<PAGE>
As filed with the Securities and Exchange Commission on September 6, 1996
Registration No. 33-______
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-4
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
SUMMA INDUSTRIES
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C> <C>
California 3559 95-1240978
---------- ---- ----------
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation) Classification Code Number) Identification Number)
</TABLE>
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: [ ]
================================================================================
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Title of Each Class Proposed Maximum Proposed Maxi- Amount of Regi-
of Securities Amount to Offering Price mum Aggregate stration Fee*
to be Registered be Registered Per Unit* Offering Price*
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock............ 2,439,066 $6.66 $16,244,179.56 $5,601.42
=======================================================================================================
</TABLE>
* Calculated pursuant to Rule 457(f)(1), on the basis of the average of the
closing price on the Nasdaq National Market of a share of the Common Stock of
Summa Industries on August __, 1996.
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.
<PAGE>
Cross-Reference Sheet to Form S-4 of
Summa Industries
PART I. INFORMATION REQUIRED IN THE PROSPECTUS
<TABLE>
<CAPTION>
Item of Form S-4 Caption in Joint Proxy Statement/Prospectus
- ---------------- -------------------------------------------
A. INFORMATION ABOUT THE TRANSACTION
<S> <C>
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
Being Acquired Merger;
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
Indemnification for Securities Act Directors' and 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
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
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 Informa-
tion; 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 Informa-
tion; 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
</TABLE>
<PAGE>
LEXALITE INTERNATIONAL CORPORATION
10163 US 31 North
Charlevoix, Michigan 49720-0498
October __, 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 __, 1996 at the Charlevoix Country Club, located at 9600
Clubhouse Drive, Charlevoix, Michigan 49720 (the "Special Meeting").
At the 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
to the Joint Proxy Statement/Prospectus as Appendix I. As a consequence of the
Merger, the outstanding shares of LexaLite Common Stock will be converted into
shares of Summa Common Stock (the "Merger"). 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 to the Joint Proxy
Statement/Prospectus as Appendix II. The Board of Directors of LexaLite has
concluded that the Merger is fair to and in the best interests of LexaLite and
its stockholders and recommends that you vote FOR the approval of the Merger.
If the Merger is approved by the stockholders of LexaLite and the Merger is
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.
THE DETAILS OF THE MERGER ARE DISCUSSED IN THE JOINT PROXY
STATEMENT/PROSPECTUS WHICH ACCOMPANIES THIS LETTER. YOU ARE URGED TO REVIEW IT
CAREFULLY.
Under Delaware law, the Reorganization Agreement must be approved by the
affirmative vote of the holders of at least a majority of the outstanding shares
of LexaLite Common Stock. Therefore, whether or not you personally will attend
the Special Meeting, please vote for the proposed transaction 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 if you wish to
vote in person. Regardless of the number of shares you own, your vote is
important.
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 your existing LexaLite stock certificates for new certificates
representing shares of Summa Common Stock.
Sincerely,
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 __, 1996
To the Stockholders of
LexaLite International Corporation October __, 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 __, 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 __, 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
21250 Hawthorne Boulevard, Suite 500
Torrance, California 90503
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON NOVEMBER __, 1996
To the Shareholders of
Summa Industries October __, 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 __, 1996, at 2:00 p.m., local time, at the Mariott
Hotel, 3635 Fashion Way, Torrance, California (near 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 and 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 __, 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
<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 __, 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 __, 1996, the record date for the Summa Annual Meeting, there were
_________ 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
___________ 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 __, 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 __, 1996, the record date for the LexaLite Special Meeting, there were
_________ shares of LexaLite's Common Stock outstanding. 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 __, 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 __, 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
September __, 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
<PAGE>
TABLE OF CONTENTS
Page
----
[S] [C]
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
Opinion of Financial Advisor to LexaLite and Summa................ 22
Additional Conditions to the Merger............................... 23
Amendment or Termination.......................................... 23
Standstill Agreement.............................................. 24
Interests of Certain Persons in the Merger........................ 24
Affiliates' Restrictions on Resale of Summa's Common Stock........ 24
Accounting Treatment.............................................. 25
Merger Expenses; Brokerage Fees................................... 25
Certain Federal Income Tax Considerations......................... 25
Approval of the Merger............................................ 26
Rights of Dissenting Stockholders................................. 26
THE COMBINED COMPANIES............................................... 28
SUMMA AND LEXALITE PRO FORMA FINANCIAL INFORMATION................... 29
SUMMA COMMON STOCK PRICES AND DIVIDENDS.............................. 33
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
3
<PAGE>
Page
----
[S] [C]
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
Sale of Discontinued Operations........................... 44
Management of Summa............................................. 45
Executive Officers and Directors.......................... 45
Compensation of Officer and Directors..................... 46
Employment Agreement...................................... 47
Stock Options............................................. 47
401(k) Plan............................................... 48
Limitation of Directors' and Officers' Liability
and Indemnification...................................... 48
Compensation Committee Report................................... 49
Report on Annual Compensation of Executive Officers....... 49
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................................................. 52
Competitive Conditions.................................. 52
Patents, Trademarks and Licenses........................ 52
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
Management of LexaLite.......................................... 55
Executive Officers and Directors........................ 55
Compensation of Officer and Directors................... 56
Certain Transactions.................................... 57
Stock Options........................................... 57
Stock Award Plan........................................ 58
Employee Stock Ownership Plan........................... 58
Limitation of Directors' and Officers' Liability
and Indemnification................................... 59
ELECTION OF SUMMA DIRECTORS.......................................... 60
OTHER MATTERS........................................................ 60
LEGAL MATTERS........................................................ 61
EXPERTS.............................................................. 61
INDEPENDENT ACCOUNTANTS.............................................. 61
SHAREHOLDER PROPOSALS................................................ 61
INDEX TO FINANCIAL STATEMENTS........................................ 62
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 Dissenters' 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 __, 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 __, 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 __,
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 __, 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 __, 1996, the
record date for the Summa Annual Meeting, _________ 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 __, 1996, the record date for the LexaLite
Special Meeting, _________ shares of the Common Stock of LexaLite
were issued and outstanding.
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
the Merger of 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 sought a transaction which could provide
liquidity for its stockholders while ensuring the continuity of the
organization. The LexaLite Board evaluated an initial public
offering, outside equity investment and potential business
combinations with other companies, ultimately determining not to
pursue any particular proposal. LexaLite did establish an Employee
Stock Ownership Plan, although only approximately 34% of the stock
is now owned by the ESOP. 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 have been considered.
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,
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 _________ shares of Summa's
Common Stock. 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 $6.66, 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."
6
<PAGE>
Outstanding stock options to purchase up to 72,372 shares of
LexaLite's Common Stock, at the weighted average exercise price of
$____ per share, will be exchanged for options to purchase up to
_______ shares of Summa's Common Stock, for the same aggregate
exercise prices. In addition, see "Description of the Proposed
Merger- Manner and Basis of Converting Shares; Interests of Certain
Persons in the Merger." Summa also has agreed to issue 30,000
additional shares of Summa Common Stock to a financial intermediary
for services rendered to Summa in connection with the proposed
Merger.
Accordingly, the former stockholders of LexaLite as a group would
own approximately __% of the _________ 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.
Opinion of Wedbush Morgan Securities ("Wedbush Morgan") has delivered to the
Financial Boards of Directors of both LexaLite and Summa a written opinion
Advisor to dated as of __________, 1996, to the effect that, based upon and
LexaLite subject to various considerations set forth in the opinion, the
and Summa Merger is fair from a financial point of view to both LexaLite and
the stockholders of LexaLite and the shareholders of Summa. A copy
of the opinion of Wedbush Morgan, Summa 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 - Opinion of Financial Advisor to LexaLite and
Summa."
Conditions Consummation of the Merger is subject to various conditions,
to the including, among others, approval of the Merger by the shareholders
Merger of Summa and the stockholders of LexaLite, and the receipt of any
Amendment; required regulatory approvals. The Reorganization Agreement and
Termination 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 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 above would be conditioned upon payment by
the terminating party to the other of the sum of $500,000, as
liquidated damages in respect of the loss of the non-terminating
party's prospective economic opportunity, 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."
Certain Based upon certain assumptions, it is expected that the Merger will
Federal constitute a tax-free reorganization under Section 368 of the
Income Tax Internal Revenue Code of 1986, as amended (the "Code"), such that
Consequences (i) the stockholders of LexaLite who receive shares of Summa's
Common Stock will recognize no gain or loss for federal income tax
purposes as a consequence 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."
7
<PAGE>
Comparison The rights of holders of Summa Common Stock differ in certain
of Rights respects from the rights of holders of LexaLite Common Stock,
of LexaLite including the fact that Summa is subject to the informational
and 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 stockholders of LexaLite as a consequence of the Merger will be
Common registered under the Securities Act of 1933, as amended (the
Stock "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 The Common Stock of Summa is traded on The Nasdaq National Market.
Market On July 18, 1996, the last full trading day prior to the public
Prices 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 __, 1996, the closing
sales price for a share of Summa's Common Stock on The Nasdaq
National Market was $____. See "Summa Common Stock Prices and
Dividends."
Effective The Merger will be consummated if and on such date as the executed
Date 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
___________, 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."
Recommen- The Boards of Directors of Summa and LexaLite have both unanimously
dations of approved the Merger as being of in the best interests of their
Board of respective corporations, shareholders and stockholders, and has
Directors 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 _________ 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 _______ shares, or
approximately ____%, have indicated their intention to vote in favor
of the proposed Merger. The affirmative votes of the holders of an
additional _________ shares of Summa's Common Stock will be required
for approval of the Merger by the shareholders of Summa. Of the
_________ 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 __%. 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 _______ shares
of LexaLite's Common Stock will be required for approval of the
Merger by the stockholders of LexaLite.
8
<PAGE>
Amendment In approving the Merger, the shareholders of Summa will also
of Summa approve an amendment to the Articles of Incorporation of Summa to
Articles establish a 9-member Board of Directors divided into three classes
Incorpor- serving staggered 3-year terms. Summa's Board of Directors currently
ation; consists of eight members divided into two classes, with half of the
Election members elected to serve 2-year terms at each annual meeting. If the
of Merger is approved and consummated, Josh T. Barnes, the Chief
Directors 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 In approving the Merger, the shareholders of Summa also will approve
of the adoption by Summa of the Employee Stock Ownership Plan ("ESOP")
LexaLite of LexaLite, as amended, so that the ESOP Trustee will be required
ESOP 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 and
unaudited financial statements of Summa, in the audited and unaudited 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>
Nine months
Year ended August 31, ended May 31,
------------------------------------ -----------------
1993 1994 1995 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Income Statement Data:
----------------------
Net sales.............................................. $ 5,284 $10,279 $10,247 $ 7,647 $8,903
Income from continuing operations before
provision for taxes.................................. 568 1,146 1,158 853 940
Income from continuing operations...................... 213 501 676 449 541
Income (loss) from discontinued operations,
net of effect of income tax.......................... 179 118 (28) 4 (235)
Extraordinary item, tax benefit of net operating
loss carryforward.................................... 321 - - -
Cumulative effect of accounting change................. - 100 - - -
Net income............................................. $ 713 $ 719 $ 648 $ 453 $ 306
Weighted average number of shares...................... 1,020 1,584 1,553 1,552 1,582
Balance Sheet Data:
------------------
Total assets........................................... $ 8,758 $10,009 $11,278 $ 10,654 $11,941
Working capital........................................ 2,203 2,086 1,882 2,187 2,202
Long-term debt......................................... 415 305 400 300 330
Shareholders' equity................................... $ 6,505 $ 7,224 $ 7,930 $ 7,735 $ 8,376
LEXALITE INTERNATIONAL CORPORATION
<CAPTION>
Year ended June 30,
--------------------------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Income Statement Data:
- ---------------------
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
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. The pro forma combined income statement data gives effect
to the Merger as if it had occurred on September 1, 1994. The pro forma
combined balance sheet gives effect to the Merger as if it had occurred on May
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
after consummation of the Merger.
<TABLE>
<CAPTION>
Year ended Nine months ended
August 31, 1995 May 31, 1996
--------------- ---------------
<S> <C> <C>
Income Statement Data:
- ---------------------
Net sales..................................................... $ 43,482,000 $ 34,787,000
Income from continuing operations before
provision for taxes......................................... 3,332,000 2,979,000
Net income from continuing operations......................... $ 2,068,000 $ 1,801,000
Weighted average number of shares............................. 3,694,000 3,795,000
As of
Balance Sheet Data: May 31, 1996
- ------------------ ---------------
Total assets.................................................. $ 38,050,000
Working capital............................................... 5,351,000
Long-term debt................................................ 8,594,000
Shareholders' equity.......................................... 18,881,000
</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 Nine months ended
Summa - Historical: August 31, 1995 May 31, 1996
- ------------------- --------------- -----------------
<S> <C> <C>
Net income per share from continuing
operations $ .44 $ .34
Cash dividends per share - -
Book value per share 5.14 5.23
Year ended
LexaLite - Historical: June 30, 1996
- ---------------------- ---------------
Net income per share $1.08
Cash dividends per share -
Book value per share 6.51
Year ended Nine months ended
Pro forma combined: August 31, 1995 May 31, 1996
- ------------------- --------------- -----------------
Net income per share from continuing
operations $ .56 $ .47
Cash dividends per share - -
Book value per share 4.22 4.74
</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, thereby
12
<PAGE>
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 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
13
<PAGE>
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 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, 1995, 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
14
<PAGE>
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.
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 __, 1996, there were _________ shares of Summa's
Common Stock outstanding, of which a total of _________ 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 $____ to a high of
$____, on an average weekly trading volume of approximately __________ shares.
On October __, 1996, the closing price for a share of Summa's Common Stock on
the Nasdaq National Market was $______. 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 ______ shares of
Summa's Common stock currently outstanding which were issued more than three
years ago, ____________ 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 __________ 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 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 ________ 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 __, 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 _________ shares of Summa's Common Stock outstanding, which
were held of record by a total of ___ shareholders. Each share entitles the
holder to one vote on each matter to come before the Summa Annual Meeting.
As of October __, 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 _________ shares of LexaLite's Common Stock
outstanding, 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 exclusively by mail;
however, 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 __, 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.
Shares Percent
Beneficially of
Name Owned Class (1)
- --------------------------- ------------ ---------
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 4.6
David McConaughy (3) 12,500 0.8
Karl V. Palmaer (3) 140,228 8.8
Byron C. Roth (3) 10,000 0.6
All directors and executive
officers as a group (8 persons) 367,905 23.1
_________________________________
(1) 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.
(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 __, 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.
Shares Percent
Beneficially of
Name Owned Class (1
- ------------------------------- ------------- --------
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 0 ___
Thomas M. Phillips (3)(5) 45,483 3.1
Sherwood A. Mitter (3)(5) 7,415 0.5
Patricia A. DeYoung (3)(4)(5) 25,472 1.7
Employee Stock Ownership Trust 501,998 33.9
All directors and executive
officers as a group (8 persons) 724,275 48.9%
_________________________________
(1) 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.
(2) Includes shares held in one or more trusts.
(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 an Employee Stock
Ownership Trust.
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 July 31, 1996, the
former shareholders of GST have earned contingent performance payments in the
cumulative aggregate amount of $2,008,000. 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, 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 shareholders 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 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.
20
<PAGE>
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 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
21
<PAGE>
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 __, 1996 there were an aggregate of
72,372 shares of LexaLite's Common Stock reserved for issuance upon the exercise
of outstanding stock options. 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 Lexa-
Lite'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 _______
shares of Summa's Common Stock, subject to possible upward adjustment.
As of the close of business on October __, 1996, there were _______ shares
of Summa's Common Stock reserved for issuance upon the exercise of outstanding
stock options, at a weighted average exercise price of $____ per 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 _______ 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."
Opinion of Financial Advisor to LexaLite and Summa
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
undertake the necessary examination and analysis of the respective businesses,
assets, liabilities, revenues, earnings, prospects and management of each of
LexaLite and Summa, and to consider such other factors as in the judgment of
Wedbush Morgan was necessary, for the purpose of rendering 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 arms
length negotiations between Summa and LexaLite. 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
22
<PAGE>
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 ___________, 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 a study of the valuation of public market
comparable companies, review of the valuation of comparable merger and
acquisition transactions, and analysis of the relevant contribution of key
financial performance criteria by Summa and LexaLite to the consolidated
enterprise. 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
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.
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, in the
judgment of the LexaLite Board of Directors or the Summa Board of Directors, as
the case may be, 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
23
<PAGE>
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 contem-
plated by the Reorganization Agreement, including the Merger. In addition,
LexaLite and Summa have agreed that if either of them terminates the Reorgani-
zation 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
obligation of Summa to consummate the Merger contemplated thereby, Josh T.
Barnes, who is the founder, Chief Executive Officer and a director of LexaLite,
shall have entered into an agreement with LexaLite pursuant to which he will
agree to continue to provide specified consulting services to LexaLite following
the Merger. The agreement to be entered into with Josh T. Barnes provides for
continuation of his current compensation and benefits for an indeterminate
period following the Merger.
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.
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 3,500 shares. See "Information Concerning LexaLite -
Management -Stock Options."
24
<PAGE>
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 ____%
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 Reor-
ganization 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 $__________. 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 $150,000.
In addition to the foregoing expenses, upon consummation of the Merger Summa
has 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.
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
25
<PAGE>
(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 724,275 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 _________ shares of LexaLite's
Common Stock.
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
265,405 shares of Summa's Common Stock, or approximately 16.7% 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
__________ 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.
26
<PAGE>
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 Lexa-
Lite's Common Stock must continuously hold such shares through the Effective
Date.
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.
27
<PAGE>
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 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.
28
<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 balance sheet at May 31, 1996 and LexaLite's historical
balance sheet as of June 30, 1996 and is presented as if the transaction had
been consummated on May 31, 1996.
The unaudited pro forma condensed consolidated statements of income for the
12 month period ended August 31, 1995 and for the nine month period ended May
31, 1996 give effect to the merger of Subsidiary and LexaLite as if the
transaction had occurred at September 1, 1994, the beginning of Summa's fiscal
year ended August 31, 1995. The unaudited pro forma condensed consolidated
income statements combine historical results of operations of Summa for the
twelve months ended August 31, 1995 and the historical results of the operations
of LexaLite for the twelve months ended June 30, 1995. The proforma condensed
consolidated income statements combine historical results of operations of Summa
for the nine months ended May 31, 1996 and the historical results of the
operations of LexaLite for the nine months ended March 31, 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.
29
<PAGE>
SUMMA INDUSTRIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
May 31, 1996
<TABLE>
<CAPTION>
Pro Forma
Summa LexaLite Adjustments Combined
----- -------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash $ 238,000 $ 620,000 $ $ 858,000
Accounts receivable 1,629,000 6,364,000 7,993,000
Inventories 2,151,000 1,511,000 50,000 3,712,000
Prepaid expenses and other 573,000 679,000 (1) 1,252,000
----------- ----------- ----------- -----------
Total current assets 4,591,000 9,174,000 50,000 13,815,000
----------- ----------- ----------- -----------
Property, plant and equipment 5,943,000 24,453,000 (9,477,000) (3) 20,919,000
Less accumulated depreciation (1,939,000) (11,427,000) 11,427,000 (2) (1,939,000)
----------- ----------- ----------- -----------
Net property, plant and
equipment 4,004,000 13,026,000 1,950,000 18,980,000
Net assets of discontinued
operations 2,369,000 2,369,000
Other assets 1,909,000 1,909,000
Goodwill and other tangibles 977,000 977,000
----------- ----------- ----------- -----------
$11,941,000 $24,109,000 $ 2,000,000 $38,050,000
=========== =========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Revolving line of credit $ 582,000 $ $ $ 582,000
Accounts payable 930,000 2,027,000 2,957,000
Accrued liabilities 776,000 2,348,000 500,000 (4) 3,624,000
Current maturities of
long-term debt 101,000 1,200,000 1,301,000
----------- ----------- ----------- -----------
Total current liabilities 2,389,000 5,575,000 500,000 8,464,000
Bonds payable 5,000,000 5,000,000
Other long-term debt and
deferred credits and other
long term liabilities 1,176,000 4,029,000 500,000 (5) 5,705,000
----------- ----------- ----------- -----------
Total liabilities 3,565,000 14,604,000 1,000,000 19,169,000
----------- ----------- ----------- -----------
Shareholders' equity
Common stock 6,151,000 2,158,000 8,347,000 (6) 16,656,000
Retained earnings 2,225,000 7,347,000 (7,347,000) (6) 2,225,000
----------- ----------- ----------- -----------
Total shareholders' equity 8,376,000 9,505,000 1,000,000 18,881,000
----------- ----------- ----------- -----------
$11,941,000 $24,109,000 $ 2,000,000 $38,050,000
=========== =========== =========== ===========
</TABLE>
30
<PAGE>
SUMMA INDUSTRIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEAR ENDED AUGUST 31, 1995
<TABLE>
<CAPTION>
Pro Forma
Summa LexaLite Adjustments Combined
----- -------- ----------- --------
<S> <C> <C> <C> <C>
Net Sales $10,247,000 $33,235,000 $ --- $43,482,000
----------- ----------- ----------- -----------
Cost and expenses:
Cost of sales 5,609,000 25,321,000 50,000 (7) 30,980,000
Selling and administrative
and other expense 3,480,000 5,127,000 --- 8,607,000
Interest expense - 563,000 --- 563,000
----------- ----------- ----------- -----------
Total cost and expenses 9,089,000 31,011,000 50,000 40,150,000
----------- ----------- ----------- -----------
Income from continuing operations
before provision for taxes 1,158,000 2,224,000 (50,000) 3,332,000
Provision for income taxes 482,000 802,000 (20,000) 1,264,000
----------- ----------- ----------- -----------
Income from continuing operations 676,000 1,422,000 (30,000) 2,068,000
=========== =========== =========== ===========
Income per common and equivalent
share:
Income from continuing
operations $ .44 $ 1.00 $ .56
=========== =========== ==========
Weighted average shares
outstanding 1,553,000 1,427,000 714,000 (6) 3,694,000
============= =========== =========== ==========
</TABLE>
31
<PAGE>
SUMMA INDUSTRIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED MAY 31, 1996
<TABLE>
<CAPTION>
Pro Forma
Summa LexaLite Adjustments Combined
----- -------- ----------- ---------
<S> <C> <C> <C> <C>
Net Sales $8,903,000 $25,884,000 $ $34,787,000
----------- ----------- ----------- ------------
Cost and expenses:
Cost of sales 4,928,000 19,432,000 24,360,000
Selling, general and adminis-
trative and other expenses 3,035,000 3,973,000 7,008,000
Interest expense, net 440,000 440,000
--------- ----------- ----------- ------------
Total cost and expenses 7,963,000 23,845,000 31,808,000
----------- ----------- ----------- ------------
Income from continuing operations
before provision for taxes 940,000 2,039,000 2,979,000
Provision for income taxes 399,000 779,000 1,178,000
------------ ----------- ----------- ------------
Income from continuing operations 541,000 1,260,000 1,801,000
------------ ----------- ----------- ------------
Income per common and equivalent share:
Income from continuing
operations $ .34 $ .85 $ .47
========= =========== ==========
Weighted average shares outstanding 1,582,000 1,475,000 738,000 (6) 3,795,000
========== ============ ============ ==========
</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). Reset of accumulated depreciation of acquired assets to zero.
(3). Adjustment of property, plant and equipment to estimated fair value
allocation.
(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 2,254,203 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.
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>
High Low
Quarter Ended ------- ------
-------------
<S> <C> <C>
November 1994................ $6.50 $4.50
February 1995................ 6.00 4.50
May 1995..................... 5.50 4.50
August 1995.................. 5.25 4.75
Quarter Ended
-------------
November 1995................ 5.25 3.75
February 1996................ 5.50 3.75
May 1996..................... 6.25 4.81
August 1996..................
Quarter Ended
-------------
November 1996 (through October __)
</TABLE>
On October __, 1996, the date immediately prior to the mailing of this Joint
Proxy Statement/Prospectus to the Summa shareholders and the LexaLite
stockholders, the closing price for a share of Summa's Common Stock was $______.
The approximate number of holders of record of Summa Common Stock as of
October __, 1996, was ______. 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 __, 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 _________ shares are issued and outstanding as
of October __, 1996.
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 (see "Comparison of Rights of
LexaLite and Summa Shareholders - Ability to Issue 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 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, 1995, 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
---------------------------------------------------------------------------
Fiscal Year Ended August 31, 1995
<S> <C> <C> <C>
Net 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
Net 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
Fiscal Year Ended August 31, 1993
Net Sales 404,000 2,627,000 2,253,000
Operating Income 37,000 178,000 459,000
Identifiable Assets 2,637,000 1,054,000 1,156,000
===========================================================================
</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, including distribution in Europe
and Asia by Ammeral Conveyor Belting, BV of Holland.
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.
The principal customers for the GST products are large defense prime
contractors, such as Lockheed Corporation, although additional sales are from
time to time made directly to the U.S. Department of Defense, the U.S. Air
Force, and foreign governments engaged in U.S. sanctioned cooperative aircraft
manufacturing programs. Most of GST's sales are of products for the F-16 and
derivative aircraft.
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, 1995, the largest customer in the above named segments
accounted for 7% of total company sales, while in fiscal years 1994 and 1993,
sales to a single customer accounted for 4% and 3% of total sales, respectively.
The primary customers in the aerospace assemblies segment are large defense
prime contractors, foreign governments engaged in U.S. sanctioned cooperative
aircraft manufacturing programs and the Department of Defense. Sales to a
single customer may be material and 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%, 21% and 43% of consolidated sales of
Summa
38
<PAGE>
for 1995, 1994 and 1993 respectively, and the sales to the largest customer for
the years ended August 31, 1995, 1994 and 1993 were 7%, 10% and 14%,
respectively.
The following table sets forth the dollar amount of export sales by
geographic area for the most recent three fiscal years ended August 31, 1995:
<TABLE>
<CAPTION>
1995 1994 1993
------------------------------------------------------
<S> <C> <C> <C>
Canada $ 341,000 $ 220,000 $ 28,000
Latin America -0- 101,000 133,000
Asia 800,000 1,868,000 637,000
Europe 769,000 186,000 78,000
Other 131,000 56,000 55,000
------------------------------------------------------
$2,041,000 $2,431,000 $931,000
======================================================
</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, 1995. Lead times for special
components, such as custom hydraulic power units, can be as long as four months.
Backlog
- -------
On August 31, 1995, Summa's continuing businesses had a backlog of orders,
believed to be firm, in the amount of $2,924,000, as compared to a backlog of
$2,449,000 as of August 31, 1994. Of the backlog at the end of fiscal 1995,
$240,000 was attributable to orders for material handling components, $286,000
was attributable to orders for firefighting equipment and $2,398,000 was
attributable to orders for aerospace assemblies. A portion of Summa's August
31, 1995 backlog consists 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 one civil lawsuit, 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.
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 3.9 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
The selected financial data set forth below for the three years ended
August 31, 1993, 1994 and 1995 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, 1991 and
1992, and for the nine-month periods ended May 31, 1995 and 1996, has been
derived from the unaudited consolidated financial statements of Summa and, in
the opinion of management, includes all adjustments necessary for a fair
presentation of the results for such periods. The results of operations for the
nine months ended May 31, 1996 are not necessarily indicative of the results to
be expected for the entire fiscal year ending August 31, 1996.
<TABLE>
<CAPTION>
Nine months
Fiscal years ended August 31, ended May 31,
-------------------------------------------------------- -------------
Statement of Income Data: 1991 1992 1993 1994 1995 1995 1996
------ ------ ------ ------- -------- ------- --------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales........................... $ --- $4,095 $5,284 $10,279 $10,247 $ 7,647 $ 8,903
Cost and expenses:
Cost of sales..................... --- 2,406 3,016 5,510 5,609 4,168 4,928
Selling, general and
administrative................... --- 1,285 1,700 3,623 3,480 2,626 3,035
Interest-net...................... --- 16 --- --- --- --- ---
Total costs and expenses from ------ ------ ------ ------- ------- ------- -------
continuing operations............ --- 3,707 4,716 9,133 9,089 6,794 7,963
------ ------ ------ ------- ------- ------- -------
Income from continuing operations
before provision for taxes,
extraordinary item and cumula-
tive effect of accounting change --- 388 568 1,146 1,158 853 940
Provision for income taxes.......... --- 150 355 645 482 404 399
------ ------ ------ ------- ------- ------- -------
Income from continuing operations
before extraordinary item and
cumulative effect of accounting
change............................ --- 238 213 501 676 449 541
Income (loss) from discontinued
operations, net of the effect
of income tax..................... 114 152 179 118 (28) 4 (235)
Extraordinary item, tax benefit of
net operating loss carryforward 79 208 321 --- --- --- ---
Cumulative effect of accounting
change............................ --- --- --- 100 --- --- ---
------ ------ ------ ------- ------- ------- -------
Net income.......................... $ 193 $ 598 $ 713 $ 719 $ 648 $ 453 $ 306
====== ====== ====== ======= ======= ======= =======
Weighted average number of shares 973 973 1,020 1,548 1,553 1,552 1,582
Income per common and equivalent
shares:
Income from continuing opera-
tions before extraordinary
item and cumulative effect of
accounting change............... $ --- $ .24 $ .21 $ .32 $ .44 $ .29 $ .34
Income (loss) from discon-
tinued operations, net of
the effect of income tax........ .12 .16 .18 .08 (.02) --- (.15)
Extraordinary item............... .08 .21 .31 --- --- --- ---
Cumulative effect of accounting
change.......................... --- --- --- .06 --- --- ---
------ ------ ------ ------- ------- ------- -------
Net income per common and
equivalent share.................. $ .20 $ .61 $ .70 $ .46 $ .42 $ .29 $ .19
====== ====== ====== ======= ======= ======= =======
Balance Sheet Data:
Assets.............................. $3,134 $4,628 $8,758 $10,009 $11,278 $10,654 $11,941
Working capital..................... 1,444 1,315 2,203 2,086 1,882 2,187 2,202
Long-term debt...................... 52 450 415 305 400 300 331
Net worth........................... 2,411 3,009 6,505 7,224 7,930 7,735 8,376
</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, 1993, 1994 and 1995 and for the nine months ended May 31, 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>
Nine months ended
Fiscal years ended August 31, May 31,
----------------------------- -----------------
1993 1994 1995 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Sales 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit 42.9% 46.4% 45.3% 45.5% 44.6%
S,G&A expense 32.2% 35.3% 34.0% 34.3% 34.1%
Profit from continuing
operations before tax 10.7% 11.1% 11.3% 11.1% 10.6%
Income from continuing
operations before extra-
ordinary item and cumula-
tive effect of accounting
change 4.0% 4.9% 6.6% 5.9% 6.1%
Effective tax rate 62.5% 56.3% 41.6% 47.4% 42.4%
</TABLE>
Sales. Total sales for fiscal 1994 increased by $4,995,000, or 95%, over
net sales for the year ended August 31, 1993. This increase was primarily
attributable to the inclusion of the results of the newly acquired and growing
KVP Systems, Inc. for a full 12 months, compared to only one month in fiscal
1993. Additionally, Stang benefitted by shipments of an unusually large
contract. For the year ended August 31, 1995, sales were virtually unchanged
from the prior years. A decrease in the sales of Stang (without benefit of the
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 nine months ended May 31, 1996, sales increased by $1,256,000, or
16%, over the first three quarters of the prior fiscal year, primarily due to
continued growth in sales in the material handling components business.
Gross Profit. For the year ended August 31, 1994, gross profit was
$2,501,000, or 110%, greater than for the prior fiscal year, due primarily to
the effect of consolidating the operations of KVP Systems, Inc. for the full
year, versus one month in the prior year. The overall gross margin as a
percentage of sales for fiscal 1994 increased 3.5% from the prior year to 46.4%
because of the inclusion of KVP at typically higher margins than the prior year
businesses. Additionally, margins were benefitted by a large shipment by Stang
at higher than normal margins. 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 nine months ended May 31, 1996 was $3,975,000, an
increase of $496,000, or 14%, over the level of gross profit generated during
the nine months ended May 31, 1995. The increase in gross profit is primarily
due to the growth in the material handling components business. As a percentage
of sales, the gross profit margin decreased from 45.5% for the nine months ended
May 31, 1995 to 44.6% for the nine months ended May 31, 1996, primarily due to
increased material costs and increased facility costs resulting from the move of
KVP Systems, Inc. to expanded facilities to accommodate anticipated growth.
42
<PAGE>
Selling, General and Administrative Expense. For the year ended August 31,
1994, selling, general and administrative expense increased by $1,923,000, or
113%, from the prior year's levels, and by 3% as a percentage of sales. These
increases were attributable to the inclusion of KVP's operations for a full year
in fiscal 1994, and an increase in contingent performance payments to the former
shareholders of GST (see Note 6 of Notes to Consolidated Financial Statements).
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.
Although selling, general and administrative expenses for the nine months
ended May 31, 1996 increased by $409,000, or 16%, when compared to total
operating expenses for the first nine months of 1995, as a consequence of
expanded sales and marketing activities in the material handling component
business, the level of these expenditures as a percentage of sales (which
increased for the nine months, as described above) remained at 34%.
Effective Tax Rate. The effective income tax rate, which is a composite of
federal and state taxes, decreased from 62.5% for fiscal 1993 to 56.3% in fiscal
1994, primarily as a result of the inclusion of KVP's earnings at a lower
effective tax rate than the earnings of GST and Stang. The GST and Stang
effective tax rate is higher because the contingent performance payments are
only partially tax deductible. For the year ended August 31, 1995, the
effective tax rate decreased further, to 41.6%, due to decreases in non-
deductible contingent performance consideration accruals related to the defense
business. (See Note 6 in Notes to Consolidated Financial Statements).
Backlog. Summa's open order backlog, which consists primarily of defense
related contracts, was $2,449,000 at August 31, 1994 compared to $4,529,000 at
August 31, 1993. The decrease in the backlog was attributable primarily to
decreased backlog in the defense business related to shipments against a large
long term contract, and to a decrease in the Stang backlog related to a shipment
against a large single contract referred to above. Backlog increased slightly
during fiscal 1995, to $2,924,000 at August 31, 1995. By May 31, 1996, backlog
had further increased to $3,299,000. The open order backlog, believed to be
firm, is comprised of orders for components and spare parts, with scheduled
deliveries from September 1995 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 nine month period ended
May 31, 1996 was $1,028,000, substantially from continuing operations. In the
comparable prior year period, $364,000 was used primarily by discontinued
operations. The improved cash flows are primarily attributable to lower growth
in inventories related to improved turnover, lower required tax payments and
improved accounts receivable aging.
The investment in property, plant and equipment in the years ended August
31, 1994 and 1995 and the nine months ended May 31, 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.
43
<PAGE>
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. The amount outstanding under the
Company's line of credit at May 31, 1996 was $582,000, a reduction of $356,000
from the August 31, 1995 amount due. Cash of $750,000 provided by the sale of
Morehouse-COWLES, Inc. completed on June 17, 1996 was more than sufficient to
pay off the line of credit.
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 May 31, 1996, Summa's working capital had
increased to $2,202,000, reflecting decreased utilization of the line of credit.
Asset utilization for the years ended August 31, 1994 and 1995, and for the
nine months ended May 31, 1996, is illustrated in the following table:
<TABLE>
<CAPTION>
Year ended August 31, Nine Months ended
-------------------------
1994 1995 May 31, 1996
---- ---- -----------------
<S> <C> <C> <C>
Average working capital turnover 4.8 times 5.2 times 4.4 times
Average accounts receivable turnover 8.3 times 7.8 times 7.8 times
Average inventory turnover 3.8 times 3.7 times 3.4 times
</TABLE>
At May 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 1,600,734 shares were outstanding at May 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." Entitles
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 determined it will continue to account for stock options under APB
Opinion No. 25.
44
<PAGE>
In December 1991, the Financial Accounting Standard Boards issued SFAS No.
107 "Disclosure About Fair Value of Financial Instruments." This statement is
effective for financial statements for fiscal years ending after December 15,
1995. Summa does not expect the effect of adoption to be material to the
financial statements.
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.
45
<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 currently
serves as Chairman of the Board 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.
46
<PAGE>
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.
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 or any of its subsidiaries 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
----------------------- ----------------------
Long Term
Compensation
Salary Bonus Stock Awards All Other
Name and Principal Position Year $ $ Awards $/(1)/ Options (#) Compensation ($)/(2)/
- ----------------------------- ---- ------ ----- ------------- ------------ ---------------------
<S> <C> <C> <C> <C> <C> <C>
James R. Swartwout, 1996 135,000 - - - 9,152
Chairman, Chief Executive 1995 132,083 26,250 23,750 - 9,150
Officer and Chief 1994 121,792 33,600 12,000 - 8,934
Financial Officer
- -----------------------------
</TABLE>
(1) Includes stock award 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 date of the 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, 1995, 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.
47
<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.
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 $5.10. During the fiscal year ended August 31, 1996,
options for 96,207 shares became exercisable. At August 31, 1996, options for
96,207 shares were exercisable, but none had been exercised.
No options were granted to Mr. Swartwout under the 1984 Plan, the 1991 Plan
or the 1995 Plan during the fiscal year ended August 31, 1996.
48
<PAGE>
The following table sets forth information regarding options exercised
during the year ended August 31, 1995 by the executive officer of the Company
identified in the Summary Compensation Table set forth above, as well as the
aggregate value of unexercised options held by such executive officer at August
31, 1995. The Company has no outstanding stock appreciation rights, either
freestanding or in tandem with options.
Aggregated Option Exercises Last Fiscal Year and Fiscal Year End Option Values
<TABLE>
<CAPTION>
Value of Unexercised
Number of Unexercised in-the-money Options
Shares Options at Fiscal Year End at Fiscal Year End ($) (1)
-------------------------- --------------------------
Acquired on Value
Name Exercise (#) Realized Exercisable Unexercisable Exercisable Unexercisable
---- ------------ -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
James R. Swartwout -0- -0- 37,500 -0- $113,350 -0-
- ------------------
</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.
401(k) Plan
- -----------
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 1995 was $85,000.
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.
49
<PAGE>
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.
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").
50
<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.
51
<PAGE>
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.
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.
52
<PAGE>
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.
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.
53
<PAGE>
LexaLite Selected Financial Data
(thousands of dollars-except per share amounts)
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>
Fiscal Years Ended June 30,
----------------------------------------------------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
Statement of Income Data:
<S> <C> <C> <C> <C> <C>
Net Sales................................................ $17,584 $22,210 $26,771 $33,235 $36,088
Costs and expenses:
Cost of sales........................................... 13,496 16,346 20,100 25,321 26,963
Selling, general and administrative..................... 2,348 3,490 3,833 4,518 5,002
Research and development................................ 387 413 554 671 885
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 2,550
Provision for income taxes............................... 334 624 631 802 962
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
Balance Sheet Data:
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
Net worth................................................ $ 4,192 $ 4,774 $ 5,983 $ 7,714 $ 9,505
</TABLE>
54
<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 the LexaLite Scientific Center which was opened in the
beginning of 1996.
Interest Expense. In 1996, interest expense was $721,000, an increase of
$185,000 from 1995, reflecting an increase in debt assumed to expand the
LexaLite Scientific Center. Approximately $159,000 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 1.4 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.
55
<PAGE>
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.
56
<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.
57
<PAGE>
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.
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.
<TABLE>
<CAPTION>
Summary Compensation Table
Annual Compensation Long Term Compensation
------------------------------------- -----------------------------
Awards Payouts
-----------------------
Long Term
Compensation
Salary Bonus Stock Awards, All Other
Name and Principal Position Year $ $ Awards($)(1) Options($) Compensation ($)
- --------------------------- ---- -------- ------- ------------ ---------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Josh T. Barnes, Chief 1996 60,000 64,248 --- --- 168,918 (2)(3)
Executive Officer
Thomas M. Phillips, 1996 102,000 76,516 83,453 125,619 53,804(3)
President
Patricia A. DeYoung, 1996 60,000 51,977 18,588 94,219 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 and does not include options to
purchase 3,500 and 2,500 shares granted to Mr. Barnes and Ms. DeYoung,
respectively.
(2) Includes consulting fees and commission payments 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, (ii) matching
contributions by LexaLite under the LexaLite Cafeteria Plan for insurance
premium payments, (iii) amounts allocated under the LexaLite Employee Stock
Ownership Plan, (iv) imputed income from premiums paid by LexaLite for term
life insurance maintained by LexaLite, and (v) amounts paid to participants
in the Stock Award Bonus Plan to pay withholding taxes relating to shares
awarded.
58
<PAGE>
Directors' Compensation
- ------------------------
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
which the Director is at the time residing, and is otherwise in addition to the
actual cost of travel to and from the meetings. A fee of $1,250 applies to any
special meetings or to meetings that exceed four (4) in any calendar year.
Employment Agreement
- --------------------
Josh T. Barnes serves as Chief Executive Officer of LexaLite under the
terms of an agreement dated September 17, 1993, with LexaLite. The agreement
confirms Mr. Barnes as an "at-will" employee of LexaLite and grants both Mr.
Barnes and LexaLite the right to terminate his employment at any time. The
agreement does not obligate LexaLite to provide Mr. Barnes any specific
severance compensation in the event his employment is terminated either by Mr.
Barnes or LexaLite, except that Mr. Barnes' salary and benefits would continue
for six months following termination. The agreement also includes a statement
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. The agreement provides for a salary of $60,000 per year, subject to
annual review by LexaLite's Board of Directors, and for reimbursement of
necessary costs and expenses and providing suitable transportation. The
agreement also defines the terms under which Mr. Barnes will be paid incentive
bonuses.
Mr. Barnes has also entered into a Non-Compete Agreement with LexaLite,
which will survive his termination of employment with LexaLite. The Non-Compete
Agreement is described below under "Management of LexaLite - Certain
Transactions."
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
June 30, 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 June 30, 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 current per share price at time
of option grant due to his percentage ownership LexaLite. No options under this
plan 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 June 30, 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
under this plan 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."
59
<PAGE>
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.
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.
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 product sold
to these selected customers. Sales for fiscal year 1995 were $32,843 and for
fiscal year 1996 were $11,674.
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
60
<PAGE>
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
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 with the modifications summarized above.
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.
61
<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.
62
<PAGE>
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.
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 __, 1997.
63
<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, 1994 and 1995 and
May 31, 1996 (unaudited)................................................................................................ F-2
Consolidated Statements of Income for each of the three years ended August 31, 1993, 1994 and
1995, and for the nine month periods ended May 31, 1995 and 1996 (unaudited)............................................ F-3
Consolidated Statements of Shareholders' Equity for each of the three years ended August 31, 1993, 1994
and 1995, and the nine months ended May 31, 1996 (unaudited)............................................................ F-4
Consolidated Statements of Cash Flows for each of the three years ended August 31, 1993, 1994 and 1995,
and for the nine month periods ended May 31, 1995 and 1996 (unaudited).................................................. 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, 1996 and 1995................................................................................ F-15
Statements of Income for each of the three years ended June 30, 1994, 1995 and 1996........................................ F-17
Statements of Changes in Stockholders' Equity for each of the three years ended
June 30, 1994, 1995 and 1996............................................................................................. F-18
Statements of Cash Flows for each of the three years ended June 30, 1994, 1995 and 1996.................................... F-19
Notes to Financial Statements.............................................................................................. F-20
</TABLE>
64
<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 1994 and
the related consolidated statements of income, shareholders' equity and cash
flows for each of the three years in the period ended August 31, 1995. 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 SUMMA INDUSTRIES and
subsidiaries as of August 31, 1995 and 1994, and the results of their operations
and their cash flows for each of the three years in the period ended August 31,
1995, in conformity with generally accepted accounting principles.
As discussed in Note 4 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 5, 1995 (except with
respect to the matter
discussed in Note 12, as to
which the date is September 5, 1996)
F-1
<PAGE>
SUMMA INDUSTRIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
August 31, August 31, May 31,
ASSETS 1994 1995 1996
(unaudited)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 234,000 $ 182,000 $ 238,000
Accounts receivable, net of allowance for doubtful accounts
of $75,000 in 1994, $59,000 in 1995 and $54,000 in 1996 1,241,000 1,396,000 1,629,000
Inventories 1,402,000 1,685,000 2,151,000
Prepaid expenses and other 138,000 318,000 192,000
Deferred tax asset 431,000 381,000 381,000
- ---------------------------------------------------------------------------------------------------------------
Total current assets 3,446,000 3,962,000 4,591,000
- ---------------------------------------------------------------------------------------------------------------
Property, plant and equipment, at cost:
Land 550,000 550,000 550,000
Building and leasehold improvements 1,080,000 1,208,000 1,272,000
Machinery and equipment 2,628,000 3,153,000 3,779,000
Office furniture and equipment 195,000 247,000 342,000
- ---------------------------------------------------------------------------------------------------------------
4,453,000 5,158,000 5,943,000
Less: Accumulated depreciation and amortization 1,138,000 1,554,000 1,939,000
- ---------------------------------------------------------------------------------------------------------------
Net property, plant and equipment 3,315,000 3,604,000 4,004,000
- ---------------------------------------------------------------------------------------------------------------
Net assets of discontinued operations 2,205,000 2,702,000 2,369,000
- ---------------------------------------------------------------------------------------------------------------
Other assets:
Goodwill, net of accumulated amortization of $51,000 in 1994,
$75,000 in 1995 and $93,000 in 1996 564,000 540,000 522,000
Other intangibles, net of accumulated amortization of $34,000
in 1994, $66,000 in 1995 and $100,000 in 1996 479,000 470,000 455,000
- ---------------------------------------------------------------------------------------------------------------
Total other assets 1,043,000 1,010,000 977,000
- ---------------------------------------------------------------------------------------------------------------
$10,009,000 $11,278,000 $11,941,000
===============================================================================================================
- ---------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
- ---------------------------------------------------------------------------------------------------------------
Current liabilities:
Revolving line of credit $ --- $ 938,000 $ 582,000
Accounts payable 222,000 486,000 930,000
Accrued salaries, wages and benefits 145,000 311,000 280,000
Accrued performance payments 595,000 178,000 171,000
Other accrued liabilities 289,000 167,000 325,000
Current maturities of long-term debt 109,000 --- 101,000
- ---------------------------------------------------------------------------------------------------------------
Total current liabilities 1,360,000 2,080,000 2,389,000
Long-term debt, net of current maturities 305,000 400,000 330,000
Deferred income taxes 687,000 794,000 794,000
Other long-term liabilities 433,000 74,000 52,000
- ---------------------------------------------------------------------------------------------------------------
Total liabilities 2,785,000 3,348,000 3,565,000
- ---------------------------------------------------------------------------------------------------------------
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,
1,529,957, 1,541,930 and 1,600,734 shares issued and outstanding
at August 31, 1994 and 1995 and May 31, 1996, respectively. 5,953,000 6,011,000 6,151,000
Retained earnings 1,271,000 1,919,000 2,225,000
- ---------------------------------------------------------------------------------------------------------------
Total shareholders' equity 7,224,000 7,930,000 8,376,000
- ---------------------------------------------------------------------------------------------------------------
$10,009,000 $11,278,000 $11,941,000
===============================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
<PAGE>
SUMMA INDUSTRIES
Consolidated Statements of Income
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Fiscal year ended August 31 Nine months ended May 31
--------------------------- ------------------------
(unaudited)
- ----------------------------------------------------------------------------------------------------------------------------------
1993 1994 1995 1995 1996
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $5,284,000 $10,279,000 $10,247,000 $ 7,647,000 $ 8,903,000
Cost of sales 3,016,000 5,510,000 5,609,000 4,168,000 4,928,000
- ----------------------------------------------------------------------------------------------------------------------------------
Gross profit 2,268,000 4,769,000 4,638,000 3,479,000 3,975,000
Selling, general and administrative expenses 1,700,000 3,623,000 3,480,000 2,626,000 3,035,000
- ----------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations before
provision for taxes, extraordinary item
and cumulative effect of accounting
change 568,000 1,146,000 1,158,000 853,000 940,000
Provision for income taxes 355,000 645,000 482,000 404,000 399,000
- ----------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations before
extraordinary item and cumulative effect
of accounting change 213,000 501,000 676,000 449,000 541,000
Income (loss) from discontinued operations,
net of the effect of income tax 179,000 118,000 (28,000) 4,000 (235,000)
Extraordinary item, tax benefit of net
operating loss carryforward 321,000 --- --- --- ---
Cumulative effect of accounting change --- 100,000 --- --- ---
- ----------------------------------------------------------------------------------------------------------------------------------
Net income $ 713,000 $ 719,000 $ 648,000 $ 453,000 $ 306,000
==================================================================================================================================
Income per common and equivalent shares
Income from continuing operations
before extraordinary item and
cumulative effect of accounting
change $ .21 $ .32 $ .44 $ .29 $ .34
Income (loss) from discontinued
operations, net of the effect of
income tax .18 .08 (.02) .00 (.15)
Extraordinary item .31 --- --- --- ---
Cumulative effect of accounting change --- .06 --- --- ---
- ----------------------------------------------------------------------------------------------------------------------------------
Net Income per common and equivalent
shares $ .70 $ .46 $ .42 $ $.29 $ .19
==================================================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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, 1992 972,745 $3,170,000 $ (161,000) $3,009,000
Exercise of Options 1,875 7,000 --- 7,000
Acquisition of KVP 555,275 2,776,000 --- 2,776,000
Net Income --- --- 713,000 713,000
- -------------------------------------------------------------------------------
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 (1) --- --- ---
Exercise of options 27,973 140,000 --- 140,000
Reserved shares,
acquisition of KVP 30,832 --- --- ---
Net Income --- --- 306,000 306,000
===============================================================================
Balance at May 31, 1996
(unaudited) 1,600,734 $6,151,000 $2,225,000 $8,376,000
===============================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
F-4
<PAGE>
SUMMA INDUSTRIES
Consolidated Statements of Cash Flows
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Fiscal year ended August 31 Nine months ended May 31
--------------------------- ------------------------
(unaudited)
1993 1994 1995 1995 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating activities:
Net income $713,000 $719,000 $648,000 $453,000 $306,000
- ------------------------------------------------------------------------------------------------------------------------------------
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 224,000 616,000 727,000 533,000 596,000
Provision for doubtful accounts receivable 17,000 22,000 (15,000) 6,000 18,000
Deferred income taxes --- --- 327,000 --- ---
(Gain) loss on disposition of property, plant
and equipment (4,000) 13,000 (10,000) (15,000) (55,000)
Net change in assets and liabilities, net of
effects from purchase of KVP Systems, Inc.
in fiscal 1993 and Armenco Engineering
in fiscal 1994:
Accounts receivable (74,000) (644,000) (6,000) (231,000) 67,000
Inventories 286,000 349,000 (1,617,000) (1,263,000) (38,000)
Prepaid expenses and other assets 42,000 (146,000) (203,000) 38,000 174,000
Accounts payable (8,000) (389,000) 759,000 618,000 4,000
Accrued liabilities 269,000 365,000 (845,000) (503,000) (44,000)
- ------------------------------------------------------------------------------------------------------------------------------------
Total adjustments 752,000 86,000 (883,000) (817,000) 722,000
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 1,465,000 805,000 (235,000) (364,000) 1,028,000
- ------------------------------------------------------------------------------------------------------------------------------------
Investing activities:
Acquisition of KVP Systems, Inc. in fiscal 1993
and Armenco Engineering in fiscal 1994, net
of cash acquired (31,000) (400,000) ---
Capital expenditures:
Property, plant and equipment (220,000) (834,000) (836,000) (572,000) (870,000)
Patents (4,000) (3,000) (16,000) (12,000) (8,000)
Net proceeds from the sale of equipment 8,000 21,000 53,000 53,000 91,000
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (247,000) (1,216,000) (799,000) (531,000) (787,000)
- ------------------------------------------------------------------------------------------------------------------------------------
Financing activities:
Net proceeds (payments) on line of credit (300,000) --- 938,000 811,000 (356,000)
Proceeds from long term debt 400,000 --- --- --- ---
Proceeds (payments) on long term debt (650,000) (7,000) --- --- 31,000
Principal payments under capital leases (56,000) (41,000) (14,000) (8,000) ---
Exercise of stock options 7,000 --- 34,000 33,000 140,000
Issuance of common stock --- --- 24,000 24,000 ---
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (599,000) (48,000) 982,000 860,000 (185,000)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash 619,000 (459,000) (52,000) (35,000) 56,000
Cash and cash equivalents, beginning of year 74,000 693,000 234,000 234,000 182,000
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of the year $693,000 $234,000 $182,000 $199,000 $238,000
====================================================================================================================================
</TABLE>
The accompanying notes are integral part of these consolidated financial
statements.
F-5
<PAGE>
SUMMA INDUSTRIES
Notes to Consolidated Financial Statements
For the years ended August 31, 1993, 1994 and 1995 and the nine months ended May
31, 1995 and 1996.
1. Summary of significant accounting policies
Principles of consolidation
The consolidated financial statements of the Company include SUMMA INDUSTRIES
and its wholly-owned subsidiaries, Morehouse-COWLES, Inc., GST Industries, Inc.,
and KVP Systems, Inc. All intercompany account balances and transactions have
been eliminated in consolidation. Certain reclassifications of 1994 amounts have
been made to conform to 1995 presentations.
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 Term of Lease
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.
Net income per common and equivalent share
Per share amounts are based on the weighted average number of common shares and
common equivalent shares outstanding during each year. Common equivalent shares
relate to shares issuable upon the exercise of stock options (Note 8). 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 1,020,000, 1,548,000 and 1,553,000 for 1993, 1994 and 1995,
respectively, and were 1,552,000 and 1,582,000 for the nine month periods ended
May 31, 1995 and 1996, respectively. The number of shares outstanding has been
adjusted to reflect the one for four reverse stock split in December 1993 (Note
7).
Other assets
Other assets primarily include goodwill and other intangibles such as trade
names, patents and customer relationships capitalized in connection with
acquisitions. Other intangibles are being amortized over their estimated useful
lives of 10-17 years. Goodwill is amortized over 25 years. Accumulated
amortization was $85,000 at August 31, 1994, $141,000 at August 31, 1995 and
$193,000 at May 31, 1996.
F-6
<PAGE>
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.
Cash payments related to interest and income taxes are as follows:
<TABLE>
<CAPTION>
Fiscal years ended August 31 Nine months ended May 31
1993 1994 1995 1995 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest expense $59,000 $49,000 $88,000 $53,000 $89,000
Income taxes 127,000 681,000 427,000 423,000 156,000
</TABLE>
The Company purchased all of the capital stock of KVP Systems, Inc. for
$2,855,000, primarily in stock, on July 30, 1993. The Company purchased certain
assets of Armenco Engineering on May 20, 1994 for cash of $400,000. In
conjunction with these acquisitions, liabilities of $1,337,000 and $337,000
respectively were assumed.
2. Inventories
Inventories were as follows:
<TABLE>
<CAPTION>
August 31 May 31
- --------------------------------------------------------------------------------
1994 1995 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Finished goods $660,000 $538,000 $587,000
Work in process 42,000 71,000 94,000
Materials and parts 700,000 1,076,000 1,470,000
- --------------------------------------------------------------------------------
$1,402,000 $1,685,000 $2,151,000
================================================================================
</TABLE>
3. Acquisitions
The acquisitions described below were accounted for as purchases and accordingly
the results of operations of the acquired entities have been included in the
consolidated financial statements from their respective acquisition dates.
On May 20, 1994, subsidiary Morehouse-COWLES, Inc., acquired certain assets of
Armenco Engineering for $912,000. The $338,000 excess of acquisition cost over
the fair value of the net assets was assigned to goodwill, customer list, trade
name and drawings and designs which are being amortized over 3 to 15 years.
On July 30, 1993, the Company acquired KVP Systems, Inc. for $2,855,000,
primarily in common stock. The $702,000 excess of the acquisition cost
(including transaction costs of $206,000) over the fair value of KVP's net
assets was assigned to customer list, trade name, and business relationships
which are being amortized over 15 years, and to goodwill, which is being
amortized over 25 years.
Pro forma operating results of the company, assuming that the acquisitions of
KVP Systems, Inc. and Armenco Engineering had been made as of September 1, 1992,
follow. Such information includes adjustments to reflect interest expense
incurred on acquisition debt, change in operating expenses, amortization of
costs in excess of net assets, tax provision of Armenco Engineering, which was a
Subchapter S corporation and the benefit of the federal net operating loss
carryforward. The pro forma results are not necessarily indicative of what
actually would have occurred if the acquisitions had been in effect for the
entire periods presented, nor are they intended to be a reflection of future
results.
F-7
<PAGE>
<TABLE>
<CAPTION>
Year ended August 31 1993 1994
- -------------------------------------------------------------------
<S> <C> <C>
Net sales $15,245,000 $17,328,000
- -------------------------------------------------------------------
Income before provision
for taxes and extraordinary item 809,000 1,402,000
Provision for taxes (474,000) (748,000)
Extraordinary item, tax benefit of net
operating loss carryforward 264,000
Cumulative effect of accounting change 100,000
- -------------------------------------------------------------------
Net income $ 599,000 754,000
===================================================================
Net income per share $ .39 $ .49
===================================================================
</TABLE>
4. Taxes based on income
The following table provides a reconciliation between the provision for taxes
based on income included in the accompanying consolidated statements of income
and a provision for taxes computed by applying the statutory income tax rate to
income before taxes and extraordinary item.
<TABLE>
<CAPTION>
1993 1994 1995
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Provision for taxes at statutory rates $194,000 $388,000 $394,000
State tax, net of federal benefit 70,000 107,000 70,000
Effect of performance payments 89,000 126,000 26,000
Other-net 2,000 24,000 (8,000)
- ----------------------------------------------------------------------
$355,000 $645,000 $482,000
======================================================================
</TABLE>
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
1993 1994 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ 9,000 $433,000 $244,000
State 75,000 140,000 81,000
- --------------------------------------------------------------------------------
84,000 573,000 325,000
- --------------------------------------------------------------------------------
Deferred: 271,000 72,000 157,000
- --------------------------------------------------------------------------------
$355,000 $645,000 $482,000
================================================================================
</TABLE>
Effective September 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes". This new 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 catch-up 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,
1994 and 1995 are as follows:
<TABLE>
<CAPTION>
1994 1995
- -------------------------------------------------------------------------------
<S> <C> <C>
Effect of performance payments $ 109,000 $ 40,000
State taxes 57,000 33,000
Reserves 194,000 308,000
Other items 71,000 ---
- -------------------------------------------------------------------------------
Total deferred tax assets 431,000 381,000
- -------------------------------------------------------------------------------
Depreciation (528,000) (626,000)
Amortization (159,000) (147,000)
Other items --- (21,000)
- -------------------------------------------------------------------------------
Total deferred tax liabilities (687,000) (794,000)
- -------------------------------------------------------------------------------
Net deferred tax liability $(256,000) $(413,000)
================================================================================
Changes in components of the Company's deferred tax balances are as follows:
Reserves $ 39,000 $ 114,000
Effect of performance payments (32,000) (69,000)
State taxes (26,000) (24,000)
Amortization (13,000) 12,000
Depreciation (7,000) (98,000)
Other (33,000) (92,000)
- -------------------------------------------------------------------------------
$ (72,000) $(157,000)
================================================================================
</TABLE>
5. Notes payable and long-term debt
The Company has a term loan from an officer of a subsidiary in the amount of
$400,000, secured by the Company's real estate in Fullerton, California.
Interest payments on the term loan are due monthly at 8 1/2%.
Principal payments on the term loan are due in subsequent years as follows:
<TABLE>
<CAPTION>
<S> <C>
1997 100,000
1998 100,000
1999 100,000
2000 100,000
------------------------------------------------
Total $400,000
================================================
</TABLE>
In January 1995, the Company entered into an agreement with a bank for a
$2,000,000 line of credit of which $938,000 was in use at August 31, 1995.
Interest is due monthly at the rate of Prime plus 1/4%. The line of credit is
secured by all the assets of the Company. The line of credit requires the
maintenance of certain financial ratios and minimum levels of working capital
and net worth, as defined.
6. Commitments and contingencies
The Company is involved in certain legal actions, including, patent, product
liability and warranty claims, which occur in the normal course of business. The
Company has insurance policies in varying amounts covering some of the
outstanding lawsuits. In the event a judgement were awarded in excess of the
insurance coverage, the burden would be borne by the Company. The Company does
not expect that the ultimate outcome of an unfavorable judgement in any of the
legal matters would result in a material adverse effect on the Company's
consolidated financial position. Such an unfavorable judgement could, however,
depending on the amount and the year, have a material impact on future results
of operations.
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
F-9
<PAGE>
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 November 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 $178,000, $620,000 and $440,000 were earned in
fiscal 1995, 1994 and 1993, respectively. The cumulative amount earned at August
31, 1995 is $1,548,000. 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 vehicles
under noncancelable operating leases which expire at various dates through July
1997. Rental expense charged to operations was approximately $154,000, $199,000
and $266,000 for the years ended August 31, 1993, 1994 and 1995, respectively.
The aggregate minimum future lease payments under these leases at August 31,
1995 are approximately as follows:
<TABLE>
<CAPTION>
Amount
<S> <C>
1996 $198,000
1997 35,000
-------------------------------------------------------
$233,000
=======================================================
</TABLE>
7. Capital stock
On December 14, 1993, the shareholders of the Company approved the amendment and
restatement of the articles of incorporation. In what effectively was a reverse
stock split, each shareholder of record on December 22, 1994 received one share
of newly issued common stock for every four shares of common stock held. This
reverse stock split resulted in $12,000 paid in lieu of fractional shares. The
amount of shares authorized to be issued did not change. The consolidated
financial statements and notes thereto, and the financial information appearing
elsewhere in this report have been restated to give retroactive effect to the
reverse split. In the restatement of the articles of incorporation, preferred
stock was amended for the authorization of 5,000,000 shares with a par value of
$.001. No preferred shares have been issued.
During the nine month period ended May 31, 1996, 30,832 shares of common stock
were issued to former directors 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.
8. Stock option plans and employee's benefit plans
Stock option plans
The Company has adopted Stock Option Plans (the "1984 Plan" and the "1991
Plan"), under which options to acquire an aggregate of 175,000 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 options activity:
F-10
<PAGE>
<TABLE>
<CAPTION>
1994 1995
- ------------------------------------------------------------------------------
<S> <C> <C>
Options outstanding at beginning of year 132,625 162,750
Granted 30,500 42,500
Cancelled (375) (7,000)
Exercised --- (7,000)
- ------------------------------------------------------------------------------
Options outstanding at end of year 162,750 191,250
- ------------------------------------------------------------------------------
Exercisable 119,292 151,582
==============================================================================
Option prices $1.50 to $6.50 $1.50 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,
47,083 were excersizable at August 31, 1995.
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, to
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 $8,000, $42,000 and $81,000 for the years ended August 31, 1993,
1994 and 1995, respectively.
9. Sales
Sales to the largest single customer represented 7.6%, 6.9%, and 4.3% of total
sales during 1993, 1994, and 1995, respectively.
Export sales by geographic area were as follows:
<TABLE>
<CAPTION>
(in thousands)
1993 1994 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Canada $ 28 $ 220 $ 341
Latin America 133 101 ---
Asia 637 1,868 800
Europe 78 186 769
Other 55 56 131
- --------------------------------------------------------------------------------
$931 $2,431 $2,041
================================================================================
</TABLE>
10. Business segment information
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, 1995, as well as the dollar value of the
assets identified to each subsidiary:
F-11
<PAGE>
Business Segment Summary
<TABLE>
<CAPTION>
Material Handling Firefighting Aerospace
Components Equipment Assemblies
- -------------------------------------------------------------------------------
Fiscal Year Ended August 31, 1995
<S> <C> <C> <C>
Net 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
Net 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
Fiscal Year Ended August 31, 1993
Net Sales $404,000 $2,627,000 $2,253,000
Operating Income 37,000 178,000 459,000
Identifiable Assets 2,637,000 1,054,000 1,156,000
</TABLE>
11. Unaudited quarterly results
<TABLE>
<CAPTION>
Quarters ended
- ------------------------------------------------------------------------------
November February May August
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
(in thousands, except per share amounts)
Fiscal 1994:
Net sales $2,306 $2,328 $2,996 $2,649
Gross profit 1,028 1,020 1,413 1,308
Income from continuing operations 122 112 108 159
Net income 231 70 185 233
Per Share:
Income from continuing operations $ .08 $ .07 $ .07 $ .10
Net income $ .15 $ .04 $ .12 $ .15
==============================================================================
Fiscal 1995:
Net sales $2,376 $2,503 $2,768 $2,600
Gross profit 1,308 1,394 1,466 1,441
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
==============================================================================
</TABLE>
F-12
<PAGE>
12. Discontinued Operations
Subsequent to May 31, 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. 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 flow. 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 $4,481,000, $5,555,000 and
$8,097,000 for the years ended August 31, 1993, 1994 and 1995, respectively and
were $6,048,000 and $5,638,000 for the nine month periods ending May 31, 1995
and 1996.
The components of net assets of discontinued operations included in the
consolidated balance sheets at August 31, 1994 and 1995 and May 31, 1996 are as
follows:
<TABLE>
<CAPTION>
August 31, 1994 August 31, 1995 May 31, 1996
<S> <C> <C> <C>
ASSETS
Accounts receivable, net $1,120,000 $986,000 $668,000
Inventory 1,038,000 2,372,000 1,944,000
Prepaid expenses and other 247,000 89,000 30,000
Property, plant and equipment, net 519,000 388,000 303,000
Goodwill and intangibles, net 329,000 297,000 272,000
---------- ---------- ---------
Total assets 3,253,000 4,132,000 3,217,000
LIABILITIES
Accounts payable 208,000 703,000 263,000
Accrued liabilities 840,000 727,000 585,000
---------- ---------- ---------
Total liabilities 1,048,000 1,430,000 848,000
---------- ---------- ---------
Net assets of discontinued operations $2,205,000 $2,702,000 $2,369,000
========== ========== ==========
</TABLE>
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.
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>
1 9 9 6 1 9 9 5 1 9 9 4
----------- ----------- -----------
<S> <C> <C> <C>
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 3,326,613 2,753,839 1,261,692
operating activities
----------- ----------- -----------
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 (953,943) (7,324,798) (3,195,875)
activities
----------- ----------- -----------
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 547,139 (155,277) (961,666)
CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS, beginning of 72,884 228,161 1,189,827
year
----------- ----------- -----------
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>
<S> <C>
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>
<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
======== ======== ========
The effective income tax rate differs from the statutory federal income
tax rate for the following reasons:
1 9 9 6 1 9 9 5 1 9 9 4
-------- -------- --------
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%
====== ====== ======
The major components of deferred income taxes at June 30, 1996 and 1995 are
as follows:
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>
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
--------
Exhibit
Number Description
------ -----------
2.1 Conformed Agreement and Plan of Reorganization by and between
Summa Industries and LexaLite International Corporation.
2.2 Agreement of Merger (included as Appendix I to the Joint Proxy
Statement/Prospectus.)
3.1 Articles of Incorporation of Summa Industries *
3.2 Certificate of Amendment of Articles of Incorporation of Summa
Industries***
3.3 Bylaws of Summa Industries *
5 Opinion of Phillips & Haddan (to be filed by amendment)
22 Subsidiaries *
24.1 Consent of Arthur Andersen LLP
II-1
<PAGE>
24.2 Consent of Arthur Andersen LLP.
24.3 Consent of Phillips & Haddan (to be contained in the opinion
to be filed as Exhibit 5)
25 Power of Attorney **
99.1 Form of Proxy for shareholders of Summa Industries ***
99.2 Form of Proxy for stockholders of LexaLite International
Corporation. ***
- ----------------------
* Incorporated by reference to the Annual Report on Form 10-K
for the fiscal year ended August 31, 1995, previously filed
with the Commission by Summa Industries under the Securities
and Exchange Act of 1934 (File No. 1-7755)
** The Power of Attorney follows the signature page to the
Registration Statement.
*** To be filed by amendment
(b) Financial Statement Schedules
-----------------------------
Schedule VIII Valuation and qualifying accounts.
II-2
<PAGE>
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-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Summa has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of Torrance, State of
California, on the 6th day of September, 1996.
SUMMA INDUSTRIES
By: s/James R. Swartwout
------------------------------------
James R. Swartwout, President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned officers and directors of Summa Industries, a California
corporation, do hereby constitute and appoint James R. Swartwout and Paul A.
Walbrun, and either of them, the lawful attorneys and agents or attorney and
agent, with power and authority to do any and all acts and things and to execute
any and all instruments which said attorneys and agents, and any one of them,
determine may be necessary or advisable or required to enable said corporation
to comply with the Securities Act of 1933, as amended, and any rules or
regulations or requirements of the Securities and Exchange Commission in
connection with this Registration Statement. Without limiting the generality of
the foregoing power and authority, the powers granted include the power and
authority to sign the names of the undersigned officers and directors in the
capacities indicated below to this Registration Statement, to any and all
amendments and supplements thereto, and to any and all instruments or documents
filed as part of or in connection with such Registration Statement, and each of
the undersigned hereby ratifies and confirms all that said attorneys and agents,
or any of them, shall do or cause to be done by virtue hereof. The Power of
Attorney may be signed in several counterparts.
IN WITNESS WHEREOF, each of the undersigned has executed this Power of
Attorney as of the 6th day of September, 1996.
II-4
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed below by the following persons in the
capacities indicated on the 6th day of September, 1996.
Signature Title Date
--------- ----- ----
/s/James R. Swartwout
- ------------------------ Chairman, Chief September 6, 1996
James R. Swartwout Executive Officer
and Chief Financial
Officer
/s/Coalson C. Morris
- ------------------------ Director September 6, 1996
Coalson C. Morris
/s/Dale H. Morehouse
- ------------------------ Director September 6, 1996
Dale H. Morehouse
/s/Michael L. Horst
- ------------------------ Director September 6, 1996
Michael L. Horst
- ------------------------ Director September __, 1996
William R. Zimmerman
/s/David McConanghy
- ------------------------ Director September 6, 1996
David McConanghy
/s/Karl V. Palmaer
- ------------------------ Director September 6, 1996
Karl V. Palmaer
/s/Byron C. Roth Director September 6, 1996
- ------------------------
Byron C. Roth
/s/Paul A. Walbrun Vice President, September 6, 1996
- ------------------------- Controller
Paul A. Walbrun and Secretary
II-5
<PAGE>
Summa Industries
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Sequential
Exhibit No. Page
- ----------- ----------
<S> <C>
2.1 Conformed Agreement and Plan of Reorganization by and between Summa Industries
and LexaLite International Corporation.
2.2 Agreement of Merger (included as Appendix I to the Joint Proxy
Statement/Prospectus.)
3.1 Articles of Incorporation of Summa Industries *
3.2 Certificate of Amendment of the Articles of Incorporation of Summa Industries ***
3.3 Bylaws of Summa Industries *
5 Opinion of Phillips & Haddan (to be filed by amendment)
22 Subsidiaries *
24.1 Consent of Arthur Andersen LLP
24.2 Consent of Arthur Andersen LLP.
24.3 Consent of Phillips & Haddan (to be contained in the opinion to be filed as
Exhibit 5)
25 Power of Attorney **
99.1 Form of Proxy for shareholders of Summa Industries ***
99.2 Form of Proxy for stockholders of LexaLite International Corporation. ***
</TABLE>
- ---------------------------
* Incorporated by reference to the Annual Report on Form 10-K for the fiscal
year ended August 31, 1995, previously filed with the Commission by Summa
Industries under the Securities and Exchange Act of 1934 (File No.1-7755)
** The Power of Attorney follows the signature page to the Registration
Statement.
*** To be filed by amendment.
1
<PAGE>
EXHIBIT 2.1
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made and
entered into effective as of _____________, 1996, by and among LEXALITE
INTERNATIONAL CORPORATION, a Delaware corporation (together with any and all
consolidated subsidiaries, "LexaLite") and SUMMA INDUSTRIES, a California
corporation (together with any and all consolidated subsidiaries, "Summa").
R E C I T A L S
- - - - - - - -
A. The authorized capital of LexaLite consists of 2,000,000 shares of
Common Stock, $1.00 par value, of which 1,440,918 shares are issued and
outstanding and held of record by a total of 44 shareholders as of the date
hereof.
B. The authorized capital of Summa consists of 10,000,000 shares of Common
Stock, $.001 par value, of which 1,603,484 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.
C. The Common Stock of Summa is registered under Section 12(g) of the
Securities Exchange Act of 1934 and traded in The Nasdaq National Market under
the symbol "SUMX".
D. The respective Boards of Directors of LexaLite and Summa deem it
advisable and generally to the advantage of each, and in the best interest of
their respective shareholders, to merge a newly-to-be-formed California
corporation which will be a wholly-owned subsidiary ("Subsidiary") of Summa with
and into LexaLite, under and pursuant to the provisions of the California
Corporations Code and the Delaware General Corporation Law. Accordingly, the
respective Boards of Directors of LexaLite and Summa have approved, and will
recommend for approval of their respective shareholders, this Agreement and the
merger contemplated hereby, and have directed their respective proper officers
to execute and deliver this Agreement and to cause the respective corporations
to perform each of their respective obligations hereunder.
E. It is the intention of the parties hereto that all of the issued and
outstanding capital stock of LexaLite be acquired by Summa solely in exchange
for shares of the Common Stock of Summa, and that such transaction qualify as a
tax-free reorganization under Section 368(a) of the Internal Revenue Code of
1986, as amended.
F. The parties hereto simultaneously are executing that certain document
of even date herewith entitled "Agreement of Merger", a copy of which is
attached hereto as Exhibit A, which, when also executed by Subsidiary, shall be
---------
filed with the Secretary of State of the State of California and the Secretary
of State of the State of Delaware on the Effective Date of the Merger (as
defined hereinbelow).
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
agreements, representations, warranties and covenants herein contained, and
subject to the terms and conditions hereinafter set forth, the parties hereby
agree in accordance with the California Corporations Code, the
1
<PAGE>
Delaware General Corporation Law, the provisions of the Agreement of Merger, and
the provisions of this Agreement, that, at the Effective Time of the Agreement
of Merger, Subsidiary shall be merged with and into LexaLite (the "Merger"),
such that LexaLite, as the "Surviving Corporation" in the Merger shall continue
as a single corporation existing under the laws of the State of Delaware and as
a wholly-owned subsidiary of Summa, and the parties hereto hereby adopt and
agree to the following agreements, terms, and conditions relating to the Merger
and the manner of carrying the same into effect.
1. DEFINITIONS.
-----------
1.1 "Agreement" shall mean, and the words "herein", "hereof", "hereunder"
and words of similar import shall refer to this instrument and any amendment
hereto.
1.2 "Agreement of Merger" shall refer to that certain document of even
date herewith, a copy of which is attached hereto as Exhibit A, the terms of
---------
which are fully incorporated into, and the satisfaction of which is an express
condition of, this Agreement.
1.3 "Summa Common Stock" shall refer to any and all common stock of Summa.
1.4 "Summa Shareholders" shall refer to those holders of Summa Common
Stock of record immediately prior to the Effective Time.
1.5 "Commission" shall refer to the Securities and Exchange Commission.
1.6 "Effective Date" shall mean the date specified in Section 4.3 hereof.
1.7 "Effective Time" shall mean that time specified in Section 4.3 hereof.
1.8 "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
1.9 "Knowledge" shall mean, with respect to an entity, actual knowledge of
the Chief Executive Officer, the President and/or the Chief Administrative
Officer of that entity and, with respect to an individual, actual knowledge of
that individual.
1.10 "LexaLite Common Stock" shall refer to any and all common stock of
LexaLite.
1.11 "LexaLite Shareholders" shall refer collectively to any and all
holders of (i) LexaLite Common stock of record immediately prior to the
Effective Time, (ii) options, warrants, calls, commitments or other rights to
acquire shares of LexaLite Common Stock outstanding immediately prior to the
Effective Time, and (iii) securities that are convertible into or exchangeable
for any shares of LexaLite Common Stock and are outstanding immediately prior to
the Effective Time. A full and complete list of all LexaLite Shareholders of
record is attached hereto as Exhibit B.
---------
1.12 "Person" shall refer to any corporation, trust, partnership,
individual, association or other entity.
2
<PAGE>
1.13 "Securities Act" shall refer to the Securities Act of 1933, as
amended.
1.14 "Subsidiary" shall refer to Charlevoix The Beautiful, Inc., a newly-
to-be-formed California corporation which will be a wholly-owned subsidiary of
Summa.
1.15 "Surviving Corporation" shall refer to LexaLite as the survivor of
the Merger.
1.16 "Joint Proxy Statement/Prospectus" shall mean the joint proxy
statement of Summa and LexaLite and all supplements and amendments thereto,
mailed to shareholders of Summa and LexaLite in connection with the Merger.
1.17 "Registration Statement" shall mean the Registration Statement on
Form S-4 to be filed with the Commission by Summa under the Securities Act, and
any amendments thereto, for the purpose of registering the Summa Common Stock to
be issued in connection with the transactions contemplated by this Agreement.
1.18 "Exchange Agent" shall mean U. S. Stock Transfer Corporation, the
transfer agent and registrar for the Summa Common Stock.
2. THE SURVIVING CORPORATION.
-------------------------
2.1 Name of Surviving Corporation. The corporation which shall survive
-----------------------------
the Merger is LexaLite (sometimes hereinafter referred to as the "Surviving
Corporation").
2.2 Certificate of Incorporation. Except as provided in Section 2.3
----------------------------
below, the Certificate of Incorporation of LexaLite, as in effect immediately
before the Effective Time shall from and after the Effective Time be and
continue to be the Certificate of Incorporation of the Surviving Corporation
until changed or amended as provided by law or such Certificate of
Incorporation.
2.3 Authorized Capitalization of Surviving Corporation. The total number
--------------------------------------------------
of shares of all classes of capital stock which the Surviving Corporation shall
have authority to issue shall be 1,000 shares of Common Stock, at $.001 par
value per share.
2.4 Bylaws. The Bylaws of LexaLite as in effect immediately before the
------
Effective Time shall be the Bylaws of the Surviving Corporation until changed or
amended as provided in accordance with law, the 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 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.
2.5 Directors. There shall be (3) directors of the Surviving Corporation
---------
from and after the Effective Time (until changed in accordance with applicable
law and the Articles of Incorporation and Bylaws of the Surviving Corporation),
who shall be: James R. Swartwout, Josh T. Barnes and Thomas M. Phillips.
3
<PAGE>
3. CONVERSION OF SHARES, OPTIONS AND OTHER SECURITIES.
--------------------------------------------------
3.1 Manner of Converting Shares. The manner and basis of converting
---------------------------
shares of capital stock of each of Subsidiary and LexaLite into shares of
capital stock of the Surviving Corporation and of Summa shall be as follows:
3.1.1 Subsidiary Common Stock. Each share of the Subsidiary's Common
-----------------------
Stock outstanding on the Effective Date shall be converted into and become at
the Effective Time one fully paid and nonassessable share of common stock, $1.00
par value per share, of the Surviving Corporation.
3.1.2 LexaLite Common Stock and Options.
---------------------------------
(a) Subject in all events to the provisions of Section 3.1.2(c) below, each
share of Lexalite Common Stock outstanding on the Effective Date shall, as a
consequence of the Merger, be converted into one and one-half (1.5) shares of
Summa Common Stock.
(b) Subject in all events to the provisions of Section 3.1.2(c) below, all
Options (as defined in Section 6.2(a) below) shall be canceled as of the
Effective Time by agreements with the holders thereof to accept, in the place
thereof, options to purchase one and one-half (1.5) times as many shares of
Summa Common Stock, at the same aggregate exercise price, all as provided in
Section 10.7 below.
(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 Shareholders 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 Lexalite Shareholders 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 LexaLite Shareholders 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. 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 Shareholders as a group as provided above if the increased number of
shares would exceed 3,000,000, including the shares to be issuable upon exercise
of the warrants and options to be granted as provided in Section 10.7 below.
3.1.3 LexaLite Common Stock Owned by LexaLite. Shares of the 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.
4
<PAGE>
3.2 Surrender and Exchange of LexaLite Stock. 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 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 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 Fractional Shares. 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 Dissenting Shares. Each LexaLite Shareholder, if any, and each Summa
-----------------
Shareholder, 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 Summa, but only after the value
thereof shall have been agreed upon or finally determined pursuant to such
provisions. Perfected Dissenting Shares acquired by Summa, if any, shall be
canceled.
4. SHAREHOLDER APPROVALS AND EFFECTIVE DATE.
----------------------------------------
4.1 Approval by LexaLite Shareholders. As provided in Section 8.8 below,
---------------------------------
a special meeting of the LexaLite Shareholders shall be called to be held in
accordance with the Delaware General Corporation Law no later than November 6,
1996, at a time, place and date to be set by the LexaLite Board of Directors,
for the purposes of considering and voting upon a proposal to approve this
Agreement and the Merger contemplated hereby. The Board of Directors of
LexaLite has unanimously recommended that the LexaLite Shareholders approve this
Agreement and the Merger, and certain of
5
<PAGE>
the LexaLite Shareholders, who together own or have voting control over
beneficially approximately forty-six percent (46%) of the LexaLite Common Stock
currently outstanding, have expressed their present intention to vote in favor
of this Agreement and the Merger at the special meeting.
4.2 Approval by Summa Shareholders. As provided in Section 8.6 below, a
------------------------------
special meeting of the Summa Shareholders shall be called to be held in
accordance with the California Corporations Code no later than November 6, 1996,
at a time, place and date to be set by the Summa Board of Directors, for the
purposes of considering and voting upon a proposal to approve this Agreement and
Merger contemplated hereby. The Summa Board of Directors has unanimously
recommended that the Summa shareholders approve this Agreement and the Merger,
and the current members of the Summa Board of Directors, who together own or
have voting control over an aggregate of approximately ten percent (10%) of the
Summa Common Stock currently outstanding, have expressed their present intention
to vote in favor of this Agreement and the Merger at the special meeting.
Summa, as the sole shareholder of Subsidiary, shall approve this Agreement and
the Merger contemplated hereby.
4.3 Effective Date and Time. Upon approval of this Agreement and the
-----------------------
Merger contemplated hereby by the LexaLite Shareholders, the Summa Shareholders,
and Summa as the sole shareholder of Subsidiary, and provided that the Merger is
not thereafter terminated as provided in Section 13 hereof, the Agreement of
Merger, along with any and all other necessary documents, shall be executed by
each of LexaLite, Summa and Subsidiary, and delivered to the California
Secretary of State, in accordance with applicable provisions of the California
Corporations Code and to the Delaware Secretary of State in accordance with the
Delaware General Corporation Law. The Merger shall become effective on the date
when the Agreement of Merger, along with any and all other necessary documents,
has been duly filed with the California Secretary of State and the Delaware
Secretary of State. The date of such effectiveness is referred to herein as the
"Effective Date", and the time of such filing and effectiveness is referred to
herein as the "Effective Time." LexaLite and Summa shall agree upon the date on
which the Agreement of Merger shall be submitted for filing in the State of
California and the State of Delaware.
5. EFFECT OF MERGER.
----------------
5.1 Cessation of Subsidiary's Existence. When the Merger becomes
-----------------------------------
effective, the separate existence of Subsidiary shall cease, Subsidiary shall be
merged into LexaLite, as the Surviving Corporation, the Surviving Corporation,
without further action, shall succeed to and shall possess and enjoy all the
rights, privileges, immunities, powers, purposes, and franchises, both of a
public and private nature, and be subject to all restrictions, disabilities, and
duties of Subsidiary, and the Merger shall have the effects on LexaLite and
Subsidiary as provided under the California Corporations Code and the Delaware
General Corporation Law.
5.2 Property. All of Subsidiary's property, whether real, personal, or
--------
mixed, and all debts due to Subsidiary on whatever account, including stock
subscriptions, causes of action, and every other asset of Subsidiary, shall be
vested in the Surviving Corporation. All of such property, rights, privileges,
powers and franchises shall be thereafter as effectually the property of the
Surviving Corporation as they were of Subsidiary. Title to any real estate and
to any other property, whether by
6
<PAGE>
deed or otherwise, under the laws of the State of California or of any other
jurisdiction, that is vested in Subsidiary shall not revert or be in any way
impaired by reason of the Merger or the statutes providing therefor.
5.3 Creditor Rights. All rights of creditors and all liens upon the
---------------
property of LexaLite existing immediately prior to the Effective Time shall be
preserved unimpaired, and all debts, liabilities, obligations, penalties, and
duties of Subsidiary shall thenceforth attach to the Surviving Corporation, and
may be enforced against it to the same extent as if they had been incurred or
contracted by it. No liability or obligation due or to become due, claim, or
demand existing against either corporation, or any shareholder, officer, or
director thereof, shall be impaired by the Merger.
5.4 Legal Actions. No action or proceeding, whether civil or criminal,
-------------
pending on the Effective Date by or against either corporation, or any
shareholder, officer, or director thereof, shall abate or be discontinued by the
merger, but may be enforced, prosecuted, settled, or compromised as if the
merger had not occurred, or the Surviving Corporation may be substituted in such
action or special proceeding in place of Subsidiary.
5.5 Delivery of Documents. At any time, or from time to time, after the
---------------------
Effective Date, the last acting officers of Subsidiary, or the corresponding
officers of the Surviving Corporation, may, in the name of Subsidiary, execute
and deliver all such proper deeds, assignments, and other instruments and take
or cause to be taken all such further or other action as the Surviving
Corporation may deem necessary or desirable in order to vest, perfect, or
confirm in the Surviving Corporation title to and possession of all of
Subsidiary's property, rights, privileges, immunities, powers, purposes, and
franchises, and otherwise to carry out the purposes of this Agreement.
6. REPRESENTATIONS AND WARRANTIES OF LEXALITE.
------------------------------------------
LexaLite hereby represents and warrants to, and covenants with, Summa as
follows (it being acknowledged that Summa is entering into this Agreement in
material reliance upon each of the following representations and warranties, and
that the truth and accuracy of each of which constitutes a condition precedent
to the obligations of each of Summa and Subsidiary hereunder):
6.1 Organization and Corporate Power. LexaLite is a corporation duly
--------------------------------
incorporated, validly existing and in good standing under the laws of the State
of Delaware, and is duly qualified and in good standing to do business as a
foreign corporation in each jurisdiction in which such qualification is required
and where the failure to be so qualified would have a materially adverse effect
upon LexaLite. LexaLite has all requisite corporate power and authority to
conduct its business as now being conducted and to own and lease the properties
which it now owns and leases. The Certificate of Incorporation as amended to
date, certified by the Delaware Secretary of State, the Bylaws of LexaLite as
amended to date, the resolutions of LexaLite's directors authorizing the
execution, delivery and performance of this Agreement, all certified by the
President and the Secretary of LexaLite, which have previously been provided to
Summa by LexaLite, are true and complete copies thereof as currently in effect.
7
<PAGE>
6.2 Capitalization.
--------------
(a) The authorized capital stock of LexaLite consists of 2,000,000 shares
of LexaLite Common Stock and no shares of preferred stock. As of the date
hereof, there are 1,440,918 shares of LexaLite Common Stock issued and
outstanding. All of the issued and outstanding shares of LexaLite Common Stock
were validly issued and are fully paid, nonassessable and free of preemptive
rights. In addition, there are currently outstanding options to purchase from
LexaLite an aggregate of 142,540 additional shares of LexaLite Common Stock (the
"Options"). Set forth on Exhibit B attached hereto is a full and complete
---------
listing setting forth (i) the name, address and number of shares held, of record
and to the Knowledge of LexaLite beneficially owned, by each holder of LexaLite
Common Stock (including without limitation each beneficiary of the LexaLite
International Corporation Employee Stock Ownership Trust), and (ii) the name and
address of each holder of all Options that are outstanding as of the date
hereof, and the number of shares subject to each such Option.
(b) Except expressly set forth in Section 6.2(a) above and on Exhibit B
---------
attached hereto, there are no warrants, options, calls, commitments or other
rights to subscribe for or to purchase from LexaLite any capital stock of
LexaLite or any securities convertible into or exchangeable for any shares of
capital stock of LexaLite, or any other securities or agreement pursuant to
which LexaLite is or may become obligated to issue any shares of its capital
stock, nor is there outstanding any commitment, obligation or agreement on the
part of LexaLite to repurchase, redeem or otherwise acquire any of the
outstanding shares of its capital stock.
6.3 Ownership of LexaLite Stock. To LexaLite's Knowledge, each LexaLite
---------------------------
Shareholder is the owner of that number of shares of LexaLite Common Stock set
forth opposite his respective name on Exhibit B attached hereto, which shares
---------
together constitute all of the issued and outstanding shares of the capital
stock of LexaLite; and LexaLite has no Knowledge that any of such shares of
LexaLite Common Stock are subject to (i) any lien, charge, mortgage, pledge,
conditional sale agreement, or other encumbrance of any kind or nature
whatsoever, and/or (ii) any claim as to ownership thereof or any rights, powers
or interest therein by any third party, whether legal or beneficial, and whether
based on contract, proxy or other document or otherwise.
6.4 Authorization. LexaLite has full corporate power and authority to
-------------
enter into, execute and deliver this Agreement, to execute all attendant
documents and instruments necessary to consummate the transactions herein
contemplated, and to perform its obligations hereunder, subject to receipt of
the requisite approval of the LexaLite Shareholders. This Agreement, and each
and every other agreement, document and instrument to be executed by LexaLite
hereunder, has been effectively authorized by all necessary action on the part
of the Board of Directors of LexaLite, which authorizations remain in full force
and effect, has been duly executed and delivered by LexaLite, and no other
authorizations or proceedings on the part of LexaLite are required to authorize
this Agreement and/or the transactions contemplated hereby, except for receipt
of the requisite approval of the LexaLite Shareholders. This Agreement
constitutes the legal, valid and binding obligation of LexaLite, subject to
receipt of the requisite approval of the LexaLite Shareholders, enforceable with
respect to LexaLite in accordance with its terms, except as enforcement hereof
may be limited by bankruptcy, insolvency, reorganization, priority or other laws
or court decisions relating to or affecting generally the enforcement of
creditors' rights or affecting generally the availability of equitable remedies.
Other than
8
<PAGE>
in connection with the filing of the Agreement of Merger with the California
Secretary of State and the Delaware Secretary of State and the proceedings
contemplated by Section 8.8 hereof, no authorization, consent or approval of any
public body or authority is necessary for the consummation of LexaLite of the
transactions contemplated by this Agreement.
6.5 No Conflicts. Except as disclosed on the LexaLite Disclosure Schedule
------------
attached hereto as Exhibit C, neither the execution and delivery of this
---------
Agreement, nor the consummation by LexaLite of any of the transactions
contemplated hereby, or compliance with any of the provisions hereof, will (i)
conflict with or result in a breach of, violation of, or default under any of
the terms, conditions or provisions of any note, bond, mortgage, indenture,
license, lease, credit agreement or other agreement, document, instrument or
obligation (including, without limitation, any of LexaLite's charter documents)
to which LexaLite is a party or by which any of its assets or properties may be
bound, or (ii) violate any judgment, order, injunction, decree, statute, rule or
regulation applicable to LexaLite or any of its officers, directors, employees,
assets or properties, excluding from the foregoing clauses (i) and (ii) any
conflicts, breaches, violations or defaults that would not have a materially
adverse affect on LexaLite or materially impair LexaLite's ability to consummate
the transactions contemplated hereby or for which LexaLite shall have received
before the Effective Time appropriate consents or waivers.
6.6 Subsidiaries. LexaLite has no subsidiaries and no investments,
------------
directly or indirectly, or other financial interest in any other corporation or
business organization, joint venture or partnership of any kind whatsoever
except as reflected in the LexaLite Financial Statements (defined in Section 6.7
below) or shown on the LexaLite Disclosure Schedule.
6.7 Financial Statements. Attached hereto as Exhibit D are (i) the
-------------------- ---------
audited financial statements of LexaLite for each of its fiscal years ended June
30, 1993, 1994 and 1995, consisting of LexaLite's balance sheets as of such
dates, the related statements of profit and loss for the periods then ended, and
the notes thereto, certified by Arthur Andersen LLP as to the fiscal year ended
June 30, 1995 and by Smolinski, Kanine & Christman, LLP, as to the fiscal years
ended June 30, 1993 and 1994, (ii) unaudited financial statements of LexaLite
for the 11 months ended May 31, 1996, consisting of LexaLite's balance sheet as
of such date (the "LexaLite Balance Sheet"), the related statement of profit and
loss for the period then ended, and the notes thereto, certified by the Director
of Corporate Finance of LexaLite. Such financial statements (and the notes
related thereto) are herein sometimes collectively referred to as the "LexaLite
Financial Statements." The LexaLite Financial Statements (i) are derived from
the books and records of LexaLite, which books and records have been
consistently maintained in a manner which reflects, and such books and records
do fairly and accurately reflect, the assets and liabilities of LexaLite, (ii)
fairly and accurately present the financial condition of LexaLite on the
respective dates of such statements and the results of its operations for the
periods indicated, except as may be disclosed in the notes thereto, and (iii)
have been prepared in all material respects in accordance with generally
accepted accounting principles consistently applied throughout the periods
involved (except as otherwise disclosed in the notes thereto).
9
<PAGE>
6.8 Absence of Undisclosed Liabilities. Except as and to the extent
----------------------------------
reflected or reserved against in the LexaLite Balance Sheet, and as to matters
arising in the ordinary course of its business since the date of the LexaLite
Balance Sheet or that are disclosed in the LexaLite Disclosure Schedule attached
hereto, LexaLite has no liability or obligation (whether accrued, to become due,
contingent or otherwise) which individually or in the aggregate could have a
materially adverse effect on the business, assets, or condition (financial or
otherwise) of LexaLite.
6.9 Absence of Certain Developments. Except as set forth in the LexaLite
-------------------------------
Disclosure Schedule, since the date of the LexaLite Balance Sheet there have
been (i) no declaration, setting aside or payment of any dividend or other
distribution with respect to any capital stock of LexaLite, no redemption,
purchase or other acquisition of any shares of LexaLite's capital stock, and no
split-up or other recapitalization relative to any of LexaLite's capital stock,
nor any action authorizing or obligating LexaLite to do any of the foregoing;
(ii) no loss, destruction or damage to any material property or asset of
LexaLite, whether or not insured; (iii) no acquisition or disposition of
material assets (or any contract or arrangement therefor), or any other material
transaction by LexaLite otherwise than for fair value and in the ordinary course
of business; (iv) no discharge or satisfaction by LexaLite of any lien or
encumbrance or payment of any material obligation or liability (absolute or
contingent) other than current liabilities shown on the LexaLite Balance Sheet,
or current liabilities incurred since the date thereof in the ordinary course of
business, (v) no sale, assignment or transfer by LexaLite of any of its tangible
or intangible assets including any security interest or other encumbrance, or
waiver by LexaLite of any rights of value which, in any such case, is outside
the ordinary course of business and material to the business of LexaLite; (vi)
no payment or accrual of any bonus to or change in the compensation of any
director, officer or employee, whether directly or by means of any bonus,
pension plan, contract or commitment; (vii) no write-off or material reduction
in the carrying value of any asset which is material to the business of
LexaLite; (viii) no disposition or lapse of rights as to any intangible property
which is material to the business of LexaLite; (ix) except for ordinary travel
advances, no loans or extensions of credit to shareholders, officers, directors
or employees of LexaLite, (x) no agreement to do any of the things described in
this Section 6.9, and (xi) no materially adverse change in the condition
(financial or otherwise) of LexaLite or in its assets, liabilities, properties,
or business.
6.10 Real Property. Set forth as a part of the LexaLite Disclosure
-------------
Schedule is a complete and accurate legal description of each parcel of real
property owned by or leased to and occupied by LexaLite, and LexaLite neither
owns or leases, nor occupies, any other real property. Except as would be
disclosed in a reasonably diligent inspection, to LexaLite's Knowledge, the
building and all fixtures and improvements located on such real property are in
good operating condition, ordinary wear and tear excepted. To LexaLite's
Knowledge, LexaLite is not in violation of any zoning, building or safety
ordinance, regulation or requirement or other law or regulation applicable to
the operation of owned or leased properties, the violation of which could
reasonably be expected to have a material adverse affect upon Lexalite, its
condition (financial or otherwise), assets, liabilities, properties or business,
and LexaLite has not received any notice of violation with which it has not
complied or is not taking steps to comply. LexaLite has good and marketable
title to all such real property owned by LexaLite, free and clear of all liens,
mortgages, encumbrances, easements, leases, restrictions and claims of any kind
whatsoever except for (i) those matters shown on the LexaLite Disclosure
Schedule, and (ii) liens for taxes for the current year and tax assessments not
yet due and payable. All leases of real property to which LexaLite is a party
and which are material to the business
10
<PAGE>
of LexaLite are fully effective in accordance with their respective terms and
afford LexaLite peaceful and undisturbed possession of the subject matter of the
lease, and there exists no material default on the part of LexaLite or
termination thereof, except as may be set forth in the LexaLite Disclosure
Schedule.
6.11 Tangible Personal Property. Set forth as a part of the LexaLite
--------------------------
Disclosure Schedule hereto is a complete list of all items of tangible personal
property (including without limitation all items of tooling) owned, leased or
otherwise used by LexaLite in the current conduct of its business, wherever
located, where the original cost was in excess of $5,000.00. Except as set
forth in the LexaLite Disclosure Schedule, LexaLite has, and at the Effective
Date will have, good and marketable title to, or in the case of leased equipment
a valid leasehold interest in, and is in the possession of, all such items of
personal property owned or leased by it, free and clear of all title defects,
mortgages, pledges, security interests condition sales agreements, liens,
restrictions or encumbrances whatsoever. Included in the LexaLite Disclosure
Schedule is a list of all outstanding equipment leases and maintenance
agreements to which LexaLite is a party as lessee and which individually provide
for future lease payments in excess of $500 per month, with the identities of
the other parties to all such leases and agreements shown thereon. All leases
of tangible personal property to which LexaLite is a party and which are
material to the business of LexaLite are fully effective in accordance with
their respective terms, and there exists no material default on the part of
LexaLite or termination thereof, except as may be set forth in the LexaLite
Disclosure Schedule. Each item of capital equipment reflected in the LexaLite
Balance Sheet which is used in the current conduct of LexaLite's business is,
and on the date of the Effective Date will be, in good operating and usable
condition and repair, ordinary wear and tear excepted, and is and will be
suitable for use in the ordinary course of LexaLite's business and fit for its
intended purposes, except as may be set forth in the LexaLite Disclosure
Schedule.
6.12 Tax Matters. LexaLite has, since its inception, duly filed all
-----------
federal, state, county and local tax returns required to have been filed by it
in those jurisdictions where the nature or conduct of its business requires such
filing and where the failure to so file would be materially adverse to LexaLite.
Copies of all such tax returns have been made available for inspection by Summa
prior to the execution hereof. All federal, state, county and local taxes,
including but not limited to those taxes due with respect to LexaLite's
properties, income, gross receipts, excise, occupation, franchise, permit,
licenses, sales, payroll, and inventory due and payable as of the date of the
Effective Date by LexaLite have been paid. The amount reflected in the LexaLite
Balance Sheet as liabilities or reserves for taxes which are due but not yet
payable is sufficient for the payment of all accrued and unpaid taxes of the
types referred to hereinabove. No consent to the application of Section
341(f)(2) of the Internal Revenue Code of 1986, as amended, has been filed with
respect to LexaLite.
6.13 Accounts Receivable. The accounts receivable reflected in the
-------------------
LexaLite Balance Sheet constituted all accounts receivable of LexaLite as of the
date thereof, other than accounts receivable fully written off as uncollectible
as of such date in accordance with consistently applied prior practice. All
such accounts receivable arose from valid sales made (as opposed to
consignments) or services rendered, in the ordinary course of business, and are
not subject to any return privileges, set-off or counter-claim, except as
disclosed on the LexaLite Disclosure Schedule. Except as disclosed on the
LexaLite Disclosure Schedule, such accounts receivable have been collected in
full since the date of the LexaLite Balance Sheet or, to LexaLite's Knowledge,
are collectible at their full respective amounts (net of allowance for doubtful
accounts established in accordance with consistently applied prior
11
<PAGE>
practice). Based upon the prior experience of LexaLite, the "allowance for
doubtful accounts" shown on the LexaLite Balance Sheet is sufficient to cover
all doubtful accounts.
6.14 Inventories. LexaLite has good and marketable title to all of its
-----------
inventories of raw materials, work-in-process and finished goods, including
models and samples, free and clear of all security interests, liens, claims and
encumbrances, except as set forth in the LexaLite Disclosure Schedule. All such
inventories consist of items that are usable and salable in the ordinary course
of business of LexaLite for an amount at least equal to the book value thereto,
plus the costs of disposition thereof, and represent quantities not in excess of
one year's requirements for its business as currently conducted, except as may
be set forth in the LexaLite Disclosure Schedule.
6.15 Contracts and Commitments. LexaLite has no contract, agreement,
-------------------------
obligation or commitment, written or oral, expressed or implied, which involves
a commitment or liability in excess of $10,000 or for a term of more than one
year or whose terms prohibit cancellation without liability on 30 days' notice
or less (other than obligations which are included in accounts payable), and no
union contracts, employee or consultant contracts, loan, credit or other
financing agreements, inventory flooring arrangements, debtor or creditor
arrangements, security agreements, licenses, franchise, manufacturing,
distributorship or dealership agreements, leases, or bonus, health or stock
option plans, except for those described in the LexaLite Disclosure Schedule,
all of which have been made available to Summa prior to the execution hereof, or
those that are not material to LexaLite. As of the date hereof, to LexaLite's
Knowledge, there exists no circumstances which would affect the validity or
enforceability of any of such contracts and other agreements in accordance with
their respective terms. Except as set forth in the LexaLite Disclosure
Schedule, LexaLite has performed and complied in all material respects with all
obligations required to be performed by it to date under, and is not in default
(without giving effect to any required notice or grace period) under, or in
breach of, the terms, conditions or provisions of any of such contracts and
other agreements. Except as set forth in the LexaLite Disclosure Schedule, the
validity and enforceability of any contract or other agreement described herein
has not been and shall not in any manner be affected by the execution and
delivery of this Agreement without any further action. Except as set forth in
the LexaLite Disclosure Schedule, LexaLite has no material contract, agreement,
obligation or commitment which requires or will require future expenditures
(including internal costs and overhead) in excess of reasonably anticipated
receipts, nor which is likely to be materially adverse to LexaLite's business,
assets or condition (financial and otherwise).
6.16 Patents, Trade Secrets and Customer Lists. LexaLite does not have
-----------------------------------------
any patents, applications for patents, trademarks, applications for trademarks,
trade names, brand names, licenses or service marks relating to the business of
LexaLite, except as set forth in the LexaLite Disclosure Schedule, nor does any
present or former shareholder, officer, director or employee of LexaLite own any
patent rights relating to any products manufactured, rented or sold by LexaLite,
except as set forth in the LexaLite Disclosure Schedule. Except as disclosed in
the LexaLite Disclosure Schedule, to the Knowledge of LexaLite, LexaLite has the
unrestricted right to use, free and clear of any claims or rights of others, all
trade secrets, customer lists, and manufacturing and secret processes,
trademarks, trade names, brand names, licenses and service marks reasonably
necessary to the manufacturing and marketing of all products made or proposed to
be made by LexaLite, and the continued use thereof by LexaLite following the
Effective Date will not conflict with, infringe upon, or otherwise violate any
12
<PAGE>
rights of others. To LexaLite's Knowledge, LexaLite has not used and is not
making use of any confidential information or trade secrets of any present or
past employee of LexaLite that has not been assigned to LexaLite or that
LexaLite does not have the right to use.
6.17 No Pending Material Litigation or Proceedings. Except as disclosed
---------------------------------------------
in the LexaLite Disclosure Schedule, there are no actions, suits or proceedings
pending or, to LexaLite's Knowledge, threatened against or affecting LexaLite
(including actions, suits or proceedings where liabilities may be adequately
covered by insurance) at law or in equity or before or by any federal, state,
municipal or other governmental department, commission, court, board, bureau,
agency or instrumentality, domestic or foreign, or affecting any of the
shareholders, officers or directors of LexaLite in connection with the business,
operations or affairs of LexaLite, which could reasonably be expected to result
in any material adverse change in the business, properties, assets or condition
(financial or otherwise) of LexaLite, or which question or challenge the
transaction contemplated hereby. Except as disclosed in the LexaLite Disclosure
Schedule, to LexaLite's Knowledge, LexaLite has not, during the past three
years, been threatened with any action, suit, proceedings or claim (including
actions, suits, proceedings or claims where its liabilities may be adequately
covered by insurance) for personal injuries allegedly attributable to products
sold or services performed by LexaLite asserting a particular defect or
hazardous property in any of LexaLite's products, services or business practices
or methods, nor has LexaLite been a party to or threatened with proceedings
brought by or before any federal or state agency; and LexaLite has no Knowledge
of any defect or hazardous property claimed or actual in any such product,
service or business practice or method. LexaLite is not subject to any
voluntary or involuntary proceeding under the United States Bankruptcy Code and
has not made an assignment for the benefit of creditors.
6.18 Insurance. LexaLite maintains insurance with reputable insurance
---------
companies on such of its equipment, tools, machinery, inventory and properties
as are usually insured by companies similarly situated in the same geographic
location and to the extent customarily insured, and maintains products and
personal liability insurance, and such other insurance against hazards, risks
and liability to persons and property as is customary for companies similarly
situated in the same geographic location. A true and complete listing and
general description of each of LexaLite's insurance policies as currently in
force, including all policies of group medical and/or dental insurance, is set
forth in the LexaLite Disclosure Schedule, copies of all of which have
previously been provided to Summa. All such insurance policies currently are,
and at the Effective Date shall be, in full force and effect.
6.19 Arrangements with Personnel. Except as set forth in the LexaLite
---------------------------
Disclosure Schedule, no shareholder, director, officer or employee of LexaLite
is presently a party to any transaction with LexaLite, including without
limitation any contract, loan or other agreement or arrangements providing for
the furnishing of services by, the rental of real or personal property from or
to, or otherwise requiring loans or payments to, any such stockholder, director,
officer or employee, or to any member of the family of any of the foregoing, or
to LexaLite's Knowledge, to any corporation, partnership, trust or other entity
in which any stockholder, director, officer or employee or any member of the
family of any of them has a substantial interest or is an officer, director,
trustee, partner or employee. There is set forth in the LexaLite Disclosure
Schedule a list showing (i) the name, title, date and amount of last
compensation increase, and aggregate compensation, including amounts paid or
accrued pursuant to any bonus, pension, profit sharing, commission, deferred
compensation or
13
<PAGE>
other plans or arrangements in effect as of the date of this Agreement, of each
officer or employee of LexaLite whose salary and other compensation, in the
aggregate, received from LexaLite or accrued is at an annual rate (or aggregated
for the most recently completed fiscal year) in excess of $100,000, as well as
any employment agreements relating to any such persons; (ii) a description of
any and all bonus, pension, profit sharing, commission, deferred compensation or
other plans or arrangements in effect for any of LexaLite's employees as of the
date of this Agreement; (iii) all powers of attorney from LexaLite to any person
or entity; and (iv) the name of each person or entity authorized to borrow money
or incur or guarantee indebtedness on behalf of LexaLite.
6.20 Labor Relations. LexaLite has never been a party to any collective
---------------
bargaining agreement or other contract with a labor union, or to any employment
contract or consulting agreement, or under any executive's compensation plan,
agreement or arrangement, nor, to LexaLite's Knowledge, is any union, labor
organization or group of employees of LexaLite presently seeking the right to
enter into collective bargaining with LexaLite on behalf of any of its
employees, except as set forth in the LexaLite Disclosure Schedule. LexaLite
has furnished Summa with a copy of all written personnel policies, including
without limitation vacation, severance, bonus, profit sharing and commission
policies, applicable to any of LexaLite's employees.
6.21 Bank Accounts. All bank and savings accounts, and other accounts at
-------------
similar financial institutions of LexaLite existing at date of Effective Date
are listed in the LexaLite Disclosure Schedule, with copies of all signature
cards or other documentation reflecting all individuals who are authorized to
withdraw funds from any such accounts attached thereto.
6.22 Absence of Questionable Payments. Neither LexaLite nor, to
--------------------------------
LexaLite's Knowledge, any shareholder, director, officer, agent, employee,
consultant or other person associated with or acting on behalf of any of them,
has (i) used any corporate funds for unlawful contributions, gifts,
entertainment or other unlawful expenses relating to political activity, (b)
made any direct or indirect unlawful payments to governmental officials or
others from corporate funds, engaged in any payments or activity which would be
deemed a violation of the Foreign Corrupt Practices Act or rules or regulations
promulgated thereunder, or (c) established or maintained any unlawful or
unrecorded accounts.
6.23 Compliance with Laws. To LexaLite's Knowledge, LexaLite holds all
--------------------
licenses, franchises, permits and authorizations necessary for the lawful
conduct of its business as presently conducted, has complied with all applicable
statutes, laws, ordinances, rules and regulations of all governmental bodies,
agencies and subdivisions having, asserting or claiming jurisdiction over it,
with respect to any part of the conduct of its business and corporate affairs,
where the failure to so hold or comply could reasonably be expected to have a
material adverse affect upon LexaLite's condition (financial or otherwise),
business, assets or properties.
6.24 Environmental Matters. To the Knowledge of LexaLite, except as may
---------------------
be set forth on the LexaLite Disclosure Schedule, there are no actions, claims,
demands, investigations, inquiries, notices of potential liability, notices of
violation, or other proceedings, rulings, orders, or citations pending against
LexaLite (or any predecessor or affiliate), or threatened or contemplated by any
person or entity, as the result of any actual or alleged failure of LexaLite (or
any predecessor or
14
<PAGE>
affiliate) to comply with any requirement of federal, state, local or foreign
law, order or regulation relating to air quality, water quality, solid or
hazardous waste management, hazardous or toxic substances, or the protection of
public health or the environment.
6.25 Relationships with Customers and Suppliers. Except as set forth in
------------------------------------------
the LexaLite Disclosure Schedule, no present customer or substantial supplier to
LexaLite has indicated an intention to terminate or materially and adversely
alter its existing business relationship therewith, and LexaLite has no reason
to believe that any of the present customers of or substantial suppliers to
LexaLite intends to do so, other than, in each such case, any customer or
substantial supplier the loss of which could not reasonably be expected to
materially adversely affect LexaLite.
6.26 Brokerage. Except as set forth in the LexaLite Disclosure Schedule,
---------
LexaLite has no obligation to any person or entity for brokerage commissions,
finder's fees or similar compensation in connection with the transactions
contemplated by this Agreement.
6.27 Disclosure. Neither this Agreement nor any certificate, exhibit, or
----------
other written document or statement, furnished to Summa by or on behalf of
LexaLite in connection with the transactions contemplated by this Agreement
contained or contains any untrue statement of a material fact or omitted or
omits to state a material fact necessary to be stated in order to make the
statements contained herein or therein, in the light of the circumstances in
which they were made, not misleading. LexaLite has no Knowledge of any fact
which has not been disclosed in writing to Summa which may reasonably be
expected to materially and adversely affect the business, operations,
properties, assets, condition (financial or other), and/or results of operations
of LexaLite or the ability of LexaLite to perform all of the obligations to be
performed by LexaLite under this Agreement and/or any other agreement between
Summa and LexaLite to be entered into pursuant to any provision of this
Agreement.
7. REPRESENTATIONS AND WARRANTIES OF SUMMA.
---------------------------------------
Summa represents and warrants to LexaLite as follows (it being acknowledged
and agreed that LexaLite is entering into this Agreement in material reliance
upon each of the following representations and warranties, and that the truth
and accuracy of each of which constitutes a condition precedent to the
obligations of LexaLite hereunder):
7.1 Organization and Corporate Power. Summa is a corporation duly
--------------------------------
incorporated, validly existing and in good standing under the laws of the State
of California, and is duly qualified and in good standing to do business as a
foreign corporation in each jurisdiction in which such qualification is required
and where the failure to be so qualified would have a materially adverse effect
upon Summa. Summa has all requisite corporate power and authority to conduct
its business as now being conducted and to own and lease the properties which it
now owns and leases. The Articles of Incorporation as amended to date,
certified by the Secretary of State of California, and the Bylaws of Summa as
amended to date and resolutions of Summa's directors authorizing the execution,
delivery and performance of this Agreement all certified by the President and
the Secretary of Summa, which have previously been provided to LexaLite by
Summa, are true and complete copies thereof as currently in effect. Subsidiary
will be formed prior to the Effective Time as a California corporation, all of
whose capital stock will be issued to and owned, beneficially and of record, by
Summa.
15
<PAGE>
7.2 Capitalization. The authorized capital stock of Summa consists of
--------------
10,000,000 shares of Summa Common Stock and 5,000,000 shares of Preferred Stock.
As of the date hereof, there are 1,603,484 shares of Summa Common Stock
outstanding, and no shares Preferred Stock have been issued or are outstanding.
In addition, there are currently outstanding options and warrants to purchase
from Summa an aggregate of 237,473 additional shares of Summa Common Stock.
Except expressly set forth hereinabove, there are no warrants, options, calls,
commitments or other rights to subscribe for or to purchase from Summa any
capital stock of Summa or any securities convertible into or exchangeable for
any shares of capital stock of Summa, or any other securities or agreement
pursuant to which Summa is or may become obligated to issue any shares of its
capital stock, nor is there outstanding any commitment, obligation or agreement
on the part of Summa to repurchase, redeem or otherwise acquire any of the
outstanding shares of its capital stock.
7.3 Authorization. Summa has full corporate power and authority to enter
-------------
into, execute and deliver this Agreement, to execute all attendant documents and
instruments necessary to consummate the transactions herein contemplated, and to
perform its obligations hereunder, subject to receipt of the requisite approval
of the Summa Shareholders. This Agreement, and each and every other agreement,
document and instrument to be executed by Summa hereunder, has been effectively
authorized by all necessary action on the part of the Board of Directors of
Summa, which authorizations remain in full force and effect, has been duly
executed and delivered by Summa, and no other authorizations or proceedings on
the part of Summa are required to authorize this Agreement and/or the
transactions contemplated hereby, except for receipt of the requisite approval
of the Summa Shareholders. This Agreement constitutes the legal, valid and
binding obligation of Summa, subject to receipt of the requisite approval of the
Summa Shareholders, enforceable with respect to Summa in accordance with its
terms, except as enforcement hereof may be limited by bankruptcy, insolvency,
reorganization, priority or other laws or court decisions relating to or
affecting generally the enforcement of creditors' rights or affecting generally
the availability of equitable remedies. Other than in connection with the
filing of the Agreement of Merger with the California Secretary of State and the
Delaware Secretary of State, proceedings with the Securities and Exchange
Commission, and the proceedings specified in Section 8.6 below, no
authorization, consent or approval of any public body or authority is necessary
for the consummation by Summa of the transactions contemplated by this
Agreement.
7.4 No Conflicts. Except as disclosed on the Summa Disclosure Schedule
------------
attached hereto as Exhibit E, neither the execution and delivery of this
---------
Agreement, nor the consummation by Summa of any of the transactions contemplated
hereby, or compliance with any of the provisions hereof, will (i) conflict with
or result in a breach of, violation of, or default under any of the terms,
conditions, or provisions of any note, bond, mortgage, indenture, license,
lease, credit agreement or other agreement, document, instrument or obligation
(including, without limitation, any of Summa's charter documents) to which Summa
is a party or by which any of its assets or properties may be bound, or (ii)
violate any judgment, order, injunction, decree, statute, rule or regulation
applicable to Summa or any of its officers, directors, employees, assets or
properties, excluding from the foregoing clauses (i) and (ii) any conflicts,
breaches, violations or defaults that would not have a materially adverse affect
on Summa or materially impair Summa's ability to consummate the transactions
contemplated hereby or for which Summa shall have received before the Effective
Time appropriate consents or waivers.
16
<PAGE>
7.5 Subsidiaries. Summa has no subsidiaries and no investments, directly
------------
or indirectly, or other financial interest in any other corporation or business
organization, joint venture or partnership of any kind whatsoever except as
reflected in the Summa Financial Statements (defined in Section 7.6 below) or
shown on the Summa Disclosure Schedule. Prior to the Effective Time, Subsidiary
will be formed as a California corporation whose capital stock is wholly-owned
by Summa.
7.6 Financial Statements. Attached hereto as Exhibit F are (i) the
-------------------- ---------
audited financial statements of Summa for each of its fiscal years ended August
31, 1993, 1994 and 1995 consisting of Summa's balance sheets as of such dates,
the related statements of profit and loss for the periods then ended, and the
notes thereto, certified by Arthur Andersen LLP, and (ii) the unaudited
financial statements of Summa as of and for the nine months ended May 31, 1996,
consisting of Summa's balance sheet as of such date (the "Summa Balance Sheet"),
the related statement of profit or loss for the period then ended, and the
respective notes thereto, in each case certified by the chief financial officer
of Summa. Such financial statements (and the notes related thereto) are herein
sometimes collectively referred to as the "Summa Financial Statements." The
Summa Financial Statements (8) are derived from the books and records of Summa,
which books and records have been consistently maintained in a manner which
reflects, and such books and records do fairly and accurately reflect, the
assets and liabilities of Summa, (ii) fairly and accurately present the
financial condition of Summa on the respective dates of such statements and the
results of its operations for the periods indicated, except as may be disclosed
in the notes thereto, and (iii) have been prepared in all material respects in
accordance with generally accepted accounting principles consistently applied
throughout the periods involved (except as otherwise disclosed in the notes
thereto).
7.7 Absence of Undisclosed Liabilities. Except as and to the extent
----------------------------------
reflected or reserved against in the Summa Balance Sheet, and as to matters
arising in the ordinary course of its business since the date of the Summa
Balance Sheet or that are disclosed in the Summa Disclosure Schedule attached
hereto, Summa has no liability or obligation (whether accrued, to become due,
contingent or otherwise) which individually or in the aggregate could have a
materially adverse effect on the business, assets or condition (financial or
otherwise) of Summa.
7.8 Absence of Certain Developments. Except as set forth in the Summa
-------------------------------
Disclosure Schedule, since the date of the Summa Balance Sheet there has been
(i) no declaration, setting aside or payment of any dividend or other
distribution with respect to any capital stock of Summa, no redemption, purchase
or other acquisition of any shares of Summa's capital stock, and no split-up or
other recapitalization relative to any of Summa's capital stock, nor any action
authorizing or obligating Summa to do any of the foregoing; (ii) no loss,
destruction or damage to any material property or asset of Summa, whether or not
insured; (iii) no acquisition or disposition of material assets (or any contract
or arrangement therefor), or any other material transaction by Summa otherwise
than for fair value and in the ordinary course of business; (iv) no discharge or
satisfaction by Summa of any lien or encumbrance or payment of any material
obligation or liability (absolute or contingent) other than current liabilities
shown on the Summa Balance Sheet, or current liabilities incurred since the date
thereof in the ordinary course of business, (v) no sale, assignment or transfer
by Summa of any of its tangible or intangible assets including any security
interest or other encumbrance, or waiver by Summa of any rights of value which,
in any such case, is outside the ordinary course of business and material to the
business of Summa; (vi) no payment of any bonus to or change in the compensation
of any
17
<PAGE>
director, officer or employee, whether directly or by means of any bonus,
pension plan, contract or commitment; (vii) no write-off or material reduction
in the carrying value of any asset which is material to the business of Summa;
(viii) no disposition or lapse of rights as to any intangible property which is
material to the business of Summa; (ix) except for ordinary travel advances, no
loans or extensions of credit to shareholders, officers, directors or employees
of Summa, (x) no agreement to do any of the things described in this Section
7.8, and (xi) no materially adverse change in the condition (financial or
otherwise) of Summa or in its assets, liabilities, properties or business.
7.9 Real Property. Set forth as a part of the Summa Disclosure Schedule
-------------
is a complete and accurate legal description of each parcel of real property
owned by or leased to and occupied by Summa, and Summa neither owns or leases,
nor occupies, any other real property. Except as would be disclosed in a
reasonably diligent inspection, to Summa's Knowledge, the building and all
fixtures and improvements located on such real property are in good operating
condition, ordinary wear and tear excepted. To Summa's Knowledge, Summa is not
in violation of any zoning, building or safety ordinance, regulation or
requirement or other law or regulation applicable to the operation of owned or
leased properties, the violation of which could reasonably be expected to have a
material adverse affect upon Summa, its condition (financial or otherwise),
assets, liabilities, properties or business, and Summa has not received any
notice of violation with which it has not complied or is not taking steps to
comply. Summa has good and marketable title to all such real property owned by
Summa, free and clear of al liens, mortgages, encumbrances, easements, leases,
restrictions and claims of any kind whatsoever except for (i) those matters
shown on the Summa Disclosure Schedule; (ii) liens for taxes for the current
year and tax assessments not yet due and payable; and (iii) mechanics' or
similar liens for materials or services furnished or to be furnished after the
date hereof. All leases of real property to which Summa is a party and which
are material to the business of Summa are fully effective in accordance with
their respective terms and afford Summa peaceful and undisturbed possession of
the subject matter of the lease, and there exists no material default on the
part of Summa or termination thereof, except as may be set forth in the Summa
Disclosure Schedule.
7.10 Tangible Personal Property. Set forth as a part of the Summa
--------------------------
Disclosure Schedule hereto is a complete list of all items of tangible personal
property owned or leased and used by Summa in the current conduct of its
business, where the original cost was in excess of $1,000. Except as set forth
in the Summa Disclosure Schedule, Summa has, and at the Effective Date will
have, good and marketable title to, or in the case of leased equipment a valid
leasehold interest in, and is in possession of, all such items of personal
property owned or leased by it, free and clear of all title defects, mortgages,
pledges, security interests, conditional sales agreements, liens, restrictions
or encumbrances whatsoever. Included in the Summa Disclosure Schedule is a list
of all outstanding equipment leases and maintenance agreements to which Summa is
a party as lessee and which individually provide for future lease payments in
excess of $500 per month, with the identities of the other parties to all such
leases and agreements shown thereon. All leases of tangible personal property
to which Summa is a party and which are material to the business of Summa are
fully effective in accordance with their respective terms, and there exists no
material default on the part of Summa or termination thereof, except as may be
set forth in the Summa Disclosure Schedule.
18
<PAGE>
7.11 Tax Matters. Summa has, since its inception, duly filed all federal,
-----------
state, county and local tax returns required to have been filed by it in those
jurisdictions where the nature or conduct of its business requires such filing
and where the failure to so file would be materially adverse to Summa. All
federal, state, county and local taxes, including but not limited to those taxes
due with respect to Summa's properties, income, gross receipts, excise,
occupation, franchise, permit, licenses, sales, payroll, and inventory due and
payable as of the date of the Effective Date by Summa have been paid. The
amount reflected in the Summa Balance Sheet as liabilities or reserves for taxes
which are due but not yet payable is sufficient for the payment of all accrued
and unpaid taxes of the types referred to hereinabove. No consent to the
application of Section 341(f)(2) of the Internal Revenue Code of 1986, as
amended, has been filed with respect to Summa.
7.12 Accounts Receivable. The accounts receivable reflected in the Summa
-------------------
Balance Sheet constituted all accounts receivable of Summa as of the date
thereof, other than accounts receivable fully written off as uncollectible as of
such date in accordance with consistently applied prior practice. All such
accounts receivable arose from valid sales made (as opposed to consignments) or
services rendered in the ordinary course of business, and are not subject to any
set-off or counter-claim, except as disclosed on the Summa Disclosure Schedule.
Except as disclosed in the Summa Disclosure Schedule, such accounts receivable
have been collected in full since the date of the Summa Balance Sheet or, to
Summa's Knowledge, are collectible at their full respective amounts (net of
allowance for doubtful accounts established in accordance with consistently
applied prior practice). Based upon the prior experience of Summa, the
"allowance for doubtful accounts" shown on the Summa Balance Sheet is sufficient
to cover all doubtful accounts.
7.13 Inventories. Summa has good and marketable title to all of its
-----------
inventories of raw materials, work-in-process and finished goods, including
models and samples, free and clear of all security interests, liens, claims and
encumbrances, except as set forth in the Summa Disclosure Schedule. All such
inventories consist of items that are usable and salable in the ordinary course
of business of Summa for an amount at least equal to the book value thereto,
plus the costs of disposition thereof, and represent quantities not in excess of
one year's requirements for its business as currently conducted, except as may
be set forth in the Summa Disclosure Schedule.
7.14 Contracts and Commitments. Summa has no contract, agreement,
-------------------------
obligation or commitment, written or oral, expressed or implied, which involves
a commitment or liability in excess of $10,000 or for a term of more than one
year or whose terms prohibit cancellation without liability on 30 days' notice
or less (other than obligations which are included in accounts payable), and no
union contracts, employee or consulting contracts, financing agreements, debtor
or creditor arrangements, licenses, franchise, manufacturing, distributorship or
dealership agreements, leases, or bonus, health or stock option plans, except as
described in the Summa Disclosure Schedule, all of which have been made
available to LexaLite prior to the execution hereof, or those that are not
material to Summa. As of the date hereof, to Summa's Knowledge, there exists no
circumstances which would affect the validity or enforceability of any of such
contracts and other agreements in accordance with their respective terms.
Except as set forth in the Summa Disclosure Schedule, Summa has performed and
complied in all material respects with all obligations required to be performed
by it to date under, and is not in default (without giving effect to any
required notice or grace period) under, or in breach of, the terms, conditions
or provisions of any of such contracts and other agreements. Except as set
forth
19
<PAGE>
in the Summa Disclosure Schedule, the validity and enforceability of any
contract or other agreement described herein has not been and shall not in any
manner be affected by the execution and delivery of this Agreement without any
further action. Except as set forth in the Summa Disclosure Schedule, Summa has
no material contract, agreement, obligation or commitment which requires or will
require future expenditures (including internal costs and overhead) in excess of
reasonably anticipated receipts, nor which is likely to be materially adverse to
Summa's business, assets or condition (financial and otherwise).
7.15 Patents, Trade Secrets and Customer Lists. Summa does not have any
-----------------------------------------
patents, applications for patents, trademarks, applications for trademarks,
trade names, licenses or service marks relating to the business of Summa, except
as set forth in the Summa Disclosure Schedule, nor does any present or former
shareholder, officer, director or employee of Summa own any patent rights
relating to any products manufactured, rented or sold by Summa, except as set
forth on the Summa Disclosure Schedule. Except as disclosed in the Summa
Disclosure Schedule, to the Knowledge of Summa, Summa has the unrestricted right
to use, free and clear of any claims or rights of others, all trade secrets,
customer lists, and manufacturing and secret processes reasonably necessary to
the manufacture and marketing of all products made or proposed to be made by
Summa, and the continued use thereof by Summa following the Effective Date will
not conflict with, infringe upon, or otherwise violate any rights of others. To
Summa's Knowledge, Summa has not used and is not making use of any confidential
information or trade secrets of any present or past employee of Summa that has
not been assigned to Summa or that Summa does not have the right to use.
7.16 No Pending Material Litigation or Proceedings. Except as disclosed
---------------------------------------------
in the Summa Disclosure Schedule, there are no actions, suits or proceedings
pending or, to Summa's Knowledge, threatened against or affecting Summa
(including actions, suits or proceedings where liabilities may be adequately
covered by insurance) at law or in equity or before or by any federal, state,
municipal or other governmental department, commission, court, board, bureau,
agency or instrumentality, domestic or foreign, or affecting any of the
shareholders, officers or directors of Summa in connection with the business,
operations or affairs of Summa, which could reasonably be expected to result in
any material adverse change in the business, properties or assets, or in the
condition (financial or otherwise) of Summa, or which question or challenge the
transaction contemplated hereby. Except as disclosed in the Summa Disclosure
Schedule, to Summa's Knowledge, Summa has not, during the past three years, been
threatened with any action, suit, proceedings or claim (including actions,
suits, proceedings or claims where its liabilities may be adequately covered by
insurance) for personal injuries allegedly attributable to products sold or
services performed by Summa asserting a particular defect or hazardous property
in any of Summa's products, services or business practices or methods, nor has
Summa been a party to or threatened with proceedings brought by or before any
federal or state agency; and Summa has no Knowledge of any defect or hazardous
property claimed or actual in any such product, service or business practice or
method. Summa is not subject to any voluntary or involuntary proceeding under
the United States Bankruptcy Code and has not made an assignment for the benefit
of creditors.
7.17 Insurance. Summa maintains insurance with reputable insurance
---------
companies on such of its equipment, tools, machinery, inventory and properties
as are usually insured by companies similarly situated in the same geographic
location and to the extent customarily insured, and maintains products and
personal liability insurance, and such other insurance against hazards, risks
and liability
20
<PAGE>
to persons and property as is customary for companies similarly situated in the
same geographic location. All such insurance currently is, and at the
Effective Date shall be, in full force and effect.
7.18 Arrangements with Personnel. Except as set forth in the Summa
---------------------------
Disclosure Schedule, no stockholder, director, officer or employee of Summa is
presently a party to any transaction with Summa, including without limitation
any contract, loan or other agreement or arrangement providing for the
furnishing of services by, the rental of real or personal property from or to,
or otherwise requiring loans or payments to, any such shareholder, director,
officer or employee, or to any member of the family of any of the foregoing, or,
to Summa's Knowledge, to any corporation, partnership, trust or other entity in
which any shareholder, director, officer or employee, or any member of the
family of any of them has a substantial interest or is an officer, director,
trustee, partner or employee. There is set forth in the Summa Disclosure
Schedule a list showing (i) the name, title, date and amount of last
compensation increase, and aggregate compensation, including amounts paid or
accrued pursuant to any bonus, pension, profit sharing, commission, deferred
compensation or other plans or arrangements in effect as of the date of this
Agreement, of each officer or employee of Summa whose salary and other
compensation, in the aggregate, received from Summa or accrued is at an annual
rate (or aggregated for the most recently completed fiscal year) in excess of
$100,000, as well as any employment agreements relating to any such persons;
(ii) all powers of attorney from Summa to any person or entity; and (iii) the
name of each person or entity authorized to borrow money or incur or guarantee
indebtedness on behalf of Summa.
7.19 Labor Relations. Summa has no obligations under any collective
---------------
bargaining agreement or other contract with a labor union, under any employment
contract or consulting agreement, or under any executive's compensation plan,
agreement or arrangement, nor, to Summa's Knowledge, is any union, labor
organization or group of employees of Summa presently seeking the right to enter
into collective bargaining with Summa on behalf of any of its employees, except
as set forth in the Summa Disclosure Schedule. Summa has furnished LexaLite
with a copy of all written personnel policies, including without limitation
vacation, severance, bonus, pension, profit sharing and commission policies,
applicable to any of Summa's employees.
7.20 Bank Accounts. All bank and savings accounts, and other accounts at
-------------
similar financial institutions, of Summa existing at the time of the Effective
Date are listed in the Summa Disclosure Schedule.
7.21 Absence of Questionable Payments. Neither Summa nor, to Summa's
--------------------------------
Knowledge, any shareholder, director, officer, agent, employee, consultant or
other person associated with or acting on behalf of any of them, has (a) used
any corporate funds for unlawful contributions, gifts, entertainment or other
unlawful expenses relating to political activity, (b) made any direct or
indirect unlawful payments to governmental officials or others from corporate
funds, engaged in any payments or activity which would be deemed a violation of
the Foreign Corrupt Practices Act or rules or regulations promulgated
thereunder, or (c) established or maintained any unlawful or unrecorded
accounts.
21
<PAGE>
7.22 Compliance with Laws. To Summa's Knowledge, Summa holds all
--------------------
licenses, franchises, permits and authorizations necessary for the lawful
conduct of its business as presently conducted, has complied with all applicable
statutes, laws, ordinances, rules and regulations of all governmental bodies,
agencies and subdivisions having, asserting or claiming jurisdiction over it,
with respect to any part of the conduct of its business and corporate affairs,
where the failure to so hold or comply could reasonably be expected to have a
material adverse affect upon Summa's condition (financial or otherwise),
business, assets or properties.
7.23 Environmental Matters. To the Knowledge of Summa, except as may be
---------------------
set forth on the Summa Disclosure Schedule, there are no actions, claims,
demands, investigations, inquiries, notice of potential liability, notices of
violation, or other proceedings, rulings, orders, or citations pending against
Summa (or any predecessor or affiliate), or threatened or contemplated by any
person or entity, as the result of any actual or alleged failure of Summa (or
any predecessor or affiliate) to comply with any requirement of federal, state,
local or foreign law, order or regulation relating to air quality, water
quality, solid or hazardous waste management, hazardous or toxic substances, or
the protection of public health or the environment.
7.24 Relationships with Customers and Suppliers. Except as may be set
------------------------------------------
forth on the Summa Disclosure Schedule, no present customer or substantial
supplier to Summa has indicated an intention to terminate or materially and
adversely alter its existing business relationship therewith, and Summa has no
reason to believe that any of the present customers of or substantial suppliers
to Summa intends to do so, other than, in each such case, any customer or
substantial supplier the loss of which could not reasonably be expected to
materially adversely affect Summa.
7.25 Brokerage. Except as set forth in the Summa Disclosure Schedule,
---------
Summa has no obligation to any person or entity for brokerage commissions,
finder's fees or similar compensation in connection with the transactions
contemplated by this Agreement.
7.26 Reports Under the Exchange Act. The Summa Common Stock is registered
------------------------------
under Section 12(g) of the Exchange Act. Accordingly, Summa is subject to the
information requirements of the Exchange Act, and in accordance therewith files
reports and other information with the Commission. Since January 1, 1990, Summa
has filed with the Commission on a timely basis all such reports which Summa has
been required to file under the Exchange Act. Summa has provided to LexaLite
accurate and complete copies of each registration statement, report, proxy
statement, information statement or schedule, together with all amendments
thereto, that were required to be filed with the SEC by Summa since January 1,
1993 (the "SEC Documents"). As of their respective dates, the SEC Documents
complied in all material respects with the applicable requirements of the
Securities Act and the Exchange Act, as the case may be, and none of the SEC
Documents contained any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were or are
made, not misleading.
7.27 Disclosure. Neither this Agreement, nor any certificate, exhibit, or
----------
other written document or statement, furnished to Summa by or on behalf of Summa
in connection with the transactions contemplated by this Agreement contained or
contains any untrue statement of a material fact or omitted or omits to state a
material fact necessary to be stated in order to make the statements contained
herein or therein, in the light of the circumstances in which they were made,
not misleading. Summa has no Knowledge of any fact which has not been disclosed
in writing to LexaLite which may
22
<PAGE>
reasonably be expected to materially and adversely affect the business,
properties, assets, condition (financial or other) and/or results of operations
of Summa or the ability of Summa to perform all of the obligations to be
performed by Summa under this Agreement and/or any other agreement between Summa
and LexaLite to be entered into pursuant to any provision of this Agreement.
8. COVENANTS OF THE PARTIES PRIOR TO THE EFFECTIVE DATE.
----------------------------------------------------
Each of LexaLite and Summa hereby covenants to and agrees with the other
that between the date hereof and the Effective Date:
8.1 Access to Properties and Records. Each party shall give to the other
--------------------------------
and its authorized representatives full access, during reasonable business
hours, in such a manner as not unduly to disrupt normal business activities, to
any and all of its premises, properties, contracts, books, records and affairs,
and will cause its officers to furnish any and all data and information
pertaining to its business that the other may from time to time reasonably
require. Unless and until the transactions contemplated by this Agreement have
been consummated, each party and its representatives shall hold in confidence
all information so obtained and will use such information solely for the
purposes intended by this Agreement. If the transactions contemplated hereby
are not consummated, each party will return all documents hereinabove referred
to and obtained therefrom. Such obligation of confidentiality shall not extend
to any information which is shown to have been previously (i) known to the party
receiving it, (ii) generally known to others engaged in the trade or business of
the disclosing party, (iii) part of public knowledge or literature, or (iv)
lawfully received from a third party. Without limiting the generality of the
foregoing, it is understood and agreed that certain information disclosed by
Summa to LexaLite or its representatives may constitute "material inside
information" that has not previously been disclosed to the public generally.
LexaLite acknowledges that LexaLite and its representatives are aware of the
restrictions on the use of such information imposed by federal and state
securities laws, agrees to comply and cause its representatives to comply with
such restrictions, and agrees to indemnify and hold Summa and each of its
directors, officers and employees free and harmless from any and all liability,
cost or expense that any of them may incur or suffer by reason of any breach by
LexaLite or any of its authorized representatives of any of such restrictions.
From and after the date hereof and until the Effective Date, neither LexaLite
nor any of its representatives shall purchase, directly or indirectly, in the
public marketplace or otherwise, any of Summa's securities.
8.2 Corporate Existence, Rights and Franchises. Each party shall take all
------------------------------------------
necessary actions to maintain in full force and effect its corporate existence,
rights, franchises and good standing. No change shall be made to the Articles
of Incorporation or Bylaws of either party.
8.3 Insurance. Each party shall take all necessary actions to maintain in
---------
force all of its existing insurance policies, subject only to variations in
amounts required by the ordinary operation of its business.
8.4 Conduct of Business in the Ordinary Course. Except as otherwise
------------------------------------------
expressly provided in this Agreement, neither party shall permit to be done any
act which would result in a material breach of any of the covenants of such
party contained herein or which would cause the representations and warranties
of such party contained herein to become untrue or inaccurate in any material
respect as of any date subsequent to the date hereof. Without limiting the
generality of the foregoing, each party shall take all reasonably necessary
actions to (i) operate its business diligently in
23
<PAGE>
the ordinary course of business as an ongoing concern, and will use its best
business efforts to preserve intact its organization and operations at current
levels and to make available to the Surviving Corporation the services of its
present employees and to preserve for the Surviving Corporation its
relationships with its suppliers and customers and others having business
relationships with it; (ii) maintain in good operating condition, ordinary wear
and tear excepted, all of its assets and properties which are in such condition
as of the date hereof; (iii) maintain its books, accounts and records in the
usual, regular and ordinary manner, on a basis consistent with past practice in
recent periods; (iv) refrain from entering into any contract, agreement, lease,
capital expenditure or other commitment of a value in excess of $250,000 (other
than purchases and sales of inventory, including sales orders, in the ordinary
course of business), or from modifying, amending, canceling or terminating any
of such contracts, agreements, leases or other commitments presently in force,
except as expressly contemplated by this Agreement, without the prior approval
of the other party (which approval shall not be unreasonably withheld and which
may be verbal to be promptly followed by written confirmation); (v) refrain from
paying any bonus to any employee, officer or director, other than pursuant to
any contract, agreement or arrangement existing on the date of this Agreement,
and from declaring or paying any dividend, or making any other distribution in
respect of, or from redeeming, any of its capital stock; and (vi) refrain from
issuing any capital stock or other securities convertible into or exercisable to
purchase capital stock.
8.5 Consents. Each of the parties shall use its best business efforts to
--------
obtain any and all necessary permits, approvals, qualifications, consents or
authorizations from third parties and governmental authorities which are
required to be obtained prior to the Effective Date, and shall use its best
efforts to make or complete all filings, proceedings and waiting periods
required to be made or completed prior to the Effective Date.
8.6 Approval of Summa Shareholders. A special meeting of the Summa
------------------------------
Shareholders shall be called to be held in accordance with the California
Corporations Code no later than November 6, 1996, at a time, place and date to
be set by the Summa Board of Directors, for the purposes of considering and
voting upon a proposal to approve this Agreement and the transactions
contemplated hereby. The Summa Board of Directors has unanimously recommended
that the Summa Shareholders approve this Agreement and the transactions
contemplated hereby, and the current members of the Summa Board of Directors,
who together own or have voting control over an aggregate of approximately ten
percent (10%) of the Summa Common Stock currently outstanding, have agreed to
vote in favor of this Agreement at the special meeting. Summa shall prepare and
mail, or cause to be prepared and mailed to the Summa Shareholders, at least 30
days prior to the special meeting, an appropriate notice of the meeting,
together with a copy of the Joint Proxy Statement/Prospectus in Section 8.7
below.
8.7 Registration Statement and Proxy Statement.
------------------------------------------
(a) Summa and LexaLite shall cooperate in preparing the Registration
Statement (including any amendments or supplements thereto) and the Joint Proxy
Statement/Prospectus to be included therein and each shall furnish to the other
for inclusion therein all such information relating to it as the other party or
its counsel reasonably requests. Summa shall file the Registration Statement
with the Commission promptly after completion, and LexaLite and Summa shall use
all reasonable efforts to respond to any comments of the Commission staff and to
have the Registration Statement declared effective as promptly as practicable
and thereafter to maintain such effectiveness
24
<PAGE>
through the Effective Time. Summa agrees to provide to LexaLite the opportunity
to review and comment on the Registration Statement, each amendment or
supplement to the Registration Statement, each responsive correspondence to be
sent to the Commission, and each form of the Joint Proxy Statement/Prospectus at
a reasonable time before filing. Summa shall (i) include in the Registration
Statement and each amendment and supplement information relating to LexaLite,
its business and financial condition only as authorized by LexaLite, and (ii)
promptly provide to LexaLite copies of all correspondence received from the
Commission with respect to the Registration Statement and its amendments or
supplements and copies of all responsive correspondence to the Commission.
Summa agrees to notify LexaLite of any stop orders or threatened stop orders
with respect to the Registration Statement. Summa also may file the Joint Proxy
Statement/Prospectus with the Commission as preliminary proxy material under
Regulation 14A of the Exchange Act, if Summa so determines.
(b) LexaLite and Summa shall not furnish to their respective shareholders
any proxy materials relating to this Agreement or the Merger until the
Registration Statement has become effective. LexaLite and Summa each shall mail
to its shareholders (i) as promptly as practicable after the Registration
Statement becomes effective, the Joint Proxy Statement/Prospectus (the date of
such mailing hereinafter being referred to as the "Mailing Date"), (ii) as
promptly as practicable after receipt thereof, any supplemental or amended Joint
Proxy Statement/Prospectus, and (iii) such other supplementary proxy materials
as may be necessary, in light of the circumstances arising after the mailing of
the Joint Proxy Statement/Prospectus, to make the Joint Proxy
Statement/Prospectus, as theretofore supplemented or amended, complete and
correct. The Joint Proxy Statement/Prospectus and all amendments and
supplements thereto shall comply with applicable law and shall be in form and
substance satisfactory to Summa and LexaLite.
(c) Summa and LexaLite each shall advise the other if, at any time before
the effective date of the Registration Statement, the date of the special
meeting of Summa Shareholders to be held pursuant to Section 8.6 hereof, the
date of the special meeting of LexaLite Shareholders to be held pursuant to
Section 8.8 hereof, or the Effective Time, the Registration Statement or the
Joint Proxy Statement/Prospectus contains an untrue statement of a material fact
or omits to state a material fact required to be stated therein or necessary to
make the statements contained therein, in the light of the circumstances under
which they were made, not misleading. In such event, Summa or LexaLite, as the
case may be, shall provide the other with the information needed to correct such
misstatement or omission.
8.8 Approval by LexaLite Shareholders. A special meeting of the LexaLite
---------------------------------
Shareholders shall be called to be held in accordance with the Delaware General
Corporation Law no later than November 6, 1996, at a time, place and date to be
set by the LexaLite Board of Directors, for the purposes of considering and
voting upon a proposal to approve this Agreement and the transactions
contemplated hereby. The LexaLite Board of Directors has unanimously
recommended that the LexaLite Shareholders approve this Agreement and the
transactions contemplated hereby, and current members of the LexaLite Board of
Directors, who together own or have voting control over an aggregate of
approximately Forty-six Percent (46%) of the LexaLite Common Stock currently
outstanding, have expressed their intention to vote in favor of this Agreement
at the special meeting. LexaLite shall prepare and mail, or cause to be
prepared and mailed to the LexaLite Shareholders, at least 30 days prior to the
special meeting, appropriate notice of the meeting, together with a copy of the
Joint Proxy Statement/Prospectus prepared as provided in Section 8.7 above.
25
<PAGE>
8.9 No Equitable Conversion. Prior to the Effective Time, neither the
-----------------------
execution of this Agreement nor the performance of any provision contained
herein shall cause either Summa, on the one hand, or LexaLite, on the other
hand, to be or become liable for or in respect of the operations or business of
the other, for the cost of any labor or materials furnished to or purchased by
the other, for compliance with any laws, requirements or regulations of, or
taxes, assessments or other charges now or hereafter due to, any governmental
authority, or for any other charges or expenses whatsoever pertaining to the
conduct of the business or the ownership, title, possession, use or occupancy of
the property of the other.
8.10 Standstill Agreements.
--------------------
(a) Prior to the Effective Time, unless this Agreement is sooner
terminated as expressly provided herein, neither party shall entertain,
negotiate, or discuss with any third party, directly or indirectly, with respect
to any possible business combination, sale or assets or stock, or other
transaction which is in any way inconsistent with the transactions contemplated
hereby.
(b) If this Agreement is terminated by either party, then for a period of
three (3) full years from the date of such termination, neither party shall,
directly or indirectly, except as may expressly be permitted in writing by the
Board of Directors of the other party: (i) acquire or agree, offer, seek or
propose to acquire, or cause to be acquired, ownership of any of the assets or
businesses or voting securities of the other party, or any other rights or
options to acquire any such ownership (including from a third party); (ii) seek
or propose to influence or control the management or policies of the other
party; or (iii) enter into any discussions, negotiations, arrangements or
understandings with any third party with respect to any of the foregoing.
9. CONDITIONS TO THE OBLIGATIONS OF EACH PARTY.
-------------------------------------------
The respective obligations of the parties hereto to consummate the
transactions contemplated hereby shall be subject to the fulfillment, at or
prior to the Effective Date, of the following conditions:
9.1 Regulatory Approvals. There shall have been obtained any and all
--------------------
permits, approvals and qualifications of, and there shall have been made or
completed all filings, proceedings and waiting periods, required by any
governmental body, agency or regulatory authority which, in the reasonable
opinion of counsel to the parties, are required for the consummation of the
transactions contemplated hereby.
9.2 No Action or Proceeding. No claim, action, suit, investigation or
-----------------------
other proceeding shall be pending or threatened before any court or governmental
agency, and no statute, rule or regulation shall have enacted or entered by a
governmental body of competent jurisdiction, which presents a substantial risk
of the restraint or prohibition of the transactions contemplated by this
Agreement or the obtaining of material damages or other relief in connection
therewith.
26
<PAGE>
9.3 Certain Actions or Events. There must not have occurred and be
-------------------------
continuing (a) any general suspension of, or limitation on prices for, trading
in securities on any national securities exchange or the over-the-counter
market, (b) any declaration of a banking moratorium or any suspension of
payments in respect of banks in the United States (whether or not mandatory),
(c) the commencement of a war, armed hostilities or other international or
national calamity directly involving the United States, or (d) from the date of
this Agreement through the Effective Time, a decline of more than 25 percent in
the Standard & Poor's 500 Index.
9.4 Tax Matters. Nothing shall have come to the attention of either party
------------
which has led such party reasonably to believe that the Merger will not qualify
as a tax-free reorganization under Section 368(a) of the Internal Revenue Code
of 1968, as amended.
10. CONDITIONS PRECEDENT TO OBLIGATIONS OF SUMMA AND SUBSIDIARY.
-----------------------------------------------------------
The obligation of each of Summa and Subsidiary to consummate the Merger
provided for by this Agreement is expressly subject to the satisfaction, on or
before the Effective Date, of each of the further conditions set forth below,
any or all of which may be waived by Summa in whole or in part without prior
notice; provided, however, that no such waiver of a condition shall constitute a
-----------------
waiver by Summa of any other condition or of any of its rights or remedies, at
law or in equity, if LexaLite shall be in default or breach any of the
representations, warranties or covenants of LexaLite under this Agreement:
10.1 Shareholder Approval. The Summa Shareholders, Summa, as the sole
--------------------
shareholder of Subsidiary, and the LexaLite Shareholders shall have approved by
the requisite vote the adoption of this Agreement and the transactions
contemplated hereby.
10.2 Proceedings. All corporate and other proceedings taken or to be
-----------
taken in connection with the transactions contemplated hereby to be consummated
at the Effective Date and all documents incident thereto or required to be
delivered prior or at closing will be satisfactory in form and substance to
Summa and its special counsel (including but not limited to, the recordation of
the Agreement of Merger) as may be required to consummate the transactions
contemplated in the Agreement.
10.3 Performance of Agreement; Accuracy of Representations and Warranties.
--------------------------------------------------------------------
LexaLite shall have performed in all material respects the agreements and
covenants required to be performed by LexaLite under this Agreement prior to the
Effective Date, there shall have been no material adverse change in the
condition (financial or otherwise), assets, liabilities, earnings or business of
LexaLite since the date hereof, and the representations and warranties of
LexaLite contained herein shall, except as contemplated or permitted by this
Agreement or as qualified in a writing dated as of the Effective Date and
delivered by LexaLite to Summa with the approval of Summa indicated thereon
(which writing is to be attached hereto as Exhibit G), be true in all material
---------
respects on and as of the Effective Date as if made on and as of such date, and
Summa shall have received certificates, dated as of the Effective Date, signed
by the President and Chief Financial Officer of LexaLite, on behalf of LexaLite,
reasonably satisfactory to Summa and its counsel, to such effect.
27
<PAGE>
10.4 Opinion of Counsel of LexaLite Summa and its special counsel shall
------------------------------
have received an opinion dated as of the Effective Date from Pointner, Joseph &
Corcoran, P.C., Attorneys at Law, counsel to LexaLite, in form and substance
satisfactory to Summa and its special counsel, substantially to the effect that:
10.4.1 LexaLite is a duly incorporated and validly existing corporation in
good standing under the laws of Delaware, and has the corporate power to enter
into this Agreement and consummate the transactions herein;
10.4.2 This Agreement has been duly authorized, executed and delivered by
LexaLite and constitutes the legal, valid and binding obligation of LexaLite,
except as the same may be limited by bankruptcy, insolvency, or other similar
laws relating to or affecting the enforcement of creditors' rights or by general
principles of equity, whether considered in a proceeding at law or in equity;
10.4.3 To the best of LexaLite's counsel's knowledge, to the extent that
the approval or consent of any governmental agency or body is required for the
legal and valid execution and delivery of this Agreement or the performance of
any obligation of LexaLite under any provision hereof, such consent has been
validly procured;
10.4.4 Except as set forth in the LexaLite Disclosure Schedule, LexaLite's
counsel is unaware of any litigation or investigation of the nature described in
Section 6.17 hereof pending or threatened against LexaLite;
10.4.5 To the best of counsel's knowledge, neither the execution of this
Agreement nor the performance by LexaLite of any of its obligations hereunder
will violate the Certificate of Incorporation, or the Bylaws of LexaLite or any
unwaived provision of any indenture, agreement or other instrument to which
LexaLite is a party, the violation of which could reasonably be expected to have
a material adverse effect on LexaLite;
10.4.6 The authorized capital stock of LexaLite is as is set forth in
Section 6.2 above;
10.4.7 To the best of counsel's knowledge, LexaLite is qualified to do
business in all jurisdictions in which the ownership of or leasing of its
property requires such qualification, except where any failure to so qualify
would not reasonably be expected to have a material adverse effect on LexaLite;
10.4.8 As to such other matters incident to the transactions herein
contemplated as Summa or its counsel may reasonably request.
10.5 Financial Data. If additional financial information concerning
--------------
LexaLite is required by the Commission in order to accomplish the registration
of Summa Common Stock provided for in Section 12 hereof, LexaLite shall have
supplied such information.
28
<PAGE>
10.6 Accuracy of Information in Joint Proxy Statement/Prospectus. None of
-----------------------------------------------------------
the information which shall have been furnished by or on behalf of LexaLite or
its management for inclusion in the Joint Proxy Statement/Prospectus shall
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading.
10.7 Exchange of LexaLite Options. Each holder of outstanding Options
----------------------------
shall have entered into a written agreement with LexaLite to cancel all such
Options owned beneficially and of record by such holder effective as of the
Effective Time, in consideration of the execution by each such holder of a
standard Summa stock option agreement (the form of which has been provided to
LexaLite prior to the execution and delivery hereof) with Summa effective as of
the Effective Time, pursuant to which such holders would be entitled to purchase
shares of Summa Common Stock on the basis set forth in Section 3.1.2(b) above.
10.8 Settlement with Brokers. Any and all persons or entities asserting
-----------------------
any claim against either LexaLite or Summa for brokerage commissioners, finder's
fees or similar compensation in connection with the transactions contemplated by
this Agreement shall have entered into an agreement with each of LexaLite and
Summa to settle and discharge such claim on a basis that is reasonably
acceptable to Summa.
10.9 Dissenters' Rights. The number of shares of either LexaLite Common
---- ------------------
Stock or Summa Common Stock which constitute "Perfected Dissenting Shares" as
defined in Section 3.4 hereof does not exceed two percent (2%) of the total
number of shares of LexaLite Common Stock or Summa Common Stock, as the case may
be, outstanding on the respective record dates of the meetings of the LexaLite
Shareholders and the Summa Shareholders referred to in Sections 4.1 and 4.2.
10.10 Employment. Josh T. Barnes shall have entered into an employment
----------
agreement with the Surviving Corporation in form and substance mutually
acceptable to Mr. Barnes and Summa.
10.11 Fairness Opinion. An investment banking firm mutually acceptable to
----------------
Summa and LexaLite shall have rendered an opinion, not subsequently withdrawn,
to the Board of Directors of each of Summa and LexaLite, by no later than five
business days prior the date on which the Joint Proxy Statement/Prospectus is to
be mailed to the Summa Shareholders and the LexaLite Shareholders as provided in
Sections 8.6 and 8.8 hereof, to the effect that the transactions contemplated by
this Agreement are fair from a financial point of view to the Summa Shareholders
and to the LexaLite Shareholders. The cost of obtaining such opinion shall be
borne equally by Summa and LexaLite.
29
<PAGE>
11. CONDITIONS PRECEDENT TO LEXALITE'S OBLIGATIONS.
----------------------------------------------
Lexalite's obligation to consummate the Merger provided for by this
Agreement is expressly subject to the satisfaction, on or before the Effective
Date, of each of the further conditions set forth below, any or all of which may
be waived by LexaLite in whole or in part without prior notice; provided,
---------
however, that no such waiver of a condition shall constitute a waiver by
- -------
LexaLite of any other condition or of any of its rights or remedies, at law or
in equity, if Summa shall be in default or breach any of the representations,
warranties or covenants of Summa under this Agreement:
11.1 Shareholder Approval. The LexaLite Shareholders, the Summa
--------------------
Shareholders and Summa, as sole the shareholder of Subsidiary, shall have
approved by the requisite vote the adoption of this Agreement and the
transactions contemplated hereby.
11.2 Proceedings. All corporate and other proceedings taken or to be
-----------
taken in connection with the transactions contemplated hereby to be consummated
at the Effective Date and all documents incident thereto or required to be
delivered prior or at closing will be satisfactory in form and substance to
LexaLite and its counsel (including but not limited to, the recordation of the
Agreement of Merger) as may be required to consummate the transactions
contemplated in the Agreement.
11.3 Performance of Agreement; Accuracy of Representations and Warranties.
--------------------------------------------------------------------
Summa shall have performed the agreements and covenants required to be performed
by Summa under this Agreement prior to the Effective Date, there shall have been
no material adverse change in the condition (financial or otherwise), assets,
liabilities, earnings or business of Summa since the date hereof, and the
representations and warranties of Summa contained herein shall, except as
contemplated or permitted by this Agreement or as qualified in a writing dated
as of the Effective Date and delivered by Summa to LexaLite with the approval of
LexaLite indicated thereon (which writing is to be attached hereto as Exhibit
-------
H), be true in all material respects on and as of the Effective Date as if made
on and as of such date, and LexaLite shall have received certificates, dated as
of the Effective Date, signed by the President and Chief Financial Officer of
Summa, on behalf of Summa, reasonably satisfactory to LexaLite and its counsel,
to such effect.
11.4 Opinion of Counsel for Summa. LexaLite and its counsel shall have
----------------------------
received an opinion, dated as of the Effective Date, from Phillips & Haddan,
special counsel to Summa, in form and substance satisfactory to LexaLite and its
counsel, substantially to the effect that:
11.4.1 Each of Summa and Subsidiary is a duly incorporated and validly
existing corporation in good standing under the laws of California, and has the
corporate power to enter into this Agreement and consummate the transactions
herein;
11.4.2 This Agreement has been duly authorized, executed and delivered by
Summa and constitutes the legal, valid and binding obligation of each of Summa
and Subsidiary, except as the same may be limited by bankruptcy, insolvency, or
other similar laws relating to or affecting the enforcement of creditors rights
or by general principles of equity, whether considered in a proceeding at law or
in equity;
30
<PAGE>
11.4.3 The issuance of Summa Common Stock to be issued as a consequence
of the Merger has been duly authorized by all necessary corporate action on the
part of Summa; and that such shares of Summa Common Stock will be validly issued
and nonassessable;
11.4.4 To the best of such counsel's knowledge, to the extent that the
approval or consent of any governmental agency or body is required for the legal
and valid execution and delivery by Summa of this Agreement, the issuance of
Summa Common Stock, or the performance of any obligation of Summa or Subsidiary
under any provision hereof, such consent has been validly procured;
11.4.5 Except as set forth in the Summa Disclosure Schedule, such counsel
is unaware of any litigation or investigation of the nature described in Section
7.16 hereof pending or threatened against either Summa or Subsidiary;
11.4.6 To the best of such counsel's knowledge, neither the execution of
this Agreement or the performance by either Summa or Subsidiary of any of its
obligations hereunder, will violate the Articles of Incorporation or the Bylaws
of either Summa or Subsidiary, or any unwaived provision of any indenture,
agreement or other instrument to which Summa is a party, the violation of which
could reasonably be expected to have a material adverse effect, on Summa;
11.4.7 The authorized capital stock of Summa is as set forth in Section
7.2 above;
11.4.8 To the best of such counsel's knowledge, Summa is qualified to do
business in all jurisdictions in which the ownership of or leasing of its
property requires such qualification, except where any failure to so qualify
would not reasonably be expected to have a material adverse effect on Summa;
11.4.9 The Registration Statement has become effective under the Act and,
to counsel's knowledge, no stop order suspending its effectiveness has been
issued and no proceedings for that purpose are pending before or are
contemplated by the Commission;
11.4.10 As to such other matters incident to the transactions herein
contemplated as LexaLite or its counsel may reasonably request.
11.5 Registration of Shares. All shares of Summa Common Stock issuable to
----------------------
LexaLite Shareholders as a consequence of the Merger shall have been duly
registered under the Securities Act pursuant to the provisions of Section 12
hereof, and such registration shall be effective and no stop order shall have
been issued.
11.6 Accuracy of Information in Joint Proxy Statement/Prospectus. None of
-----------------------------------------------------------
the information which shall have been furnished by or on behalf of Summa or its
management for inclusion in the Joint Proxy Statement/Prospectus shall contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading.
31
<PAGE>
11.7 Addition to Summa Board of Directors. Josh T. Barnes shall have been
------------------------------------
elected to the Board of Directors of Summa, effective as of the Effective Time,
to serve in such capacity from and after the Effective Time until changed in
accordance with applicable law and the Articles of Incorporation and Bylaws of
Summa.
11.8 Nasdaq Listing. The shares of Summa Common Stock to be issued to the
--------------
LexaLite Shareholders in connection with the Merger shall have been listed on
The Nasdaq National Market.
11.9 Employment Agreement. Josh T. Barnes shall have entered into the
--------------------
employment agreement specified in Section 10.10 above.
11.10 Fairness Opinion. The Board of Directors of Summa shall have
----------------
received the "fairness opinion" specified in Section 10.11 hereof, and such
opinion subsequently shall not have been withdrawn.
12. REGISTRATION OF SHARES.
----------------------
12.1 Registration. Summa shall use its best efforts, with the cooperation
------------
and participation of LexaLite as provided in Section 8.7 hereof, to cause all of
the shares of Summa Common Stock issuable to the LexaLite Shareholders as a
consequence of the Merger to be duly registered in accordance with Section 12.2
under the Securities Act, and qualified under the Blue Sky laws of each state
with jurisdiction over the transaction, as same may be required. Such
registration under the Securities Act shall be effected pursuant to the
Registration Statement which shall become and remain effective under the
Securities Act as of the Effective Date, and in the case of those LexaLite
Shareholders who are not or do not become "Affiliates," as that term is defined
in Rule 405, the shares of Summa Common Stock to be received by them as a
consequence of the Merger will not require further registration. As provided in
Section 11.8 hereof, Summa shall take all necessary actions to obtain the
listing of the Summa Common Stock to be issued in the Merger and on The Nasdaq
National Market.
12.2 Timing. The registration of the shares of Summa Common Stock
------
issuable to the LexaLite Shareholders as a consequence of the Merger, including
the shares underlying any options converted pursuant to this Agreement, shall be
completed on or before the Effective Date.
12.3 Expenses. All registration and filing fees, fees and disbursements
--------
of counsel for Summa, expenses of any audits of Summa incident to or required by
any such registration and expenses of Summa's proxy solicitation and expenses of
complying with the securities or blue sky laws of any jurisdictions pursuant to
Section 12.1 hereof shall be borne and paid by Summa at Summa's sole cost and
expense. All expenses of printing and distributing the Joint Proxy
Statement/Prospectus to and soliciting proxies from the LexaLite Shareholders,
all fees and disbursements of counsel for LexaLite, and the expenses of any
audits of LexaLite incident to or required by any such registration, shall be
borne and paid by LexaLite at LexaLite's sole cost and expense.
32
<PAGE>
13. TERMINATION, AMENDMENT AND WAIVER.
---------------------------------
13.1 Termination. This Agreement may be terminated at any time prior to
-----------
the Effective Date, whether before or after approval by either or both of the
Summa Shareholders or the LexaLite Shareholders:
13.1.1 By mutual consent of LexaLite and Summa;
13.1.2 By either LexaLite or Summa as provided in Section 3.1.2(c) hereof;
13.1.3 By either LexaLite or Summa, if the Merger shall not have been
consummated on or before January 31, 1997 (the "Termination Date"), except that
the right to terminate under this Section 13.1.3 shall not be available to any
party whose failure to perform any covenant herein or satisfy any condition
hereof within the control of such party has been the proximate cause of or
resulted in the failure of the Merger to be consummated on or before the
Termination Date;
13.1.4 Unilaterally by either LexaLite or Summa (i) if the other fails to
perform any covenant in any material respect in this Agreement, unless the
failure is capable of being and has been cured in all material respects within
30 business days after the terminating party has delivered written notice of the
alleged failure, or (ii) if any condition to the obligations of that party is
not satisfied (other than by reason of a breach by that party of its obligations
hereunder), and it reasonably appears that the condition cannot be satisfied
prior to the Termination Date, unless the party has earlier waived such
condition;
13.1.5 By either LexaLite or Summa if any of the conditions to such
party's performance remain unsatisfied for a period of 40 days after the
Commission shall have indicated its willingness to accelerate the effectiveness
of the Registration Statement to be filed by Summa as provided in Section 12
hereof.
13.1.6 By either LexaLite or Summa, if the Board of Directors of such
party has determined that consummation of the transactions contemplated by this
Agreement could reasonably be expected to cause the directors of such party to
violate their fiduciary duties under applicable law, upon the payment by the
terminating party to the other party 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.
13.2 Effect of Termination. In the event of termination of this Agreement
---------------------
by either Summa or LexaLite as provided in Section 13.1, this Agreement shall
forthwith become void and there shall be no further obligation on the part of
either LexaLite or Summa, or their respective officers or directors (except as
set forth in this Section 13.2 and in Sections 8.1, 8.10, 12.3, 13.1.6, 14.8,
14.9 and 14.10 which shall survive the termination). Nothing in this Section
13.2 shall relieve any party from liability for any breach of this Agreement.
33
<PAGE>
13.3 Amendment. This Agreement may not be amended or modified except by
---------
an instrument in writing signed on behalf of each of the parties hereto and in
compliance with applicable law.
13.4 Waiver. At any time prior to the Effective Time, the parties hereto
------
may (a) extend the time for the performance of any of the obligations or other
acts of the other parties hereto, (b) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant thereto, and (c) waive compliance with any of the agreements or
conditions contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party.
14. MISCELLANEOUS.
-------------
14.1 Other Documents. Each of the parties hereto shall execute and
---------------
deliver such other and further documents and instruments, and take such other
and further actions, as may be reasonably requested of them for the
implementation and consummation of this Agreement and the transactions herein
contemplated.
14.2 Parties in Interest. This Agreement shall be binding upon and inure
-------------------
to the benefit of the parties hereto, and their respective successors and
assigns, but shall not confer, expressly or by implication, any rights or
remedies upon any other party.
14.3 Governing Law. Except with respect to matters controlled by the
-------------
Delaware General Corporation Law, this Agreement is made and shall be governed
in all respects, including validity, interpretation and effect, by the laws of
the State of California.
14.4 Notices. All notices, requests or demands and other communications
-------
hereunder must be in writing and shall be deemed to have been duly made if
personally delivered or mailed, postage prepaid, to the parties as follows:
(a) If to LexaLite, to: Thomas M. Phillips
LexaLite International Corporation
10163 US 31 North
Charlevoix, MI 49720-0498
With copies to: Thomas D. Pointner, Esq.
Pointner, Joseph & Corcoran, P.C.
203 Mason Street
Charlevoix, MI 49720
Stephen R. Kretschman, Esq.
Warner Norcross & Judd LLP
900 Old Kent Bank Building
111 Lyon Street, N.W.
Grand Rapids, MI 49503
34
<PAGE>
(b) If to Summa, to: James R. Swartwout
Summa Industries
1600 West Commonwealth Avenue
Fullerton, CA 93833
With copies to: James M. Phillips, Jr., Esq.
Phillips & Haddan
4695 MacArthur Court, Suite 840
Newport Beach, CA 92660
Any party hereto may change its address by written notice to the other party
given in accordance with this Section 14.4.
14.5 Entire Agreement. This Agreement, together with the Agreement of
----------------
Merger and each of the other exhibits and schedules attached hereto, contains
the entire agreement between the parties and supersedes all prior agreements,
understandings and writings between the parties with respect to the subject
matter hereof. Each party hereto acknowledges that no representations,
inducements, promises or agreements, oral or otherwise, have been made by any
party, or anyone acting with authority on behalf of any party, which are not
embodied herein or in the Agreement of Merger or in an exhibit or schedule
hereto, and that no other agreement, statement or promise may be relied upon or
shall be valid or binding.
14.6 Headings. The captions and headings used herein are for convenience
--------
only and shall not be construed as a part of this Agreement. In this Agreement,
the term "including" and terms of similar import shall mean "including without
limitation" unless the context requires otherwise.
14.7 Attorneys' Fees. In the event of any litigation between LexaLite and
---------------
Summa, the non-prevailing party shall pay the reasonable expenses, including the
attorneys' fees, of the prevailing party in connection therewith.
14.8 Expenses. Except as otherwise expressly provided hereunder, each
--------
party hereto agrees to pay all of its own expenses and to save the other party
harmless against liability for the payment of any such expenses arising in
connection with the negotiation, execution and consummation of the transactions
contemplated by this Agreement.
14.9 Indemnification of LexaLite. Except with respect to those costs and
---------------------------
expenses expressly to be borne by Lexalite as provided hereunder, Summa shall
indemnify, defend and hold LexaLite and all of LexaLite's officers, directors,
shareholders, agents and employees harmless against and in respect to any and
all claims, demands, losses, costs, expenses, obligations, liabilities, damages,
recoveries and deficiencies, including interest, penalties and reasonable
attorneys' fees, that any of them shall incur or suffer, which arise or result
from, or relate to any breach of, or failure by, Summa to perform any of its
representations, warranties, covenants, exhibits, or other instruments furnished
or to be furnished by Summa under this Agreement.
35
<PAGE>
14.10 Indemnification of Summa and Subsidiary. Except with respect to
---------------------------------------
those costs and expenses expressly to be borne by Summa as provided hereunder,
LexaLite shall indemnify, defend and hold each of Summa and Subsidiary, and all
of their respective officers, directors, shareholders, agents and employees
harmless against and in respect of any and all claims, demands, losses, costs,
expenses, obligations, liabilities, damages, recoveries and deficiencies,
including interest, penalties and reasonable attorneys' fees, that any of them
shall incur or suffer, which arise or result from, or relate to any breach of,
or failure by, LexaLite to perform any of its representations, warranties,
covenants, exhibits, or other instruments furnished or to be furnished by
LexaLite under this Agreement.
14.11 Public Announcements. Before issuing any press release or otherwise
--------------------
making any public statements with respect to this Agreement or the Merger, Summa
and LexaLite shall consult with each other as to its form and substance and will
not issue the press release or make the public statement before such
consultation, except in either case as may be required by applicable law.
14.12 Survival. The representations and warranties of the parties
--------
contained herein and in any other document or instrument delivered pursuant
hereto shall survive any investigations made by or on behalf of any other party
made prior to the Effective Time, but shall not survive beyond the Effective
Time. Nothing contained in this Section 14.12 shall in any way affect any
obligations of any party under this Agreement that are to be performed, in whole
or in part, after the Effective Date, nor shall it prevent or preclude any party
from pursuing any and all available remedies at law or in equity for actual
fraud against any party or parties guilty of such fraud.
14.13 Counterparts. This Agreement may be executed in counterparts, each
------------
of which shall be deemed an original but all of which taken together shall
constitute but one and the same document.
14.14 Assignment. Neither this Agreement, the Agreement of Merger nor any
----------
of the rights, interests or obligations hereunder or thereunder may be assigned
by either party without the prior written consent of the other party.
14.15 LexaLite Employee Stock Purchase Plan.
-------------------------------------
(a) At the meeting of Summa Shareholders to be held as provided in Section
8.6 above, the Summa Shareholders will be asked to adopt and approve an Employee
Stock Ownership Plan which will (i) incorporate the LexaLite ESOP, modified as
contemplated in Section 14.15(b) below, (ii) permit participation by the
employees of Summa and of each of the other consolidated subsidiaries of Summa
(in accordance with separate provisions for contribution adopted by each
participating corporation), and (iii) permit Summa to make contributions thereto
either in cash or in shares of its Common Stock.
(b) In the event that the Summa Shareholders decline to approve the
adoption of a Summa Employee Stock Ownership Plan as provided in Section
14.15(a) above, Summa agrees that LexaLite will modify the LexaLite
International Corporation Amended and Restated Employee Stock Ownership Plan
(the "LexaLite ESOP") to provide that a Participant or Beneficiary (as those
terms are defined in the LexaLite ESOP) entitled to a distribution of benefits
from the LexaLIte ESOP owing to
36
<PAGE>
the happening of a Distributive Event (as that term is defined in the LexaLite
ESOP) occurring at any time within three (3) full years following the Effective
Date shall have the right to a put to the LexaLIte ESOP pursuant to which the
LexaLite ESOP would repurchase all or any portion of the shares of Summa Common
Stock issuable as a consequence of the Merger at a price determined in
accordance with the formula for repurchases of LexaLite Common Stock upon
exercise of the put currently in effect and on such other terms and conditions
that are mutually acceptable to Summa and LexaLite.
14.16 Certain Corporate Matters. It is the intention of Summa that the
--------------------------
Surviving Corporation's corporate headquarters will remain in Charlevoix,
Michigan and that the Surviving Corporation will continue to operate under and
to use in its business the name "LexaLite International Corporation." The
foregoing constitutes a statement of intention only, nor shall it create rights
in favor of any third party.
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Agreement as of the day and year first above written.
SUMMA INDUSTRIES LEXALITE INTERNATIONAL CORPORATION
By: _____________________________ By: ____________________________________
James R. Swartwout Josh T. Barnes
Chief Executive Officer Chief Executive Officer
37
<PAGE>
LIST OF EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description To be Provided by:
- -------------- -------------------------------- ------------------
<S> <C> <C>
A Agreement of Merger Summa/LexaLite
B Listing of LexaLite Shareholders LexaLite
C LexaLite Disclosure Schedule LexaLite
D LexaLite Financial Statements LexaLite
E Summa Disclosure Schedule Summa
F Summa Financial Statements Summa
G Closing Exceptions to LexaLite
Representations and Warranties LexaLite
H Closing Exceptions to Summa
Representations and Warranties Summa
</TABLE>
38
<PAGE>
EXHIBIT 2.2
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:
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 the initial number of directors to be three (3) and thereafter
such number between
2
<PAGE>
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, be converted into and become one fully paid and
nonassessable share of Common Stock, $1.00 par value, of the Surviving
Corporation.
3
<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.
4
<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.
5
<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.
6
<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
7
<PAGE>
EXHIBIT 24.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants, we hereby consent to the use of our report
dated October 5, 1995 (except with respect to the matter discussed in note 12,
as to which the date is September 5, 1996 on the financial statements of Summa
Industries (and to all references to our Firm) included in or made part of this
registration statement.
ARTHUR ANDERSEN LLP
Orange County, California
September 5, 1996
<PAGE>
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.
ARTHUR ANDERSEN LLP
Grand Rapids, Michigan
September 5, 1996
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements of SUMMA INDUSTRIES' included in this
registration statement, and we have issued our report thereon dated October 5,
1995. Our audits were made for the purpose of forming an opinion on those
statements, taken as a whole. The schedule listed in the index of financial
statements is presented for purposes of complying with the Securities and
Exchange Commission's rules and are not part of the basic financial statements.
This schedule has been subjected to the auditing procedures applied in the audit
of the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
Orange County, California ARTHUR ANDERSEN LLP
October 5, 1995
<PAGE>
SUMMA INDUSTRIES
----------------
SCHEDULE VIII
-------------
VALUATION AND QUALIFYING ACCOUNTS
---------------------------------
For the years ended August, 1995, 1994, 1993
<TABLE>
<CAPTION>
Amounts
Balance at charged
beginning of (credited) to Acquired Amounts Balance at
period expense Reserves written off end of period
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1995 Allowance for doubtful accounts $75,000 $(14,000) $0 $(2,000) $59,000
1994 Allowance for doubtful accounts 56,000 20,000 0 (1,000) 75,000
1993 Allowance for doubtful accounts 25,000 8,000 24,000 (1,000) 56,000
</TABLE>
