------------------------------------------------------------------------------
$11,278,000 $11,825,000
===================================================================================================================================
- -----------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
- -----------------------------------------------------------------------------------------------------------------------------------
Current liabilities:
Revolving line of credit $ 938,000 $ -
Accounts payable 486,000 812,000
Accrued salaries, wages and benefits 311,090 465,000
Accrued performance payments 178,000 478,000
Other accrued liabilities 167,000 119,000
Income tax payable - 187,000
- -----------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 2,080,000 2,061,000
Long-term debt 400,000 300,000
Deferred income taxes 794,000 763,000
Other long-term liabilities 74,000 57,000
- -----------------------------------------------------------------------------------------------------------------------------------
Total liabilities 3,348,000 3,181,000
- -----------------------------------------------------------------------------------------------------------------------------------
Commitments and contingencies
- -----------------------------------------------------------------------------------------------------------------------------------
Shareholders' equity:
Preferred stock, par value $.001; 5,000,000 shares authorized,
none outstanding - -
Common stock, par value $.001; 10,000,000 shares authorized,
1,541,930 and 1,603,483 shares issued and outstanding
at August 31, 1995 and 1996, respectively. 6,011,000 6,157,000
Retained earnings 1,919,000 2,487,000
- -----------------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 7,930,000 8,644,000
- -----------------------------------------------------------------------------------------------------------------------------------
$11,278,000 $11,825,000
====================================================================================================================================
The accompanying notes are on integral part of these consolidated financial statements.
</TABLE>
F-2
<PAGE>
SUMMA INDUSTRIES
CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED AUGUST 31,
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1994 1995 1996
- ------------------------------------------------------------------------------------------------------------------------------------
Net sales $10,279,000 $10,247,000 $12,742,000
Cost of sales 5,510,000 5,609,000 6,487,000
- ------------------------------------------------------------------------------------------------------------------------------------
Gross profit 4,769,000 4,638,000 5,895,000
Selling, general and administrative expenses 3,623,000 3,480,000 4,551,000
- ------------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations before
provisions for taxes and cumulative effect
of accounting change 1,146,000 1,158,000 1,344,000
Provision for income taxes 645,000 482,000 541,000
- ------------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations before
cumulative effect of accounting change 501,000 676,000 803,000
Income (loss) from discontinued operations,
net of the effect of income tax of $79,000
in 1994, ($12,000) in 1995 and ($186,000)
in 1996 118,000 (28,000) (235,000)
Cumulative effect of accounting change 100,000 - -
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 719,000 $ 648,000 $ 568,000
====================================================================================================================================
Income per common and equivalent share
Income from continuing operations before
cumulative effect of accounting change $ .32 $ .44 $ .50
Income (loss) from discontinued operations,
net of the effect of income tax .08 (.02) (.15)
Cumulative effect of accounting change .06 - -
- ------------------------------------------------------------------------------------------------------------------------------------
Net income per common and equivalent share $ .46 $ .42 $ .35
====================================================================================================================================
The accompanying notes as an integral part of these consolidated financial statements.
</TABLE>
F-3
<PAGE>
SUMMA INDUSTRIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON COMMON RETAINED TOTAL
SHARES STOCK EARNINGS
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at August 31, 1993 1,529,895 $5,953,000 $ 552,000 $6,505,000
Cashout of odd lots (1,938) (12,000) --- (12,000)
Management bonus 2,000 12,000 --- 12,000
Net Income --- --- 719,000 719,000
- ----------------------------------------------------------------------------------------------
Balance at August 31, 1994 1,529,957 5,953,000 1,271,000 7,224,000
Cashout of odd lots (27) --- --- ---
Exercise of options 7,000 34,000 --- 34,000
Management bonus 5,000 24,000 --- 24,000
Net Income --- --- 648,000 648,000
- ----------------------------------------------------------------------------------------------
Balance at August 31, 1995 1,541,930 6,011,000 1,919,000 7,930,000
Cashout of odd lots (2) --- --- ---
Stock redeemed in exercise of stock (5,200) (32,500) --- (32,500)
options 35,923 178,500 --- 178,500
Exercise of options 30,832 --- --- ---
Reserved shares, acquisition of KVP --- --- 568,000 568,000
Net Income
==============================================================================================
Balance at August 31, 1996 1,603,483 $6,157,000 $2,487,000 $8,644,000
==============================================================================================
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
F-4
<PAGE>
SUMMA INDUSTRIES
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED AUGUST 31
<TABLE>
<CAPTION>
1994 1995 1996
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating activities:
Net income $ 719,000 $ 648,000 $ 568,000
- ------------------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Cumulative effect of change in accounting principle (100,000) --- ---
Depreciation and amortization 616,000 727,000 744,000
Provision for doubtful accounts receivable 22,000 (15,000) 53,000
Deferred income taxes --- 327,000 (94,000)
(Gain) loss on disposition of property and equipment 13,000 (10,000)
Net change in assets and liabilities, net of effects from (59,000)
purchase of Armenco Engineering in fiscal 1994:
Accounts receivable (644,000) (6,000) 34,000
Inventories 349,000 (1,617,000) (73,000)
Prepaid expenses and other assets (146,000) (203,000) 99,000
Accounts payable (389,000) 759,000 (114,000)
Accrued liabilities 365,000 (845,000) 419,000
- ------------------------------------------------------------------------------------------------------------------------
Total adjustments 86,000 (883,000) 1,009,000
- ------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 805,000 (235,000) 1,577,000
- ------------------------------------------------------------------------------------------------------------------------
Investing activities:
Acquisition of Armenco Engineering in fiscal 1994,
net of cash acquired (400,000) --- ---
Sale of Morehouse-COWLES, Inc. in fiscal 1996,
net of fees and of cash held by Morehouse-COWLES, Inc. --- --- 608,000
Capital expenditures:
Purchases of property and equipment (834,000) (836,000) (983,000)
Cash paid for patents (3,000) (16,000) (21,000)
Net proceeds from the sale of equipment 21,000 53,000 96,000
- ------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (1,216,000) (799,000) (300,000)
- ------------------------------------------------------------------------------------------------------------------------
Financing activities:
Net proceeds from (payments on) line of credit --- 938,000 (938,000)
Payments on long term debt (7,000) --- (100,000)
Principal payments under capital lease (41,000) (14,000) ---
Proceeds from the exercise of stock options --- 34,000 146,000
Proceeds from the issuance of common stock --- 24,000 ---
- ------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (48,000) 982,000 (892,000)
- ------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (459,000) (52,000) 385,000
Cash and cash equivalents, beginning of year 693,000 234,000 182,000
- ------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of the year $ 234,000 $ 182,000 $ 567,000
========================================================================================================================
Supplemental cash flow information:
Cash paid during the period for interest $ 49,000 $ 88,000 $ 107,000
========================================================================================================================
Cash paid during the period for income taxes $ 681,000 $ 427,000 $ 301,000
========================================================================================================================
Supplemental disclosure of noncash investing activities:
The Company received a note receivable of $1,771,000 in 1996 as partial consideration for the sale of
Morehouse-COWLES, Inc.
========================================================================================================================
The accompanying notes are integral part of these consolidated financial statements.
</TABLE>
F-5
<PAGE>
SUMMA INDUSTRIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED AUGUST 31, 1994, 1995 AND 1996.
1. Description of business and summary of significant accounting policies
NATURE OF OPERATIONS
SUMMA INDUSTRIES ("SUMMA"), which was incorporated in California in 1942,
currently serves as a holding company whose businesses are conducted primarily
through its two wholly-owned subsidiaries, KVP Systems, Inc. and GST Industries,
Inc. Summa's subsidiaries manufacture proprietary industrial components.
Products include conveyor components for food manufacturing industries,
aerospace actuators and firefighting components for petrochemical plants. Sales
are domestic and worldwide (see Note 12).
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of the Company include SUMMA and its
wholly-owned subsidiaries, GST Industries, Inc., KVP Systems, Inc. and Fullerton
Holdings, Inc. The consolidated financial statements also include Morehouse-
COWLES, Inc. (Morehouse-COWLES"), for the years ended August 31, 1994, 1995 and
for the nine month period ended May 31, 1996, when Morehouse-COWLES was
discontinued (see Note 15). All intercompany account balances and transactions
have been eliminated in consolidation. Certain reclassifications of 1994 and
1995 amounts have been made to conform to 1996 presentations.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
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 revenues and expenses during the reporting period.
Actual results could differ from those estimates.
INVENTORIES
Inventories are stated at the lower of cost (determined on a first-in, first-out
basis) or market. Cost includes material, labor and manufacturing overhead.
PROPERTY, PLANT AND EQUIPMENT
Depreciation is charged against earnings principally using the straight-line
method over the estimated useful lives of the related assets as follows:
Building and improvements 10-20 years
Machinery and equipment 3-15 years
Office furniture and equipment 3-10 years
Leasehold improvements Lesser of remaining term of lease
or estimated useful life
Maintenance, repairs and minor renewals are charged directly to expense as
incurred. Additions and betterments to property, plant and equipment are
capitalized. When assets are disposed of, the related cost and accumulated
depreciation thereon are removed from the accounts, and any gain or loss is
included in operations.
INTANGIBLE ASSETS
Intangible assets primarily include goodwill and other intangibles such as trade
names, patents and customer relationships capitalized in connection with
business acquisitions. Other intangibles are being amortized over their
estimated useful lives of 10-17 years. Goodwill is amortized over 25 years (see
Note 6).
F-6
<PAGE>
NET INCOME PER COMMON AND EQUIVALENT SHARE
Per share amounts are based on the weighted average number of common and
equivalent shares outstanding during each year. Common equivalent shares relate
to shares issuable upon the exercise of stock options (Note 11). Income per
common and equivalent share is the same as fully diluted earnings per share for
all years presented. Weighted average common and equivalent shares outstanding
were 1,548,000, 1,553,000, and 1,603,000 for 1994, 1995, and 1996, respectively
STATEMENTS OF CASH FLOWS
For purposes of the statements of cash flows, the Company considers all highly
liquid debt instruments with a maturity of three months or less to be cash
equivalents.
PENDING ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 121 "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." SFAS No. 121
requires that long-lived assets and certain identifiable intangibles to be held
and used to be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable based on the estimated future cash flows (undiscounted and without
interest charges). SFAS No. 121 also requires that long-lived assets and
certain identifiable intangibles to be disposed of be reported at the lower of
carrying amount or fair value less costs to sell. Summa plans to adopt SFAS No.
121 as of September 1, 1996 and believes the effect of adoption will not be
material to the financial statements.
In October 1995, the Financial Accounting Standards Board issued SFAS No. 123
"Accounting for Stock-Based Compensation." Under SFAS No. 123, companies have
the option to implement a fair value-based accounting method or continue to
account for employee stock options and stock purchase plans using the intrinsic
value-based method of accounting as prescribed by Accounting Principles Board
(APB) Opinion No. 25 "Accounting for Stock Issued to Employees." Entities
electing to remain under APB Opinion No. 25 must make pro-forma disclosures of
net income or loss and earnings per share as if the fair value-based method of
accounting defined in SFAS No. 123 had been applied. SFAS No. 123 is effective
for financial statements for fiscal years beginning after December 15, 1995.
The Company has tentatively determined it will continue to account for stock
options under APB Opinion No. 25.
2. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instrument for which it is practicable to estimate:
CASH AND CASH EQUIVALENTS - The carrying amount is a reasonable estimate of
fair value. These assets consist of short term certificates of deposit and
demand deposits.
NOTE RECEIVABLE - The note receivable was received as partial consideration
for the sale of all of the stock of Morehouse-COWLES. The carrying value is a
reasonable estimate of fair value since the interest rate approximates long-
term interest rates available on government debt securities.
LONG-TERM DEBT - The carrying value approximates fair value since the interest
rate on the long-term loan approximates the rate which is currently available
to the Company for the issuance of debt with similar terms and maturities.
3. INVENTORIES
Inventories consist of the following at August 31:
<TABLE>
<CAPTION>
1995 1996
- ------------------------------------------------
<S> <C> <C>
Finished goods $ 538,000 $ 713,000
Work in process 71,000 81,000
Materials and parts 1,076,000 1,392,000
$1,685,000 $2,186,000
================================================
</TABLE>
F-7
<PAGE>
4. PROPERTY AND EQUIPMENT LEASED TO OTHERS AND RENTAL INCOME
Included in property, plant and equipment are certain land and buildings which
are being leased to Morehouse-COWLES. The cost of the land is $550,000 and the
cost of the building is $1,208,000 less accumulated depreciation of $916,000 at
August 31, 1996. The lease is for ten years with an option for an additional
five years. The monthly rent, on a "triple-net basis" is $4,000 during the
first five years of the lease, increasing to $5,500 per month during the second
five years of the original lease term.
5. OTHER ASSETS
Other assets consist primarily of a note receivable for $1,771,000 received as
partial consideration for the sale of all of the stock of Morehouse-COWLES. The
note is subordinated to the buyers' bank credit agreement and is secured by a
pledge of all of the outstanding capital stock of Morehouse-COWLES as well as by
the assets of Morehouse-COWLES. Under the terms of the note, interest is due
monthly at an annual rate of 7 percent until June 2001. Interest at 9 percent
and amortizing principal payments will be due monthly from June 2001 through
June 2006.
6. GOODWILL AND OTHER INTANGIBLES
Goodwill and other intangibles consist of the following at August 31:
<TABLE>
<CAPTION>
1995 1996
- -------------------------------------------------------------------
<S> <C> <C>
Goodwill, representing cost in excess
of the net assets
of acquired businesses $ 615,000 $ 615,000
Other intangibles related to KVP 508,000 527,000
- -------------------------------------------------------------------
1,123,000 1,142,000
Less: accumulated amortization (141,000) (196,000)
- -------------------------------------------------------------------
Goodwill and other intangibles, net $ 982,000 $ 946,000
===================================================================
</TABLE>
7. INCOME TAXES
The following table provides a reconciliation between the provision for taxes
based on income included in the accompanying consolidated statements of income
and the provision for taxes computed by applying the statutory income tax rate
to income from continuing operations before taxes for the years ended August 31:
<TABLE>
<CAPTION>
1994 1995 1996
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Provision for taxes at statutory rates $390,000 $394,000 $457,000
State tax, net of federal benefit 107,000 70,000 82,000
Effect of performance payments 126,000 26,000 ---
Other-net 22,000 (8,000) 2,000
Provision for income taxes $645,000 $482,000 $541,000
==========================================================================
</TABLE>
The provision for income taxes consists of the following for the years ended
August 31:
<TABLE>
<CAPTION>
1994 1995 1996
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $433,000 $244,000 $493,000
State 140,000 81,000 142,000
- --------------------------------------------------------------------------
573,000 325,000 635,000
- --------------------------------------------------------------------------
Deferred: 72,000 157,000 (94,000)
- --------------------------------------------------------------------------
Provision for income taxes $645,000 $482,000 $541,000
==========================================================================
</TABLE>
Effective September 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes". This standard
requires income taxes to be accounted for under the liability method and
calculates deferred tax balances using tax rates in effect when the taxes will
be paid. Included in the consolidated statement of income for the year ended
August 31, 1994, is a cumulative benefit of $100,000, or $.06 per share, which
represents a cumulative adjustment to recalculate deferred tax balances. Prior
years' financial statements have not been restated as a result of this change.
F-8
<PAGE>
The components of the Company's deferred tax asset (liability) at August 31,
1995 and 1996 are as follows:
<TABLE>
<CAPTION>
1995 1996
<S> <C> <C>
Effect of performance payments $ 40,000 $ 141,000
State taxes 33,000 72,000
Reserves 308,000 231,000
Other items --- ---
- -----------------------------------------------------------------
Total deferred tax assets 381,000 444,000
- -----------------------------------------------------------------
Depreciation (626,000) (636,000)
Amortization (147,000) (127,000)
Other items (21,000) ---
- -----------------------------------------------------------------
Total deferred tax liabilities (794,000) (763,000)
- -----------------------------------------------------------------
Net deferred tax liability $(413,000) $(319,000)
=================================================================
Changes in components of the Company's
deferred tax balances are as follows:
Effect of performance payments $ (69,000) $ 101,000
State taxes (24,000) 39,000
Reserves 114,000 (77,000)
Depreciation (98,000) (10,000)
Amortization 12,000 20,000
Other (92,000) 21,000
- -----------------------------------------------------------------
$(157,000) $ 94,000
=================================================================
</TABLE>
8. NOTES PAYABLE AND LONG-TERM DEBT
The Company has a term loan from an officer of a subsidiary with an outstanding
balance in the amount of $300,000 at August 31, 1996, secured by the Company's
real estate in Fullerton, California. Interest payments on the term loan are
due monthly at 8 1/2 percent. The Company paid interest on the term loan of
$32,000, $32,000 and $33,000 for the years ended August 31, 1994, 1995 and 1996,
respectively.
Principal payments on the term loan are due in subsequent years as follows:
<TABLE>
<S> <C>
1998 $100,000
1999 100,000
2000 100,000
-------------------
Total $300,000
===================
</TABLE>
In January 1996, the Company renewed an agreement with a bank for a $2,000,000
line of credit of which none was in use at August 31, 1996. Interest is due
monthly at the rate of Prime (8.25% at August 31, 1996) plus 1/4%. The line of
credit is secured by all the assets of the Company and expires January 1, 1997.
The line of credit requires the maintenance of certain financial ratios and
minimum levels of working capital and net worth, as defined, as well as other
requirements.
9. COMMITMENTS AND CONTINGENCIES
The Company is a party to a civil lawsuit in which the plaintiffs have alleged
patent infringement. The Company contends the claims are invalid, and has filed
counterclaims. The case is in discovery and could go to trial during fiscal
1997. Since the case involves a number of complex factual and legal issues, it
is impossible to predict the outcome or estimate the loss, if any. Although the
Company believes it has a reasonable expectation of prevailing, because no
accrual for the case has been established, the consequences of an adverse
determination would impact the Company's financial statements.
The Company is involved in a product liability case which was dismissed. The
dismissal was appealed by the plaintiff. The Company believes it has adequate
product liability insurance in the event of an adverse outcome.
F-9
<PAGE>
In connection with the acquisition of GST Industries, Inc. in fiscal 1992, the
Company is required to make annual payments to former shareholders of GST
related to GST's performance through October 29, 1996. Payments are equal to
75 percent of the amount by which annual operating profit of the subsidiary GST
Industries, Inc. exceeds a threshold of $500,000, up to an aggregate amount of
$1,500,000. Thereafter, additional consideration for covenants not to compete
with the Company can be earned at the rates of 75% of the amount by which annual
operating profit of subsidiary GST Industries, Inc. exceeds $500,000 up to an
aggregate amount of $500,000 and thereafter, 25%, up to a cumulative aggregate
amount of an additional $1,500,000. In the event that operating profit for any
fiscal year does not exceed the threshold for that year, the threshold for the
subsequent year will be increased by the amount of such deficit. No additional
performance payments shall be earned either after the aggregate of $1,500,000
has been earned or after October 1996. No additional non-compete covenant
consideration shall be earned either after the aggregate of $1,500,000 has been
earned or after October 1996. Payments of $620,000, $178,000 and $478,000 were
earned in fiscal 1994, 1995 and 1996, respectively. The cumulative amount
earned at August 31, 1996 was $2,026,000. Of the amounts of performance
payments paid, only 40 1/2% is deductible for income tax purposes. The amount
of non-compete covenant consideration paid is fully tax deductible.
The Company leases office and manufacturing facilities and certain equipment
under noncancelable operating leases which expire at various dates through April
2001. Rental expense charged to operations was approximately $199,000, $266,000
and $308,000 for the years ended August 31, 1994, 1995 and 1996, respectively.
The aggregate minimum future lease payments under these leases at August 31,
1996 are approximately as follows:
<TABLE>
<CAPTION>
AMOUNT
----------
<S> <C>
1997 $ 281,000
1998 229,000
1999 223,000
2000 219,000
2001 143,000
----------
Total $1,095,000
==========
</TABLE>
10. CAPITAL STOCK
During the year ended August 31, 1996, 30,832 shares of common stock were issued
to former owners of KVP Systems, Inc. The shares represented a portion of the
purchase price in the July 1993 acquisition of KVP by the Company, which had
been reserved but which were not issued pending the resolution of a certain
lawsuit. The lawsuit was resolved during the period.
11. STOCK OPTION PLANS AND EMPLOYEE'S BENEFIT PLANS
STOCK OPTION PLANS
The Company has adopted Stock Option Plans (the "1984 Plan", the "1991 Plan"and
the "1995 Plan"), under which options to acquire an aggregate of 425,000 shares
of the Company's Common Stock may be granted to key employees, directors,
vendors, and consultants, as determined by the Board of Directors. The
following is a summary of stock option activity for the years ended August 31:
<TABLE>
<CAPTION>
1995 1996
- ---------------------------------------------------------------------------
<S> <C> <C>
Options outstanding at beginning of year 162,750 191,250
Granted 42,500 121,223
Canceled (7,000) (39,077)
Exercised (7,000) (35,923)
- ---------------------------------------------------------------------------
Options outstanding at end of year 191,250 237,473
Exercisable 151,582 206,579
Option prices $1.50 to $6.50 $2.72 to $6.00
===========================================================================
</TABLE>
The above table includes options issued in connection with the acquisition of
KVP Systems, Inc. in July 1993. The Company granted options of 55,000 shares of
stock at $5.20 to former directors and officers of KVP Systems, Inc. Of these,
33,173 were exercised during fiscal 1996 and 5,000 remained outstanding at
August 31, 1996.
F-10
<PAGE>
401(K) PLAN
The Company has employee savings and investment plans at each of its
subsidiaries covering substantially all of its employees. The plans, which
qualify under Section 401(k) of the Internal Revenue Code, allow employees to
defer specified percentages of their compensation, as defined, in a tax-exempt
trust. The Company is required to make matching contributions, as defined, by
the plan and may make additional profit-sharing contributions at the discretion
of the Board of Directors. The cost of the Company matching contribution is
partially offset by a reduction in payroll taxes. Company contributions to the
plan totaled $42,000, $81,000 and $83,000 for the years ended August 31, 1994,
1995 and 1996, respectively.
12. SALES
Sales to the largest single customer represented 6.9%, 4.3% and 5.9% of total
sales during 1994, 1995, and 1996, respectively.
Export sales by geographic area were as follows for the years ended August 31:
<TABLE>
<CAPTION>
(in thousands)
1994 1995 1996
-----------------------------------------------
<S> <C> <C> <C>
Canada $ 220 $ 341 $ 724
Latin America 101 --- 72
Asia 1,868 800 938
Europe 186 769 909
Other 56 131 125
-----------------------------------------------
$2,431 $2,041 $2,768
===============================================
</TABLE>
13. BUSINESS SEGMENT INFORMATION
The following table sets forth certain information with respect to the
contribution to consolidated net sales and operating income generated by the
continuing businesses of the Company during each of the three years in the
period ended August 31, 1996, as well as the dollar value of the assets
identified to each subsidiary:
BUSINESS SEGMENT SUMMARY
<TABLE>
<CAPTION>
Material Handling Firefighting Aerospace Corporate
Components Equipment Assemblies and Other Total
- --------------------------------------------------------------------------------------------------
FISCAL YEAR ENDED AUGUST 31, 1996
<S> <C> <C> <C> <C> <C>
Net sales $8,124,000 $2,740,000 $1,878,000 $ --- $12,742,000
Operating income 850,000 327,000 391,000 (224,000) 1,344,000
Identifiable assets 5,696,000 771,000 691,000 4,667,000 11,825,000
FISCAL YEAR ENDED AUGUST 31, 1995
Net sales $6,567,000 $2,096,000 $1,584,000 $ --- $10,247,000
Operating income 903,000 158,000 388,000 (291,000) 1,158,000
Identifiable assets 4,554,000 683,000 669,000 5,372,000 11,278,000
FISCAL YEAR ENDED AUGUST 31, 1994
Net sales $5,061,000 $3,075,000 $2,143,000 $ --- $10,279,000
Operating income 591,000 260,000 435,000 (140,000) 1,146,000
Identifiable assets 3,903,000 729,000 884,000 4,483,000 9,999,000
</TABLE>
F-11
<PAGE>
14. UNAUDITED QUARTERLY RESULTS
<TABLE>
<CAPTION>
Quarters ended
- ---------------------------------------------------------------------------------------
November February May August
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
(in thousands, except per share amounts)
Fiscal 1995:
Net sales $2,376 $2,503 $2,768 $2,600
Gross profit 1,068 1,109 1,302 1,159
Income from continuing operations 115 148 186 227
Net income 152 99 202 195
Per Share:
Income from continuing operations $ .07 $ .10 $ .12 $ .15
Net income $ .10 $ .06 $ .13 $ .13
=======================================================================================
Fiscal 1996:
Net sales $2,839 $2,928 $3,136 $3,839
Gross profit 1,279 1,339 1,357 1,920
Income from continuing operations 177 157 207 262
Net income 91 22 193 262
Per Share:
Income from continuing operations $ .11 $ .10 $ .13 $ .16
Net income $ .06 $ .01 $ .12 $ .16
=======================================================================================
</TABLE>
15. DISCONTINUED OPERATIONS
On June 17, 1996, the Company completed the divestiture of its industrial
process equipment subsidiary, Morehouse-COWLES, Inc. Accordingly, this business
unit has been accounted for as a discontinued operation and results of its
operations are segregated in the accompanying consolidated statements of income.
There was no gain or loss on the disposition of Morehouse-COWLES. Interest
expense of $49,000, $87,000 and $93,000 was related to discontinued operations
and accordingly was allocated to discontinued operations for fiscal years 1994,
1995 and 1996, respectively. As a consequence of holding Morehouse-COWLES for
sale, the assets and liabilities of discontinued operations have been classified
in the consolidated balance sheets as, "Net assets of discontinued operations."
Discontinued operations have not been segregated in the consolidated statements
of cash flows. The preceding notes to consolidated financial statements have
been revised, as necessary, to reflect the change in reporting due to
discontinued operations.
The sales from these discontinued operations were $5,555,000, $8,097,000 and
$5,638,000 for the years ended August 31, 1994, 1995 and 1996, respectively.
The components of net assets of discontinued operations included in the
consolidated balance sheets at August 31, 1995 and 1996 are as follows:
<TABLE>
<CAPTION>
August 31, 1995 August 31, 1996
<S> <C> <C>
ASSETS
Accounts receivable, net $ 986,000 $ ---
Inventory 2,372,000 ---
Prepaid expenses and other 89,000 ---
Property and equipment, net 388,000 ---
Goodwill and intangibles, net 297,000 ---
---------- ------
Total assets $4,132,000 $ ---
========== ======
LIABILITIES
Accounts payable 703,000 ---
Accrued liabilities 727,000 ---
---------- ------
Total liabilities 1,430,000 ---
---------- ------
Net assets of discontinued operations $2,702,000 $ ---
========== ======
</TABLE>
F-12
<PAGE>
16. MERGER INFORMATION
On July 18, 1996 the Company entered into a definitive agreement to acquire
all of the outstanding common stock of LexaLite International Corporation
("LexaLite"). Under the terms of the agreement, SUMMA will issue 1.5 shares of
SUMMA's common stock for each share of LexaLite's outstanding common stock,
subject to adjustment as provided in the agreement. The shares of SUMMA's common
stock will be registered for issuance under the Securities Act of 1933. The
transaction remains subject to the approval of shareholders of each company and
to certain other conditions.
F-13
<PAGE>
Report of Independent Public Accountants
----------------------------------------
To the Shareholders and Board of Directors of
LexaLite International Corporation:
We have audited the accompanying balance sheets of LEXALITE INTERNATIONAL
CORPORATION (a Delaware corporation) as of June 30, 1996 and 1995, and the
related statements of income, shareholders' equity and cash flows for the three
years in the period ended June 30, 1996, as restated, see Note 9. 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 LexaLite International
Corporation as of June 30, 1996 and 1995, and the results of its operations and
its cash flows for the three years in the period ended June 30, 1996, in
conformity with generally accepted accounting principles.
As explained in Note 9 to the financial statements, the Company has given
retroactive effect to the change from the last-in, first-out to the first-in,
first-out method of determining the cost of its inventories.
ARTHUR ANDERSEN LLP
Grand Rapids, Michigan
August 15, 1996
F-14
<PAGE>
LEXALITE INTERNATIONAL CORPORATION
----------------------------------
BALANCE SHEETS
--------------
AS OF JUNE 30,
--------------
<TABLE>
<CAPTION>
ASSETS 1 9 9 6 1 9 9 5
- ---------------------------------------- ------------ -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 620,023 $ 72,884
Accounts receivable, less allowance
of approximately $77,000 and $60,000
in 1996 and 1995, respectively 6,364,820 5,385,821
Inventories 1,510,553 1,586,386
Deferred income taxes 253,300 265,000
Prepaid expenses and other 425,064 329,894
------------ -----------
9,173,760 7,639,985
------------ -----------
PROPERTY, PLANT AND EQUIPMENT:
Land, buildings and improvements 8,412,041 6,297,451
Machinery and equipment 13,687,609 11,784,761
Office furniture and fixtures 1,203,858 1,165,952
Construction in progress 1,149,616 2,107,313
------------ -----------
24,453,124 21,355,477
Less- Accumulated depreciation (11,427,542) (9,794,478)
------------ -----------
13,025,582 11,560,999
------------ -----------
OTHER ASSETS:
Bond proceeds held in trust 1,071,649 3,275,928
Cash surrender value of life
insurance, face value of $2,400,000 622,500 555,000
Other 215,260 355,715
------------ -----------
1,909,409 4,186,643
------------ -----------
$ 24,108,751 $23,387,627
============ ===========
</TABLE>
The accompanying notes to financial statements are an
integral part of these balance sheets.
F-15
<PAGE>
LEXALITE INTERNATIONAL CORPORATION
----------------------------------
BALANCE SHEETS
--------------
AS OF JUNE 30,
--------------
(continued)
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY 1 9 9 6 1 9 9 5
- ---------------------------------------- ----------- -----------
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term debt $ 1,200,000 $ 1,003,000
Accounts payable 2,026,426 1,566,561
Accrued expenses -
Compensation 1,517,689 1,373,260
Taxes 134,764 295,837
Other 356,423 206,637
Billings on uncompleted tooling
projects
in excess of cost 339,100 135,000
----------- -----------
5,574,402 4,580,295
----------- -----------
LONG-TERM DEBT, less current portion 8,263,784 10,489,906
----------- -----------
DEFERRED INCOME TAXES 765,300 603,900
----------- -----------
SHAREHOLDERS' EQUITY:
Common stock, par value $1 per share,
2,000,000 shares authorized,
1,459,478 and 1,426,160 shares
issued and outstanding for 1996
and 1995, respectively 1,459,478 1,426,160
Additional paid-in capital 699,252 528,979
Retained earnings 7,346,535 5,758,387
----------- -----------
9,505,265 7,713,526
----------- -----------
$24,108,751 $23,387,627
=========== ===========
</TABLE>
The accompanying notes to financial statements are an
integral part of these balance sheets.
F-16
<PAGE>
LEXALITE INTERNATIONAL CORPORATION
----------------------------------
STATEMENTS OF INCOME
--------------------
FOR THE YEARS ENDED JUNE 30,
----------------------------
<TABLE>
<CAPTION>
1 9 9 6 1 9 9 5 1 9 9 4
----------- ----------- -----------
<S> <C> <C> <C>
NET SALES $36,088,738 $33,235,276 $26,770,782
COST OF GOODS SOLD 26,963,328 25,321,031 20,099,640
---------- ---------- ----------
Gross profit 9,125,410 7,914,245 6,671,142
---------- ---------- ----------
OPERATING EXPENSES:
Selling, general and administrative 5,001,779 4,517,922 3,833,190
Research and development 884,706 671,350 554,074
---------- ---------- ----------
5,886,485 5,189,272 4,387,264
---------- ---------- ----------
Income from operations 3,238,925 2,724,973 2,283,878
---------- ---------- ----------
OTHER INCOME (EXPENSE):
Interest expense (721,276) (562,711) (482,579)
Other, net 32,899 62,018 12,849
---------- ---------- ----------
(688,377) (500,693) (469,730)
---------- ---------- ----------
Income before provision for
income taxes 2,550,548 2,224,280 1,814,148
PROVISION FOR INCOME TAXES 962,400 802,500 630,700
---------- ---------- ----------
Net income $ 1,588,148 $ 1,421,780 $ 1,183,448
========== ========== ==========
Earnings per share $ 1.08 $ 1.00 $ 0.85
========== ========== ==========
</TABLE>
The accompanying notes to financial statements are
an integral part of these statements.
F-17
<PAGE>
LEXALITE INTERNATIONAL CORPORATION
STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1996, 1995, AND 1994
<TABLE>
<CAPTION>
Total
Common Treasury Additional Retained Shareholders'
Stock Stock Paid-in Capital Earnings Equity
---------- ---------- --------------- ---------- -------------
<S> <C> <C> <C> <C> <C>
BALANCES July 4, 1993,
as restated (Note 9) $1,400,000 $(141,752) $362,694 $3,153,159 $4,774,101
Treasury shares reissued, net - 25,736 - - 25,736
Net income, as restated
(Note 9) - - - 1,183,448 1,183,448
--------- -------- -------- ---------- ----------
BALANCES, June 30, 1994 1,400,000 (116,016) 362,694 4,336,607 5,983,285
Issuance of common stock and
tax benefit of stock
plan transactions 26,160 - 166,285 - 192,445
Treasury shares reissued, net - 116,016 - - 116,016
Net income, as restated
(Note 9) - - - 1,421,780 1,421,780
--------- -------- -------- ---------- ----------
BALANCES, June 30, 1995 1,426,160 - 528,979 5,758,387 7,713,526
Issuance of common stock and
tax benefit of stock
plan transactions 33,318 - 170,273 - 203,591
Net income - - - 1,588,148 1,588,148
--------- -------- -------- ---------- ----------
BALANCES, June 30, 1996 $1,459,478 $ - $699,252 $7,346,535 $9,505,265
========= ======== ======== ========== ==========
</TABLE>
The accompanying notes to financial statements are
an integral part of these statements.
F-18
<PAGE>
LEXALITE INTERNATIONAL CORPORATION
----------------------------------
STATEMENTS OF CASH FLOWS
------------------------
FOR THE YEARS ENDED JUNE 30,
----------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1 9 9 6 1 9 9 5 1 9 9 4
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,588,148 $ 1,421,780 $ 1,183,448
Adjustments to reconcile net income
to net cash
provided by operating activities-
Depreciation and amortization 1,773,094 1,632,023 1,167,562
Gain on sale of assets (6,500) (85,506) (109,675)
Deferred income taxes 173,100 (74,000) 32,200
Decrease (increase) in current
assets:
Accounts receivable (978,999) (700,030) (1,683,793)
Inventories 75,833 152,720 (348,578)
Prepaid expenses and other (95,170) 158,464 41,739
Increase (decrease) in current
liabilities:
Accounts payable 459,865 (3,057) 635,344
Billings on uncompleted tooling
projects in excess of costs 204,100 49,000 86,000
Accrued expenses 133,142 202,445 257,445
---------- ---------- ----------
Net cash provided by
operating activities 3,326,613 2,753,839 1,261,692
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (3,199,322) (3,813,536) (3,188,423)
Net decrease (increase) in unexpended
industrial revenue bond proceeds 2,204,279 (3,275,928) -
Decrease (increase) in other assets 102,100 (310,197) 14,847
Proceeds from sale of assets 6,500 141,863 52,465
Increase in cash surrender value of
life insurance (67,500) (67,000) (74,764)
---------- ---------- ----------
Net cash used for investing
activities (953,943) (7,324,798) (3,195,875)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of long-term debt 365,000 6,448,604 2,000,000
Payments on long-term debt (2,394,122) (2,225,367) (1,027,483)
Issuance of common stock and tax
benefit of stock plan transactions 203,591 192,445 -
---------- ---------- ----------
Net cash (used for) provided
by financing activities (1,825,531) 4,415,682 972,517
---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 547,139 (155,277) (961,666)
CASH AND CASH EQUIVALENTS, beginning of
year 72,844 228,161 1,189,827
---------- ---------- ----------
CASH AND CASH EQUIVALENTS, end of year $ 620,023 $ 72,884 $ 228,161
========== ========== ==========
</TABLE>
The accompanying notes to financial statements are
an integral part of these statements.
F-19
<PAGE>
LEXALITE INTERNATIONAL CORPORATION
----------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(1) SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
Description of Business
-----------------------
LexaLite International Corporation (the "Company") is engaged in the
manufacture and sale of plastic molded injection parts and providing
design and development services. The majority of the Company's net
sales and accounts receivable are with customers in the lighting
industry.
Cash and Cash Equivalents
-------------------------
The Company considers all highly liquid instruments purchased with an
original maturity of three months or less to be cash equivalents.
Cash equivalents are recorded at cost, which approximates current
market value.
Property, Plant and Equipment
-----------------------------
Property, plant and equipment are stated at cost. Depreciation is
computed over the estimated useful lives of the assets using the
straight-line method for financial reporting purposes and primarily
accelerated methods for income tax purposes.
Estimated lives used to depreciate fixed assets for book purposes are
as follows:
<TABLE>
<CAPTION>
Years
-----
<S> <C>
Building and improvements 10-40
Machinery and equipment 3- 7
Office furniture and fixtures 5-10
</TABLE>
During fiscal year 1995, the Company constructed a 27,500 square foot
industrial facility ("the Facility") to be used for the research,
development and manufacture of plastic injection molded products.
Bond Proceeds Held in Trust
---------------------------
Unexpended bond proceeds are restricted for use to finance the
construction of the Facility and related equipment. The unexpended
proceeds are invested in short-term marketable securities, and are
stated at cost which approximates market, together with accrued
interest. Investments must be rated at least A-1 by Standard and
Poor's or an equivalent rating by a similarly recognized rating
service.
F-20
<PAGE>
LEXALITE INTERNATIONAL CORPORATION
----------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(Continued)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES, continued
Long-Term Assets
----------------
In March 1995, the Financial Accounting Standards Board issued
Statement No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of" (SFAS 121). The
Company is required to adopt the provisions of SFAS 121 beginning in
fiscal 1997. Based on the information currently available, the
Company does not expect the adoption to have a material effect on
its financial condition or results of operations.
Research and Development
------------------------
Research and development costs related to the planning and development
of new and existing products are charged to operations as incurred.
Earnings Per Share
------------------
The earnings per share are computed based on the weighted average
number of common shares outstanding and, to the extent dilutive,
common share equivalents. The weighted average number of shares
outstanding were approximately 1,477,000, 1,427,000, and 1,385,000
in 1996, 1995, and 1994, respectively.
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 disclosures of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
F-21
<PAGE>
LEXALITE INTERNATIONAL CORPORATION
----------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(Continued)
(2) INVENTORIES
Inventories are stated at the lower of cost or market and include
materials, labor and manufacturing overhead. Cost is determined
using the first, first-out (FIFO) method. Inventories consisted of
the following as of June 30,:
<TABLE>
<CAPTION>
1 9 9 6 1 9 9 5
---------- ----------
<S> <C> <C>
Raw materials $ 938,638 $1,229,985
Finished goods and
work-in-process 571,915 356,401
--------- ---------
$1,510,553 $1,586,386
========= =========
</TABLE>
(3) LONG-TERM DEBT AND FINANCING ARRANGEMENTS
During fiscal 1995, the Company issued $5,000,000 of Michigan Strategic
Fund Limited Obligation Revenue Bonds Series 1994 to finance the
construction of the Facility and certain related equipment. The bonds
mature at various dates from November 1997 through November 2001 at an
average effective interest rate of 6.09% and are secured by
substantially all assets of the Company and an irrevocable letter of
credit.
The Company has available a secured line of credit with a bank which
provides for $3,000,000 in maximum borrowings and matures on October 1,
1996. No borrowings were outstanding under this agreement at June 30,
1996. Interest is payable at the bank's prime rate (8.25% at June 30,
1996). The weighted average interest rate on borrowings was 6.8% and
8.4% in 1996 and 1995, respectively.
The Company also has a credit agreement with a bank to borrow up to
$1,250,000 for the purchase of equipment. The agreement expires
December 1, 1996. No borrowings have been made against this
arrangement. Interest is payable at the bank's prime rate.
F-22
<PAGE>
LEXALITE INTERNATIONAL CORPORATION
----------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(Continued)
(3) LONG-TERM DEBT AND FINANCING ARRANGEMENTS, continued
Long-term debt consisted of the following as of June 30,:
<TABLE>
<CAPTION>
1 9 9 6 1 9 9 5
----------- -----------
<S> <C> <C>
Michigan Strategic Fund Limited
Obligation Revenue Bonds Series 1994 $ 5,000,000 $ 5,000,000
Note payable to bank, due in monthly
installments of $29,334 including
interest at 7.9%, through October
2000, secured by related equipment 1,525,328 1,395,000
Notes payable to bank, secured by
substantially all assets of the
Company, due in monthly installments
totaling $72,902, with interest
rates ranging between 6.75% and
9.75%, maturing between 1998
and 2001 2,879,149 3,617,126
Revolving credit note - 1,400,000
Other 59,307 80,780
---------- ----------
9,463,784 11,492,906
Less: - current portion (1,200,000) (1,003,000)
---------- ----------
$ 8,263,784 $10,489,906
========== ==========
</TABLE>
Future maturities of long-term debt are as follows:
<TABLE>
<C> <S>
1997 $ 1,200,000
1998 2,218,000
1999 2,088,000
2000 1,529,000
2001 1,307,000
</TABLE>
Under the terms of certain of its loan agreements, the Company must
maintain specified levels of net worth and certain other performance
ratios. The Company was in compliance with all covenants throughout the
year.
Cash expended for interest on debt was approximately $704,000, $719,000,
and $496,000 in 1996, 1995, and 1994, respectively. Capitalization of
interest related to the project discussed in Note 1 reduced interest
expense by approximately $185,000 in 1995. No interest was capitalized
in 1996 or 1994.
F-23
<PAGE>
LEXALITE INTERNATIONAL CORPORATION
----------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(Continued)
(4) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of the Company's financial instruments included in
assets and current liabilities approximates the fair value due to their
short-term nature. As of June 30, 1996 and 1995, carrying value
approximated the fair value of the Company's long-term debt.
(5) LEASE COMMITMENTS
The Company has various operating leases for certain equipment. Future
minimum rental payments at June 30, 1996 under noncancellable operating
leases with initial terms of one year or more are approximately as
follows:
<TABLE>
<CAPTION>
<S> <C>
1997 $168,300
1998 81,500
1999 54,400
2000 44,700
2001 4,100
</TABLE>
Rental expense under all operating leases was approximately $244,000,
$182,000 and $179,000 in 1996, 1995, and 1994, respectively.
(6) INCOME TAXES
The Company applies the "liability" method of accounting for income taxes.
Under this method, deferred tax assets and liabilities are determined
based on the difference between the financial statement and tax bases of
assets and liabilities using enacted tax rates in effect for the year in
which differences are expected to be reversed.
F-24
<PAGE>
LEXALITE INTERNATIONAL CORPORATION
----------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(Continued)
(6) INCOME TAXES, continued
The components of the provision for income taxes consisted of the
following for the years ended June 30,:
<TABLE>
<CAPTION>
1 9 9 6 1 9 9 5 1 9 9 4
-------- -------- --------
<S> <C> <C> <C>
Current $789,300 $876,500 $598,500
Deferred 173,100 (74,000) 32,200
-------- -------- --------
Provision for income taxes $962,400 $802,500 $630,700
======== ======== ========
</TABLE>
The effective income tax rate differs from the statutory federal income
tax rate for the following reasons:
<TABLE>
<CAPTION>
1 9 9 6 1 9 9 5 1 9 9 4
-------- -------- --------
<S> <C> <C> <C>
Statutory federal income tax rate 34.0% 34.0% 34.0%
State taxes 2.6 1.5 .8
Other 1.1 0.6 -
----- ----- -----
Effective income tax rate 37.7% 36.1% 34.8%
====== ===== =====
</TABLE>
The major components of deferred income taxes at June 30, 1996 and 1995
are as follows:
<TABLE>
<CAPTION>
1 9 9 6 1 9 9 5
-------- --------
<S> <C> <C>
Deferred tax assets:
Financial accruals and reserves
not currently deductible:
Compensation $274,800 $258,000
Inventory 64,800 50,300
Other 37,900 16,500
Valuation allowance - -
-------- --------
$377,500 $324,800
======== ========
Deferred tax liability:
Book basis of property in excess
of tax basis $755,000 $594,200
Book basis of inventory in excess
of tax basis 124,200 59,800
Other 10,300 9,700
-------- --------
$889,500 $663,700
======== ========
</TABLE>
F-25
<PAGE>
LEXALITE INTERNATIONAL CORPORATION
----------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(Continued)
(6) INCOME TAXES, continued
Cash expended for income taxes totaled approximately $909,000, $860,000,
and $641,000 for the years ended June 30, 1996, 1995, and 1994,
respectively.
(7) EMPLOYEE BENEFIT PLANS
Stock Ownership Plan
--------------------
The Company has an Employee Stock Ownership Plan ("ESOP")which
provides retirement, death and disability benefits to substantially
all of its employees. Benefits are payable in the form of the
Company's common stock. A trustee has been designated to administer
the Employee Stock Ownership Trust established under the Plan. The
Company provides a discretionary contribution to the ESOP as
determined by the Board of Directors. Contributions are allocated to
participants based on their proportionate share of compensation,
within certain limitations. Contributions, for the years ended June
30, 1996, 1995 and 1994 are charged to operations and approximate
$143,000, $278,000, and $269,000, respectively. The ESOP owned
501,998 and 503,298 shares of the Company's stock as of June 30,
1996 and 1995, respectively. For earnings per share purposes, all
shares are considered outstanding.
F-26
<PAGE>
LEXALITE INTERNATIONAL CORPORATION
----------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(Continued)
(7) EMPLOYEE BENEFIT PLANS, continued
Nonqualified Stock Option Plan
------------------------------
The Company has a nonqualified stock option plan for certain salaried
employees. Options are granted at a price not less than the market
price on the date of grant, and are exercisable beginning three
years from the effective date of grant, for a period of six months
to one year. No charges to operations are made under this plan. A
summary of stock option activity is as follows:
<TABLE>
<CAPTION>
Options Price Range
-------- -------------
<S> <C> <C>
Outstanding at July 4, 1993 94,500 $3.75 - $4.50
Options granted 29,000 $5.89
Options exercised (24,529) $3.75 - $4.50
Options canceled (5,271) $4.30 - $5.89
------
Outstanding at June 30, 1994 93,700 $4.07 - $4.30
Options granted - -
Options exercised (34,000) $4.07 - $4.30
Options canceled (10,400) $4.30 - $5.89
------
Outstanding at June 30, 1995 49,300 $4.50 - $5.89
Options granted - -
Options exercised (22,760) $4.50
Options canceled (2,040) $4.50 - $5.89
------
Outstanding at June 30, 1996 24,500 $5.89
======
</TABLE>
Qualified Stock Option Plan
---------------------------
In 1996, the Company adopted a qualified stock option plan for certain
salaried employees. Options are granted at a price not less than the
market price on the date of grant, and are exercisable beginning three
years from the effective date of grant, for a period of six months.
During 1996, 26,050 shares were granted and are outstanding under the
plan at options prices between $7.85 and $8.48.
As of June 30, 1996, no options were exercisable and 100,000 shares were
authorized to be granted under either the stock ownership plan or the
qualified stock option plan.
F-27
<PAGE>
LEXALITE INTERNATIONAL CORPORATION
----------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(Continued)
(7) EMPLOYEE BENEFIT PLANS, continued
Stock Bonus Plan
----------------
The Company has a stock bonus plan, the purpose of which is to permit
grants of shares to key employees of the Company, as a means of
retaining and rewarding them for long-term performance and to
increase their ownership in the Company. Shares awarded under the
plan are based on discretionary percentage of aggregate stock
growth, as defined by the Plan. The awards vest in three annual
installments and are paid in the form of stock and cash. Awards are
charged to operations in the year granted and totaled approximately
$267,000, $286,000, and $330,000 in 1996, 1995, and 1994,
respectively.
Profit Sharing Plan
-------------------
The Company maintains a profit sharing plan which covers substantially
all of its employees. The discretionary payment, charged to
operations, as determined by the board of directors, was
approximately $820,000, $543,000, and $457,000 in 1996, 1995, and
1994, respectively.
Incentive Bonus Plan
--------------------
The Company also maintains an incentive bonus plan paid to certain key
employees. The discretionary bonus, charged to operations, as
determined by the board of directors, was approximately $758,000,
$636,000, and $573,000 in 1996, 1995, and 1994, respectively.
(8) SIGNIFICANT CUSTOMERS
During the years ended June 30, 1996, 1995, and 1994, the Company had
four customers which individually accounted for 10% or more of net
sales.
<TABLE>
<CAPTION>
Customer 1 9 9 6 1 9 9 5 1 9 9 4
----------------- ------- ------- -------
<S> <C> <C> <C>
#1 15.4% 14.1% 12.4%
#2 12.8% 14.3% 10.7%
#3 9.6% 11.7% 16.9%
#4 8.5% 10.8% 8.9%
</TABLE>
F-28
<PAGE>
LEXALITE INTERNATIONAL CORPORATION
----------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(Continued)
(9) CHANGES IN PRIOR PERIOD FINANCIAL STATEMENTS
During 1996, the Company changed its method of accounting for inventory
from the last-in, first-out (LIFO) method to the FIFO method. Under
the current economic environment, the Company believes that the FIFO
method will result in a better measurement of operating results.
During 1996, the Company also corrected the amount charged to
operations for the stock bonus in 1995 as well as the accounting for
deferred taxes in 1994. As a result, the Company has retroactively
restated the accompanying financial statements.
The following effects of the change in accounting principle and the
corrections discussed above have been reflected in the accompanying
financial statements as follows:
<TABLE>
<CAPTION>
Net Income Retained
------------------------------- Earnings
1 9 9 6 1 9 9 5 1 9 9 4 July 4, 1993
-------- -------- -------- ------------
<S> <C> <C> <C> <C>
Inventory methodology $111,500 $(23,100) $(13,200) $ 152,500
Stock bonus - 139,000 - -
Deferred taxes - - 138,000 (138,000)
-------- -------- -------- ---------
$111,500 $115,900 $124,800 $ 14,500
======== ======== ======== =========
Effect on earnings
per share $ 0.08 $ 0.08 $ 0.09
======== ======== ========
</TABLE>
(10) RELATED PARTY TRANSACTIONS
The Company pays commissions on certain proprietary products to a
company owned by an officer of the Company. The commissions are based
upon a design and consulting agreement which became effective in
January, 1993. Commissions paid were approximately $131,000, $107,000
and $85,000 in 1996, 1995 and 1994, respectively. In management's
opinion, the fees paid are comparable to those that could be arranged
with an unrelated party.
F-29
<PAGE>
LEXALITE INTERNATIONAL CORPORATION
----------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(Continued)
(11) SUBSEQUENT EVENT
On July 18, 1996, the Company entered into a definitive agreement
pursuant to which Summa Industries (Summa) will acquire all of the
outstanding common stock of LexaLite. Under the terms of the
agreement, Summa, through a wholly-owned subsidiary, will convert each
LexaLite share to 1.5 Summa shares, subject to adjustment as provided
in the agreement. The transaction remains subject to shareholder
approval of each Company and to certain other conditions.
F-30
<PAGE>
APPENDIX I
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (this "Agreement") is made and
entered into as of _____________, 1996, by and among Summa Industries, a
California corporation ("Summa"), Charlevoix The Beautiful, Inc., a newly formed
California corporation and wholly-owned subsidiary of Summa ("Subsidiary"), and
LexaLite International Corporation, a Delaware corporation ("LexaLite").
Subsidiary and LexaLite are sometimes hereinafter collectively referred to as
the "Constituent Corporations."
R E C I T A L S
A. Summa is authorized to issue 10,000,000 shares of Common Stock, $.001
par value ("Summa Common Stock"), of which [1,600,000] shares are issued and
outstanding 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.
B. Subsidiary is authorized to issue 1,000 shares of Common Stock, $.001
par value ("Subsidiary Common Stock"), of which 1,000 shares have been issued
and are outstanding as of the date hereof, all of which are owned, beneficially
and of record, by Summa.
C. LexaLite is authorized to issue 2,000,000 shares of Common Stock, $1.00
par value ("LexaLite Common Stock"), of which 1,447,918 shares have been issued
and are outstanding as of the date hereof.
D. Each of the parties hereto has previously entered into that certain
Agreement and Plan of Reorganization (the "Reorganization Agreement"), for the
purposes of setting forth all of the terms and conditions upon which Subsidiary
would be merged with and into LexaLite (the "Merger") in accordance with the
provisions of the California Corporations Code and the Delaware General
Corporation Law, and pursuant to the terms and conditions hereinafter set forth.
E. The Board of Directors of each of Summa, Subsidiary and LexaLite has
approved the Merger and the transactions contemplated by this Agreement, upon
the terms and subject to the conditions set forth herein, and has directed that
this Agreement be submitted to its shareholders for their approval.
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants and agreements contained herein, and in accordance with the
applicable provisions of the California Corporations Code, the parties hereto
covenant and agree as follows:
I-1
<PAGE>
ARTICLE I
THE MERGER, THE SURVIVING CORPORATION
AND THE EFFECTIVE DATE
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 LexaLite (the "Merger"), with LexaLite to
be the surviving corporation in the Merger.
1.2 The Merger shall occur and be effective at the time and on the date
that this Agreement, having been duly executed and acknowledged, or a
certificate of merger with respect hereto, together with any and all other
necessary documents and instruments, is filed with the Secretary of State of
California and the Secretary of State of the State of Delaware. The date on
which the Merger occurs and becomes effective is hereby defined to be and is
hereinafter referred to as the "Effective Date" and the time of such
effectiveness is hereby defined to be and is hereinafter referred to as the
"Effective Time."
1.3 Subsidiary, 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 Delaware. 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.
ARTICLE II
ARTICLES OF INCORPORATION, BYLAWS,
AND DIRECTORS OF THE SURVIVING CORPORATION
2.1 The Certificate of Incorporation of LexaLite as in effect immediately
before the Effective Time is hereby amended, effective as of the Effective Date,
to provide that the total number of all classes of capital stock which the
Surviving Corporation shall have authority to issue shall be 1,000 shares of
Common Stock, at $.001 par value per share. As so amended, the Certificate of
Incorporation of LexaLite shall be the Certificate of Incorporation of the
Surviving Corporation until further amended or repealed in accordance with the
provisions thereof and of applicable law.
2.2 The Bylaws of LexaLite as in effect immediately prior to the Effective
Date shall be the Bylaws of the Surviving Corporation, until amended or repealed
in accordance with applicable law, the Certificate of Incorporation of the
Surviving Corporation, or such Bylaws, except that such Bylaws of LexaLite are
hereby amended, effective as of the Effective Time, to provide for a Board of
Directors consisting of not less than three (3) nor more than five (5) members,
with
I-2
<PAGE>
the initial number of directors to be three (3) and thereafter such number
between three (3) and five (5) as may be established from time to time by a
resolution duly adopted by the Board of Directors of the Surviving Corporation.
2.3 There shall be three (3) directors of the Surviving Corporation from
and after the Effective Date (until changed in accordance with applicable law
and the Certificate of Incorporation and Bylaws of the Surviving Corporation),
who shall be James R. Swartwout, Josh T. Barnes, and Thomas M. Phillips.
ARTICLE III
TREATMENT OF SHARES OF EACH OF THE
CONSTITUENT CORPORATIONS
3.1 On the Effective Date:
(a) Subject in all events to the provisions of Section 3.1(c) below,
each share of LexaLite's Common Stock outstanding immediately prior to the
Merger shall, by virtue of the Merger and without any action on the part of the
holder thereof, be converted into and become the right to receive one and one-
half (1.5) shares of the Common Stock of Summa;
(b) Subject in all events to the provisions of Section 3.1(c) below,
all options, warrants and other rights to purchase shares of LexaLite's Common
Stock outstanding immediately prior to the Merger shall have been canceled as of
the Effective Time by agreements with the holders thereof to accept, in the
place thereof, options to purchase shares of Summa Common Stock, all as provided
in Section 10.7 of the Reorganization Agreement.
(c) In the event that the average closing price of Summa Common Stock
on The Nasdaq National Market during the 5 consecutive trading days ending on
and including the third trading day prior to the date on which the meeting of
LexaLite's Stockholders has been called for the purpose of voting on the Merger
is less than $6.66 per share, LexaLite may notify Summa of Lexalite's intention
to terminate this Agreement and the transactions contemplated hereby unless the
number of shares of Summa Common Stock issuable to the stockholders of LexaLite
as a consequence of the Merger is increased as provided below. Upon receipt of
such notification, Summa may elect to (i) terminate this Agreement and the
transactions contemplated hereby, or (ii) to increase the number of shares of
Summa Common Stock issuable to the stockholders as a group to that number of
shares of Summa Common Stock which would have an aggregate value (based upon the
average closing price calculated as provided above) equal to $15,000,000.
(d) Each share of Subsidiary's Common Stock outstanding immediately
prior to the Merger shall, by virtue of the Merger and without any action on the
part of the holder thereof,
I-3
<PAGE>
be converted into and become one fully paid and nonassessable share of Common
Stock, $1.00 par value, of the Surviving Corporation.
I-4
<PAGE>
(e) Shares of Summa Common Stock shall not be issued as a consequence
of the Merger in respect of shares of LexaLite Common Stock owned by LexaLite
immediately prior to the Effective Time, if any, and as of the Effective Time
any and all such shares of LexaLite Common Stock owned by LexaLite shall be
canceled and retired, and all rights in respect thereof shall cease to exist.
3.2 After the Effective Date, each holder of an outstanding certificate or
certificates theretofore representing shares of LexaLite Common Stock shall
surrender such certificate or certificates to the Exchange Agent (as defined in
Section 1.18 of the Reorganization Agreement) and shall receive in exchange
therefor certificates representing the number of whole shares of Summa Common
Stock into which the shares of LexaLite Common Stock theretofore represented by
the certificate or certificates so surrendered (together with cash in lieu of a
fractional share, if any, as provided in Section 3.3 below). After the
Effective Time, certificates formerly representing shares of LexaLite Common
Stock shall be deemed for all purposes, other than the payment of dividends or
other distributions, if any, payable to holders of record of shares of Summa
Common Stock as of any date subsequent to the Effective Date, to evidence the
number of shares of Summa Common Stock into which such shares of LexaLite Common
Stock have been converted under Section 3.1(a) hereof; provided, however, that
-----------------
upon surrender and exchange of such outstanding certificates theretofore
representing shares of LexaLite Common Stock there shall be paid by the Exchange
Agent to the record holders of the certificates issued in exchange therefor, the
amount, without interest thereon, of dividends and other distributions, if any,
which theretofore have become payable with respect to the number of whole shares
of Summa Common Stock represented thereby.
3.3 No fractional shares of Summa Common Stock and no scrip certificates
therefor shall be issued to represent any fractional share interests in shares
of Summa Common Stock, and such fractional share interest shall not entitle the
owners thereof to vote, to receive dividends, or to exercise any other right of
shareholders of Summa. In lieu of a fractional share or scrip certificate, each
holder of a share of LexaLite Common Stock otherwise entitled to a fractional
interest in a share of Summa Common Stock shall be entitled to receive a cash
payment (without interest) in an amount equal to the fraction of such share of
Summa Common Stock to which such holder otherwise would be entitled multiplied
by the average closing price of a share of Summa Common Stock determined as
provided in Section 3.1.2(c) hereof.
3.4 Each stockholder of LexaLite, if any, and each shareholder of Summa,
if any, who becomes entitled, pursuant to the provisions of the Delaware General
Corporation Law or the California Corporations Code, respectively, to the
payment of the "fair value" of his shares of LexaLite Common Stock or Summa
Common Stock, as the case may be ("Perfected Dissenting Shares"), shall receive
payment therefor from LexaLite or Summa, as the case may be, but only if the
Merger is consummated and becomes effective and only after the value thereof
shall have been agreed upon or finally determined pursuant to such provisions.
Perfected Dissenting Shares, if any, shall be canceled.
I-5
<PAGE>
ARTICLE IV
CONDITIONS, DEFERRAL, TERMINATION AND AMENDMENT
4.1 The obligations of LexaLite and Subsidiary to effect the transactions
contemplated by this Agreement are subject to the satisfaction of the following
conditions (any and all of which may be waived by LexaLite and Subsidiary in
their sole discretion to the extent permitted by law):
(a) The shareholders of Summa shall have approved the Merger, and the
issuance of shares of Summa Common Stock as a consequence thereof, at a meeting
thereof duly held in accordance with the California Corporations Code.
(b) Summa, as the sole shareholder of Subsidiary, shall have approved
the Merger in accordance with the California Corporations Code.
(c) The stockholders of LexaLite shall have approved the Merger at a
meeting thereof duly held in accordance with the Delaware General Corporation
Law.
4.2 Consummation of the Merger may be deferred by agreement of the
respective Boards of Directors of LexaLite and Subsidiary for a reasonable
period of time if it is determined that deferral would be in the best interests
of the respective shareholders of the parties.
4.3 This Agreement may be terminated as provided in the Reorganization
Agreement at any time before or after adoption and approval hereof by the
stockholders of LexaLite or the shareholders of Subsidiary, or both, but not
later than the Effective Date. In the event of such termination, this Agreement
shall become wholly void and of no effect, and there shall be no liability on
the part of Summa, Subsidiary or LexaLite, or the Board of Directors or
shareholders, or stockholders, as the case may be, except as provided in Section
4.4 hereof.
4.4 If the Merger becomes effective, the Surviving Corporation shall
assume and pay all expenses in connection therewith not theretofore paid by the
respective parties. If for any reason the Merger shall not become effective,
each of Summa and Subsidiary, on the one hand, and LexaLite, on the other hand,
shall pay all of their or its respective expenses incurred in connection with
all the proceedings taken in respect of this Agreement or relating thereto as
provided in the Reorganization Agreement.
4.5 The parties hereto, by mutual consent of their respective Boards of
Directors, may amend, modify or supplement this Agreement in such matter as may
be agreed upon by them in writing at any time before or after adoption and
approval of this Agreement by the stockholders of LexaLite or the shareholders
of Summa, or both, but not later than the Effective Date; provided, however,
-----------------
that no such amendment, modification or supplement not adopted and approved by
the stockholders of LexaLite and/or shareholders of Summa shall affect the
rights of such stockholders and/or shareholders or change any of the principal
terms of this Agreement.
I-6
<PAGE>
ARTICLE V
TRANSFER OF ASSETS AND LIABILITIES
5.1 On the Effective Date, the rights, privileges, powers and franchises,
both of a public as well as a private nature, of each of the Constituent
Corporations shall be vested in and possessed by the Surviving Corporation,
subject to all of the disabilities, duties and restrictions of or upon each of
the Constituent Corporations; and all rights, privileges, powers and franchises
of each of the Constituent Corporations, and all property, real, personal and
mixed, of each of the Constituent Corporations, and all debts due to each of the
Constituent Corporations on whatever account, and all things in action or
belonging to each of the Constituent Corporations shall be transferred to and
vested in the Surviving Corporation; and all property, rights, privileges,
powers and franchises, and all and every other interest, shall be thereafter as
effectually the property of the Surviving Corporation as they were of the
Constituent Corporations, and the title to any real estate vested by deed or
otherwise in either of the Constituent Corporations shall not revert or be in
any way impaired by reason of the Merger; provided, however, that the
-------- -------
liabilities of the Constituent Corporations and of their shareholders,
directors, and officers shall not be affected and all rights of creditors and
all liens upon any property of either of the Constituent Corporations shall be
preserved unimpaired, and any claim existing or action or proceeding pending by
or against either of the Constituent Corporations may be prosecuted to judgment
as if the Merger had not taken place except as they may be modified with the
consent of such creditors, and all debts, liabilities and duties of each of the
Constituent Corporations shall attach to the Surviving Corporation, and may be
enforced against it to the same extent as if such debts, liabilities and duties
had been incurred or contracted by it.
5.2 The parties hereto agree that, from time to time and as when requested
by the Surviving Corporation, or by its successors and assigns, to the extent
permitted by law, the officers and directors of Subsidiary and of the Surviving
Corporation are fully authorized in the name of Subsidiary or otherwise to
execute and deliver all such deeds, assignments, confirmations, assurances and
other instruments and to take or cause to be taken all such further action as
the Surviving Corporation may deem necessary or desirable in order to vest,
perfect, confirm in or assure the Surviving Corporation title to and possession
of all said property, rights, privileges, powers and franchises and otherwise to
carry out the intent and purposes of this Agreement.
ARTICLE VI
MISCELLANEOUS
For the convenience of the parties and to facilitate any filing and
recording of this Agreement, any number of counterparts hereof may be executed,
each of which shall be deemed to be an original of this Agreement but all of
which together shall constitute one and the same instrument.
I-7
<PAGE>
This Agreement and the legal relations between the parties hereto shall be
governed by and construed in accordance with the laws of the State of
California, except with respect to matters affecting the corporate governance of
LexaLite which expressly are governed by the Delaware General Corporation Law.
IN WITNESS WHEREOF, the parties to this Agreement, pursuant to the approval
and authority duly given by resolutions adopted by their respective Boards of
Directors have caused this Agreement to be executed by the President of each
party hereto, and to be attested to by the Secretary of each party hereto, all
as of the day and year first above written.
CHARLEVOIX THE BEAUTIFUL, INC.
By:
--------------------------------------
James R. Swartwout, President
Attest:
By:
------------------------------
,Secretary
LEXALITE INTERNATIONAL CORP.
By:
--------------------------------------
Josh T. Barnes,
Chief Executive Officer
Attest:
By:
------------------------------
,Secretary
SUMMA INDUSTRIES
By:
-------------------------------------
James R. Swartwout,
Chief Executive Officer
Attest:
By:
------------------------------
,Secretary
I-8
<PAGE>
[WEDBUSH MORGAN SECURITIES]
Appendix II
(213) 688-4545
FAX (213) 688-6642
October 11, 1996
Board of Directors Board of Directors
LexaLite International Corporation Summa Industries
10163 US 31 North 21250 Hawthorne Boulevard, Suite 500
Charlevoix, MI 49720-0498 Torrance, CA 90503
Gentleman:
You have requested our opinion as to the fairness, from a financial point of
view, to the Stockholders of LexaLite International Corporation ("LexaLite")
and the shareholders of Summa Industries ("Summa") (together the "Companies")
of the proposed merger (the "Merger") contemplated by the Agreement and Plan of
Reorganization dated as of July 18, 1996 by and between LexaLite and Summa (the
"Merger Agreement").
The Merger Agreement proposes that Charlevoix The Beautiful, Inc., a
newly-to-be-formed California corporation which will be a wholly-owned
subsidiary of Summa will be merged with and into LexaLite, with LexaLite being
the surviving corporation. In addition, each outstanding share of LexaLite
Common Stock, as a consequence of Merger, shall be converted into one and
one-half (1.5) shares of Summa Common Stock. If the average daily closing price
per share of Summa Common Stock as reported on the Nasdaq National Market for
the five consecutive trading days ending on the close of trading on the third
trading day preceding the date on which the LexaLite Stockholders shall meet to
vote on the Merger (the "Base Period Trading Price") is less than $6.66,
LexaLite may notify Summa of LexaLite's intention to terminate the Merger unless
the number of shares issued to the LexaLite Stockholders is increased as
provided below. Upon receipt of such notice, Summa may elect to (i) terminate
the Merger, or (ii) to increase the number of shares of Summa Common Stock
issuable to the LexaLite Stockholders to that number of shares of Summa Common
Stock which would have an aggregate value (based on the average closing price as
provided above) equal to $15 million. Summa has advised LexaLite that in all
likelihood Summa would not elect to increase the number of shares of Summa
Common Stock issuable to the LexaLite Stockholders as provided above if the
increased number of shares would exceed three million.
Wedbush Morgan Securities is an investment banking firm and a member of the
New York Stock Exchange and other principal stock exchanges in the United
States, and is regularly engaged as part of its business in the valuation of
businesses and their securities in connection with mergers and acquisitions,
negotiated underwritings, private placements, secondary distributions of listed
and unlisted securities, and valuations for corporated, estate and other
purposes.
II-1
<PAGE>
LexaLite International Corporations October 11, 1996
Summa Industries Page 2 of 4
In arriving at our opinion set forth below, we have reviewed, among other
things, draft versions of the Agreement and Plan of Reorganization by and
between LexaLite and Summa; audited financial settlements of LexaLite for the
fiscal years ended June 30, 1992 through June 30, 1996; LexaLite's State of the
Corporation report for the third quarter ended March 30, 1996; projections
prepared by LexaLite with respect to LexaLite for the fiscal year ending June
30, 1997 through June 30, 2001; Valuation Report of LexaLite as of December 31,
1995 prepared by BDO Seidman, LLP; Annual Report to Shareholders of Summa for
the fiscal years ended August 31, 1991 through August 31, 1995; Annual Report on
Form 10-K of Summa for the fiscal years ended August 31, 1991 through August 31,
1995; Quarterly Report on Form 10-Q of Summa for the quarter ended May 31, 1996;
draft audited financial statements of Summa for the fiscal year ended August 31,
1996; Proxy Statement for Annual Meeting of Stockholders of Summa dated December
14, 1995; Form 8-K reporting the sale of Morehouse-COWLES, Inc. to J.B. Jennings
and Bret Lewis; projections of the consolidated operations of Summa for the
fiscal year ending August 31, 1997; the KVP Systems, Inc. subsidiary for the
three fiscal years ending August 31, 1999; and the GST Industries, Inc. and
Stang subsidiaries for the five fiscal years ending August 3, 2001.
We have held discussion with certain members of the senior management of both
LexaLite and Summa regarding the past and current business operations, financial
condition, future prospects and projected operations and performance of the
Companies. We have toured the headquarters of Summa in Torrance, California and
the operating plants of Summa in Santa Ana and Rancho Cordova, California. In
addition, we have reviewed the reported price and trading activity of Summa's
Common Stock, compared certain statistical and financial information for
LexalIte and Summa, respectively, with similar information for certain publicly
traded companies in the same industries as LexaLite and Summa, respectively;
reviewed and compared statistical and financial data for recent acquisitions in
the same industries and LexaLite and Summa and conducted such other financial
studies, analyses and inquiries and considered such other matters as Wedbush
Morgan Securities deemed necessary and appropriate for this opinion.
We have not undertaken any obligation to independently verify the accuracy or
completeness of financial information or other information furnished to us by
LexaLite or Summa orally or in writing, or other information obtained from
publicly available sources and reviewed by us for purposes of this opinion. We
were provided with information represented to us as the best currently available
estimates and judgements of the management of LexaLite and Summa, as to the
expected future financial and operating performance of LexaLite and Summa, and
we have assumed that they have been reasonably prepared and have not undertaken
any responsibility for the accuracy of such forecasts, estimates or judgements
nor have we undertaken any obligation independently to verify the underlying
assumptions made in connection with such forecasts, estimates or judgements. In
addition, we have not made an independent evaluation or appraisal of any
particular assets or liabilities of LexaLite or Summa, and we have not been
furnished with any such evaluation or appraisal.
II-2
<PAGE>
LexaLite International Corporations October 11, 1996
Summa Industries Page 3 of 4
We note that KVP Systems, Inc., a subsidiary of Summa, is a party to certain
legal proceedings, Laitram, et al v. KVP Systems, Inc., pending before the
Federal District Court in Sacramento, California, regarding the validity of two
patents which the plaintiffs claim KVP Systems, Inc. has infringed. KVP Systems,
Inc. contends the claims are invalid, and has filed counterclaims that the
plaintiffs have sued in bad faith and acted in restraint of free trade. The case
is in an advanced stage discovery and is expected to be heard in court during
Summa's fiscal 1997. This opinion is based on the assumption that the outcome of
such legal proceedings will not have a material adverse effect on the financial
position of Summa. We have relied, with your consent, exclusively on the
judgement of the management of LexaLite and Summa that such assumption can be
made. We do not take any responsibility for the accuracy of such assumption nor
do we undertake any obligation to verify independently such assumption.
We have not negotiated, or participated in any way in the negotiation of, the
terms of the Merger or advised you regarding strategic alternatives. We have not
been asked to consider, and this opinion does not address, the relative merits
of the Merger as compared to any alternative business strategies that might
exist for the Company or the effect of any other transaction in which the
Company might engage.
We do not express any opinion as to the market value of Summa Common Stock to be
received by LexaLite stockholders, or the price or trading range at which shares
of Summa Common Stock will trade following consummation of the Merger. Our
opinion necessarily is based on economic, monetary and market conditions
prevailing, and other circumstances and considerations existing on the date of
this opinion. Nothing contained in this opinion shall be construed as creating
or imposing upon us any undertaking or obligation to advise any person of any
change in any fact or matter affecting our opinion of which we become aware
after the date hereof.
In the normal course of our business, we may, from time and time, actively trade
securities of Summa for our own account or the account of our customers and,
accordingly, may at any time have a long or short position in such securities.
Additionally, we or our affiliates may, from time to time, produce research
materials regarding Summa. Since the date of our engagement with respect to the
Merger, we have not held a long or short position for our own account in Summa
Common Stock. Prior to this transaction, we had not even engaged to provide
investment banking services to LexaLite or Summa.
Based upon and subject to the foregoing and based upon such other matters as we
consider relevant, it is our opinion that, as of the date hereof, the Merger is
fair, from a financial point of view, to the Stockholders of LexaLite and the
shareholders of Summa.
This opinion is intended for the use of the Board of Directors of the Companies
in connection with their consideration of the Merger. We recognize that the
Companies may be required to disclose this opinion in any proxy statement
related to the Merger, and agree that the Companies may do so, provided that
the full text of the opinion is attached to such proxy statement and that the
descriptions of Wedbush Morgan Securities and the opinion is such proxy
statement are
II-3
<PAGE>
LexaLite International Corporations October 11, 1996
Summa Industries Page 4 of 4
approved by us in advance. We note, however, that the opinion is intended to be
for the benefit of the Boards of Directors of the Companies, and not for the
benefit of stockholders or any other third parties. Our agreement to allow
disclosure of the opinion in the Companies' proxy statement is intended solely
to facilitate compliance by the Companies with their legal obligations, and
should not be construed as (1) authorizing reliance on such opinion by any
shareholder of the Companies or any other person, (2) recommending to any
shareholder how to vote regarding the Merger, or (3) implying that Wedbush
Morgan Securities is, within the meaning of Section 7 or Section 11 of the
Securities Act of 1933, an "accountant, engineer, or appraiser, or any person
whose profession gives authority to a statement made by him, who has with his
consent been named as having prepaid or certified" any part of any proxy
statement or registration statement in which such opinion may be included, or
any report or valuation used in connection therewith. Except as provided in this
paragraph, this opinion is not to be used, circulated, quoted or otherwise
referred to for any purpose, except in accordance with our prior written
consent.
Very truly your,
/s/ WEDBUSH MORGAN SECURITIES
WEDBUSH MORGAN SECURITIES
II-4
<PAGE>
Appendix III
EXCERPT FROM THE DELAWARE
GENERAL CORPORATION LAW
RELATING TO DISSENTERS' RIGHTS
262 APPRAISAL RIGHTS--(a) Any stockholder of a corporation of this State
who holds shares of stock on the date of the making of a demand pursuant to
subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation,
who has otherwise complied with subsection (d) of this section and who has
neither voted in favor of the merger or consolidation nor consented thereto in
writing pursuant to (S)228 of this title shall be entitled to an appraisal by
the Court of Chancery of the fair value of his shares of stock under the
circumstances described in subsections (b) and (c) of this section. As used in
this section, the word "stockholder" means a holder of record of stock in a
stock corporation and also a member of record of a nonstock corporation; the
words "stock" and "share" mean and include what is ordinarily meant by those
words and also membership or membership interest of a member of a nonstock
corporation; and the words "depository receipt" mean a receipt, or other
instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to (S)(S) 251 (other than a merger effected pursuant to
subsection (g) of 251), 252, 254, 257, 258, 263 or 264 of this title:
(1) Provided, however, that no appraisal rights under this section shall be
available for the shares of any class or series of stock, which stock, or
depository receipts in respect thereof, at the record date fixed to determine
the stockholders entitled to receive notice of and to vote at the meeting of
stockholders to act upon the agreement of merger or consolidation, were either
(i) listed on a national securities exchange or designated as a national market
system security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or (ii) held of record by more than 2,000 holders;
and further provided that no appraisal rights shall be available for any shares
of stock of the constituent corporation surviving a merger if the merger did not
require for its approval the vote of the holders of the surviving corporation as
provided in subsection (f) of (S) 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series of
stock of a constituent corporation if the holders thereof are required by the
terms of an agreement of merger or consolidation pursuant to (S)(S) 251, 252,
254, 257, 258, 263 and 264 of this title to accept for such stock anything
except:
a. Shares of stock of the corporation surviving or resulting from such
merger or consolidation or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts in
respect thereof, which shares of stock or depository receipts at the effective
date of the merger or consolidation will be either listed on a national
securities exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities Dealers
Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depositary receipts
described in the foregoing subparagraphs a. and b. of this paragraph; or
d. Any combination of the shares of stock, depository receipts and cash in
lieu of fractional shares or fractional depository receipts described in the
foregoing subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under (S) 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall be
available for the shares of the subsidiary Delaware corporation.
III-1
<PAGE>
entitled to appraisal rights, may file a petition in the Court of Chancery
demanding a determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
his written request for such a statement is received by the surviving or
resulting corporation or within 10 days after expiration of the period for
delivery of demands for appraisal under subsection (d) hereof, whichever is
later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
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<PAGE>
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting, shall
notify each of its stockholders who was such on the record date for such meeting
with respect to shares for which appraisal rights are available pursuant to
subsections (b) or (c) hereof that appraisal rights are available for any or all
of the shares of the constituent corporations, and shall include in such notice
a copy of this section. Each stockholder electing to demand the appraisal of his
shares shall deliver to the corporation, before the taking of the vote on the
merger or consolidation, a written demand for appraisal of his shares. Such
demand will be sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends thereby to demand
the appraisal of his shares. A proxy or vote against the merger or consolidation
shall not constitute such a demand. A stockholder electing to take such action
must do so by a separate written demand as herein provided. Within 10 days after
the effective date of such merger or consolidation, the surviving or resulting
corporation shall notify each stockholder of each constituent corporation who
has complied with this subsection and has not voted in favor of or consented to
the merger or consolidation of the date that the merger or consolidation has
become effective; or
(2) If the merger or consolidation was approved pursuant to (S) 228 or (S)
253 of this title, each constituent corporation, either before the effective
date of the merger or consolidation or within ten days thereafter, shall notify
each of the holders of any class or series of stock of such constituent
corporation that are entitled to appraisal rights of the approval of the merger
or consolidation and that appraisal rights are available for any or all shares
of such class or series of stock of such constituent corporation, and shall
include in such notice a copy of this section; provided that, if the notice is
given on or after the effective date of the merger or consolidation, such notice
shall be given by the surviving or resulting corporation to all such holders of
any class or series of stock of a constituent corporation that are entitled to
appraisal rights. Any stockholder entitled to appraisal rights may, within
twenty days after the date of mailing of such notice, demand in writing from the
surviving or resulting corporation the appraisal of such holder's shares. Such
demand will be sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends thereby to demand
the appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either (i)
each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders of
any class or series of stock of such constituent corporation that are entitled
to appraisal rights of the effective date of the merger or consolidation or (ii)
the surviving or resulting corporation shall send a second notice to all such
holders on or within 10 days after such effective date; provided, however, that
if such second notice is sent more than 20 days following the sending of the
first notice, such second notice need only to be sent to each stockholder who is
entitled to appraisal rights and who has demanded appraisal of such holder's
shares in accordance with this subsection. An affidavit of the secretary or
assistant secretary or of the transfer agent of the corporation that is required
to give either notice that such notice has been given shall, in the absence of
fraud, be prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive such notice, each constituent
corporation may fix, in advance, a record date that shall be not more than 10
days prior to the date the notice is given; provided that, if the notice is
given on or after the effective date of the merger or consolidation, the record
date shall be the effective date. If no record date is fixed and the notice is
given prior to the effective date, the record date shall be the close of
business the next day preceding the day on which the notice is given.
(e) within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise
III-2
<PAGE>
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation. (Last amended by
Ch. 79, L. '95, eff. 7-1-95.)
III-4
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
-----------------------------------------
As allowed by the California General Corporation Law, the Articles
of Incorporation of Summa provide that the liability of the directors of Summa
for monetary damages shall be eliminated to the fullest extent permissible under
California law. This is intended to eliminate the personal liability of a
director for monetary damages in an action brought by or in the right of Summa
for breach of a director's duties to Summa or its shareholders, except for
liability for acts or omissions that involve intentional misconduct or knowing
and culpable violation of law, for acts or omissions that a director believes to
be contrary to the best interests of Summa or its shareholders or that involve
the absence of good faith on the part of the director, for any transaction from
which the director derived an improper personal benefit, for acts or omissions
that show a reckless disregard for the director's duty to Summa or its
shareholders in circumstances in which the director was aware, or should have
been aware, in the ordinary course of performing a director's duties, of a risk
of serious injury to Summa or its shareholders, for acts or omissions that
constitute an unexcused pattern of inattention that amounts to an abdication of
the director's duty to Summa or its shareholder, with respect to certain
contracts in which a director has a material financial interest, and for
approval of certain improper distributions to shareholders or certain loans or
guarantees. This provision does not limit or eliminate the rights of Summa or
any shareholder to seek non-monetary relief such as an injunction or rescission
in the event of a breach of a director's duty of care.
Summa's Bylaws require Summa to indemnify its officers, directors,
employees and other agents to the full extent permitted by law, including those
circumstances in which indemnification would otherwise be discretionary.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 (the "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 Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is
therefore unenforceable.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
------------------------------------------
(a) Exhibits
--------
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<C> <S>
3.2 Certificate of Amendment of Articles of Incorporation of Summa
Industries
5 Opinion of Phillips & Haddan
10.1 Terms of Employment -- Josh T. Barnes
10.2 Non-Compete Agreement between Josh T. Barnes and LexaLite
International Corporation (as amended)
10.3 Consulting Agreement by and between Business Activities Corporation
and LexaLite International Corporation
10.4 Non-Compete Agreement between Arthur R. Marshall and LexaLite
International Corporation
10.5 Non-Compete Agreement between Wilfred G. Cryderman and LexaLite
International Corporation
10.6 Exclusive Distributor Agreement, as amended, between Patricia A.
DeYoung and LexaLite International Corporation
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
<C> <S>
10.7 Employee Stock Ownership Plan of LexaLite International Corporation.
24.1 Consent of Arthur Andersen LLP
24.2 Consent of Arthur Andersen LLP
24.3 Consent of Phillips & Haddan (contained in the opinion filed as
Exhibit 5)
99.1 Form of Proxy for shareholders of Summa Industries
99.2 Form of Proxy for stockholders of LexaLite International
Corporation.
</TABLE>
- ------------------
(b) Financial Statement Schedules
-----------------------------
Schedule VIII Valuation and qualifying accounts.
ITEM 22. UNDERTAKINGS
------------
(1) Summa hereby undertakes as follows: that prior to any public
reoffering of the securities registered hereunder through use of a prospectus
which is a part of this Registration Statement, by any person or party who is
deemed to be an underwriter within the meaning of Rule 145(c), Summa undertakes
that such reoffering prospectus will contain the information called for by the
applicable registration form with respect to reofferings by persons who may be
deemed underwriters, in addition to the information called for by the other
items of the applicable form.
(2) Summa undertakes that every prospectus (i) that is filed pursuant to
paragraph (1) immediately preceding, or (ii) that purports to meet the
requirements of Section 10(a)(3) of the Securities Act and is used in connection
with an offering of securities subject to Rule 415, will be filed as a part of
an amendment to the Registration Statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) Summa hereby undertakes to respond to requests for information that is
incorporated by reference into the Joint Proxy Statement/Prospectus pursuant to
Items 4, 10(b), 11 or 13 of Form S-4, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration Statement through the
date of responding to the request.
(4) Summa hereby undertakes to supply by means of a post-effective
amendment all information concerning a transaction, and the company being
acquired involved therein, that was not the subject of and included in the
Registration Statement when it became effective.
(5) Insofar as indemnification for liabilities arising under the Act may
be permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Summa has duly
caused this Amendment No. 1 to this Registration Statement to be signed on its
behalf by the undersigned, thereto duly authorized in the City of Torrance,
State of California, on the 15th day of October, 1996.
SUMMA INDUSTRIES
By: /s/ James R. Swartwout
-----------------------------
James R. Swartwout, President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 1 to this Registration Statement has been signed below by the
following persons in the capacities indicated on the 15th day of October, 1996.
<TABLE>
<CAPTION>
<S> <C> <C>
Signature Title Date
--------- ----- ----
/s/ James R. Swartwout Chairman, Chief Executive October 15, 1996
- -------------------------- Officer and Chief Financial
James R. Swartwout Officer
/s/ Coalson C. Morris* Director October 15, 1996
- --------------------------
Coalson C. Morris
/s/ Dale H. Morehouse* Director October 15, 1996
- --------------------------
Dale H. Morehouse
/s/ Michael L. Horst* Director October 15, 1996
- --------------------------
Michael L. Horst
Director October 15, 1996
- --------------------------
William R. Zimmerman
/s/ David McConaughy* Director October 15, 1996
- --------------------------
David McConaughy
/s/ Karl V. Palmaer* Director October 15, 1996
- --------------------------
Karl V. Palmaer
/s/ Byron C. Roth* Director October 15, 1996
- --------------------------
Byron C. Roth
/s/ Paul A. Walbrun Vice President, Controller October 15, 1996
- -------------------------- and Secretary
Paul A. Walbrun
*By: James R. Swartwout,
Attorney-in-Fact
/s/ James R. Swartwout
----------------------
James R. Swartwout
</TABLE>
II-3
<PAGE>
SUMMA INDUSTRIES
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Sequential
Exhibit No. Page
- ----------- ----------
<C> <S> <C>
3.2 Certificate of Amendment of the Articles of Incorporation
of Summa Industries
5 Opinion of Phillips & Haddan
10.1 Terms of Employment -- Josh T. Barnes
10.2 Non-Compete Agreement between Josh T. Barnes and LexaLite
International Corporation, as amended
10.3 Consulting Agreement by and between Business Activities
Corporation and LexaLite International Corporation
10.4 Non-Compete Agreement between Arthur R. Marshall and
LexaLite International Corporation
10.5 Non-Compete Agreement between Wilfred G. Cryderman and
LexaLite International Corporation
10.6 Exclusive Distributor Agreement, as amended, between
Patricia A. DeYoung and LexaLite International
Corporation
10.7 Employee Stock Ownership Plan of LexaLite International
Corporation
24.1 Consent of Arthur Andersen LLP
24.2 Consent of Arthur Andersen LLP
24.3 Consent of Phillips & Haddan (contained in the opinion
filed as Exhibit 5)
99.1 Form of Proxy for shareholders of Summa Industries
99.2 Form of Proxy for stockholders of LexaLite International
Corporation.
</TABLE>
II-4
<PAGE>
EXHIBIT 3.2
-----------
CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
SUMMA INDUSTRIES
James R. Swartwout and Paul A. Walbrun certify that:
1. They are the duly elected and acting President and Secretary,
respectively, of Summa Industries, a California corporation.
2. Article Four of the Articles of Incorporation of this corporation is
hereby amended to read in its entirety as follows:
"DIRECTORS
"Four: This corporation is a listed corporation within the meaning of
Section 301.5 of the California Corporations Code in that the corporation, whose
Common Stock is traded on The Nasdaq National Market, falls within the
definition of a listed corporation as set forth in Section 301.5(d)(2) of the
California Corporations Code. For so long as this corporation remains a listed
corporation within the meaning of Section 301.5 of the California Corporations
Code, the board of directors of the corporation shall be divided into three
classes to serve for terms of three years, the number of directors of the
corporation shall be nine, one third of the directors or as close an
approximation as possible shall be elected at each annual meeting of
shareholders, and cumulative voting for the election of directors shall be
eliminated. In the event that the corporation ceases to be a listed corporation
within the meaning of Section 301.5 of the California Corporations Code, the
number of directors of the corporation may be fixed from time to time by
resolution of the board of directors, but shall not be less than five nor more
than nine."
3. The foregoing amendment of the Articles of Incorporation has been duly
approved by the Board of Directors of this corporation in accordance with
Sections 301.5 and 902 of the California Corporations Code.
4. The foregoing amendment of the Articles of Incorporation has been duly
approved by the required vote of shareholders in accordance with Sections 301.5
and 902 of the California Corporations Code. The total number of outstanding
shares of the corporation is _________________. The number of shares voting in
favor of the amendment equaled or exceeded the vote required. The percentage
vote required was more than 50%.
We further declare under penalty of perjury under the laws of the State of
California that the matters set forth in this certificate are true and correct
of our own knowledge.
Dated: November __, 1996.
___________________________________________
James R. Swartwout, President
___________________________________________
Paul A. Walbrun, Secretary
<PAGE>
Exhibit 5
---------
October 14, 1996
SUMMA INDUSTRIES
21250 Hawthorne Boulevard, Suite 500
Torrance, California 90503
Re: Common Stock of Summa Industries ("Summa") issuable
to the stockholders of LexaLite International Corporation
("LexaLite") as a consequence of the Merger of a wholly-owned
subsidiary of Summa with and into LexaLite
-------------------------------------------------------------
Ladies and Gentlemen:
We have acted as counsel to Summa Industries, a California corporation
("Summa"), with respect to the proposed merger (the "Merger") of Charlevoix the
Beautiful, Inc., a California corporation and wholly-owned subsidiary of Summa
("Subsidiary"), with and into LexaLite International Corporation, a Delaware
corporation ("LexaLite"). As a consequence of the Merger, shares of Summa's
Common Stock (the "Shares") will be issued to the former stockholders of
LexaLite on the terms and conditions set forth in the Agreement of Merger dated
November , 1996 by and among Summa, Subsidiary and LexaLite. The Shares will
---
be registered under the Securities Act of 1933, as amended (the "Securities
Act"), pursuant to Summa's Registration Statement on Form S-4 (the "Registration
Statement") which became effective under the Securities Act on October 17, 1996.
As such counsel, we have made such legal and factual examinations and
inquiries as we deemed advisable under the circumstances for the purposes of
rendering this opinion, and in the course thereof, we have obtained from public
officials such assurances as to factual matters as we considered necessary.
On the basis of and relying upon the foregoing examinations and inquiries,
we are of the opinion that the Shares, when issued by Summa as a consequence of
the Merger in the manner and upon the terms contemplated by the Registration
Statement, will be legally issued, fully paid and non-assessable.
We hereby consent to the use of this opinion as an exhibit to the
Registration Statement and to the reference to us under the caption "Legal
Matters" in the Registration Statement.
Very truly yours,
Phillips & Haddan
<PAGE>
EXHIBIT 10.1
------------
TERMS OF EMPLOYMENT -- JOSH T. BARNES
SUMMA INDUSTRIES, effective upon the consummation of the merger of Charlevoix
The Beautiful, Inc. with LexaLite, reconfirms Josh T. Barnes as a continuing
non-contractual "employment-at-will of LexaLite". LexaLite retains its right to
terminate such employment at any time and Mr. Barnes retains the right to resign
at any time. While both parties expect any termination of employment, by either
party, to recognize the many years of beneficial association in the manner,
notice and terms of such action, both, however, also acknowledge that the other
has no obligation to fulfill such expectation, except as stated herein. A
separate Covenant Not-To-Compete and certain benefits, later addressed, do
survive termination of employment.
Mr. Barnes shall serve as Executive Director of LexaLite, in which role he will
report to the president of SUMMA INDUSTRIES. In this capacity, Mr. Barnes will
perform the following duties: new business conceptualization; new product
conceptualization; mentoring to newer design employees; consultation to SUMMA
with respect to mergers and acquisition candidates; consultation to SUMMA and
its subsidiaries with respect to product development, manufacturing methods and
systems; and other such activities as shall from time to time be assigned. Mr.
Barnes shall be reimbursed for all costs and expenses necessary to the
performance of his duties and shall be provided with suitable transportation.
He shall be salaried at sixty thousand dollars ($60,000) per year, subject to
annual review. He shall receive fringe benefits in accord with the current
fringe benefit program in effect for LexaLite Officers.
Salary and fringes, other than Medical Benefits, shall continue only through the
first full month next following termination of employment. Medical benefits
(Hospitalization and Supplemental Medical) shall continue for five (5) years
after such termination.
An existing Covenant Not-To-Compete shall become effective as of the date of
termination and shall be modified to provide for consideration, payable to Mr.
Barnes, in the amount of fifteen thousand dollars ($15,000) per quarter, for
twenty (20) consecutive quarters.
In addition to a salary, Mr. Barnes shall be paid an incentive bonus based on
two (2.0) points for fiscal year 1997 and thereafter. The bonus shall be paid
in accord with the then current Incentive Bonus Program and shall continue
though the final payment for the first full fiscal year subsequent to
termination of employment.
Agreed and Accepted, for himself, Agreed and Accepted, for SUMMA INDUSTRIES,
- -------------------------------- -------------------------------------------
Josh T. Barnes, as an individual James R. Swartwout, its president
- -------------------------------- -------------------------------------------
Date Date
<PAGE>
EXHIBIT 10.2
------------
COVENANT NOT-TO-COMPETE
THIS AGREEMENT made this _______ day of ______________ 1996, by and among
Josh T. Barnes, an individual of Charlevoix, Michigan, hereinafter known as
"Barnes", LEXALITE INTERNATIONAL CORPORATION, a Delaware corporation, of U.S.
31, Charlevoix, Michigan 49720, hereinafter known as "LexaLite" and SUMMA
INDUSTRIES, a California Corporation, having its principal place of business at
21250 Hawthorne Boulevard, Suite 500, Torrance, CA 90503, hereinafter known as
"SUMMA."
WHEREAS Barnes has been an active officer and employee of LexaLite for a
period in excess of 30 years, may become an employee of a company providing
consulting services thereto and, further, may at some future date no longer be
actively associated in the operation of the business and,
WHEREAS LexaLite has been active as a processor of engineering and has
participated in sales, manufacturing engineering and research of products or
services involving the engineering and research of products or services
involving the engineering thermoplastics and is desirous of protecting its trade
secrets, its production processes and its trade relationships and,
WHEREAS LexaLite is, contemporaneously with the execution of this
agreement, entering into a stock transaction whereby it will become a wholly-
owned subsidiary of SUMMA (the "Merger") and Barnes expects to receive
substantial consideration, rights and benefits as a consequence of that
transaction,
NOW, THEREFORE, for good and valuable consideration recited herein in which
LexaLite is the payer and Barnes is the payee, the adequacy of which is hereby
acknowledged, LexaLite and Barnes agree as follows:
1. The "Payment Date" for the following purpose, shall be the later date
of: 1) termination of employment or re-employment by LexaLite; or 2) termination
of a Consulting Agreement between LexaLite and Business Activities Corporation,
if one exists, and if it is not replaced by a continuing agreement or re-
employment.
2. For a period of not less than five (5) years from said Payment Date
hereof, LexaLite agrees to pay to Barnes an amount equal to $15,000 per quarter.
3. For the period of time starting with the date first stated and
continuing for five (5) years after the Payment Date, Barnes agrees that he
shall not directly or indirectly own, manage, operate, control or participate in
ownership, management, operation or control of or be connected as an officer,
employee, partner, director, shareholder, advisor or otherwise have any
financial interest in, or aid or assist financially or otherwise, anyone else in
the conduct of any business operations competitive to any such operations
heretofore, or hereafter to be, conducted by LexaLite.
4. This Covenant is not restricted geographically, but shall be applicable
on a worldwide basis. This covenant specifically includes all customers of
LexaLite.
5. In recognition of difficulty in determining damages or violation of
this Covenant, LexaLite shall be entitled to injunctive relief for the
violation or threatened violation hereof, in addition to such other relief as
may be available to it at law, in equity, or under this Covenant.
<PAGE>
6. If any provision hereunder shall be deemed to be contrary to law, such
a provision shall be modified to the slightest extent possible to render same
not contrary to law, and such provision, as so modified, shall constitute a part
of this Covenant.
7. The obligations of Barnes under this Covenant shall be absolute and
unconditional, without regard to the liability of any other person or entity.
8. This Covenant and the obligations of Barnes and LexaLite hereunder
shall be governed by the laws of the State of Michigan, where this Covenant has
been executed and delivered for value.
9. Barnes acknowledges and consents to the in personam jurisdiction and
venue of the Federal and State courts within the State of Michigan for purpose
of the enforcement of any provision of this Covenant. Barnes agrees that any
suit hereunder may be brought in the Court for the Western District of Michigan,
and that Barnes will not raise and hereby waives any objection that Barnes may
or could have to either jurisdiction or venue therein.
10. The obligations of Barnes under this Covenant shall inure to the
benefit of the successors and assigns, in law or in fact, of LexaLite. The
obligations for any payments required by this Covenant shall also be obligations
of the successors and assigns, in law or in fact, of LexaLite.
11. This agreement supersedes that certain Covenant-Not-To-Compete
Agreement dated September 17, 1993 and any other Covenant-Not-To-Compete
Agreement between Barnes and LexaLite, and shall become effective immediately
upon, and only upon, the consummation of the Merger.
IN WITNESS WHEREOF, Barnes and LexaLite have acknowledged and delivered
this Covenant on the date first above written.
WITNESSES:
- ------------------------- -------------------------------------------------
Josh T. Barnes
LEXALITE INTERNATIONAL CORPORATION
- ------------------------- -------------------------------------------------
by Thomas M. Phillips, President
SUMMA INDUSTRIES
- ------------------------- -------------------------------------------------
by James R. Swartwout, President
<PAGE>
EXHIBIT 10.3
------------
Design and Consulting Agreement
This Agreement, effective January 1, 1993 is by and between LexaLite
International Corporation, a Delaware corporation, of U.S. 31, Charlevoix,
Michigan 49720, hereinafter "LexaLite" and Business Activities Corporation, a
Michigan corporation, of Post Office Box 244, Charlevoix, Michigan 49720,
hereinafter "BAC".
WHEREAS LexaLite has a need for new product ideas and designs both in lighting
and in other markets and also for optical design services relating to its
lighting products, and for consulting services in research and development and,
WHEREAS BAC has outstanding optical design capabilities as confirmed by recent
new product introductions by LexaLite and also has knowledge of non-lighting
product research and development including, but not limited to, its own research
of a certain marine product of high potential but at high risk,
NOW THEREFORE, LexaLite and BAC do enter into this Design and Consulting
Agreement and, further, do agree as follows:
BAC shall increase Product development, both in lighting and in other
markets, for the exclusive benefit of LexaLite.
BAC shall dedicate its limited optical design capability exclusively to
LexaLite and shall do such designs without compensation other than the fees
agreed to herein, unless such workload requires additional design assistance.
BAC shall grant LexaLite exclusive rights to each new design or Product.
Those rights shall include trade secrets, copyright and patent
opportunities, as such may be created. All costs relating to such
intellectual property shall be to the account of LexaLite.
In consideration of these services to be provided to LexaLite by BAC,
LexaLite shall pay BAC a flat fee of twenty five hundred dollars ($2,500) per
month, payable on, or about, the first of each month. (Note: these parties
contemplate entering into a separate contract that will enable BAC to
participate in the rewards of high margin products as they achieve successful
production.)
This Agreement shall be for the Calendar Year 1993 and shall automatically be
extended for an additional one year term on the first day of each year
thereafter. It may be terminated without cause by either party on one year's
written notice and for proper cause, without other notice if a written notice of
default shall not be remedied within thirty days after being served.
Disputes arising hereunder shall be submitted to the firm of Pointner & Joseph
for adjudication (non-binding). This Agreement is subject to the laws and courts
of the State of Michigan. Nothing herein shall be construed as creating any
employer/employee relationship and BAC may substitute persons and schedule times
and work locations at its own discretion.
Signed, in agreement hereto, this 17th day of September, 1993
----
LEXALITE INTERNATIONAL CORPORATION BUSINESS ACTIVITIES CORPORATION
/s/ PATT DEYOUNG /s/ JOSH BARNES
- ------------------------------------- -------------------------------
by Patt De Young, Corporate Secretary by Josh Barnes, President
for its Board of Directors for its Board of Directors
<PAGE>
Product Introduction and Market Development Contract
Page 1 of 3 Pages
THIS CONTRACT, made and effective this 20th day of February, 1993, is by and
between LexaLite International Corporation, a Delaware corporation, of U.S. 31,
Charlevoix, Michigan 49720, hereinafter "LexaLite" and Business Activities
Corporation, a Michigan corporation, of Post Office Box 244, Charlevoix,
Michigan 49720, hereinafter "BAC".
WHEREAS LexaLite has many new products both in lighting and in new markets
such as, but not limited to, marine products, and is desirous of obtaining
representation and professional services relating to the introduction and
acceptance of such new products in their respective markets and,
WHEREAS BAC has a working knowledge of all such new products of LexaLite
and also has knowledge of the Lighting and Marine markets and further has
established contacts with the buyers and the specifying influences within those
two markets as well as in others and,
WHEREAS LexaLite and BAC have a separate Design/Development Contract
covering new product design and development as well as optical designs of
lighting components and which existing contract is satisfactory to both parties.
NOW THEREFORE, LexaLite and BAC do agree to hold the existing
Design/Development Contract separate, in all respects, from this Product
Introduction and Market Development Contract and do further agree to the
definitions and terms of this contract, as follows:
DEFINITIONS:
<TABLE>
<CAPTION>
<C> <S>
Margin The sales Margin as presently calculated by LexaLite. (Actual
selling price less manufacturing cost of goods sold. The cost
of goods sold does not include Selling, G & A, or Other
Expenses.) If LexaLite's method of calculating Margin be
changed, the Margins of Schedule A must also be changed to
maintain the same effect as if the present method of
calculation had remained unchanged.
Objective To introduce and thereafter increase market specifications
and acceptance of those LexaLite Products included in
Schedule A.
Product(s) A product included in this contract by listing in an attached
Schedule A; initially all 800 Series Reflexors(R), lenses
and enclosures.
Service(s) Any services, technical assistance, specification work or
other effort provided by BAC, either to, or on behalf of,
LexaLite, toward achievement of the objective.
</TABLE>
<PAGE>
Product Introduction and Market Development Contract
Page 2 of 3 Pages
IT IS AGREED:
1. BAC shall make diligent but reasonable efforts to increase both acceptance
and specification of the existing Products of LexaLite that have been
introduced in recent years and are listed on attached original Schedule A.
2. BAC shall assist LexaLite in introducing and obtaining specification and
market acceptance of new Products, as each are added to the listing on the
then revised Schedule A.
3. Efforts to achieve the Objective shall include BAC furnishing Services (such
as technical expertise) to LexaLite without hourly or other compensation
charges, provided, such expertise or skills are available. A request, by
LexaLite, for Services to be provided at a remote location shall authorize
related reasonable and proper expenses necessary to the providing of such
Services.
4. In consideration of its efforts, LexaLite shall pay BAC a commission on the
sales of all Products. The initial commission schedule is attached, hereto,
as Schedule A, and includes existing and future 800 Series reflectors,
refractors, lenses and enclosures.
5. New products of LexaLite that result from the separate and earlier
referenced Design/Development Contract, shall automatically be added to
Schedule A as each becomes production. LexaLite may, at its option, add
other products or lines of products to Schedule A if it desires BAC Services
for that product or line of products. Products shall become non-
commissionable when the Margin on said Product drops below the minimum
specified for that Product. If the Margin subsequently improves to the
minimum, the Product shall again become commissionable. Products may be
removed from Schedule A only with the written consent of both parties.
6. Commissions under Schedule A shall be payable not later than the twentieth
day of each month on the sales of covered Products shipped during the
preceding month. Should any trade payable created on the sale(s) of covered
Products with normal thirty day terms remain unpaid for ninety days,
LexaLite shall debit BAC and deduct the amount of the commission previously
paid on subject unpaid sale(s) from the next commission payment made to BAC.
(If the payable is subsequently received, the amount deducted shall then be
repaid.)
7. Commissions are payable for the useful life of each Product but only while
that Product enables a premium price such that the sales Margin equals a
specified minimum percentage of thirty percent (30%) if none is specified. A
Product falling below that, such as during the peak of its volume cycle, may
again be commissionable as its Margin increases on the back side of the
volume cycle. Products on Schedule A may have unique commission schedules.
Any 800 Series Product, for example, is commissioned at 1 1/2% if its Margin
is greater than 35%, at 1% if its Margin is greater than 30% but less than
35%, and not commissioned if its Margin less than 30%.
<PAGE>
Product Introduction and Market Development Contract
Page 3 of 3 Pages
8. In view of the high cost of the initial efforts and the long term nature of
the return on that investment, both parties agree that this contract must be
of long duration and not subject to cancellation subject to the following
four exceptions:
(I) no further commissions are due and none have been payable for a
period of twelve consecutive months, in which event the contract
terminates.
(II) BAC provides no Services or Products for twelve (12) consecutive
years, in which event LexaLite may terminate the contract without
further obligation upon payment, in full, of all commissions then
payable.
(III) either party defaults under its obligations and, having received
notice of such default, has refused or been unable to remedy such
default. Disputes arising hereunder shall be submitted to the firm
of Pointner & Joseph for adjudication (non-binding). Should the
dispute remain unresolved, an injured party shall be entitled to
take any action proper under the laws of the State of Michigan
including action to recover damages before an appropriate Court in
and for Charlevoix County.
(IV) by mutual written consent of the parties hereto.
Disclaimer: Neither BAC nor LexaLite is the agent or employee of the other.
Neither BAC nor LexaLite may make commitments binding on the other, BAC may not
accept orders or furnish prices on behalf of LexaLite, except where a quotation
has been furnished to BAC by LexaLite. Nothing herein shall be construed to
create any relationship other than a contractual relationship for commission
payments on future named product sales in consideration for technical and
promotional services on behalf of those named products.
This contract has been revised and this revision is hereby ratified on 17th
----
September, 1993
LEXALITE INTERNATIONAL CORPORATION BUSINESS ACTIVITIES CORPORATION
/s/ PATT DEYOUNG /s/ JOSH BARNES
------------------------------------ -------------------------------
by Patt DeYoung, Corporate Secretary by Josh Barnes, President
for its Board of Directors for its Board of Directors
<PAGE>
Product Introduction and Market Development Contract
Schedule 'A'
Product Group I is included in the original, as others are added both parties
should initial and date each addition.
Named Products or Product Lines
<TABLE>
<CAPTION>
Product Group Product Description
<C> <S>
I. All 800 Series products including, but not limited to,
Reflexors(R), reflectors, lenses, enclosures, etc.
Accessories sold separately are also included but are
probably not commissionable as the Margin on such will
typically be below the minimum that is commissionable. The
selling price of accessories costed as part of an assembly
and the selling price of any assembly labor or other items
costed therein, including packaging, are also commissionable
if included in a package selling price but only if the
resulting Margin of the entire package is still sufficient to
equal the minimum (or a higher level) commission rate,
despite the lower margin inclusions.
</TABLE>
Commission Schedule
<TABLE>
<CAPTION>
Product Group Commission Rate
<C> <S>
I. Commission shall be at one and one half percent (1 1/2%) of
the selling price if the Margin on the quantity of the shipped
item is greater than thirty five percent (35%) and at one
percent (1%) of the selling price if the Margin on the
quantity of the shipped item is less than thirty five percent
(35%) but greater than thirty percent (30%). No commission
shall be payable on any sales wherein the Margin on the
quantity of the shipped item is less than thirty percent
(30%).
</TABLE>
<PAGE>
Exhibit 10.4
------------
COVENANT NOT-TO-COMPETE
THIS AGREEMENT made this 3rd day of July, 1989, by and between Arthur R.
Marshall, an individual of Metamora, Michigan, herein after known as "Marshall"
and LEXALITE INTERNATIONAL CORPORATION, a Delaware corporation, of U.S. 31,
Charlevoix, Michigan 49720, hereinafter known as "LexaLite".
WITNESSETH:
WHEREAS Marshall has been an active officer and employee of LexaLite for a
period in excess of 20 years and has expressed his desire to no longer be
actively associated in the operation of the business and,
WHEREAS LexaLite has been active as a processor of engineering
thermoplastics and has participated in sales, manufacturing engineering and
research of products or services involving the engineering thermoplastics and is
desirous of protecting its trade secrets, its production processes and its trade
relationships,
NOW, THEREFORE, for good and valuable consideration recited herein in which
LexaLite is the payor and Marshall is the payee, the receipt and adequacy of
which is hereby acknowledged, LexaLite and Marshall agree as follows:
1. For a period of two years from date hereof or until the death of
Marshall, whichever first occurs, LexaLite agrees to pay to Marshall the sum of
$2,500 per month, payable the first day of each month.
<PAGE>
2. For the period of time stated above, Marshall agrees that he shall not
directly or indirectly own, manage, operate, control or participate in
ownership, management, operation or control of or be connected as an officer,
employee, partner, director, shareholder, advisor or otherwise have any
financial interest in, or aid or assist financially or otherwise, anyone else in
the conduct of any of the business operations heretofore or hereafter to be
conducted by LexaLite. This restriction shall not prevent Marshall from acting
as a broker or dealer in connection with the merger, sale, or acquisition of any
business on behalf of others.
3. This Covenant is not restricted geographically, but shall be applicable
on a worldwide basis. This Covenant also includes all customers of LexaLite.
4. This Covenant may be renegotiated or renewed at the end of the initial
twenty-four month term, at the option of the parties.
5. In recognition of difficulty in determining damages or violation of
this Covenant, LexaLite shall be entitled to injunctive relief for the violation
or threatened violation hereof, in addition to such other relief as may be
available to it at law, in equity, or under this Covenant.
6. If any provision hereunder shall be deemed to be contrary to law, such
provision shall be modified to the slightest extent possible to render same not
contrary to law, and such provision, as so modified, shall constitute a part of
this Covenant.
7. The obligations of Marshall under this Covenant shall be absolute and
unconditional, without regard to the liability of any other person or entity.
<PAGE>
8. This Covenant and the obligations of Marshall and LexaLite hereunder
shall be governed by the laws of the State of Michigan, where this Covenant has
been executed and delivered for value.
9. Marshall acknowledges and consents to the in personam jurisdiction and
venue of the Federal and state courts within the State of Michigan for purpose
of the enforcement of any provision of this Covenant. Marshall agrees that any
suit hereunder may be brought in the Circuit Court for Charlevoix County,
Michigan, or the Federal District Court for the Western District of Michigan,
and that Marshall will not raise and hereby waives any objection that Marshall
may or could have to either jurisdiction or venue therein.
10. The obligations of Marshall under this Covenant shall inure to the
benefit of the successors and assigns, in law or in fact, of LexaLite.
IN WITNESS WHEREOF, Marshall and LexaLite have acknowledged and delivered
this Covenant of the date first above written.
WITNESSES:
/s/ illegible signature /s/ ARTHUR R. MARSHALL
- --------------------------------- -----------------------------
Arthur R. Marshall
/s/ Patricia DeYoung
- ---------------------------------
STATE OF MICHIGAN )
--------------)
COUNTY OF CHARLEVOIX ) ss
-------------)
Subscribed and sworn to before me, a Notary Public, this 4th day of August,
---
1989, by Arthur R. Marshall.
/s/ PATRICIA ANN DEYOUNG
-------------------------------
Notary Public
Charlevoix County
--------------
My commission expires: 11/10/91
--------
<PAGE>
WITNESSES:
/s/ illegible signature /s/ J. T. BARNES
- ------------------------------- ----------------------------------
LexaLite International Corporation
by, J.T. Barnes, its President
/s/ PATRICIA DEYOUNG
- -------------------------------
STATE of MICHIGAN )
)ss
COUNTY OF CHARLEVOIX )
Subscribed and sworn to before me, a Notary Public, this 4th day of August,
---
1989, by LexaLite International Corporation by J.T. Barnes, its President.
/s/ Patricia Ann DeYoung
---------------------------------
Notary Public
Charlevoix County
----------------
My commission expires: 11-10-91
--------
<PAGE>
Exhibit 10.5
------------
COVENANT NOT-TO-COMPETE
THIS AGREEMENT made this 3rd day of July, 1989, by and between W. G.
Cryderman, an individual of Birmingham, Michigan, herein after known as
"Cryderman" and LEXALITE INTERNATIONAL CORPORATION, a Delaware corporation, of
U.S. 31, Charlevoix, Michigan 49720, hereinafter known as "LexaLite".
WITNESSETH:
WHEREAS Cryderman has been an active officer and employee of LexaLite for a
period in excess of 20 years and has expressed his desire to no longer be
actively associated in the operation of the business and,
WHEREAS LexaLite has been active as a processor of engineering
thermoplastics and has participated in sales, manufacturing engineering and
research of products or services involving the engineering thermoplastics and is
desirous of protecting its trade secrets, its production processes and its trade
relationships,
NOW, THEREFORE, for good and valuable consideration recited herein in which
LexaLite is the payor and Cryderman is the payee, the receipt and adequacy of
which is hereby acknowledged, LexaLite and Cryderman agree as follows:
1. For a period of two years from date hereof or until the death of
Cryderman, whichever first occurs, LexaLite agrees to pay to Cryderman the sum
of $2,500 per month, payable the first day of each month.
<PAGE>
2. For the period of time stated above, Cryderman agrees that he shall not
directly or indirectly own, manage, operate, control or participate in
ownership, management, operation or control of or be connected as an officer,
employee, partner, director, shareholder, advisor or otherwise have any
financial interest in, or aid or assist financially or otherwise, anyone else in
the conduct of any of the business operations heretofore or hereafter to be
conducted by LexaLite. This restriction shall not prevent Cryderman from acting
as a broker or dealer in connection with the merger, sale, or acquisition of any
business on behalf of others.
3. This Covenant is not restricted geographically, but shall be applicable
on a worldwide basis. This Covenant also includes all customers of LexaLite.
4. This Covenant may be renegotiated or renewed at the end of the initial
twenty-four month term, at the option of the parties.
5. In recognition of difficulty in determining damages or violation of
this Covenant, LexaLite shall be entitled to injunctive relief for the violation
or threatened violation hereof, in addition to such other relief as may be
available to it at law, in equity, or under this Covenant.
6. If any provision hereunder shall be deemed to be contrary to law, such
provision shall be modified to the slightest extent possible to render same not
contrary to law, and such provision, as so modified, shall constitute a part of
this Covenant.
7. The obligations of Cryderman under this Covenant shall be absolute and
unconditional, without regard to the liability of any other person or entity.
<PAGE>
8. This Covenant and the obligations of Cryderman and LexaLite hereunder
shall be governed by the laws of the State of Michigan, where this Covenant has
been executed and delivered for value.
9. Cryderman acknowledges and consents to the in personam jurisdiction and
venue of the Federal and state courts within the State of Michigan for purpose
of the enforcement of any provision of this Covenant. Cryderman agrees that any
suit hereunder may be brought in the Circuit Court for Charlevoix County,
Michigan, or the Federal District Court for the Western District of Michigan,
and that Cryderman will not raise and hereby waives any objection that Marshall
may or could have to either jurisdiction or venue therein.
10. The obligations of Marshall under this Covenant shall inure to the
benefit of the successors and assigns, in law or in fact, of LexaLite.
IN WITNESS WHEREOF, Cryderman and LexaLite have acknowledged and delivered
this Covenant of the date first above written.
WITNESSES:
/s/ illegible signature /s/ W. G. CRYDERMAN
- --------------------------------- -----------------------------
W. G. Cryderman
/s/ PATRICIA DEYOUNG
- ---------------------------------
STATE OF MICHIGAN )
--------------)
COUNTY OF CHARLEVOIX ) ss
-------------)
Subscribed and sworn to before me, a Notary Public, this 4th day of August,
---
1989, by W. G. Cryderman.
/s/ PATRICIA ANN DEYOUNG
-------------------------------
Notary Public
Charlevoix County
--------------
My commission expires: 11/10/91
--------
<PAGE>
WITNESSES:
/s/ illegible signature /s/ J. T. BARNES
- ------------------------------- ----------------------------------
LexaLite International Corporation
by, J.T. Barnes, its President
/s/ PATRICIA DEYOUNG
- -------------------------------
STATE of MICHIGAN )
)
COUNTY OF CHARLEVOIX )
Subscribed and sworn to before me, a Notary Public, this 4th day of August,
---
1989, by LexaLite International Corporation by J.T. Barnes, its President.
/s/ PATRICIA ANN DEYOUNG
---------------------------------
Notary Public
Charlevoix County
----------------
My commission expires: 11-10-91
--------
<PAGE>
Exhibit 10.6
------------
AMENDMENT TO
EXCLUSIVE DISTRIBUTOR AGREEMENT
-------------------------------
The Agreement entered into on July 1, 1979 by and between LexaLite International
Corporation and Austrasia Export-Banking Corporation is hereby amended as
follows:
Paragraph II is amended to reflect. . .
That the territory shall consist of Eastern Asia and the South Pacific,
specifically defined as all marketplaces lying west of the
International Date Line, south of the 45th N. parallel and east of the
70 degree E. meridian.
Special provision is hereby made to permit sales within the United
States provided such sales are made only to NON-ORIGINAL EQUIPMENT
MANUFACTURERS.
Paragraph III is amended to reflect. . .
". . .On open stock products, price shall be applicable quantity price
less 10%."
Paragraph V is hereby deleted.
There are no other changes or amendments to this Agreement, and all terms and
conditions previously agreed upon shall remain in effect.
Signed this 1st day of June, 1985.
--- ----
LEXALITE INTERNATIONAL CORPORATION
/s/ J.T. Barnes
-----------------------------------
J.T. Barnes
President
AUSTRASIA EXPORT-BANKING CORPORATION
/s/ Patricia A. DeYoung
------------------------------------
Patricia A. DeYoung
President
<PAGE>
EXCLUSIVE DISTRIBUTOR AGREEMENT
-------------------------------
WHEREAS LexaLite International Corporation, located in Charlevoix,
Michigan, (hereinafter referred to as "LEXALITE") wishes to obtain a distributor
to promote the use and handle the sales of its products in the Asian and South
Pacific markets, and
WHEREAS Austrasia Banking Corporation, with United States offices located
in Charlevoix, Michigan, (hereinafter referred to as "AUSTRASIA") is desirous of
becoming an exclusive distributor of LexaLite products in that market place,
NOW THEREFORE, these two parties enter into this Agreement, which shall
become effective July 1, 1979.
IT IS AGREED:
I. That LEXALITE does herewith appoint AUSTRASIA sole and exclusive
distributor for LEXALITE Products, materials, or services to the
territory described below.
II. That the territory shall consist of Eastern Asia and the South
Pacific, specifically defined as all market places lying west of the
International Date Line, south of the 45th N. parallel and east of
the 70 degrees E. meridian.
III. That AUSTRASIA shall purchase and LEXALITE shall sell its products,
materials and services at mutually agreeable prices which typically
shall be 10% below any published list price. On open stock products,
price shall be maximum discount less 10%. Participation products
shall be at maximum participation level but without additional
discount. Certain products, such as the 297 Series shall not carry a
full discount. AUSTRASIA shall pay for all such purchases on terms
of net 45 days except as otherwise mutually agreed.
IV. That LEXALITE shall refer any and all orders or inquiries received
from within the described territory to AUSTRASIA and shall not make
direct sales to points within the territory.
V. That AUSTRASIA shall restrict its sales of LEXALITE proprietary
products to original equipment manufacturers; this restriction shall
not apply to LEXALITE services, materials or custom molded products.
VI. That in consideration of the most favorable pricing offered to
AUSTRASIA by LEXALITE; AUSTRASIA shall accept all credit risks and
shall be liable for payment of any LEXALITE products, materials, or
services purchased by AUSTRASIA regardless of its customers failure
to pay.
VII. That this agreement shall remain in effect for a period of three
years and shall automatically be renewed for a like period on July 1,
1982, and on each subsequent third anniversary thereof unless
terminated as provided herein.
VIII. That either party may terminate this Agreement without cause by
notice to that effect in writing by registered or certified mail not
less than six months prior to the end of the then current three year
term; in which event the Agreement shall terminate at the end of that
term and there shall be no further obligation of either party unto
the other except for payment(s) for products, materials or services
previously rendered or delivered and for which a payable exists under
the terms of this Agreement.
<PAGE>
IX. That either party may terminate this Agreement for cause by notice to
that effect in writing by registered or certified mail, stating the
cause or reason for terminating, given not less than 90 days prior to
effective date of such termination. On receipt of such notice, the
other party shall have 60 days in which to remedy the cause or reason
stated; and if the remedy is satisfactory to the first party, the
termination notice shall be cancelled. If the other party is unable to
remedy to the satisfaction of the first party, this Agreement shall
terminate at midnight on the 90th day following the delivery of said
notice as evidenced by the delivery receipt for the certified or
registered notice. The same restriction on further obligation as stated
in Paragraph VIII shall then apply.
X. That nothing herein shall act to restrain either party from the normal
trade in which each is engaged; but it shall instead act to encourage a
mutually beneficial supplier/distributor relationship also working to
the benefit of the customer within the described territory by providing
concentrated and better coverage of the market place at competitive
prices.
THIS AGREEMENT is the entire Exclusive Distributor Agreement between the
two parties hereto and no other Agreements are expressed or implied.
AGREED: LEXALITE INTERNATIONAL CORPORATION
DATE: 7/6/79 By: /s/ JOHN P. ZAREMBA
--------------- -------------------------------
John P. Zaremba
Its: Vice-President
-------------------------------
AGREED: AUSTRASIA BANKING CORPORATION
DATE: 7/5/79 By: /s/ JAMES R. KLINE
--------------- -------------------------------
James R. Kline
Its: President
-------------------------------
<PAGE>
EXHIBIT 10.7
LEXALITE INTERNATIONAL CORPORATION
-------- ------------- -----------
AMENDED AND RESTATED
------- --- --------
EMPLOYEES STOCK OWNERSHIP PLAN
--------- ----- --------- ----
(Amended and Restated Effective July 3, 1989)
Warner, Norcross & Judd
900 Old Kent Building
111 Lyon Street, N.W.
Grand Rapids, Michigan 49503-2489
<PAGE>
LEXALITE INTERNATIONAL CORPORATION
-------- ------------- -----------
AMENDED AND RESTATED
------- --- --------
EMPLOYEES STOCK OWNERSHIP PLAN
--------- ----- --------- ----
TABLE OF CONTENTS
----- -- --------
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1 - Establishment of Plan and Trust............................... 1
1.1 Establishment of Plan....................................... 1
(a) Employer............................................... 1
(b) Plan History........................................... 1
1.2 Declaration of Trust........................................ 1
1.3 Compliance With Law......................................... 1
1.4 Effective Dates of Plan Provisions.......................... 2
1.5 Application to Inactive and Former Participants............. 2
ARTICLE 2 - Definitions................................................. 2
Table of Definitions........................................ xi
2.1 Break in Service............................................ 2
2.2 Employer Contributions...................................... 2
2.3 5% Owner.................................................... 3
(a) Corporation............................................ 3
(b) Partnership............................................ 3
(c) Proprietorship......................................... 3
2.4 Highly Compensated Employee................................. 3
(a) Definition............................................. 3
(b) HCE Compensation....................................... 4
(c) Determination Rules.................................... 4
2.5 Hour of Service............................................. 5
(a) Back Pay............................................... 5
(b) No Duties Performed.................................... 5
(c) Qualified Maternity or Paternity Absence............... 5
(d) Military Service....................................... 6
(e) No Duplication......................................... 6
(f) Non-Covered Employment................................. 6
(g) Periods Credited....................................... 6
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
(h) Additional Hours....................................... 6
(i) Predecessor Plan....................................... 6
(j) Equivalency............................................ 7
2.6 Person...................................................... 7
2.7 Plan Year................................................... 7
(a) Former Plan Years...................................... 7
(b) Short Plan Year........................................ 7
(c) Future Plan Years...................................... 7
2.8 Related Employer............................................ 7
2.9 Valuation Date.............................................. 8
ARTICLE 3 - Eligibility to Participate.................................. 8
3.1 Eligibility Requirements.................................... 8
(a) Employee............................................... 8
(b) Entry Date............................................. 8
(c) Year of Eligibility Service............................ 8
(d) Eligibility Period..................................... 8
(e) Breaks in Service...................................... 9
3.2 Requirement of Covered Employment........................... 9
3.3 Participation Rules......................................... 9
(a) Termination of Participation........................... 9
(b) Cancellation of Years of Eligibility Service........... 9
(c) Resumption of Participation............................ 9
3.4 Leased Employee............................................. 10
(a) One-Year Period........................................ 10
(b) Full-Time Basis........................................ 10
(c) Conditions............................................. 10
ARTICLE 4 - Contributions............................................... 11
4.1 Contributions............................................... 11
(a) ESOP Contributions..................................... 11
(b) Restoration of Forfeiture.............................. 11
4.2 ESOP Contribution........................................... 11
4.3 Limits on Employer Contributions............................ 11
(a) Deduction.............................................. 11
(b) Annual Additions....................................... 11
4.4 Return of Employer Contributions............................ 12
(a) Mistake of Fact........................................ 12
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C>
(b) Nondeductible.......................................... 12
(c) Amount................................................. 12
4.5 Reduction of Employer Contribution for Leased Employees..... 12
4.6 Timing of Contributions..................................... 12
ARTICLE 5 - Allocations................................................. 13
5.1 Accounts.................................................... 13
(a) ESOP Account........................................... 13
(b) Accounting Only........................................ 13
5.2 Allocations................................................. 14
(a) ESOP Contribution...................................... 14
(b) Restoration of Forfeiture.............................. 16
5.3 Allocation Limitation....................................... 16
(a) Nonrecognition of Gains................................ 16
(b) Nonapplication to Certain Lineal Descendants........... 17
(c) Expiration of Restrictions............................. 17
5.4 Stock Dividends on Employer Stock, Stock Splits, Etc........ 17
5.5 Forfeitures................................................. 17
(a) Timing................................................. 18
(b) Annual Addition Limitation............................. 18
(c) Investment Experience.................................. 18
(d) Limitation on Allocation............................... 18
5.6 Allocation of Earnings, Losses, and Expenses; Revaluation of
Assets...................................................... 18
(a) Earnings, Losses, and Expenses......................... 18
(b) Revaluation of Trust................................... 18
(c) No Earnings on Distributions........................... 19
5.7 Sale or Purchase of Employer Stock.......................... 19
(a) Sale of Employer Stock................................. 19
(b) Purchase of Employer Stock............................. 19
5.8 Limitation on Annual Additions.............................. 20
(a) Annual Additions....................................... 20
(b) Defined Contribution Dollar Limit...................... 20
(c) Percentage Limit....................................... 21
(d) ESOP Exceptions........................................ 21
(e) Section 415 Compensation............................... 21
(f) Limitation Year........................................ 22
(g) Related Employer Aggregation........................... 22
5.9 Excess Additions............................................ 23
(a) Before Contribution.................................... 23
-iii-
</TABLE>
<PAGE>
<TABLE>
<S> <C>
(b) After Contribution..................................... 23
(c) No Distribution........................................ 23
(d) Plan Order............................................. 23
ARTICLE 6 - Determination of Vested Percentage.......................... 23
6.1 Year of Vesting Service..................................... 23
(a) Credit................................................. 23
(b) No Credit.............................................. 24
6.2 Vested Percentage........................................... 24
(a) Vesting Schedule....................................... 24
(b) Transitional Rule...................................... 24
(c) Normal Retirement Date, Death, or Disability........... 24
6.3 Cashout..................................................... 24
(a) Partial Vesting........................................ 24
(b) Zero Vesting........................................... 25
6.4 Five Breaks in Service...................................... 25
(a) Cancellation of Vesting Service........................ 25
(b) Forfeiture of Nonvested Amount......................... 25
6.5 Death After Termination/Lost Recipient...................... 25
(a) Death After Termination................................ 25
(b) Lost Recipient......................................... 25
6.6 Vested Account Balance and Nonvested Amount................. 26
(a) Vested Amount.......................................... 26
(b) Nonvested Amount....................................... 26
(c) Partial Distribution of Vested Account Balance......... 26
6.7 Source of Forfeitures....................................... 26
ARTICLE 7 - Distributions............................................... 26
7.1 Distributive Events......................................... 26
(a) Normal Retirement Date................................. 27
(b) Death.................................................. 27
(c) Total Disability....................................... 27
(d) Other Termination of Employment........................ 27
(e) Transfer of Employment................................. 27
(f) Attainment of Age 70 1/2............................... 27
(g) QDRO................................................... 27
(h) Plan Termination; Partial Termination.................. 28
(i) Diversification of Investments......................... 28
</TABLE>
-iv-
<PAGE>
<TABLE>
<S> <C>
7.2 Valuation for Distribution.................................. 28
7.3 Method and Form of Distribution............................. 28
(a) Method of Distribution................................. 28
(b) Form of Distribution/ESOP Accounts..................... 28
(c) Form of Distribution/Other Accounts.................... 29
7.4 Minimum Distribution........................................ 29
7.5 Time of Distribution........................................ 30
(a) Immediate Distribution................................. 30
(b) Normal Distribution Date............................... 30
(c) Required Distribution.................................. 30
(d) TEFRA Election......................................... 31
7.6 Death of Participant........................................ 31
(a) Death Before Required Beginning Date................... 31
(b) Death After Required Beginning Date.................... 32
7.7 Election of Method and Time of Distribution................. 32
(a) Permitted Elections.................................... 32
(b) Required Consent....................................... 32
(c) Election Requirements.................................. 33
(d) Failure to Elect....................................... 33
(e) Additional Information................................. 33
(f) No Reduction or Delay of Distribution.................. 33
7.8 Designation of Beneficiary.................................. 33
(a) Beneficiary............................................ 33
(b) Spousal Consent........................................ 33
(c) Failure to Designate................................... 34
(d) Death of Beneficiary................................... 34
(e) No Beneficiary......................................... 35
(f) Determination.......................................... 35
7.9 Facility of Payment......................................... 35
(a) Incapacity............................................. 35
(b) Legal Representative................................... 35
(c) Determination.......................................... 35
7.10 Notice of Penalties......................................... 36
(a) Distribution Before Age 59 1/2......................... 36
(b) Excess Distributions................................... 36
(c) Failure to Receive a Minimum Distribution.............. 36
7.11 Special Rules--Distribution of Employer Stock............... 36
(a) Distributee's Option to Sell Benefit Shares............ 36
(b) Right of First Refusal................................. 37
(c) Terms of Purchase...................................... 38
(d) Securities Law......................................... 39
(e) Stock Certificate Legend............................... 39
</TABLE>
-v-
<PAGE>
<TABLE>
<S> <C>
7.12 Distribution of Cash Dividends.............................. 39
7.13 Distributions After December 31, 1992....................... 40
(a) Election of Direct Rollover............................ 40
(b) Definitions............................................ 40
ARTICLE 8 - Administration of the Plan.................................. 41
8.1 Duties, Powers, and Responsibilities of the Employer........ 41
(a) Required............................................... 41
(b) Discretionary.......................................... 42
8.2 Employer Action............................................. 42
8.3 Plan Administrator.......................................... 42
8.4 Administrative Committee.................................... 43
(a) Appointment............................................ 43
(b) Agent; Powers and Duties............................... 43
(c) Not Fiduciary.......................................... 43
(d) Membership............................................. 43
(e) Records................................................ 43
(f) Actions................................................ 43
(g) Report to Administrator................................ 43
(h) Compensation........................................... 43
(i) Conflict of Interest................................... 43
8.5 Duties, Powers, and Responsibilities of the Administrator... 44
(a) Plan Interpretation.................................... 44
(b) Participant Rights..................................... 44
(c) Limits; Nondiscrimination Tests; Top-Heavy Tests....... 44
(d) Allocations and Vesting................................ 44
(e) Errors in Participants' Accounts....................... 44
(f) Claims and Elections................................... 44
(g) Benefit Payments....................................... 44
(h) QDRO Determination..................................... 44
(i) Administration Information............................. 45
(j) Recordkeeping.......................................... 45
(k) Reporting and Disclosure............................... 45
(l) Penalties; Excise Tax.................................. 45
(m) Advisers............................................... 45
(n) Expenses, Fees, and Charges............................ 45
(o) Nondiscrimination...................................... 45
(p) Bonding................................................ 45
(q) Other Powers and Duties................................ 45
</TABLE>
-vi-
<PAGE>
<TABLE>
<S> <C>
8.6 Delegation of Administrative Duties......................... 46
(a) In Writing............................................. 46
(b) Acceptance of Responsibility........................... 46
(c) Conflict............................................... 46
8.7 Interrelationship of Fiduciaries; Discretionary Authority... 46
(a) Performance of Duties.................................. 46
(b) Reliance on Others..................................... 46
(c) Discretionary Authority of Fiduciaries................. 46
8.8 Compensation; Indemnification............................... 47
8.9 Fiduciary Standards......................................... 47
(a) Prudence............................................... 47
(b) Exclusive Purpose...................................... 47
(c) Prohibited Transaction................................. 47
8.10 Claims Procedure............................................ 47
(a) Initial Determination.................................. 47
(b) Method................................................. 48
(c) Further Review......................................... 48
(d) Redetermination........................................ 48
8.11 Participant's Responsibilities.............................. 48
8.12 Decisions Concerning Employer Stock......................... 48
ARTICLE 9 - Investment of Funds......................................... 49
9.1 Investment Responsibility................................... 49
9.2 Authorized Investments...................................... 49
(a) Specific Investments................................... 49
(b) Unallocated Funds...................................... 50
(c) Right of Trustee To Hold Cash.......................... 50
9.3 Commingled Investment....................................... 50
9.4 Investments--Employer Stock................................. 50
(a) Acquisition Limit...................................... 50
(b) Adequate Consideration................................. 50
(c) No Commissions......................................... 50
(d) Indebtedness........................................... 50
(e) Securities Acquisition Loan............................ 51
(f) Unallocated and Pledged Employer Stock................. 51
(g) No Recourse............................................ 51
(h) Repayment of Loan...................................... 51
(i) Release of Pledged Employer Stock...................... 51
(j) Pending Investment..................................... 52
9.5 Purchase From Stockholder................................... 52
-vii-
</TABLE>
<PAGE>
<TABLE>
<S> <C>
9.6 Stock Dividends, Stock Splits, Etc.......................... 52
9.7 Voting of Employer Stock.................................... 53
(a) Generally.............................................. 53
(b) Exceptions............................................. 53
(c) Section 133 Interest Exclusion......................... 53
(d) Fractional Shares...................................... 53
(e) Unallocated Shares..................................... 53
(f) Failure to Exercise Voting Rights...................... 53
(g) Dissenter's Rights..................................... 53
9.8 Diversification of Investments.............................. 54
(a) Available Employer Stock............................... 54
(b) Timing of Direction.................................... 54
(c) Determination of Number of Shares To Be Liquidated and
Distributed............................................ 54
(d) Qualified Election Period.............................. 54
(e) Value of Shares to Be Liquidated and Distributed....... 54
ARTICLE 10 - Administration of the Trust................................ 55
10.1 Duties and Powers of the Trustee............................ 55
(a) Duties of the Trustee.................................. 55
(b) Powers of the Trustee.................................. 55
(c) Limitation on Duties and Powers of the Trustee......... 57
10.2 Accounting.................................................. 58
(a) Report................................................. 58
(b) Judicial Settlement.................................... 58
10.3 Appointment, Resignation, and Removal of Trustee............ 58
(a) Resignation............................................ 58
(b) Removal................................................ 58
(c) Successor Trustee...................................... 58
(d) Effective Date of Resignation or Removal............... 59
(e) Procedure Upon Transfer................................ 59
(f) Earlier Transfer....................................... 59
(g) Final Transfer......................................... 59
(h) In Kind Transfer....................................... 59
(i) Limitation on Liability of Successor................... 59
10.4 Trustee Action.............................................. 59
10.5 Exculpation of Nonfiduciary................................. 59
-viii-
</TABLE>
<PAGE>
<TABLE>
<S> <C>
ARTICLE 11 - Amendment, Mergers, Successor Employer..................... 60
11.1 Amendment................................................... 60
(a) Exclude Participant.................................... 60
(b) Reduce Participant's Account........................... 60
(c) Reduce Vested Percentage............................... 60
(d) Vesting Schedule....................................... 60
(e) Elimination of Protected Benefits...................... 60
(f) Alter Trustee's Duties................................. 61
11.2 Merger of Plans............................................. 61
(a) Preservation of Account Balance........................ 61
(b) Authorization.......................................... 61
11.3 Successor Employer.......................................... 61
ARTICLE 12 - Termination................................................ 61
12.1 Right to Terminate or Discontinue Contributions............. 61
12.2 Automatic Termination....................................... 61
12.3 Discontinuance of Contributions............................. 62
12.4 Effect of Termination or Partial Termination................ 62
(a) Nonforfeitability...................................... 62
(b) Distribution........................................... 62
12.5 No Reversion of Assets...................................... 62
ARTICLE 13 - General Provisions......................................... 62
13.1 Spendthrift Provision....................................... 62
(a) Not Security........................................... 63
(b) Attempts Void.......................................... 63
13.2 Effect Upon Employment Relationship......................... 63
13.3 No Interest in Employer Assets.............................. 63
13.4 Construction................................................ 63
13.5 Severability................................................ 64
13.6 Governing Law............................................... 64
13.7 Nondiversion................................................ 64
</TABLE>
-ix-
<PAGE>
<TABLE>
<S> <C>
ARTICLE 14 - Top-Heavy Plan Provisions................................. 64
14.1 Top-Heavy Determination..................................... 64
(a) Top-Heavy Plan......................................... 64
(b) Calculation............................................ 65
14.2 Top-Heavy Definitions....................................... 65
(a) Top-Heavy Ratio........................................ 65
(b) Present Value of Accrued Benefits...................... 66
(c) Required Aggregation Group............................. 66
(d) Permissive Aggregation Group........................... 66
(e) Determination Date..................................... 66
(f) Key Employee........................................... 67
(g) Top-Heavy Valuation Date............................... 67
14.3 Minimum Allocation.......................................... 68
14.4 Vesting Schedule............................................ 68
(a) Cessation.............................................. 68
(b) Vesting Schedule Change................................ 68
</TABLE>
SCHEDULE A
-x-
<PAGE>
TABLE OF DEFINITIONS
----- -- -----------
Defined Terms
------- -----
<TABLE>
<CAPTION>
Term Location
---- --------
<S> <C>
Administrator 8.3
Annual Additions 5.8(a)
Available Employer Stock 9.8(a)
Beneficiary 7.8(a)
Benefit Shares 7.11(a)
Benefit Starting Date 7.7(b)(ii)
Break in Service 2.1
Code 1.3
Compensation 5.2(a)(iii)(B)
Covered Employment 3.2
Current Obligations 4.2
Defined Contribution Dollar Limit 5.8(b)
Determination Date 14.2(e)
Earliest Distribution Date 7.5(a)(i)
Effective Date 1.4
Elective Deferrals 5.2(a)(iii)(B)
Eligibility Period 3.1(d)
Employee 3.1(a)
Employer 1.1(a)
Employer Contributions 2.2
Employer Stock 5.1(a)(iii)
Employer Stock Account 5.1(a)(i)
Entry Date 3.1(b)
ERISA 1.3
ESOP Account 5.1(a)
ESOP Contribution 4.2
Exempt Loan 9.4(d)
Fair Market Value 7.11(c)(iv)
5% Owner 2.3
HCE Compensation 2.4(b)
</TABLE>
-xi-
<PAGE>
<TABLE>
<CAPTION>
Term Location
---- --------
<S> <C>
Highly Compensated Employee 2.4(a)
Hour of Service 2.5
Investment Manager 8.1(b)(i)(B)
Key Employee 14.2(f)
Leased Employee 3.4
Limitation Year 5.8(f)
Look-Back Year 2.4(a)(i)
Minimum Distribution 7.4
Normal Retirement Date 7.1(a)
Other Investments Account 5.1(a)(ii)
Participant 3.1
Participating Compensation 5.2(a)(iii)(A)
Percentage Limit 5.8(c)
Permissive Aggregation Group 14.2(d)
Person 2.6
Plan Year 2.7
Present Value of Accrued Benefits 14.2(b)(i)
Pro Rata Portion 9.4(i)(i)
QDRO 7.1(g)
Qualified Election Period 9.8(d)
Qualified Maternity or
Paternity Absence 2.5(c)(i)
Regulations 1.3
Related Employer 2.8
Required Aggregation Group 14.2(c)
Required Beginning Date 7.5(c)(i)
Section 415 Compensation 5.8(e)
Securities Acquisition Loan 9.4(e)
Spouse 7.8(b)(ii)
TEFRA Election 7.5(d)
Top-Heavy Plan 14.1(a)
Top-Heavy Ratio 14.2(a)
Top-Heavy Valuation Date 14.2(g)
Total Disability 7.1(c)
Trustee 1.2
Valuation Date 2.9
</TABLE>
-xii-
<PAGE>
<TABLE>
<CAPTION>
Term Location
---- --------
<S> <C>
Vested Account Balance 6.6(a)
Vesting Period 6.1(a)
Year of Eligibility Service 3.1(c)
Year of Vesting Service 6.1(a)
</TABLE>
-xiii-
<PAGE>
LEXALITE INTERNATIONAL CORPORATION
-------- ------------- -----------
AMENDED AND RESTATED
------- --- --------
EMPLOYEES STOCK OWNERSHIP PLAN
--------- ----- --------- ----
LexaLite International Corporation, a Delaware corporation, amends and
restates the LexaLite International Corporation Amended and Restated Employees
Stock Ownership Plan.
ARTICLE 1
------- -
Establishment of Plan and Trust
------------- -- ---- --- -----
1.1 Establishment of Plan.
------------- -- ----
This defined contribution plan is established by the Employer for the
exclusive benefit of eligible Employees and their beneficiaries.
(a) Employer. "Employer" means LexaLite International Corporation.
--------
(b) Plan History. A schedule that states the effective date of this plan
---- -------
and certain amendments may be attached.
1.2 Declaration of Trust.
----------- -- -----
The "Trustee" (NBD Bank, N.A. or a successor Trustee) declares that plan
assets delivered to it will be held in trust and administered under the terms of
this plan and trust. The trust is established and shall be operated for the
exclusive benefit of Participants and their beneficiaries. The trust shall not
be diverted to other purposes, except that trust assets may be used to pay
reasonable expenses of administration.
1.3 Compliance With Law.
---------- ---- ---
This benefit program is intended to continue a qualified retirement plan
and trust under the Internal Revenue Code of 1986 ("Code") and the Employee
Retirement Income Security Act of 1974 ("ERISA"), as amended, and all
Regulations issued under the Code and ERISA ("Regulations").
<PAGE>
1.4 Effective Dates of Plan Provisions.
--------- ----- -- ---- ----------
"Effective Date" of this restated plan means July 3, 1989, unless a
provision specifies a different effective date. Each plan provision applies
from its effective date until the effective date of an amendment.
1.5 Application to Inactive and Former Participants.
----------- -- -------- --- ------ ------------
An amendment to this plan shall apply to former Participants and to
Participants not employed in Covered Employment on the effective date of the
amendment only if it amends a provision of the plan that continues to apply to
those Participants or only to the extent it expressly states that it is
applicable. Except as specified in the preceding sentence, if a Participant is
not employed in Covered Employment on the effective date of an amendment, the
amendment shall not become applicable to the Participant unless the Participant
has an Hour of Service in Covered Employment after the effective date of the
amendment.
ARTICLE 2
------- -
Definitions
-----------
Except for the following general definitions, defined terms are located at
or near the first major use of the term in this plan. A table showing the
location of all definitions appears immediately after the table of contents.
When used as defined, the first letter of each defined term is capitalized.
2.1 Break in Service.
----- -- -------
"Break in Service" means an Employee's failure to complete more than 500
Hours of Service during a 12-consecutive-month period.
2.2 Employer Contributions.
-------- -------------
"Employer Contributions" means ESOP Contributions.
-2-
<PAGE>
2.3 5% Owner.
-- -----
"5% Owner" means:
(a) Corporation. An individual who owns (or is considered to own under
-----------
Code Section 318) either more than 5% of the outstanding stock of a corporate
Employer or Related Employer, or stock possessing more than 5% of the total
combined voting power of all stock of a corporate Employer or Related Employer;
(b) Partnership. A partner who owns more than 5% of the capital or
-----------
profits interest in an Employer or Related Employer that is a partnership; or
(c) Proprietorship. An Employer or Related Employer that is a sole
--------------
proprietor.
Notwithstanding aggregation of the Employer and all Related Employers as
required by Code Sections 414(b), (c) and (m), the percentage of ownership for
purposes of this definition shall be determined separately for each entity that
is an Employer or Related Employer.
2.4 Highly Compensated Employee.
------ ----------- --------
(a) Definition. "Highly Compensated Employee" for a Plan Year means any
----------
Employee who:
(i) 5% Owner. Was a 5% Owner at any time during the current Plan Year
-- -----
or the 12-month period immediately preceding the current Plan Year ("Look-Back
Year"); or
(ii) Other. Is described in (A), (B), or (C), and is one of the 100
-----
Employees paid the most compensation during the current Plan Year, or was
described in (A), (B), or (C) during the Look-Back Year.
(A) Compensation. Received HCE Compensation in excess of $75,000
------------
(as adjusted under Code Section 415(d));
(B) Top-Paid 20%. Received HCE Compensation in excess of $50,000
------------
(as adjusted under Code Section 415(d)) and was among the top-paid 20% of
Employees for the Plan Year when ranked by HCE Compensation; or
-3-
<PAGE>
(C) Officers. Was an officer and received HCE Compensation in
--------
excess of 50% of the defined benefit dollar limit under Code Section
415(b)(1)(A) (as adjusted under Code Section 415(d)) or, if the Employer or a
Related Employer has no officer described in the preceding phrase, is the
highest paid officer of the Employer or the Related Employer for the Plan Year.
(b) HCE Compensation. "HCE Compensation" means Section 415 Compensation
--- ------------
plus elective contributions that are excluded from gross income by Code Sections
125, 402(a)(8), 402(h), or 403(b).
(c) Determination Rules. The determination of who is a Highly Compensated
------------- -----
Employee shall be made under Code Section 414(q) and Regulations, including the
following rules:
(i) Officers. The number of Employees considered to be officers shall
--------
be limited to 50 or, if less, the greater of three Employees or 10% of all
Employees.
(ii) Top-Paid 20%. The following Employees are excluded before
-------- ---
determining the top-paid 20% of Employees:
(A) Age and Service. Employees who have not attained age 21 or
--- --- -------
completed six months of service by the last day of the current Plan Year or
Look-Back Year;
(B) Part-Time/Seasonal. Employees who normally work less than 17
--------- --------
1/2 hours per week or normally work six months or less in any Plan Year;
(C) Nonresident Aliens. Employees who are nonresident aliens
----------- ------
receiving no earned income from sources within the United States; and
(D) Collective Bargaining Employees. Employees covered by a
---------- ---------- ---------
collective bargaining agreement if more than 90% of all Employees are covered by
a collective bargaining agreement and this plan excludes them.
(iii) Family Aggregation. If, during the current Plan Year or the Look-
------ -----------
Back Year, a Participant is a spouse, lineal ancestor or descendant, or spouse
of a lineal ancestor or descendant, of a Participant who is either a 5% Owner or
a Highly Compensated Employee among the 10 Highly Compensated Employees paid the
most compensation for the current Plan Year or Look-Back Year, the Participants
shall be treated as one Highly Compensated Employee.
-4-
<PAGE>
(iv) Former Employees. A former Employee who was a Highly Compensated
------ ---------
Employee at termination of employment or at any time after attaining age 55
shall be a Highly Compensated Employee at all times thereafter.
(v) Look-Back Year Election. In accordance with the Regulations, the
--------- ---- --------
Employer may elect to designate the calendar year ending with or within a Plan
Year as the Look-Back Year for that Plan Year.
2.5 Hour of Service.
---- -- -------
"Hour of Service" means each hour that an Employee is directly or
indirectly paid or entitled to be paid by the Employer for the performance of
duties during the applicable period. These hours will be credited for the
period in which the duties are performed.
(a) Back Pay. Hours of Service include each hour for which back pay,
---- ---
irrespective of mitigation of damages, is awarded or agreed to by the Employer.
Back pay hours shall be credited to the Employee for the period or periods to
which the award or agreement pertains.
(b) No Duties Performed. For all purposes under this plan, an Employee
-- ------ ---------
shall be credited with the first 501 Hours of Service for which the Employee is
directly or indirectly paid or entitled to be paid by the Employer (including
back pay) for each single period of absence from work, even if no duties are
performed due to vacation, holiday, illness, incapacity (including disability),
layoff, jury duty, military service, or leave of absence, even if employment
terminates. However, an Employee is not required to be credited with Hours of
Service for periods in which no duties are performed if the Employee is
compensated solely as required by worker's compensation, unemployment
compensation, or disability insurance laws. Hours described in this subsection
(b) shall be credited to the Employee for the period in which payment is made or
amounts payable to the Employee become due.
(c) Qualified Maternity or Paternity Absence. Only for purposes of
--------- --------- -- --------- -------
determining whether the Employee has a Break in Service, an Employee shall be
credited with the first 501 Hours of Service during a Qualified Maternity or
Paternity Absence.
(i) Definition. A "Qualified Maternity or Paternity Absence" means an
----------
absence from work due to pregnancy of the Employee, birth of a child of the
Employee, placement of a child with the Employee in connection with adoption of
the
-5-
<PAGE>
child, or caring for a child immediately after the birth or placement of the
child with the Employee.
(ii) Credit. If necessary to avoid a Break in Service, Hours of Service
------
shall be credited for the period in which the absence begins. If the hours are
not necessary to prevent a Break in Service for that period, the hours shall be
credited for the next period. Hours of Service are credited at the rate the
Employee normally would have earned Hours of Service. If these hours cannot be
determined, the hours shall be credited at the rate of eight hours per day of
absence.
(d) Military Service. If employment terminates due to active service in
-------- -------
the armed forces of the United States, the Employee shall be credited with Hours
of Service for the hours the Employee would have been scheduled to work during
each month of the period of active service. The Employee must apply for, and be
able to resume, employment with the Employer within the time limits established
by federal law for protection of veterans' reemployment rights.
(e) No Duplication. There shall be no duplication in the crediting of
-- -----------
Hours of Service. An Employee shall not be credited with more than one Hour of
Service for each hour paid at a premium rate.
(f) Non-Covered Employment. Hours of Service earned in employment with
----------- ----------
the Employer or a Related Employer that is not Covered Employment count toward
Years of Eligibility Service and Years of Vesting Service, but not toward
determining eligibility for a share of the Employer Contribution.
(g) Periods Credited. Generally, Hours of Service shall be credited as
------- --------
provided in Section 2530.200b of the ERISA Regulations. Hours of Service under
(b) above shall be credited under the rules of this section and as provided in
Section 2530.200b-2(b) of those Regulations. Hours of Service shall be credited
to appropriate periods determined under the rules set forth in Section
2530.200b-2(c) of those Regulations.
(h) Additional Hours. The Administrator may adopt additional written,
---------- -----
uniform, and nondiscriminatory rules that credit more Hours of Service than
those required under the rules set forth in this section.
(i) Predecessor Plan. If this plan is required to be treated as a
----------- ----
continuation of the plan of a predecessor employer under Code Section 414(a), an
Employee shall be credited with all Hours of Service credited to the Employee
under the predecessor's plan.
-6-
<PAGE>
(j) Equivalency. If an Employee is not paid on an hourly basis and
-----------
records of hours worked are not maintained, Hours of Service shall be credited
at the rate of 10 hours per day for each day that the Employee would be credited
with at least one Hour of Service under this section.
2.6 Person.
------
"Person" means an individual, committee, proprietorship, partnership,
corporation, trust, estate, association, organization, or similar entity.
2.7 Plan Year.
---- ----
"Plan Year" means:
(a) Former Plan Years. For periods beginning before July 1, 1991, the 12-
------ ---- -----
month period ending on the Sunday closest to July 4 of each year, not later than
July 4, and not earlier than June 29;
(b) Short Plan Year. The period beginning July 1, 1991, and ending
----- ---- ----
December 31, 1991; and
(c) Future Plan Years. For periods beginning after December 31, 1991, the
------ ---- -----
12-month period beginning each January 1.
2.8 Related Employer.
------- --------
"Related Employer" means (i) each corporation, other than the Employer,
that is a member of a controlled group of corporations, as defined in Code
Section 414(b), of which the Employer is a member; (ii) each trade or business,
other than the Employer, whether or not incorporated, under common control of or
with the Employer under Code Section 414(c); (iii) each member, other than the
Employer, of an affiliated service group, as defined in Code Section 414(m), of
which the Employer is a member; and (iv) any other entity required to be
aggregated with the Employer by Regulations under Code Section 414(o). An
entity shall not be considered a Related Employer for any purpose under this
plan during any period it does not satisfy (i), (ii), (iii), or (iv) in the
preceding sentence.
-7-
<PAGE>
2.9 Valuation Date.
--------- ----
"Valuation Date" means the last day of the Plan Year and any other date
specified as a Valuation Date by the Administrator.
ARTICLE 3
------- -
Eligibility to Participate
----------- -- -----------
3.1 Eligibility Requirements.
----------- ------------
The eligibility requirement for participation in this plan is completion of
one Year of Eligibility Service. An Employee in Covered Employment shall become
a Participant ("Participant") on the first Entry Date following the date the
Employee satisfies the eligibility requirement.
(a) Employee. "Employee" means an individual who is employed by the
--------
Employer or a Related Employer and who receives compensation for personal
services to the Employer or Related Employer that is subject to withholding for
federal income tax purposes.
(b) Entry Date. "Entry Date" means the first day of each month.
----- -----
(c) Year of Eligibility Service. "Year of Eligibility Service" means
---- -- ----------- -------
completion of at least 1,000 Hours of Service during an Eligibility Period. A
Year of Eligibility Service is credited only at the end of the Eligibility
Period.
An Employee who is credited with at least 1,000 Hours of Service in
both the initial Eligibility Period and the second Eligibility Period (the Plan
Year beginning during the initial Eligibility Period) shall be credited with two
Years of Eligibility Service.
(d) Eligibility Period. The initial "Eligibility Period" means the 12-
----------- ------
month period beginning on the date the Employee first has an Hour of Service.
For an Employee who has a Break in Service due to termination of employment
before completing the eligibility requirements, the initial Eligibility Period
begins on the date the Employee has an Hour of Service due to reemployment. The
second "Eligibility Period" means the Plan Year beginning within the initial
Eligibility Period. Each later Eligibility Period shall coincide with each
later Plan Year.
-8-
<PAGE>
For a short Plan Year, the Eligibility Period after the initial Eligibility
Period shall be the 12-month period ending on the last day of the short Plan
Year.
(e) Breaks in Service. Breaks in Service under this article shall be
------ -- -------
determined on the basis of Eligibility Periods.
3.2 Requirement of Covered Employment.
----------- -- ------- ----------
If an eligible Employee is not employed in Covered Employment on the
applicable Entry Date and the Employee's Years of Eligibility Service are not
canceled under Section 3.3(b), the Employee shall become a Participant on the
first subsequent day on which the Employee has an Hour of Service in Covered
Employment.
"Covered Employment" means all employment with the Employer except
employment with a Related Employer, employment as a Leased Employee, employment
in a unit of employees covered by a collective bargaining agreement under which
the Employer has engaged in good faith negotiations about retirement benefits,
or employment as a nonresident alien receiving no earned income from sources
within the United States.
3.3 Participation Rules.
------------- -----
(a) Termination of Participation. Participation shall terminate upon the
----------- -- -------------
earlier of the date the Participant is not an Employee and has been paid the
full amount due under this plan, the date of the Participant's death, or the
date the Participant's Years of Eligibility Service are canceled under (b)
below.
(b) Cancellation of Years of Eligibility Service. An Employee's Years of
------------ -- ----- -- ----------- -------
Eligibility Service shall be canceled if the Employee's vested percentage is
zero and the Employee has at least five consecutive Breaks in Service.
(c) Resumption of Participation. If an Employee's Years of Eligibility
---------- -- -------------
Service are canceled under (b) above, the Employee must satisfy the eligibility
requirements of Section 3.1 again to participate or to resume participation in
this plan. If the Years of Eligibility Service of a former Participant are not
canceled, the former Participant shall resume participation immediately upon
completion of an Hour of Service in Covered Employment.
-9-
<PAGE>
3.4 Leased Employee.
------ --------
"Leased Employee" means an individual described in and required to be
treated as an Employee under Code Sections 414(n) and 414(o) and Regulations.
For purposes of this definition, the Employer or any Related Employer for whom a
Leased Employee performs services is referred to as the recipient.
A Leased Employee under Code Section 414(n) is an individual who is not an
Employee (except by reason of this definition) but who performs services for the
recipient of a type historically performed by employees in the recipient's
business field, pursuant to an agreement between the recipient and a leasing
organization, on a full-time basis for at least a one-year period.
(a) One-Year Period. For purposes of this definition, a one-year period
-------- ------
is the individual's initial 12-month period of performing services for the
recipient or any Plan Year beginning during or after that initial 12-month
period.
(b) Full-Time Basis. An individual is considered to be employed on a
--------- -----
full-time basis if the individual completes the lesser of 1,500 Hours of Service
or 75% of the median number of Hours of Service credited to Employees who
perform similar services for the recipient. If no Employees perform similar
services during the current period, the median shall be based on the performance
of similar services by Employees during a prior Plan Year. An individual is not
considered employed on a full-time basis unless the individual completes at
least 1,000 Hours of Service.
(c) Conditions. A Leased Employee shall be treated as an Employee unless:
----------
(i) 20% of Non-Highly Compensated Work Force. Leased Employees do not
--- -- ---------- ----------- ---- -----
constitute more than 20% of the recipient's non-highly compensated work force,
and
(ii) Covered by Plan Described in Code Section 414(n). The Leased
------- -- ---- --------- -- ---- ------- ------
Employee is covered by a money purchase pension plan described in Code Section
414(n) with a nonintegrated employer contribution rate of at least 10% of HCE
Compensation, immediate participation, and full and immediate vesting. Immediate
participation shall not be required for a Leased Employee who received less than
$1,000 in compensation from the leasing organization in each Plan Year during
the four-year period ending with the current Plan Year.
A Leased Employee includes a leased owner or a leased manager determined to
be a Leased Employee under Code Section 414(o) and the Regulations.
-10-
<PAGE>
ARTICLE 4
------- -
Contributions
-------------
4.1 Contributions.
-------------
The following contributions are permitted or required for a Plan Year.
(a) ESOP Contributions. The Employer may make an ESOP Contribution for
---- -------------
each Plan Year.
(b) Restoration of Forfeiture. When restoration of a forfeiture is
----------- -- ----------
required under Article 6 and current forfeitures and trust earnings applied for
that purpose are insufficient, the Employer shall contribute the necessary
additional amount.
4.2 ESOP Contribution.
---- ------------
The Employer may make an "ESOP Contribution" for a Plan Year on behalf of
all eligible Employees. Subject to the restrictions of this plan, the ESOP
Contribution shall be sufficient to meet the Current Obligations of this plan to
the extent the Current Obligations are not paid with cash dividends. To the
extent the ESOP Contribution is made in cash, the ESOP Contribution may be used
to repay an Exempt Loan used to purchase Employer Stock for this plan.
"Current Obligations" means trust financial obligations arising from an
Exempt Loan to the trust, and payable in cash within one year from the date an
Employer Contribution is due.
4.3 Limits on Employer Contributions.
------ -- -------- -------------
Employer Contributions are subject to the following limits:
(a) Deduction. Employer Contributions for a Plan Year shall not exceed
---------
the amount allowable as a deduction under Code Section 404. A nondeductible
contribution may be subject to a 10% excise tax.
(b) Annual Additions. Employer Contributions are subject to the limit on
------ ---------
Annual Additions stated in Article 5.
-11-
<PAGE>
4.4 Return of Employer Contributions.
------ -- -------- -------------
(a) Mistake of Fact. Part or all of any Employer Contribution made by
------- -- ----
mistake of fact shall be returned to the Employer, upon demand, within one year
after payment of the contribution.
(b) Nondeductible. Each Employer Contribution is conditioned on its
-------------
deductibility under Code Section 404. Unless necessary for the trust to meet
its Current Obligations, a nondeductible Employer Contribution shall be returned
to the Employer, upon demand, before the due date for the Employer's federal
income tax return for the taxable year for which the contribution was made. The
portion of the contribution to be returned shall not exceed the amount
determined to be nondeductible.
(c) Amount. The amount that may be returned shall be determined as of the
------
Valuation Date coinciding with or most recently preceding the date of repayment.
The amount shall be the excess of the amount contributed over the amount that is
deductible or the amount that would have been contributed if the mistake of fact
had not occurred. Earnings attributable to the excess amount shall not be
returned. Losses attributable to the excess amount shall reduce the amount
returned. The amount returned shall not reduce a Participant's account to less
than the account balance would have been on the applicable Valuation Date had
the excess amount not been contributed.
4.5 Reduction of Employer Contribution for Leased Employees.
--------- -- -------- ------------ --- ------ ---------
If a Leased Employee becomes a Participant in this plan, any Employer
Contribution which would be made for and allocated to the Leased Employee shall
be reduced by any contribution made by the leasing organization for the
Participant to a qualified retirement plan for services performed by the Leased
Employee for the Employer.
4.6 Timing of Contributions.
------ -- -------------
Any Employer Contribution shall be paid to the Trustee on or before the
date prescribed by law (including extensions) for filing the Employer's federal
income tax return for the taxable year. The Employer also shall identify the
type and amount of each contribution for a Plan Year by written communication to
the Trustee on or before the date final allocations are performed under Article
5. If property other than
-12-
<PAGE>
cash is contributed, the property shall be valued at fair market value at the
time of contribution.
ARTICLE 5
------- -
Allocations
-----------
5.1 Accounts.
--------
The Administrator shall maintain the necessary number of accounts for each
Participant. The Administrator shall maintain the accounts described in (a)
below:
(a) ESOP Account. "ESOP Account" means a separate account for a
---- -------
Participant that is credited with shares of Employer Stock. The ESOP Account
shall consist of subaccounts known as Employer Stock Accounts and, if
applicable, Other Investments Accounts.
(i) Employer Stock Account. "Employer Stock Account" means the
----------------------
portion of a Participant's ESOP Account that is credited with shares of Employer
Stock. There shall be a separate Employer Stock Account for Employer Stock
purchased with each Exempt Loan, and a separate Employer Stock Account for
Employer Stock acquired by the trust without an Exempt Loan. An Employer Stock
Account shall include stock dividends paid on Employer Stock allocated to such
account and Employer Stock purchased with cash dividends to the extent those
dividends were not used to repay an Exempt Loan or distributed to Participants.
(ii) Other Investments Account. "Other Investments Account" means the
----- ----------- -------
portion of a Participant's ESOP Account credited with cash or the Participant's
share of the net income (or loss) on investments of a permanent nature. An
Other Investments Account shall not be required to be maintained unless, and
until, investments of a permanent nature, other than Employer Stock, are held in
a Participant's ESOP Account.
(iii) Employer Stock. "Employer Stock" means Employer securities within
--------------
the meaning of Code Section 409(l).
(b) Accounting Only. Separate accounts shall be maintained for accounting
---------- ----
purposes only and shall not require segregated investment of amounts allocated
to separate accounts except as specified in Article 9.
-13-
<PAGE>
5.2 Allocations.
-----------
As of each applicable Valuation Date, the contributions to this plan and/or
Employer Stock released under Section 9.4(i) shall be allocated to each
Participant's accounts as follows:
(a) ESOP Contribution.
---- ------------
(i) Eligibility. A Participant shall be eligible for a share of the
-----------
ESOP Contribution or Employer Stock allocated as a result of the ESOP
Contribution for each Plan Year in which (A) the Participant completes at least
1,000 Hours of Service during the Plan Year, or (B) the Participant's employment
terminates on or after the Participant's Normal Retirement Date or due to death
or Total Disability. Each Participant with an Employer Stock Account at the
payment date for cash dividends (payable with respect to Employer Stock held in
the Participant's accounts) shall be eligible for the allocation of cash
dividends on that Employer Stock.
For the short Plan Year, the number of Hours of Service a
Participant must complete shall be 500.
(ii) Allocation.
----------
(A) Cash Dividend and Cash Contributions. Subject to (D) below,
---- -------- --- ---- -------------
all cash dividends paid to the trust, plus earnings, with respect to Employer
Stock purchased with an Exempt Loan, may be used to pay Current Obligations with
respect to the Exempt Loan, or to prepay that Exempt Loan to the extent
prepayment would not violate the terms of the Exempt Loan. If cash dividends are
not used to pay or prepay an Exempt Loan, the cash dividends shall be
distributed pursuant to Section 7.12. Subject to (D) below, cash contributions
by the Employer, plus earnings, shall be used to pay Current Obligations or to
prepay an Exempt Loan to the extent prepayment would not violate the terms of
the Exempt Loan. If cash contributions are not used to pay or prepay an Exempt
Loan, they shall be allocated under (D)(2) below. Employer Stock released for
allocation under Section 9.4(i) as a result of the payments made on an Exempt
Loan shall be allocated in accordance with (B) below.
(B) Employer Stock. Employer Stock released under Section 9.4
--------------
(i) shall be allocated as of the end of the Plan Year to the applicable
account of each Participant as follows:
(1) Cash Dividends Value. First, released Employer Stock
--------------------
with respect to an Exempt Loan which has a Fair Market Value equal to the
-14-
<PAGE>
cash dividends paid to the trust (and used to pay or prepay an Exempt Loan)
during the Plan Year with respect to Employer Stock allocated to each
Participant's applicable Employer Stock Account shall be allocated to that
Participant's applicable account.
(2) Proportionate Allocation. Second, if additional Employer Stock
------------- ----------
remains to be allocated, released Employer Stock with respect to an Exempt Loan
shall be allocated to each Participant's applicable Employer Stock Account in
the proportion that the Participating Compensation of each eligible Participant
bears to the Participating Compensation of all eligible Participants.
(C) Special Employer Contribution or Employer Stock Release.
------- -------- ------------ -- -------- ----- -------
Notwithstanding any provision of this plan to the contrary, to the extent
necessary to meet the required allocation of Employer Stock under (ii)(B)(1)
above, the Employer, in its sole discretion, may contribute additional Employer
Stock or cash to the trust for purposes of completing such allocation. If
sufficient Employer Contributions are not made for such purpose, then additional
shares of Employer Stock shall be released under Section 9.4(i) for purposes of
completing such allocation.
(D) No Exempt Loan. If this plan has no Exempt Loan with respect to a
-- ------ ----
Participant's Employer Stock Account,
(1) Cash Dividends. Cash dividends paid with respect to the
--------------
Participant's Employer Stock Account shall be distributed pursuant to Section
7.12;
(2) Cash Contributions. Cash contributions shall be allocated to
---- -------------
eligible Participants' Other Investments Accounts in the proportion described in
(B)(2) above; and
(3) Employer Stock Contributions. Contributions in Employer Stock
-------- ----- -------------
shall be allocated to eligible Participants' Employer Stock Accounts in the
proportion described in (B)(2) above.
(E) Employer Stock Allocation in Numbers of Shares. Allocation of Employer
-------- ----- ---------- -- ------- -- ------
Stock and accountings with respect to the Employer Stock Account shall be in
numbers of whole and fractional shares.
-15-
<PAGE>
(iii) Definitions.
-----------
(A) Participating Compensation. "Participating Compensation"
------------- ------------
means the Participant's Compensation for services while a Participant in Covered
Employment during the Plan Year.
Participating Compensation may not exceed $200,000 (as
adjusted under Code Section 415(d)). One $200,000 limit shall apply in the
aggregate to each group consisting of a Participant who is either a 5% Owner or
a Highly Compensated Employee among the 10 Highly Compensated Employees paid the
most HCE Compensation and that Participant's Spouse and descendants who have not
attained age 19 before the end of the Plan Year. The maximum amount of
Participating Compensation shall be allocated among the 5% Owner or other Highly
Compensated Employee and family members who are Participants in proportion to
each individual's Participating Compensation for the Plan Year before
application of the limit.
(B) Compensation. "Compensation" means an Employee's W-2 wages
------------
as provided in Regulations under Code Section 415 plus Elective Deferrals and
any amount that is excluded from gross income pursuant to Code Section 125; but
excluding, whether or not includable in income, reimbursements or other expense
allowances, cash and noncash fringe benefits, moving expenses, deferred
compensation, and welfare benefits. "Elective Deferrals" means the elective
contributions made for the Participant and any other portion of the
Participant's income deferred and excluded from current taxation under Code
Sections 402(a)(8) (a cash or deferred 401(k) profit-sharing plan); 402(h) (a
simplified employee pension plan); or 403(b) (a tax-sheltered annuity).
(b) Restoration of Forfeiture. If a forfeited amount is required to be
----------- -- ----------
restored under Article 6, that amount shall be allocated to the account from
which the amount was forfeited.
5.3 Allocation Limitation.
---------- ----------
(a) Nonrecognition of Gains. If a shareholder sells Employer Stock to
-------------- -- -----
this plan and elects not to recognize gain under Code Section 1042, no plan
assets attributable to the Employer Stock acquired in such transaction shall be
allocated to the account of:
(i) Selling Shareholder. The selling shareholder,
------- -----------
-16-
<PAGE>
(ii) Family Members. Individuals related to the selling shareholder or
------ -------
the decedent, as described in Code Section 267(b), or
(iii) 25% Plus Shareholder. Any individual who owns (or is
--- ---- -----------
consideredd to own under Code Section 318(a)) more than 25% of any class of
stock of the Employer or a Related Employer.
(b) Nonapplication to Certain Lineal Descendants. Subsection (a)(ii)
-------------- -- ------- ------ -----------
above shall not apply to Participants who are lineal descendants of the selling
shareholder if the total amount allocated to those Participants does not exceed
5% of the Employer Stock acquired by this plan as a result of a transaction
described in (a) above. If the total amount that would be allocated to
Participants who are lineal descendants of the selling shareholder would exceed
5% of the Employer Stock acquired as a result of the transaction, the allocation
to the lineal descendants shall be limited to 5% of the Employer Stock acquired
under this section. Any amounts that cannot be allocated to lineal descendants
due to the limit under the preceding sentence shall be allocated to other
Participants on a pro rata basis.
(c) Expiration of Restrictions. The restrictions under subsections (a)(i)
---------- -- ------------
and (a)(ii) above shall expire 10 years after the later of (i) the date the plan
purchases the Employer Stock, or (ii) the date the final allocation of the
Employer Stock if the purchase was financed by a Securities Acquisition Loan.
5.4 Stock Dividends on Employer Stock, Stock Splits, Etc.
----- --------- -- -------- ----- ----- ------ ---
Each Participant's Employer Stock Account will be credited with the
Participant's share of Employer Stock (including fractional shares) representing
(i) stock dividends paid on Employer Stock, (ii) a stock split, or (iii) stock
received by the Trustee as a result of a reorganization or other
recapitalization of the Employer. However, stock dividends or other Employer
Stock received with respect to Employer Stock that is encumbered, or held in a
suspense account, pursuant to Section 9.4 shall be added to the encumbrance or
suspense account, and shall be released and allocated as provided in Section 9.4
and Section 5.2.
5.5 Forfeitures.
-----------
Forfeitures shall be allocated first to restore any forfeited amounts that
are required to be restored under Article 6. Any remaining forfeitures shall be
allocated as an additional ESOP Contribution.
-17-
<PAGE>
(a) Timing. Forfeitures shall occur as of the dates specified in Article
------
6. Forfeitures that occur during a Plan Year shall be allocated as of the end
of that Plan Year.
(b) Annual Addition Limitation. Any forfeitures that cannot be allocated
------ -------- ----------
under (a) due to the limitation on Annual Additions shall be held and applied
pursuant to Section 5.9.
(c) Investment Experience. Each forfeiture shall remain in the account of
---------- ----------
the forfeiting Participant and shall share in the investment experience of the
trust through the date as of which the forfeiture is allocated.
(d) Limitation on Allocation. Forfeitures shall not be allocated to the
---------- -- ----------
account of any forfeiting Participant.
5.6 Allocation of Earnings, Losses, and Expenses; Revaluation of Assets.
---------- -- -------- ------ --- -------- ----------- -- ------
(a) Earnings, Losses, and Expenses. As soon as administratively feasible
-------- ------ --- --------
after each Valuation Date, the Administrator shall credit each Participant's
accounts other than Employer Stock Accounts with the proportion of the net
earnings of such accounts and of the net gain from the disposition of assets of
such accounts since the last Valuation Date, as the balance of each such account
bears to the aggregate balances of all such accounts before allocations of
contributions and forfeitures; and shall charge each such account with any net
loss suffered by the trust since the last Valuation Date, and any expenses paid
from the trust since the last Valuation Date, and any expenses paid from the
trust, in the same proportion and manner as earnings and gains are credited to
those accounts. Interest paid under an installment contract for the purchase of
Employer Stock or on an Exempt Loan used to purchase Employer Stock shall not be
deemed an expense under this provision.
(b) Revaluation of Trust.
----------- -- -----
(i) Employer Stock. As soon as administratively feasible after each
-------- -----
Valuation Date, the Administrator shall determine Fair Market Value of the
Employer Stock and shall certify to the Trustee the Fair Market Value. The
Trustee shall thereupon adjust its records to reflect Fair Market Value.
Determination of Fair Market Value shall be made in good faith and in accordance
with this plan and with Regulations under ERISA Section 3(18). Fair Market
Value of Employer Stock acquired after December 31, 1986, shall be determined
annually by an independent appraiser selected by the Employer, meeting
requirements similar to those described in Code Section 170(a)(1), in accordance
with Code Section 401(a)(28) and
-18-
<PAGE>
Regulations. The Employer shall cooperate with, and allow access to and furnish
relevant information to, the independent appraiser for purposes of performing
the valuation of Employer Stock.
(ii) Other Accounts. After the allocations described in (a) above, the
----- --------
Trustee shall revalue, at fair market value, the assets of the trust other than
the Employer Stock held in the Employer Stock Accounts. The amount in each
account other than the Employer Stock Account shall be adjusted as of the
Valuation Date so that the ratio of the adjusted amount in each such account to
the total assets of all such accounts equals the ratio of the amount in the
account before adjustment to the total assets of all such accounts before
adjustment.
(c) No Earnings on Distributions. A Participant's accounts shall not be
-- -------- -- -------------
credited with any interest or earnings for the period between the last Valuation
Date preceding the date of distribution and the date of distribution.
5.7 Sale or Purchase of Employer Stock.
---- -- -------- -- -------- -----
Each Participant's Employer Stock Account and Other Investments Account
will be adjusted as of the applicable Valuation Date as follows:
(a) Sale of Employer Stock. Each Participant's Employer Stock Account
---- -- -------- -----
will be debited with the Participant's share of Employer Stock (including
fractional shares) sold by the trust from that account for any reason. The
proceeds received from the sale shall be credited directly to the Participant's
Other Investments Account. If unallocated Employer Stock is sold, the proceeds,
as necessary, shall be used to repay, or prepay, the Exempt Loan by which such
stock was purchased. After payment of the Exempt Loan, if additional proceeds
from the sale of such Employer Stock remain, the proceeds shall be considered
earnings and gains of the trust on ESOP Accounts, and shall be allocated in the
proportion that the Employer Stock in the Participant's Employer Stock Account
with respect to that Exempt Loan bears to the aggregate Employer Stock in all
Participant's Employer Stock Accounts with respect to that Exempt Loan.
(b) Purchase of Employer Stock. If the Trustee purchases Employer Stock
-------- -- -------- -----
with cash rather than with the proceeds of an Exempt Loan, each Participant's
Other Investments Account will be debited with the Participant's share of the
purchase price for Employer Stock purchased by the trust, and the shares
purchased (including fractional shares) shall be credited directly to the
Participant's Employer Stock Account.
-19-
<PAGE>
5.8 Limitation on Annual Additions.
---------- -- ------ ---------
The total Annual Additions for a Participant for any Limitation Year shall
not exceed the lesser of the Percentage Limit or the Defined Contribution Dollar
Limit.
(a) Annual Additions. For Limitation Years beginning after December 31,
------ ---------
1986, "Annual Additions" for a Participant for a Limitation Year means the sum
of:
(i) Employer Contributions and Forfeitures. The Participant's share
-------- ------------- --- -----------
of the Employer's contributions and forfeitures;
(ii) After-Tax Employee Contributions. The Participant's after-tax
----- --- -------- -------------
employee contributions;
(iii) Post-Retirement Medical Benefits Account. For purposes of the
--------------- ------- -------- -------
Defined Contribution Dollar Limit and for Limitation Years beginning after
December 31, 1985, amounts allocated to the separate post-retirement medical
benefits account of a Key Employee, as defined in Code Section 419A(d)(3), under
a welfare benefit fund, as defined in Code Section 419(e);
(iv) Individual Medical Benefit Account. For purposes of the Defined
---------- ------- ------- -------
Contribution Dollar Limit, contributions allocated for Limitation Years
beginning after March 31, 1984, to an individual medical benefit account in a
pension or annuity plan, as defined in Code Section 415(l)(2);
(v) Excess Deferrals. For the Limitation Years during which these
----------------
amounts were contributed, excess deferrals that are not distributed to a
Participant by the first April 15th following the end of the Participant's
taxable year;
(vi) Excess Contributions and Excess Aggregate Contributions. For the
------ ------------- --- ------ --------- -------------
Limitation Years during which these amounts were contributed, excess
contributions and excess aggregate contributions whether or not distributed to a
Participant; and
(vii) Excess Annual Addition Applied. An excess Annual Addition from
------ ------ -------- -------
the preceding Limitation Year applied to reduce the Employer Contributions for
the current Plan Year.
(b) Defined Contribution Dollar Limit . For Limitation Years beginning
------- ------------ ------ ------
after December 31, 1986, "Defined Contribution Dollar Limit" means $30,000 (or
25% of the defined benefit dollar limit under Code Section 415(b)(1)(A), if
greater).
-20-
<PAGE>
(c) Percentage Limit. "Percentage Limit" means 25% of the Participant's
---------- -----
Section 415 Compensation from the Employer for the Limitation Year.
(d) ESOP Exceptions. If no more than one-third of the Annual Addition
---- ----------
under this plan for a Plan Year is allocated to the accounts of Highly
Compensated Employees, the following special rules shall apply:
(i) Dollar Limitation Increase. For Plan Years beginning before
------ ---------- --------
July 13, 1989, the Defined Contribution Dollar Limit (but not the Percentage
Limit) for each Participant eligible for an allocation pursuant to Section
5.2(a)(i) shall be increased by the lesser of (A) the Defined Contribution
Dollar Limit, or (B) the portion of the Employer Contribution used to pay
principal of an Exempt Loan, multiplied by a fraction. The numerator of the
fraction is the Participating Compensation of the Participant, and the
denominator is the Participating Compensation of all Participants eligible for
an allocation under Section 5.2(a)(i).
(ii) Certain Forfeitures Not Annual Additions. Forfeitures of Employer
------- ----------- --- ------ ---------
Stock acquired by this plan with a loan described in Code Section 404(a)(9)(A)
and allocated to a Participant's account shall not be deemed an Annual Addition.
(iii) Employer Contribution To Pay Interest Not Annual Addition. The
-------- ------------ -- --- -------- --- ------ --------
Employer contribution for a Plan Year deductible under Code Section 404(a)(9)(B)
and not allocated to a Participant's account shall not be deemed an Annual
Addition.
(e) Section 415 Compensation. "Section 415 Compensation" means a
------- --- ------------
Participant's earned income, wages, salaries, and fees for professional services
and other amounts received for personal services actually rendered in the course
of employment with the Employer (including, but not limited to, commissions paid
to salesmen, compensation for services based on a percentage of profits,
commissions on insurance premiums, tips, bonuses, fringe benefits,
reimbursements, and expense allowances) actually paid (or accrued for Limitation
Years beginning before January 1, 1992) and includable in gross income for the
Limitation Year.
(i) Exclusions. Section 415 Compensation excludes:
----------
(A) Contributions. Contributions (including Elective Deferrals)
-------------
to a plan of deferred compensation that are not includable in the Employee's
gross income for the taxable year in which contributed, or contributions under a
simplified employee pension plan to the extent the contributions are deductible
by the Employee, or any distributions from a plan of deferred compensation;
-21-
<PAGE>
(B) Nonqualified Stock Option. Amounts realized from the exercise
------------ ----- ------
of a nonqualified stock option, or when restricted stock (or property) held by
the Employee either becomes freely transferable or is no longer subject to
substantial risk of forfeiture;
(C) Qualified Stock Option. Amounts realized from the sale,
--------- ----- ------
exchange, or other disposition of stock acquired under a qualified stock option;
(D) Other Amounts. Other amounts that received special tax
----- -------
benefits (including any amount that is excluded from gross income under Code
Section 125), or contributions made by the Employer (whether or not under a
salary reduction agreement) toward the purchase of an annuity described in Code
Section 403(b) (whether or not the amounts are actually excludable from the
gross income of the Employee); and
(E) $200,000 Limit. Amounts in excess of $200,000 (as adjusted
-------- -----
under Code Section 415(d)).
(ii) Estimation. Until Section 415 Compensation is actually
----------
determinable, the Employer may use a reasonable estimate of Section 415
Compensation. As soon as administratively feasible, actual Section 415
Compensation shall be determined.
(f) Limitation Year. "Limitation Year" means the Plan Year.
---------- ----
(i) Change. If the Limitation Year is amended to a different 12-month
------
period, the new Limitation Year must begin on a date within the Limitation Year
in which the amendment is made.
(ii) Short Limitation Year. If a short Limitation Year is created by an
----- ---------- ----
amendment, the maximum Annual Addition shall not exceed the Defined Contribution
Dollar Limit multiplied by a fraction. The numerator of the fraction is the
number of months in the short Limitation Year and the denominator is 12.
(g) Related Employer Aggregation. All plans maintained by the Employer
------- -------- -----------
and any Related Employer, all contributions under those plans, and Section 415
Compensation from the Employer and any Related Employer shall be aggregated for
purposes of applying this section and the remainder of this article.
-22-
<PAGE>
5.9 Excess Additions.
------ ---------
(a) Before Contribution. If the Annual Additions limitation will be
------ ------------
exceeded for a Participant, the Employer Contribution for the Plan Year may be
reduced before payment to the Trustee to the maximum amount permitted under
Section 5.8.
(b) After Contribution. If the Annual Additions limitation would be
----- -------------
exceeded for a Participant as a result of an allocation of forfeitures, a
reasonable error in estimating a Participant's annual Section 415 Compensation,
a reasonable error in determining the amount of Elective Deferrals permissible
under the limits of Code Section 415, or other facts and circumstances permitted
by the Commissioner of Internal Revenue, the excess amount shall be held in a
suspense account.
(i) Reduce Employer Contribution. The amount in the suspense
------ -------- ------------
account shall be used to reduce an Employer Contribution for the next Plan Year
and shall be allocated before other Annual Additions are allocated.
(ii) Plan Termination. If this plan is terminated or contributions
---- -----------
to this plan are discontinued while there is a suspense account, the allocation
shall be made as of the end of the next Plan Year or, if earlier, as of the date
of termination or discontinuance.
(iii) No Investment Experience. No investment experience shall be
-- ---------- ----------
allocated to a suspense account.
(c) No Distribution. Excess Annual Additions held in a suspense account
-- ------------
may not be distributed to Participants or former Participants.
(d) Plan Order. The excess allocation shall be eliminated under the terms
---- -----
of the profit-sharing plan maintained by the Employer. If the excess cannot be
completely eliminated under the terms of that plan, any remaining excess shall
be eliminated under the terms of this section.
ARTICLE 6
------- -
Determination of Vested Percentage
------------- -- ------ ----------
6.1 Year of Vesting Service.
---- -- ------- -------
(a) Credit. An Employee shall be credited with a "Year of Vesting
------
Service" for each Vesting Period in which the Employee completes at least 1,000
Hours of Service, including Vesting Periods before the Employee became a
Participant.
-23-
<PAGE>
The "Vesting Period" for determining Years of Vesting Service and the
existence of Breaks in Service under this article shall be the Plan Year. For a
short Plan Year, the Vesting Period shall be the 12-month period ending on the
last day of the short Plan Year.
(b) No Credit. An Employee shall not be credited with Years of Vesting
-- ------
Service for service before the original effective date of this plan.
6.2 Vested Percentage.
------ ----------
(a) Vesting Schedule. A Participant's vested percentage with respect to
------- --------
the Participant's ESOP Account shall be determined as follows:
<TABLE>
<CAPTION>
Years of Vesting Service Vested Percentage
----- -- ------- ------- ------ ----------
<S> <C>
Less than 5 years -0-
5 years or more 100%
</TABLE>
(b) Transitional Rule. The vested percentage with respect to the accounts
------------ ----
listed under (a) above for each Participant employed before July 3, 1989, shall
be:
<TABLE>
<CAPTION>
Years of Vesting Service Vested Percentage
----- -- ------- ------- ------ ----------
<S> <C>
Less than 4 years -0-
4 years 40%
5 years or more 100%
</TABLE>
(c) Normal Retirement Date, Death, or Disability . A Participant's vested
------ ---------- ---- ----- -- -----------
percentage with respect to all of the Participant's accounts shall be 100% upon
the earlier of the Participant's Normal Retirement Date or the date the
Participant's employment terminates due to death or Total Disability.
6.3 Cashout.
-------
(a) Partial Vesting. If a Participant's employment terminates and the
------- -------
Participant's entire Vested Account Balance is distributed before the last day
of the second Plan Year after the Plan Year during which the Participant's
employment terminated, any nonvested amount shall be forfeited as of the date of
distribution.
-24-
<PAGE>
If the Participant is reemployed by the Employer or a Related Employer
before the Participant has five consecutive Breaks in Service and repays the
entire amount distributed before the earlier of five years after the date the
Participant is reemployed or the date the Participant has five consecutive
Breaks in Service, the forfeited amount shall be restored to the Participant's
account as of the date of repayment.
(b) Zero Vesting. If a Participant's employment terminates and the
---- -------
Participant's vested percentage under Section 6.2(a) or (b) is zero, any
nonvested amount shall be forfeited as of the date that the Participant's
employment terminates. If the former Participant is reemployed by the Employer
or a Related Employer before the Participant has five consecutive Breaks in
Service, the forfeited amount shall be restored as of the date the Participant
is reemployed.
6.4 Five Breaks in Service.
---- ------ -- -------
(a) Cancellation of Vesting Service. If an Employee whose vested
------------ -- ------- -------
percentage under Section 6.2(a) or (b) is zero has five consecutive Breaks in
Service, the Participant's Years of Vesting Service credited before the Breaks
in Service shall be permanently canceled.
(b) Forfeiture of Nonvested Amount. Unless previously forfeited, a
---------- -- --------- ------
Participant's nonvested amount shall be permanently forfeited as of the end of
the Vesting Period that includes the Participant's fifth consecutive Break in
Service.
6.5 Death After Termination/Lost Recipient.
----- ----- ----------- ---- ---------
(a) Death After Termination. If a Participant whose vested percentage
----- ----- -----------
under Section 6.2(a) or (b) is not 100% dies after termination of employment but
before the Participant has five consecutive Breaks in Service, the remaining
Vested Account Balance shall be distributed pursuant to Article 7. Any
nonvested amount that was not forfeited previously shall be forfeited as of the
date of the Participant's death.
(b) Lost Recipient. If a Person entitled to a payment cannot be located,
---- ---------
the Participant's account shall be forfeited as of the date the Administrator
certifies to the Trustee that the Person cannot be located. The Participant's
Vested Account Balance shall be restored to the Participant's account if the
Person entitled to the payment submits a written election of method of payment.
-25-
<PAGE>
6.6 Vested Account Balance and Nonvested Amount.
------ ------- ------- --- --------- ------
(a) Vested Amount. "Vested Account Balance" as of the date of
------ ------
determination means the balances in the Participant's accounts listed under
Section 6.2(a) or Section 6.2(b) multiplied by the Participant's vested
percentage.
(b) Nonvested Amount. The remainder shall be the Participant's nonvested
--------- ------
amount.
(c) Partial Distribution of Vested Account Balance. If part of the
------- ------------ -- ------ ------- -------
Participant's Vested Account Balance is distributed or reduced for any reason
before the Participant's vested percentage is 100%, the remaining amount in the
affected account shall be maintained in a separate account. The Participant's
vested amount with respect to the separate account is equal to P(AB + (R x D)) -
(R x D), where P is the Participant's vested percentage; AB is the separate
account balance, after allocations and revaluation, as of the end of the most
recent Plan Year; D is the amount of the distribution; and R is a fraction. The
numerator of the fraction is AB, and the denominator is the separate account
balance remaining immediately after the distribution. If a separate account is
maintained, it shall be merged into the Participant's regular account at the end
of the Plan Year in which the Participant's vested percentage under Section
6.2(a) or (b) becomes 100%.
6.7 Source of Forfeitures.
------ -- -----------
Any amount to be forfeited from a Participant's ESOP Account under this
article shall be forfeited first from the Participant's Other Investments
Account. If additional amounts are to be forfeited from the ESOP Account after
the Participant's Other Investments Account is exhausted, the additional amounts
to be forfeited shall be forfeited proportionally from each of the Participant's
Employer Stock Accounts.
ARTICLE 7
------- -
Distributions
-------------
7.1 Distributive Events.
------------ ------
The following events shall permit distribution.
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<PAGE>
(a) Normal Retirement Date. A Participant's employment terminates at or
------ ---------- ----
after the Participant's Normal Retirement Date. "Normal Retirement Date" means
the date the Participant attains age 65.
(b) Death. A Participant dies.
-----
(c) Total Disability. A Participant suffers a Total Disability while an
----- ----------
Employee. "Total Disability" means the inability of the Participant due to a
physical or mental condition to perform the duties of the Participant's
employment. The Administrator may require that one or more physicians (chosen
or approved by the Administrator) certify whether or not Total Disability
exists. This certification shall be conclusive.
(d) Other Termination of Employment. A Participant's employment
----- ----------- -- ----------
terminates for any reason. A transfer between Covered Employment and any other
employment with the Employer, or a transfer between the Employer and a Related
Employer, is not a termination of employment.
(e) Transfer of Employment. A Participant transfers to a Related Employer
-------- -- ----------
that has not adopted this plan and the Participant requests transfer of the
Participant's Vested Account Balance to the qualified retirement plan maintained
by the Related Employer.
(f) Attainment of Age 70 1/2. A Participant attains age 70 1/2.
---------- -- --- ------
(g) QDRO. This plan receives a QDRO and the Administrator directs the
----
Trustee to pay benefits to an alternate payee as set forth in the QDRO.
"QDRO" means a qualified domestic relations order, as defined in Code
Section 414(p), that is issued by a competent state court and that meets the
following conditions:
(i) Alternate Payee. The alternate payee must be the Spouse or former
--------- -----
Spouse or a child or other dependent of the Participant.
(ii) Reason for Distribution. The distribution must relate to alimony,
------ --- ------------
support of a child or other dependent, or a division of marital property.
(iii) Contents. The QDRO must contain the name and address of the
--------
Participant and the alternate payee, the amount of the distribution or
percentage of the Participant's account to be distributed, the Valuation Date as
of which the amount or
-27-
<PAGE>
percentage is to be determined, and instructions concerning the timing and
method of distribution.
(iv) Restrictions. A QDRO may not require (A) this plan to pay more to
------------
the Participant and all alternate payees than the Participant's Vested Account
Balance; (B) a method, commencement date, or duration of payment not otherwise
permitted under this article; and (C) cancellation of the prior rights of
another alternate payee.
(h) Plan Termination; Partial Termination . Termination of this plan with
---- ----------- ------- ------------
respect to all Participants or partial termination with respect to Participants
affected by the partial termination.
(i) Diversification of Investments . A Participant requests liquidation of
--------------- -- ------------
a portion of the Participant's ESOP Account under Section 9.8 of this plan.
7.2 Valuation for Distribution.
--------- --- ------------
The Participant's Vested Account Balance shall be determined as of the
Valuation Date coinciding with or most recently preceding the date of the
distribution. The amount distributed shall not include investment experience
for the period from the Valuation Date to the date of distribution. Separate
valuations shall be performed for segregated accounts that are commingled for
investment and any accounts that are separately invested without commingling.
The amount to be distributed shall be reduced by the amount of any distribution
or withdrawal during the period from the Valuation Date to the date of
distribution.
7.3 Method and Form of Distribution.
------ --- ---- -- ------------
(a) Method of Distribution. Distribution shall be made in a single
------ -- ------------
payment or, if necessary, in one or more payments within one taxable year of the
recipient.
(b) Form of Distribution/ESOP Accounts.
---- -- ------------ ---- --------
(i) Distribution in Employer Stock. A Participant or Beneficiary
------------------------------
entitled to a distribution of benefits may demand that the ESOP Account be paid
in Employer Stock, except that the value of any fractional share may be paid in
cash.
(A) Source of Shares. The Trustee may meet a current distribution
------ -- ------
obligation by use of the Participant's Employer Stock Account only, by use
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<PAGE>
of the Participant's Other Investments Account to acquire Employer Stock, or by
partial use of each account.
(B) Acquisition of Additional Shares. A balance in the
----------- -- ---------- ------
Participant's Other Investments Account will be applied to acquire the maximum
number of whole shares of Employer Stock, at the then Fair Market Value, as
necessary to meet the current distribution obligation to the Participant.
Employer Stock to be acquired by use of the Participant's Other Investments
Account may be acquired from any source, including the Employer Stock Accounts
of all other Participants.
(C) Method of Acquisition From Other Participant's Employer Stock
------ -- ----------- ---- ----- ------------- -------- -----
Accounts. If Employer Stock is acquired from the Employer Stock Accounts of all
- --------
other Participants, the acquisition shall be from all other Participants'
Employer Stock Accounts at the then Fair Market Value. The Employer Stock
Accounts shall be debited on a reasonable, nondiscriminatory, pro rata basis.
The amount applied from the Participant's Other Investments Account to acquire
the Employer Stock shall be credited to all other Participants' Other
Investments Accounts on the same reasonable, nondiscriminatory, pro rata basis.
(ii) Failure to Demand Payment in Employer Stock. If a Participant or
------- -- ------ ------- -- -------- -----
Beneficiary is entitled to and does not demand payment of benefits in Employer
Stock, after notification by the Administrator of that right, benefits may be
paid in cash, in Employer Stock, or in a combination of both, as directed by the
Administrator. If benefits are paid in cash, the amount payable shall be the
net proceeds received by the Trustee with respect to the sale of Employer Stock
from the Participant's Employer Stock Account, plus the value of the
Participant's Other Investments Account.
(c) Form of Distribution/Other Accounts. Accounts other than ESOP
---- -- ------------ ----- ---------
Accounts shall be distributed to the Participant or Beneficiary in cash.
7.4 Minimum Distribution.
------- ------------
The minimum amount that must be distributed for each calendar year
beginning with the calendar year in which the Participant attains age 70 1/2
("Minimum Distribution") shall be equal to the greater of the minimum required
distribution under Regulations Section 1.401(a)(9)-1 or the minimum distribution
incidental benefit under Regulations Section 1.401(a)(9)-2.
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<PAGE>
7.5 Time of Distribution.
---- -- ------------
(a) Immediate Distribution. Distribution shall begin on the Earliest
--------- ------------
Distribution Date.
(i) Earliest Distribution Date. "Earliest Distribution Date" means
-------- ------------ ----
the first date on which distribution is administratively feasible following the
end of the Plan Year that includes the distributive event or, if later, after
election of distribution.
(ii) Exceptions.
----------
(A) Death. The time of distribution following death of a
-----
Participant is determined under Section 7.6.
(B) QDRO. Distribution to an alternate payee under a QDRO shall
----
be paid to the alternate payee at the time specified in the order, whether or
not the Participant has attained the age of 50 and even though the Participant
continues to be an Employee.
(C) Plan Termination/Partial Termination. Distribution to
---- ----------- ------- -----------
affected Participants shall be made as soon as administratively feasible after
termination or partial termination of this plan and receipt of applicable
approvals.
(b) Normal Distribution Date. Distribution due to termination of
------ ------------ ----
employment for any reason other than death shall begin not later than 60 days
after the end of the Plan Year that includes the Participant's Normal Retirement
Date or, if later, the end of the Plan Year in which employment terminates. If
the amount cannot be ascertained at that date, distribution retroactive to that
date shall be made within 60 days of the date that the amount can be determined.
A Participant may not elect to defer distribution beyond the date
described in the preceding paragraph.
(c) Required Distribution. Distribution to a Participant shall begin not
-------- ------------
later than the Participant's Required Beginning Date.
(i) Required Beginning Date. "Required Beginning Date" means:
-------- --------- ----
(A) General. The April 1 following the calendar year in which the
-------
Participant attains age 70 1/2.
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<PAGE>
(B) Age 70 1/2 in 1988. For a Participant who is not a 5% Owner
--- ------ -- ----
and attained age 70 1/2 during 1988, April 1, 1990.
(C) Age 70 1/2 Before 1988. For a Participant who attained age 70
--- ------ ------ ----
1/2 before January 1, 1988, and who is not a 5% Owner, the April 1 after the
calendar year in which the Participant's employment terminates, or if the
Participant becomes a 5% Owner, the April 1 following the calendar year in which
the Participant becomes a 5% Owner.
(D) 5% Owner. For purposes of this definition, a Participant is
-- -----
treated as a 5% Owner if the Participant is a 5% Owner during the Plan Year in
which the Participant attains age 66 1/2 or any later Plan Year. Once
distribution begins to a 5% Owner, it shall continue even if the Participant
ceases to be a 5% Owner.
(ii) Payment. Unless paid during the calendar year in which the
-------
Participant attains age 70 1/2 (or the calendar year before the Participant's
Required Beginning Date, if later), the Minimum Distribution for that calendar
year shall be paid not later than the Required Beginning Date. The Minimum
Distribution for each subsequent calendar year shall be paid by the last day of
the calendar year for which it is required.
(d) TEFRA Election. Distribution may be made at the time (and by the
----- --------
method) specified in a TEFRA Election even if later than the Required Beginning
Date. "TEFRA Election" means a written election made before January 1, 1984,
pursuant to the transitional rules of Section 242(b)(2) of the Tax Equity and
Fiscal Responsibility Act of 1982. An amendment or revocation of a TEFRA
Election shall void the election, and the Participant's benefits shall be
distributed pursuant to this article. Designation of a different or additional
beneficiary shall not void a TEFRA Election if the designation does not directly
or indirectly alter the time when benefits begin or the period over which
benefits are to be paid.
7.6 Death of Participant.
----- -- -----------
(a) Death Before Required Beginning Date. If the Participant dies before
----- ------ -------- --------- ----
the Required Beginning Date, distribution shall be made to the Participant's
Beneficiary as soon as administratively feasible following the end of the Plan
Year in which the Participant dies or, if later, after election of distribution.
(i) Spouse as Beneficiary. If the Spouse is the Beneficiary, the Spouse
------ -- -----------
may elect distribution at any time after the Participant's death. Distribution
must be made on or before the last day of the calendar year in which the
Participant
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<PAGE>
would have attained age 70 1/2 or, if later, the last day of the calendar year
following the calendar year in which the Participant died. If the Spouse dies
before distribution is made, distribution shall be made under (ii) as though the
Spouse were the Participant.
(ii) Default Rule. Distribution of the Participant's Vested Account
------- ----
Balance shall be paid in a lump sum no later than the last day of the calendar
year that includes the fifth anniversary of the Participant's death. If the
Beneficiary dies before complete distribution of the Participant's Vested
Account Balance, the remainder to be distributed shall be paid in a lump sum to
the successor Beneficiary no later than the last day of the calendar year that
includes the fifth anniversary of the Participant's death.
(b) Death After Required Beginning Date. If the Participant dies after
----- ----- -------- --------- ----
the Required Beginning Date, any unpaid amount must be paid to the Beneficiary
in a lump sum no later than the last day of the calendar year after the calendar
year in which the Participant died.
7.7 Election of Method and Time of Distribution.
-------- -- ------ --- ---- -- ------------
(a) Permitted Elections. To the extent permitted under this article, the
--------- ---------
Participant or other recipient may elect the method and time of distribution.
(b) Required Consent. If the distributive event is termination of
-------- -------
employment prior to the Participant's Normal Retirement Date for any reason
other than death, distribution shall not be made without the Participant's
consent. The consent shall be given by an election of distribution. An
election of distribution shall be made within the 90-day period ending on the
Benefit Starting Date.
(i) Notice. When consent is required, the Participant shall be
------
notified of the right to elect or defer distribution. The written notice shall
provide an explanation of the material features and relative values of the
available methods of distribution. The notice shall be provided at least 30 days
and not more than 90 days before the Benefit Starting Date.
(ii) Benefit Starting Date. "Benefit Starting Date" means the first day
------- -------- ----
of the first period for which an amount is distributable in any form. Generally,
the Benefit Starting Date is the date on which distribution is due when all
conditions and requirements for distribution have been met.
-32-
<PAGE>
(iii) Exception to Consent Requirement. The Participant's consent is
--------- -- ------- -----------
not required with respect to a distribution when the Participant's Vested
Account Balance, including any earlier distribution, is $3,500 or less.
(c) Election Requirements.
-------- ------------
(i) Time. The election shall be made not later than the date
----
distribution begins or, if earlier, the date when distribution must begin. An
election may be revoked or changed before distribution begins.
(ii) Form. An election shall be made in a form acceptable to the
----
Administrator.
(d) Failure to Elect. If a Person fails to elect (or multiple recipients
------- -- -----
cannot agree):
(i) Method. The method of distribution shall be a lump sum.
------
(ii) Time. Distribution shall begin under Section 7.5(b) if the
----
Participant is alive or under Section 7.6(a)(ii) if the Participant died.
(e) Additional Information. The Administrator may require additional
---------- -----------
election, application or information forms required by law or deemed necessary
or appropriate by the Administrator in connection with any distribution.
(f) No Reduction or Delay of Distribution. An election shall not cause a
-- --------- -- ----- -- ------------
reduction in the minimum amount or delay the required time of payment of any
Minimum Distribution or any distribution required after the death of a
Participant.
7.8 Designation of Beneficiary.
----------- -- -----------
A Participant may designate or change a Beneficiary by filing a signed
designation with the Administrator in the form approved by the Administrator.
The Participant's Will is not effective for this purpose.
(a) Beneficiary. "Beneficiary" means the Person designated by the
-----------
Participant to receive the Participant's benefits under this plan after the
Participant's death.
(b) Spousal Consent. If a married Participant designates or changes a
------- -------
Beneficiary other than the Spouse without the Spouse's consent to and
-33-
<PAGE>
acknowledgment of the effect of the designation, the designation shall be void.
A consent that permits further designations without consent is void unless the
Spouse expressly and voluntarily permits such designations without any further
spousal consent. The consent may be limited to a specific Beneficiary and a
specific method of distribution.
(i) Consent. Consent by the Spouse is irrevocable. The consent and
-------
acknowledgment must be witnessed by an individual named by the Administrator or
by a notary public. If the Spouse cannot be located or if other circumstances
set forth in Regulations issued under Code Section 417 exist, the consent need
not be obtained.
(ii) Spouse. "Spouse" means the Participant's husband or wife at any
------
specified time. A former Spouse shall not be a Spouse except to the extent
specified in a QDRO under Code Section 414(p).
(iii) Successor Beneficiaries. A Participant may designate one or more
--------- -------------
successor Beneficiaries to the Spouse without the Spouse's consent.
(iv) Change of Marital Status. A Beneficiary designation by a
------ -- ------- ------
Participant will not be effective upon the Participant's subsequent marriage
unless the Spouse consents to the designation and acknowledges the effect of the
designation.
(c) Failure to Designate. If a Participant fails to designate a
------- -- ---------
Beneficiary, the Beneficiary shall be the Spouse at the time of the
Participant's death and the Spouse's estate with respect to any amount remaining
undistributed at the subsequent death of the Spouse. If the Participant is not
survived by a Spouse, the Beneficiary for each date of distribution shall be the
first of the following classes with a living member on the date of distribution:
(i) Children. The Participant's children, including those by
--------
adoption, dividing the distribution equally among the Participant's children
with the living issue of any deceased child taking their parent's share by right
of representation;
(ii) Parents. The Participant's parents, dividing the distribution
-------
equally if both parents are living;
(iii) Brothers and Sisters. The Participant's brothers and sisters,
-------- --- -------
dividing the distribution equally among the Participant's living brothers and
sisters.
(d) Death of Beneficiary. If distribution is being made to a Beneficiary
----- -- -----------
who dies before complete distribution, the remaining amount in the account shall
be paid to
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<PAGE>
the successor Beneficiary. If distribution is made to more than one Beneficiary,
distribution shall continue to the survivor or survivors of them, and any
remaining amount in the account upon the death of the last survivor shall be
paid to the successor Beneficiary. Survivors shall include the issue of any
deceased child who shall take the deceased child's share by right of
representation.
(e) No Beneficiary. If a deceased Participant has no surviving
-- -----------
Beneficiary under (c) above on the date a distribution is payable, the remaining
balance shall be paid to the Participant's estate, if then under the active
administration of a probate or similar court, or if not, to those Persons who
would then take the Participant's personal property under the Michigan intestate
laws then in force and in the proportions provided therein, as though the
Participant had died at such time.
(f) Determination. The Administrator shall apply the rules of this
-------------
section to determine the proper Persons to whom payment should be made. The
decision of the Administrator shall be final and binding on all Persons.
7.9 Facility of Payment.
-------- -- -------
A payment under this section shall fully discharge the Employer and Trustee
from all future liability with respect to that payment.
(a) Incapacity. If a recipient entitled to a payment is legally,
----------
physically, or mentally incapable of receiving or acknowledging payment, the
Administrator may direct the payment to the recipient; to the recipient's legal
representative; to the spouse, child, or other relative by blood or marriage of
the recipient; to the individual with whom the recipient resides; or by
expending the payment directly for the benefit of the recipient. A payment made
to any Person other than the recipient shall be used for the recipient's
exclusive benefit.
(b) Legal Representative. The Employer shall not be required to commence
----- --------------
probate proceedings or to secure the appointment of a legal representative.
(c) Determination. The Employer may act upon affidavits in making any
-------------
determinations. In relying upon the affidavits or having made a reasonable
effort to locate any Person entitled to payment, the Employer shall be
authorized to direct payment to a successor Beneficiary or another Person. A
Person omitted from payment shall have no rights on account of payments so made.
-35-
<PAGE>
7.10 Notice of Penalties.
------ -- ---------
The following penalties apply to distribution of, or failure to
distribute, certain amounts under this plan.
(a) Distribution Before Age 59 1/2. A Participant who receives a
------------ ------ --- ------
distribution before attaining age 59 1/2 may be liable for an additional 10%
federal income tax on any portion of the distribution included in gross income.
(b) Excess Distributions. If a Participant or Beneficiary receives excess
------ -------------
distributions, as defined in Code Section 4980A(c), the Participant or
Beneficiary shall be subject to a 15% penalty tax on the excess distributions.
(c) Failure to Receive a Minimum Distribution. For a calendar year in
------- -- ------- - ------- ------------
which a Participant or Beneficiary fails to receive the Minimum Distribution
under Code Section 401(a)(9), the recipient shall be subject to an additional
tax equal to 50% of the difference between the Minimum Distribution and the
amount the recipient actually received.
7.11 Special Rules--Distribution of Employer Stock.
------- ----- ------------ -- -------- -----
Upon distribution of Employer Stock, the following provisions shall apply.
(a) Distributee's Option to Sell Benefit Shares . Upon distribution of
------------- ------ -- ---- ------- -------
Employer Stock to a Participant or Beneficiary (or a donee, trustee, or other
Person, including an estate to whom the Employer Stock passes as a result of a
death), the recipient may elect to sell all or part of the Employer Stock (the
"Benefit Shares").
(i) Option Period: Lapse. The option to sell the Benefit Shares
------ ------ -----
shall begin on the date of distribution and extend for a period of the next 60
days. At the end of the period, the option will temporarily lapse. After the end
of the Plan Year in which the temporary lapse occurs, and after the Employer
Stock is valued as of the last day of that Plan Year, each recipient who has not
exercised the option to sell shall be notified of the new Fair Market Value of
the Benefit Shares. Each recipient will then have period of 60 days from the
date of notification to exercise the option to sell. If the option to sell is
not exercised, it shall lapse at the termination of the new 60-day period and
shall not be renewed.
(ii) Written Notice. Upon a written notice to the Employer of an
------- ------
election to sell, the seller shall sell and the Employer shall purchase in
accordance with the provisions of (c) below.
-36-
<PAGE>
(iii) Limitation. The 60-day option periods shall not run during a
----------
period of time during which the Employer is unable to purchase the Benefit
Shares due to a state or federal law.
(iv) Nonterminable. This option to sell, and the terms of sale as set
-------------
forth in (c) below, shall be nonterminable for the period of the option, and
shall continue in existence under this plan whether or not this plan continues
as an employee stock ownership plan and whether or not this plan is
discontinued.
(v) Assignment. The Employer may assign the obligation to purchase to
----------
the Trustee, with the agreement of the Trustee.
(b) Right of First Refusal.
----- -- ----- --------
(i) Notice of Sale or Transfer. If a Participant or Beneficiary
------ -- ---- -- --------
should at any time intend to sell or exchange or otherwise transfer any Benefit
Shares, and if the Participant obtains a bona fide offer for the purchase or
exchange of the Benefit Shares, or if any of the Benefit Shares should be the
subject of a proposed assignment or transfer by way of gift, bankruptcy,
execution, hypothecation, or seizure and sale by legal process, or upon the
death of the Participant or Beneficiary, the Participant or Beneficiary (or a
creditor causing the proposed transfer) or the personal representative of the
estate of the Participant or Beneficiary shall deliver to the Employer a written
notice stating: (A) the name or names of the proposed transferees; (B) the
certificate number and number of the Benefit Shares proposed to be transferred;
(C) the proposed price (if a sale transaction is contemplated); and (D) all
other terms of the proposed transfer. The Trustee shall have the right and
option for a period of 14 days after receipt of the notice to purchase all of
the Benefit Shares the transfer of which is proposed.
(ii) Failure to Exercise Option. If the Trustee does not exercise the
------- -- -------- ------
option to purchase and if the proposed transfer is made within 20 days after the
termination of the option to the Person or Persons in the manner and upon the
terms and conditions set forth in the written notice, then the Benefit Shares
may be so transferred and shall in the hands of the transferee be free of all
options, obligations, and restrictions provided in this trust.
(iii) Additional Notices of Sale. If the Trustee does not elect to
---------- ------- -- ----
exercise the option and if the proposed transfer is not made within 20 days
after the termination of the option, then the Benefit Shares so proposed to be
transferred may not be transferred without again giving the notice to the
Trustee and the Trustee again shall have the option to purchase the Benefit
Shares.
-37-
<PAGE>
(iv) Assignment. The Trustee may assign the option to purchase to the
----------
Employer, with the consent of the Employer.
(c) Terms of Purchase. If the Trustee or the Employer becomes obligated
----- -- --------
to purchase Benefit Shares pursuant to the provisions of either (a) or (b)
above, the terms of the purchase shall be as follows:
(i) Distributee's Option to Sell. If Benefit Shares are purchased
------------- ------ -- ----
pursuant to the option granted under (a) above, the purchase price shall be the
Fair Market Value of the Benefit Shares, and shall be paid in either a single
lump-sum payment or in not less frequent than annual installments. If a lump-sum
payment is to be made, the payment shall be paid within 30 days after the date
the option is exercised. If installment payments are to be made, each
installment shall be as equal as possible, and the first installment shall be
paid within 30 days after the date that the option is exercised. If installment
payments are to be made, interest at a reasonable rate shall be payable and the
purchaser shall grant the seller a security interest in the Benefit Shares being
purchased or in other adequate security. The installment period may not extend
for more than five years.
(ii) Right of First Refusal. If Benefit Shares are purchased pursuant
----- -- ----- -------
to (b) above, the purchase price shall be the price stated in the written notice
of the proposed transfer, or if greater, the Fair Market Value of the Benefit
Shares. The terms of purchase shall be no less favorable to the Participant or
Beneficiary than the terms of the offer the Participant or Beneficiary has
received. If the proposed transfer by the Participant or Beneficiary is not a
sale transaction, the purchase price shall be the Fair Market Value of the
Benefit Shares, and the terms of purchase shall be governed by the rules of
(a)(i) above.
(iii) Procedure on Closing. At the time provided for the payment or
--------- -- -------
initial installment, the seller of Benefit Shares shall deposit with the
purchaser the certificates for the Benefit Shares, properly endorsed or
accompanied by an appropriate stock power. At that time, the purchaser shall
deposit with the seller any required cash payment and, if applicable, its
executed promissory note representing any balance remaining to be paid. Also at
that time the Benefit Shares shall be subject to a security interest in favor of
the seller, as collateral for the payment of the promissory note, or other
adequate security shall be given to the seller. All or a portion of the unpaid
balance of a purchase price may be prepaid by the purchaser at any time without
penalty.
(iv) Fair Market Value. "Fair Market Value" generally means the value
---- ------ -----
determined as of the most recent Valuation Date, pursuant to Section 5.6(b)(i).
However, in the case of a transaction under this section between this plan and a
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<PAGE>
disqualified person, as that term is defined in Code Section 4975, "Fair Market
Value" means the value as of the date of the transaction.
(d) Securities Law. All plan provisions with respect to transactions
---------- ---
involving Employer Stock, including, but not limited to, its distribution as a
benefit and its repurchase or sale, are subject to and conditioned upon
compliance with applicable provisions of federal and state securities laws or
regulations. Without limiting the preceding sentence, no certificate for shares
of Stock shall be transferred to a Participant or Beneficiary unless the shares,
at the time of any issuance or transfer: (i) are exempt, are the subject matter
of an exempt transaction, or are registered within the meaning of applicable
federal or state securities laws and regulations; and (ii) comply with the rules
of any stock exchange on which the Employer's shares may be listed. Unless an
exemption from registration is available, prior to or as soon as practicable
after the time when shares of Employer Stock would otherwise be deliverable to a
Participant or Beneficiary, the Employer will register the shares or interest,
as required under federal and/or state law. If the shares are delivered to
Participant or Beneficiary pursuant to a registration exemption, the Participant
or Beneficiary shall deliver to the Employer a representation in writing signed
by the Participant or the Participant's representative, or by the Beneficiary,
as the case may be, that the Employer Stock will be held indefinitely unless it
is subsequently registered under state and federal law, or unless an exemption
from the registration is available. A stock certificate issued by the Employer
pursuant to a registration exemption shall bear a legend and statement that the
Employer deems advisable to assure compliance with this plan and with federal
and state laws and regulations that shall be in substantially the form set forth
in (e) below.
(e) Stock Certificate Legend. Benefit share certificates of Employer
----- ----------- ------
Stock distributed to a Participant or Beneficiary shall have the following
legend endorsed on the certificates:
THIS CERTIFICATE, AND DISPOSITION OF IT, IS SUBJECT TO THE TERMS OF
LEXALITE INTERNATIONAL CORPORATION AMENDED AND RESTATED EMPLOYEES STOCK
OWNERSHIP PLAN, INCLUDING A RIGHT OF FIRST REFUSAL TO PURCHASE THE SHARES
REPRESENTED BY THIS CERTIFICATE.
7.12 Distribution of Cash Dividends.
------------ -- ---- ---------
If an Exempt Loan used to purchase Employer Stock is not fully repaid,
cash dividends on Employer Stock purchased with the proceeds of that Exempt Loan
will be used to repay such Exempt Loan. If the Exempt Loan used to purchase the
Employer
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<PAGE>
Stock has been repaid or the cash dividends are not used to repay the Exempt
Loan, the Trustee shall distribute cash dividends paid on the Employer Stock
allocated to a Participant's account directly to the Participant. Cash dividends
paid on Employer Stock which was not purchased with an Exempt Loan may be
distributed directly to the Participant. Cash dividends to be distributed to
Participants shall be so paid not later than 90 days after the end of the Plan
Year during which they were paid to the trust.
7.13 Distributions After December 31, 1992.
------------- ----- -------- -- ----
(a) Election of Direct Rollover. This section applies to distributions
-------- -- ------ --------
made on or after January 1, 1993. Notwithstanding any provision of the plan to
the contrary that would otherwise limit a distributee's election under this
section, a distributee may elect, at the time and in the manner prescribed by
the plan Administrator, to have any portion of an eligible rollover distribution
paid directly to an eligible retirement plan specified by the distributee in a
direct rollover.
(b) Definitions.
------------
(i) Eligible Rollover Distribution. An eligible rollover
-------- -------- ------------
distribution is any distribution of all or any portion of the balance to the
credit of the distributee, except that an eligible rollover distribution does
not include: any distribution that is one of a series of substantially equal
periodic payments (not less frequently than annually) made for the life (or life
expectancy) of the distributee or the joint lives (or joint life expectancies)
of the distributee and the distributee's designated beneficiary, or for a
specified period of ten years or more; any distribution to the extent such
distribution is required under Code Section 401(a)(9); and the portion of any
distribution that is not includable in gross income (determined without regard
to the exclusion for net unrealized appreciation with respect to employer
securities).
(ii) Eligible Retirement Plan. An eligible retirement plan is an
-------- ---------- ----
individual retirement account described in Code Section 408(a), an individual
retirement annuity described in Code Section 408(b), an annuity plan described
in Code Section 403(a), or a qualified trust described in Code Section 401(a),
that accepts the distributee's eligible rollover distribution. However, in the
case of an eligible rollover distribution to the surviving Spouse, an eligible
retirement plan is an individual retirement account or individual retirement
annuity.
(iii) Distributee. A distributee includes an Employee or former
-----------
Employee. In addition, the Employee's or former Employee's surviving Spouse and
the Employee's or former Employee's Spouse or former Spouse who is the alternate
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<PAGE>
payee under a qualified domestic relations order, as defined in Code Section
414(p), are distributees with regard to the interest of the Spouse or former
Spouse.
(iv) Direct Rollover. A direct rollover is a payment by the plan to the
------ --------
eligible retirement plan specified by the distributee.
ARTICLE 8
------- -
Administration of the Plan
-------------- -- --- ----
8.1 Duties, Powers, and Responsibilities of the Employer.
------ ------ --- ---------------- -- --- --------
(a) Required. The Employer shall be responsible for:
--------
(i) Employer Contributions.
-------- -------------
(A) Amount. Determining the amount of Employer Contributions;
------
(B) Payment. Paying, ceasing, or suspending Employer
-------
Contributions (including additional contributions if necessary to correct an
error in allocation, vesting, or distribution of a Participant's interest); and
(C) Compliance. Determining that the amount and time of Employer
----------
Contributions comply with this plan;
(ii) Agent for Service of Process. Serving as the agent for service
----- --- ------- -- -------
of process;
(iii) Trustee. Appointing the Trustee;
-------
(iv) Amendment. Amending this plan and trust;
---------
(v) Plan Termination. Revoking this instrument and terminating this
---- -----------
plan and trust; and
(vi) Mergers; Spin-Offs. Merging this plan with another qualified
------- ---------
retirement plan maintained by the Employer or dividing this plan into multiple
plans.
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<PAGE>
(b) Discretionary. The Employer may exercise the following
-------------
responsibilities:
(i) Investment Manager. Appointing one or more Investment Managers,
---------- -------
who shall have the power to acquire, manage, or dispose of any or all trust
assets subject to:
(A) Functions. The functions of the Investment Manager shall be
---------
limited to those specified services and duties for which the Investment Manager
is engaged, and the Investment Manager shall have no other duties, obligations,
or responsibilities under this plan or trust;
(B) Qualification. "Investment Manager" means a Person that is a
-------------
registered investment adviser under the Investment Advisors Act of 1940, a bank
(as defined in the Investment Advisors Act of 1940), or an insurance company
licensed to manage, acquire, and dispose of assets of qualified retirement plans
under the laws of more than one state; and
(C) Acknowledgment. A prospective Investment Manager must
--------------
acknowledge in writing that it is a fiduciary with respect to this plan and
trust;
(ii) Custodian. Appointing one or more agents to act as custodian of
---------
trust assets transferred to the custodian;
(iii) Alternate Administrator. Designating a Person other than the
--------- -------------
Employer as the Administrator; and
(iv) Payment of Administrative Expenses. Paying administrative
------- -- -------------- --------
expenses incurred in the operation, administration, management, and control of
this plan or the trust. These expenses shall be the obligation of the trust
unless paid by the Employer.
8.2 Employer Action.
-------- ------
An action required to be taken by the Employer shall be taken by its board
of directors or by an officer authorized to act on behalf of the Employer.
8.3 Plan Administrator.
---- -------------
"Administrator" means the Employer or a Person designated by the Employer.
The Administrator is a named fiduciary for operation and management of this plan
and
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<PAGE>
shall have the responsibilities conferred by ERISA upon the "Administrator"
as defined in ERISA Section 3(16).
8.4 Administrative Committee.
-------------- ---------
(a) Appointment. The Employer may, but shall not be required to, appoint
-----------
an administrative committee to perform the duties involved in the daily
operation of this plan.
(b) Agent; Powers and Duties. The administrative committee is an agent of
----- ------ --- ------
the Employer. The administrative committee shall have the powers and duties
delegated to it by the Administrator.
(c) Not Fiduciary. Except to the extent the administrative committee is
--- ---------
expressly delegated a fiduciary responsibility with respect to this plan, the
administrative committee will be responsible to the Employer for its actions and
will not be a named fiduciary for operation and management of this plan.
(d) Membership. The number of members of the administrative committee
----------
shall be determined by the Employer. The Employer shall appoint the members of
the administrative committee and may remove or replace them at any time.
(e) Records. The administrative committee shall keep records of its
-------
proceedings.
(f) Actions. The administrative committee shall act by a majority of its
-------
members then in office. Action may be taken either by a vote at a meeting or in
writing without a meeting. Actions of the administrative committee may be
evidenced by written instrument executed by the chairman or the secretary of the
administrative committee.
(g) Report to Administrator. The administrative committee shall report to
------ -- -------------
the Administrator when requested with respect to the administration, operation,
and management of this plan.
(h) Compensation. Any member of the administrative committee who is an
------------
Employee shall serve without compensation.
(i) Conflict of Interest. Any member of the administrative committee who
-------- -- --------
is a Participant shall not vote or act on a matter that relates solely to that
Participant. If
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<PAGE>
that Participant is the only member of the administrative committee, the
necessary action shall be exercised by the Administrator.
8.5 Duties, Powers, and Responsibilities of the Administrator.
------ ------ --- ---------------- -- --- -------------
Except to the extent properly delegated, the Administrator shall have the
following duties, powers, and responsibilities and shall:
(a) Plan Interpretation. Interpret all provisions of this instrument
---- --------------
(including resolving an inconsistency or ambiguity or correcting an error or an
omission);
(b) Participant Rights. Subject to Section 8.10, determine the rights of
----------- ------
Participants and Beneficiaries under the terms of this plan and communicate that
information to the Trustee;
(c) Limits; Nondiscrimination Tests; Top-Heavy Tests. Be responsible for
------ ----------------- ----- --------- -----
determining (i) that this plan complies with all limitations and
nondiscrimination tests under the Code and Regulations; and (ii) whether or not
this plan is a Top-Heavy Plan for any Plan Year;
(d) Allocations and Vesting. Determine which Participants are entitled to
----------- --- -------
a share of the Employer Contribution and other available amounts for a Plan
Year, the amount of each eligible Participant's Participating Compensation for
the Plan Year, the amount of the Employer Contribution to be allocated to each
eligible Participant, the amount and disposition of an excess Annual Addition,
and a Participant's vested percentage;
(e) Errors in Participants' Accounts. Correct (to the extent possible, by
------ -- ------------ --------
making adjustments to the accounts) an error, including (but not limited to)
errors in allocations of the Employer Contribution or investment experience, or
in determination of vesting or distribution of a Participant's interest;
(f) Claims and Elections. Establish or approve the manner of making an
------ --- ---------
election, designation, application, claim for benefits, and review of claims;
(g) Benefit Payments. Direct the Trustee as to the recipient, time
------- --------
distribution is to be made, and the form of distribution;
(h) QDRO Determination. Establish procedures to determine whether or not
---- -------------
a domestic relations order is a QDRO, to notify the Participant and any
alternate payee of this determination, and to administer distributions pursuant
to a QDRO;
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<PAGE>
(i) Administration Information. Obtain to the extent reasonably possible
-------------- -----------
all information necessary for the proper administration of this plan;
(j) Recordkeeping. Establish procedures for and supervise the
-------------
establishment and maintenance of all records necessary and appropriate for the
proper administration of this plan;
(k) Reporting and Disclosure. Prepare and (i) file annual and periodic
--------- --- ----------
reports required under ERISA and Regulations; and (ii) distribute disclosure
documents including (but not limited to) the summary plan description, a form
permitting the recipient to reject federal income tax withholding from a
distribution, a notice informing the recipient of the requirements and effects
of lump-sum, five or ten year averaging or of a qualifying rollover under the
Code, the summary annual report, Form 5500 series, requested and required
benefit statements, and notices to Employees of applications for determination;
(l) Penalties; Excise Tax. Report and pay any penalty tax or excise taxes
--------- ------ ---
incurred by this plan or the Employer in connection with this plan on the proper
tax form designated by the Internal Revenue Service and within the time limits
specified for the tax form;
(m) Advisers. Employ attorneys, actuaries, accountants, clerical
--------
employees, agents, or other Persons who are necessary for operation,
administration, and management of this plan;
(n) Expenses, Fees, and Charges. Present to the Trustee for payment (if
-------- ---- --- -------
not paid by the Employer) or reimbursement (if advanced by the Employer) all
reasonable and necessary expenses, fees and charges, including fees for
attorneys, actuaries, accountants, clerical employees, agents, or other Persons,
incurred in connection with the administration, management, or operation of this
plan;
(o) Nondiscrimination. Apply all rules, policies, procedures, and other
-----------------
acts without discrimination among Participants;
(p) Bonding. Review compliance with the bonding requirements of ERISA;
-------
and
(q) Other Powers and Duties. Exercise all other powers and duties
----- ------ --- ------
necessary or appropriate under this plan, except those powers and duties
allocated to another named fiduciary.
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<PAGE>
8.6 Delegation of Administrative Duties.
---------- -- -------------- ------
The powers and duties of the Employer and the Administrator set forth in
Sections 8.1 and 8.5 may be delegated to another fiduciary.
(a) In Writing. The written delegation shall specify (i) the date of the
-- -------
action and the effective date of the delegation; (ii) the responsibility
delegated; (iii) the name, office, or other reference of each fiduciary to whom
the responsibility is delegated; and (iv) if a responsibility is delegated to
more than one fiduciary, the allocation of the responsibility among the
fiduciaries.
(b) Acceptance of Responsibility. The delegation shall be communicated to
---------- -- --------------
the fiduciary to whom the responsibility is assigned, and written acceptance of
the responsibility shall be made by the fiduciary. A fiduciary shall retain the
responsibility until the fiduciary resigns or rejects the responsibility in
writing, or the Administrator takes a superseding action.
(c) Conflict. If a fiduciary's powers or actions conflict with those of
--------
the Administrator, the powers of and actions of the Administrator will control.
8.7 Interrelationship of Fiduciaries; Discretionary Authority.
----------------- -- ----------- ------------- ---------
A Person may serve in more than one fiduciary capacity with respect to this
plan and trust.
(a) Performance of Duties. Each fiduciary shall act in accordance with
----------- -- ------
this plan and trust. Each fiduciary shall be responsible for the proper
exercise of its responsibilities.
(b) Reliance on Others. Except as required by ERISA Section 405(b), each
-------- -- ------
fiduciary may rely upon the action of another fiduciary and is not required to
inquire into the propriety of any action.
(c) Discretionary Authority of Fiduciaries. Each fiduciary shall have
------------- --------- -- -----------
full discretionary authority in the exercise of the powers, duties, and
responsibilities allocated or delegated to that fiduciary under this instrument.
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<PAGE>
8.8 Compensation; Indemnification.
------------ ---------------
An Employee fiduciary who is compensated on a full-time basis by the
Employer shall not receive compensation from this plan, except for reimbursement
of expenses, unless permitted under a prohibited transaction exemption issued by
the Department of Labor. The Employer shall indemnify and hold harmless each
member of the Board of Directors, each of its Employees, and each other Person
(except a fiduciary independent of the Employer), to whom responsibilities for
the operation and administration of this plan have been assigned or fiduciary
duties have been delegated from any and all claims, loss, damages, expense, and
liability arising from any action or failure to act. Indemnification shall not
be required if a Person's action or inaction is judicially determined to be due
to gross negligence or willful misconduct of the Person. The Employer may
purchase and maintain liability insurance covering itself, any Related Employer,
and any Person against part or all of any claim, loss, damage, expense, and
liability arising from the performance or failure to perform any power, duty, or
responsibility with respect to this plan and trust.
8.9 Fiduciary Standards.
--------- ---------
Each fiduciary shall act solely in the interest of Participants and
Beneficiaries:
(a) Prudence. With the care, skill, and diligence of a prudent Person;
--------
(b) Exclusive Purpose. For the exclusive purpose of providing benefits
--------- -------
and paying expenses of administration; and
(c) Prohibited Transaction. To avoid engaging in a prohibited transaction
---------- -----------
under the Code or ERISA unless an exemption for the transaction is available or
obtained.
8.10 Claims Procedure.
------ ---------
The Administrator shall determine all issues arising from the
administration of this plan.
(a) Initial Determination. Upon application by a Participant or
------- -------------
Beneficiary, the Administrator shall make an initial determination and
communicate the determination to the Participant or Beneficiary within 90 days
after the application. If the initial determination requires a longer period,
the Administrator shall notify the Participant or Beneficiary that the 90-day
period is extended to 180 days.
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<PAGE>
(b) Method. The decision of the Administrator shall be in writing. The
------
decision shall set forth (i) the decision and the specific reason for the
decision; (ii) specific reference to the plan provisions on which the decision
is based; (iii) a description of additional material, information, or acts that
may change or modify the decision; and (iv) an explanation of the procedure for
further review of the decision.
(c) Further Review. Within 60 days of receipt of the initial written
------- ------
decision, the Participant or Beneficiary filing the original application, or the
applicant's authorized representative, may make a request for redetermination by
the Administrator. The applicant (or the authorized representative) may review
all pertinent documents and submit issues, comments, and arguments.
(d) Redetermination. Within 60 days of receipt of an application for
---------------
redetermination, unless special circumstances require a longer period of time
(but not longer than 120 days after receipt of the application), the
Administrator shall provide the applicant with its final decision, setting forth
specific reasons for the decision with specific reference to plan provisions on
which the decision is based.
8.11 Participant's Responsibilities.
------------- ----------------
All requests for action of any kind by a Participant or Beneficiary under
this plan shall be in writing, executed by the Participant or Beneficiary, and
shall be subject to any other plan rules applicable to any specific type of
request.
8.12 Decisions Concerning Employer Stock.
--------- ---------- -------- -----
The Administrator's decisions with respect to the acquisition, retention,
or disposition of Employer Stock and with respect to voting rights and other
ownership rights in connection with Employer Stock shall be exercised in the
interests of and for the exclusive benefit of Participants and Beneficiaries,
considering not only the investment objectives of the trust, but also
recognizing that the Employer provides employment for Participants and that the
continued economic soundness of the Employer is the ultimate source of funding
and fulfillment of the benefits provided by this plan.
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<PAGE>
ARTICLE 9
------- -
Investment of Funds
---------- -- -----
9.1 Investment Responsibility.
---------- --------------
Except for investment in Employer Stock and to the extent investment
responsibility is expressly granted to an Investment Manager or a Participant,
the Trustee shall have sole and complete authority and responsibility for the
investment, management, and control of trust assets. The Administrator shall
give the Trustee written direction with respect to investment in Employer Stock.
9.2 Authorized Investments.
---------- -----------
To the extent the trust is not invested in Employer Stock under Section
9.4, the trust may be invested and reinvested in common or preferred stocks,
bonds, mortgages, leases, notes, debentures, mutual funds, guaranteed investment
contracts and other contracts and funds of insurance companies, other
securities, and other real or personal property including, without limitation,
the investments described in (a) below.
(a) Specific Investments.
-------- -----------
(i) Interest-Bearing Deposits. The trust may be invested in deposits,
---------------- --------
certificates, or share accounts of a bank, savings and loan association, credit
union, or similar financial institution, including a fiduciary, if the deposits
bear a reasonable rate of interest, whether or not the deposits or certificates
are insured or guaranteed by an agency of the United States Government.
(ii) Pooled Investment Funds. The trust may be invested through
------ ---------- -----
ownership of assets or shares in a common trust fund, pooled investment fund,
mutual fund, or other commingled investment, including any pooled or common fund
maintained by the Trustee or custodian, or affiliate of the Trustee or
custodian, that allows participation by a trust fund established under a
qualified retirement plan. For this purpose, the terms and provisions of the
declaration of trust or other governing documents through which the common trust
fund, pooled investment fund or mutual fund is maintained are incorporated in,
and made applicable to, this plan.
-49-
<PAGE>
(b) Unallocated Funds. An Employer Contribution or other amounts held by
----------- -----
the Trustee pending allocation may be held in cash or invested in interest-
bearing obligations maturing before the date the allocation is required.
(c) Right of Trustee To Hold Cash. The Trustee may hold a reasonable
----- -- ------- -- ---- ----
portion of the trust in cash pending investment or payment of expenses and
distributions.
9.3 Commingled Investment.
---------- ----------
The trust and segregated accounts may be commingled for investment without
distinction between principal and income.
9.4 Investments--Employer Stock.
----------- -------- -----
This plan is designed to operate as an employee stock ownership plan and to
be invested primarily in Employer Stock. The Trustee shall use available cash
and other trust assets in ESOP Accounts to buy Employer Stock from other
stockholders or from the Employer, as directed by the administrative committee.
The Trustee may borrow funds or issue its promissory note or notes to finance
the purchase of Employer Stock.
(a) Acquisition Limit. The Trustee may acquire and hold Employer Stock in
----------- -----
an amount up to 100% of the market value of the ESOP Accounts.
(b) Adequate Consideration. A purchase or sale of Employer Stock by the
-------- -------------
Trustee shall be for not more than, or less than (as applicable), adequate
consideration and in accordance with this plan and with Regulations under ERISA
Section 3(18).
(c) No Commissions. No commissions on the purchase or sale of Employer
-- -----------
Stock from or to a disqualified person, as defined in Code Section 4975 or a
party in interest, as defined in ERISA Section 3(14), may be paid to any Person.
(d) Indebtedness. A Securities Acquisition Loan or other extension of
------------
credit ("Exempt Loan") to the trust shall bear a reasonable rate of interest and
shall be for a term certain. Collateral pledged to a creditor by the trust
shall consist solely of the Employer Stock purchased with the borrowed funds
(although the Employer may guarantee payment of the Exempt Loan and may give
security for such guaranty).
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<PAGE>
(e) Securities Acquisition Loan. "Securities Acquisition Loan" means any
---------- ----------- ----
loan that meets the requirements of Code Section 133.
(f) Unallocated and Pledged Employer Stock. The Employer Stock shall be
----------- --- ------- -------- -----
maintained in a suspense account, if not pledged as collateral, and shall be
released from the suspense account or, if pledged as collateral, shall be
released from encumbrance as provided in (i) below.
(g) No Recourse. Under the terms of an Exempt Loan, the creditor shall be
-- --------
given no recourse against the trust, except with respect to the collateral
pledged.
(h) Repayment of Loan. An Exempt Loan shall be repaid solely from
--------- -- ----
Employer Contributions (other than contributions in the form of Employer Stock)
and forfeitures, proceeds from the sale of unallocated shares of Employer Stock
purchased with the Exempt Loan, and from trust earnings on such contributions or
on the Employer Stock purchased with such Exempt Loan, and the Employer
Contributions shall be sufficient to enable the trust to pay each and every
installment of principal and interest when due, even if no tax benefit results
from the contributions.
(i) Release of Pledged Employer Stock. An Exempt Loan must provide that
------- -- ------- -------- -----
upon payment of a portion of the balance due, the creditor shall release a Pro
Rata Portion of the pledged collateral or, if not pledged as collateral, a Pro
Rata Portion of the Employer Stock shall be released from the suspense account,
as the Exempt Loan is paid. Employer Stock purchased with each Exempt Loan
shall be released separately.
(i) Pro Rata Portion. "Pro Rata Portion" means the number of pledged
--- ---- -------
securities or number of shares in the suspense account held immediately before
release for the current Plan Year multiplied by a fraction. The numerator of
the fraction is the amount of principal and interest paid during the Plan Year
and the denominator is the sum of the numerator and the remaining principal and
interest to be paid under the obligation in all future years. The number of
future years shall be determined without taking into account possible extensions
or renewals of the obligation. If the interest rate under the obligation is
variable, the interest to be paid in future years shall be computed by using the
interest rate applicable as of the end of the current Plan Year. If the
collateral or suspense account includes more than one class of Employer Stock,
the number of shares of each class to be released for a Plan Year must be
determined by applying the same fraction to each class.
(ii) Alternative Determination of Pro Rata Portion. At the direction of
----------- ------------- -- --- ---- -------
the Administrator, Pro Rata Portion of securities may be determined with
reference
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<PAGE>
solely to principal payments, but only if (A) the obligation provides for annual
payments of principal and interest at a cumulative rate that is not less rapid
at any time than level annual payments of the amounts for 10 years, and (B) the
interest included in any payment is disregarded only to the extent that it would
be determined to be interest under standard loan amortization tables. This
alternate determination shall not be applicable from the time that, by reason of
a renewal, extension, or refinancing, the sum of the expired duration of the
obligation, plus any renewal period, extension period, or the duration of a new
obligation used to refinance the existing obligation, exceeds 10 years.
(iii) Special Release Rule. Notwithstanding (i) and (ii) above, to the
------- ------- ----
extent provided in Section 5.2(a)(ii)(C), at the direction of the Employer, the
Trustee shall release additional shares of Employer Stock for purposes of
allocation to Participant accounts.
(j) Pending Investment. Pending investment in Employer Stock, funds may
------- ----------
be invested and reinvested pursuant to Section 9.2.
9.5 Purchase From Stockholder.
-------- ---- -----------
As directed by the Administrator, the Trustee shall enter into a buy-sell
agreement or agreements under the terms of which the Trustee agrees to purchase
the Employer Stock of a stockholder who is a party to the agreement. A buy-sell
agreement shall provide that the price to be paid by the Trustee for the
Employer Stock shall not exceed the fair market value of the Employer Stock.
The Trustee may not enter into a buy-sell agreement to become effective upon the
death of the stockholder, or at some other future indefinite time.
9.6 Stock Dividends, Stock Splits, Etc.
----- --------- ----- ------ ---
Employer Stock received by the Trustee as a stock dividend or stock split
or as the result of a reorganization or other recapitalization of the Employer
shall be allocated under Section 5.4. If any rights, warrants, or options are
issued on Employer Stock held in the trust, the Trustee may exercise them for
the acquisition of additional shares of Employer Stock to the extent cash is
then available. Employer Stock acquired in this manner shall be treated as
Employer Stock bought by the Trustee for the net price paid. If any rights
warrants, or options on Employer Stock that are not exercised shall be sold by
the Trustee, the proceeds shall be treated as a current cash dividend received
on Employer Stock.
-52-
<PAGE>
9.7 Voting of Employer Stock.
------ -- -------- -----
(a) Generally. Subject to the exceptions set forth in (b) and (c) below,
---------
all shares of Employer Stock held by the Trustee shall be voted by the Trustee,
as the Administrator shall direct in writing from time to time. The Trustee
shall give its proxy to the Administrator, or its nominee, at the direction of
the Administrator.
(b) Exceptions. If (i) the trust receives a loan or other extension of
----------
credit for purposes of purchasing Employer Stock or (ii) the trust acquires
Employer Stock and after the acquisition more than 10% of the total assets of
the plan are invested in Employer Stock, each Participant shall be entitled to
direct the Trustee as to the manner in which all Employer Stock allocated to the
Participant's account shall be voted with respect to any corporate matter which
involves the voting of shares for the approval or disapproval of a merger or
consolidation, recapitalization, reclassification, liquidation, dissolution,
sale of substantially all assets of the Employer, or a similar transaction as
may be prescribed by Regulations.
(c) Section 133 Interest Exclusion. Notwithstanding (a) and (b) above, if
------- --- -------- ---------
it is intended that a Securities Acquisition Loan used to acquire stock after
July 9, 1989, qualifies for the exclusion of interest from the lender's gross
income in accordance with Code Section 133, then each Participant shall be
entitled to direct the Trustee as to the manner in which all Employer Stock
acquired with or transferred to this plan in connection with the Securities
Acquisition Loan, and allocated to the Participant's account, shall be voted
with respect to any matter.
(d) Fractional Shares. If fractional shares have been added to the
---------- ------
Employer Stock Accounts, the Trustee shall total the fractional votes of all
Participants who have directed the vote in the same manner, and shall cast the
largest number of whole votes possible from the total of the fractions. A
remaining fraction shall be disregarded.
(e) Unallocated Shares. Unallocated shares of Employer Stock shall be
----------- ------
voted by the Trustee, as directed by the Administrator.
(f) Failure to Exercise Voting Rights. The Trustee may not exercise
------- -- -------- ------ ------
voting rights a Participant was given pursuant to the preceding provision, even
if the Participant failed to exercise the voting rights.
(g) Dissenter's Rights. A Participant or Beneficiary shall not possess
----------- ------
rights to dissent from certain corporate action which otherwise may be provided
by state law.
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<PAGE>
9.8 Diversification of Investments.
--------------- -- -----------
Upon the request of a Participant who has attained at least age 55 and has
at least ten years of participation in this plan, the Administrator may direct
the Trustee to liquidate up to 25% of the number of shares of Available Employer
Stock allocated to the Participant. The proceeds shall be distributed to the
Participant in accordance with the provisions of Article 7.
(a) Available Employer Stock. "Available Employer Stock" means Employer
--------- -------- -----
Stock acquired by or contributed to this plan and held in the Participant's ESOP
Account. Employer Stock acquired by or contributed to this plan will not be
Available Employer Stock if the Fair Market Value of the Employer Stock
allocated to the eligible Participant's ESOP Account as of the Valuation Date
immediately preceding the first day the Participant is eligible to make an
election under this section is $500 or less.
(b) Timing of Direction. The direction to liquidate and distribute
------ -- ---------
Available Employer Stock under this provision may be given during the first 90
days after the last day of each Plan Year in the Qualified Election Period.
During the first 90 days after the last day of the last (sixth) Plan Year in the
Qualified Election Period, the Participant may request the liquidation and
distribution of up to 50% of the number of shares of Available Employer Stock
allocated to the Participant.
(c) Determination of Number of Shares To Be Liquidated and Distributed.
------------- -- ------ -- ------ -- -- ---------- --- -----------
The total amount liquidated and distributed at any time shall not exceed 25% (or
50%) of the number of shares of Available Employer Stock held allocated to the
Participant, including shares of Available Employer Stock previously liquidated
and distributed. Any fractional number of shares to be liquidated and
distributed shall be rounded up to the next highest whole number of shares.
(d) Qualified Election Period. "Qualified Election Period" means the six-
--------- -------- ------
year period beginning on the first day of the first Plan Year in which the
Participant attains at least age 55 and has at least ten years of participation.
(e) Value of Shares to Be Liquidated and Distributed. A direction to
----- -- ------ -- -- ---------- --- -----------
liquidate Available Employer Stock and distribute the proceeds in accordance
with this provision shall apply to the Available Employer Stock held in the
Participant's ESOP Account as of the last day of the Plan Year immediately
preceding the date of liquidation. Dividends paid on Available Employer Stock
before the date of distribution of the proceeds from the liquidation of
Available Employer Stock shall be distributed under Article 7. No interest or
earnings shall be credited to the Available Employer Stock liquidated for the
period beginning on the last day of the Plan Year immediately preceding the date
of liquidation and the date of liquidation.
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<PAGE>
ARTICLE 10
------- --
Administration of the Trust
-------------- -- --- -----
10.1 Duties and Powers of the Trustee.
------ --- ------ -- --- -------
(a) Duties of the Trustee. The Trustee shall be a named fiduciary having
------ -- --- -------
the following duties:
(i) Control, Manage, and Invest Assets. To control, manage, and
------- ------ --- ------ ------
invest trust assets;
(ii) Administrator's Instructions. To carry out the instructions of
--------------- ------------
the Administrator; and
(iii) Records; Reports. To maintain records and to prepare and file
------- --------
reports required by law or Regulations, other than those for which the
Administrator is responsible under the terms of this plan.
(b) Powers of the Trustee. The Trustee shall have the following powers:
------ -- --- -------
(i) Control Property. To hold, manage, improve, repair, and control
------- --------
all property, real or personal, forming part of the trust;
(ii) Asset Investment. To invest trust assets subject to the
----- ----------
limitations in this plan;
(iii) Disposition of Asset. To sell, convey, transfer, exchange,
----------- -- -----
partition, lease for any term (even extending beyond the duration of the trust),
or otherwise dispose of a trust asset from time to time, in the manner, for the
consideration, and upon the terms and conditions that the Trustee, in its
discretion, determines;
(iv) Agents, Advisers, and Counsel. To employ and to compensate from
------ -------- --- -------
the trust agents, advisers, and legal counsel reasonably necessary in managing
the trust and advising the Trustee as to its powers, duties, and liabilities;
(v) Claims. To prosecute, defend, settle, arbitrate, compromise, or
------
abandon all claims and demands in favor of or against the trust, with or without
the assistance of legal counsel;
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<PAGE>
(vi) Vote Securities. To vote a corporation's stock or other securities,
---- ----------
either in person or by proxy, for any purpose;
(vii) Exercise Trust Rights. To exercise, refrain from the exercise of,
-------- ----- ------
or convey a conversion privilege or subscription right applicable to a trust
asset;
(viii) Collection. To demand, collect, and receive the principal,
----------
dividends, interest, income, and all other moneys or other property due upon
trust assets;
(ix) Change of Structure. To consent to, oppose, or take another action
------ -- ---------
in consolidation, merger, liquidation, readjustment of the financial structure,
or sale of assets of a corporation or other organization, the securities of
which may constitute a portion of the trust;
(x) Issue, Hold, or Register Securities. To cause securities or other
----- ---- -- -------- ----------
property forming part of the trust to be issued, held, or registered in the
individual name of the Trustee, in the name of its nominee or in such form that
title will pass by delivery, provided that the records of the Trustee shall
indicate the ownership of the property or security;
(xi) Borrowing. To borrow money for the benefit of the trust without
---------
binding itself individually, and to secure the loan by pledge, mortgage, or
creation of another security interest in the property;
(xii) Distributions. To make distributions from the trust as directed by
-------------
the Administrator;
(xiii) Expenses. Unless paid by the Employer, to pay from the trust all
--------
reasonable fees, taxes, commissions, charges, premiums and other expenses,
including expenses described in Section 8.5(n) and reasonable fees of the
Trustee and any other custodian or Investment Manager, incurred in connection
with the administration of this plan or trust;
(xiv) Insure Assets. To insure trust assets through a policy or contract
------ ------
of insurance;
(xv) Incorporate. To incorporate (or participate in an incorporation)
-----------
under the laws of any state for the purpose of acquiring and holding title to
any property that is part of the trust;
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<PAGE>
(xvi) Depository. To keep on deposit with a custodian in the United
----------
States any part of the trust; and
(xvii) Other Acts. To perform all other acts the Trustee deems necessary,
----- ----
suitable, or desirable for the control and management of the trust and discharge
of its duties.
(c) Limitation on Duties and Powers of the Trustee. Unless properly
---------- -- ------ --- ------ -- --- -------
delegated and assumed by agreement of the Trustee, the Trustee shall not be
required to exercise a duty or power of the Employer, Administrator, or any
other fiduciary under this instrument.
If an Investment Manager is appointed to manage and invest some or all
of the trust assets, the Investment Manager shall have, and the Trustee shall
not have, the specified duties and powers with respect to investment of trust
assets subject to the Investment Manager's control. The Trustee shall have no
obligation or power to exercise discretionary authority or control with respect
to investment of the assets subject to management by the Investment Manager or
to render advice regarding the investment of such assets, unless required by
ERISA Section 405. The Trustee shall not be liable for the investment
performance of the assets subject to management by the Investment Manager. The
powers and duties of the Trustee with respect to such assets shall be limited to
the following:
(i) Custody and Protection. To act as custodian of the trust assets
------- --- ----------
not transferred to the custody of the Investment Manager or another custodian,
and to protect the assets in its custody from loss by theft, fire, or other
cause;
(ii) Acquisitions. To acquire additional assets for the trust in
------------
accordance with the direction of the Investment Manager;
(iii) Dispositions. To sell or otherwise dispose of trust assets in
------------
accordance with the direction of the Investment Manager;
(iv) Accountings. To account for and render accountings with respect
-----------
to the trust (except for assets held by another custodian);
(v) Authorized Actions. To take authorized actions for and on behalf
---------- -------
of the trust in accordance with the direction of the Investment Manager; and
(vi) Ministerial and Custodial Tasks. To perform other ministerial and
----------- --- --------- -----
custodial tasks in accordance with the direction of the Investment Manager.
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<PAGE>
If trust assets are transferred to another custodian, that custodian shall
have, and the Trustee shall not have, the foregoing duties and powers with
respect to those assets.
10.2 Accounting.
----------
The Trustee shall maintain accurate and detailed records of all
investments, receipts, disbursements, and other transactions for the trust. The
records shall be available for inspection at all reasonable times by Persons
designated by the Administrator.
(a) Report. As soon as administratively feasible after each Valuation
-------
Date and each other date agreed to by the Administrator and the Trustee, the
Trustee shall prepare and furnish to the Administrator a statement of account
containing the information required by ERISA Section 103(b)(3).
(b) Judicial Settlement. A dispute concerning the Trustee's records or
-------- ----------
statement of account may be settled by a suit for an accounting brought by a
Person having an interest in the trust.
The accounting and reporting responsibilities shall not apply with respect
to assets held by another custodian except to the extent assumed by the Trustee
at the direction of the Administrator.
10.3 Appointment, Resignation, and Removal of Trustee.
----------- ----------- --- ------- -- -------
The Trustee shall be at least one individual or eligible corporation with
trust powers appointed in writing by the Administrator and authorized to act as
Trustee by ERISA and the Code.
(a) Resignation. The Trustee may resign with at least 60 days' written
-----------
notice to the Administrator, effective as of the date specified in the notice.
(b) Removal. The Administrator may remove the Trustee with at least 60
-------
days' written notice to the Trustee, effective as of the date specified in the
notice.
(c) Successor Trustee. At least 10 days before the effective date of the
-------- --------
resignation or removal, the Administrator shall appoint a successor Trustee by
written instrument delivered to the Trustee with the acceptance of the successor
Trustee endorsed on the instrument.
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<PAGE>
(d) Effective Date of Resignation or Removal. The resignation or removal
--------- ---- -- ----------- -- -------
of the Trustee shall not be effective before the appointment is made and
accepted by the successor Trustee. The parties, by agreement, may waive the
time requirements.
(e) Procedure Upon Transfer. Upon the resignation or removal of the
--------- ---- --------
Trustee, the Trustee shall pay from the trust all accrued fees and expenses of
the trust, including its own fees, and, as of the effective date of its
resignation or removal, shall deliver a statement of account to the
Administrator and the successor Trustee.
(f) Earlier Transfer. In order to facilitate the prompt transfer of
------- --------
fiduciary responsibility and trust assets to the successor Trustee, the
Administrator and the Trustee may agree upon a procedure by which the Trustee
shall deliver all trust assets (less a reasonable reserve for fees and expenses)
to the successor Trustee as soon as administratively feasible after receipt of
notice of appointment of the successor Trustee and acceptance of trust by the
successor Trustee. The Administrator and the Trustee may agree to the transfer
of trust assets to the successor Trustee pending preparation and approval of the
final trust accountings.
(g) Final Transfer. As soon as administratively feasible, the Trustee
----- --------
shall deliver the remaining trust assets to the successor Trustee, together with
records maintained by the Trustee.
(h) In Kind Transfer. The Trustee shall consult with the Administrator
-- ---- --------
concerning the liquidation of trust assets to be transferred for the purpose of
determining the feasibility of the transfer of certain trust assets in kind
before implementing the liquidation.
(i) Limitation on Liability of Successor. The successor Trustee shall not
---------- -- --------- -- ---------
be liable for the acts or omissions of any prior Trustee.
10.4 Trustee Action.
------- ------
Actions of a corporate Trustee shall be either by a resolution of its board
of directors or by a written instrument executed by one of its authorized
officers. Actions taken by any other Trustee shall be by written instrument
executed by the Trustee.
10.5 Exculpation of Nonfiduciary.
----------- -- ------------
A transfer agent, brokerage, clearing house, insurance company, or any
other Person that is not a fiduciary with respect to this plan and who has paid
money or
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<PAGE>
delivered property to the Trustee shall not be responsible for its
application or for determining the propriety of the actions of the Trustee
concerning the money or other property.
ARTICLE 11
------- --
Amendment, Mergers, Successor Employer
--------- ------- --------- --------
11.1 Amendment.
---------
The Employer may amend this plan and trust. An amendment may be
retroactive or prospective, in the sole discretion of the Employer, except where
prohibited by ERISA or the Code. An amendment may be made without the consent
of any other Person, except that an amendment shall not:
(a) Exclude Participant. Exclude an Employee who previously became a
------- -----------
Participant;
(b) Reduce Participant's Account. Decrease the amount credited to a
------ ------------- -------
Participant's account;
(c) Reduce Vested Percentage. Reduce a Participant's vested percentage,
----- ------ -----------
as of the later of the date of adoption of the amendment or the effective date
of the amendment;
(d) Vesting Schedule. Modify the vesting schedule with respect to a
------- --------
Participant unless the Administrator notifies each Participant who has at least
three Years of Vesting Service in writing that the Participant may elect (during
the period beginning not later than the date the amendment is adopted and ending
not earlier than 60 days after the later of the date (i) the amendment is
adopted, (ii) the amendment is effective, or (iii) the Participant receives the
written notice of the election) to have the Participant's vested percentage
determined under the vesting schedule in effect prior to the amendment;
(e) Elimination of Protected Benefits. Eliminate any early retirement
----------- -- --------- --------
benefits and retirement-type subsidy under Code Section 411(d)(6)(B)(i) or any
optional forms of distribution with respect to benefits attributable to service
earned before the amendment except as may be permitted under Code Sections
401(a)(4) and 411; and
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<PAGE>
(f) Alter Trustee's Duties. Alter the duties, responsibilities, or
----- --------- ------
liabilities of the Trustee without the consent of the Trustee.
11.2 Merger of Plans.
------ -- -----
This plan may be merged or consolidated, or its assets and liabilities may
be transferred, in whole or in part, to another qualified retirement plan if:
(a) Preservation of Account Balance. Each Participant's account balance
------------ -- ------- -------
would be equal to or greater than the account balance the Participant would have
been entitled to receive if this plan had terminated immediately before the
merger, consolidation, or transfer.
(b) Authorization. The Employer and any new or successor employer
-------------
authorize the merger, consolidation, or transfer.
11.3 Successor Employer.
--------- --------
If an Employer is dissolved, merged, consolidated, restructured, or
reorganized, or if the assets of the Employer are transferred, this plan and
trust may be continued by the successor, and in that event, the successor will
be substituted for the Employer.
ARTICLE 12
------- --
Termination
-----------
12.1 Right to Terminate or Discontinue Contributions.
----- -- --------- -- ----------- -------------
The Employer reserves the right to revoke this instrument and terminate
this plan and trust, or to cease or suspend further contributions.
12.2 Automatic Termination.
--------- -----------
This plan shall automatically terminate, or partially terminate when
applicable, and contributions to the trust shall cease upon the Employer's legal
dissolution, or upon its adjudication as bankrupt or insolvent, or upon a
general assignment by the
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<PAGE>
Employer for the benefit of creditors, or upon the appointment of a receiver for
its assets, or when required by ERISA or the Code.
12.3 Discontinuance of Contributions.
-------------- -- -------------
If the Employer determines that it is no longer possible or desirable to
make Employer Contributions to the trust, it may, without terminating this plan,
take appropriate action to permanently discontinue further Employer
Contributions. Upon discontinuance of Employer Contributions, the accounts of
all affected Participants shall be nonforfeitable. This plan and trust will
remain in force, and the Administrator and the Trustee will continue to
administer this plan and trust under its provisions except for Employer
Contributions.
12.4 Effect of Termination or Partial Termination.
------ -- ----------- -- ------- -----------
(a) Nonforfeitability. Upon termination or partial termination of this
-----------------
plan, accounts of affected Participants shall be nonforfeitable.
(b) Distribution. The Administrator shall direct the Trustee to make
------------
distributions to affected Participants under Article 7.
12.5 No Reversion of Assets.
-- --------- -- ------
The Employer shall not receive an amount from the trust upon termination,
partial termination, or discontinuance of contributions.
ARTICLE 13
------- --
General Provisions
------- ----------
13.1 Spendthrift Provision.
----------- ---------
An interest in the trust shall not be subject to assignment, conveyance,
transfer, anticipation, pledge, alienation, sale, encumbrance, or charge,
whether voluntary or involuntary, by a Participant or Beneficiary except under a
QDRO or as permitted in subsection (a).
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<PAGE>
(a) Not Security. An interest shall not provide collateral or security
--- --------
for a debt of a Participant or Beneficiary or be subject to garnishment,
execution, assignment, levy, or to another form of judicial or administrative
process or to the claim of a creditor of a Participant or Beneficiary, through
legal process or otherwise, except under a voluntary revocable assignment
permitted by Regulation 1.401(a)-13.
(b) Attempts Void. An attempt to anticipate, alienate, sell, transfer,
-------- ----
assign, pledge, encumber, charge, or otherwise dispose of benefits payable,
before actual receipt of the benefits, or a right to receive benefits, shall be
void. The trust shall not be liable for, or subject to, the debts, contracts,
liabilities, engagements, or torts of a Person entitled to benefits. The
benefits and trust assets under this plan shall not be considered an asset of a
Participant or Beneficiary in the event of insolvency or bankruptcy.
13.2 Effect Upon Employment Relationship.
------ ---- ---------- ------------
The adoption of this plan shall not create a contract of employment
between the Employer and an Employee, confer upon an Employee a legal right to
continuation of employment, limit or qualify the right of the Employer to
discharge or retire an Employee at will, or affect the right of the Employee to
remain in service after the Normal Retirement Date.
13.3 No Interest in Employer Assets.
-- -------- -- -------- ------
Nothing in this plan and trust shall be construed to give an Employee,
Participant, or Beneficiary an interest in the assets or the business affairs of
the Employer, or the right to examine the books and records of the Employer. A
Participant's rights are solely those granted by this instrument.
13.4 Construction.
------------
The singular includes the plural, and the plural includes the singular,
unless the context clearly indicates the contrary. Capitalized terms have the
meaning specified in this plan. If a term is not defined, the term shall have
the general, accepted meaning of the term.
Any period of time described in this plan shall consist of consecutive
days, months, or years, as appropriate.
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<PAGE>
13.5 Severability.
------------
If any provision of this plan is invalid, unenforceable, or disqualified
under the Code, ERISA, or Regulations, for any period of time, the affected
provisions shall be ineffective but the remaining provisions shall be
unaffected.
13.6 Governing Law.
--------- ---
This plan and trust shall be interpreted, administered, and managed in
compliance with the Code, ERISA, and Regulations. To the extent not preempted
by federal law, this plan and trust shall be interpreted, administered, and
managed in compliance with the laws of the State of Michigan.
13.7 Nondiversion.
------------
The trust is established and shall be administered for the exclusive
benefit of Participants and their beneficiaries.
ARTICLE 14
------- --
Top-Heavy Plan Provisions
--------- ---- ----------
14.1 Top-Heavy Determination.
--------- -------------
If this plan is or becomes a Top-Heavy Plan in a Plan Year, the provisions
of this article shall supersede all conflicting plan provisions.
(a) Top-Heavy Plan. "Top-Heavy Plan" means this plan for a Plan Year if:
-------- -----
(i) Not Required or Permissive Aggregation Group. This plan is not
--- -------- -- ---------- ----------- -----
part of a Required Aggregation Group or a Permissive Aggregation Group, and the
Top-Heavy Ratio exceeds 60%;
(ii) Required Aggregation Group. This plan is part of a Required
-------- ----------- -----
Aggregation Group (but not part of a Permissive Aggregation Group), and the Top-
Heavy Ratio for the Required Aggregation Group exceeds 60%; or
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<PAGE>
(iii) Permissive Aggregation Group. This plan is part of a Permissive
---------- ----------- -----
Aggregation Group, and the Top-Heavy Ratio for the Permissive Aggregation Group
exceeds 60%.
(b) Calculation. The calculation of the Top-Heavy Ratio and the extent to
-----------
which distributions, rollovers, and transfers are taken into account will be
made in accordance with Code Section 416 and Regulations.
(i) Disregard Certain Employees. In calculating the Top-Heavy Ratio,
--------- ------- ---------
the account balance or accrued benefit of a Participant who was a Key Employee
in a prior year but is no longer a Key Employee or has not performed services
for an Employer maintaining this plan at any time during the five-year period
ending on the Determination Date(s) will be disregarded.
(ii) Ownership. Ownership shall be determined under Code Section 318
---------
as modified by Code Section 416(i)(1)(B)(iii) without regard to the aggregation
rules under Code Section 414.
(iii) Rollovers and Transfers. A distribution rolled over or an
--------- --- ---------
amount transferred from this plan to another qualified retirement plan of the
Employer or a Related Employer shall not be included in the Present Value of
Accrued Benefits under this plan. A distribution rolled over or an amount
transferred from another qualified retirement plan of the Employer or a Related
Employer to this plan shall be included in the Present Value of Accrued Benefits
under this plan. If a rollover or transfer to a qualified retirement plan of an
unrelated employer was initiated by the former Participant, it shall be deemed a
distribution from this plan. If a rollover or transfer from a qualified
retirement plan of an unrelated employer to this plan for a Participant was
initiated by the Participant, it shall not be included in the Present Value of
Accrued Benefits under this plan unless the rollover or transfer to this plan
was accepted on or before December 31, 1983.
14.2 Top-Heavy Definitions.
--------- -----------
For purposes of this article, the following terms have the stated meanings:
(a) Top-Heavy Ratio. "Top-Heavy Ratio" means the ratio, as of this plan's
--------- -----
Determination Date, calculated by dividing the aggregate Present Value of
Accrued Benefits of all Key Employees of each plan in the Required Aggregation
Group (and each other plan in the Permissive Aggregation Group, if necessary or
desirable) by the aggregate Present Value of Accrued Benefits of all
Participants under all plans in the Required (or Permissive) Aggregation Group.
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<PAGE>
(b) Present Value of Accrued Benefits.
------- ----- -- ------- --------
(i) This Plan. "Present Value of Accrued Benefits" under this plan
---- ----
means the account balances of all Participants and Beneficiaries determined as
of the Determination Date, including forfeitures reallocated as of such
Determination Date. The Present Value of Accrued Benefits includes the amount of
a distribution made from this plan during the Plan Year that includes the
Determination Date and any of the four preceding Plan Years.
(ii) Other Plans. The Present Value of Accrued Benefits shall be
----- -----
determined with respect to, and pursuant to the provisions of, all qualified
retirement plans (including a simplified employee pension plan) in the
aggregation group.
(iii) Unpaid Contribution. A contribution not paid as of a
------ ------------
Determination Date for any plan in the aggregation group shall be included in
the determination of the Present Value of Accrued Benefits as required in Code
Section 416 and Regulations.
(c) Required Aggregation Group. "Required Aggregation Group" means all
-------- ----------- -----
qualified retirement plans, including terminated plans, of the Employer and each
Related Employer in which at least one Key Employee participates, or
participated at any time during the five-year period ending on the Determination
Date, plus all other qualified retirement plans of the Employer and each Related
Employer, that enable one or more of the plans covering at least one Key
Employee to meet the requirements of Code Sections 401(a)(4) or 410.
(d) Permissive Aggregation Group. "Permissive Aggregation Group" means
---------- ----------- -----
all qualified retirement plans, including terminated plans, if any, of the
Employer and each Related Employer that are part of a Required Aggregation Group
that includes this plan, plus any other qualified retirement plan (designated by
the Employer) of the Employer and each Related Employer that is not part of the
Required Aggregation Group but that, when considered part of the Permissive
Aggregation Group, does not prevent the group from meeting the requirements of
Code Sections 401(a)(4) and 410.
(e) Determination Date. "Determination Date" means the last day of the
------------- ----
preceding Plan Year.
(i) Present Value of Accrued Benefits. The Present Value of Accrued
------- ----- -- ------- --------
Benefits are determined as of the most recent Top-Heavy Valuation Date within
the 12-month period ending on the Determination Date.
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<PAGE>
(ii) Multiple Plans. When aggregating plans, the Present Value of
-------- -----
Accrued Benefits will be calculated with reference to the Determination Dates
that fall within the same calendar year.
(f) Key Employee. "Key Employee" means an Employee or former Employee
--- --------
(including any deceased Employee or the Beneficiary of any deceased Employee)
who, under Code Section 416(i), is or was, during the current Plan Year or any
of the four Plan Years immediately preceding the current Plan Year, one of the
following:
(i) Officer. An officer (determined under Section 2.4) of an
-------
Employer Related Employer if the officer's HCE Compensation exceeds 50% of the
defined benefit dollar limit under Code Section 415(b)(1)(a) (as adjusted under
Code Section 415(d)) for the Plan Year;
(ii) Top 10 Owners. One of the 10 Employees owning the largest
--- -- ------
interests, exceeding 1/2%, in an Employer or Related Employer if the Employee's
HCE Compensation exceeds $30,000 (or the Defined Contribution Dollar Limit, if
greater);
(iii) 5% Owner. A 5% Owner; or
-- -----
(iv) 1% Owner; $150,000 Compensation. A 1% owner, determined under the
-- ----- -------- ------------
definition of 5% Owner but replacing "5%" with "1%," whose HCE Compensation
exceeds $150,000.
Ownership under (ii) above, as well as under (iii) and (iv) pursuant to
the definition of 5% Owner, shall be determined separately for each Employer and
Related Employer. Compensation for (i), (ii), and (iv) above for a Plan Year
includes HCE Compensation from the Employer and all Related Employers.
(g) Top-Heavy Valuation Date. "Top-Heavy Valuation Date" means, for a
--------- --------- ----
defined contribution plan (including a simplified employee pension plan), the
date for revaluation of the assets to market value coinciding with, or occurring
most recently within the 12-month period ending on, the Determination Date. For
a defined benefit plan, the term means the most recent date used for computing
the plan costs for minimum funding purposes (whether or not an actuarial
valuation is performed during that Plan Year) occurring within the 12-month
period ending on the Determination Date.
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<PAGE>
14.3 Minimum Allocation.
------- ----------
For each Plan Year in which this plan is or becomes a Top-Heavy Plan, the
Employer Contributions and forfeitures allocated to the account of each
Participant who is not a Key Employee and who is employed on the last day of the
Plan Year shall be not less than the lesser of 3% of the Participant's HCE
Compensation, or the largest percentage of HCE Compensation allocated to any Key
Employee from all Employer Contributions. A Participant who is not a Key
Employee and whose employment terminates during the Plan Year on or after the
Participant's Normal Retirement Date or due to death or Total Disability shall
be eligible for this minimum allocation. If necessary, the Employer shall make
an additional contribution to provide this minimum allocation.
14.4 Vesting Schedule.
------- --------
The vesting schedule for each Participant who has an Hour of Service
during a Plan Year in which this plan is or becomes a Top-Heavy Plan shall be
replaced with the following schedule:
<TABLE>
<CAPTION>
Years of Vesting Service Vested Percentage
----- -- ------- ------- ------ ----------
<S> <C>
Less than 3 years -0-
3 years or more 100%
</TABLE>
(a) Cessation. If this plan ceases to be a Top-Heavy Plan, vested
---------
percentages shall continue to be determined under this schedule.
(b) Vesting Schedule Change . Any change in the vesting schedule due to
------- -------- -------
this plan becoming, or ceasing to be, a Top-Heavy Plan shall be treated as an
amendment to this plan, and all rules applying to the amendment of a vesting
schedule shall apply.
The Employer has executed this instrument this 8th day of August, 1994.
--- ------
LEXALITE INTERNATIONAL CORPORATION
By /s/ THOMAS M. PHILLIPS
--------------------------------
Its President
-------------------------------
Employer
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-68-
<PAGE>
NBD Bank, N.A. (the "Trustee") accepts the duties, powers and
responsibilities of the Trustee as described in Articles 9 and 10 of the
LexaLite International Corporation Amended and Restated Employees Stock
Ownership Plan.
Dated: Sept. 6, 1994. NBD BANK, N.A.
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By /s/ MARGARET G. NELSON
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Its Assistant Vice President
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Trustee
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-69-
<PAGE>
SCHEDULE A
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(a) Original Plan. LexaLite Industries, Inc. originally adopted the
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LexaLite Industries, Inc. Employee Stock Ownership Plan on December 29, 1976,
effective January 1, 1976.
(i) 1977-1 Amendment. The plan was amended to incorporate changes
------ ---------
required by the Internal Revenue Service on November 12, 1977, effective January
1, 1976.
(ii) 1979-1 Amendment. Due to a change in the name of the Employer,
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the plan was amended on June 13, 1979, effective January 1, 1979. The name of
the plan was changed to the LexaLite International Corporation Employee Stock
Ownership Plan.
(b) First Amendment and Restatement. The original plan was amended and
----- --------- --- -----------
restated to comply with the Tax Equity and Fiscal Responsibility Act of 1982,
the Deficit Reduction Act of 1984, and the Retirement Equity Act of 1984 on
September 13, 1985, effective July 1, 1984. The name of the plan was changed to
the LexaLite International Corporation Amended and Restated Employees Stock
Ownership Plan.
(i) Amendment. The plan was amended to incorporate changes required by
---------
the Internal Revenue Service on January 20, 1986.
(ii) 1991-1 Amendment. The plan was amended to change the plan year on
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December 27, 1991, effective July 1, 1991.
(c) Second Amendment and Restatement. The plan was amended and restated to
------ --------- --- -----------
comply with the Tax Reform Act of 1986, effective July 3, 1989.
84
<PAGE>
1994-1 AMENDMENT
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TO
--
LEXALITE INTERNATIONAL CORPORATION
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AMENDED AND RESTATED
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EMPLOYEE STOCK OWNERSHIP PLAN
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This is an amendment by LexaLite International Corporation ("Employer").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, LexaLite International Corporation amended and restated the
LexaLite International Corporation Amended and Restated Employee Stock Ownership
Plan ("plan") on August 8, 1994, effective July 3, 1989; and
WHEREAS, to remain qualified under Code Section 401(a), the plan must
be amended to incorporate changes required or permitted by amendments to the
Internal Revenue Code and as provided in certain IRS Revenue Procedures;
NOW, THEREFORE, the Employer amends the plan as follows:
ONE. To incorporate the reduced compensation limit under Code Section 401(a)
- --- (17), the following model language from IRS Revenue Procedure 94-13 is
adopted, effective January 1, 1994, thereby superseding the
corresponding provisions of the plan:
In addition to other applicable limitations set forth in the plan, and
notwithstanding any other provision of the plan to the contrary, for Plan Years
beginning on or after January 1, 1994, the annual Compensation of each Employee
taken into account under the plan shall not exceed the OBRA '93 annual
compensation limit. The OBRA '93 annual compensation limit is $150,000, as
adjusted by the Commissioner for increases in the cost of living in accordance
with Section 401(a)(17)(B) of the Internal Revenue Code. The cost-of-living
adjustment in effect for a calendar year applies to any period, not exceeding 12
months, over which Compensation is determined (determination period) beginning
in such calendar year. If a determination period consists of fewer than 12
months, the OBRA '93 annual compensation limit will be multiplied by a fraction,
the numerator of which is the number of months in the determination period, and
the denominator of which is 12.
For Plan Years beginning on or after January 1, 1994, any reference in
this plan to the limitation under Section 401(a)(17) of the Code shall mean the
OBRA '93 annual compensation limit set forth in this provision.
<PAGE>
1996-1 AMENDMENT
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TO
--
LEXALITE INTERNATIONAL CORPORATION
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AMENDED AND RESTATED
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EMPLOYEES STOCK OWNERSHIP PLAN
--------- ----- --------- ----
This is an amendment by LexaLite International Corporation ("Employer").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, LexaLite International Corporation amended and restated the
LexaLite International Corporation Amended and Restated Employees Stock
Ownership Plan ("plan") on August 8, 1994, effective July 3, 1989, and
subsequently amended the plan by an instrument dated October 25, 1994; and
WHEREAS, the Employer wishes to correct an omission in the amendment and
restatement of the plan;
NOW, THEREFORE, the Employer amends the plan, effective July 3, 1989, as
follows:
ONE. The first paragraph of Section 5.2(a)(iii)(A) is amended to read:
- ---
(A) Participating Compensation. "Participating Compensation"
------------- ------------
means the Participant's Compensation for services in Covered Employment during a
Plan Year.
TWO. Section 5.2(a)(iii)(B) is amended to read:
- ---
(B) Compensation. "Compensation" means an Employee's W-2 wages as
------------
provided in Regulations under Code Section 415 plus Elective Deferrals and any
amount that is excluded from gross income pursuant to Code Section 125; but
excluding, whether or not includable in income, reimbursements or other expense
allowances, cash and noncash fringe benefits, moving expenses, deferred
compensation, welfare benefits, and any amounts paid to a Highly Compensated
Employee attributable to the LexaLite International Stock Incentive Award
Program. "Elective Deferrals" means the elective contributions made for the
Participant and any other portion of the Participant's income deferred and
excluded from current taxation under Code Section 402(e)(3) (a cash or deferred
401(k) profit-sharing plan); 402(h) (a simplified employee pension plan); or
403(b) (a tax-sheltered annuity).
<PAGE>
IN WITNESS WHEREOF, this amendment is executed this ___ day of ___________,
1996.
LEXALITE INTERNATIONAL CORPORATION
By
--------------------------------------
Its
-------------------------------------
-2-
<PAGE>
ARTHUR ANDERSEN LLP
EXHIBIT 24.1
------------
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants, we hereby consent to the use of our report
dated October 3, 1996 on the financial statements of Summa Industries (and to
all references to our Firm) included in or made a part of this registration
statement.
/s/ ARTHUR ANDERSEN LLP
------------------------------
ARTHUR ANDERSEN LLP
Orange County, California
October 11, 1996
<PAGE>
ARTHUR ANDERSEN LLP
EXHIBIT 24.2
------------
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants, we hereby consent to the use of our report
dated August 15, 1996 on the financial statements of Lexalite International
Corporation (and to all references to our Firm) included in or made a part of
this registation statement.
/s/ ARTHUR ANDERSEN LLP
---------------------------
ARTHUR ANDERSEN LLP
Grand Rapids, Michigan
October 11, 1996
<PAGE>
EXHIBIT 99.1
SUMMA INDUSTRIES
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints James R. Swartwout and Paul A. Walbrun, and
each and either of them, as attorney-in-fact and proxy for the undersigned, with
full power of substitution, to represent the undersigned and vote, as designated
below, all of the shares of Common Stock of Summa Industries, a California
corporation (the "Company"), which the undersigned is entitled to vote at the
Company's Annual Meeting of Stockholders to be held on November 21, 1996, and at
any adjournment or continuation thereof.
1. PROPOSAL TO APPROVE THE MERGER OF A WHOLLY-OWNED SUBSIDIARY OF THE COMPANY
WITH AND INTO LEXALITE INTERNATIONAL CORPORATION, AND THE ISSUANCE OF
SHARES OF THE COMPANY'S COMMON STOCK AS A CONSEQUENCE THEREOF, ON THE
TERMS AND CONDITIONS DESCRIBED IN MORE DETAIL IN THE JOINT PROXY
STATEMENT/PROSPECTUS DATED OCTOBER, 1996. In approving the Merger, the
Company's shareholders will approve, among other things, an amendment to
the Company's Articles of Incorporation to establish a 9-member Board of
Directors divided into three classes serving staggered 3-year terms, and
the adoption by the Company of the LexaLite Employee Stock Ownership Plan,
as amended, all as more particularly described in the Joint Proxy
Statement/Prospectus.
[_] FOR [_] AGAINST [_] ABSTAIN
2. ELECTION OF DIRECTORS.
If the Merger is approved:
[_] FOR all nominees listed below [_] WITHHOLD AUTHORITY for all
nominees
Michael L. Horst, James R. Swartwout and Josh Barnes, each for a 3-year term
Coalson C. Morris, Karl V. Palmaer and Byron C. Roth, each for a 2-year term
If the Merger is NOT approved:
[_] FOR all nominees listed below [_] WITHHOLD AUTHORITY for all
nominees
Michael L. Horst, James R. Swartwout, Coalson C. Morris and Karl V. Palmaer,
each for a 2-year term
(INSTRUCTION: To withhold authority to vote for any nominee, mark FOR above and
cross out the name(s) of the nominees with respect to whom
authority is withheld)
3. In their discretion, upon such other business as may properly come before
the Annual Meeting or any adjournment or continuation thereof.
(Continued on reverse side)
<PAGE>
(Continued from reverse side)
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER HEREIN
SPECIFIED BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS INDICATED, THIS
PROXY WILL BE VOTED FOR APPROVAL OF THE PROPOSED MERGER, FOR ELECTION TO THE
COMPANY'S BOARD OF DIRECTORS OF EACH OF THE SIX NOMINEES LISTED ABOVE IF THE
MERGER IS APPROVED, OR FOR EACH OF THE FOUR NOMINEES LISTED ABOVE IF THE MERGER
IS NOT APPROVED, AND IN ACCORDANCE WITH THE DISCRETION OF THE PROXIES ON ANY
OTHER MATTERS TO COME BEFORE THE ANNUAL MEETING.
Please sign exactly as your name appears below, date and return this card
promptly using the enclosed envelope. Executors, administrators, guardians,
officers of corporations, and others signing in a fiduciary capacity should
state their full titles as such.
Dated _______________, 1996
___________________________
Signature
___________________________
Signature (if held jointly)
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, YOU ARE URGED TO MARK,
SIGN, DATE AND PROMPTLY RETURN THIS PROXY, USING THE ENCLOSED ENVELOPE.
<PAGE>
EXHIBIT 99.2
LEXALITE INTERNATIONAL CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Josh T. Barnes and Arthur R. Marshall, and each
and either of them, as attorney-in-fact and proxy for the undersigned, with full
power of substitution, to represent the undersigned and vote, as designated
below, all of the shares of Common Stock of LexaLite International Corporation,
a Delaware corporation ("LexaLite"), which the undersigned is entitled to vote
at LexaLite's Special Meeting of Shareholders to be held on November 16, 1996,
and at any adjournment or continuation thereof.
1. PROPOSAL TO APPROVE THE MERGER OF A WHOLLY-OWNED SUBSIDIARY OF SUMMA
INDUSTRIES, A CALIFORNIA CORPORATION ("SUMMA"), WITH AND INTO LEXALITE, ON
THE TERMS AND CONDITIONS DESCRIBED IN MORE DETAIL IN THE JOINT PROXY
STATEMENT/PROSPECTUS DATED OCTOBER, 1996, THE AGREEMENT OF MERGER ATTACHED
TO THE JOINT PROXY STATEMENT/PROSPECTUS AS APPENDIX I, AND THE AGREEMENT AND
PLAN OF REORGANIZATION ACCOMPANYING THE JOINT PROXY STATEMENT/PROSPECTUS.
[_] FOR [_] AGAINST [_] ABSTAIN
2. In their discretion, upon such other business as may properly come before
the Special Meeting or any adjournment or continuation thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER HEREIN SPECIFIED
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS INDICATED, THIS PROXY WILL
BE VOTED IN ACCORDANCE WITH THE DISCRETION OF THE PROXIES ON ANY MATTER TO COME
BEFORE THE SPECIAL MEETING.
Please sign exactly as your name appears below, date and return this Proxy
promptly using the enclosed envelope. Executors, administrators, guardians,
officers of corporations, and others signing in a fiduciary capacity should
state their full titles as such.
Dated: _____________________, 1996
__________________________________
Signature
__________________________________
Signature (if held jointly)
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, YOU ARE URGED TO MARK,
SIGN, DATE AND PROMPTLY RETURN THIS PROXY, USING THE ENCLOSED ENVELOPE.
