UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended APRIL 30, 1995
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-2537
OPTICAL COATING LABORATORY, INC.
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
68-0164244
(I.R.S. Employer Identification No.)
2789 NORTHPOINT PARKWAY, SANTA ROSA, CA 95407-7397
(Address of principal executive offices)
(707) 545-6440
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes x No
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Classes of Common Stock
COMMON STOCK, $.01 PAR VALUE
Outstanding at May 31, 1995: 9,066,220 shares
This document contains 23 pages.
The Exhibit listing appears on Page 15-16
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OPTICAL COATING LABORATORY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
April 30, October 31,
ASSETS 1995 1994
Current Assets:
Cash and short-term investments $ 5,467 $ 19,663
Accounts receivable, net
of allowance for doubtful
accounts of $1,501 and $1,810 27,782 22,007
Inventories 12,884 10,559
Deferred income tax assets 4,934 4,235
Other current assets 2,716 1,246
Total Current Assets 53,783 57,710
Other Assets and Investments 10,937 9,159
Property, Plant and Equipment:
Land and improvements 8,663 8,623
Buildings and improvements 28,143 27,495
Machinery and equipment 84,365 80,206
Construction-in-progress 11,492 3,083
132,663 119,407
Less accumulated depreciation (70,996) (67,397)
Property, Plant and
Equipment - Net 61,667 52,010
$ 126,387 $ 118,879
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 7,461 $ 6,197
Accrued expenses 11,418 8,423
Accrued compensation expenses 5,444 4,785
Income taxes payable 918 1,671
Current maturities on long-term debt 7,473 6,878
Notes payable 339 428
Deferred revenue 595 636
Total Current Liabilities 33,648 29,018
Accrued postretirement health benefits
and pension liabilities 1,946 1,877
Deferred income tax liabilities 91 506
Long-term debt 34,441 35,441
Stockholders' Equity:
Common stock, $.01 par value;
authorized 30,000,000 shares;
issued and outstanding 9,044,000
and 8,978,000 shares 90 90
Paid-in capital 40,448 39,967
Retained earnings 15,338 12,055
Cumulative foreign currency
translation adjustment 385 (75)
Total Stockholders' Equity 56,261 52,037
$ 126,387 $ 118,879
See Notes to Consolidated Financial Statements
OPTICAL COATING LABORATORY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Three and Six Months Ended April 30, 1995 and 1994
(Dollars in thousands, except per share amounts)
(Unaudited)
Three Months Ended Six Months Ended
April 30, April 30,
1995 1994 1995 1994
Net sales and other revenues $41,487 $33,544 $77,480 $63,635
Cost of sales 25,923 20,544 47,275 39,561
Gross profit 15,564 13,000 30,205 24,074
Operating expenses:
Research and development 1,632 1,344 3,019 2,455
Selling and administrative 9,390 8,476 18,634 15,684
Amortization of intangibles 304 150 475 316
Total operating expenses 11,326 9,970 22,128 18,455
Income from operations 4,238 3,030 8,077 5,619
Other income (expense):
Interest income 196 9 422 18
Interest expense (991) (716) (1,911) (1,414)
Income before taxes 3,443 2,323 6,588 4,223
Income taxes 1,445 976 2,766 1,774
Net income $ 1,998 $ 1,347 $ 3,822 $ 2,449
Net income per common and common
equivalent share $ .21 $ .15 $ .44 $ .27
See Notes to Consolidated Financial Statements
OPTICAL COATING LABORATORY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Six Months Ended April 30, 1995
(Amounts in thousands)
(Unaudited)
FOREIGN
COMMON STOCK PAID-IN RETAINED CURRENCY
SHARES AMOUNT CAPITAL EARNINGS TRANSLATION
BALANCE AT NOVEMBER 1, 1994 8,978 $90 $39,967 $12,055 $ (75)
Exercise of stock options,
including tax benefit 66 481
Foreign currency translation
adjustment for the period 460
Net income for the period 3,822
Dividend on common stock (539)
BALANCE AT APRIL 30, 1995 9,044 $ 90 $40,448 $15,338 $ 385
See Notes to Consolidated Financial Statements
OPTICAL COATING LABORATORY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three and Six Months ended April 30, 1995 and 1994
(Amounts in thousands)
(Unaudited)
Three Months Ended Six Months Ended
April 30, April 30,
1995 1994 1995 1994
Cash Flows from Operating Activities:
Cash received from customers $35,241 $31,791 $72,499 $62,808
Interest received 197 8 494 13
Cash paid to suppliers and
employees (31,043) (26,098) (66,076)(54,526)
Cash paid to ESOP+ (402) (394) (406) (394)
Interest paid (833) (736) (2,103) (1,242)
Income taxes paid, net of refunds (3,518) (991) (3,887) (403)
Net cash provided by (used for)
operating activities (358) 3,580 521 6,256
Cash Flows from Investing Activities:
Purchase of plant and equipment (7,837) (2,255) (11,138) (3,778)
Cash portion of payment for
purchase of Netra, net of
cash acquired (1,477) (1,477)
Net cash used for investing
activities (9,314) (2,255) (12,615) (3,778)
Cash Flows from Financing Activities:
Proceeds from exercise of stock
options 370 12 372 16
Proceeds from debt borrowings 4,000 4,000
Proceeds from notes payable 6 30 188 182
Repayment of long-term debt (1,488) (3,149) (1,892) (3,616)
Repayment of notes payable (307) (264) (307) (281)
Payment of dividend on common stock (539) (538)
Net cash provided by (used for)
financing activities (1,419) 629 (2,178) (237)
Effect of exchange rate changes
on cash 106 65 76 38
Net increase (decrease) in cash and
short-term investments (10,985) 2,019 (14,196) 2,279
Cash and short-term investments
at beginning of period 16,452 2,544 19,663 2,284
Cash and short-term investments
at end of period $5,467 $4,563 $5,467 $4,563
OPTICAL COATING LABORATORY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three and Six Months Ended April 30, 1995 and 1994
(Amounts in thousands)
(Unaudited)
Three Months Ended Six Months Ended
April 30, April 30,
1995 1994 1995 1994
Reconciliation of net income to cash
flows from operating activities:
Net income $1,998 $1,347 $3,822 $2,449
Adjustments to reconcile net
earnings to net cash provided by
(used for) operating activities:
Depreciation and amortization 2,149 1,883 3,970 3,603
Loss on disposal or abandonment
of equipment 79 215 98 218
Accrued postretirement
health benefits 10 55 37 24
Deferred income tax liabilities 153 (106) 510 (50)
Other non-cash adjustments to
net earnings (119) 18 (179) (21)
Change in:
Accounts receivable (1,730) (1,950) (4,683) (1,722)
Inventories (97) 1,013 (1,786) 777
Income tax receivable 1 699 2 2,044
Deferred income tax assets 12 13 (699) (23)
Other current assets and
other assets and investments (432) 175 (1,760) (650)
Accounts payable, accrued expenses
and accrued compensation expenses 27 58 2,040 (323)
Deferred revenue (249) 129 (41) (80)
Income taxes payable (2,160) 31 (810) 10
Total adjustments (2,356) 2,233 (3,301) 3,807
Net cash provided by (used for)
operating activities $ (358) $3,580 $ 521 $6,256
Supplemental Schedule of Non-Cash Investing and Financing Activities:
In the second quarter of 1995, the Company acquired Netra Corporation for
approximately $1.5 million in cash and approximately $1.6 million to be
paid in the Company's common stock. Cash and non-cash components of the
acquisition were as follows:
Fair value of assets acquired,
including intangibles $3,529
Cash acquired (188)
Liabilities assumed (279)
$3,062
Cash paid to sellers, net of cash acquired $1,477
OCLI common stock to be issued to sellers 1,585
$ 3,062
See Notes to Consolidated Financial Statements
OPTICAL COATING LABORATORY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three and Six Months Ended April 30, 1995 and 1994
(Unaudited)
1. GENERAL
The Consolidated Balance Sheet as of April 30, 1995, the Consolidated
Statements of Income for the three and six month periods ended April
30, 1995 and 1994, the Consolidated Statement of Stockholders' Equity
for the six month period ended April 30, 1995 and the Consolidated
Statements of Cash Flows for the three and six month periods ended
April 30, 1995 and 1994 have been prepared by the Company without
audit. In the opinion of management, all adjustments, consisting of
normal recurring accruals, necessary to present fairly the financial
position, results of operations and cash flows at April 30, 1995 and
for all periods presented have been made.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. It is suggested
that these consolidated financial statements be read in conjunction
with the financial statements and notes thereto included in the
Company's Annual Report to Stockholders for fiscal 1994.
Certain amounts in the 1994 consolidated financial statements have
been reclassified to conform with the presentation in the 1995
consolidated financial statements.
The results of operations for the period ended April 30, 1995 are not
necessarily indicative of the operating results anticipated for the
full year.
2. INVENTORIES
Inventories consisted of the following:
April 30, October 31,
1995 1994
(Amounts in thousands)
Raw materials and supplies $ 4,816 $ 3,633
Work-in-process and finished goods 8,068 6,926
$ 12,884 $ 10,559
3. OTHER ASSETS AND INVESTMENTS
At April 30, 1995, other assets and investments include $9.0 million
of goodwill; $7.9 million attributed to the purchase of MMG which is
being amortized over 15 years and $1.1 million attributed to the
purchase of Netra Corporation which is being amortized over five
years.
In the second quarter of 1995, the Company acquired the assets and
liabilities of Netra Corporation, a precision plastic component
manufacturer, for a total purchase price of approximately $3.1
million. The purchase price consisted of cash of approximately $1.5
million paid at closing and the balance of approximately $1.6 million
to be paid in shares of Company common stock. The number of shares to
be issued will be based upon the average bid and ask price for the
stock for the 30 business days immediately preceding July 1, 1995.
The acquisition was recorded as a purchase.
4. ACCRUED EXPENSES
Accrued expenses consisted of the following:
April 30, October 31,
1995 1994
(Amounts in thousands)
Workers' compensation reserve $ 1,563 $ 1,578
Ground water remediation reserve 1,193 1,197
Other accrued liabilities 8,662 5,648
$ 11,418 $ 8,423
5. LONG-TERM DEBT
Long-term debt consisted of: April 30, October 31,
1995 1994
(Amounts in thousands)
Unsecured Senior Notes. Interest
at 8.71% payable semi-annually.
Principal payable in annual
installments of $3.6 million
from 1998 through 2002. $18,000 $18,000
Unsecured bank term loan. Interest
at approximately 9.7% payable quarterly.
Principal payable in twelve equal
quarterly installments from October 31,
1994 through July 31, 1997. 4,500 5,500
Land improvement assessment. Interest
at an average rate of 6.75%. Principal
and interest payable in semi-annual
installments of $77,000 through 1998. 401 517
Scottish Development Agency (SDA)
building loan, at 12%, with semi-annual
payments of approximately $357,000,
each comprising principal and interest
through 2006. Collateralized by the
land and building of the Company's
Scottish subsidiary. 4,185 4,289
Notes payable to private parties in
connection with the purchase of MMG.
Principal and interest at 8% payable
in quarterly installments of
approximately $400,000 through 2003. 8,370 8,167
Bank loans of MMG with interest rates
ranging from 4.5% to 9.75%. Payable in
annual and semi-annual installments through
2014. Partly collateralized by mortgages
on MMG land and buildings and liens on
equipment. 5,490 5,133
Present value of obligations under
capital leases at an assumed interest
rate of 7.5% payable in monthly
installments through 2004. 968 713
41,914 42,319
Less current maturities (7,473) (6,878)
$ 34,441 $ 35,441
At April 30, 1995, the Company had a $10 million credit facility
(consisting at the time of a $4.5 million term loan and a $5.5 million
revolving line of credit) with a bank carrying a commitment fee of
1/2% per annum. In May of 1995, subsequent to the balance sheet date,
the Company renegotiated its bank credit facility to a new $30 million
unsecured credit facility comprised of a $15 million term loan and a
$15 million revolving line of credit and liquidated its previously
existing credit facility. The new term loan bears interest at the
offshore rate (7.3% as of the loan closing date) plus 1.25% with
principal payable in semi-annual installments in October and April of
each year beginning in October of 1995. Semi-annual principal
payments accelerate after two years with $500,000 payable for the
first two installments, $1 million payable for the next two
installments and $2 million payable for the remaining installments
through April of 2000. The term loan borrowings were utilized in
connection with the Flex Products transaction discussed in note 7
below, for capital expenditures and to liquidate outstanding debt. No
borrowings were made under the new $15 million revolving credit
facility which expires on April 28, 2000 and carries a commitment fee
of .375% per year. The Company has an incremental credit facility to
cover a surety letter for approximately $4.2 million to secure 50% of
the Company's notes payable arising from the purchase of MMG. The
Company also has a letter of credit in the approximate amount of $1.5
million to satisfy the Company's workers' compensation self-insurance
requirements. The guarantee and letter of credit facilities carry a
fee of 1.25%.
The Company's subsidiary in Scotland has a credit arrangement of up to
approximately $430,000 at market interest rates and has outstanding
letters of credit of approximately $370,000 to guarantee import duty.
There were no borrowings under the credit arrangement in fiscal years
1995 or 1994.
The Company's subsidiary in Germany has various credit facilities with
local banks, totaling approximately $2 million, for working capital
requirements. These credit facilities are utilized as part of normal
local payment practices.
6. STOCK OPTIONS
During the six months ended April 30, 1995, the Company granted
options to purchase 457,500 shares of the Company's common stock at a
price equal to 100% of the market price on the date of grant under the
Company's incentive compensation and employee stock option plans. At
April 30, 1995, 1,717,652 shares are subject to outstanding options at
option prices ranging from $4.50 to $10.63, of which 1,092,277 options
are exercisable.
At the Annual Stockholders Meeting on March 30, 1995, the stockholders
approved the 1995 Incentive Compensation (Stock Option) Plan. The new
Plan authorizes the Company to grant options to purchase the Company's
common stock up to 600,000 shares. At April 30, 1995, options to
purchase 315,213 shares are available for future grants under all of
the Company's plans.
7. SUBSEQUENT EVENTS
In May 1995, after the balance sheet date, the Company increased its
ownership in Flex Products, Inc. (Flex Products) from 40% to 60%, with
the remaining interest in Flex Products simultaneously purchased by
SICPA Holding S.A., a privately-held Swiss corporation and a major
customer of Flex Products. The Company paid $8.4 million in cash to
acquire the incremental 20% interest in Flex Products and paid another
$7.0 million to acquire a 60% interest in an $11.7 million promissory
note issued by Flex Products to its former owner to cover Flex
Products working capital requirements. The transaction will be
recorded as a purchase in the third quarter of fiscal 1995.
Also in May 1995, in conjunction with the acquisition of its
controlling interest in Flex Products, the Company issued $12 million
of Series C Convertible Redeemable Preferred Stock in a private
placement. The Preferred Stock is convertible at any time by the
holders at a conversion price of $10.50 per common share (subject to
adjustment in certain circumstances) and is redeemable by the Company
commencing two years from the date of issuance. The Series C
Preferred Stock has an 8% dividend component which is cumulative and
payable quarterly beginning June 30, 1995.
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF MATERIAL CHANGES IN
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
Net sales and other revenues for the second quarter of 1995 were $41.5
million, up 24% over net sales and other revenues of $33.5 million for the
second quarter of 1994. Net sales and other revenues for the first six
months of 1995 were $77.5 million, up 22% over net sales and other revenues
of $63.6 million for the same period of 1994. The increase in net sales and
other revenues for the second quarter and first six months of 1995 over the
comparative periods of 1994 was primarily due to increased shipments of the
Company's custom and OEM display products, fabricated glass components used
in office automation applications, visual filters used in medical and
scientific instrumentation, and on an X-ray telescope project for NASA.
During the second quarter and first six months of 1995, the Company
estimates that it experienced an approximate 5-10% price decline in its
Glare/Guard(R) product line, an approximate 5-7% price decline in its
display product line, and an approximate 3-5% price decline in its glass
fabrication product line. These price declines were in part offset by
increases in sales volume in these product areas, but in part account for a
decline in gross margin percent. The Company had no other significant price
changes in its other product lines during the second quarter and first six
months of 1995.
Cost of sales as a percent of sales was 62.5% for the second quarter of
1995 compared with 61.2% for the second quarter of 1994 and was 61.0% for
the first six months of 1995 compared with 62.2% for the first six months
of 1994. The higher cost of sales percentage for the second quarter of 1995
reflects, primarily, non-recurring material costs for tooling in the
display product area and a higher than normal material content on the X-ray
telescope project.
The average gross margin for the second quarter of 1995 was slightly lower
at 37.5% compared to 38.8% for the second quarter of 1994, primarily as a
result of higher material costs. However, the average gross margin for the
six months of 1995 was higher at 39.0% compared to 37.8% for the six months
of 1994, primarily as a result of the higher sales volume in the current
year period.
Research and development expenditures in the second quarter of 1995
increased $288,000, or 21%, compared to the second quarter of 1994, and for
the first six months of 1995, increased $564,000, or 23%, compared to the
first six months of 1994. These increases reflect the Company's emphasis
on several significant development programs in the MetaMode(R) area and on
electrochromic technology.
Selling and administrative expenses in the second quarter of 1995 increased
$914,000, or 11%, over the corresponding quarter of 1994, and for the first
six months of 1995, increased $3.0 million, or 19%, over the first six
months of 1994. This increase reflects higher selling expenses in relation
to the higher sales volumes in the current year periods and increased
general and administrative expenses in connection with a rationalization of
the Company's European Glare/Guard(R) distribution companies.
Interest expense, net of interest income amounts, increased $88,000, or
12%, for the second quarter of 1995 compared to the second quarter of
1994, and increased $93,000, or 7%, for first six months of 1995 compared
to the first six months of 1994. The increase reflects higher funded debt
levels in the current year periods.
As a result of the foregoing, income before taxes in the second quarter of
1995 increased $1.1 million, or 48%, compared to income before taxes in
the second quarter of 1994; and income before taxes for the first six
months of 1995 increased $2.4 million, or 56%, over the corresponding
period of 1994.
The effective income tax rate for the second quarter and first six months
of 1995 and 1994 was 42%.
Net income for the second quarter of 1995 was $651,000, or 48%, higher than
the second quarter of 1994; and net income for the first six months of 1995
was $1.4 million, or 56%, higher than the first six months of 1994.
FINANCIAL CONDITION
During the three and six months ended April 30, 1995, the Company's working
capital requirements substantially consumed the cash flow generated by
Company operations. During the six month period, accounts receivable
increased $5.7 million and inventories increased $2.3 million in relation
to the higher sales volume. In addition, income tax payments in the second
quarter of 1995 were $3.5 million.
During the second quarter of 1995, the Company spent $7.8 million, and for
the first six months of 1995, $11.1 million, for the purchase of plant and
equipment. The Company added additional MetaMode(R) machine capacity to
its flat panel operation and product development area and upgraded its in-
line MetaMACTM sputter coater for increased capacity for front surface
mirror products. Also during the quarter, the Company committed to the
purchase of a large scale in-line coating machine to be installed before
year end and started construction of a 65,000 square foot building on its
Santa Rosa campus to house this in-line coating machine and related glass
fabrication operations. The Company intends to spend approximately $9.5
million to complete the aforementioned machine purchase and installation
and building project.
During the quarter, the Company also expended $1.5 million on the
acquisition of Netra, a precision plastic component manufacturer, with the
balance of the purchase price of $1.6 million to be paid in July 1995 in
the form of Company common stock.
As a result of its operating, investing and financing activities, the
Company's cash and short-term investment position decreased $11 million
during the second quarter of 1995, and $14.2 million for the six month
period of 1995.
Subsequent to quarter end, the Company announced it had completed a
transaction to increase its ownership to a controlling interest in Flex
Products, Inc. (Flex Products). Flex Products designs, manufactures and
markets thin film products produced by a proprietary vacuum deposition
technology. Flex Products produces optically variable pigment (OVP)
currently used in currency anti-counterfeiting and automobile paint
applications, energy efficient window film used for residential, commercial
and automotive energy conservation, printing plates used in offset color
printing and photoreceptor ground planes used in copiers. The Company paid
$8.4 million for an incremental 20% interest in Flex Products and paid $7.0
million to assume a 60% interest in a note of Flex Products held by the
seller.
In order to finance the Flex Products acquisition and other cash flow
requirements, the Company issued $12 million in convertible redeemable
preferred stock through a private placement subsequent to the quarter end.
The Company also reached agreement with its bank on a five-year $30 million
unsecured credit facility, which consists of a $15 million term loan and a
$15 million revolving line of credit. The facility replaces the Company's
prior $10 million credit facility.
Management believes that the cash on hand at April 30, 1995, cash
anticipated to be generated from future operations, borrowings from the
Company's renegotiated bank loan and credit arrangements, and the proceeds
from the private placement of preferred stock will be sufficient for the
Company to meet its near-term working capital needs, capital expenditure
commitments, debt service requirements and payments of dividends as
declared.
INDEPENDENT ACCOUNTANTS' REVIEW
The April 30, 1995 consolidated financial statements included in this
filing on Form 10-Q have been reviewed by Deloitte & Touche LLP,
independent accountants, in accordance with established professional
standards and procedures for such a review.
The report of Deloitte & Touche LLP commenting on their review follows.
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors
and Stockholders of
Optical Coating Laboratory, Inc.
Santa Rosa, California
We have reviewed the accompanying condensed consolidated balance sheet of
Optical Coating Laboratory, Inc. and subsidiaries as of April 30, 1995, and
the related condensed consolidated statements of earnings and cash flows
for the three-month and six-month periods ended April 30, 1995 and 1994 and
the related condensed consolidated statement of stockholders' equity for
the six-month period ended April 30, 1995. These financial statements are
the responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists of applying analytical review procedures to
financial data and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit in
accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements
taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to such condensed consolidated financial statements for them
to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Optical Coating Laboratory,
Inc. and subsidiaries as of October 31, 1994, and the related consolidated
statements of earnings, stockholders' equity, and cash flows for the year
then ended (not presented herein); and in our report dated December 14,
1994, we expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the accompanying
condensed consolidated balance sheet as of October 31, 1994 is fairly
stated, in all material respects, in relation to the consolidated balance
sheet from which it has been derived.
May 22, 1995
PART II. OTHER INFORMATION
Item 1. Legal Proceedings Page(s)
During the quarter, there were no material developments in legal
proceedings since the report filed on Form 10-Q for the quarter
ended January 31, 1995.
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of Stockholders was held on March
30, 1995.
(b) The management nominees for director listed in the
proxy statement were elected as follows: Herbert M. Dwight,
Jr., Douglas C. Chance, John McCullough, Renn Zaphiropoulos,
and Julian Schroeder.
(c) The Stockholders approved the Company's 1995 Incentive
Compensation (Stock Option) Plan (the "Plan") with 5,933,792
shares voting in favor of the Plan, 1,168,758 shares voting
against the Plan, 236,889 shares abstaining and 1,130,017
non-voted shares.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) The following are filed as Exhibits to this Quarterly
Report. The numbers refer to the Exhibit Table of
Item 601 of Regulation S-K.
(2) None
(4) Stock Purchase Agreement dated as of February 8, 1995
by and between the Registrant, Netra Corporation, and
the Sellers as identified on the signature page of said
agreement, each a shareholder of Netra Corporation,
for purchase by the Registrant of all of the shares
of common and preferred stock of Netra Corporation.
(10) None
(11) Computation of per share earnings for the three and
six month periods ended April 30, 1995 and 1994. 22
(15) Letter of Deloitte & Touche LLP regarding unaudited
interim financial information. 23
(18) None
(19) None
(22) None
(23) None
(24) None
(27) Financial Data Schedule for the three months
ended April 30, 1995.
(99) None
(b) Reports on Form 8-K filed for the three months
ended April 30, 1995.
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized and in the capacity indicated.
OPTICAL COATING LABORATORY, INC.
(Registrant)
June 14, 1995
Date John M. Markovich
Vice President Finance and
Chief Financial Officer
(Principal Financial Officer)
OPTICAL COATING LABORATORY, INC. AND SUBSIDIARIES
EXHIBIT 11, PAGE 1:
COMPUTATION OF EARNINGS (LOSS) PER SHARE
(Amounts in thousands, except per share data)
YEARS ENDED OCTOBER 31,
1994 1993 1992
Primary Shares:
Average common shares outstanding 8,975 8,795 8,180
Common equivalent shares
outstanding 48 456
9,023 8,795 8,636
Earnings (loss) before cumulative effect
of change in accounting principle $ 4,604 $(5,737) $6,027
Cumulative effect of change in accounting
for income taxes 510
Net earnings (loss) $ 4,604 $(5,737) $6,537
Earnings (loss) per common and common
equivalent share:
Earnings (loss) before cumulative effect
of change in accounting principle $.51 $(.65) $.69
Cumulative effect of change in accounting
for income taxes .06
Net earnings (loss), primary $.51 $(.65) $.75
OPTICAL COATING LABORATORY, INC. AND SUBSIDIARIES
EXHIBIT 11, PAGE 2:
COMPUTATION OF EARNINGS (LOSS) PER SHARE
(Amounts in thousands, except per share data)
YEARS ENDED OCTOBER 31,
1994 1993 1992
Fully Diluted Shares:
Average common shares outstanding 8,975 8,795 8,180
Common equivalent shares outstanding 70 304 522
9,045 9,099 8,702
Earnings (loss) before cumulative effect
of change in accounting principle $4,604 $(5,737) $6,027
Cumulative effect of change in accounting
for income taxes 510
Net earnings (loss) $4,604 $(5,737) $6,537
Earnings (loss) per common and common
equivalent share:
Earnings (loss) before cumulative effect
of change in accounting principle $.51 $(.63) $.69
Cumulative effect of change in accounting
for income taxes .06
Net earnings (loss), fully diluted $.51 $(.63) $.75
NOTE:Fully diluted earnings (loss) per share do not result in
dilution of three percent or more or are anti-dilutive and are,
therefore, not applicable.
EXHIBIT 15
To the Board of Directors and Stockholders
of Optical Coating Laboratory, Inc.
Santa Rosa, California
We have reviewed, in accordance with standards established by the American
Institute of Certified Public Accountants, the unaudited interim financial
information of Optical Coating Laboratory, Inc. and subsidiaries for the
periods ended April 30, 1995 and 1994 as indicated in our report dated
May 22, 1995; because we did not perform an audit, we expressed no opinion
on that information.
We are aware that our report referred to above, which is included in your
Quarterly Report on Form 10-Q for the quarter ended April 30, 1995, is
incorporated by reference in Registration Statements No. 33-41050,
No. 33-26271, No. 33-12276, No. 33-48808 and No. 33-65132 on Forms S-8 and
Registration Statement No. 2-97482 on Form S-3.
We are also aware that the aforementioned report, pursuant to Rule 436(c)
under the Securities Act, is not considered a part of the Registration
Statement prepared or certified by an accountant or a report prepared or
certified by an accountant within the meaning of Sections 7 and 11 of that
Act.
June 12, 1995
STOCK PURCHASE AGREEMENT
This Agreement is made this 8th day of February 1995, by and among
Optical Coating Laboratory, Inc., a Delaware corporation (the "Purchaser"),
Netra Corporation, a California corporation (the "Company"), William Lucas
Harry, an individual, and all of the other persons and entities identified
on the signature page hereof (the "Sellers"), each a shareholder of the
Company.
WHEREAS, the Purchaser desires to acquire, on the terms and subject to
the conditions and in the manner reflected below, all of the outstanding
shares of capital stock of the Company; and
WHEREAS, the Company believes that it is desirable and in the best
interests of the Company that its business be combined with that of the
Purchaser, and desires that the acquisition proposal of the Purchaser be
made available to the shareholders of the Company; and
WHEREAS, the Purchaser is not prepared or willing to proceed with the
contemplated transactions without the support, agreements, and
representations of the Company and the Sellers contained in this Agreement,
and is proceeding in reliance upon such support, agreements, and
representations;
NOW, THEREFORE, THE PARTIES TO THIS AGREEMENT do hereby agree as
follows:
ARTICLE I
DEFINITIONS
1.1 Affiliate: When used with respect to a person, an "affiliate" of
that person is a person controlling, controlled by, or under common control
with that person.
1.2 Agreement: This Agreement including all of its schedules and
exhibits and all other documents specifically referred to in this Agreement
that have been or are to be delivered by a party to this Agreement to
another such party in connection with the transactions contemplated hereby,
and including all duly adopted amendments, modifications, and supplements
to or of this Agreement and such schedules, exhibits, and other documents.
1.3 Audited Financial Statements: The balance sheet, income
statement, statement of stockholders' equity, and statement of cash flows
or, in each instance, equivalent statements as commonly provided to
shareholders.
1.4 Auditors: Deloitte & Touche, or any successor or affiliated
firm, or such other Independent Certified Public Accountants retained for
the purpose of auditing financial statements of the Company.
1.5 Business Day: Any day that is not a Saturday, Sunday, or day on
which banks in New York, New York, or San Francisco, California are
authorized to close.
1.6 Closing: The completion of the transactions contemplated hereby,
to take place as described in Article II.
1.7 Closing Date: The date on which the Closing actually occurs,
which shall be upon the satisfaction of the conditions contained in Article
VIII hereof, unless otherwise agreed by the parties as a later date.
1.8 Closing Time: The time at which the Closing actually occurs.
All events that are to occur at the Closing Time shall, for all purposes,
be deemed to occur simultaneously, except to the extent, if at all, that a
specific order of occurrence is otherwise described.
1.9 Company: Netra Corporation, a corporation organized under the
laws of the State of California, which will, pursuant to the various
transactions described in this Agreement, become a wholly-owned subsidiary
of the Purchaser.
1.10 Company Balance Sheet: The most recent Balance Sheet included in
the Unaudited Financial Statements of the Company which shall be for the
period ended January 1, 1995.
1.11 Company Disclosure Document: The document delivered by the
Company to the Purchaser containing certain disclosures regarding the
Company attached hereto as Exhibit A.
1.12 Competitor: A business or enterprise engaged in the field of
design, development, manufacture or sale of precision optic plastic
injection moldings.
1.13 Consideration: The payments to be made and securities to be
issued by the Purchaser to the Sellers pursuant to Article II and to be
apportioned between Sellers as set forth on Schedule 1.14 attached hereto.
1.14 Controlling Interest: Owning or controlling at least fifty
percent (50%) of the outstanding capital stock or voting power of a
business or otherwise acting in the capacity as an executive officer of
such enterprise.
1.15 Escrow Agreement: That certain Escrow Agreement among Purchaser,
First Trust of California, Sellers and the parties listed on Schedule A
thereto, of even date herewith substantially in the form attached hereto as
Exhibit B.
1.16 Exchange Act: The Securities Exchange Act of 1934, as amended to
the date as of which any reference thereto is relevant under this
Agreement, including any substitute or replacement statute adopted in place
or lieu thereof.
1.17 Fair Market Value: The average of the bid and ask price of the
Common Stock of the Purchaser for the preceding 30 Business Days as
reported by the National Association of Securities Dealers Automated
Quotation System, Inc.
1.18 GAAP: Generally accepted accounting principles, as in effect in
the United States on the date of any statement, report, or determination
that purports to be, or is required to be, prepared or made in accordance
with GAAP. All references herein to financial statements prepared in
accordance with GAAP shall mean in accordance with GAAP consistently
applied throughout the periods to which reference is made.
1.19 OCLI Common Stock: The Common Stock, $.01 par value, of the
Purchaser, delivered to Sellers pursuant to Section 2.2(2) which will bear
equivalent rights, preferences and privileges in all respects with the
Common Stock of the Purchaser outstanding at the date of issue, except as
set forth in Sections 2.2(3) and 2.2(4) below.
1.20 Notice: Notices given pursuant to the provisions of Section 11.1.
1.21 Purchaser Balance Sheet: The most recent Balance Sheet
included in the Audited Financial Statements of the Purchaser.
1.22 Registration Statement: Form S-3 Registration Statement, or
similar form, including the prospectus contained therein, filed by
Purchaser to register the OCLI Common Stock to be delivered to certain
Sellers pursuant to this Agreement.
1.23 SEC: The United States Securities and Exchange Commission.
1.24 Securities Act: The United States Securities Act of 1933, as
amended to the date of as of which any reference thereto is relevant under
this Agreement, including any substitute or replacement statute adopted in
place or lieu thereof.
1.25 Sellers: The shareholders of the Company, as identified on the
signature page hereto, who are, pursuant to this Agreement, agreeing to
sell their Shares to the Purchaser.
1.26 Shares: The 4,250,000 shares of Common Stock and 4,000,000
shares of Preferred Stock of the Company to be purchased by the Purchaser
from the Sellers constituting all the issued share capital of the Company.
1.27 Subsidiary: Any corporation with respect to which a specified
person owns a majority of the common stock or has the power to vote or
direct the voting of sufficient securities to elect a majority of the
directors.
1.28 Unaudited Financial Statements: The balance sheet, income
statement, statement of stockholders' equity and statement of cash flows,
or, in each instance, equivalent statements as commonly prepared.
ARTICLE II
THE TRANSACTIONS
2.1 The Transactions. On the Closing Date, and at the Closing Time,
subject in all instances to each of the terms, conditions, provisions, and
limitations contained in this Agreement, the Sellers shall sell, transfer,
convey, and assign to the Purchaser, free and clear of any and all liens
and charges, and the Purchaser shall acquire from the Sellers, the Shares
comprising, as to each such Seller, his, her, or its entire ownership of
equity securities of the Company, in exchange for the Consideration, as
described herein, payable for the Shares held by the Sellers.
2.2 Payment of Consideration. In reliance on the representations and
warranties of Sellers and the Company contained herein, and on the terms
and subject to the conditions set forth herein, the Purchaser agrees to
purchase the Shares for the following Consideration:
(1) The Initial Payment. On the Closing Date, Purchaser will pay an
aggregate of $1,664,770, in cash by direct bank transfer to an escrow
account (the "Escrow Account") for the benefit of Sellers, which Escrow
Account shall be governed by the terms and conditions of the Escrow
Agreement.
(2) The OCLI Common Stock. On or before July 10, 1995, Purchaser
shall issue to Sellers that number of shares of OCLI Common Stock equal to
the lesser of (i) that number of shares of OCLI Common Stock with an
aggregate Fair Market Value of $1,585,230 as of July 1, 1995, or (ii)
288,224 shares. Said shares shall be distributed in accordance with the
Escrow Agreement.
(3) Restrictions on OCLI Common Stock.
(a) The Sellers understand that the shares of OCLI Common Stock
will not be registered under the Securities Act or the securities laws of
any other jurisdiction by reason of specific exemptions under Regulation D
of the Securities Act. Sellers understand that the Purchaser is relying
upon the representations, warranties and agreements contained in this
Agreement, including, without limitation, those set forth in this Section
3, for the purpose of determining whether this transaction meets the
requirements for such exemptions.
(b) The Sellers acknowledge that the certificates representing
the OCLI Common Stock shall have imprinted thereon and such shares of OCLI
Common Stock shall be subject to the restrictions provided in the legend
set forth below. Sellers fully understand the limitations on transfer of
the Shares.
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 ("FEDERAL ACT") OR THE SECURITIES LAWS OF
ANY OTHER STATE (COLLECTIVELY REFERRED TO AS "STATE ACTS"). THE SHARES MAY
BE OFFERED FOR SALE, SOLD OR OTHERWISE TRANSFERRED ONLY IF EITHER AN
EFFECTIVE REGISTRATION OF THE SHARES IS OBTAINED IN COMPLIANCE WITH THE
FEDERAL ACT AND SUCH STATE ACTS AS MAY BE APPLICABLE OR IF THE SHARES ARE
SOLD OR TRANSFERRED IN A TRANSACTION WHICH IN THE WRITTEN OPINION OF
COUNSEL SATISFACTORY TO OPTICAL COATING LABORATORY, INC. IS EXEMPT FROM THE
PROVISIONS OF THE FEDERAL ACT AND STATE ACTS. ANY TRANSFER CONTRARY HERETO
IS VOID.
(c) The Sellers have made such independent investigation of the
Purchaser as they deem to be necessary or advisable in connection with this
investment. The Sellers have received all information and data which they
believe to be necessary in order to reach an informed decision as to the
advisability of making this investment. The Sellers have had an
opportunity to ask questions of, and to receive information from, the
Purchaser and persons acting on its behalf concerning the terms and
conditions of the Sellers' investment in the Shares, and to obtain any
additional information necessary to verify the accuracy of the information
and data received. In this regard, each of the Sellers acknowledges that
such Seller has received copies of the documents referenced in Section 3.7
below.
(d) The Sellers are acquiring the Shares solely for their own
account and benefit, for investment purposes, and not with an intent or a
view to, or for resale in connection with, any "distribution" in violation
of the Securities Act.
(e) The Sellers are accredited investors as such term is defined
in Regulation D promulgated under the Securities Act.
(4) Registration Rights.
(a) Purchaser will, at its expense, prepare and file, no later
than ten (10) days following the delivery of the OCLI Common Stock to the
Sellers pursuant to Section 2.2(2) above, a registration statement on Form
S-3 (or similar form prescribed by the SEC) covering all the shares of OCLI
Common Stock to be received by the Sellers and shall use its best efforts
to have such Registration Statement declared effective as soon as
practicable thereafter. The Purchaser's obligation under this Section is to
register the OCLI Common Stock only on Form S-3 and only if such form (or
similar form prescribed by the SEC) is available at the time of the
registration, subject to the provisions of Section 4(b) and 4(d).
(b) The Purchaser will use its best efforts to maintain the
effectiveness of the Registration Statement for up to the earlier of (i)
two years or (ii) until all shares have been sold under the Registration
Statement and from time to time will amend or supplement such registration
statement and the prospectus contained therein as and to the extent
necessary to comply with the Securities Act and any other applicable
securities laws. The Purchaser will also (i) provide the Sellers with as
many copies of the prospectus contained in any such registration statement
or amendment or supplement thereto or such other documents as such Seller
may reasonably request; (ii) cause the shares registered as described
herein to be listed on each securities exchange and quoted on each
quotation service on which similar securities issued by Purchaser are then
listed or quoted; (iii) provide a transfer agent and registrar for all
shares registered pursuant to the Registration Statement; and (iv)
otherwise use its best efforts to comply with all applicable rules and
regulations of the SEC.
In addition, the Purchaser shall use its best efforts to register
and qualify the securities covered by any such registration statement under
the securities laws of such jurisdictions as shall be reasonably requested
by the Sellers, provided that the Purchaser shall not be required in
connection therewith or as a condition thereto to qualify to do business or
to file a general consent to service of process in any such states or
jurisdictions.
(c) All expenses incident to the Purchaser's performance of or
compliance with the provisions of Section (4)(a), including without
limitation all registration and filing fees, fees and expenses of
compliance with state securities laws, printing expenses, messenger and
delivery expenses and fees and disbursements of counsel for the Purchaser
and all independent certified public accountants (including the expenses of
any audit), and other persons retained by the Purchaser shall be borne by
the Purchaser. The foregoing notwithstanding, Sellers shall bear the costs
and expenses, if any, of any underwriter, including underwriters'
commissions and discounts.
(d) With a view to making available to Sellers the benefits of
Rule 144 promulgated under the Securities Act ("Rule 144") and any other
rule or regulation of the SEC that may at any time permit a Seller to sell
the shares to the public without registration or pursuant to the
Registration Statement, Purchaser covenants and agrees to use its best
efforts to: (i) make and keep public information available, as those terms
are understood and defined in Rule 144, until the earlier of (A) the second
anniversary of the date of the issuance of the OCLI Common Stock or (B)
such date as all of the shares of OCLI Common Stock shall have been resold;
(ii) take such action, including the voluntary registration of its Common
Stock under Section 12 of the Exchange Act, as is necessary to enable the
Sellers to utilize Form S-3 for the sale of their shares; (iii) file with
the SEC in a timely manner all reports and other documents required of
Purchaser under the Securities Act and Exchange Act; and (iv) furnish to
any Seller upon request, as long as the Seller owns any shares (A) a
written statement by Purchaser that it has complied with the reporting
requirements of the Securities Act and the Exchange Act, or that it
qualifies as a registrant whose securities may be resold pursuant to Form S-
3 (at any time when it so qualifies); (B) a copy of the most recent annual
or quarterly report of Purchaser; and (C) such other information as may be
reasonably requested in order to avail any Seller of any rule or regulation
of the SEC that permits the selling of any such shares without registration
or pursuant to such form.
2.3 Closing. The Closing hereunder shall take place at the offices
of Collette & Erickson, 555 California Street, Suite 4350, San Francisco,
California, or at such other place as the Purchaser and the Company may
agree upon on the Closing Date.
2.4 Parties to the Agreement and the Transactions. By executing this
Agreement, each of the Sellers agrees to be bound by it and by any
amendment, modification, or change in or to it or any of its provisions
that is accepted by Sellers holding a majority of all of the shares of
Common Stock of the Company (including Common Stock issuable upon
conversion of the Preferred Stock) held by all of the Sellers in the
aggregate, provided, however, that no such amendment, modification, or
change shall treat any shareholder who does not consent thereto less
favorably than it treats any shareholder who does consent thereto.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants to each of the Sellers:
3.1 Organization and Qualification. The Purchaser is a corporation
duly organized, validly existing, and in good standing under the laws of
the State of Delaware, and has the requisite corporate power and authority
to carry on its business as it is now being conducted. The Purchaser is
duly licensed or qualified and in good standing in each such other
jurisdiction where its failure to be so licensed or qualified and in good
standing would have a material adverse effect on the business condition
(financial or otherwise), operations or prospects of the Purchaser.
3.2 Capitalization. The authorized share capital of the Purchaser
consists of two classes of shares designated Common Shares ("Common Stock")
and Preferred Shares ("Preferred Stock"). There are 30,000,000 shares of
authorized Common Stock and 100,000 shares of authorized Preferred Stock,
totaling 30,100,000 authorized shares. Of the authorized Preferred Stock
10,000 shares have been designated Series A Preferred Stock and 15,000
shares have been designated Series B Preferred Stock. All authorized shares
have a par value of $.01 per share. There is no other capital stock
authorized for issuance. As of October 31, 1994, 8,978,152 shares of
Common Stock were validly issued and outstanding, fully paid, and
nonassessable, no shares of Preferred Stock were issued and outstanding
and no shares of Common Stock or Preferred Stock were held in the Company
treasury. There were outstanding options totaling 1,343,595 shares of
which 990,370 options were exercisable and 155,713 shares of Common Stock
were available for future grants under the Purchaser's incentive
compensation and employee stock option plans. Except as set forth above,
there are no outstanding warrants, convertible instruments, or other
rights, agreements, or commitments to acquire Common Stock or Preferred
Stock of the Purchaser.
3.3 Authority Relative to this Agreement. The Purchaser has the
requisite corporate power and authority to enter into this Agreement and to
carry out its obligations hereunder. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby are
duly authorized and approved by the Board of Directors of Purchaser and no
other corporate proceedings on the part of the Purchaser is necessary to
approve and adopt this Agreement or to approve the consummation of the
transactions contemplated hereby, including delivery of the consideration.
This Agreement has been duly and validly executed and delivered by the
Purchaser, and constitutes a valid and binding Agreement of the Purchaser,
enforceable in accordance with its terms, subject to the effect of
applicable bankruptcy, insolvency, reorganization, moratorium or other
similar federal or state laws that affect the rights of creditors generally
or the availability of equitable relief.
3.4 Absence of Material Adverse Change. Since the date of the
Purchaser's Audited Financial Statements contained in the Purchaser's
Annual Report on Form 10-K for the fiscal year ended October 31 1994, there
has not been any material adverse change in the business, condition
(financial or otherwise), operations, or prospects of the Purchaser.
3.5 Absence of Breach; No Consents. The execution, delivery, and
performance of this Agreement, and the performance by the Purchaser of its
obligations hereunder, do not (1) conflict with or result in a breach of
any of the provisions of the Certificate of Incorporation or Bylaws of the
Purchaser; (2) contravene any law, ordinance, rule, or regulation or any
judgment, injunction, decree, determination, or award of any court or other
authority having jurisdiction, or cause the suspension or revocation of any
authorization, consent, approval, or license, presently in effect, which
affects or binds, the Purchaser or any of its material properties, except
in any case where such contravention will not have a material adverse
effect on the business, condition (financial or otherwise), operations, or
prospects of the Purchaser, taken as a whole, and will not have a material
adverse effect on the validity of this Agreement or on the validity of the
consummation of the transactions contemplated hereby; (3) conflict with or
result in a material breach of or default under any material indenture or
loan or credit agreement or any other material agreement or instrument to
which the Company is a party or by which it or any of its material
properties may be affected or bound; (4) require the authorization,
consent, approval, or license of any third party; or (5) constitute grounds
for the loss or suspension of any permits, licenses or other authorizations
used in the business of the Purchaser.
3.6 Brokers. No broker, finder, or investment banker is entitled to
any brokerage, finder's, or other fee or commission in connection with this
Agreement or the transactions contemplated hereby or any related
transaction based upon any agreements, written or oral, made by or on
behalf of Purchaser.
3.7 Disclosure. The Purchaser has heretofore delivered to the
Company and to the Sellers each of the following documents, hereinafter
collectively referred to as the Purchaser SEC Filings, and has made
available to the Company and the Sellers at the Purchaser's Corporate
headquarters in Santa Rosa, California all notes, exhibits and schedules
thereto and all documents incoporated by reference therein:
(1) Annual report of the Purchaser to its shareholders for its
fiscal year ended October 31, 1993;
(2) Annual report of the Purchaser on Form 10-K as filed with
the Securities and Exchange Commission (SEC) for the fiscal year ended
October 31, 1993;
(3) Proxy Statement of the Purchaser relating to its most recent
annual meeting of shareholders;
(4) Quarterly report of the Purchaser on Form 10-Q as filed with
the SEC for the first, second and third fiscal quarters of the Purchaser
for fiscal year 1994; and
(5) Annual Report of the Purchaser on Form 10-K as filed with
the SEC for the fiscal year ended October 31, 1994.
To the best knowledge of the Purchaser, Purchaser has, for the
last twelve months, filed all reports, registration statements and other
filings, together with any amendments required to be made with respect
thereto that it has been required to file with SEC under the Securities Act
and the Exchange Act. Each of the Purchaser SEC Filings, at the time it was
prepared, and all of such documents taken together, did not and do not
contain an untrue statement of a material fact or omit to state any
material fact necessary to make the statements made therein, in light of
the circumstances under which they were made, not misleading. All of the
financial statements contained in the foregoing documents were prepared
from the books and records of the Purchaser. The Audited Financial
Statements were prepared in accordance with GAAP, and fairly and accurately
reflect the financial position and condition of the Purchaser as of the
dates and for the periods indicated. The Unaudited Financial Statements
were prepared in a manner not inconsistent with the basis of presentation
used in the Audited Financial Statements, and fairly present the financial
position and condition of the Purchaser as of and for the periods
indicated, subject to normal year-end adjustments, none of which will be
material. As of the date hereof, to the best of the Purchaser's knowledge,
Purchaser has no material liabilities, absolute or contingent, not
reflected in the Purchaser SEC Filings, except (i) liabilities not required
under generally accepted accounting principles to be reflected on such
financial statements or the related notes and schedules thereto, and (ii)
liabilities incurred in the ordinary course of business since the date of
the financial statements.
3.8 Eligibility for Use of Form S-3. The Purchaser meets the
eligibility requirements for use of Form S-3 in transactions involving
secondary offerings by persons other than the issuer under the Securities
Act and will use its best efforts to remain eligible to use such form until
such time as the Purchaser shall have satisfied its obligations under
Section 2.2(4) above.
3.9 Shares of Common Stock. The shares of OCLI Common Stock to be
issued pursuant to this Agreement have been reserved for such issuance and,
when issued and delivered to the escrow agent pursuant to this Agreement
and the Escrow Agreement, will be duly and validly authorized and issued,
fully paid and non-assessable. The shares of OCLI Common Stock to be issued
pursuant to this Agreement when delivered out of escrow to the Sellers in
accordance with this Agreement and the Escrow Agreement will be duly and
validly authorized and issued, fully paid and non-assessable and free from
liens and encumbrances, other than liens or encumbrances that relate solely
to the ownership of shares by Sellers.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY AND SELLERS
The Company and the Sellers, severally not jointly, represent and
warrant to the Purchaser as follows:
4.1 Organization and Qualification. The Company is a corporation
duly organized, validly existing, and in good standing under the laws of
the State of California and has the requisite corporate power and authority
to carry on its business as it is now being conducted. The Company is duly
licensed or qualified and in good standing in each such other jurisdiction
where its failure to be so licensed or qualified and in good standing would
have a material adverse effect on the business condition (financial or
otherwise), operations or prospects of the Company.
4.2 Capitalization. The authorized share capital of the Company
consists of two classes of shares designated Common Shares ("Common Stock")
and Preferred Shares ("Preferred Stock"). There are 15,000,000 shares of
authorized Common Stock and 4,655,000 shares of authorized Preferred Stock,
totaling 19,655,000 authorized shares. The authorized Preferred Stock is
divided into two series, Series A Preferred Stock, consisting of 2,000,000
shares, and Series B Preferred Stock, consisting of 2,655,000 shares. All
authorized shares are without par value. There is no other capital stock
authorized for issuance. As of the date of the Company Balance Sheet,
4,250,000 shares of Common Stock and 4,000,000 shares of Preferred Stock
were validly issued and outstanding, fully paid, and nonassessable, no
shares of Common Stock or Preferred Stock were held in the Company
treasury, and, except for warrants to purchase 655,000 shares of Series B
Preferred Stock and shares issuable upon exercise thereof, no shares were
reserved for issuance, nor were there any other outstanding options,
warrants, convertible instruments, or other rights, agreements, or
commitments to acquire Common Stock or Preferred Stock of the Company.
Since the date of the Company Balance Sheet, no shares of the Company's
capital stock, or options, warrants, or other rights, agreements, or
commitments (contingent or otherwise) obligating the Company to issue
shares of capital stock, have been executed or issued. The Sellers own all
of the issued and outstanding Shares of the Company, as set forth on the
signature pages hereto. As of the Closing Date, the Company shall have no
outstanding options or warrants to acquire Common Stock or Preferred Stock
of the Company and shall have no liabilities in respect of any options or
warrants outstanding prior to Closing.
4.3 Authority Relative to this Agreement. This Agreement has been
duly and validly executed and delivered by the Company and Sellers and
constitutes a valid and binding Agreement of the Company and Sellers and is
enforceable in accordance with its terms, subject to the effect of
applicable bankruptcy, insolvency, reorganization, moratorium or other
similar federal or state laws that affect the rights of creditors generally
or the availability of equitable relief. The Company has all the required
corporate power and authority to enter into this Agreement and to carry out
the transactions contemplated hereby, and their doing so has been duly and
sufficiently authorized, subject only to governmental regulatory approvals
as and to the extent specifically set forth elsewhere in this Agreement.
Furthermore, the Sellers have the power and authority to enter into the
Agreement and carry out the transactions contemplated hereby.
4.4 Absence of Breach; No Consents. The execution, delivery, and
performance of this Agreement, and the performance by the Company and
Sellers of their obligations hereunder, do not (1) conflict with or result
in a breach of any of the provisions of the Articles of Incorporation or
Bylaws of the Company or the charter documents of any Seller; (2)
contravene any law, ordinance, rule, or regulation or any judgment,
injunction, decree, determination, or award of any court or other authority
having jurisdiction, or cause the suspension or revocation of any
authorization, consent, approval, or license, presently in effect, which
affects or binds, the Company or any of its material properties, or any of
the Sellers, except in any case where such contravention will not have a
material adverse effect on the business, condition (financial or
otherwise), operations, or prospects of the Company, taken as a whole, and
will not have a material adverse effect on the validity of this Agreement
or on the validity of the consummation of the transactions contemplated
hereby; (3) conflict with or result in a material breach of or default
under any material indenture or loan or credit agreement or any other
material agreement or instrument to which the Company is a party or by
which it or any of its material properties may be affected or bound; (4)
other than consents disclosed on the Company Disclosure Document, require
the authorization, consent, approval, or license of any third party; or (5)
constitute grounds for the loss or suspension of any permits, licenses or
other authorizations used in the business of the Company.
4.5 Brokers. No broker, finder, or investment banker is entitled to
any brokerage, finder's, or other fee or commission in connection with this
Agreement or the transactions contemplated hereby or any related
transaction based upon any agreements, written or oral, made by or on
behalf of Company. The Company does not have any obligation to pay
finder's or broker's fees or commission in connection with the exercise of
options to renew or extend real estate leases to which the Company is a
party.
4.6 Financial Statements. The Company has heretofore delivered to
the Purchaser the Unaudited Financial Statements of the Company attached
hereto as Exhibit C and made part hereof by this reference.
All of the historical financial statements contained in such
documents were prepared from the books and records of the Company. The
Unaudited Financial Statements were prepared in accordance with GAAP, and
fairly and accurately reflect the financial position and condition of the
Company as of the dates and for the periods indicated. Without limiting
the foregoing, at the date of the Company Balance Sheet, the Company owned
each of the assets included in preparation of the Company Balance Sheet;
and the Company had no liabilities other than those included in the Company
Balance Sheet, nor any liabilities in amounts in excess of the amounts
included for them in the Company Balance Sheet. The only adjustments to
the Company Balance Sheet that will occur prior to Closing is the
elimination of the debt and accrued unpaid interest set forth in Exhibit D.
4.7 Absence of Material Differences from Disclosure Document. Except
as specifically disclosed in the Company Disclosure Document:
(1) No Material Adverse Change. Since the date of the Company
Balance Sheet, other than as contemplated or caused by this Agreement,
there has not been (a) any material adverse change in the business,
condition (financial or otherwise), operations, or prospects of the
Company; (b) any damage, destruction, or loss, whether covered by insurance
or not, having a material adverse effect on the business, condition
(financial or otherwise), operations, or prospects of the Company; (c) any
entry into or termination of any material commitment, contract, agreement,
or transaction (including, without limitation, any material borrowing or
capital expenditure or sale or other disposition of any material asset or
assets) by the Company, other than this Agreement and agreements executed
in the ordinary course of business; (d) any redemption, repurchase, or
other acquisition for value of its capital stock by the Company, or any
issuance of capital stock of the Company or of securities convertible into
or rights to acquire any such capital stock or any dividend or distribution
declared, set aside or paid on capital stock of the Company; (e) any
transfer by the Company of, or right granted by the Company under, any
material lease, license, agreement, patent, trademark, trade name, or
copyright; (f) any sale or other disposition of any material asset of the
Company, or any mortgage, pledge, or imposition of any lien or other
encumbrance on any asset of the Company, other than in the ordinary course
of business, or any agreement relating to any of the foregoing; or (g) any
notice of any default or breach by the Company in any material respect
under any contract, license, or permit, and neither the Company nor any of
the Sellers are aware of any facts which would give rise to any such
default or breach. Since the date of the Company Balance Sheet, the
Company has conducted its business only in the ordinary and usual course,
and, without limiting the foregoing, no changes have been made in (a)
executive compensation levels; (b) the manner in which other employees of
the Company are compensated; (c) supplemental benefits provided to any such
executives or other employees; or (d) inventory levels in relation to sales
levels, except, in any such case, in the ordinary course of business and,
in any event, without material adverse effect on the business, condition
(financial or otherwise), operations, or prospects of the Company.
(2) Taxes. The Company has properly filed or caused to be filed
all income and other tax returns, reports and declarations that are
required by applicable law to be filed by them, and have paid, or made full
and adequate provision for the payment of, all income and other taxes
properly for the periods covered by such returns, reports, and
declarations, except such taxes, if any, as are adequately reserved against
in the Company Balance Sheet.
(3) Litigation. (a) No investigation or review by any
governmental entity with respect to the Company is pending or, to the best
of the knowledge of the Company or any of the Sellers, threatened, nor has
any governmental entity indicated to the Company an intention to conduct
the same; and (b) there is no action, suit or proceeding pending or, to the
best of the knowledge of the Company, threatened against or affecting the
Company at law or in equity, or before any governmental department,
commission, board, agency, or instrumentality. The Company Disclosure
Document includes a description of each litigation matter included therein.
(4) Employees. There are, except as disclosed on the Company
Disclosure Document, no collective bargaining, bonus, profit sharing,
compensation, or other plans, agreements, trusts, funds, or arrangements
maintained by the Company for the benefit of its directors, officers, or
employees, and there are no employment, consulting, severance, or
indemnification arrangements, agreements, or understandings between the
Company, on the one hand, and any current or former directors, officers or
other employees of the Company, on the other hand. The Company Disclosure
Document describes any contractual arrangement for the employment or
compensation of any person. The Company is not, and following the Closing
will not, as a result of any events occurring prior to Closing, be, bound
by any contract or agreement to employ, directly or as a consultant or
otherwise, any person for any specific period of time or until any specific
age except as specified in agreements in writing identified in the Company
Disclosure Document or executed pursuant to the provisions hereof, if any.
(5) Compliance with Laws. The Company is in substantial compliance
with all laws, and has received no notice of any violation of any laws or
regulations, including environmental protection laws and safety and health
standards, which materially affects its premises or the operation of its
business, including, without limitation, the use of premises occupied by
it, or with respect to which compliance is a condition of engaging in any
aspect of the business of the Company and has all permits, licenses, zoning
rights, and other governmental authorizations necessary to conduct its
business as presently conducted.
(6) Environmental Claims. There are no claims pending or, to the
best knowledge of the Company or the Sellers, threatened arising out of any
actual or alleged contamination of the ground, air or water at or
surrounding any past or present facility of the Company.
(7) Ownership of Assets. The Company has, except as disclosed in the
Company Disclosure Document, good, marketable, and insurable title, or
valid, effective, and continuing leasehold rights in the case of leased
property, to all real property (as to which, in the case of owned property,
such title is fee simple) and all personal property owned or leased by it
or used by it in the conduct of its business, free and clear of all liens,
encumbrances, and charges, except liens for taxes not yet due and minor
imperfections of title and encumbrances, if any, which, singly and in the
aggregate, are not substantial in amount and do not materially detract from
the value of the property subject thereto or materially impair the use
thereof.
(8) Insurance Coverage. The Company has obtained and maintained
sufficient insurance coverage against loss of or damage to its property and
sufficient liability insurance, including product liability insurance, as
protection against claims of third parties, and it has taken no steps nor
omitted anything by which the validity of these insurances could be
adversely influenced or the performance of the insurers could be avoided
and insurance coverage will remain in force with the acquisition of the
Company by the Purchaser.
4.8 Agreements or Contracts. The Company Disclosure Statement sets
forth a complete list of the following agreements and/or contracts
affecting the Company:
(a) all distributor agreements and agreements with sales agents
which are not terminable by the Company within 60 days of the date hereof;
(b) all rental and lease agreements which require the Company to
make annual aggregate payments in excess of $6,000;
(c) all employment agreements with a remaining fixed term or a
notice period of more than one year;
(d) all plans or systems (whether in form of agreements or
unilateral promises) relating to profit sharing, bonuses, other
remuneration outside the normal salary, or pension payments unless they are
compulsory by law, as well as all individual pension promises to the extent
they go beyond the scope of the aforementioned plans and systems;
(e) all agreements concerning loans taken out or extended,
except for customary payment terms vis-a-vis customers or suppliers,
current account loans or loans to employees not exceeding three month's
salary of the respective employees;
(f) all financial guarantees and sureties except for those
relating to tax, insurance and customs duty matters or those the value of
which does not exceed $5,000 in the individual case;
(g) all applicable collective bargaining agreements;
(h) all consultant agreements providing for an annual
remuneration of more than $10,000 or a remaining fixed term or a notice
period of more than 60 days;
(i) all orders, stipulations or agreements issued by, or entered
into with any municipal, state, regional or federal governmental agency
affecting the operation of the Company in any way;
(j) all other material agreements outside the normal course of
business as previously conducted.
4.9 Bank Accounts. The Company Disclosure Statement sets forth a
list of all bank accounts, savings accounts or other such accounts of the
Company, with the respective signature powers.
4.10 Accounts Receivable. All accounts receivable to be shown on the
Company Balance Sheet are bona fide with standard payment terms of not more
than 90 days after their respective due dates.
4.11 Warranty Conditions. The Company and Sellers have submitted to
Purchaser copies of all standard warranty obligations to which the Company
is subject. On the basis of the Company's historical experience, the
warranty reserves contained in the Unaudited Financial Statements are
adequate to cover the exposure for warranty claims, and the Company and
Sellers are not aware of any events subsequent to the Balance Sheet Date
which would require additional or extraordinary warranty reserves.
4.12 Intellectual Property Rights. The Company Disclosure Statement
sets forth a correct and complete list of all trademarks, tradenames and
patent rights of the Company. The Company and Sellers are not aware of any
infringement of these intellectual property rights or any other
intellectual property rights of the Company. To the best knowledge of the
Company and the Sellers, the Company is not infringing and has not
infringed on the intellectual property rights of any third party and has
sufficient right, title and interest to all such intellectual property
rights to operate its business. The Company has sufficient right, title and
interest in and to all intellectual property used in the operation of the
business or necessary to operate the business of the Company as currently
contemplated.
4.13 Interest in Competitors. None of the Company, Frank J.
Lodato, William Lucas Harry Trust or William Lucas Harry owns any interest
of any kind whatsoever in any enterprise which is active in the area of
precision optic plastic injection molding nor do any of the aforementioned
Sellers or William Lucas Harry own any intellectual property rights
relating to the products made or processes used by the Company.
Furthermore, neither Canaan Venture Offshore Limited Partnership C.V. nor
Canaan Venture Limited Partnership has a Controlling Interest in any
company engaged in the field of design, development, manufacture or sale of
precision optic plastic injection moldings.
4.14 Full Disclosure. The documents, certificates, and other writings
furnished or to be furnished by or on behalf of the Company to the
Purchaser pursuant to the provisions of this Agreement, taken together in
the aggregate, do not and will not contain any untrue statement of a
material fact.
To the best knowledge of the Company or the Sellers, there are no
material facts or circumstances in relation to the assets, business or
financial condition of the Company which have not been fully and fairly
disclosed to the Purchaser in the Company Balance Sheet and which, if
disclosed, might reasonably have been expected to affect the decision of a
reasonable purchaser to enter into this Agreement.
4.15 Actions Since Balance Sheet Date. Except as set forth on the
Company Disclosure Document, since the date of the Company Balance Sheet,
neither the Company nor any of the Sellers have taken any actions that
would be prohibited under the provisions of this Agreement (without the
prior consent of the Purchaser) after the date of this Agreement.
4.16 Subsidiaries of the Company: Except as specifically disclosed in
the Disclosure Document, the Company has no Subsidiaries and does not own,
directly or indirectly, any interest or investment or exercise any control
(as shareholder, director, officer or in any other manner) in any
corporation, limited liability company, partnership, business, trust or
other entity.
ARTICLE V
COVENANTS OF THE PURCHASER
5.1 Affirmative Covenants. From the date hereof through the Closing
Date, the Purchaser will take every action reasonably required of it in
order to satisfy the conditions set forth in this Agreement and otherwise
to ensure the prompt and expedient consummation of the transactions
contemplated hereby, and will exert all reasonable efforts to cause the
transactions contemplated hereby promptly to be consummated, provided in
all instances that the representations and warranties of the Company and
the Sellers in this Agreement are and remain true and accurate and that the
covenants and agreements of the Company and of the Sellers in this
Agreement are honored and that the conditions to the obligations of the
Purchaser set forth in this Agreement are satisfied or appear capable of
being satisfied.
5.2 Confidentiality. In the event of the termination of this
Agreement, the Purchaser will, and will cause its representatives to,
deliver to the Company or destroy all documents, work papers, and other
material, and all copies thereof, obtained by it or on its behalf from the
Company as a result of this Agreement or in connection herewith, whether so
obtained before or after the execution hereof, and will hold in confidence
all confidential information unless and until the Closing has been
consummated, and data relating to the Company's business has been obtained
in connection with the transactions contemplated by this Agreement, and
will not use any such confidential information except in connection with
the transactions contemplated hereby, until such time as such information
is otherwise publicly available. Purchaser and its representatives shall
assert their rights hereunder in such manner as to minimize interference
with the business of the Company.
5.3 Cooperation. The Purchaser shall cooperate with the Sellers, the
Company, and their respective counsel, accountants, and agents in every way
in carrying out the transactions contemplated hereby, and in delivering all
documents and instruments deemed reasonably necessary or useful by counsel
to the Company or by counsel to the Sellers.
5.4 Expenses. Whether or not the transaction contemplated hereby are
consummated, all costs and expenses incurred by the Purchaser in connection
with this Agreement and the transactions contemplated hereby shall be paid
by the Purchaser except as otherwise provided (directly or indirectly)
herein.
5.5 Updating of Exhibits and Disclosure Documents. The Purchaser
shall notify the Company and the Sellers of any changes, additions, or
events which may cause any change in or addition to any Schedules or
Exhibits, including, without limitation, the Company Disclosure Statement,
delivered by it under this Agreement, promptly after the occurrence of the
same and at the Closing by the delivery of updates of all Schedules and
Exhibits including, without limitation, the Company Disclosure Statement.
No notification made pursuant to this Section shall be deemed to cure any
breach of any representation or warranty made in this Agreement unless the
Company specifically agrees thereto in writing, nor shall any such
notification be considered to constitute or give rise to a waiver by the
Company of any condition set forth in this Agreement.
5.6 Assumption of Guarantees. Upon Closing, the Purchaser shall
assume the personal guarantees held by Mr. William Lucas Harry on capital
leases totaling $182,669 as listed in items 1,3 and 5 of the Disclosure
Document.
ARTICLE VI
COVENANTS OF THE COMPANY AND SELLERS
6.1 Affirmative Covenants. From the date hereof through the Closing
Date, the Company and Sellers will take every action reasonably required of
them to satisfy the conditions set forth in this Agreement and otherwise to
ensure the prompt and expedient consummation of the transactions
contemplated hereby substantially as contemplated by this Agreement, and
will exert all reasonable efforts to cause the transactions as contemplated
hereby to be consummated, provided in all instances that the
representations and warranties of the Purchaser in this Agreement are and
remain true and accurate, that the covenants and agreements of the
Purchaser in this Agreement are honored, and that the conditions to the
obligations of the Company and the Sellers set forth in this Agreement are
satisfied or appear capable of being satisfied.
6.2 Access and Information. The Company shall afford to the
Purchaser and to the Purchaser's accountants, counsel, and other
representatives reasonable access during normal business hours throughout
the period prior to the Closing, to all of its properties, books,
contracts, commitments, records (including, but not limited to, tax
returns) and personnel and, during such period, the Company shall promptly
furnish to the Purchaser (1) all written communications to its directors or
to its shareholders generally, (2) internal monthly financial statements
when and as available, and (3) all other information concerning its
business, properties and personnel as the Purchaser may reasonably request,
but no investigation pursuant to this Section 6.2 shall affect any
representations or warranties of the Company, or the conditions to the
obligations of the Purchaser to consummate the transactions contemplated as
contained in this Agreement.
6.3 No Solicitation. Prior to the consummation of the Closing or the
termination of this Agreement, the Company and Sellers, and those acting on
behalf of any of them shall not, and the Company shall use its best efforts
to cause its officers, employees, agents, and representatives not, directly
or indirectly, to solicit, encourage, or initiate any discussions with, or
negotiate or otherwise deal with, or provide any information to, any person
or entity other than the Purchaser and its officers, employees, and agents,
concerning any merger, sale of substantial assets, or similar transaction
involving the Company or any sale of any of its capital stock. The Company
and Sellers will notify the Purchaser immediately upon receipt of any
inquiry, offer, or proposal relating to any of the foregoing. None of the
foregoing shall prohibit providing information to others in a manner in
keeping with the ordinary conduct of the Company's business, or providing
information to government authorities.
6.4 Conduct of Business Pending the Transactions. The Company
covenants and agrees with the Purchaser that, prior to the consummation of
the transaction contemplated hereby, or the termination of this Agreement
pursuant to its terms, unless the Purchaser shall otherwise consent in
writing, and except as otherwise contemplated by this Agreement or
disclosed in the Company Disclosure Document, the Company will comply with
each of the following:
(1) Its business shall be conducted only in the ordinary and
usual course, it shall use reasonable efforts to keep intact its business
organization and good will, keep available the services of its respective
officers and employees and maintain good relationships with suppliers,
lenders, creditors, distributors, employees, customers, and others having
business or financial relationships with it, and it shall immediately
notify the Purchaser of any event or occurrence or emergency material to,
and not in the ordinary and usual course of business of, it;
(2) It shall not (a) amend its Articles of Incorporation, unless
for a purpose contemplated by this Agreement and approved by the Purchaser,
or Bylaws or (b) split, combine, or reclassify any of its outstanding
securities, or declare, set aside, or pay any dividend or other
distribution on, or make or agree or commit to make any exchange for or
redemption of any such securities payable in cash, stock or property;
(3) It shall not (a) issue or agree to issue any additional
shares of, or rights of any kind to acquire any shares of, its capital
stock of any class, or (b) enter into any contract, agreement, commitment,
or arrangement with respect to any of the foregoing;
(4) It shall not create, incur, or assume any long-term or short-
term indebtedness for money borrowed or make any capital expenditures or
commitment for capital expenditures, except in the ordinary course of
business and consistent with past practice;
(5) It shall not (a) adopt, enter into, or amend any bonus,
profit sharing, compensation, stock option, warrant, pension, retirement,
deferred compensation, employment, severance, termination, or other
employee benefit plan, agreement, trust fund, or arrangement for the
benefit or welfare of any officer, director, or; (b) agree to any material
(in relation to historical compensation) increase in the compensation
payable or to become payable to, or any increase in the contractual term of
employment of, any officer, director or employee except, with respect to
employees who are not officers or directors, in the ordinary course of
business in accordance with past practice;
(6) It shall not sell, lease, mortgage, encumber, or otherwise
dispose of or grant any interest in any of its assets or properties except
for sales, encumbrances, and other dispositions or grants in the ordinary
course of business and consistent with past practice, and, except for liens
for taxes not yet due or liens or encumbrances that are not material in
amount or effect and do not impair the use of the property, or as
specifically provided for or permitted in this Agreement;
(7) It shall not enter into, or terminate, any material
contract, agreement, commitment, or understanding;
(8) It shall not enter into any agreement, commitment, or
understanding, whether in writing or otherwise, with respect to any of the
foregoing.
(9) It shall not hold any meetings of its board of directors, or
any committee thereof, or of its shareholders, without inviting a
representative selected by the Purchaser to attend the same (although the
Company may request that such representative absent himself or herself
during that portion of any such meeting that pertains to issues arising
under this Agreement);
(10) It will continue properly and promptly to file when due all
federal, state, local, foreign, and other tax returns, reports, and
declarations required to be filed by it, and will pay, or make full and
adequate provision for the payment of, all taxes and governmental charges
due from or payable by it;
(11) It will use its best efforts to comply with all laws and
regulations applicable to it and its operations; and
(12) It will maintain in full force and effect insurance coverage
of a type and amount customary in its business, but not less than that
presently in effect.
6.5 Cooperation. The Company will cooperate with the Purchaser and
its counsel, accountants, and agents in every way in carrying out the
transactions contemplated by this Agreement, and in delivering all
documents and instruments deemed reasonably necessary or useful by the
Purchaser.
6.6 Expenses. Whether or not the transactions contemplated hereby
are consummated, all costs and expenses incurred by the Company or the
Sellers in connection with this Agreement and said transactions shall be
paid by the Purchaser, provided, however, that the costs and expenses
incurred shall not exceed $20,000 and, any costs and expenses in excess of
that amount shall be paid by the Sellers.
6.7 Publicity. Prior to the Closing, any written news releases by
the Sellers, the Company or the Purchaser pertaining to this Agreement or
the transactions contemplated hereby shall be submitted to all parties for
review and approval prior to release and shall be released only with each
parties' consent, which consent shall not be unreasonably withheld.
6.8 Updating of Exhibits and Disclosure Documents. The Company and
Sellers shall notify the Purchaser of any changes, additions, or events
which may cause any change in or addition to the Company Disclosure
Document or any other Schedules or Exhibits delivered by it under this
Agreement promptly after the occurrence of the same and again at the
Closing by delivery of appropriate updates of the Company Disclosure
Document and to all such Schedules and Exhibits. No such notification made
pursuant to this Section shall be deemed to cure any breach of any
representation or warranty made in this Agreement unless the Purchaser
specifically agrees thereto in writing, nor shall any such notification be
considered to constitute or give rise to a waiver by the Purchaser of any
condition set forth in this Agreement.
6.9 Confidential Information. The Company, the Sellers and the
Purchaser recognize and acknowledge that they have and will have access to
certain confidential information of the Company and the Purchaser, such as
lists of customers and costs, that are valuable, special and unique assets
of their respective businesses. The Company, the Sellers and the Purchaser
agree that they will not disclose such confidential information to any
person, firm or corporation, whatsoever, except authorized representatives
of the Company or the Purchaser. If, for any reason, the Closing fails to
occur, each party shall maintain as confidential all non-public information
of the other received or learned by it in the course of the negotiations,
due diligence and other actions undertaken in the course of entering into
and performing this Agreement. In the event of a breach or threatened
breach by any party of the provisions of this Section 6.9, the Purchaser,
the Company or the Sellers shall be entitled to an injunction or any other
remedy restraining a party from disclosing, in whole or in part, such
confidential information. Nothing herein shall be construed as prohibiting
a party from pursuing any other available remedy for such breach or
threatened breach at law or in equity, including the recovery of damages.
6.10 Sellers' Release. Prior to the Closing, the Sellers shall
discharge or otherwise release the Company of its obligations to repay the
debt set forth in Exhibit D.
6.11 Warrants: All outstanding warrants for the purchase of Common
Stock and Preferred Stock of the Company will be cancelled by the Company
and the Company shall have obtained from the holders of such options and
warrants full and complete releases with respect thereto.
ARTICLE VII
COVENANTS OF SELLERS
7.1 Non-Competition. To induce the Purchaser to enter into this
Agreement each of Frank J. Lodato, William Lucas Harry Trust and William L.
Harry personally agrees that for a period of five (5) years after the
Closing Date they will not, individually or as principal, agent, trustee or
through the agency of any corporation, partnership, association or agent or
agency: (1) engage in any business which is competitive with the Company;
or (2) own more than one percent of the outstanding capital stock of, or
become a member of any partnership that is, or become an employee of, a
Competitor. Furthermore, except as listed in the Company Disclosure
Document, Canaan Venture Offshore Limited Partnership C.V. and Canaan
Venture Limited Partnership agrees that for a period of five (5) years
after the Closing Date they will not own a Controlling Interest in any
Competitor. In the event that the provisions of this Section 7.1 should
ever be deemed to exceed the time or geographic limitations permitted by
applicable laws, then such provisions shall be reformed to the maximum time
or geographic limitations permitted by applicable law. In the event of a
breach of the provisions of this Section, the Purchaser or the Company
shall be entitled to an injunction restraining Sellers as applicable, from
violating such provision. Nothing herein shall be construed as prohibiting
Purchaser or the Company from pursuing any other remedies available to them
at law or in equity, including the recovery of damage.
ARTICLE VIII
CONDITIONS OF CLOSING
8.1 Conditions to Obligation of the Purchaser. The obligation of the
Purchaser to purchase the shares and effect the transactions contemplated
hereby shall be subject to the fulfillment at or prior to the Closing of
the following conditions, unless Purchaser shall waive such fulfillment:
(1) This Agreement and the transactions contemplated hereby
shall have received all approvals, consents, authorizations, and waivers
from the Board of Directors of the Purchaser, governmental and other
regulatory agencies and other third parties (including lenders, holders of
debt securities, and lessors) required to consummate the transactions
contemplated hereby.
(2) The Company and the Sellers shall have performed in all
material respects each of their agreements and obligations contained in
this Agreement and required to be performed on or prior to the Closing and
shall have complied with all material requirements, rules, and regulations
of all regulatory authorities having jurisdiction relating to the
transactions contemplated hereby;
(3) No material adverse change shall have taken place in the
business, condition (financial or otherwise), operations, or prospects of
the Company since the date of the Company Balance Sheet other than those,
if any, that result from the changes permitted by, and transactions
contemplated by, this Agreement.
(4) Except in such respects as do not materially and adversely
affect the business, condition (financial or otherwise), operations, or
prospects of the Company, the representations and warranties of the Company
and Sellers set forth in this Agreement shall be true in all material
respects as of the date of this Agreement and as of the Closing Time as if
made as of such time.
(5) The Purchaser shall have received from the Company an
officer's certificate, executed by the Chairman of the Board of Directors
and an Executive Officer of the Company (in their capacities as such) dated
the Closing Date, as to the satisfaction of the conditions in paragraphs
(2), (3) and (4) (to the best of their knowledge where appropriate);
(6) The Purchaser shall have received certification from each of
the Sellers, dated as of the Closing Date, as to the satisfaction of the
conditions in paragraphs (2), (3) and (4) (to the best of their knowledge
where appropriate);
(7) The Purchaser shall have received, on and as of the Closing
Date, an opinion of special counsel to the Sellers, substantially as to the
matters set forth in Sections 4.1, 4.2 (to the best knowledge of such
counsel), 4.3, 4.4(1) and 4.4(2) (to the best of the knowledge of such
counsel as to part (2)) and Section 4.7(3) (to the best knowledge of such
counsel) of this Agreement, all subject to customary limitations reasonably
acceptable to counsel to the Purchaser, and which may be based on opinions
of local counsel to the extent such counsel is not admitted to practice in
a jurisdiction relevant to such opinion, provided such opinion of local
counsel is delivered to the Purchaser.
(8) Purchaser shall have received evidence that the debt and
accrued unpaid interest set forth in Exhibit D, attached hereto, has been
eliminated from the Company Balance Sheet and discharged by the Sellers.
8.2 Conditions to Obligation of the Sellers. The obligation of the
Sellers to effect the transactions as contemplated hereby shall be subject
to the fulfillment at or prior to the Closing of the following conditions,
unless a Seller shall waive such fulfillment:
(1) The Purchaser shall have performed in all material respects
its agreements and obligations contained in this Agreement required to be
performed on or prior to the Closing and shall have complied with all
material requirements, rules, and regulations of all regulatory authorities
having jurisdiction relating to the transactions contemplated hereby;
(2) The Sellers shall have received from the Purchaser an Escrow
Agreement signed by the Purchaser, the Company, an Escrow Agent and each of
the Sellers;
(3) No material adverse change shall have taken place in the
business, condition (financial or otherwise), operations, or prospects of
the Purchaser since the date of the Audited Financial Statements contained
in the Purchaser's Annual Report on Form 10-K for the fiscal year ended
October 31, 1994, other than those, if any, that result from the changes
permitted by, and transactions contemplated by, this Agreement.
(4) The representations and warranties of the Purchaser set
forth in this Agreement shall be true in all material respects as of the
date of this Agreement and, except in such respects as do not materially
and adversely affect the business of the Purchaser and its Subsidiaries,
taken as a whole, as of the Closing Date as if made as of such time; and
(5) The Sellers shall have received from the Purchaser an
officers' certificate, executed by a duly authorized officer of the
Purchaser (in said officer's capacity as such), dated the Closing Date, as
to the satisfaction of the conditions of paragraphs (1), (2) and (3) above
(to the best of their knowledge where appropriate);
(6) The Sellers shall have received from the Purchaser, on and
as of the Closing Date, an opinion of Counsel to the Purchaser
substantially as to the matters set forth in 3.1, 3.2 (to the best
knowledge of such counsel), 3.3 and 3.9 of this Agreement, all subject to
customary limitations reasonably acceptable to Counsel to the Sellers, and
which may be based on opinions of local counsel to the extent such counsel
is not admitted to practice in a jurisdiction relevant to such opinion,
provided such opinion of local counsel is delivered to the Sellers.
ARTICLE IX
SECURITIES AND SECURITY HOLDERS
9.1 Sellers' Ownership Representations. Each of the Sellers
represents and warrants to the Purchaser, severally and not jointly, that
(1) he, she or it owns the Shares of Common Stock or Preferred Stock set
forth opposite his, her or its name on the signature page(s) of this
Agreement, to be sold to the Purchaser at the Closing pursuant to the terms
of this Agreement, free and clear of any and all liens, claims,
encumbrances and rights of others; and (2) he, she, or it is fully and
freely authorized and entitled to sell, transfer and convey free and clear
title to the same to the Purchaser, without any further approval or
authorization.
ARTICLE X
SURVIVAL OF REPRESENTATIONS;
INDEMNIFICATION
10.1 Survival of Representations. All representations and warranties
of the parties contained in this Agreement and all statements contained in
any Schedule or Exhibit attached hereto or in any certificate or instrument
of conveyance delivered by or on behalf of the parties pursuant to this
Agreement or in connection with the transactions contemplated hereby shall
be deemed to be representations and warranties by the parties hereunder.
The representations and warranties of Purchaser, Seller and the Company
contained herein shall survive the Closing Date in all circumstances and no
later than December 15, 1995, without regard to any investigation made by
any of the parties hereto. The foregoing notwithstanding, the
representations and warranties of the Sellers contained in Section 9.1
shall survive indefinitely
10.2 Agreement of Each of the Sellers to Indemnify. Subject to the
limitations set forth in this Section 10.2, the Company and the Sellers
shall, severally and not jointly, indemnify, hold harmless, and by virtue
hereof, release Purchaser and its officers, directors, employees, agents
and Affiliates, and each of the heirs, executors, successors and assigns of
any of the foregoing, from and against any and all claims, demands,
actions, causes of actions, losses, costs, damages, liabilities, and
expenses, including without limitation, interest and penalties and
reasonable attorneys fees ("Damages") that the Purchaser shall suffer, (a)
arising out of breach of or default in connection with any representation,
warranty, covenant or agreement of such Sellers or the Company in this
Agreement; (b) arising as a result of (i) any claim by a shareholder or
former shareholder of the Company, or any other person, firm, corporation,
or entity, seeking to assert, or based upon: ownership or rights to
ownership of any shares of stock of the Company; any rights of a
shareholder, including any options or preemptive rights or rights to notice
or to vote; any rights under the Articles of Incorporation or Bylaws of the
Company; any rights under any agreement among the Company and its
shareholders; or (ii) any failure of any Seller to have good, valid, and
marketable title to the issued and outstanding Shares held by such Seller
free and clear of all liens, claims, pledges, options, adverse claims and
assessments. Notwithstanding the foregoing, in no event shall any Seller be
required to indemnify in any amount in excess of the amount of
Consideration allocated to such Seller pursuant to this transaction as set
forth on Schedule 1.14 and no claim of breach of any representation or
warranty may be asserted by Purchaser against Sellers, or any of them, or
the Company unless the aggregate total of all such claims exceeds $50,000.
10.3 Agreement of Purchaser to Indemnify. Purchaser shall indemnify,
hold harmless, and by virtue hereof, release the Sellers and their
respective officers, directors, employees, agents and Affiliates, and each
of the heirs, executors, successors and assigns of any of the foregoing,
from and against any Damages arising out of the breach of any warranty,
representation, covenant or agreement of Purchaser contained in this
Agreement and further shall indemnify and hold harmless the Sellers for any
statements contained in the Registration Statement or Prospectus which the
Purchaser shall deliver to the Sellers, except for those statements made in
reliance upon information provided to the Purchaser by the Sellers, or any
of them.
The term "Damages" as used in Sections 10.2 and 10.3 is not
limited to matters asserted by third parties against Purchaser, Sellers or
the Company, but includes Damages incurred or sustained by any of them in
the absence of third party claims.
10.4 Procedures of Indemnification. (a) If a claim by a third party
is made against a person or party entitled to indemnification hereunder (an
"Indemnified Party"), and if such Indemnified Party intends to seek
indemnity with respect thereto under Section 10.2 or 10.3, such Indemnified
Party shall promptly notify the indemnifying party (the "Indemnifying
Party") of such claims. As part of such notice, the Indemnified Party
shall furnish the Indemnifying Party with copies of any pleadings or
correspondence relating thereto that are in the Indemnified Party's
possession. The Indemnified Party's failure to promptly notify the
Indemnifying Party of any such matter shall not release the Indemnifying
Party, in whole or in part, from its obligations to indemnify under this
Article X except to the extent the Indemnified Party's failure to so notify
materially prejudices the Indemnifying Party's ability to defend against
such claim. At such time as the Indemnifying Party acknowledges in writing
its liability under this Article X with respect to such claim, then the
Indemnifying Party shall have the sole and exclusive right to defend
against, settle or compromise such claim; provided, that the Indemnifying
Party shall proceed in good faith with respect thereto; and provided,
further, that the Indemnifying Party shall not settle such claim for other
than monetary consideration without the consent of the Indemnified Party;
and provided, further, that the Indemnified Party may participate in the
defense of such claim at its own expense. If the Indemnifying Party does
not acknowledge to the Indemnified Party its liability hereunder prior to
the earlier of (i) fifteen business days after the receipt of such
Indemnified Party's notice of a claim of indemnity hereunder and (ii) five
business days prior to the deadline for filing any pleading in connection
therewith, such Indemnified Party shall have the right to contest, settle
or compromise the claim, but shall not thereby waive any right to indemnity
therefor pursuant to this Agreement and the Indemnifying Party shall
cooperate with the Indemnified Party in connection with defending against
such claim; provided, that the Indemnifying Party shall have the right to
participate, at its own expense, in such defense. The Indemnifying Party
shall not, except with the consent of such Indemnified Party, enter into
any settlement that does not include as a unconditional term thereof the
giving by the person or persons asserting such claim to the Indemnified
Parties of an unconditional release from all liability with respect to such
claim or consent to entry of any judgment.
(b) If any party becomes obligated to indemnify another party
with respect to any claim pursuant to this Article X, and the amount of
liability with respect thereto shall have been finally determined by a
court of competent jurisdiction, the Indemnifying Party shall pay such
amount to the Indemnified Party in immediately available funds within five
days following written demand by the Indemnified Party.
10.5 Right of Offset. To the extent that Purchaser incurs any expense
or makes any payment for which it shall be entitled to indemnification
under this Article X, or otherwise has any claim for Damages as a result of
the Company's or any Seller's breach of any provision of this Agreement, in
addition to any other actions or remedies it may have in law or in equity,
Purchaser may seek indemnity for such Damages from any amounts payable or
owing to the Sellers after the Closing Date subject to the terms and
conditions of Section 6 of the Escrow Agreement. Without limiting the
foregoing, Purchaser may offset such Damages by reducing the number of
shares of OCLI Common Stock to be issued to Sellers pursuant to Section
2.2(2) above, by the number of such shares having an aggregate Fair Market
Value on July 1, 1995, equal to the amount of such Damages, subject to the
terms and conditions of Section 6 of the Escrow Agreement.
ARTICLE XI
GENERAL PROVISIONS
11.1 Notices. All notices and other communications hereunder shall be
in writing and shall be deemed given if delivered personally or mailed by
registered or certified mail (return receipt requested) to the parties at
the following addresses (or at such other address for a party as shall be
specified by like notice given at least five (5) days prior thereto):
If to the Purchaser:
Optical Coating Laboratory, Inc.
2789 Northpoint Parkway
Santa Rosa, California 95407-7397
Attn: Joseph C. Zils, Esq.
With a copy to:
John V. Erickson, Esq.
Collette & Erickson
555 California Street, Suite 4350
San Francisco, California 94104-1791
If to the Company, the Sellers, any of them, or any Affiliate of
any of them:
Netra Corporation
185 East Dana Street
Mountain View, CA 94041-3115
With a copy to:
J. Stephan Dolezalek, Esq.
Brobeck, Phleger and Harrison
2 Embarcadero Place
2200 Geng Road
Palo Alto, CA 94303
11.2 Interpretation. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
11.3 Miscellaneous. This Agreement (1) constitutes the entire
agreement and supersedes all other prior agreements and understandings,
both written and oral, between the parties, with respect to the subject
matter hereof, except as specifically provided otherwise or referred to
herein, so that no such external or separate agreements relating to the
subject matter of this Agreement shall have any effect or be binding,
unless the same is referred to specifically in this Agreement or is
executed by the parties after the date hereof; (2) is not intended to
confer upon any other person any rights or remedies hereunder; (3) shall
not be assigned by operation of law or otherwise except for assignment of
all or any part of the rights of the Purchaser hereunder, which may be
assigned by the Purchaser to an Affiliate so long as the obligations of the
Purchaser under this Agreement remain obligations of, or their performance
is guaranteed by, the Purchaser to the reasonable satisfaction of the
Sellers.
11.4 Right to Terminate. This Agreement may be terminated at any time
prior to the Closing by the mutual written consent of Purchaser, the
Company and the Sellers. In addition, either party may terminate this
Agreement by written notice to the other party at any time prior to the
Closing in the event that (I) a condition to the performance of the other
party as set forth herein shall not be fulfilled in any material respect on
or before the date specified for the fulfillment thereof, or (ii) a
material default under or a material breath of this Agreement or of any
representation, warranty or covenant of the other party set forth in this
Agreement shall have occurred.
11.5 Effect of Termination. In the event of the termination and
abandonment hereof prior to the Closing pursuant to the provisions of this
Section, this Agreement shall become void and have no effect, and each
party shall pay all of its own expenses incurred in connection herewith
(except as provided in Section 5.4), without any liability or obligation on
the part of any party or its directors, officers or stockholders; provided,
however, that if either party hereto willfully fails to perform its
obligations hereunder, the other party shall have the right to seek
available legal and equitable remedies in addition to those specified in
this Section XI.
11.6 Governing Law. This Agreement shall be governed by the laws of
the State of California.
11.7 Arbitration. Disputes arising out of or in connection with the
interpretation, application or performance of this Agreement shall be
finally settled by arbitration in San Francisco under the Rules of the
American Arbitration Association.
11.8 Counterparts. This Agreement may be executed in any number of
counterparts, each of which may be executed by one or both of the parties,
each of which shall be enforceable against the party or parties actually
executing such counterparts, and all of which together shall constitute one
instrument.
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
signed on the date first written above by their respective officers
thereunto duly authorized.
THE PURCHASER
OPTICAL COATING LABORATORY, INC.
By: ____________________________
Herbert M. Dwight, Jr.
President
THE COMPANY (NETRA CORPORATION)
By: ____________________________
SELLERS:
_________________________________
Frank J. Lodato holding 4,250,000
Common shares
_________________________________
William Lucas Harry Trust holding 2,000,000
Series A Preferred shares
_________________________________
William Lucas Harry Personally
CANAAN VENTURE OFFSHORE CANAAN VENTURE LIMITED
LIMITED PARTNERSHIP C.V. PARTNERSHIP
By: Canaan Management Limited By: Canaan Management Limited
Partnership, General Partner Partnership, General
Partner
By: Canaan Venture Partners L.P., By: Canaan Venture Partners L.P.,
General Partner General Partner
By: ________________________ By: ________________________
General Partner General Partner
holding 1,409,995 holding 590,005
Series B Preferred Shares Series B Preferred Shares
Exhibit A
DlSCLOSURE SCHEDULE DELIVERED TO PURCHASER
PURSUANT TO THE STOCK PURCHASE AGREEMENT
DATED FEBRUARY 8,1995
Pursuant to Article IV of the Stock Purchase Agreement of even
date herewith (the "Agreement") and in connection with the Closing as
defined therein Netra Corporation, a California corporation (the "Company")
and the shareholders of the Company ("Sellers") hereby deliver to Optical
Coating Laboratory, Inc. ("Purchaser") this Disclosure Schedule as
exceptions to the representations and warranties given in the Agreement.
Paragraph numbers in this Schedule correspond to the paragraph numbers in
the Agreement; however, any information disclosed herein under any
paragraph number shall be deemed to be disclosed and incorporated into any
other paragraph under the Agreement where such disclosure would be
appropriate. Any terms defined in the Agreement shall have the same meaning
when used in this Disclosure Schedule as when used ill the Agreement,
unless the context otherwise requires.
Section 4.6: On February 1, 1995, the Company paid Mr. William
Lucas Harry $103,225 in deferred compensation. The Sellers have agreed
to pay Mr. Harry $43,500 in compensation interest pursuant to the terms
and conditions of the Escrow Agreement, which amount shall be paid from
the Proceeds of the sale as received by the Sellers under said escrow
Agreement, and Mr. Harry shall have no claim against the Company or
Purchaser for the payment of any interest relating ~o the deferred
compensation.
Section 4.7(1)(a): The Company acknowledges that sales fluctuate by
customer on a month to month basis and that the financial condition of
the Company is dependent upon such fluctuations.
Section 4.7(1)(c): The Company received shipment on two pieces of
capital equipment in December 1994, an Engel 150 Ton Injection Molding
Machine and a Yushin Robot. The purchase price of each machine was
$154.820 and $29,710, respectively. The Company has not secured
financing on these items to date because they require a personal
guarantor to sign on the lease.
Section 4.7(4): The Company adopted a Management Equity Plan on August
31, 1994 the 'bonus Plan") under which four management employees, Russ
Stiles, David Whitney, John Sphar and Tim March, shall be entitled to
receive bonuses based upon the proceeds from the sale or merger of the
Company (assuming that the Company is sold in its entirety as a going
concern) in the aggregate amount of six percent (6%) of the acquisition
price or $220,000, whichever is higher, which amount shall be paid from
the Proceeds of the sale or merger as received by the shareholders
and/or debt holders. The named management employees bave elected to
receive the proceeds set forth on Schedule A to the Escrow Agreement
pursuant to the terms and conditions of said Agreement in lieu of
receiving benefits under the Bonus Plan, and shall have no claim
against the Company or Purchaser for any additional payment unter the
Bonus Plan.
The Company has a verbal consulting arrangement with Brent Parker
who has been hired to assist the Company in its transition and
relocation to Santa Rosa. Mr. Parker is paid an hourly rate of $33.65,
aggregating $60,000 per year, plus $10,000 per year for benefits. The
consulting arrangement has no fixed term and is terminable at the
request of the Company.
The Company offers medical coverage to its employees pursuant to
the Take Care Health Plan covering the period from October 1, 1994
through September 30, 1995. The Company offers dental coverage to its
employees under Fortis Benefits Insurance covering the period from
September 1, 1994 through August 1, 1995. The Company offers vision
coverage to its employees pursuant to the Vision Service Plan covering
the penod from October 1, 1993 through September 30, 1995.
Section 4.7(7): See Section 4.7(1)(c) above.
Section 4.8(b): The Company has the following lease arrangements
on equipment with annual payments in excess of $6,000:
1. Capital lease in the amount of $31,075 with AT&T expiring in
1996, remaining balance at January 1, 1995 of $13,521 (Yushin
Robot).
2. Capital leases in the amounts of $79,700 and $103,520 with
Fleet
expiring in l996 and 1997, respectively, remaining balances
at
January 1, 1995 of $29,125 and $66,115 (Engle 55 Ton and 100
Ton).
3. Capital lease in the amount of $86,539 with New England
expiring
in 1998, remaining balance at January 1, 1995 of $61,816
(Engle 55
Ton).
4. Capital lease in the amount of $24,550 with Wilson expiring
in 1997,
remaining balance at January 1, 1995 of $15,896 (Yushin
Robot).
The Company leases its facility in Mountain View from Olen
Development on a month-to-month basis pursuant to a triple net lease
with rental payments of $11,854.00 per month
Section 4.8(d): See Section 4.7(4) above.
The Company has in effect a profit-sharing plan (the "Plan") that
are intended to recognize management efforts. pursuant to the plan,
seven percent (7%) of the Company's 1995 fiscal year earnings before
taxes minus the change in inventory (ending fiscal year inventory minus
beginning fiscal year inventory) will be distributed as cash profit
sharing to certain eligible employees. The Plan covers the fiscal year
ending April 1, 1995, with cash distribution to occur in June 1995. It
is anticipated that the Plan will be superseded by the Purchaser's
compensation plan subsequent to Closing.
Section 4.8(f): Mr. William Lucas Harry, a founder of the
Company, has personally guaranteed the equipment leases listed in
items 1, 3 and 5 above, plus two other capital leases with A T & T in
the original amounts of $12,116 and $10,629. Upon Closing, Purchaser
shall assume such Guarantees pursuant to section 5.6 of the Agreement,
aggregating all outstanding balances of $182,669.
Section 4.8(h): See Section 4.7(4) above.
Section 4.9: The Company has the following bank accounts and
savings accounts, all at Union Bank, Mid Peninsula Office:
Payroll Account: # 64889-3312
General Account: # 64876 2483
Money Market Account: # 648581 373
Authorized signatories: Carol Harry, David Whitney, W.L Harry, Tim
S. March, John M. Sphar, Beverly A. Kirkham and Russ Stiles.
Section 4.10: As of February 1, 1995, Gargoyles Performance Eyeware
("Gargoyles") had an outstandlng receivables balance of $102,271 that is
over ninety (90) days past due. Pursuanlt to a letter dated December 6,
1994, Gargoyles has committed to pay the Company approximately $15,000 per
week to pay off such past due amounts. Nonetheless, the foregoing
receivables are bona fide.
Section 4.12: None.
Exhibit B
ESCROW AGREEMENT
THIS ESCROW AGREEMENT entered into as of thc 8th day of February,
1995 by and among Optical Coatng Laboratory, Inc., a Delaware corporaton
("Purchaser"), First Trust of California (the "Escrow Agent"), the parties
listed on Schedule A hereto (each a "Party" and collectively, the
"Parties") and the shareholders of Netra Corporation, a California
Corporation (the "Company') listed on Schedule B hereto (each, a "Seller"
and collectively, the "Sellers", some of whom are also Parties. For
purposes of clarification, the term "Parties" as used inthis Agreement
shall include the Sellers who are listed on both Schedule A and Schedule B.
But the term "Sellers" shall not include the Parties who are not listed on
ScheduIe B.
WITNESSETH:
WHEREAS, Purchaser, the Company and the Sellers are parties to a
Stock Purchase Agreement of even date herewith (the "Agreement"), pursuant
to which Sellers have agreed to sell all of the shares of outstanding
capital stock of the Company to Purchaser for the Consideration recited in
the Agreement;
WHEREAS, in connection with such sale, Purchaser and Sellers have
agreed to deposit the Proceeds to be delivered to the Sellers under the
Agreement into an escro account for the benefit of Sellers, and Sellers
have agreed to distribute the Proceeds to the Parties pursuant to the terms
and conditions of this Escro Agreement.
NOW, THEREFORE, in consideration of the mutual promises contained
herein, and for other good and sufficient consideration, receipt of which
is hereby acknowledged, the parties agree as follows:
1. Appointment of Escrow Agent. Purchaser and Sellers designate
First Trust of California to act as Escrow Agent hereunder, and First Trust
of California hereby accepts such appointment and agrees to act as Escrow
Agent, upon the terms and subject to the conditions set forth herein
2. DeIivery. 0n the Closing Date (as such term is defined in the
Agreement), Purchaser shall deposit in escrow with the Escrow Agent in cash
by direct transfer One Million Six Hundred Sixty Four Thousand Seven
Hundred Seventy Dollars ($1,664,770) representing the initial payment of
consideration pursuant to Section 2.1(1) of the Agreement (the "Funds"). No
later than July 10, 1995, Purchaser shall deposit into escrow with the
Escrow Agent that number of shares of Purchaser Common Stock to be
determined in accordance wlth Section 2.2(2) of the Agreement (the "Stock".
The Funds and the Stock together shall hereinafer be referred to as the
"Proceeds". The Proceeds shall be released by the Escrow Agent to the
Sellers in accordance with Section 5 below.
3. Duties of Escrow Agent. The Escrow Agent is hereby authorized
and directed by the Sellers to hold the Procceds as agent for the Parties
and release thc proceeds only in accordance with the provisions of this
Escrow Agreement. The Funds that are not released to the Parties pursuant
to Section 5(a) below shall be ~Invested by the Escrow Agent in a money
market account selected by Mr. Deepak Kamra, agent for the Parties
("Parties' Agent").
4. Termination. Except as provided in Section 7(a) below, this
Escrow Agreement shall terminate no later than July 15, 1995.
5. Release of Proceeds.
a Within twenty-four (24) hours of the date hereof, Escrow
Agent shall release by check or wire transfer to the Parties that portion
of the Proceeds under the heading Initial Payment in accordance with
Schedule A attached hereto.
b. Subject to Section 7(a) below, within twenty four (24)
hours of receipt by Escrow Agent of the Stock pursuant to Section 2 above,
Escrow Agent shall release the Proceeds in the following manner:
(i) Escrow Agent shall deliver all of the Stock; to
Canaan Venture Limited Partnership and Canaan Venture Offshore Limited
Partnership CV. (sent via courier) to 2884 Sand HiIl Road, Suite 115, Menlo
Park, CA 94025, Attention Deepak Kamra. In the event the Stock has not been
delivered into escrow by Purchaser in accordance with Section 2 above (if
such failure to deliver was by reason other than a valid offset against an
uncontested Indemnity Claim as described in Section 7(a) below), Escrow
Agent shall release all of the Proceeds accrued in escrow plus accrued
interest, less Escrow Agent's remaining fees and expenses pursuant to
subsection 8(b), to Canaan Venture Limited Partnership and Canaan Venture
Offshore Limited Partnership CV, by check or wire transfer to the address
listed above.
(ii) Subject to Section 5(b)(i) above, Escrow Agent shall release by check
or wire transfer (i) to the Parties, that portion of the Proceeds under the
heading Second Payment in accordance with Schedule A and (ii) to the
Company, $2,000. Notwithstanding the previous sentence, release by Escrow
Agent of the Second Payment to each of Russ Stiles, David Whitney, John
Sphar or Tim March ("Management") is contingent upon such Party's
employment with Purchaser at the time of the Second Payment (unless such
Party has been involuntarily terminated without cause or has resigned by
reason of death or disability). Purchaser shall certify in writing to
Escrow Agent whether a particular termination, if any, was with or without
cause. Any Funds that are not released to Management as provided in this
subsection 5(b)(ii) will be released by Escrow Agcnt to the remaining
Parties to be allocated pro rata based upon the percentage of the Proceeds
to which such Pary ls entitled to receive.
(iii) After release of the Proceeds as provided above, any amounts
remaining in escrow, including accrued interest but deducting Escrow
Agent's fees and expenses pursuant to subsection 8(b), shall be paid to the
Parties listed on Schedule A to be allocated pro rata based upon the
percentage of Proceeds to which such Party is entitled to receive.
6. Release of Liability. Each member of Management, by executing
this Escrow Agreement below, is hereby electing to receive the payment as
set forth on Schedule A hereto pursuant to the terms and conditions of this
Agreement in lieu of the benefits such Party would otherwise be entitled to
receive under the Company's Management Equity Plan, and each member of
management hereby agrees to hold the Company and Purchaser harmless from
and obligation to make payments pursuant to such Plan In no event shall a
contested Indemnity claim as provided ~ in Section 7(a) below delay the
release ~f the Second Payment to Management as provided herein
7. Indemnity Claims. The Agreement provides i~ Section 102 that
Sellers shall indemnify Purchaser against certain Damages (as such term is
defined in the Agreement) suffered by Purchaser, as further described in
the Agreement. In addition, pursuant t~ Section 10.5 of the Agreement,
Purchaser ~ a right to offset an Indemnity Claim by reducing the number of
shares of Stock to be delivered to Seller pursuant to secsiQn 2 hereof,
subject to Section 7(b) below. Notwithstanding the foregoing, in no event
shall any Seller by requesting to indemnify amount in excess of the
amount of Proceeds allocated to such Seller for the sale of the Company to
Purchaser pursuant to Schedule 1 attached hereto.
a Resolution of Indemnity Claims. In the event that Purchaser
asserts a claim against a Seller or Sellers, written notice of such claim
(an "Indemnity claim") shall be given to Escrow Agent and each of the
Sellers, which notice shall contain the amount of the Damages asserted by
the Indemnity Claim and a brief description of the circumstances giving
rise to the Indemnity Claim. In the event Sellers do not contest an
Indemnity Claim in wntng to Escrow Agent within 30 days of receipt of
notice of such Idemnity Claim, Escrow Agent shall transfer to Puchaser the
amount specified in such Indemnity Claim which amount shall be deducted pro
rata from the Proceeds in Escrow (excluding Proceeds to be delivered to
Management, and shall notify the Parties of such transfer. In the event
Sellers contest an Indenity Claim in writing to the Escrow Agent within the
30-day period provided above, Escrow Agent shall not release any Proceeds
from Escrow and Purchaser shall not have the right to offset the Stock
against the Illdemnity Claim until (i) receipt of a copy of a settlement
agreement executed by Sellers and the Purchaser seting forth a resolution
of the Indemnity Claim, or (ii) receipt of a copy of a final judgment
entered by a court of competent jurisdiction as to the disposition of the
Indemnity Claim
b. Contribution. In order to provide for just and equitable contribution in
any action in which an Indemnity Claim is determined against the Sellers as
provided in Section 7(a) above, each Seller shall contribute to the Damages
pro rata based upon the allocation of Consideration as set forth in
Schedule B hereto, and each Scller shall have a right to proceed against
the other Parties to this Escrow Agreement (excluding Management) for such
contribution.
8. Provision Regarding Escrow Agent.
(a) Liability of Escrow Agent. In performing any duties under
this Agreement the Esvrow Agent shall not be liable to any party for
damages, losses, or expenses, except for gross negligence or willful
misconduct on the part of the Escrow Agent. Escrow Agent shall not incur
carry liability for (i) any act or failure to act made or omitted in good
faith or (ii) any action taken or omitted in reliance upon any instrument,
including a written statement or affidavit provided for in this Agreement
that the Escrow Agent shall in good faith believe to be genuine, nor will
the Escrow Agent be liable or responsible for forgeries, fraud,
impersonations, or determining the scope of any representative authority.
In addition, the Escrow Agent may consult with legal counsel in connection
with the Escrow Agent's duties under this Agreement and shall be fully
protected in any act taken, suffered, or permitted by him/her in good faith
accordance with the advice of counsel. The Escrow Agent is not responsible
for determining and verifying the authority of any person acting or
purporting to act on behalf of any party to this Agreement.
(b) Fees and Expenses. It is understood that the fees and usual
charges agreed upon for services of the Escrow Agent shall be considered
compensation for ordinary services as contemplated by this Agreement. In
the event that any dispute shall arise with respect to, or if the Escrow
Agent is made a party to, or intervenes in, any litigationon pertaining to
this escrow or its subject matter, the Escrow Agent shall have the right to
retain all documents and/or other things of value at any time held by the
Escrow Agent in this escrow until such dispute has been settled either by
mutual agreement among the parties concerned or by the final order of a
court or other tribunal of compentent jurisdiction. The Escrow Agent's
usual acceptance fee of $2,000 shall be paid prior to Closing by the
Company, and any additional customary fees and charges for services
hereunder will be paid first out of the accrued interest on the Funds and
second out of the Funds, to be shared pro rata by the Parties entitled to
such Funds. In no event shall Purchaser or the Company be liable for any
fees or charges hereunder. Any extraordinary services and expenses that
may exceed $100.00 shall require the prior approval of the Parties Agent.
(c) Controversies. If any controversy arises among the parties to
this Escrow Agreement, or with any other party, concerning the subject
matter of this Escrow Agreement, its terms or conditions, the Escrow Agent
will not be required to determine the controversy or to take any action
regarding it. The Escrow Agent may hold all documents and funds, and may
wait for settlement of any such controversy by final appropriate legal
proceedings or other means, as in the Escrow Agent's reasonable discretion
the Escrow Agent may reasonably require, despite with may be set forth
elsewhere in this Escrow Agreement.
(d) Indemnification of the Escrow Agent. The Parties and their
respective successors and assign s agree jointly and severally to indemnify
and hold the Escrow Agent harmless against any and all losses, claims,
damages, liabilities, and expenses, including reasonable costs of
investigation, counsel fees, and disbursements that may be imposed on the
Escrow Agent or incurred by the Escrow Agent in connection with the
performance of his/her duties under this Agreement, including but not
limited to any litigation arising from this Agreement or involving its
subject matter; provided, however, that such indemnification shall not
apply to the extent that any such losses, claims, damages, liabilities or
expen ses or disbursements are caused by the gross negligence or will ful
misconduct of the Escrow Agent.
9. Notices. All notices hereunder shall be in writing and may be
delivered in person by overnight courier service or mailed by certified
mail to each Party at such Party's address as set forth on Schedule A and
to the Escrow Agent at the address set forth below:
First Trust of California
101 California Street
Suite 1150
San Francisco, CA 94111
ATTN: Michael Ferrara
10. Amendments. This Escrow Agreement may be amended, and
provisions hereof may be waived, only in writing executed by Purchaser,
each of the Sellers and Escrow Agent, provided, however, that no such
amendment shall treat any Party who does not Consent thereto less
favorably than it treats any Party who does consent thereto, and no such
amendment shall be effective to alter or enlarge the Escrow Agent's duties,
discretions asld obligations hereunder without its prior written consent.
11. Governing Law. This Escrow Agreement shall be construed and
enforced in accordance with the laws, other than the law of conflicts, of
the State of California, as applied to agreements entered into and to be
performed entirely within California. Service of process in any such action
shall be effectcd in the manner provided in Section 9 for delivery of
notices.
12. Successors and Assigns. This Escrow Ageement shall be
binding upon and inure to the benefit of Purchaser, Sellers, the Parties
and the Escrow Agent and each of their respective heirs, personal
representatives, successors and assigns. Nothing contained in this
Ageement, express or implied, is intended to confer upon any person other
than the parties hereto and the respective heirs, personal representatives,
successors and assigns as aforesaid, any rights or remedies under or by
reason of this Agreemcnt.
13. Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
ESCROW AGENT
FIRST TRUST OF CALIFORNIA
By:
Title
PURCHASER
OPTICAL COATING LABORATORY, INC.
BY:
PARTIES
William Lucas Harry
Frank J. Lodato
Mary Lodato
THE SAM LODATO TRUST B
Frank J. Lodato, Trustee
Mark J. Lodato
THE BOARD OF TRUSTEES OF THE LELAND STANFORD JUNIOR
UNIVERSITY
CANAAN VENTURE OFFSHORE LIMITED
PARTNERSHIP, C.V.
By: Canaan Management Limited Partnership,
General Partner
Canaan Venture Partners, LP., General
Partner
By: General Partner
CANAAN VENTURE LIMITED PARTNERSHIP
By Canaan Management Limited Partnership,
General Partner
By: Canaan Venture Partners, L.P., General
Partner
By: General Partner
Russ Stiles
David Whitney
Tim S. March
John M. Sphar
SELLERS
Frank J. Lodato
William Lucas Harry Trust
CANAAN OFFSHORE LIMITED PARTNERSHIP, C.V.
By: Canaan Management Limited Partnership,
General Partner
By: Canaan Venture Partners, L.P., General
Partner
By: General Partner
CANAAN VENTURE LIMITED PARTNERSHIP
By: Canaan Management Limited Partnership,
General Partner
By: Canaan Venture Partners, L.P. General
Partner
By: General Partner
SCHEDULE A
PARTIES Initial Second Percentage
Payment Payment of Proceeds
William Lucas Harry $97,282.50 $97,282.50 5.99%
3135 Deer Meadow Drive
Danville, CA 94506
Taxpayer ID ###-##-####
Frank J. Lodato $ 38,903.50 $ 38,903.50 2.39%
185 E. Dana Street
Mountain View, CA 94040
Taxpayer ID ###-##-####
Mary Lodato $ 61,182.75 $ 61,182.75 3.765%
185 E. Dana Street
Mountain View, CA 94040
Taxpayer ID 560 21-1939
The Sam Lodato
Trust $ 61,182.75 $ 61,182.75 3.765%
185 E. Dana Street
Mountain View, CA 94040
Taxpayer ID 94-6457569
Mark J. Lodato $ 58,992.00 $ 58,992.00 3.63%
185 E. Dana Street
Mountain View, CA 94040
Taxpayer ###-##-####
The Board of
Trustees, Leland $ 404,841.50 $ 404,851.50 24.91%
Stanford Junior
University
Stanford Management Co.
2770 Sand Hill Road
Menlo Park, CA 94025
Taxpayer ID 94-1156365
Wire Instructions ABA No.: 121-000-248
Attn: Eleanor Crosby (415) 396-4873
420 Montgomery St., 9th Floor
San Francisco, CA 94104
Wells Fargo Account No. 4001-047349
Account Name: Stanford University
PARTIES Initial Second Percentage
Payment Payment of Proceeds
Russ Stiles $ 20,000.00 $ 20,000.00 1.23%
467S Pardee Avenue
Fremont, CA 94538
Taxpayer ID ###-##-####
David Whitney $ 50,000.00 $ 50,000.00 3.08%
41229 Chiltern Drive
Fremont, CA 94539
Taxpayer ID ###-##-####
John M Sphar $ 20,000.00 $20,000.00 1.23%
3926 Duncan Place
Palo Alto, CA 94306
Taxayer ID ###-##-####
Tim S. March $ 20,000.00 $ 20,000.00 1.23%
2443 Thaddeus Drive
Mountain View, CA 94043
Taxpayer ID ###-##-####
TOTAL OF FUNDS $ 832,385.00 $832,385.00 51.22%
Canaan Venture Limited Partnership 14.39%
29.5% of total shares
Canaan Venture Offshore Limited Partnership C.V. 34.3%
70.S~o of total shares
TOTAL OF STOCK $1,585,230.00 48.78%
TOTAL OF FUNDS AND STOCK $3,250,000.00 100.00%
SCHEDULE B
SELLERS ALLOCATION OF
CONSIDERATION PERCENTAGE
Frank J. Ladato $ 1,340,950.00 41.26%
William Lucas Harry Trust $ 208,975.00 6.43%
Canaan Venture Offshore $ 1,198,600.00 36.88%
Limited Partnership C.V.
Canaan Venture Limited $ 501,475.00 15.435%
Partnership
TOTAL: $ 3,250,000.00 100.00%
Exhibit D
DEBT OF NETRA CORPORATION
(As of 01/01/95)
Principal Interest Total
Canaan Venture Offshore $ 211,500 $ 93,017 $ 304,517
Limited Partnership, 1,067,996 42,946 1,110.942
C.V. 1,279,496 135,963 1,415,459
Canaan Venture Limited $ 88,500 $ 38,919 $ 127,419
Partnership 447,019 17,937 464,956
535,519 56,856 592,375
William Lucas Harry $ 84,356 $ 10,118 $ 94,474
70,000 22,531 92,531
l54,356 32,649 187,005
Frank J. Lodato $ 50,000 $ 25,867 $ 75,867
Frank J. Lodato 9,000 6,677 15,677
Mary Lodato and 275,862 33,108 308,960
The Lodato Trust
Mark J. Lodato 132,991 15,958 148,949
Leland Stanford 648,501 312,173 960,680
Junior University
1,116,350 393,783 l,510,133
Total: 3,085,721 619,251 3,704,972
EXHIBIT C
ASSETS
CURRENT ASSETS
Cash: General Checking $280,742.91
Cash: Payroll Checking 6,561.51
Cash: Money Market 61,049.27
Petty Cash 500.00
Employee Advances 725.00
TOTAL CASH $ 349,578.69
Accounts Receivable-Trade 572,861.64
Less: Doubtful Accounts (1,838.25)
TOTAL RECEIVABLES $ 571,023.39
Inventory-Raw Materials 89,550.73
Inventory-WIP Product 36,920.51
Inventory-Finished Goods 111,934.07
Inventory-WIP Tooling 79,089.17
Prepaid Insurance 12,423.00
Prepaid Rent 11,854.13
Prepaid Taxes 13,502.38
Prepaid Expenses-Other 16,534.56
Prepaid Supplies 32,713.99
Prepaid Income Tax-Federal 1,819.00
Prepaid Income Tax-State 20,000.00
Travel Advance 1,300.00
Deferred Federal Income Tax 150,000.00
TOTAL OTHER CURRENT ASSETS $ 577,661.54
TOTAL CURRENT ASSETS $1,498,263.62
LAND/BUILDING/EQUIPMENT
Tooling 252,253.24
Less: Accumulated Dep.-Tooling (232,638.05)
Furniture & Fixtures 54,472.69
Less: Accumulated Dep.-F&F (42,353.28)
Machines & Equipment 1,482,219.11
Less: Accumulated Dep.-M&E (1,024,673.58)
Leaseholds 19,106.07
Less: Accumulated Dep.-Leaseholds (19,568.81)
TOTAL LAND/BUILDING/EQUIPMENT $ 488,817.39
DEFERRED ASSETS
Deposits-Refundable 3,535.63
TOTAL DEFERRED ASSETS 3,535.63
TOTAL ASSETS $1,990,615.64
LIABILITIES & OWNER'S EQUITY
LIABILITIES
CURRENT LIABILITIES
Accounts Payable-Trade 222,545.92
Accounts Payable-Misc. 63,294.40
Capital Lease-Current 64,028.87
Advance on Tooling-Sales 53,112.50
Accrued Interest 619,250.63
Accrued Vacation 35,220.31
Accrued Sick Leave 39,134.38
Accrued Payroll 16,384.83
Accrued California Sales Tax 28.57
Accrued State Income Tax 5,136.50
Accrued Federal Income Tax 3,828.00
Bonus Pay 20,000.00
Accrued Expenses-Other 16.60
TOTAL SHORT TERM PAYABLES $1,143,301.51
TOTAL CURRENT LIABILITIES $1,143,301.51
LONG TERM DEBT
Capital Lease-Long Term 149,402.83
Long Term Notes Payable 2,008,213.62
Notes Payable-Other 648,507.00
Current Portion Notes Payable 125,000.00
Loan Payable-Short Term 304,000.00
Deferred Compensation 103,225.00
TOTAL LONG TERM DEBT $3,338,348.45
TOTAL LIABILITIES $4,481,649.96
SHAREHOLDER EQUITY
Issued Common Stock 252,559.00
Preferred Stock-Series B 4,010,000.00
Retained Earnings (3,180,595.34)
Retained Earnings (4,744.10)
Retained Earnings (8,824.98)
Retained Earnings (230,636.72)
Retained Earnings (1,098,403.65)
Retained Earnings (2,641,718.24)
YTD Net Income 960,357.21
YTD Net Income (206,337.48)
YTD Net Income (342,688.02)
TOTAL SHAREHOLDER EQUITY $(2,491,033.32)
TOTAL LIABILITY/OWNER EQUITY $ 1,990,616.64
