<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------
SCHEDULE 14A
PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
[X] Filed by the Registrant
[ ] Filed by a party other than the Registrant
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
EFI ELECTRONICS CORPORATION
------------------------------------------------
(Name of Registrant as Specified in Its Charter)
------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
the Common Stock, par value $.0001 per share; options to acquire
shares of the Common Stock; and warrants to acquire shares of
the Common Stock
2) Aggregate number of securities to which transaction applies:
6,671,531 securities, consisting of 5,575,638 shares of the
Common Stock, par value $.0001 per share, 999,828 outstanding
stock options, and 96,065 outstanding warrants
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on
which the filing fee is calculated and state how it was
determined): The underlying value of the transaction is
$8,562,152.07 calculated as follows: $8,363,457.00 ($1.50 per
share in cash for each outstanding share of the Common Stock,
par value $.0001 per share, of EFI Electronics Corporations)
plus $198,695.07 (equal to $961,753.50 ($1.50 multiplied by the
total number of outstanding stock options and warrants with an
exercise price of $1.50 or less) minus $763,058.43 (the
aggregate exercise price of the options and warrants with an
exercise price of $1.50 or less))
4) Proposed maximum aggregate value of transaction: $8,562,152.07
5) Total fee paid: $1,712.43
[X] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
[EFI EFI ELECTRONICS
LOGO]
TO THE STOCKHOLDERS OF EFI ELECTRONICS CORPORATION:
As described in the accompanying Proxy Statement, the Board of Directors
of EFI Electronics Corporation has approved an Agreement and Plan of Merger
pursuant to which a wholly-owned subsidiary of Square D Company will be merged
with and into EFI Electronics.
Pursuant to the Merger Agreement, each outstanding share of common
stock of EFI, other than dissenting shares, will be converted into the right to
receive in cash, without interest, an amount equal to $1.50. As a result of the
Merger, EFI will become a wholly-owned subsidiary of Square D. In addition,
because this is a cash-out merger, upon consummation of the Merger you will no
longer own shares of the common stock of EFI and you will not acquire any
securities of Square D.
Under Delaware law and EFI's Certificate of Incorporation, the Merger
Agreement must be approved by the affirmative vote of the holders of a majority
of the outstanding shares of the common stock. Certain EFI executive officers,
directors and stockholders, who own 2,735,601 outstanding shares of the common
stock, representing approximately 49.1% of the outstanding shares of the common
stock, have agreed to vote in favor of the Merger Agreement.
THE EFI BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT
AND RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" APPROVAL OF THE MERGER AGREEMENT.
Detailed information concerning the proposed Merger is set forth in the
accompanying Proxy Statement. I urge you to read the enclosed material carefully
and request that you promptly complete and return the enclosed proxy in the
enclosed return envelope, which requires no postage if mailed in the United
States. If you attend the Special Meeting, you may vote in person even if you
have previously returned your proxy.
YOUR VOTE IS VERY IMPORTANT REGARDLESS OF THE NUMBER OF SHARES YOU OWN.
To assure your representation at the special meeting of the stockholders of EFI,
please complete, sign and date the enclosed proxy card and return it in the
enclosed prepaid envelope marked "Proxy." This will allow your shares to be
voted whether or not you attend the special meeting.
On behalf of the Board of Directors, I thank you for your support and
urge you to vote FOR the approval of the Merger Agreement.
Sincerely,
/s/ Richard D. Clasen
----------------------
Richard D. Clasen
President and Chief Executive
Officer
THIS MERGER TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE
FAIRNESS OR MERITS OF THE TRANSACTION, NOR UPON THE ACCURACY OR ADEQUACY OF THE
INFORMATION CONTAINED IN THIS PROXY STATEMENT. ANY REPRESENTATION TO THE
CONTRARY IS UNLAWFUL.
THIS LETTER, THE NOTICE OF SPECIAL MEETING, THE PROXY STATEMENT AND
ACCOMPANYING FORM OF PROXY ARE DATED APRIL 11, 2000, AND ARE FIRST BEING MAILED
TO EFI STOCKHOLDERS ON OR ABOUT APRIL 13, 2000.
<PAGE> 3
[EFI EFI ELECTRONICS
LOGO]
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 12, 2000
TO THE STOCKHOLDERS OF EFI ELECTRONICS CORPORATION:
You are cordially invited to attend the special meeting of stockholders (the
"Special Meeting") of EFI Electronics Corporation ("EFI" or the "Company") which
will be held at the Company's offices, 1751 South 4800 West, Salt Lake City,
Utah, on Friday, May 12, 2000, at 9:00 a.m., local time, for the following
purposes:
(1) To consider and vote on a proposal to approve an Agreement and Plan of
Merger dated as of March 20, 2000 (the "Merger Agreement"), among
Square D Company ("Square D"), EFI, and Surge Sub Inc. ("Merger Sub"),
pursuant to which Merger Sub, a wholly-owned subsidiary of Square D,
will be merged with and into EFI (the "Merger").
(2) To transact such other business as may properly come before the Special
Meeting or any adjournments or postponements thereof.
The accompanying Proxy Statement describes the proposed Merger in detail.
Under Delaware law, you may be eligible to exercise appraisal or dissenters'
rights in connection with the Merger. For a discussion of these rights, and the
manner in which they may be exercised, see the section entitled "Appraisal
Rights" in the enclosed Proxy Statement. The applicable provisions of Delaware
law have been attached to the enclosed Proxy Statement as Annex D.
Pursuant to the Bylaws of the Company, April 12, 2000 is the record date for the
determination of stockholders entitled to notice of and to vote at the Special
Meeting. Only stockholders of record at the close of business on that date will
be entitled to notice of and to vote at the Special Meeting or any adjournments
or postponements thereof.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Richard D. Clasen
------------------------------------
Richard D. Clasen
President and Chief Executive
Officer
Mailing Date:
April 13, 2000
Salt Lake City, Utah
IMPORTANT
WHETHER OR NOT YOU EXPECT TO ATTEND THE SPECIAL MEETING IN PERSON, TO ASSURE
THAT YOUR SHARES WILL BE REPRESENTED, PLEASE COMPLETE, DATE, SIGN AND RETURN THE
ENCLOSED PROXY WITHOUT DELAY IN THE ENCLOSED ENVELOPE, WHICH REQUIRES NO
ADDITIONAL POSTAGE IF MAILED IN THE UNITED STATES. YOUR PROXY WILL NOT BE USED
IF YOU ARE PRESENT AT THE SPECIAL MEETING AND DESIRE TO VOTE YOUR SHARES
PERSONALLY.
PLEASE DO NOT SEND YOUR COMMON STOCK CERTIFICATES AT THIS TIME. IF THE MERGER IS
COMPLETED, YOU WILL BE SENT INSTRUCTIONS REGARDING THE SURRENDER OF YOUR
CERTIFICATES.
<PAGE> 4
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q. Why is EFI proposing to merge with Square D?
A. The Board of Directors recommends approval of the Merger Agreement based on a
wide variety of factors, including:
o EFI's current financial situation and the capital required to
enable EFI to continue to operate its business;
o the premium offered by Square D over the recent market prices of
the common stock of EFI (the "Common Stock");
o the terms and provisions of the Merger Agreement and related
agreements, including the Stockholder Agreements (as defined
below); and
o the opinion of EFI's financial advisor, Houlihan Valuation
Advisors (a copy of which is attached as Annex B), based upon
and subject to certain matters stated in the opinion, as to the
fairness, from a financial point of view, of the consideration
to be received by EFI's stockholders in the Merger.
Q. What will I receive in the Merger?
A. If you do not dissent, you will receive $1.50 in cash, without interest in
exchange for each share of the Common Stock that you own. If you hold options to
acquire shares of the Common Stock, you will receive in exchange for each such
option $1.50 less (i) the exercise price of such option, and (ii) applicable
federal, state and local withholdings.
Q. What will occur if the Merger is not consummated?
A. If the Merger is not consummated, including as a result of the failure of
EFI's stockholders to approve the Merger Agreement, there can be no assurance
that additional financing or sales of additional securities would be available
alternatives for addressing the Company's capital requirements and, if
available, that the terms would be acceptable to the Company. Additionally,
there can be no assurance that the Company could find an alternative merger
partner or that any of these strategies could be executed in a timely manner.
Management does not believe the Company's revenue growth rate over the next
three years will generate sufficient capital to permit the Company to reduce
debt and take maximum advantage of global market opportunities.
Q. What do I need to do now?
A. After you have carefully read this Proxy Statement, indicate on your proxy
card how you want to vote, and sign and mail it in the enclosed prepaid return
envelope as soon as possible, so that your shares of the Common Stock may be
represented at the Special Meeting. The Special Meeting will take place at 9:00
a.m., local time, on May 12, 2000, at the Company's offices, 1751 South 4800
West, Salt Lake City, Utah 84104.
Q. What vote is required to approve the Merger Agreement?
A. Under Delaware law and EFI's Certificate of Incorporation, the Merger
Agreement must be approved by the affirmative vote of holders of a majority of
the outstanding shares of the Common Stock. Certain EFI executive officers,
directors and stockholders, who own 2,735,601 shares of the Common Stock,
representing approximately 49.1% of the outstanding shares of the Common Stock,
have agreed to vote in favor of the Merger Agreement pursuant to the terms of
the Stockholder Agreements. See page 36.
i
<PAGE> 5
Q. If my shares of Common Stock are held in "street name" by my broker, will my
broker vote my shares for me?
A. Your broker will vote your shares only if you provide instructions on how to
vote. You should follow the directions provided by your broker regarding how to
instruct your broker to vote your shares. Without instructions, your shares will
not be voted, which for purposes of voting on the Merger Agreement, will have
the same effect as voting against the Merger Agreement.
Q. Can I change my vote after I have mailed my signed proxy card?
A. Yes. You can change your vote at any time before your proxy is voted at the
Special Meeting. You can do this in one of three ways:
o First, you can send a written notice stating that you would like
to revoke your proxy.
o Second, you can complete and submit a new proxy card.
(If you choose either of these two methods, you must submit your notice of
revocation or your new proxy card to EFI prior to the Special Meeting.)
o Third, you can attend the Special Meeting and vote in person.
Simply attending the Special Meeting, however, will not revoke
your proxy. You must vote.
If you have instructed a broker to vote your shares, you must follow directions
received from your broker to change your vote.
Q. Will I have appraisal or dissenters' rights as a result of the Merger?
A. Yes. Under the applicable provisions of Delaware law, you will have appraisal
or dissenters' rights in connection with the Merger. If you have not voted in
favor of the Merger Agreement, you have the right to demand appraisal of, and to
be paid the fair market value for, your shares of the Common Stock. The fair
market value of the Common Stock for this purpose will not include any element
of value arising from the accomplishment or expectation of the Merger. To
exercise your right to an appraisal, if any, you must deliver a written demand
for an appraisal to Richard D. Clasen, Chief Executive Officer, EFI Electronics
Corporation, 1751 South 4800 West, Salt Lake City, Utah 84104, prior to the time
the vote is taken on the Merger Agreement at the Special Meeting. Simply voting
against the Merger Agreement will not be considered a demand for appraisal
rights. For a more detailed discussion of your appraisal rights, see page 24 of
this Proxy Statement and the provisions of Delaware law attached as Annex D to
this document.
Q. Should I send in my stock certificates when I return my proxy card?
A. No. You should not send in your stock certificates now. Promptly following
the Merger, Square D will send you a separate letter of transmittal that will
enable you to receive the payment due and will provide instructions for
surrendering your stock certificates.
Q. When do you expect the Merger to be completed?
A. We are working towards completing the Merger as quickly as possible. In
addition to the approval of our stockholders as described above, pursuant to the
Merger Agreement, we must also meet certain conditions prior to the consummation
of the Merger. We plan to complete the Merger promptly following the Special
Meeting, and we presently expect to do so in May, 2000, although we cannot
assure you that we will have satisfied the necessary conditions by that time.
Q. What are the tax consequences of the Merger?
A. The receipt of cash by a stockholder of EFI pursuant to the Merger will be a
taxable transaction for United States federal income tax purposes and may also
be taxable under applicable state, local and foreign
ii
<PAGE> 6
income and other tax laws. For United States federal income tax purposes, a
stockholder will recognize gain or loss in an amount equal to the difference
between such stockholder's basis in the Common Stock and the amount of cash
received in exchange for the Common Stock in the Merger. The gain or loss will
generally be a capital gain or loss if the Common Stock is a "capital asset" in
the hands of the stockholder. For a more detailed summary of the United States
federal income tax consequences of the Merger, see "The Merger - Certain United
States Federal Income Tax Consequences of the Merger." The stockholders of EFI
are urged to consult their own tax advisors as to the specific tax consequences
to them of the Merger.
Q. What other matters will be voted on at the Special Meeting?
A. We do not expect to ask you to vote on any matter other than the Merger
Agreement at the Special Meeting.
Q. Who can help answer my questions?
A. If you have more questions about the Merger, you should contact:
EFI Electronics Corporation
1751 South 4800 West
Salt Lake City, Utah 84104
Attn: Richard D. Clasen
(801) 977-9009
You should also review with your legal counsel and financial and tax advisors
the information set forth in this Proxy Statement and enclosed herewith.
Q. Are there risks associated with approval or disapproval of the Merger
Agreement?
A. The Merger does involve risks. For a discussion of certain risk factors that
should be considered in evaluating the Merger, see "Risk Factors," beginning on
page 6.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS VOTING "FOR" THE PROPOSED MERGER
AGREEMENT.
iii
<PAGE> 7
TABLE OF CONTENTS
<TABLE>
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE MERGER................................................i
SUMMARY...............................................................................1
The Companies.......................................................................1
Risk Factors........................................................................2
The Special Meeting.................................................................2
Reasons for the Merger..............................................................3
Recommendation to Stockholders......................................................3
Opinion of Financial Advisor........................................................3
United States Federal Income Tax Consequences.......................................4
Appraisal Rights....................................................................5
The Merger Agreement................................................................5
Other Interests of Officers and Directors in the Merger.............................5
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE.......................................6
RISK FACTORS..........................................................................6
MARKET PRICE AND DIVIDEND INFORMATION.................................................7
NUMBER OF STOCKHOLDERS................................................................7
SELECTED CONSOLIDATED FINANCIAL DATA..................................................8
THE SPECIAL MEETING...................................................................9
THE PARTIES..........................................................................11
THE MERGER...........................................................................12
Background of the Merger; Past Contacts, Transactions or Negotiations..............12
Reasons for the Merger; Recommendation of the Board of Directors...................14
OPINION OF EFI'S FINANCIAL ADVISOR...................................................15
Houlihan's Analyses of EFI and the Merger..........................................16
Summary of EFI's Financial Condition as of December 31, 1999.......................18
Comparison of EFI's Financial Performance with the Industry........................18
Analysis of EFI's Recent Stock Performance.........................................19
Analysis of Indicated Market Value of the Company Based on Recent Stock Price......19
Analysis of Market Multiples of Selected Comparable Public Companies...............20
Discounted Cash Flow Analysis......................................................21
Selected Comparable Transactions Analysis..........................................21
Relevant Market and Economic Factors...............................................22
Conclusion of Houlihan.............................................................23
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER..................23
ACCOUNTING TREATMENT OF THE MERGER...................................................24
MANAGEMENT, OPERATIONS AND OWNERSHIP STRUCTURE FOLLOWING THE MERGER..................24
APPRAISAL RIGHTS.....................................................................24
PUBLIC TRADING MARKETS...............................................................25
THE MERGER AGREEMENT.................................................................25
General; Merger Consideration......................................................25
Treatment of Stock Options and Warrants............................................25
Closing; Effective Time............................................................26
Cancellation of Shares.............................................................26
Surrender of Certificates..........................................................26
Payment to Other than Registered Holder............................................26
Transfers..........................................................................26
Lost, Stolen or Destroyed Certificates.............................................26
Representations and Warranties.....................................................27
Conditions of the Proposed Merger..................................................28
Termination; Termination Fee.......................................................29
</TABLE>
iv
<PAGE> 8
<TABLE>
<S> <C>
Agreement Not to Solicit Other Offers..............................................31
Conduct of EFI's Business Prior to the Merger......................................31
Certain Other Covenants and Agreements.............................................33
Interests of Certain Persons in the Merger.........................................34
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.......................38
MISCELLANEOUS........................................................................40
Independent Accountants............................................................40
Date for Submission of Stockholder Proposals.......................................40
Available Information..............................................................40
Cautionary Statement Regarding Forward-Looking Statements..........................40
Incorporation of Certain Documents by Reference....................................41
PROXY CARD...........................................................................43
ANNEX A (Agreement and Plan of Merger)..............................................A-1
ANNEX B (Fairness Opinion)..........................................................B-1
ANNEX C (EFI's latest Annual and three most recent Quarterly Reports)...............C-1
ANNEX D (Dissenter's Appraisal Rights)..............................................D-1
</TABLE>
v
<PAGE> 9
SUMMARY
This summary highlights certain information from this Proxy Statement. It does
not contain all of the information that is important to you. To understand the
Merger more fully, you should carefully read this entire document, including the
Agreement and Plan of Merger (attached as Annex A), the fairness opinion of
Houlihan Valuation Advisors (attached as Annex B), EFI's Annual Report on Form
10-KSB for the year ended March 31, 1999 and Quarterly Reports on Form 10-QSB
for the quarters ended June 30, 1999, September 30, 1999 and December 31, 1999
(attached as Annex C), and the applicable sections of Delaware law governing
dissenters' appraisal rights (attached as Annex D), as well as the documents
referred to in "Incorporation of Certain Documents by Reference" at page 41 of
this Proxy Statement.
THE COMPANIES
EFI Electronics Corporation
1751 South 4800 West
Salt Lake City, Utah 84104
(801) 977-9009
EFI is a designer and manufacturer of transient voltage surge suppression
("TVSS") products. TVSS devices protect electronic equipment from electrical
accidents and electrical disturbances such as lightning, grid switching,
switching of air conditioners, power tools, elevators, and welding units. These
disturbances can produce high speed, high energy transient voltage spikes and
surges which can cause hardware failure, data/communication disruptions and
transient induced software "bugs" resulting in equipment damage and/or down
time. EFI's first hardwire product for industrial users was introduced in
November 1981, followed by introduction of similar plug-in products for computer
and telecommunications equipment that were introduced in early 1983 and 1984,
respectively. Since the early 1980's, the Company has continued to develop new
products for both plug-in and hardwire uses. The Company believes it has the
broadest line of TVSS products in the market and is known for its innovative
solutions, high quality and engineering competence.
The Company sells its products in several global markets. Although the markets
for its products are fragmented in the United States, they are organized and
stable in Europe, and are in the developmental stages in many other geographical
locations. The Company currently has annual revenue of approximately $12.6
million and employs about 77 people. EFI's headquarters and manufacturing
facility are in Salt Lake City, Utah, with a subsidiary engaged in international
sales and distribution located in Barcelona, Spain. EFI has also established a
joint venture with a Singapore-based corporation.
Square D Company
1415 South Roselle Road
Palatine, Illinois 60067
(847) 397-2600
Square D is a wholly-owned subsidiary of Schneider Electric S.A. ("Schneider"),
a global electrical industry leader with 1999 sales of approximately $8.9
billion. Schneider, headquartered in Paris, France, is the world's leading
manufacturer of electrical distribution, industrial control and automation
products and systems, and is the only electrical manufacturer dedicated solely
to
1
<PAGE> 10
the distribution and control of electricity. Square D is a market-leading North
American supplier of electrical distribution, industrial control and automation
products, systems and services. Its products are found in all types of
residential, commercial and industrial construction, a wide range of
manufacturing and processing facilities, and in or on the products of other
manufacturers. In North America, the brands of Schneider include Square D in the
United States, Federal Pacific in Mexico, and Federal Pioneer in Canada.
RISK FACTORS (PAGE 6)
The Merger does involve risks. These risks include the risk of not completing
the Merger and the consequences thereof, as well as the fact that the Merger
Agreement does not provide for adjustments to the merger consideration to be
received by EFI stockholders to account for fluctuations in the market price for
the Common Stock. For a discussion of these and other risk factors, see "Risk
Factors" beginning on page 6.
THE SPECIAL MEETING (PAGE 9)
GENERALLY. This Proxy Statement is being furnished to the stockholders of EFI as
part of the solicitation of proxies by the Company's Board of Directors (the
"Board of Directors") from holders of the outstanding shares of the Common Stock
for use at the Company's Special Meeting of stockholders to be held at 9:00
a.m., local time, on May 12, 2000, and at any adjournments or postponements
thereof. The Special Meeting will be held at the Company's offices, 1751 South
4800 West, Salt Lake City, Utah 84104.
PURPOSE OF SPECIAL MEETING. At the Special Meeting, you will be asked to approve
the Merger Agreement.
RECORD DATE; VOTING POWER. Holders of the Common Stock as of the close of
business on April 12, 2000, the record date (the "Record Date"), are entitled to
notice of and to vote at the Special Meeting or any adjournment thereof. As of
the Record Date, there were 5,575,638 outstanding shares of the Common Stock.
Each share of the Common Stock is entitled to one vote.
VOTE REQUIRED. The affirmative vote of holders of a majority of the outstanding
shares of the Common Stock as of the record date is required to approve the
Merger Agreement. There were 5,575,638 shares of the Common Stock outstanding as
of the Record Date. Each share of the Common Stock is entitled to one vote.
Certain EFI executive officers, directors and stockholders, who own 2,735,601
shares of the Common Stock, representing approximately 49.1 % of the outstanding
shares of the Common Stock, have agreed to vote in favor of the Merger
Agreement.
2
<PAGE> 11
REVOCATION OF PROXY. A stockholder may revoke a proxy at any time prior to its
exercise by (i) delivering to Richard D. Clasen, Chief Executive Officer, EFI
Electronics Corporation, 1751 South 4800 West, Salt Lake City, Utah 84104, a
written notice of revocation of proxy prior to the Special Meeting, (ii)
delivering prior to the Special Meeting a duly executed proxy bearing a later
date, or (iii) attending the Special Meeting and voting in person. The presence
of a stockholder at the Special Meeting will not in and of itself automatically
revoke such stockholder's proxy. If not revoked, the proxy will be voted in
accordance with the instructions indicated on the proxy or, if no instructions
are indicated on a properly executed proxy, such proxy will be voted "FOR" the
approval of the Merger Agreement.
QUORUM; ABSTENTIONS AND BROKER NON-VOTES. The required quorum for the Special
Meeting is a majority of votes eligible to be cast by holders of the Common
Stock issued and outstanding as of the Record Date. Both abstentions and broker
non-votes will be included in determining the number of votes present and voting
at the Special Meeting for the purpose of determining the presence of a quorum.
Abstentions and broker non-votes will have the same effect as votes against the
Merger Agreement. THE ACTIONS PROPOSED IN THIS PROXY STATEMENT ARE NOT MATTERS
THAT CAN BE VOTED ON BY BROKERS HOLDING SHARES FOR BENEFICIAL OWNERS WITHOUT THE
OWNERS' SPECIFIC INSTRUCTIONS. ACCORDINGLY, ALL BENEFICIAL OWNERS OF COMMON
STOCK ARE URGED TO RETURN THE ENCLOSED PROXY CARD MARKED TO INDICATE THEIR
VOTES.
REASONS FOR THE MERGER (PAGE 14)
The EFI Board of Directors recommends that stockholders approve the Merger
Agreement based on a wide variety of factors, including:
- EFI's current financial situation and the capital required to enable
it to continue to operate its business;
- the premium offered by Square D over the recent market prices of the
Common Stock;
- the terms and provisions of the Merger Agreement and related
agreements; and
- the opinion of EFI's financial advisor, Houlihan Valuation Advisors
("Houlihan"), based upon and subject to certain matters stated in the opinion,
as to the fairness on the date of such opinion, from a financial point of view,
of the proposed merger consideration to be received by holders of the Common
Stock pursuant to the Merger.
RECOMMENDATION OF THE BOARD OF DIRECTORS (PAGE 14)
On March 20, 2000, the Board of Directors (i) determined that the Merger and the
transactions contemplated by the Merger Agreement are fair, equitable and in the
best interests of EFI and its stockholders, (ii) approved and adopted the Merger
Agreement and (iii) recommended that the stockholders vote in favor of the
Merger Agreement. The Board of Directors unanimously recommends a vote "FOR"
approval of the Merger Agreement.
OPINION OF FINANCIAL ADVISOR (PAGE 15)
On March 20, 2000, Houlihan, EFI's financial advisor, delivered its opinion to
the Board of Directors that as of such date, and based upon the assumptions and
subject to the limitations set forth therein, the proposed merger consideration
to be received by holders of the Common Stock in the Merger is fair from a
financial point of view to such holders. The full text of the written opinion of
Houlihan, which sets forth assumptions made, matters considered and limitations
on the review undertaken in connection with the opinion is attached hereto as
Annex B and is incorporated herein by reference. Stockholders should read that
opinion in its entirety.
3
<PAGE> 12
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER (PAGE 23).
Stockholders are advised that the Merger is not a tax-free reorganization. The
receipt of cash by a stockholder of EFI pursuant to the Merger will be a taxable
transaction for United States federal
4
<PAGE> 13
income tax purposes and may also be taxable under applicable state, local and
foreign income and other tax laws. The stockholders of EFI are urged to consult
their own tax advisors as to specific tax consequences to them of the Merger. To
review the tax consequences to stockholders in greater detail, see page 23 of
this Proxy Statement. For a more detailed summary of the United States federal
income tax consequences of the Merger, see "The Merger--Certain United States
Federal Income Tax Consequences of the Merger."
APPRAISAL RIGHTS (PAGE 24).
If a stockholder does not vote in favor of the Merger Agreement, he or she may
have the right to demand appraisal of, and to be paid the fair market value for,
its shares of the Common Stock. The fair market value of the Common Stock for
this purpose will not include any element of value arising from the
accomplishment or expectation of the Merger. In order for the holder of the
Common Stock to exercise his or her right to an appraisal, if any, such holder
must deliver a written demand for an appraisal to Richard D. Clasen, Chief
Executive Officer of EFI, 1751 South 4800 West, Salt Lake City, Utah 84104,
prior to the time the vote is taken on the Merger Agreement. Simply voting
against the Merger Agreement will not be considered a demand for appraisal
rights. This is not a complete discussion of Delaware law pertaining to
appraisal rights and stockholders should carefully read 24 of this Proxy
Statement together with the provisions of Delaware law attached as Annex D to
this document.
THE MERGER AGREEMENT (PAGE 25)
THE AGREEMENT AND PLAN OF MERGER IS ATTACHED AS ANNEX A TO THIS PROXY STATEMENT.
THE BOARD OF DIRECTORS ENCOURAGES YOU TO READ THAT AGREEMENT IN ITS ENTIRETY. IT
IS THE LEGAL DOCUMENT GOVERNING THE MERGER.
WHAT EFI STOCKHOLDERS WILL RECEIVE IN THE MERGER. Holders of the Common Stock
that do not dissent will receive $1.50 in cash in exchange for each share of the
Common Stock that they own.
WHAT HOLDERS OF STOCK OPTIONS AND WARRANTS WILL RECEIVE IN THE MERGER. At the
effective date of the Merger, each option to purchase the Common Stock shall,
without any action on the part of the option holder, be canceled and converted
into the right to receive $1.50 less (i) the exercise price of such option, and
(ii) applicable federal, state and local withholdings. The amounts payable to
any option holder will be reduced to the extent necessary to prevent such
payment from constituting a "parachute payment" under federal tax law. EFI does
not currently expect that there will be any warrants outstanding on the date of
the Merger that are exercisable at less than $1.50 per share.
CONDITIONS TO THE MERGER. Consummation of the Merger is subject to various
conditions, including, among others:
- that Square D's and EFI's respective representations and warranties in
the Merger Agreement are true and correct in all material respects and the
parties have performed in all material respects their respective obligations
under the Merger Agreement;
- the approval of the Merger Agreement by EFI's stockholders at the
Special Meeting;
- that no governmental agency shall have enacted or issued any law or
order that would make the Merger illegal; and
- that all proper corporate actions have been taken and documents
provided to the reasonable satisfaction of the parties.
TERMINATION. Square D and EFI can agree to terminate the Merger Agreement
without completing the Merger, even if the EFI stockholders have approved it.
Also, either of the companies can terminate the Merger Agreement under a variety
of circumstances, including if any of the following occurs:
- the Merger is not completed by May 31, 2000;
- a court or other governmental authority permanently prohibits the
Merger; or
- EFI stockholders do not approve the Merger Agreement.
In addition, Square D can terminate the Merger Agreement if (i) EFI recommends
to its stockholders a business combination with a third party other than Square
D; (ii) the Board of Directors withdraws or adversely modifies its approval or
recommendation of the Merger Agreement; or (iii) the Board of Directors fails to
recommend against acceptance of a tender offer or exchange offer for 20% or more
of the outstanding shares of capital stock of the Company.
The Company can terminate the Merger Agreement if the Company receives a
proposal to enter a business combination with a company other than Square D that
the Board determines is a "Superior Proposal" (as defined in the Merger
Agreement) and if certain other conditions are met. EFI has agreed to pay
Square D a $400,000 termination fee, plus Square D's expenses up to $150,000, if
the Merger Agreement is terminated under certain circumstances, including if the
Company terminates the Merger Agreement in connection with a Superior Proposal.
INTERESTS OF CERTAIN PERSONS IN THE MERGER (PAGE 34)
EFI stockholders should be aware that three current or former executive officers
of EFI, one of whom is also a director of EFI, have severance or employment
agreements that provide them with interests in the Merger that are different
from, and in addition to, the interests of EFI stockholders generally. Also, in
connection with the Merger, EFI will repay substantial debts to a partnership of
which one current EFI director is a limited partner and another EFI director is
affiliated through employment. In addition, at the request of Square D, EFI has
entered into a supply agreement with Hubbell, Inc. ("Hubbell"), which employs
another director, that is contingent upon the completion of the Merger. Richard
D. Clasen, the Gaylord K. Swim Family Living Trust, Greenwood Management
Corporation, and Hubbell (the "Bound Stockholders") have also entered into a
stockholder agreement with Square D and Merger Sub, pursuant to which the Bound
Stockholders have agreed to vote in favor of the Merger Agreement. For a
description of these arrangements, and other interests that EFI officers and
directors have in the Merger, see page 34 of this Proxy Statement.
5
<PAGE> 14
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE
EFI HAS MADE FORWARD-LOOKING STATEMENTS IN THIS PROXY STATEMENT AND IN DOCUMENTS
THAT ARE INCORPORATED IN THIS PROXY STATEMENT BY REFERENCE. FORWARD-LOOKING
STATEMENTS INCLUDE INFORMATION CONCERNING POSSIBLE OR ASSUMED FUTURE RESULTS OF
OPERATIONS OF EFI. WORDS SUCH AS "BELIEVES," "EXPECTS," "INTENDS," "ANTICIPATES"
OR OTHER SIMILAR EXPRESSIONS IDENTIFY FORWARD-LOOKING STATEMENTS. STOCKHOLDERS
SHOULD NOTE THAT MANY FACTORS COULD AFFECT THE FUTURE FINANCIAL AND BUSINESS
RESULTS OF EFI AND COULD CAUSE THOSE RESULTS TO DIFFER MATERIALLY FROM THOSE
EXPRESSED IN THE FORWARD-LOOKING STATEMENTS CONTAINED OR INCORPORATED BY
REFERENCE INTO THIS DOCUMENT.
RISK FACTORS
- --------------------------------------------------------------------------------
In addition to the other information contained in this Proxy Statement,
stockholders should carefully consider the following factors before voting with
respect to the Merger Agreement. Stockholders are cautioned that the statements
in this section that are not descriptions of historical fact may be
forward-looking statements that are subject to risks and uncertainties. Actual
results could differ materially from those currently anticipated due to a number
of factors, including those identified in this section and elsewhere in this
Proxy Statement.
FUTURE CAPITAL REQUIREMENTS; UNCERTAINTY OF ALTERNATIVE FUNDING
If the Merger is not completed, the Company may be required to satisfy its
capital requirements by seeking funds through public or private financings,
collaborative relationships, alternative business combinations or other
arrangements, the availability and acceptability of which cannot be assured. Any
additional equity financing may be dilutive to stockholders, and debt financing,
if available, may involve significant restrictive covenants. Collaborative
arrangements, if necessary to raise additional funds, may require the Company to
relinquish its rights to certain of its technologies, products or marketing
territories. There can be no assurance that financing, if required,
will be available on terms satisfactory to the Company, if at all. Failure to
raise capital when needed could have a material adverse effect on the Company's
business, financial condition and results of operations.
FLUCTUATIONS IN MARKET PRICE
The Merger Agreement does not provide for any adjustments to the consideration
to be received by EFI stockholders. If the market price of the Common Stock
increases after the Special Meeting, and the Merger Agreement has been approved,
the cash received by stockholders will not be adjusted to account for such
increase. There can be no assurance that the price offered by Square D will
continue to constitute a premium over the market price of the Common Stock, or
that the price offered by Square D will equal or exceed the market price of the
Common Stock on the date of the Merger.
TERMINATION FEE
In the Merger Agreement, EFI agreed to pay a termination fee (the "Termination
Fee") to Square D in specified circumstances, including the Company's
termination of the Merger Agreement upon receipt of a Superior Proposal. The
Termination Fee could discourage other companies
6
<PAGE> 15
from trying to acquire EFI even though those other companies might be willing to
offer greater value to EFI stockholders than Square D has offered in the Merger
Agreement. In addition, payment of the Termination Fee could have an adverse
impact on EFI's financial condition. For details concerning the amount of the
Termination Fee and the circumstances under which it must be paid, see "The
Merger Agreement Termination; Termination Fee" beginning on page 29.
MARKET PRICE AND DIVIDEND INFORMATION
- --------------------------------------------------------------------------------
The Common Stock is currently traded on the OTC Bulletin Board under the symbol
"EFIC." The following table sets forth for the fiscal quarters indicated, the
high and low closing sales prices per share of the Common Stock.
<TABLE>
<CAPTION>
LOW HIGH
----- -----
<S> <C> <C>
Fiscal 1998:
- -----------
First Quarter ............................... $1.31 $2.13
Second Quarter .............................. $1.50 $3.38
Third Quarter ............................... $2.00 $3.00
Fourth Quarter .............................. $1.88 $2.31
Fiscal 1999:
- -----------
First Quarter ............................... $1.50 $2.19
Second Quarter .............................. $1.00 $1.75
Third Quarter ............................... $0.63 $1.31
Fourth Quarter .............................. $0.78 $1.98
Fiscal 2000:
- -----------
First Quarter ............................... $0.63 $1.53
Second Quarter .............................. $0.88 $1.06
Third Quarter ............................... $0.84 $1.31
Fourth Quarter .............................. $0.88 $1.34
Fiscal 2001:
- ------------
First Quarter (through April 10, 2000) ...... $1.22 $1.31
</TABLE>
RECENT CLOSING PRICES
On March 20, 2000, EFI announced in a press release that it had entered into the
Merger Agreement. The reported closing sales price per share of the Common Stock
on the last trading day before that date was $0.937.
DIVIDENDS
EFI has never declared or paid any cash dividends on its Common Stock, and
management does not anticipate that dividends will be paid in the foreseeable
future.
NUMBER OF STOCKHOLDERS
- --------------------------------------------------------------------------------
On the Record Date, there were approximately 266 EFI stockholders of record,
although EFI believes there were approximately 656 beneficial stockholders on
the Record Date.
7
<PAGE> 16
SELECTED CONSOLIDATED FINANCIAL DATA
- --------------------------------------------------------------------------------
The selected financial data of EFI for the fiscal years ended March 31, 1999 and
March 31, 1998, presented below have been derived from the audited consolidated
financial statements of EFI contained in EFI's Annual Report on Form 10-KSB for
the fiscal year ended March 31, 1999. The selected financial data of EFI for the
nine months ended December 31, 1999 have been derived from the unaudited
consolidated financial statements of EFI contained in EFI's Quarterly Report on
Form 10-QSB for the quarter ended December 31, 1999. More comprehensive
financial information is included in such reports and other documents filed by
EFI with the Securities and Exchange Commission (the "Commission"), and the
following information is qualified in its entirety by reference to such reports
and other documents and all of the financial information (including any related
notes) contained therein. Such reports and other documents may be inspected and
copies may be obtained from the offices of the Commission. See "Available
Information." In addition, a copy of the Company's Form 10-KSB for the fiscal
year ended March 31, 1999, and the Company's Quarterly Reports on Form 10-QSB
for the quarterly periods ended June 30, 1999, September 30, 1999, and December
31, 1999 are attached as Annex C to this Proxy Statement and are incorporated
herein by reference. See "Incorporation of Certain Documents by Reference."
<TABLE>
<CAPTION>
For the nine months ending
December 31, 1999 For the year ended For the year ended
(unaudited) March 31,1999 March 31, 1998
-------------------------- ------------------ ------------------
<S> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales ................ $ 9,377,079 $ 13,890,564 $ 16,372,366
Gross profit ............. 3,668,651 4,232,798 5,334,887
Operating income/loss .... 473,606 (203,497) 390,822
Net income/loss .......... $ 12,571 $ (735,293) $ (245,751)
Net income/loss per share:
Basic .................. $ .00 $ (0.13) $ (0.05)
Diluted ................ $ .00 $ (0.13) $ (0.05)
Weighted average shares
Outstanding
Basic .................. 5,574,591 5,565,521 4,903,596
Diluted ................ 5,582,674 5,565,521 4,903,596
</TABLE>
<TABLE>
<CAPTION>
As of
December 31,
1999 As of As of
BALANCE SHEET DATA: (Unaudited) March 31, 1999 March 31, 1998
- ------------------- ----------- -------------- --------------
<S> <C> <C> <C>
Cash and cash equivalents $ 26,102 $ 263,135 $ 9,566
Total assets ............ 7,409,432 8,080,827 10,276,694
Total liabilities ....... 5,644,168 6,199,593 7,710,589
Stockholders' equity .... 1,765,264 1,881,234 2,566,105
</TABLE>
8
<PAGE> 17
THE SPECIAL MEETING
- --------------------------------------------------------------------------------
GENERAL; DATE; PLACE AND TIME
This Proxy Statement is being provided by, and the enclosed proxy is solicited
by and on behalf of, the Board of Directors for use at the Special Meeting.
The Special Meeting is scheduled to be held at 9:00 a.m., local time, on May 12,
2000, at the Company's offices, 1751 South 4800 West, Salt Lake City, Utah
84104.
PURPOSE OF THE SPECIAL MEETING
The purpose of the Special Meeting is to consider and vote upon the approval of
the Merger Agreement, and to transact any other business that is properly
brought before the Special Meeting.
RECORD DATE; VOTING POWER
Only holders of the Common Stock at the close of business on the Record Date
will be entitled to receive notice of and to vote at the Special Meeting. There
are 5,575,638 shares of the Common Stock outstanding on the Record Date and
entitled to vote at the Special Meeting. Each share of the Common Stock is
entitled to one vote. As of the Record Date, there were 266 record holders of
the Common Stock.
VOTE REQUIRED
The affirmative vote of the holders of a majority of the outstanding shares of
the Common Stock is required to approve the Merger Agreement.
Because the required vote of the stockholders to approve the Merger Agreement is
based upon the total number of outstanding shares of the Common Stock, the
failure to submit a proxy card (or to vote in person at the Special Meeting) or
the abstention from voting by a stockholder will have the same effect as a vote
against approval of the Merger Agreement. Brokers holding shares of the Common
Stock as nominees will not have discretionary authority to vote such shares in
the absence of instructions from the beneficial owners thereof.
Delaware law, EFI's Certificate of Incorporation, EFI's Bylaws and the
Securities and Exchange Act of 1934 contain requirements governing the actions
of EFI stockholders at the Special Meeting. Pursuant to the EFI Bylaws, a
majority of the votes eligible to be cast by holders of the Common Stock
outstanding on the Record Date must be present, either in person or by proxy, at
the Special Meeting to constitute a quorum. Shares of the Common Stock present
in person at the Special Meeting but not voting, and shares of the Common Stock
for which EFI has received proxies but with respect to which holders of such
shares have abstained, will be counted as present at the Special Meeting for
purposes of determining the presence of a quorum for transacting business.
Brokers who hold shares of the Common Stock in nominee or street name for
customers who are the beneficial owners of such shares are prohibited from
giving a proxy to vote shares held for these customers with respect to the
Merger Agreement without specific instructions from these customers. Shares
represented by proxies returned by a broker holding the shares in street name
will be counted for purposes of determining whether a quorum exists, even if the
shares are not voted because discretionary voting by the broker is not allowed.
Abstentions and broker non-votes will have the same effect as a vote against the
Merger Agreement.
9
<PAGE> 18
Several directors, executive officers and stockholders of EFI have entered into
voting agreements with Square D whereby these persons have agreed to vote their
shares in favor of the Merger Agreement. The 2,735,601 shares of the Common
Stock subject to these agreements represent approximately 49.1% of the
outstanding shares entitled to vote at the Special Meeting. For additional
information about beneficial ownership of the Common Stock by stockholders
owning more than 5% of the Common Stock and by directors and executive officers
of EFI, see "Security Ownership of Certain Beneficial Owners and Management."
The obligations of EFI and Square D to consummate the Merger are subject, among
other things, to the condition that the stockholders approve the Merger
Agreement, and the failure to obtain such approval on or before May 31, 2000
would give either EFI or Square D the right to terminate the Merger Agreement.
REVOCATION OF PROXY
A stockholder may revoke a proxy at any time prior to its exercise by (i)
delivering to Richard D. Clasen, Chief Executive Officer of EFI, 1751 South 4800
West, Salt Lake City, Utah 84104, a written notice of revocation of proxy prior
to the Special Meeting, (ii) by delivering to EFI prior to the Special Meeting a
duly executed proxy bearing a later date, or (iii) by attending the Special
Meeting and voting in person. The presence of a stockholder at the Special
Meeting will not in and of itself automatically revoke such stockholder's proxy.
EXPENSES OF SOLICITATION
EFI will bear the costs of soliciting proxies from its stockholders. In addition
to soliciting proxies by mail, directors, officers and employees of the Company,
without receiving additional compensation therefor, may solicit proxies by
telephone, by facsimile or in person. Arrangements may also be made with
brokerage firms and other custodians, nominees and fiduciaries to forward
solicitation materials to the beneficial owners of shares held of record by such
persons, and the Company will reimburse such brokerage firms, custodians,
nominees and fiduciaries for reasonable out-of-pocket expenses incurred by them
in connection therewith. See also "Merger Agreement -- Certain Other Covenants
and Agreements -- Expenses of Transaction."
MISCELLANEOUS
It is not expected that any matter other than approval of the Merger Agreement
will be presented for action at the Special Meeting. If any other matters are
properly brought before the Special Meeting, the persons named in the proxies
will vote on such matters in accordance with the direction of the majority of
the Board of Directors. The grant of a proxy will also confer discretionary
authority on the persons named in the proxy as proxy appointees to vote in
accordance with the direction of the majority of the Board of Directors on
matters incident to the conduct of the Special Meeting, including (except as
stated in the following sentence) postponement or adjournment for the purpose of
soliciting additional votes. However, shares represented by proxies that have
been voted "AGAINST" the Merger Agreement will not be used to vote "FOR"
postponement or adjournment of the Special Meeting for the purposes of allowing
additional time for soliciting additional votes "FOR" the approval of the Merger
Agreement.
Holders of the Common Stock should not send their stock certificates with their
proxy cards. If the Merger is consummated, a separate letter of transmittal will
be mailed to the holders of the Common Stock that will enable a holder to
receive the payment due.
10
<PAGE> 19
THE PARTIES
- --------------------------------------------------------------------------------
EFI ELECTRONICS CORPORATION
EFI is a designer and manufacturer of transient voltage surge suppression
("TVSS") products. EFI's mission is to deliver high quality, innovative and
competitive power protection programs and solutions in a fashion that optimizes
the value to all stakeholders. TVSS devices protect electronic equipment from
electrical disturbances such as lightning, grid switching, switching of air
conditioners, power tools, elevators, welding units, and electrical accidents.
These disturbances can produce high speed, high energy transient voltage spikes
and surges which can cause hardware failure, data/communication disruptions and
transient induced software "bugs" resulting in equipment damage and/or down
time. EFI's first hardwire product for industrial users was introduced in
November 1981, followed by introduction of similar plug-in products for computer
and telecommunications equipment that were introduced in early 1983 and 1984,
respectively. Since the early 1980's, the Company has continued to develop new
products for both plug-in and hardwire uses. The Company believes it has the
broadest line of TVSS products in the market and is known for its innovative
solutions, high quality and engineering competence.
The Company sells its products in several global markets. The markets for its
products are fragmented in the United States, organized and stable in Europe,
and are in the developmental stages in most other geographical locations. The
Company currently has annual revenue of approximately $12.6 million and employs
about 77 people. EFI's headquarters and manufacturing facility are in Salt Lake
City, Utah, with a subsidiary engaged in international sales and distribution
located in Barcelona, Spain. EFI has also established a joint venture with a
Singapore-based corporation for the purpose of developing the TVSS market in the
Pacific Rim and India. For additional information concerning EFI, please refer
to the Annual Report on Form 10-KSB for the year ended March 31, 1999 and the
Quarterly Reports on Form 10-QSB for the quarters ended June 30, 1999, September
30, 1999 and December 31, 1999, each of which is incorporated herein by
reference.
The principal executive offices of EFI are located at 1751 South 4800 West, Salt
Lake City, Utah 84104, and its telephone number is (801) 977-9009.
SQUARE D COMPANY
Square D is a wholly-owned subsidiary of Schneider, a global electrical industry
leader with 1999 sales of approximately $8.9 billion. Schneider, headquartered
in Paris, France, is the world's leading manufacturer of electrical
distribution, industrial control and automation products and systems, and is the
only electrical manufacturer dedicated solely to the distribution and control of
electricity. Square D is a market-leading North American supplier of electrical
distribution, industrial control and automation products, systems and services.
Its products are found in all types of residential, commercial and industrial
construction, a wide range of manufacturing and processing facilities, and in or
on the products of other manufacturers. In North America, the brands of
Schneider include Square D in the United States, Federal Pacific in Mexico, and
Federal Pioneer in Canada. Merger Sub, a wholly-owned subsidiary of Square D,
was incorporated for the sole purpose of completing the Merger.
The principal executive offices of Square D are located at 1415 South Roselle
Road, Palatine, Illinois 60067, and its telephone number is (847) 397-2600.
11
<PAGE> 20
All information contained in this Proxy Statement concerning Square D, its
affiliates and subsidiaries, including Merger Sub, has been supplied by Square D
and has not been independently verified by EFI.
THE MERGER
- --------------------------------------------------------------------------------
BACKGROUND OF THE MERGER; PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS
Since mid-1999, the Company has been seeking a partner with established,
complementary sales and distribution channels and the necessary capital
resources to support its projected business activity. With access to a broader
market and with capital to support expanded business activities, EFI management
believes that the Company could (i) consolidate a portion of the U.S. market
through acquisition or otherwise, becoming a leader in several distribution
channels, (ii) expand its presence in the established European market with a new
line of products, which are currently in development with several partners, and
(iii) leverage its products, manufacturing and market knowledge to develop
worldwide markets.
On March 5, 1999, a special meeting of the Board of Directors of EFI (the
"Board") was held regarding the status of the current quarter and the Company's
short and long-term prospects. The Company was experiencing a significant
shortfall in revenues from several of its major strategic partners, and
possessed only a vague forecast of when revenues would be back on track.
Management was concerned about these developments and the Company's ability to
pursue its operating plan as a stand-alone entity. The Board approved a proposal
to obtain a bridge loan from Mr. Gaylord Swim, Chairman of the Board, in
conjunction with initiating a search for a merger partner to help the Company
pursue its potential opportunities.
A special meeting of the Board was subsequently held via teleconference on March
18, 1999. At management's request, board member Reino Kerttula was engaged as a
consultant to help in finding a suitable merger partner.
From March 1999 through January 2000, detailed EFI business summaries with
executed nondisclosure agreements were distributed to various companies in the
industry that had expressed interest in a business combination with EFI. At
different points during this time, EFI met with representatives of a number of
these companies to conduct preliminary discussions of possible business
combinations. Other than Square D, the companies with which EFI engaged in
initial discussions did not choose to pursue those discussions to the
development of a definitive proposal.
Discussions between Mr. Richard Clasen, CEO of EFI, and Mr. Franklin Sullivan,
Senior Vice President, Growth and Acquisitions, for Square D, resulted in the
execution of a nondisclosure agreement on April 5, 1999. Numerous preliminary
discussions were held between representatives of EFI and Square D and a meeting
of key executives from both companies was held on June 28 and 29, 1999 to
explore the possible synergies of a business combination.
On August 24, 1999, Mr. Sullivan indicated to Mr. Clasen in a phone conversation
that Square D would be prepared to pay in the range of $1.60 to $1.80 per share
of the Common Stock to acquire EFI, based on the due diligence that Square D had
conducted to such date and EFI management's revenue and profit projections for
the Company.
The Board conducted a special meeting via teleconference on August 25, 1999 to
review Square D's expression of interest. After discussion, the Board of
Directors approved giving management
12
<PAGE> 21
the authority to negotiate a non-binding expression of interest letter agreement
between the companies.
On September 9, 1999, EFI and Square D signed a non-binding letter agreement in
which Square D expressed an interest in pursuing an acquisition of EFI at $1.80
per share of the Common Stock, subject to due diligence and certain general
conditions. Square D also conditioned its expression of interest on modification
of the Company's existing supply agreement with Hubbell. In addition, the letter
agreement required that EFI negotiate exclusively with Square D until October
31, 1999. Square D commenced its due diligence review of the Company on
September 27, 1999, which was subsequently suspended on September 29, 1999.
Square D's exclusivity under the non-binding letter agreement expired on October
31, 1999 and EFI renewed conversations with several interested parties, none of
which resulted in a definitive conclusion.
Square D and EFI resumed the due diligence process on November 15, 1999
following discussions between Square D and Hubbell with respect to the proposed
modification of the supply agreement between EFI and Hubbell.
During the normal quarterly Board meeting on November 23, 1999, the Board
concluded that enough progress had been made in discussions with Square D that
EFI should proceed to obtain the counsel and advice of a reputable financial
advisor with respect to the preliminary terms of the proposed transaction
between EFI and Square D. On November 30, 1999, the Company retained Houlihan to
review the proposed transaction, advise the Board with respect to the financial
aspects of the proposed transaction and provide a fairness opinion when
appropriate.
On January 4, 2000, Mr. Clasen of EFI, Mr. Sullivan of Square D and Mr. Terry
O'Neal, General Manager of Square D's Surge Protection Business, met to review
the status of Square D's due diligence and to discuss valuation issues. During
this meeting Square D stated that due to a shortfall in revenues to EFI from
certain strategic partners, Square D would not proceed with the proposed
transaction based on the $1.80 per share indication contained in the expired
letter agreement.
EFI received a letter on January 10, 2000 stating that Square D was prepared to
execute a merger agreement with EFI based on a price of $1.50 per share of the
Common Stock, under which EFI would become a wholly-owned subsidiary of Square
D, if certain conditions were satisfied, including modification of EFI's
existing supply agreement with Hubbell.
In response to Square D's offer, the Board conducted a special meeting via
teleconference on January 13, 2000. Houlihan participated in the meeting as well
as the Company's legal counsel, Parr Waddoups Brown Gee & Loveless. In the
course of that call, Houlihan delivered to the Board its preliminary opinion
that the proposed transaction would be fair to the Company's stockholders. After
a lengthy discussion, the Board concluded that a per share price of $1.50 was
fair and acceptable. The Board unanimously approved a proposal to direct
management to proceed with negotiations.
Subsequent special Board meetings were held on February 14, 2000 and February
16, 2000, to discuss certain contractual issues that arose in the negotiation of
the Merger Agreement. During this period, EFI, Square D and Hubbell continued to
negotiate the terms of a mutually acceptable long-term supply agreement, which
was a condition to Square D's offer to enter into the Merger Agreement.
13
<PAGE> 22
A special Board meeting was held via teleconference in the morning of March 20,
2000 to report the completion of a mutually acceptable supply agreement between
EFI and Hubbell and to consider a resolution approving the Merger Agreement and
all other agreements contemplated by the Merger Agreement. Following a review of
the terms and conditions of the Merger Agreement, the Board authorized the
execution of the Merger Agreement and instructed EFI management to proceed with
all matters necessary to complete the Merger.
EFI and Square D issued a joint press release announcing the execution of the
Merger Agreement and the terms of the Merger on the afternoon of March 20, 2000.
REASONS FOR THE MERGER; RECOMMENDATION OF THE BOARD OF DIRECTORS
In reaching its determination to recommend approval of the Merger Agreement, the
Board consulted with management, as well as Parr Waddoups Brown Gee & Loveless,
its legal counsel, and Houlihan, its financial advisor, and considered a number
of factors, including the factors listed below. In view of the wide variety of
factors considered in connection with the Merger, the Board did not consider it
practicable to, nor did it attempt to, quantify or otherwise assign relative
weights to the specific factors it considered in reaching its decision.
(1) EFI'S BUSINESS, CONDITION AND PROSPECTS--The Board considered information
with respect to the financial condition, results of operations and business of
EFI, on both a historical and prospective basis, and current industry, economic
and market conditions, including EFI's market position within its industry. The
members of the Board were familiar with and knowledgeable about EFI's business
and affairs and further reviewed these matters in the course of their
deliberations. The Board considered the capital requirements necessary to
continue EFI's business given its current financial condition. The Board noted
that there could be no assurance as to EFI's access to such capital on
acceptable terms.
(2) OPINION OF HOULIHAN--The Board considered the preliminary opinion of
Houlihan dated January 14, 2000 and the final opinion of Houlihan dated March
20, 2000 that as of the dates of such opinions, and based upon and subject to
certain matters stated therein, the proposed consideration of $1.50 in cash per
share to be received by holders of the Common Stock in the Merger was fair, from
a financial point of view to those holders. The Board also considered the oral
and written presentations made to it by Houlihan. A copy of Houlihan's written
opinion to the Board, dated March 20, 2000, which sets forth the assumptions
made, matters considered and limitations on the review undertaken, is attached
as Annex B to this Proxy Statement and is incorporated herein by reference.
(3) RECENT MARKET PRICES COMPARED TO CONSIDERATION TO BE RECEIVED BY HOLDERS OF
THE COMMON STOCK--The Board reviewed the recent market prices and trading
information with respect to the Common Stock, and considered that the
consideration to be received in the Merger represented (A) a premium of
approximately 60.1% over the $0.937 closing price of the Common Stock on March
17, 2000, the last full trading day prior to the March 20, 2000 Board meeting,
and (B) a premium of approximately 41% over the $1.064 average closing price of
the Common Stock for the 30 previous trading days prior to the March 20, 2000
Board meeting.
(4) TERMS OF THE MERGER--The Board considered the terms and provisions of the
Merger Agreement and the related agreements. The Board considered the terms of
the Merger Agreement that permit the Board to receive unsolicited inquiries and
proposals from, and negotiate and give information to, third parties under
certain circumstances. The Board further considered that the
14
<PAGE> 23
total amount which could be payable to Square D pursuant to the termination fee
was approximately $400,000 plus the expenses of Square D up to a maximum of
$150,000. The Board found reasonable the views of Houlihan that the termination
fee was within the range of fees payable in comparable transactions and
concluded that the fee would not in and of itself preclude alternative
proposals. The Board further considered that Square D had stated that it would
not enter into a transaction which did not include the termination fee.
(5) THE NEED TO ADDRESS CERTAIN CAPITAL CONCERNS--The Board believes that,
despite being well-positioned technically and operationally, a lack of capital
resources and distribution channels will limit EFI's ability to take advantage
of emerging markets. In addition, EFI's status as a public company has created
pressure to increase short-term earnings, which can limit long-term growth.
Management expects a projected revenue growth rate ten to fifteen percent in
each of the next three years with corresponding growth in net profit from the
current breakeven position. However, the Board believes this growth rate will
not permit the Company to generate capital at a fast enough rate to reduce debt
and take maximum advantage of global market opportunities.
(6) SQUARE D'S REPUTATION AND RESOURCES AND TIME NEEDED TO COMPLETE THE
MERGER--The Board considered Square D's standing within its industry, as well as
its size and resources. In addition, the Board considered that Square D's
obligation to close the Merger is not subject to a financing condition.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT, HAS
DETERMINED THAT THE MERGER IS FAIR TO, AND IN THE BEST INTERESTS OF, EFI AND ITS
STOCKHOLDERS, AND RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" APPROVAL OF THE MERGER
AGREEMENT.
OPINION OF EFI'S FINANCIAL ADVISOR
- --------------------------------------------------------------------------------
Houlihan was retained by EFI to act as its financial advisor in connection with
the proposed Merger. In connection with such engagement, EFI requested that
Houlihan evaluate the fairness, from a financial point of view, to holders of
the Common Stock of the merger consideration. On January 13, 2000, at a meeting
of the Board of Directors held to evaluate the Merger contemplated by the Merger
Agreement, Houlihan delivered a verbal opinion, a written confirmation of which
was delivered on January 14, 2000, to the EFI Board of Directors to the effect
that, as of the date of such opinion and based upon and subject to certain
matters stated therein, the consideration proposed to be paid by Square D to
holders of the Common Stock in the Merger is fair, from a financial point of
view, to those holders. The amount of the merger consideration to be paid was
determined by EFI and Square D and was neither determined nor recommended to EFI
by Houlihan.
Houlihan, as a customary part of its business, is engaged in the valuation of
businesses and their securities in connection with mergers and acquisitions,
negotiated underwritings, private placements, and valuations for estate,
corporate and other purposes. EFI retained Houlihan to act as its advisor based
upon Houlihan's qualifications, reputation, experience and expertise. Pursuant
to a letter agreement dated November 30, 1999 between EFI and Houlihan, the fee
payable to Houlihan for rendering its opinion is $32,000. In addition, EFI has
agreed to reimburse Houlihan for its reasonable out-of-pocket expenses incurred
in connection with rendering financial advisory services. EFI has agreed to
indemnify Houlihan and its directors, officers, agents, employees and
controlling persons, for certain costs, expenses, losses, claims, damages and
liabilities related to or arising out of its rendering of services under its
engagement as financial advisors.
15
<PAGE> 24
THE FULL TEXT OF THE HOULIHAN OPINION, WHICH SETS FORTH THE PROCEDURES FOLLOWED,
THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW
UNDERTAKEN BY HOULIHAN IN RENDERING ITS OPINION, IS ATTACHED AS ANNEX B TO THIS
PROXY STATEMENT AND IS INCORPORATED HEREIN BY REFERENCE. STOCKHOLDERS ARE URGED
TO READ THE OPINION IN ITS ENTIRETY. THE OPINION IS DIRECTED TO THE EFI BOARD OF
DIRECTORS AND RELATES ONLY TO THE FAIRNESS FROM A FINANCIAL POINT OF VIEW TO
HOLDERS OF THE COMMON STOCK OF THE CONSIDERATION TO BE RECEIVED IN THE MERGER.
THE OPINION DOES NOT ADDRESS ANY OTHER ASPECT OF THE MERGER OR CONSTITUTE A
RECOMMENDATION TO ANY STOCKHOLDER OF THE COMPANY AS TO HOW SUCH STOCKHOLDER
SHOULD VOTE WITH RESPECT TO THE MERGER AGREEMENT. REFERENCES TO THE OPINION AND
THE SUMMARY OF THE OPINION CONTAINED HEREIN ARE QUALIFIED IN THEIR ENTIRETY BY
REFERENCE TO THE FULL TEXT OF THE OPINION.
HOULIHAN'S ANALYSES OF EFI AND THE MERGER
In conducting its investigation and analysis and in arriving at its opinion,
Houlihan reviewed information and took into account financial and economic
factors it deemed relevant under the circumstances. In that connection,
Houlihan, among other things:
- Reviewed the terms of the Merger Agreement;
- Reviewed audited financial statements and the annual reports of EFI
for the years ended March 31, 1995-1999;
- Reviewed the Company's Annual Report on Form 10-KSB for the fiscal
year ended March 31, 1999, as filed with the Commission;
- Reviewed the Company's Quarterly Reports on Form 10-QSB for the
quarters ended June 30, 1999, September 30, 1999 and December 31, 1999, as filed
with the Commission;
- Reviewed EFI's Notices of Annual Meeting of Stockholders and related
proxy statements for Annual Meetings of Stockholders held on July 29, 1997, July
29, 1998 and July 29, 1999;
- Reviewed data supplied by the Company regarding outstanding options
and warrants for the Common Stock;
- Reviewed the management organization of EFI;
- Reviewed transaction premium data for electronics firms prepared by
Houlihan Lokey Howard & Zukin as presented in Mergerstat Review 1998;
- Reviewed employment agreements between EFI and Richard D. Clasen and
Henry Daunert;
- Reviewed the EFI Electronics Corporation 1998 Incentive Plan;
16
<PAGE> 25
- Reviewed the EFI Electronics Corporation Nonqualified Stock Option
Plan and Incentive Stock Option Plan as amended May 1991;
- Discussed the financial condition, results of operations, business and
prospects of EFI with management of the Company;
- Compared the results of operations and financial condition of EFI with
those of certain other publicly-traded electronics equipment manufacturing firms
that Houlihan deemed to be reasonably comparable;
- Reviewed historical market prices and trading volumes for the Common
Stock for the period of January 4, 1999 through December 13, 1999;
- Reviewed the EFI Electronics Business Review prepared by management of
the Company;
- Reviewed financial projections for the fiscal years 2000-2002 prepared
by management of the Company;
- Reviewed the Operating Statement Consolidated - Expected for the
fiscal year ended March 31, 2000, which was prepared by management of the
Company; and
- Performed such other studies, analyses and investigations as Houlihan
deemed appropriate.
In conducting its review and arriving at its opinion, Houlihan assumed and
relied upon, without independent verification, the accuracy, completeness and
fairness of the information furnished to or otherwise reviewed by or discussed
with it for purpose of rendering its opinion. With respect to the financial
projections of EFI and other information relating to the prospects of EFI
provided to Houlihan by management of the Company, Houlihan assumed that such
projections and other information were reasonably prepared and reflect the best
currently available judgments and estimates of the management of EFI as to the
likely future financial performance of the Company. The financial projections of
EFI that were provided to Houlihan were utilized and relied upon by Houlihan in
the "Analysis of Market Multiples of Selected Comparable Public Companies,"
"Discounted Cash Flow Analysis" and "Selected Comparable Transactions Analysis"
summarized below. The Houlihan opinion is based on market, economic and other
conditions as they existed and could be evaluated as of the date of the opinion.
Houlihan has assumed that there has been no material change in EFI's assets,
financial condition, results of operations, business or prospects since February
29, 2000, the date of the most recent internally generated financial statements
of the Company. Houlihan did not undertake an independent appraisal of the
assets or liabilities of EFI nor was Houlihan furnished with any such
appraisals. Houlihan's conclusions and opinion are necessarily based upon
economic, market and other conditions and the information made available to
Houlihan as of the date of its opinion. Houlihan has expressed no opinion on
matters of a legal, regulatory, tax or accounting nature related to the Merger.
The following is a summary of the analyses performed and factors considered by
Houlihan in connection with rendering its opinion:
17
<PAGE> 26
SUMMARY OF EFI'S FINANCIAL CONDITION AS OF DECEMBER 31, 1999
In each of the five fiscal years examined (fiscal years ended March 31,
1995-1999), and in the eleven-month period ended February 29, 2000, the Company
generated significant losses. Annual losses declined over the period, from
almost $2.0 million in 1995 to approximately $735,000 in 1999. For the
eleven-month period ended February 29, 2000, the Company experienced a loss of
$359,000 compared to a loss of $344,000 for the same period in the previous
year. Between 1995 and 1999, sales increased from $12.9 million in 1995 to a
high of $16.4 million in 1998, decreasing in 1999 to approximately $14.0
million. Sales for the eleven-month period ended February 29, 2000 were
approximately $10.7 million, compared to $12.7 million for the corresponding
period in the previous year.
To fund its operations between 1995 and February 29, 2000, the Company sold
additional shares of Common Stock and increased borrowings. In addition, as of
February 29, 2000, the Company had loans outstanding to a stockholder in the
amount of $900,000 with an annual interest rate of 12%. Of this amount, a note
for $600,000 was due in September 1999, but has not been paid.
COMPARISON OF EFI'S FINANCIAL PERFORMANCE WITH THE INDUSTRY
To develop a better understanding of EFI's 1999 performance, Houlihan compared
EFI's operating history with the average experience of other manufacturers of
electronic equipment. Houlihan included data for the following companies (the
"Sample Group") in its analysis: American Power Conversion, Ault, C&D
Technologies, Littelfuse, Power-One, Spectrum Control and Vicor. Although the
activities of the companies in the group may not be totally consistent with
those of EFI, Houlihan considered the information to be representative of firms
engaged in the same types of activities as the Company. As such, Houlihan
believes the data provide a reasonable backdrop for a comparative analysis of
the Company's performance.
EFI is a significantly smaller company than the Sample Group, with trailing
twelve-month sales of approximately $12.0 million compared to the median of
$176.6 million for the Sample Group. Over the past three years, EFI experienced
a decline in sales, with trailing twelve-month sales of approximately $12.0
million compared to sales of $13.9 million, $16.4 million and $13.8 million for
fiscal 1999, 1998 and 1997, respectively, while the Sample Group experienced
median sales growth of 6.6% per year for the same period. The median net margin
for the Sample Group for the last twelve-month period was 6.7% compared to a net
loss as a percent of sales for EFI of 7.5%.
EFI is also a significantly smaller company than the median of the Sample Group
as measured by total assets. EFI had total assets as of February 29, 2000 of
$7.0 million compared to the Sample Group median of $241.1 million.
Based on the March 20, 2000 stock price for EFI, its price-to-revenue multiple
was 0.4 times, compared to the median of the Sample Group of 2.0 times. EFI's
price-to-book ratio was also lower than the median of the industry Sample Group
(3.4 times vs. 4.4 times).
EFI's asset turnover ratio, which measures the efficiency with which the assets
of the firm are utilized, was somewhat better than the Sample Group median. The
Company's total asset turnover ratio was 1.7 times, compared to the Sample Group
median of 1.3 times.
The financial risk of EFI appeared to be substantially greater than that of the
Sample Group. The Company's liquidity, as measured by its current ratio, was
substantially less than the median of
18
<PAGE> 27
the Sample Group (0.9 times vs. 3.3 times). EFI was also substantially more
leveraged than the median of the Sample Group, as measured by total liabilities
as a percent of total assets (78.2% compared to 48.5%) and equity as a percent
of total assets (21.8% compared to 51.5%).
In summary, EFI appears to represent a substantially inferior investment
opportunity compared to the median of the Sample Group. EFI has experienced a
decline in sales over the past 3 years, compared to a median annual increase in
sales of the Sample Group of 6.6%. EFI's operations have generated substantial
losses in each of the past five years and for the eleven-month period ended
February 29, 2000. By contrast, the Sample Group generated median net income as
a percent of sales of 6.7% for the last twelve-month period. EFI's financial
risk also appears to be substantially greater than the median of the Sample
Group as measured by the current ratio of total liabilities as a percentage of
total assets and equity as a percent of total assets.
ANALYSIS OF EFI'S RECENT STOCK PERFORMANCE
PUBLIC MARKET FOR THE COMMON STOCK--The Common Stock is traded on the
over-the-counter market (the "OTC Market") under the symbol "EFIC." For the
30-day trading period between January 27, 2000 and March 20, 2000 (the last day
trades in the Common Stock occurred prior to the announcement of the Merger
Agreement), 160,200 shares of the Common Stock were traded on the OTC Market,
which was an average of 5,340 shares traded per trading day. The weighted
average closing price of the shares traded during the 30-day period was $1.10
per share.
During the twelve-month period of March 1, 1999 to February 29, 2000, a total of
2,605,464 shares of the Common Stock were traded in the OTC Market, which was an
average of 11,016 shares per trading day. The weighted average closing price of
the shares traded during the period was $1.075 per share. The stock closed at a
high for the period on March 24, 1999 at $1.937 per share and at a low for the
period on September 10, 1999 at $0.875 per share.
Of the shares of the Common Stock issued and outstanding, available market data
indicates that only approximately 1.7 million shares of the Common Stock are
available for trading. The above data indicates that there has been a limited
amount of trading activity in the public market of the Common Stock. In
addition, no cash dividends have been paid on the Common Stock and management
does not anticipate that dividends will be paid in the foreseeable future.
STOCK PERFORMANCE RELATIVE TO S&P COMPOSITE AVERAGE--Houlihan reviewed the daily
closing per share market price of the Common Stock and compared the movement of
such daily closing prices with the movement of the S&P 500 composite average
over the period from March 1995 through February 2000. Houlihan noted that, on a
relative basis, EFI performed somewhat below the S&P 500 composite average from
1995 through 1997. In January 1998, EFI's performance started a downward trend
compared to the S&P 500, performing substantially below the index from January
1998 through February 2000.
ANALYSIS OF INDICATED MARKET VALUE OF THE COMPANY BASED ON RECENT STOCK PRICE
Based on the above-discussed analysis of the closing stock prices and trading
volumes of the Common Stock in the OTC Market during the 30-day period prior to
the announcement of the proposed Merger transaction, Houlihan estimated the
indicated controlling interest value of the Company as of March 20, 2000. As
discussed, the weighted average closing price of the Common Stock during the
30-day trading period between January 27, 2000 and March 20, 2000 was $1.10 per
share. Based on an analysis of transactions in comparable companies, Houlihan
determined that the median premium paid for control of companies over minority
interest value was 24.4%.
19
<PAGE> 28
Applying the median premium to EFI's weighted average stock price of $1.10 per
share yields a per share value on a controlling interest value of $1.38.
Houlihan also adjusted the Company's $1.10 per share minority interest market
price by an historical overall market control premium of 35%, which yielded a
value per share of $1.50 on a controlling interest basis. The mean of the two
approaches yielded a per share controlling interest market value of $1.437 per
share.
The number of shares of the Common Stock issued and outstanding on a fully
diluted basis as of March 20, 2000 was 6,101,807 (based on a price of $1.50 per
share). Multiplying the number of shares outstanding by the estimated
controlling interest value per share yielded an estimated market value for the
Company on a controlling interest basis of $8.77 million as of March 20, 2000.
Adjusting for the aggregate exercise of outstanding options and warrants
($590,558), the net indicated market value on a controlling interest basis of
the issued and outstanding shares of the Common Stock on a fully diluted basis
as of March 20, 2000 was $8.18 million.
ANALYSIS OF MARKET MULTIPLES OF SELECTED COMPARABLE PUBLIC COMPANIES
Houlihan examined EFI's market valuation as compared to the valuation of other
selected publicly-traded electronic equipment manufacturing companies. Houlihan
compared certain financial information relating to EFI to certain corresponding
information from the Sample Group. Such financial information included, among
other things, common equity valuation, capitalization ratios, operating
performance, and ratios of common equity prices per share to earnings, sales and
book value per share. The financial information used in connection with the
multiples with respect to EFI and the Sample Group was based on the latest
reported twelve-month period as derived from publicly-available information.
Houlihan compared financial information of the Sample Group based on public
market valuation with the corresponding financial multiples for the Company
based on the merger consideration to be received of $1.50 per share by the
Company's stockholders. The analysis was based on EFI's adjusted book value as
of February 29, 2000 (the latest available financial information for the
Company) and trailing twelve-month sales for the twelve-month period ended
December 31, 1999.
Houlihan concluded that application of price-to-earnings and price-to-cash flow
multiples to EFI's financial results was not meaningful. For the trailing
twelve-month period, the Company had a loss of approximately $926,000 (a loss
equal to 7.7% of sales) compared to the industry median net margin of 6.7% of
sales.
Based on a proposed transaction price of $1.50 per share, EFI's implied
price-to-sales multiple of 0.7 times is lower than the Sample Group median of
2.0 times. However, Houlihan noted that all of the Sample Group companies had
positive net income, with a median net income of 6.7% of sales. Houlihan also
noted that the Sample Group experienced an average increase in sales over the
past three years of 6.6% compared to a decrease in sales for EFI over the last
three years. When compared to the Sample Group, EFI's sales decline and lack of
profitability justify a significant discount from the price-to-revenue ratio of
the Sample Group. The 65% discount represented by the difference between a
price-to-revenue ratio of 2.0 times for the Sample Group and 0.7 times for EFI
based on a per share sale price of $1.50 is, in Houlihan's opinion, reasonable.
Houlihan noted that EFI management projects that the Company will essentially
break-even for the fiscal year ending March 31, 2000, with profitability not
projected until fiscal 2001. In addition, EFI is projecting a decrease in sales
in the current fiscal year of approximately 8% compared to the previous year.
Both of these factors would further substantiate a substantial
20
<PAGE> 29
discount of the price-to-revenue multiple applicable to EFI derived from the
Sample Group price-to-revenue multiples.
EFI's implied price-to-book multiple of 5.5 times based on a transaction price
of $1.50 per share is substantially greater than the median price-to-book
multiple for the Sample Group of 4.4 times. Houlihan's analysis indicated that
such a high price to book multiple represented by the $1.50 per share merger
consideration might not be reflective of current public market conditions.
Houlihan noted that EFI's equity as a percent of total assets was 21.8%,
compared to the median equity as a percent of total assets of the Sample Group
of 51.5%. Clearly, EFI's financial risk is substantially greater than the Sample
Group median by virtue of its much greater financial leverage.
DISCOUNTED CASH FLOW ANALYSIS
Houlihan performed a discounted cash flow analysis based on EFI management's
projected operating statements for the fiscal years ending March 31, 2000 -
2002. The discounted cash flow approach values a business based on the current
value of the future cash flow that the business is expected to generate plus the
estimated value of the business at some future date. To establish a current
value under this approach, future cash flow must be estimated and an appropriate
discount rate determined. Houlihan used estimates of projected financial
performance for EFI for the years ending March 31, 2000-2002 prepared by EFI
management. Management's projections were prepared assuming that EFI was a
stand-alone entity, reliant upon internally generated cash flow to fund its
on-going activities. Management projected that the terms of the current
stockholder loans of the Company had been extended three years with the notes
having a five-year amortization schedule, and with the balance of any unpaid
principal and interest payable at the end of three years. Houlihan aggregated
the present value of the projected earnings with the present value of the
Company's projected terminal value. The terminal value was computed based on
projected net income in the calendar year 2003, to which a terminal
capitalization rate was applied.
EFI management prepared two sets of projections, one termed "aggressive",
and the other termed "conservative". Houlihan discounted these cash flows using
market-derived discount rates, adjusted to reflect the risk characteristics of
the Company and the risks associated with the assumptions underlying each set of
projections. Houlihan arrived at such discount and capitalization rates based on
its judgment of the estimated cost of equity capital of EFI, which included
consideration of historical rates of return for publicly-traded common stock,
risks inherent in the industry, and specific risks associated with the
continuing operations of the Company on a stand-alone basis. Houlihan noted that
this analysis, which was based on projections prepared by EFI management,
indicated a value estimate of $4.0 million based on the "conservative"
projections and $10.9 million under the "aggressive" projections. Both of these
values were on a controlling interest basis as of March 20, 2000. In its
analysis, Houlihan placed greater weight on the "conservative" projections by
management in light of the Company's historical operating results and the
continuing losses reflected by the February 29, 2000 eleven-month income
statements. Despite the losses through February 29, 2000, management projects
that March will be a strong month and that the Company will attain breakeven
status for fiscal year 2000. Houlihan noted that under management's
"conservative" projections, a before-tax profit of $36,000 was projected for
fiscal year 2000.
SELECTED COMPARABLE TRANSACTIONS ANALYSIS
Houlihan reviewed nine recent merger and acquisition transactions occurring
since 1998 involving electronics manufacturing companies considered by Houlihan
to be reasonably
21
<PAGE> 30
comparable to the Company and for which information was publicly available. The
following transactions were included by Houlihan in the analysis: Teldata
Communications Ltd., Total Control Products, Inc., RF Power Products, Inc.,
Corcom, Inc., Astec, Electronic Specialty Corp., Melcher Group, Altron, and
Sigma Circuits, Inc. For each of the comparable transactions, Houlihan
calculated, among other things, total transaction value as a multiple of sales,
book value and earnings; and analyzed premiums paid for acquisition of
controlling interests over the market price of minority interests prior to the
announcement of the sale of the subject company.
On a controlling interest basis, multiples of transaction price-to-revenue
ranged from 0.3 times to 2.4 times. The median transaction price-to-revenue
multiple for the group was 1.1 times. Multiples of transaction price-to-book
value ranged from 1.7 times to 9.6 times for the companies in the comparable
group. The median transaction price-to-book multiple for the group was 2.7
times.
The multiples derived from this analysis were adjusted to reflect differences
between the sample group and EFI. The median sample group price-to-book ratio
was discounted 5% to reflect the marketability differences of the sample group
companies and EFI, such differences resulting primarily from the Company's lack
of historical profitability. The resulting adjusted price-to-book ratio of 2.57
yielded an implied equity value of the Company on a controlling interest basis
of $3.9 million. The median sample group price-to-revenue ratio was discounted
45% to reflect the Company's lack of profitability. The resulting price-to-
revenue ratio of .62 times resulted in an implied equity value for EFI on a
controlling interest basis of $7.6 million.
Houlihan noted, however, that the reasons for and the circumstances surrounding
the comparable transactions were specific to each transaction. Because of the
inherent differences between the business, operations and prospects of the
Company and the businesses, operations and prospects of the companies in the
comparable transactions group, Houlihan concluded that it was inappropriate to
rely solely on the quantitative results of the analysis. Accordingly, Houlihan
also made qualitative judgments concerning differences between the
characteristics of the comparable transactions and the Merger that would affect
the acquisition values of the Company and such acquired companies.
RELEVANT MARKET AND ECONOMIC FACTORS
In rendering its opinion, Houlihan considered, among other factors, the
condition of the U.S. stock markets, particularly as it relates to the
electronics manufacturing industry, and the current level of economic activity.
Houlihan also considered the trends of consolidations in this industry and the
potential impact of such consolidations on EFI's future operations.
No company used in the analysis of selected publicly-traded companies or any
transaction used in the analysis of selected transactions summarized above is
identical to EFI. Accordingly, such analyses must take into consideration
differences in the financial and operating characteristics of the industry
sample group, differences in the selected transactions and other factors that
would affect the public trading value and acquisition value of such companies
and industry groups.
While the foregoing summary describes the analyses and factors that Houlihan
deemed material for presentation to the EFI Board of Directors, it is not a
comprehensive description of all analyses and factors considered by Houlihan.
The preparation of a fairness opinion is a complex process involving various
determinations as to the most appropriate and relevant methods of financial
analysis and the applications of these methods to the particular circumstances
and, therefore, such an opinion is not readily susceptible to summary
description. Houlihan believes
22
<PAGE> 31
that its analyses must be considered as a whole and that selecting portions of
its analyses and of the factors considered by it, without considering all
analyses and factors, would create an incomplete view of the evaluation process
underlying the Houlihan opinion. In performing its analyses, Houlihan considered
general economic, market and financial conditions and other matters, many of
which are beyond the control of EFI. The analyses performed by Houlihan are not
necessarily indicative of actual values or future results, which may be
significantly more or less favorable than those suggested by such analyses.
Accordingly, such analyses and estimates are inherently subject to substantial
uncertainty. Additionally, analyses relating to the value of a business do not
purport to be appraisals or to reflect the prices at which the business may
actually be sold.
CONCLUSION OF HOULIHAN
Based upon the foregoing, it is the opinion of Houlihan that the merger
consideration proposed to be paid by Square D is fair, from a financial point of
view, to the stockholders of EFI.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
- --------------------------------------------------------------------------------
The following discussion summarizes certain United States federal income tax
consequences of the Merger that are generally applicable to holders of the
Common Stock. This discussion is not a complete analysis of all potential tax
effects relevant to a decision whether to vote in favor of the Merger Agreement.
The following discussion is based upon the Internal Revenue Code of 1986, as
amended (the "Code"), existing and proposed Treasury regulations promulgated
thereunder, rulings, administrative pronouncements and judicial decisions, all
as of the date hereof, changes to which could materially affect the tax
consequences described herein and could be made on a retroactive basis. This
discussion does not address all aspects of United States federal income taxation
that may be applicable to a stockholder based on such holder's particular
circumstances and does not address any aspect of state, local or foreign tax
laws. The following discussion is generally only applicable to those holders of
the Common Stock who hold their shares of the Common Stock as "capital assets"
within the meaning of Section 1221 of the Code (generally, assets held for
investment) and may not apply to holders who acquired the Common Stock pursuant
to the exercise of employee stock options or other compensation arrangements
with the Company, holders that are subject to special tax treatment (such as
foreign persons, broker-dealers, insurance companies, tax-exempt organizations,
financial institutions, certain holders subject to the alternative minimum tax
provisions of the Code and regulated investment companies), or holders that hold
the Common Stock as part of a "straddle," "hedge," or "conversion transaction."
In addition, the following discussion does not address the tax consequences of
transactions effectuated prior or subsequent to, or concurrently with, the
Merger (whether or not any such transactions are undertaken in connection with
the Merger), or the tax consequences of the exercise of any option, warrant or
similar right to acquire the Common Stock and the subsequent sale of the Common
Stock or the cancellation of any such options, warrants or other rights to
acquire the Common Stock in exchange for cash or otherwise.
CONSEQUENCES TO HOLDERS OF THE COMMON STOCK
The Merger is not intended to constitute a tax-free reorganization. As such, a
holder of the Common Stock will recognize gain or loss equal to the difference
between the amount of cash received in the Merger and the holder's basis in the
shares of the Common Stock exchanged.
23
<PAGE> 32
BACKUP WITHHOLDING AND INFORMATION REPORTING
Payments of cash to a holder surrendering shares of the Common Stock may be
subject to information reporting and "backup" withholding at a rate of 31% of
the cash payable to the holder. Backup withholding will not apply, however, to a
holder who furnishes a correct taxpayer identification number and certifies that
such holder is not subject to backup withholding on the substitute Form W-9
included in the transmittal letter, who provides a certificate of foreign status
on Form W-8, or who is otherwise exempt from backup withholding. Any amounts
withheld from payments to a holder under the backup withholding rules generally
will be allowed as a credit against the holder's United States federal income
tax liability.
THE PRECEDING DISCUSSION DOES NOT PURPORT TO BE A COMPLETE ANALYSIS OR
DISCUSSION OF ALL POTENTIAL TAX EFFECTS RELEVANT TO A DECISION WHETHER TO VOTE
IN FAVOR OF THE MERGER AGREEMENT OR THE MERGER. THUS, EFI STOCKHOLDERS ARE URGED
TO CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF
THE MERGER, INCLUDING TAX RETURN REPORTING REQUIREMENTS, THE APPLICABILITY AND
EFFECT OF FEDERAL, STATE, LOCAL, FOREIGN AND OTHER APPLICABLE TAX LAWS AND THE
EFFECT OF ANY PROPOSED CHANGES IN THE TAX LAWS.
ACCOUNTING TREATMENT OF THE MERGER
- --------------------------------------------------------------------------------
The Merger will be accounted for by Square D under the purchase method of
accounting.
MANAGEMENT, OPERATIONS AND OWNERSHIP STRUCTURE FOLLOWING THE MERGER
- --------------------------------------------------------------------------------
Following the Merger, EFI will continue its operations as a wholly-owned
subsidiary of Square D. The directors of Merger Sub will become the directors of
EFI. The officers of EFI will remain officers of the surviving corporation after
the Merger.
APPRAISAL RIGHTS
- --------------------------------------------------------------------------------
Under Delaware law, you may be eligible to exercise appraisal or dissenters'
rights in connection with the Merger. If you elect to demand an appraisal of
your shares of the Common Stock, you will be paid the fair market value of your
shares. The fair market value of your shares of the Common Stock for this
purpose will not include any element of value arising from the accomplishment or
expectation of the Merger.
You are entitled to an appraisal of your shares of the Common Stock if (i) you
have not voted in favor of the Merger Agreement, and (ii) you have delivered to
the Company a written demand for an appraisal of your shares prior to the time
the vote is taken on the Merger Agreement at the Special Meeting. If you fail to
satisfy either of these requirements, you will lose the right to an appraisal.
Simply voting against the Merger Agreement will not constitute a demand for
appraisal rights.
All written demands for an appraisal must be addressed to Richard D. Clasen,
Chief Executive Officer, EFI Electronics Corporation at 1751 South 4800 West,
Salt Lake City, Utah 84104, and must be received prior to the vote of the
stockholders at the Special Meeting.
24
<PAGE> 33
The preceding discussion is not a complete statement of the law pertaining to
appraisal rights under Delaware law and is qualified in its entirety by the
applicable provisions of Delaware law. You should read the applicable provisions
of Delaware law attached hereto as Annex D.
PUBLIC TRADING MARKETS
- --------------------------------------------------------------------------------
The Common Stock is currently traded on the OTC Bulletin Board under the symbol
"EFIC." Upon consummation of the Merger, the Common Stock will no longer be
traded on the OTC Bulletin Board and will be deregistered under the Securities
and Exchange Act of 1934, as amended.
THE MERGER AGREEMENT
- --------------------------------------------------------------------------------
The following describes certain aspects of the proposed Merger, including
material provisions of the Merger Agreement. The following description of the
Merger does not purport to be complete and is qualified in its entirety by
reference to the Merger Agreement, which is attached as Annex A to this Proxy
Statement and is incorporated herein by reference. Holders of the Common Stock
are urged to read the Merger Agreement carefully. Capitalized terms used in this
section or elsewhere in this Proxy Statement but not defined in this Proxy
Statement shall have the meanings attributed to them in the Merger Agreement.
GENERAL; MERGER CONSIDERATION
The terms of the Merger are set forth in the Merger Agreement. The Merger
Agreement was approved by the EFI Board of Directors and signed by the parties
on March 20, 2000. Pursuant to the Merger Agreement, and on the terms and
conditions set forth in it, at the Effective Time (as defined below), Merger Sub
will be merged with and into EFI. EFI will be the surviving corporation in the
Merger (the "Surviving Corporation"). The Merger Agreement provides that, as a
result of the Merger, each share of the Common Stock issued and outstanding
immediately prior to the Effective Time (other than the Common Stock owned by
Square D or Merger Sub or as treasury stock held by EFI and dissenting shares)
shall be converted into the right to receive $1.50 in cash, without interest.
TREATMENT OF STOCK OPTIONS AND WARRANTS
STOCK OPTIONS--At the Effective Time, each option to purchase the Common Stock
shall, without any action on the part of the option holder, be canceled and
converted into the right to receive $1.50 less (i) the exercise price of such
option and (ii) applicable federal, state and local withholdings. The amounts
payable to any option holder will be paid as soon as reasonably practicable
following the Effective Time and will be reduced to the extent necessary to
prevent such payment from constituting a "parachute payment" under federal tax
law. In the Merger Agreement, EFI has agreed to obtain from option holders all
consents and acknowledgments that are necessary to cancel and terminate all
stock options, stock option plans and similar rights and plans.
WARRANTS--EFI currently expects that there will be no outstanding warrants on
the date of the Merger that are exercisable at less than $1.50 per share.
25
<PAGE> 34
CLOSING; EFFECTIVE TIME
The Closing of the Merger will take place within two business days following the
satisfaction or waiver of the conditions to the Merger set forth in the Merger
Agreement. Concurrently with the Closing, EFI and Square D will cause a
Certificate of Merger to be executed, acknowledged and filed with the Secretary
of State of the State of Delaware. The Merger will become effective at the time
the Certificate of Merger is duly filed or at such later time agreed to by the
parties and established under the Merger Agreement (the "Effective Time"). See
"The Merger Agreement--Conditions of the Proposed Merger."
CANCELLATION OF SHARES
At the Effective Time, the Common Stock will be canceled and will no longer be
outstanding and each certificate (a "Certificate") formerly representing shares
of the Common Stock will thereafter represent only the right to receive the
merger consideration.
SURRENDER OF CERTIFICATES
Prior to the Effective Time, Square D has agreed to designate a bank or trust
company to act as paying agent for the benefit of the holders of shares of the
Common Stock to receive the funds necessary to make payments to holders upon
surrender of the Certificates. Promptly following the consummation of the
Merger, the paying agent will send to all holders of the Common Stock a letter
of transmittal containing instructions concerning the surrender of the
Certificates. Upon surrender of a Certificate, a duly executed letter of
transmittal, and any other documents that may be reasonably requested by the
paying agent, the holder of such Certificate is entitled to receive in exchange
therefor the cash that such holder has the right to receive pursuant to the
provisions of the Merger Agreement, and the Certificate will then be canceled.
No interest will be paid or accrued on any amount payable upon surrender of the
Certificates.
PAYMENT TO OTHER THAN REGISTERED HOLDER
If payment of the merger consideration is to be made to a person other than a
registered holder, the surrendered Certificate must be properly endorsed or must
be otherwise in proper form for transfer. Additionally, the person who is to
receive payment must pay any transfer and other taxes required by reason of the
payment of the merger consideration to a person other than the registered holder
of the Certificate surrendered or shall have established to the satisfaction of
the Surviving Corporation that such tax either has been paid or is not
applicable.
TRANSFERS
At the Effective Time, the stock transfer books of EFI will be closed and
thereafter there will be no further registration of transfers of the Common
Stock on the records of EFI.
LOST, STOLEN OR DESTROYED CERTIFICATES
In the event any Certificate is lost, stolen or destroyed, upon the making of an
affidavit of that fact by the registered stockholder claiming such Certificate
to be lost, stolen or destroyed and, if required by Square D or the paying
agent, the posting by such stockholder of a bond in such reasonable amount as
Square D or the paying agent may direct as an indemnity against any claim that
may be made against them with respect to such Certificate, the paying agent will
pay in
26
<PAGE> 35
exchange for such lost, stolen or destroyed Certificate the cash such
stockholder is entitled to receive pursuant to the Merger Agreement.
REPRESENTATIONS AND WARRANTIES
MUTUAL REPRESENTATIONS AND WARRANTIES--The Merger Agreement contains various
representations and warranties of the parties relating to and including, among
other things:
- organization and similar corporate matters;
- authorization, execution, delivery, performance and enforceability of
the Merger Agreement and related matters;
- conflicts under governing documents, required consents or approvals,
and violations of any agreements or law;
- accuracy of information supplied in this Proxy Statement; and
- absence of brokers.
ADDITIONAL REPRESENTATIONS AND WARRANTIES OF EFI--EFI has made extensive and
detailed additional representations relating to, among other things:
- capitalization;
- filings with the Commission;
- financial statements;
- certain changes and events;
- compliance with laws and permits;
- the filing of tax returns and other tax matters;
- legal proceedings;
- employee matters, including those relating to the Employee Retirement
Income Security Act of 1974, as amended ("ERISA");
- worker safety laws;
- liabilities and product warranties;
- fair labor laws and other labor matters;
- intellectual property;
- ability of computers to process information in the year 2000 and leap
years;
- valid title to assets;
27
<PAGE> 36
- inapplicability of state corporate takeover statutes;
- accounts receivable;
- inventories;
- compliance with environmental laws;
- suppliers and customers;
- insurance;
- transactions with affiliates of EFI; and
- the opinion of EFI's financial advisor.
ADDITIONAL REPRESENTATIONS AND WARRANTIES OF SQUARE D--Square D has made
additional representations relating to the operations of Merger Sub.
CONDITIONS OF THE PROPOSED MERGER
MUTUAL CONDITIONS--The obligation of EFI, Square D or Merger Sub to complete the
Merger is subject to the following:
- the other parties' representations and warranties, subject to certain
materiality exceptions, being true and correct as of the date of the Effective
Time and the receipt of certificates to such effect;
- the performance in all material respects by the other parties of their
obligations under the Merger Agreement and the receipt of certificates to such
effect;
- the approval of the Merger Agreement by the requisite vote of the
holders of the Common Stock;
- no court or other government entity having enacted, issued, or
enforced any law, injunction or other order which has the effect of making the
Merger illegal; and
- the other parties having furnished such documents as have been
reasonably requested.
ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF SQUARE D AND MERGER SUB--In
addition, the obligations of Square D and Merger Sub under the Merger Agreement
are subject to:
- EFI's having obtained the consent of each person or government entity
whose consent is required in connection with the Merger, subject to materiality
limitations; and
- no material adverse change having occurred with respect to EFI and the
receipt of a certificate to that effect.
28
<PAGE> 37
TERMINATION; TERMINATION FEE
TERMINATION BY AGREEMENT OF BOTH PARTIES, OR BY EITHER PARTY UPON OCCURRENCE OF
CERTAIN EVENTS--The Merger Agreement may be terminated by the mutual written
consent of EFI and Square D. Additionally, either EFI or Square D may terminate
the Merger Agreement without penalty if any of the following occurs:
- any government entity shall have issued a final order or taken any
other final action permanently prohibiting the consummation of the Merger;
- the Merger Agreement is not approved by the requisite vote of the
stockholders of EFI; or
- the Merger shall not have been consummated on or before May 31, 2000,
unless the failure to consummate the Merger is the result of a material breach
of the Merger Agreement by the party seeking to terminate.
TERMINATION BY SQUARE D OR MERGER SUB--Square D or Merger Sub may terminate the
Merger Agreement if any of the following occurs:
- the board of directors of EFI, in breach of the requirements of the
Merger Agreement, shall not have recommended, or shall have resolved not to
recommend, or shall have qualified or withdrawn its recommendation of, the
Merger Agreement to the stockholders of EFI;
- the board of directors of EFI, in breach of the restriction set forth
in the Merger Agreement, shall have recommended to the stockholders of EFI a
Takeover Proposal (as defined below) or shall have resolved to do so; or
- a tender offer or exchange offer for 20% or more of the capital stock
of EFI is commenced, and the board of directors of EFI fails to recommend
against acceptance of such tender offer or exchange offer by the stockholders of
EFI.
If the Merger Agreement is terminated for one of the reasons described in the
three preceding bulleted paragraphs, EFI must pay Square D a $400,000
termination fee, and reimburse Square D and Merger Sub for their expenses
incurred in connection with the Merger Agreement (not to exceed $150,000).
Further, Square D or Merger Sub may terminate the Merger Agreement if either of
the following occurs:
- EFI shall have failed to perform in any material respect any of its
obligations under the Merger Agreement, and such failure has not been cured
within 20 business days after receipt of written notice; or
- subject to materiality limitations, EFI shall have breached any
representation or warranty contained in the Merger Agreement, and such breach
has not been cured within 20 business days of receipt of written notice.
If the Merger Agreement is terminated for one of the reasons set forth in the
two preceding bulleted paragraphs and at the time of termination of a Takeover
Proposal has been made, EFI must do both of the following:
29
<PAGE> 38
- reimburse Square D and Merger Sub for their expenses incurred in
connection with the Merger Agreement (not to exceed $150,000); and
- pay Square D a $400,000 termination fee if, within twelve months after
termination, EFI enters into a merger agreement or similar agreement with
respect to a Takeover Proposal, or consummates a transaction relating to a
Takeover Proposal (as defined in the Merger Agreement), other than with third
parties that did not communicate with EFI, and with whom EFI did not
communicate, about such alternative proposal or transaction prior to termination
of the Merger Agreement. For purposes of the Merger Agreement, a "Takeover
Proposal" means any proposal for a merger or other business combination
involving EFI or any of its subsidiaries or any proposal or offer to acquire in
any manner, directly or indirectly, an equity interest in, any voting securities
of, or a substantial portion of the assets of EFI or any of its subsidiaries
(other than the transactions contemplated by the Merger Agreement).
TERMINATION BY EFI--Provided that EFI has complied with all the provisions of
the Merger Agreement relating to Takeover Proposals, EFI may terminate the
Merger Agreement if all of the following occur:
- the Board of Directors of EFI reasonably determines that a Takeover
Proposal by a third party is a "Superior Proposal" (as defined below);
- a majority of the board of directors of EFI determines, in good faith
and after consultation with independent counsel, that failing to terminate the
Merger Agreement would constitute a breach of the fiduciary duties of the board
of directors; and
- EFI gives 72 hours written notice of the board's determination to
Square D prior to termination.
If EFI terminates the Merger Agreement as described in the three preceding
bulleted paragraphs, EFI must pay Square D a $400,000 termination fee, and
reimburse Square D and Merger Sub for their expenses incurred in connection with
the Merger Agreement (not to exceed $150,000). For purposes of the Merger
Agreement, a "Superior Proposal" means a bona fide proposal made by a third
party to acquire EFI pursuant to a tender or exchange offer, a merger, a sale of
all or substantially all of its assets or otherwise, on terms which a majority
of the members of the board of directors of EFI determines in its reasonable
good faith judgment to be more favorable to EFI's stockholders than the Merger,
and for which financing (to the extent required), is then committed or which, in
the reasonable good faith judgment of a majority of such members, is reasonably
capable of being obtained by such third party.
EFI may also terminate the Merger Agreement, without penalty, if either of the
following occurs:
- Square D or Merger Sub shall have failed to perform in any material
respect any of its obligations under the Merger Agreement, and such failure has
not been cured within 20 business days after receipt of written notice; or
- subject to materiality limitations, Square D or Merger Sub shall have
breached any representation or warranty contained in the Merger Agreement, and
such breach has not been cured within 20 business days of receipt of written
notice.
30
<PAGE> 39
AGREEMENT NOT TO SOLICIT OTHER OFFERS
Under the Merger Agreement, EFI has agreed not to, and to not permit any of its
subsidiaries, or any of its subsidiaries' officers, directors, employees,
financial advisors, attorneys or other advisors or representatives to do any of
the following:
- solicit, initiate or encourage the submission of any Takeover
Proposal;
- enter into any agreement with respect to or approve or recommend any
Takeover Proposal; or
- participate in any discussions or negotiations regarding, furnish any
person any information with respect to EFI or any of its subsidiaries in
connection with, or take any other action to facilitate, any Takeover Proposal.
However, EFI may comply with provisions of federal securities law relating to
tender or exchange offers, and, if the board of directors of EFI reasonably
determines that a Takeover Proposal constitutes a Superior Proposal (as defined
below), then, to the extent required by the fiduciary obligations of the board
of directors of EFI, EFI may, in response to an unsolicited Takeover Proposal,
furnish information about EFI and its subsidiaries to a third party, and
participate in discussions or negotiations with such third party regarding such
Takeover Proposal.
EFI has further agreed to advise Square D orally and in writing of the material
terms of any Takeover Proposals received by EFI, and the identity of the person
making any such Takeover Proposal.
CONDUCT OF EFI'S BUSINESS PRIOR TO THE MERGER
EFI has agreed that after the date of the Merger Agreement until the Effective
Time it will operate its business, and cause each of its subsidiaries to operate
its business, consistently with past practice and in the ordinary course of
business. Further, EFI will not, nor will it permit any of its subsidiaries to
do any of the following:
- other than dividends paid by wholly-owned subsidiaries, declare, set
aside or pay any dividends on any of its capital stock; split, combine or
reclassify any of its capital stock or issue or authorize the issuance of any
other securities in respect of, in lieu of or in substitution for shares of its
capital stock; or purchase, redeem or otherwise acquire any shares of capital
stock of EFI or any other securities thereof or any rights, warrants or options
to acquire any such shares or other securities;
- issue, deliver, sell, pledge, dispose of or otherwise encumber any
shares of its capital stock, any other voting securities or equity equivalent or
any securities convertible into, or any rights, warrants or options to acquire
any such shares, voting securities, equity equivalent or convertible securities,
other than the issuance of the Common Stock upon the exercise of stock options
outstanding on the date of the Merger Agreement in accordance with their current
terms;
- amend its charter or by-laws;
- acquire or agree to acquire by merging or consolidating with, or by
purchasing a substantial portion of the assets of or equity in, or by any other
manner, any business or business organization or division thereof;
31
<PAGE> 40
- sell, lease or otherwise dispose of, or agree to sell, lease or
otherwise dispose of, any of its assets, other than sales of inventory that are
in the ordinary course of business consistent with past practice and sales of
assets having an aggregate fair market value of up to $25,000;
- incur any indebtedness for borrowed money, guarantee any such
indebtedness or make any loans, advances or capital contributions to, or other
investments in, any other person, other than (i) in the ordinary course of
business consistent with past practices and, in the case of indebtedness and
guarantees, in an amount not to exceed $150,000 and (ii) indebtedness, loans,
advances, capital contributions and investments between EFI and any of its
subsidiaries or between any of such subsidiaries, in each case in the ordinary
course of business consistent with past practice;
- alter (through merger, liquidation, reorganization, restructuring or
in any other fashion) the corporate structure or ownership of EFI or any
subsidiary;
- except as otherwise provided in the Merger Agreement, enter into or
adopt any, or amend any existing, severance plan, agreement or arrangement or
enter into or amend any employee or employment or consulting agreement;
- increase the compensation payable or to become payable to its
directors, officers or employees (except for increases in the ordinary course of
business consistent with past practice in salaries or wages of employees of EFI
or any of its subsidiaries who are not officers of EFI or any of its
subsidiaries) or grant any severance or termination pay to, or enter into any
employment or severance agreement with, any director or officer of EFI, or any
of its subsidiaries, or establish, adopt, enter into, or, except as may be
required to comply with applicable law, amend in any material respect or take
action to enhance in any material respect or accelerate any rights or benefits
under, any employee-related plan, policy or arrangement;
- knowingly violate or knowingly fail to perform any obligation or duty
imposed upon EFI or any subsidiary by any applicable material federal, state or
local law, rule, regulation, guideline or ordinance;
- make any change to accounting policies or procedures (other than
actions required to be taken by generally accepted accounting principles);
- prepare or file any tax return inconsistent with past practice or, on
any such tax return, take any position, make any election, or adopt any method
that is inconsistent with positions taken, elections made or methods used in
preparing or filing similar tax returns in prior periods;
- settle or compromise any federal, state, local or foreign income tax
dispute in excess of $25,000 or make any tax election;
- settle or compromise any claims or litigation in excess of $25,000 or
commence any litigation or proceedings;
- enter into or amend any agreement or contract (i) having a remaining
term in excess of 12 months or (ii) which involves or is expected to involve
future payments by EFI of $50,000 or more or future payments to EFI of $100,000
or more during the term thereof;
32
<PAGE> 41
- purchase any real property, or make or agree to make any new capital
expenditure or expenditures (other than the purchase of real property) which in
the aggregate are in excess of $50,000;
- pay any claims, liabilities or obligations other than the payment of
any such claims, liabilities or obligations, in the ordinary course of business
consistent with past practice or in accordance with their terms; or
- authorize, recommend, propose or announce an intention to do any of
the foregoing, or enter into any contract, agreement, commitment or arrangement
to do any of the foregoing.
CERTAIN OTHER COVENANTS AND AGREEMENTS
THIRD PARTY STANDSTILL AGREEMENTS--EFI has agreed that, from the date of the
Merger Agreement until the Effective Time, it will not terminate, modify or
waive any provision of any standstill agreement to which EFI or any of its
subsidiaries is a party, and will enforce the provisions of any such agreements
to the fullest extent permitted under law.
ACCESS TO INFORMATION--Between the date of the Merger Agreement and the
Effective Time, EFI will, and will cause each of its subsidiaries to:
- provide Square D and its representatives reasonable access to, and the
opportunity to inspect, their properties, books, and records;
- furnish Square D such information as Square D may reasonably request,
and a copy of all documents filed during this period pursuant to federal and
state securities laws; and
- make available to Square D knowledgeable personnel of EFI during
inspections by Square D.
REASONABLE BEST EFFORTS--Each party to the Merger Agreement has agreed to use
its reasonable best efforts to take all actions and do all things necessary to
consummate the Merger and the other transactions contemplated by the Merger
Agreement.
PUBLIC ANNOUNCEMENTS--Except as may be required by law, neither EFI nor Square D
will issue press releases or public statements regarding the Merger Agreement
without prior consultation with the other party.
STATE TAKEOVER LAWS--If any state "fair price," "business combination" or
"control share acquisition" statute becomes applicable to any of the
transactions contemplated by the Merger Agreement, EFI and Square D, and their
respective boards of directors, shall use their reasonable best efforts to grant
the necessary approvals and take such actions as are necessary to ensure that
such transactions may be consummated as promptly as practicable on the terms
contemplated by the Merger Agreement, and to otherwise act to minimize the
effects of such statute or regulation on such transactions.
INDEMNIFICATION OF DIRECTORS AND OFFICERS; DIRECTORS AND OFFICERS'
INSURANCE--Pursuant to the Merger Agreement, Square D will cause the Surviving
Corporation to indemnify and hold harmless all past and present officers and
directors of EFI and its subsidiaries to the same extent and in the same manner
that such persons are indemnified as of March 20, 2000 by EFI pursuant
33
<PAGE> 42
to Delaware Law, EFI's Certificate of Incorporation and EFI's Bylaws for acts or
omissions occurring at or prior to the time the Merger is consummated.
Further, in the Merger Agreement, Square D has agreed to cause the Surviving
Corporation to provide EFI's directors and officers, for an aggregate of not
less than 5 years from the date the Merger is consummated, an insurance and
indemnification policy that provides coverage for events occurring prior to the
time the Merger is consummated which is substantially similar to EFI's existing
policy or, if substantially equivalent insurance coverage is unavailable, the
best available coverage.
COMPANY INDEBTEDNESS--EFI shall repay, promptly after the Effective Time,
certain debt obligations of EFI, unless prior thereto EFI shall have obtained
the consent of the parties to such obligations necessary to consummate the
transactions contemplated by the Merger Agreement.
NOTIFICATION OF CERTAIN MATTERS--The Merger Agreement obligates EFI to give
prompt notice to Square D, and Square D to give prompt notice to EFI, of:
- the occurrence or nonoccurrence of any event the occurrence or
nonoccurrence of which would be reasonably likely to cause (i) any
representation or warranty contained in the Merger Agreement and made by such
party to be untrue or inaccurate in any material respect, or (ii) any covenant,
condition or agreement contained in the Merger Agreement and made by such party
not to be complied with or satisfied in all material respects;
- any failure of such party to comply in a timely manner with or satisfy
any covenant, condition or agreement to be complied with or satisfied by it
under the Merger Agreement; or
- any change or event which would be reasonably likely to have a
material adverse effect on EFI.
EXPENSES OF TRANSACTION--Except as described in the paragraph entitled
"Termination; Termination Fee," which begins on page 29 of this Proxy Statement,
all costs and expenses incurred in connection with the Merger Agreement shall be
paid by the party incurring such costs and expenses.
AMENDMENT--The Merger Agreement may be amended by written agreement of the
parties as authorized by their respective boards of directors, notwithstanding
approval of the Merger Agreement by the parties' stockholders, except that after
such approval no amendment shall be made which by law requires further approval
by such stockholders without such further approval.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain officers and directors of EFI have interests in the Merger that are in
addition to the interests of the stockholders of EFI generally. These interests
are described below.
RICHARD CLASEN SEPARATION AGREEMENT AND GENERAL RELEASE--On March 20, 2000, EFI
and Richard Clasen, the President, Chief Executive Officer and a director of
EFI, entered into a separation and release agreement that will take effect upon
the completion of the Merger. This agreement provides that, on the day following
completion of the Merger, Mr. Clasen's employment with EFI will terminate and
EFI will pay Mr. Clasen 18 months severance pay in the amount of $270,816 plus
$15,624 in lieu of accrued vacation pay. Under the agreement, EFI will
34
<PAGE> 43
continue to permit Mr. Clasen to participate in EFI's medical plan, pay an
outplacement service provider up to $10,000 for outplacement services for Mr.
Clasen, and waive Mr. Clasen's obligation to repay EFI $24,089 for an advanced
bonus (but such amount shall be offset against the bonus, if any, payable to Mr.
Clasen for fiscal year 2000).
Additionally, the agreement provides that Mr. Clasen will repay certain debts to
the Company with the proceeds from the Common Stock that he owns. Promptly
following the completion of the Merger, Mr. Clasen will (i) surrender to EFI
stock certificates representing 100,000 shares of the Common Stock in repayment
of his debt to EFI in the amount of $189,281.25 (as of the date of the Merger
Agreement), pursuant to his promissory note dated October 4, 1994 in favor of
EFI in the original principal amount of $150,000; and (ii) surrender to EFI
stock certificates representing 66,666 shares of the Common Stock in repayment
of his debt to EFI in the amount of $69,100 (as of the date of the Merger
Agreement), pursuant to his promissory note dated December 4, 1996 in favor of
EFI in the original principal amount of $60,000. With regard to the second
promissory note, EFI will pay Mr. Clasen the merger consideration with respect
to the 66,666 surrendered shares, less the principal amount and accrued interest
on such note.
Under the agreement, Mr. Clasen releases EFI from all claims arising on or
before the day following the completion of the Merger and agrees to be
reasonably available to respond to information requests of EFI and Square D for
2 years after the completion of the Merger. Further, the agreement provides that
Mr. Clasen and EFI will not disparage or damage the reputation of one another.
The agreement supersedes any other agreements or policies related to Mr.
Clasen's termination of employment with EFI. The agreement will be void if the
Merger is not completed.
RICHARD CLASEN CONSULTING AGREEMENT--On March 20, 2000, EFI and Richard Clasen
entered into a consulting agreement that will take effect upon the completion of
the Merger. Under the agreement, EFI will pay Mr. Clasen an annual base
consulting fee of $100,000 for one year. In return, Mr. Clasen will, for 1 year,
provide consulting services to EFI (but Mr. Clasen shall not be required to
provide more than 100 hours of consulting services during the year, nor more
than 50 hours of consulting services during any 3-month period during the year),
keep confidential the proprietary information of EFI, and not compete with the
business or recruit the employees of EFI. Additionally, in the agreement Mr.
Clasen assigns to EFI his rights in any inventions he may develop during the
one-year consulting period. The agreement may be terminated by Mr. Clasen upon
30 days written notice, or by EFI upon Mr. Clasen's breach of the agreement. The
agreement will be void if the Merger is not completed.
DAVID BEVAN SEPARATION AGREEMENT AND GENERAL RELEASE; CONFIDENTIALITY &
NON-COMPETE AGREEMENT--Effective as of January 18, 2000, EFI and David G. Bevan,
the former Executive Vice President and Chief Financial Officer of EFI, entered
into a separation and release agreement and a confidentiality and non-compete
agreement. Under the separation and release agreement, EFI agreed, among other
things, to pay Mr. Bevan $89,088, paid out in semi-monthly payments beginning on
January 18, 2000 and ending September 30, 2000. In return, Mr. Bevan agreed,
among other things, to keep confidential the proprietary information of EFI, not
to compete against EFI's business, and to cooperate with EFI in any effort it
may take to protect trade secrets developed by Mr. Bevan. The separation and
release agreement provides that if certain change of control events occur
(including the Merger) prior to September 30, 2000, EFI must pay Mr. Bevan the
unpaid balance of the $89,088 on the date such event is consummated. As of the
date of this Proxy Statement, approximately $64,343 of such amount is unpaid and
must be paid to Mr. Bevan on the date the Merger is completed.
35
<PAGE> 44
The separation and release agreement further provides that if certain change of
control events occur, including the Merger, EFI must pay Mr. Bevan, on the date
any such event is completed, (i) $25,000 plus (ii) the difference between $.875
and the selling price per share of stock paid by the new company to purchase
EFI, multiplied by 20,000 or a total of $12,500. These payments represent
payment for consulting services provided by Mr. Bevan in connection with the
Merger.
JOHN WORDEN EMPLOYMENT AGREEMENT--On March 20, 2000, EFI and John Worden, an
executive officer of the Company, entered into an employment agreement that will
take effect upon the completion of the Merger. Under this agreement, EFI will
pay Mr. Worden an annual base salary of not less than $132,000 (his current base
salary is $132,360 per year). EFI will also pay Mr. Worden a retention award in
the amount of $200,000 if Mr. Worden remains employed by EFI for 3 years
following the completion of the Merger, with $20,000 paid after the first year,
$20,000 paid after the second year and $160,000 paid after the third year. Mr.
Worden will also be entitled to participate in a proposed 3-year,
performance-based incentive plan, which, if adopted, could pay Mr. Worden as
much as 1 year's salary. Further, Mr. Worden will be eligible to participate in
the employee benefit plans available to executive employees of EFI, and will
continue his participation in EFI's annual incentive plan on the same terms as
he currently participates. In the agreement, the Company waives its right to
repayment of $19,188 in bonuses advanced to Mr. Worden (but such amount shall be
offset against the bonus, if any, payable to Mr. Worden for fiscal year 2000).
In the agreement, Mr. Worden has agreed that, during the 3-year term, and for
the earlier of 2 years thereafter or 2 years after the termination or
resignation of his employment with EFI, he will not (i) compete against the
business of EFI, (ii) solicit EFI customers with whom he had contact during his
employment with EFI, (iii) recruit employees of EFI, or (iv) disclose
proprietary information of EFI. Mr. Worden also releases the Company from all
past claims and agrees to be reasonably available to provide certain
information.
The agreement is terminable by EFI for cause if Mr. Worden is convicted of a
felony or certain other crimes, engages in dishonest or fraudulent acts, engages
in willful misconduct or gross negligence in carrying out his duties, breaches
the agreement or willfully violates EFI's policies. EFI may also terminate the
agreement without cause, but in such event must pay Mr. Worden a lump-sum
severance payment in an amount equal to the unpaid installments of the retention
award.
The agreement supersedes any other agreements between EFI and Mr. Worden. Mr.
Worden may resign his employment at any time, and if such resignation occurs
because of significant demotion, material breach by EFI or a forced relocation,
he will be entitled to receive the unpaid installments of the retention award.
The agreement will be void if the Merger is not completed.
HUBBELL SUPPLY AGREEMENT--As required by Square D and to induce Square D to
enter into the Merger Agreement, EFI and Hubbell, with which James Biggart (a
director of the Company) is affiliated, entered into a supply agreement on March
20, 2000. In this agreement, Hubbell agrees, among other things, to purchase
exclusively from EFI, for resale by Hubbell under the Hubbell name, certain TVSS
devices. EFI agreed, among other things, not to enter into certain OEM or
private label agreements relating to such TVSS devices. The agreement becomes
effective at the Effective Time, and terminates on August 31, 2002, unless
earlier terminated under the agreement or unless the term is extended.
STOCKHOLDER AGREEMENTS--On March 20, 2000, Richard Clasen, the Gaylord K. Swim
Family Living Trust, Greenwood Management Corporation, and Hubbell (the "Bound
Stockholders")
36
<PAGE> 45
entered into a stockholder agreement with Square D and Merger Sub. Pursuant to
this agreement, the Bound Stockholders, who hold an aggregate of 2,735,601
outstanding shares of the Common Stock, have agreed to vote (i) in favor of the
Merger Agreement, (ii) against any merger agreement or merger (other than the
Merger Agreement and the Merger), consolidation, combination, sale of
substantial assets, reorganization, recapitalization, dissolution, liquidation,
winding up, or other takeover proposal, and (iii) against any amendment of EFI's
Certificate of Incorporation or Bylaws or any other proposal or transaction
which would impede or prevent the Merger or the Merger Agreement. The Bound
Stockholders have also agreed not to transfer any interest in their shares of
the Common Stock that are subject to the stockholder agreement prior to
completion of the Merger, and not to enter into any voting arrangement in
connection with any Takeover Proposal.
PAYMENT OF CERTAIN INDEBTEDNESS--As of March 20, 2000, EFI owes Greenwood II,
Ltd. (i) $300,000 pursuant to a promissory note dated February 14, 1997 in the
original principal amount of $500,000, and (ii) $600,000 pursuant to a
promissory note dated March 12, 1999 in the original principal amount of
$600,000. All of such indebtedness, plus a $30,000 loan fee in respect of the
second promissory note, will be paid in full promptly after the Merger is
completed. Gaylord Swim, a director and principal stockholder of EFI, is a
limited partner of Greenwood II, Ltd. Mr. Reino Kerttula, also a director of the
Company, is employed by Swim Financial Corporation, an affiliate of Mr. Swim.
OPTIONS--Pursuant to the Merger Agreement, at the Effective Time, a total of
145,250 outstanding, non-vested options to purchase the Common Stock held by EFI
directors and executive officers, as listed on the table below, will vest and be
converted into the right to receive $1.50 per option less the exercise price for
each such option.
The following table shows the number of unvested options held by EFI executive
officers and directors whose vesting will accelerate as a result of the Merger,
and the amount of cash to be received on account of such options.
<TABLE>
<CAPTION>
Consideration to
Weighted Average Be Received upon
Exercise Price Cancellation of
Name Number of Options of Such Options Such Options
---- ----------------- --------------- ------------
<S> <C> <C> <C>
Richard D. Clasen 20,000 $0.875 $12,500.00
David G. Bevan* 36,250 $1.043 $16,562.50
John R. Worden 45,000 $1.083 $18,750.00
Reino Kerttula 44,000 $0.968 $17,408.00
</TABLE>
* Mr. Bevan is no longer an officer or director of the Company.
INDEMNIFICATION OF DIRECTORS AND OFFICERS--Pursuant to the Merger Agreement,
Square D will cause the Surviving Corporation to indemnify and hold harmless all
past and present officers and directors of EFI and its subsidiaries to the same
extent and in the same manner that such persons are indemnified as of March 20,
2000 by EFI pursuant to Delaware law, EFI's Certificate of Incorporation and
EFI's Bylaws for acts or omissions occurring at or prior to the time the Merger
is completed.
Further, in the Merger Agreement, Square D has agreed to cause the Surviving
Corporation to provide EFI's directors and officers, for an aggregate of not
less than 5 years from the date the Merger is completed, an insurance and
indemnification policy that provides coverage for events
37
<PAGE> 46
occurring prior to the time the Merger is completed which is substantially
similar to EFI's existing policy or, if substantially equivalent insurance
coverage is unavailable, the best available coverage.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- --------------------------------------------------------------------------------
The following beneficial ownership table sets forth information regarding
beneficial ownership of the Common Stock as of March 20, 2000 by:
- each person or entity who is known to EFI to own beneficially 5%
or more of the outstanding shares of the Common Stock;
- each director of EFI;
- EFI's chief executive officer and the four other most highly
compensated executive officers of EFI; and
- all executive officers and directors of EFI as a group.
Under the Securities and Exchange Act, a person is deemed to be a "beneficial
owner" of a security if he or she has or shares the power to vote or direct the
voting of the security or the power to dispose or direct the disposition of the
security. A person is also deemed to be a beneficial owner of any securities of
which that person has the right to acquire beneficial ownership in 60 days. More
than one person may be deemed to be a beneficial owner of the same securities.
The percentage ownership of each stockholder is calculated based on the total
number of outstanding shares of the Common Stock as of April 10, 2000 plus those
shares of the Common Stock that the stockholder has the right to acquire within
60 days. Consequently, the denominator for calculating the percentage ownership
may be different for each stockholder.
The table is based upon information provided by the directors and executive
officers. This table does not include presently unvested options that will vest
and be converted to cash as a result of the Merger (see "Interests of Certain
Persons in the Merger-Options" on page 34 above). The column titled "Exercisable
Options & Warrants" includes shares of the Common Stock that the stockholders
named in the table have the right to acquire within 60 days from April 10, 2000
upon exercise of options and warrants.
38
<PAGE> 47
<TABLE>
<CAPTION>
Amount and Nature of Beneficial
Ownership as of March 20, 2000(1)
----------------------------------------------------
Exercisable
Name and Address Common Options & Total
of Beneficial Owner Shares Warrants Ownership Percentage (2)
------------------- ------ -------- --------- --------------
<S> <C> <C> <C> <C>
GAYLORD K. SWIM * ........ 1,361,425(3) 20,000 1,381,425 24.7%
68 West 620 South
Orem, UT 84058
HUBBELL, INC ............. 1,054,044 76,065 1,130,109 20.0%
584 Derby-Milford Road
Orange, CT 06477-4024
RICHARD D. CLASEN *+ ..... 364,299(4) 141,667 505,966 8.8%
2073 Mahre Drive
Park City, UT 84098-8510
HANS IMHOF * ............. 250,000 -0- 250,000 4.5%
1215 Emerald Bay
Laguna Beach, CA 92651
JOHN R. WORDEN+ .......... 39,048 155,000 194,048 3.4%
4430 South Mathews Way
Salt Lake City, UT 84124
DAVID G. BEVAN(5) ........ 909 156,785 157,694 2.8%
1471 Wilton Way
Salt Lake City, UT 84124
JAMES H. BIGGART * ....... -0-(6) -0- -0- -0-
584 Derby-Milford Road
Orange, CT 06477-4024
REINO KERTTULA * ......... -0- -0- -0- -0-
4252 Sumac Court
Cedar Hills, UT 84062
All officers and directors 2,015,681(7) 473,452 2,489,133 41.1%
as a group (7 persons)
</TABLE>
(+) OFFICER OF THE COMPANY (*) DIRECTOR OF THE COMPANY
- --------------------------------------------------------------------------------
(1) Unless otherwise indicated, each person identified in the table
has sole voting and investment power with respect to the Common
Stock beneficially owned by such person.
(2) Based on 5,575,638 shares outstanding plus individually
exercisable options and warrants unless noted otherwise.
(3) Includes 505,567 shares held by Mr. Swim as trustee of the
Gaylord K. Swim Trust, 24,167 shares held by Swim Financial
Corporation, of which Mr. Swim is an executive officer, director
and majority owner, 20,000 shares held by a charitable trust of
which Mr. Swim is a trustee, and 811,691 shares held by
Greenwood Management Corporation, which is a general partner in
Greenwood II, Ltd., and 20,000 warrants held by Greenwood II,
Ltd., in which Mr. Swim is a limited partner.
(4) Includes 123,748 shares held jointly by Mr. Clasen and his
spouse, Barbara J. Clasen.
(5) Mr. Bevan is no longer an officer or director of the Company.
(6) Does not include 1,054,044 shares held by Hubbell, Inc. with
which Mr. Biggart is affiliated, but as to which beneficial
ownership is disclaimed by Mr. Biggart.
(7) The shares which may be acquired by officers and directors
pursuant to outstanding options have been deemed to be
outstanding for the purpose of computing the percentage of the
class owned by each named holder thereof and by all officers and
directors as a group.
39
<PAGE> 48
MISCELLANEOUS
- --------------------------------------------------------------------------------
INDEPENDENT ACCOUNTANTS
Grant Thornton LLP, independent certified public accountants, are the
independent accountants for EFI. The financial statements of EFI presented in
the Company's Annual Report on Form 10-KSB for the fiscal year ended March 31,
1999, which are incorporated by reference in this Proxy Statement, have been
audited by Grant Thornton LLP, to the extent and for the periods indicated in
their report thereon. Representatives of Grant Thornton LLP are expected to be
present at the Special Meeting, will have the opportunity to make a statement
and will be available to respond to appropriate questions.
DATE FOR SUBMISSION OF STOCKHOLDER PROPOSALS
In the event the Merger is not consummated for any reason, stockholder proposals
intended for inclusion in the proxy statement and form of proxy relating to the
Company's 2000 annual meeting of stockholders must have been received by the
Company not later than February 20, 2000, pursuant to the proxy soliciting
regulations of the Commission. No stockholder proposals were received by the
Company prior to that date. Nothing in this paragraph shall be deemed to require
the Company to include in its proxy statement and form of proxy for such meeting
any stockholder proposal which does not meet the requirements of the Commission
in effect at the time.
AVAILABLE INFORMATION
EFI files annual, quarterly and special reports, proxy statements and other
information with the Commission. You may read and copy any reports, statements
or other information EFI files at the Commission's public reference rooms in
Washington, D.C., New York, New York and Chicago, Illinois. Please call the
Commission at 1-800-SEC-0330 for further information on the public reference
rooms. EFI's filings are also available to the public from commercial document
retrieval services and at the web site maintained by the SEC at
"http://www.sec.gov."
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
The following are or may constitute forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995:
(a) certain statements concerning possible or assumed future results of
operations of EFI, including statements contained in "The Merger--Background of
the Merger," "The Merger--Reasons for the Merger" and "The Merger--Opinion of
EFI's Financial Advisor," including any forecasts or projections referred to in
this Proxy Statement, and certain statements incorporated by reference from
documents filed with the Commission by EFI, including any statements contained
in this Proxy Statement, or in the documents incorporated herein by reference,
regarding the development of possible or assumed future results of operations of
EFI's businesses, the markets for EFI's services and products, anticipated
capital expenditures, regulatory developments, competition or the effects of the
Merger;
(b) any statements preceded by, followed by or that include the words
"believes," "expects," "anticipates," "intends" or similar expressions contained
in the sections of this Proxy Statement cited above or incorporated herein; and
40
<PAGE> 49
(c) other statements contained or incorporated by reference in this Proxy
Statement regarding matters that are not historical facts.
Because such statements are subject to risks and uncertainties, actual results
may differ materially from those expressed or implied by such forward-looking
statements. EFI's stockholders are cautioned not to place undue reliance on such
statements, which speak only as of the date of this Proxy Statement or, in the
case of EFI's documents incorporated by reference, the date of such documents.
All subsequent written and oral forward-looking statements attributable to EFI
or persons acting on its or their behalf are expressly qualified in their
entirety by the cautionary statements contained or referred to in this section.
EFI does not undertake any obligation to release publicly any revisions to such
forward-looking statements to reflect events or circumstances after the date of
this Proxy Statement or to reflect the occurrence of unanticipated events.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Commission allows EFI to "incorporate by reference" information into this
Proxy Statement, which means that EFI can disclose important information to you
by referring you to another document filed separately with the Commission. The
information incorporated by reference is deemed to be part of this Proxy
Statement, except for any information superseded by information in this Proxy
Statement. This Proxy Statement incorporates by reference the documents set
forth below that EFI has previously filed with the Commission under file number
0-15967. These documents contain important information about EFI and its
finances.
(1) EFI's Annual Report on Form 10-KSB for the fiscal year ended March 31, 1999.
(2) EFI's Quarterly Report on Form 10-QSB for the quarter ended June 30, 1999.
(3) EFI's Quarterly Report on Form 10-QSB for the quarter ended September 30,
1999.
(4) EFI's Quarterly Report on Form 10-QSB for the quarter ended December 31,
1999.
EFI is also incorporating by reference all additional documents that it files
with the Commission pursuant to Sections 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934 between the date of this Proxy Statement and the
date of the Special Meeting. Any statement made in this Proxy Statement or
incorporated by reference into this Proxy Statement will be modified or
superseded to the extent any document subsequently filed by EFI with the
Commission does so. Copies of any documents (without exhibits) incorporated by
reference in this Proxy Statement are available without charge upon request from
Richard D. Clasen, Chief Executive Officer, EFI Electronics Corporation, 1751
South 4800 West, Salt Lake City, Utah 84104, telephone number (801) 977-9009.
If you are a stockholder, EFI may have sent you some of the documents
incorporated by reference, but you can obtain any of them through EFI or the
Commission. Documents incorporated by reference are available from EFI without
charge, excluding all exhibits unless EFI has specifically incorporated by
reference an exhibit in this Proxy Statement. If you would like to request
documents from EFI, please do so by April 25, 2000 to make sure you receive them
before the Special Meeting.
41
<PAGE> 50
NO PERSON HAS BEEN AUTHORIZED BY EFI TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROXY STATEMENT AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY EFI. THIS PROXY STATEMENT DOES NOT CONSTITUTE AN OFFER OR
SOLICITATION TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES. THE
DELIVERY OF THIS PROXY STATEMENT SHALL NOT, UNDER ANY CIRCUMSTANCES, IMPLY OR
CREATE ANY IMPLICATION THAT THERE HAVE NOT BEEN ANY CHANGES IN THE AFFAIRS OF
EFI OR IN THE INFORMATION SET FORTH OR INCORPORATED BY REFERENCE HEREIN
SUBSEQUENT TO THE DATE HEREOF.
42
<PAGE> 51
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
EFI ELECTRONICS CORPORATION
SPECIAL MEETING OF STOCKHOLDERS
MAY 12, 2000
The undersigned stockholder of EFI Electronics Corporation, a Utah
corporation (the "Company"), hereby acknowledges receipt of the Notice of
Special Meeting of Stockholders and Proxy Statement, each dated April 11, 2000,
and hereby appoints Richard D. Clasen and James A. Grada, and each of them,
proxies and attorneys-in-fact, with full power to each of substitution, on
behalf and in the name of the undersigned, to represent the undersigned at the
Special Meeting of Stockholders of EFI Electronics Corporation, to be held on
May 12, 2000, at 9:00 a.m., local time, at the Company's offices at 1751 South
4800 West, Salt Lake City, Utah 84104 and at any continuation(s) or
adjournment(s) thereof, and to vote all shares of the Common Stock that the
undersigned would be entitled to vote if then and there personally present on
the matters set forth herein and, in their discretion, upon such other matter or
matters that may properly come before the meeting and any adjournment(s)
thereof.
May 12, 2000, 9:00 a.m.
EFI Electronics Corporation
1751 South 4800 West
Salt Lake City, Utah 84104
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS
INDICATED, WILL BE VOTED FOR THE PROPOSAL TO APPROVE AND ADOPT THE AGREEMENT AND
PLAN OF MERGER, DATED AS OF MARCH 20, 2000 BY AND AMONG EFI ELECTRONICS
CORPORATION, SQUARE D COMPANY, AND SURGE SUB, INC., A WHOLLY-OWNED SUBSIDIARY OF
SQUARE D COMPANY, AND THE MERGER CONTEMPLATED THEREBY AND AS SAID PROXIES DEEM
ADVISABLE ON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING.
Please mark your votes as indicated in this example [X]
THE BOARD OF DIRECTORS RECOMMENDS VOTING "FOR" EACH OF THE FOLLOWING PROPOSALS.
<TABLE>
<S> <C> <C> <C>
1. Proposal to approve the Agreement and Plan FOR [ ] AGAINST [ ] ABSTAIN [ ]
of Merger, dated as of March 20, 2000,
by and among EFI Electronics Corporation,
Square D Company, and Surge Sub, Inc., a
wholly-owned subsidiary of Square D
Company, and the merger contemplated
thereby;
</TABLE>
2. The proxies are authorized to vote in their discretion upon such other
business as may properly come before the meeting.
I PLAN TO ATTEND THE MEETING YES [ ] NO [ ]
Signature(s) Date , 2000
-------------------------------------------- ---------
(This Proxy should be marked, dated, signed by the stockholder(s) exactly as his
or her name appears hereon, and returned promptly in the enclosed envelope.
Persons signing in a fiduciary capacity should so indicate. If shares are held
by joint tenants or as community property, both should sign).
43
<PAGE> 52
ANNEX A
AGREEMENT AND PLAN OF MERGER
AMONG
SQUARE D COMPANY
SURGE SUB INC.
AND
EFI ELECTRONICS CORPORATION
DATED AS OF MARCH 20, 2000
A-1
<PAGE> 53
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I ............................................................................................. A-5
THE MERGER .................................................................................... A-5
Section 1.1 The Merger ................................................................. A-5
Section 1.2 Effective Time ............................................................. A-6
Section 1.3 Effects of the Merger ...................................................... A-6
Section 1.4 Charter and Bylaws; Directors and Officers ................................. A-6
ARTICLE II ............................................................................................ A-6
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES ............................................ A-6
Section 2.1 Conversion of Securities ................................................... A-6
Section 2.2 Exchange of Certificates ................................................... A-7
Section 2.3 Further Assurances ......................................................... A-9
Section 2.4 Closing .................................................................... A-9
ARTICLE III ........................................................................................... A-9
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB .............................................. A-9
Section 3.1 Organization ............................................................... A-10
Section 3.2 Authority .................................................................. A-10
Section 3.3 Consents and Approvals; No Violations ...................................... A-10
Section 3.4 Information Supplied ....................................................... A-11
Section 3.5 Interim Operations of Sub. ................................................. A-11
Section 3.6 Brokers .................................................................... A-11
ARTICLE IV ............................................................................................ A-11
REPRESENTATIONS AND WARRANTIES OF THE COMPANY ................................................. A-12
Section 4.1 Organization, Standing and Power ........................................... A-12
Section 4.2 Capital Structure .......................................................... A-12
Section 4.3 Authority .................................................................. A-13
Section 4.4 Consents and Approvals; No Violation ....................................... A-13
Section 4.5 SEC Documents and Other Reports ............................................ A-14
Section 4.6 Information Supplied ....................................................... A-15
Section 4.7 Absence of Certain Changes or Events ....................................... A-15
Section 4.8 Permits and Compliance ..................................................... A-16
Section 4.9 Tax Matters ................................................................ A-16
Section 4.10 Actions and Proceedings ................................................... A-17
Section 4.11 Certain Agreements ........................................................ A-18
Section 4.12 ERISA ..................................................................... A-18
Section 4.13 Compliance with Worker Safety Laws ........................................ A-20
Section 4.14 Liabilities; Products ..................................................... A-20
Section 4.15 Labor Matters ............................................................. A-21
Section 4.16 Intellectual Property; Year 2000 .......................................... A-22
Section 4.17 Title to and Sufficiency of Assets ........................................ A-22
</TABLE>
A-2
<PAGE> 54
<TABLE>
<S> <C>
Section 4.18 State Takeover Statutes ................................................... A-23
Section 4.19 Required Vote of Company Stockholders ..................................... A-24
Section 4.20 Accounts Receivable ....................................................... A-24
Section 4.21 Inventories ............................................................... A-24
Section 4.22 Environmental Matters ..................................................... A-24
Section 4.23 Suppliers, Customers and Employees ........................................ A-26
Section 4.24 Insurance ................................................................. A-26
Section 4.25 Accuracy of Information ................................................... A-26
Section 4.26 Transactions with Affiliates .............................................. A-26
Section 4.27 Brokers ................................................................... A-27
Section 4.28 Opinion of Financial Advisor .............................................. A-27
ARTICLE V ............................................................................................. A-27
COVENANTS RELATING TO CONDUCT OF BUSINESS ..................................................... A-27
Section 5.1 Conduct of Business by the Company Pending the Merger ...................... A-27
Section 5.2 No Solicitation ............................................................ A-30
Section 5.3 Third Party Standstill Agreements .......................................... A-31
ARTICLE VI............................................................................................. A-31
ADDITIONAL AGREEMENTS ......................................................................... A-31
Section 6.1 Stockholder Meeting ........................................................ A-31
Section 6.2 Access to Information ...................................................... A-32
Section 6.3 Fees and Expenses .......................................................... A-32
Section 6.4 Stock Options .............................................................. A-33
Section 6.5 Reasonable Best Efforts .................................................... A-34
Section 6.6 Public Announcements ....................................................... A-35
Section 6.7 State Takeover Laws ........................................................ A-35
Section 6.8 Indemnification; Directors and Officers Insurance .......................... A-35
Section 6.9 Notification of Certain Matters ............................................ A-36
Section 6.10 Certain Agreements ........................................................ A-36
Section 6.11 Company Indebtedness ...................................................... A-36
ARTICLE VII ........................................................................................... A-36
CONDITIONS PRECEDENT TO THE MERGER ............................................................ A-36
Section 7.1 Conditions to Each Party's Obligation to Effect the Merger ................. A-36
Section 7.2 Conditions to Obligations of Parent and Sub to Effect the Merger ........... A-37
Section 7.3 Conditions to Obligation of the Company to Effect the Merger ............... A-38
ARTICLE VIII .......................................................................................... A-38
TERMINATION, AMENDMENT AND WAIVER ............................................................. A-39
Section 8.1 Termination ................................................................ A-39
Section 8.2 Effect of Termination ...................................................... A-40
Section 8.3 Amendment .................................................................. A-40
Section 8.4 Waiver ..................................................................... A-40
</TABLE>
A-3
<PAGE> 55
<TABLE>
<S> <C>
ARTICLE IX ............................................................................................ A-41
GENERAL PROVISIONS ............................................................................ A-41
Section 9.1 Non-Survival of Representations and Warranties ............................. A-41
Section 9.2 Notices .................................................................... A-41
Section 9.3 Interpretation ............................................................. A-42
Section 9.4 Counterparts ............................................................... A-43
Section 9.5 Entire Agreement; No Third-Party Beneficiaries ............................. A-43
Section 9.6 Governing Law .............................................................. A-43
Section 9.7 Assignment ................................................................. A-43
Section 9.8 Severability ............................................................... A-43
Section 9.9 Enforcement of this Agreement .............................................. A-44
EXHIBIT A ............................................................................................. A-46
EXHIBIT B ............................................................................................. A-72
EXHIBIT C ............................................................................................. A-79
</TABLE>
A-4
<PAGE> 56
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of March 20, 2000 (this
"Agreement"), by and among Square D Company, a Delaware corporation ("Parent"),
Surge Sub Inc., a Delaware corporation and a wholly-owned subsidiary of Parent
("Sub"), and EFI Electronics Corporation, a Delaware corporation (the "Company")
(Sub and the Company being hereinafter collectively referred to as the
"Constituent Corporations").
W I T N E S S E T H:
WHEREAS, the respective Boards of Directors of Parent, Sub and
the Company have approved the acquisition of the Company by Parent on the terms
and subject to the conditions set forth herein;
WHEREAS, in furtherance of such acquisition, the respective
Boards of Directors of Parent, Sub and the Company have each approved the merger
of Sub with and into the Company (the "Merger"), upon the terms and subject to
the conditions set forth in this Agreement, whereby each issued and outstanding
share of common stock of the Company, par value $.0001 per share (a "Share"),
other than Shares owned directly or indirectly by Parent or the Company and
dissenting Shares (as defined in Section 2.1(d)) will be converted into the
right to receive $1.50 per Share in cash;
WHEREAS, the Board of Directors of the Company has adopted
resolutions approving the Merger and recommending that the Company's
stockholders approve this Agreement and the Merger; and
WHEREAS, in order to induce Parent and Sub to enter into this
Agreement, concurrently herewith Parent and certain of the stockholders of the
Company are entering into Stockholder Agreements dated as of the date hereof
(the "Stockholder Agreements") in the forms of the attached Exhibit A.
NOW, THEREFORE, in consideration of the premises,
representations, warranties and agreements herein contained, the parties agree
as follows:
ARTICLE I
THE MERGER
Section 1.1 The Merger. Upon the terms and subject to the
conditions hereof, and in accordance with the General Corporation Law of the
State of Delaware, as amended (the "DGCL"), Sub shall be merged with and into
the Company at the Effective Time (as defined in Section 1.2). Following the
Merger, the separate corporate existence of Sub shall cease and the Company
shall continue as the surviving corporation (the "Surviving Corporation") and
shall succeed to and assume all the rights and obligations of Sub in accordance
with the DGCL.
A-5
<PAGE> 57
Notwithstanding anything to the contrary herein, at the election of Parent, any
direct wholly-owned Subsidiary (as hereinafter defined) of Parent may be
substituted for Sub as a constituent corporation in the Merger. In such event,
the parties agree to execute an appropriate amendment to this Agreement, in form
and substance reasonably satisfactory to Parent and the Company, in order to
reflect such substitution.
Section 1.2 Effective Time. The Merger shall become effective
when a certificate of merger (the "Certificate of Merger"), executed in
accordance with the relevant provisions of the DGCL, is filed with the Secretary
of State of the State of Delaware, or at such other time as Sub and the Company
shall agree shall be specified in the Certificate of Merger (the time the Merger
becomes effective being hereinafter referred to as the "Effective Time"). The
filing of the Certificate of Merger shall be made on the date of the Closing (as
defined in Section 2.4).
Section 1.3 Effects of the Merger. The Merger shall have the
effects set forth in the DGCL.
Section 1.4 Charter and Bylaws; Directors and Officers. (a) At
the Effective Time, the Restated and Amended Certificate of Incorporation of the
Company (the "Company Charter") shall be the Certificate of Incorporation of the
Surviving Corporation until thereafter changed or amended as provided therein or
by applicable law. At the Effective Time, the Amended and Restated Bylaws of the
Company, as in effect immediately prior to the Effective Time, shall be the
Bylaws of the Surviving Corporation until thereafter changed or amended as
provided therein or by the Company Charter.
(b) The directors of Sub at the Effective Time of the Merger
shall be the directors of the Surviving Corporation, until the earlier of their
resignation or removal or until their respective successors are duly elected and
qualified, as the case may be. The officers of the Company at the Effective Time
of the Merger shall be the officers of the Surviving Corporation, until the
earlier of their resignation or removal or until their respective successors are
duly elected and qualified, as the case may be.
ARTICLE II
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
Section 2.1 Conversion of Securities. As of the Effective Time,
by virtue of the Merger and without any action on the part of Sub, the Company
or the holders of any securities of the Constituent Corporations:
(a) Each issued and outstanding share of common stock, par value
$.01 per share, of Sub shall be converted into one validly issued, fully
paid and nonassessable share of Common Stock of the Surviving
Corporation.
A-6
<PAGE> 58
(b) All Shares that are held in the treasury of the Company or by
any wholly-owned Subsidiary of the Company and any Shares owned by
Parent or by any wholly-owned Subsidiary of Parent shall be canceled and
retired and shall cease to exist and no capital stock of Parent or other
consideration shall be delivered in exchange therefor.
(c) Each Share issued and outstanding immediately prior to the
Effective Time (other than shares to be canceled in accordance with
Section 2.1(b) and other than Dissenting Shares (as defined in Section
2.1(d)) shall be converted into the right to receive $1.50 in cash (the
"Merger Consideration"). All such Shares, when so converted, shall no
longer be outstanding and shall automatically be canceled and retired
and each holder of a certificate representing any such shares shall
cease to have any rights with respect thereto, except the right to
receive the Merger Consideration, without interest.
(d) Shares of Dissenting Stockholders. Notwithstanding anything
in this Agreement to the contrary, any issued and outstanding Shares
held by a person (a "Dissenting Stockholder") who objects to the Merger
and complies with all of the provisions of the DGCL concerning the right
of holders of Shares to dissent from the Merger and obtain payment for
their Shares ("Dissenting Shares") shall not be converted as described
in Section 2.1(c), but shall be converted into the right to receive such
consideration as may be determined to be due to such Dissenting
Stockholder pursuant to the DGCL. If, after the Effective Time, such
Dissenting Stockholder withdraws his demand for payment or fails to
perfect or otherwise loses his right of payment, in any case pursuant to
the DGCL, the Shares of such Dissenting Stockholder shall be deemed to
be converted as of the Effective Time into the right to receive the
Merger Consideration. The Company shall give Parent (i) prompt notice of
any demands for payment received by the Company and (ii) the opportunity
to participate in and direct all negotiations and proceedings with
respect to any such demands. The Company shall not, without the prior
written consent of Parent, make any payment with respect to, or settle,
offer to settle or otherwise negotiate, any such demands.
Section 2.2 Exchange of Certificates. (a) Paying Agent. Prior to
the Effective Time, Parent shall designate a bank or trust company (or such
other person or persons as shall be reasonably acceptable to Parent and the
Company) to act as paying agent in the Merger (the "Paying Agent"), and at the
Effective Time, Parent shall make available, or cause the Surviving Corporation
to make available, to the Paying Agent cash in the amount necessary for the
payment of the Merger Consideration upon surrender of certificates representing
Shares as part of the Merger pursuant to Section 2.1. Any and all interest
earned on funds made available to the Paying Agent pursuant to this Agreement
shall be paid over to Parent.
(b) Exchange Procedure. As soon as reasonably practicable after
the Effective Time, the Paying Agent shall mail to each holder of record of a
certificate or certificates that immediately prior to the Effective Time
represented Shares (the "Certificates"), (i) a letter of transmittal (which
shall specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to the Paying
Agent and shall be in
A-7
<PAGE> 59
a form and have such other provisions as Parent may reasonably specify) and (ii)
instructions for use in effecting the surrender of the Certificates in exchange
for the Merger Consideration. Upon surrender of a Certificate for cancellation
to the Paying Agent or to such other agent or agents as may be appointed by
Parent, together with such letter of transmittal, duly executed, and such other
documents as may reasonably be required by the Paying Agent, the holder of such
Certificate shall be entitled to receive in exchange therefor the amount of cash
into which the Shares theretofore represented by such Certificate shall have
been converted pursuant to Section 2.1, and the Certificate so surrendered shall
forthwith be canceled. In the event of a transfer of ownership of Shares that is
not registered in the transfer records of the Company, payment may be made to a
person other than the person in whose name the Certificate so surrendered is
registered, if such Certificate shall be properly endorsed or otherwise be in
proper form for transfer and the person requesting such payment shall pay any
transfer or other taxes required by reason of the payment to a person other than
the registered holder of such Certificate or establish to the satisfaction of
the Surviving Corporation that such tax has been paid or is not applicable.
Until surrendered as contemplated by this Section 2.2, each Certificate (other
than Certificates representing Dissenting Shares) shall be deemed at any time
after the Effective Time to represent only the right to receive upon such
surrender the amount of cash, without interest, into which the Shares
theretofore represented by such Certificate shall have been converted pursuant
to Section 2.1. No interest will be paid or will accrue on the cash payable upon
the surrender of any Certificate. Parent or the Paying Agent shall be entitled
to deduct and withhold from the consideration otherwise payable pursuant to this
Agreement such amounts as Parent or the Paying Agent is required to deduct and
withhold with respect to the making of such payment under the Code (as
hereinafter defined) or under any provisions of state, local or foreign tax law.
To the extent that amounts are so withheld by Parent or the Paying Agent, such
withheld amounts shall be treated for all purposes of this Agreement as having
been paid to the person in respect of which such deduction or withholding was
made by the Parent or the Paying Agent.
(c) No Further Ownership Rights in Shares. All cash paid upon the
surrender of Certificates in accordance with the terms of this Article II shall
be deemed to have been paid in full satisfaction of all rights pertaining to the
Shares theretofore represented by such Certificates. At the Effective Time, the
stock transfer books of the Company shall be closed, and there shall be no
further registration of transfers on the stock transfer books of the Surviving
Corporation of the Shares that were outstanding immediately prior to the
Effective Time. If, after the Effective Time, Certificates are presented to the
Surviving Corporation or the Paying Agent for any reason, they shall be canceled
and exchanged as provided in this Article II.
(d) Termination of Payment Fund. Any portion of the funds made
available to the Paying Agent to pay the Merger Consideration which remains
undistributed to the holders of Shares for six months after the Effective Time
shall be delivered to Parent, upon demand, and any holders of Shares who have
not theretofore complied with this Article II and the instructions set forth in
the letter of transmittal mailed to such holders after the Effective Time shall
thereafter look only to Parent for payment of the Merger Consideration to which
they are entitled.
A-8
<PAGE> 60
(e) No Liability. None of Parent, Sub, the Company or the Paying
Agent shall be liable to any person in respect of any cash delivered to a public
official pursuant to any applicable abandoned property, escheat or similar law.
If any Certificates shall not have been surrendered prior to seven years after
the Effective Time (or immediately prior to such earlier date on which any
payment pursuant to this Article II would otherwise escheat to or become the
property of any Governmental Entity (as hereinafter defined)), the cash payment
in respect of such Certificate shall, to the extent permitted by applicable law,
become the property of the Surviving Corporation, free and clear of all claims
or interests of any person previously entitled thereto.
(f) Lost Certificates. If any Certificate shall have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming such Certificate to be lost, stolen or destroyed and, if required by
Parent or the Paying Agent, the posting by such person of a bond, in such
reasonable amount as Parent or the Paying Agent may direct as indemnity against
any claim that may be made against them with respect to such Certificate, the
Paying Agent will pay in exchange for such lost, stolen or destroyed Certificate
the amount of cash to which the holders thereof are entitled pursuant to Section
2.1.
Section 2.3 Further Assurances. If at any time after the
Effective Time the Surviving Corporation shall consider or be advised that any
deeds, bills of sale, assignments or assurances or any other acts or things are
necessary, desirable or proper (a) to vest, perfect or confirm, of record or
otherwise, in the Surviving Corporation its right, title or interest in, to or
under any of the rights, privileges, powers, franchises, properties or assets of
either of the Constituent Corporations, or (b) otherwise to carry out the
purposes of this Agreement, the Surviving Corporation and its proper officers
and directors or their designees shall be authorized to execute and deliver, in
the name and on behalf of either of the Constituent Corporations, all such
deeds, bills of sale, assignments and assurances and to do, in the name and on
behalf of either Constituent Corporation, all such other acts and things as may
be necessary, desirable or proper to vest, perfect or confirm the Surviving
Corporation's right, title or interest in, to or under any of the rights,
privileges, powers, franchises, properties or assets of such Constituent
Corporation and otherwise to carry out the purposes of this Agreement.
Section 2.4 Closing. The closing of the transactions contemplated
by this Agreement (the "Closing") and all actions specified in this Agreement to
occur at the Closing shall take place at the offices of Sidley & Austin, Bank
One Plaza, 10 South Dearborn Street, Chicago, Illinois 60603, at 10:00 a.m.,
local time, no later than the second business day following the day on which the
last of the conditions set forth in Article VII shall have been fulfilled or
waived (if permissible) or at such other time and place as Parent and the
Company shall agree.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
Parent and Sub represent and warrant to the Company as follows:
A-9
<PAGE> 61
Section 3.1 Organization. Each of Parent and Sub is a corporation
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and has all requisite corporate power and
authority to carry on its business as now being conducted.
Section 3.2 Authority. On or prior to the date of this Agreement,
the Boards of Directors of Parent and Sub have declared the Merger advisable and
the Board of Directors of Sub has approved and adopted this Agreement in
accordance with the DGCL and the Parent has approved and adopted this Agreement
in its capacity as the sole stockholder of Sub. Each of Parent and Sub has all
requisite corporate power and authority to execute and deliver this Agreement
and the Stockholder Agreements and to consummate the transactions contemplated
hereby and thereby. The execution, delivery and performance by Parent and Sub of
this Agreement and the Stockholder Agreements and the consummation of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary corporate action (including Board action) on the part of Parent and
Sub subject, in the case of this Agreement, to the filing of the Certificate of
Merger as required by the DGCL. This Agreement and the Stockholder Agreements
have been duly executed and delivered by Parent and Sub, and (assuming the valid
authorization, execution and delivery of this Agreement by the Company, the
valid authorization, execution and delivery of the Stockholder Agreements by the
stockholders of the Company who are parties thereto and the validity and binding
effect hereof and thereof on the Company and such stockholders) this Agreement
and the Stockholders Agreements constitute the valid and binding obligation of
each of Parent and Sub enforceable against them in accordance with their
respective terms.
Section 3.3 Consents and Approvals; No Violations. Assuming that
all consents, approvals, authorizations and other actions described in this
Section 3.3 have been obtained and all filings and obligations described in this
Section 3.3 have been made, the execution and delivery of this Agreement and the
Stockholder Agreements do not, and the consummation of the transactions
contemplated hereby and thereby and compliance with the provisions hereof and
thereof will not, result in any violation of, or default (with or without notice
or lapse of time, or both) under, or give to others a right of termination,
cancellation or acceleration of any obligation or result in the loss of a
material benefit under, or result in the creation of any lien, security
interest, charge or encumbrance upon any of the properties or assets of Parent
or any of its Subsidiaries under, any provision of (i) the Certificate of
Incorporation or the By-Laws of Parent, each as amended to date, (ii) any
provision of the comparable charter or organization documents of any of Parent's
Subsidiaries, (iii) any loan or credit agreement, note, bond, mortgage,
indenture, lease or other agreement, instrument, permit, concession, franchise
or license applicable to Parent or any of its Subsidiaries or (iv) any judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to Parent
or any of its Subsidiaries or any of their respective properties or assets,
other than, in the case of clauses (iii) or (iv), any such violations, defaults,
rights, liens, security interests, charges or encumbrances that, individually or
in the aggregate, would not have a Material Adverse Effect (as defined in
Section 9.3(c)) on Parent, materially impair the ability of Parent or Sub to
perform their respective obligations hereunder or under the Stockholder
Agreements or prevent the consummation of any of the transactions
A-10
<PAGE> 62
contemplated hereby or thereby. No filing or registration with, or
authorization, consent or approval of, any domestic (federal and state), foreign
or supranational court, commission, governmental body, regulatory agency,
authority or tribunal (a "Governmental Entity") is required by or with respect
to Parent or any of its Subsidiaries in connection with the execution and
delivery of this Agreement or the Stockholder Agreements by Parent or Sub or is
necessary for the consummation of the Merger and the other transactions
contemplated by this Agreement or the Stockholder Agreements, except for (i) in
connection, or in compliance, with the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), (ii) the filing of the Certificate of Merger with
the Secretary of State of the State of Delaware and appropriate documents with
the relevant authorities of other states in which the Company or any of its
Subsidiaries is qualified to do business, (iii) such filings and consents as may
be required under any environmental, health or safety law or regulation
pertaining to any notification, disclosure or required approval triggered by the
Merger or by the transactions contemplated by this Agreement or the Stockholder
Agreements, (iv) such filings, authorizations, orders and approvals as may be
required by state takeover laws (the "State Takeover Approvals"), (v) applicable
requirements, if any, of state securities or "blue sky" laws ("Blue Sky Laws"),
(vi) as may be required under foreign laws and (vii) such other consents,
orders, authorizations, registrations, declarations and filings the failure of
which to be obtained or made would not, individually or in the aggregate, have a
Material Adverse Effect on Parent, materially impair the ability of Parent or
Sub to perform its obligations hereunder or under the Stockholder Agreements or
prevent the consummation of any of the transactions contemplated hereby or
thereby.
Section 3.4 Information Supplied. None of the information
supplied or to be supplied by Parent or Sub specifically for inclusion or
incorporation by reference in the proxy statement (together with any amendments
or supplements thereto, the "Proxy Statement") relating to any required approval
of this Agreement by the holders of at least a majority of the Shares entitled
to vote on the Merger (the "Company Stockholder Approval"), will, at the time
the Proxy Statement is first mailed to the Company's stockholders or at the time
of the Stockholder Meeting (as defined in Section 6.1), contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading.
Section 3.5 Interim Operations of Sub. Sub was formed solely for
the purpose of engaging in the transactions contemplated hereby, has engaged in
no other business activities and has conducted its operations only as
contemplated hereby.
Section 3.6 Brokers. No broker, investment banker, financial
advisor or other person is entitled to any broker's, finder's, financial
advisor's or other similar fee or commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
Parent or Sub.
ARTICLE IV
A-11
<PAGE> 63
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Sub as follows:
Section 4.1 Organization, Standing and Power. The Company 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 now being conducted. Each Subsidiary of the Company is
duly organized, validly existing and in good standing under the laws of the
jurisdiction in which it is organized and has the requisite corporate (in the
case of a Subsidiary that is a corporation) or other power and authority to
carry on its business as now being conducted, except where the failure to be so
organized, existing or in good standing or to have such power or authority would
not, individually or in the aggregate, have a Material Adverse Effect on the
Company. The Company and each of its Subsidiaries are duly qualified to do
business, and are in good standing, in each jurisdiction where the character of
their properties owned or held under lease or the nature of their activities
makes such qualification necessary, except where the failure to be so qualified
would not, individually or in the aggregate, have a Material Adverse Effect on
the Company.
Section 4.2 Capital Structure. As of the date hereof, the
authorized capital stock of the Company consists of 20,000,000 Shares. At the
close of business on March 16, 2000:
(i) 5,575,638 Shares were issued and outstanding, all of which
were validly issued, fully paid and nonassessable and free of preemptive
rights;
(ii) No Shares were held in the treasury of the Company or by
Subsidiaries of the Company;
(iii) 999,828 Shares were reserved for issuance in the aggregate
upon the exercise of outstanding stock options issued under the
Company's 1987 Non-Qualified Stock Option Plan, 1987 Incentive Stock
Option Plan, as amended, and 1998 Incentive Plan (collectively, the
"Company Stock Option Plans");
(iv) 76,065 Shares were reserved for issuance upon the exercise
of the Warrant dated August 26, 1997 issued to Hubbell Incorporated, a
Connecticut corporation (the "Hubbell Warrant"); and
(v) 20,000 Shares were reserved for issuance upon the exercise of
the Warrant dated January 26, 1996 issued to Greenwood II Ltd., a
limited partnership (the "Greenwood Warrant").
Section 4.2 of the letter dated the date hereof and delivered on
the date hereof by the Company to Parent, which relates to this Agreement and is
designated therein as the "Company Letter" (the "Company Letter") contains a
correct and complete list as of the date of this Agreement of each outstanding
option to purchase Shares issued under the Company Stock Option Plans
(collectively, the "Company Stock Options"), including the holder, date of
grant,
A-12
<PAGE> 64
exercise price and number of Shares subject thereto and whether the option is
vested and exercisable. Except for the Company Stock Options and the Company
Stock Option Plans, the Hubbell Warrant and the Greenwood Warrant, there are no
options, warrants, calls, rights or agreements to which the Company or any of
its Subsidiaries is a party or by which any of them is bound obligating the
Company or any of its Subsidiaries to issue, deliver or sell, or cause to be
issued, delivered or sold, additional shares of capital stock of the Company or
any of its Subsidiaries or obligating the Company or any of its Subsidiaries to
grant, extend or enter into any such option, warrant, call, right or agreement.
Except as set forth in Section 4.2 of the Company Letter, there are no
outstanding contractual obligations of the Company or any Subsidiary to
repurchase, redeem or otherwise acquire any Shares or any capital stock of or
any equity interests in any Subsidiary. Each outstanding share of capital stock
of each Subsidiary of the Company that is a corporation is duly authorized,
validly issued, fully paid and nonassessable and, except as set forth in Section
4.2 of the Company Letter, each such share is owned by the Company or another
Subsidiary of the Company, free and clear of all security interests, liens,
claims, pledges, options, rights of first refusal, agreements, limitations on
voting rights, charges and other encumbrances of any nature whatsoever. The
Company does not have any outstanding bonds, debentures, notes or other
obligations the holders of which have the right to vote (or convertible into or
exercisable for securities having the right to vote) with the stockholders of
the Company on any matter. Exhibit 21 to the Company's Annual Report on Form
10-KSB for the year ended March 31, 1999, as filed with the SEC (the "Company
Annual Report"), contains a list of each of the Subsidiaries of the Company.
Section 4.3 Authority. On or prior to the date of this Agreement,
the Board of Directors of the Company has unanimously declared the Merger
advisable and fair to and in the best interest of the Company and its
stockholders, approved and adopted this Agreement and the transactions
contemplated hereby in accordance with the DGCL, and directed that this
Agreement be submitted to the Company's stockholders for approval. The Company
has all requisite corporate power and authority to enter into this Agreement
and, subject to approval by the stockholders of the Company of this Agreement,
to consummate the transactions contemplated hereby. The execution and delivery
of this Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary corporate action (including Board action) on the part of the Company,
subject to (x) approval and adoption of this Agreement by the stockholders of
the Company and (y) the filing of the Certificate of Merger as required by the
DGCL. This Agreement has been duly executed and delivered by the Company and
(assuming the valid authorization, execution and delivery of this Agreement by
Parent and Sub and the validity and binding effect of this Agreement on Parent
and Sub) constitutes the valid and binding obligation of the Company enforceable
against the Company in accordance with its terms.
Section 4.4 Consents and Approvals; No Violation. Assuming that
all consents, approvals, authorizations and other actions described in this
Section 4.4 have been obtained and all filings and obligations described in this
Section 4.4 have been made, except as set forth in Section 4.4 of the Company
Letter, the execution and delivery of this Agreement does not, and the
consummation of the transactions contemplated hereby and compliance with the
provisions
A-13
<PAGE> 65
hereof will not, result in any violation of, or default (with or without notice
or lapse of time, or both) under, or give to others a right of termination,
cancellation or acceleration of any obligation or result in the loss of a
material benefit under, or result in the creation of any lien, security
interest, charge or encumbrance upon any of the properties or assets of the
Company or any of its Subsidiaries under, any provision of (i) the Company
Charter or the Amended and Restated Bylaws of the Company, (ii) any provision of
the comparable charter or organization documents of any of the Company's
Subsidiaries, (iii) any loan or credit agreement, note, bond, mortgage,
indenture, lease or other agreement, instrument, permit, concession, franchise
or license applicable to the Company or any of its Subsidiaries or (iv) any
judgment, order, decree, statute, law, ordinance, rule or regulation applicable
to the Company or any of its Subsidiaries or any of their respective properties
or assets, other than, in the case of clauses (iii) or (iv), any such
violations, defaults, rights, liens, security interests, charges or encumbrances
that, individually or in the aggregate, would not have a Material Adverse Effect
on the Company, materially impair the ability of the Company to perform its
obligations hereunder or prevent the consummation of any of the transactions
contemplated hereby. No filing or registration with, or authorization, consent
or approval of, any Governmental Entity is required by or with respect to the
Company or any of its Subsidiaries in connection with the execution and delivery
of this Agreement by the Company or is necessary for the consummation of the
Merger and the other transactions contemplated by this Agreement, except for (i)
in connection, or in compliance, with the Exchange Act, (ii) the filing of the
Certificate of Merger with the Secretary of State of the State of Delaware and
appropriate documents with the relevant authorities of other states in which the
Company or any of its Subsidiaries is qualified to do business, (iii) such
filings and consents as may be required under any environmental, health or
safety law or regulation pertaining to any notification, disclosure or required
approval triggered by the Merger or by the transactions contemplated by this
Agreement, (iv) such filings, authorizations, orders and approvals as may be
required to obtain the State Takeover Approvals, (v) applicable requirements, if
any, of Blue Sky Laws or the Nasdaq Stock Market, (vi) as may be required under
foreign laws and (vii) such other consents, orders, authorizations,
registrations, declarations and filings the failure of which to be obtained or
made would not, individually or in the aggregate, have a Material Adverse Effect
on the Company, materially impair the ability of the Company to perform its
obligations hereunder or prevent the consummation of any of the transactions
contemplated hereby.
Section 4.5 SEC Documents and Other Reports. The Company has
filed all required documents (including proxy statements) with the Securities
and Exchange Commission (the "SEC") since March 31, 1997 (the "Company SEC
Documents"). As of their respective dates, the Company SEC Documents complied in
all material respects with the requirements of the Securities Act of 1933, as
amended (the "Securities Act"), or the Exchange Act, as the case may be, and, at
the respective times they were filed, none of the Company SEC Documents
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading. The
consolidated financial statements (including, in each case, any notes thereto)
of the Company included in the Company SEC Documents complied as to form in all
material respects with applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto, were prepared in
accordance with United States
A-14
<PAGE> 66
generally accepted accounting principles (except, in the case of the unaudited
statements, as permitted by Form 10-QSB of the SEC) applied on a consistent
basis during the periods involved (except as may be indicated therein or in the
notes thereto) and fairly presented in all material respects the consolidated
financial position of the Company and its consolidated Subsidiaries as at the
respective dates thereof and the consolidated results of their operations and
their consolidated cash flows for the periods then ended (subject, in the case
of unaudited statements, to normal year-end audit adjustments and to any other
adjustments described therein). Except as disclosed in the Company SEC Documents
or as required by generally accepted accounting principles, the Company has not,
since March 31, 1997, made any change in the accounting practices or policies
applied in the preparation of financial statements.
Section 4.6 Information Supplied. None of the information
supplied or to be supplied by the Company specifically for inclusion or
incorporation by reference in the Proxy Statement, will, at the time the Proxy
Statement is first mailed to the Company's stockholders or at the time of the
Stockholder Meeting, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they are
made, not misleading, except that no representation or warranty is made by the
Company with respect to statements made or incorporated by reference therein
based on written information supplied by Parent or Sub specifically for
inclusion or incorporation by reference therein. The Proxy Statement will comply
as to form in all material respects with the requirements of the Exchange Act
and the rules and regulations thereunder.
Section 4.7 Absence of Certain Changes or Events. Except as
disclosed in the Company SEC Documents filed with the SEC prior to the date of
this Agreement or as set forth in Section 4.7 of the Company Letter, since March
31, 1999, (A) the Company and its Subsidiaries have not incurred any liability
or obligation (indirect, direct or contingent) that would result in a Material
Adverse Effect on the Company, or entered into any material oral or written
agreement or other transaction that is not in the ordinary course of business or
that would result in a Material Adverse Effect on the Company, (B) the Company
and its Subsidiaries have not sustained any loss or interference with their
business or properties from fire, flood, windstorm, accident or other calamity
(whether or not covered by insurance) that has had a Material Adverse Effect on
the Company, (C) there has been no change in the capital stock of the Company
except for the issuance of Shares pursuant to Company Stock Options and no
dividend or distribution of any kind declared, paid or made by the Company on
any class of its stock, (D) there has not been (v) any adoption of a new Company
Plan (as hereinafter defined), (w) any amendment to a Company Plan materially
increasing benefits thereunder, (x) any granting by the Company or any of its
Subsidiaries to any executive officer or other key employee of the Company or
any of its Subsidiaries of any increase in compensation, except in the ordinary
course of business consistent with prior practice or as was required under
employment agreements in effect as of the date of the most recent audited
financial statements included in the Company Annual Report, (y) any granting by
the Company or any of its Subsidiaries to any such executive officer or other
key employee of any increase in severance or termination agreements in effect as
of the date of the most recent audited financial statements included in the
Company
A-15
<PAGE> 67
Annual Report or (z) any entry by the Company or any of its Subsidiaries into
any employment, severance or termination agreement with any such executive
officer or other key employee, (E) there has not been any material changes in
the amount or terms of the indebtedness of the Company and its Subsidiaries from
that described in the Company SEC Documents filed prior to the date hereof and
(F) there has been no event causing a Material Adverse Effect on the Company.
Section 4.8 Permits and Compliance. Each of the Company and its
Subsidiaries is in possession of all franchises, grants, authorizations,
licenses, permits, easements, variances, exceptions, consents, certificates,
approvals and orders of any Governmental Entity necessary for the Company or any
of its Subsidiaries to own, lease and operate its properties or to carry on its
business as it is now being conducted (the "Company Permits"), except where the
failure to have any of the Company Permits would not, individually or in the
aggregate, have a Material Adverse Effect on the Company, and no suspension or
cancellation of any of the Company Permits is pending or, to the knowledge of
the Company, threatened, except where the suspension or cancellation of any of
the Company Permits would not, individually or in the aggregate, have a Material
Adverse Effect on the Company. Neither the Company nor any of its Subsidiaries
is in violation of (A) its charter, by-laws or other organizational documents,
(B) any law, ordinance, administrative or governmental rule or regulation, or
(C) any order, decree or judgment of any Governmental Entity having jurisdiction
over the Company or any of its Subsidiaries, except, in the case of clauses (B)
and (C), for any violations that, individually or in the aggregate, would not
have a Material Adverse Effect on the Company. Except as disclosed in the
Company SEC Documents filed prior to the date of this Agreement or as set forth
in Section 4.8 of the Company Letter, there are no contracts or agreements of
the Company or its Subsidiaries having terms or conditions which would have a
Material Adverse Effect on the Company or having covenants not to compete that
materially impair the ability of the Company to conduct its business as
currently conducted or purport to bind any stockholder or any Affiliated Person
(as hereinafter defined) of any stockholder of the Company after the Effective
Time. Except as set forth in the Company SEC Documents filed prior to the date
of this Agreement, no event of default or event that, but for the giving of
notice or the lapse of time or both, would constitute an event of default exists
or, upon the consummation by the Company of the transactions contemplated by
this Agreement, will exist under any indenture, mortgage, loan agreement, note
or other agreement or instrument for borrowed money, any guarantee of any
agreement or instrument for borrowed money or any lease, contractual license or
other agreement or instrument to which the Company or any of its Subsidiaries is
a party or by which the Company or any such Subsidiary is bound or to which any
of the properties, assets or operations of the Company or any such Subsidiary is
subject, other than any defaults that, individually or in the aggregate, would
not have a Material Adverse Effect on the Company.
Section 4.9 Tax Matters. Except as set forth in Section 4.9 of
the Company Letter, (i) the Company and each Subsidiary have filed all Tax
Returns (as hereinafter defined) required to be filed and have paid all Taxes
shown to be due on such Tax Returns except where failures to file such Tax
Returns or failures to pay such Taxes would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect on the
Company; (ii) all Tax
A-16
<PAGE> 68
Returns filed by the Company and each Subsidiary are complete and accurate and
disclose all Taxes required to be paid by the Company and each Subsidiary for
the periods covered thereby except where failures to be complete and accurate
and to disclose all Taxes would not, individually or in the aggregate, have a
Material Adverse Effect on the Company; (iii) none of the Company or any
Subsidiary has waived in writing any statute of limitations in respect of Taxes;
(iv) the Tax Returns referred to in clause (i) relating to income Taxes have
been examined by the appropriate taxing authority or the period for assessment
of the Taxes in respect of which such Tax Returns were required to be filed has
expired; (v) there is no action, suit, investigation, audit, claim or assessment
pending or proposed or threatened in writing with respect to Taxes of the
Company or any Subsidiary; (vi) all deficiencies asserted or assessments made as
a result of any examination of the Tax Returns referred to in clause (i) have
been paid in full; (vii) there are no liens for Taxes upon the assets of the
Company or any Subsidiary except liens relating to current Taxes not yet due;
(viii) all Taxes which the Company or any Subsidiary are required by law to
withhold or to collect for payment have been duly withheld and collected, and
have been paid or accrued, reserved against and entered on the books of the
Company except where failures to withhold and collect and to pay or accrue,
reserve against or enter on the books of the Company would not, individually or
in the aggregate, have a Material Adverse Effect on the Company; (ix) none of
the Company or any Subsidiary has been a member of any group of corporations
filing Tax Returns on a consolidated, combined, unitary or similar basis other
than each such group of which it is currently a member; and (x) no withholding
is required under Section 1445 of the Code in connection with the Merger. For
purposes of this Agreement: (i) "Taxes" means any federal, state, local or
foreign net income, gross income, gross receipts, windfall profit, severance,
property, production, sales, use, license, excise, franchise, employment,
payroll, withholding, alternative or add-on minimum, ad valorem, value-added,
transfer or excise tax, stamp, or environmental tax, or other tax, custom, duty,
governmental fee or other like assessment or charge of any kind whatsoever,
together with any interest or penalty imposed by any Governmental Entity, (ii)
"Tax Return" means any return, report or similar statement (including the
attached schedules) required to be filed with respect to any Tax, including any
information return, claim for refund, amended return or declaration of estimated
Tax and (iii) "Code" means the Internal Revenue Code of 1986, as amended.
Section 4.10 Actions and Proceedings. There are no outstanding
orders, judgments, injunctions, awards or decrees of any Governmental Entity
against or involving the Company or any of its Subsidiaries, or against or
involving any of the present or former directors, officers, employees,
consultants, agents or stockholders of the Company or any of its Subsidiaries
with respect to the Company or any of its Subsidiaries, any of the properties,
assets or business of the Company or any of its Subsidiaries or any Company Plan
that, individually or in the aggregate, would have a Material Adverse Effect on
the Company or materially impair the ability of the Company to perform its
obligations hereunder. Except as set forth in Section 4.10 of the Company
Letter, there are no actions, suits or claims or legal, administrative or
arbitrative proceedings or investigations (including claims for workers'
compensation) pending or, to the knowledge of the Company, threatened against or
involving the Company or any of its Subsidiaries or any of its or their present
or former directors, officers, employees, consultants, agents or stockholders
with respect to the Company or any of its Subsidiaries, or any of the
A-17
<PAGE> 69
properties, assets or business of the Company or any of its Subsidiaries or any
Company Plan that, individually or in the aggregate, would have a Material
Adverse Effect on the Company or materially impair the ability of the Company to
perform its obligations hereunder. There are no actions, suits, labor disputes
or other litigation, legal or administrative proceedings or governmental
investigations pending or, to the knowledge of the Company, threatened against
or affecting the Company or any of its Subsidiaries or any of its or their
present or former officers, directors, employees, consultants, agents or
stockholders with respect to the Company or its Subsidiaries, or any of the
properties, assets or business of the Company or any of its Subsidiaries
relating to the transactions contemplated by this Agreement.
Section 4.11 Certain Agreements. Except as set forth in Section
4.11 of the Company Letter, neither the Company nor any of its Subsidiaries is a
party to any oral or written agreement or plan, including any employment
agreement, severance agreement, stock option plan, stock appreciation rights
plan, restricted stock plan or stock purchase plan (collectively, the
"Compensation Agreements"), pension plan (as defined in Section 3(2) of ERISA)
or welfare plan (as defined in Section 3(1) of ERISA) any of the benefits of
which will be increased, or the vesting of the benefits of which will be
accelerated, by the occurrence of any of the transactions contemplated by this
Agreement or the value of any of the benefits of which will be calculated on the
basis of any of the transactions contemplated by this Agreement. Except as may
be otherwise contemplated by this Agreement, no holder of any option to purchase
Shares, or Shares granted in connection with the performance of services for the
Company or its Subsidiaries, is or will be entitled to receive cash from the
Company or any Subsidiary in lieu of or in exchange for such option or shares as
a result of the transactions contemplated by this Agreement. Section 4.11 of the
Company Letter sets forth (i) for each officer, director or employee who is a
party to, or will receive benefits under, any Compensation Agreement as a result
of the transactions contemplated herein, the total amount that each such person
may receive, or is eligible to receive, assuming that the transactions
contemplated by this Agreement are consummated on the date hereof, and (ii) the
total amount of indebtedness owed to the Company or its Subsidiaries from each
officer, director or employee of the Company and its Subsidiaries.
Section 4.12 ERISA. (a) Each Company Plan is listed in Section
4.12(a) of the Company Letter. With respect to each Company Plan listed therein,
except as set forth in Section 4.12(a) of the Company Letter, the Company has
made available to Parent a true and correct copy of (i) the three most recent
annual reports (Form 5500) filed with the Internal Revenue Service ("IRS") if
applicable, (ii) each such Company Plan that has been reduced to writing and all
amendments thereto, (iii) each trust agreement, insurance contract or
administration agreement relating to each such Company Plan, (iv) a written
summary of each unwritten Company Plan, (v) the most recent summary plan
description or other written explanation of each Company Plan provided to
participants, (vi) the most recent determination letter and request therefore,
if any, issued by the IRS with respect to any Company Plan intended to be
qualified under section 401(a) of the Code, (vii) any request for a
determination currently pending before the IRS and (viii) all correspondence
with the IRS, the Department of Labor, the SEC or Pension Benefit Guaranty
Corporation relating to any outstanding controversy. Each Company Plan complies
in all material respects with the Employee Retirement Income Security Act of
1974, as amended
A-18
<PAGE> 70
("ERISA"), the Code and all other applicable statutes and governmental rules and
regulations. Neither the Company nor any ERISA Affiliate currently maintains,
contributes to or has any liability or, at any time during the past six years
has maintained or contributed to any pension plan which is subject to section
412 of the Code or section 302 of ERISA or Title IV of ERISA. Neither the
Company nor any ERISA Affiliate currently maintains, contributes to or has any
liability or, at any time during the past six years has maintained or
contributed to any Company Multiemployer Plan.
(b) Except as listed in Section 4.12(b) of the Company Letter,
with respect to the Company Plans, no event has occurred and, to the knowledge
of the Company, there exists no condition or set of circumstances in connection
with which the Company or any Subsidiary or ERISA Affiliate or Company Plan
fiduciary could be subject to any liability under the terms of such Company
Plans, ERISA, the Code or any other applicable law which would have a Material
Adverse Effect on the Company. All Company Plans that are intended to be
qualified under Section 401(a) of the Code have been determined by the IRS to be
so qualified, or a timely application for such determination is now pending and
the Company is not aware of any reason why any such Company Plan is not so
qualified in operation. Except as disclosed in Section 4.12(b) of the Company
Letter, neither the Company nor any of its Subsidiaries or ERISA Affiliates has
any liability or obligation under any welfare plan to provide benefits after
termination of employment to any employee or dependent other than as required by
Section 4980B of the Code.
(c) As used herein, (i) "Company Plan" means a "pension plan" (as
defined in Section 3(2) of ERISA (other than a Company Multiemployer Plan)), a
"welfare plan" (as defined in Section 3(1) of ERISA), or any other written or
oral bonus, profit sharing, deferred compensation, incentive compensation, stock
ownership, stock purchase, stock option, phantom stock, restricted stock, stock
appreciation right, holiday pay, vacation, severance, medical, dental, vision,
disability, death benefit, sick leave, fringe benefit, personnel policy,
insurance or other plan, arrangement or understanding, in each case established
or maintained by the Company or any of its Subsidiaries or ERISA Affiliates or
as to which the Company or any of its Subsidiaries or ERISA Affiliates has
contributed or otherwise may have any liability, (ii) "Company Multiemployer
Plan" means a "multiemployer plan" (as defined in Section 4001(a)(3) of ERISA)
to which the Company or any of its Subsidiaries or ERISA Affiliates is or has
been obligated to contribute or otherwise may have any liability, and (iii)
"ERISA Affiliate" means any trade or business (whether or not incorporated)
which would be considered a single employer with the Company pursuant to Section
414(b), (c), (m) or (o) of the Code and the regulations promulgated under those
sections or pursuant to Section 4001(b) of ERISA and the regulations promulgated
thereunder.
(d) Section 4.12(d) of the Company Letter contains a list of all
(i) severance and employment agreements with employees of the Company and each
Subsidiary, (ii) severance programs and policies of the Company and each
Subsidiary with or relating to its employees and (iii) plans, programs,
agreements and other arrangements of the Company and each Subsidiary with or
relating to its employees containing change of control or similar provisions.
A-19
<PAGE> 71
(e) Except as set forth in Section 4.12(e) of the Company Letter,
neither the Company nor any of its Subsidiaries is a party to any agreement,
contract or arrangement that could result, separately or in the aggregate, in
the payment of any "excess parachute payments" within the meaning of Section
280G of the Code.
(f) Except as set forth in Section 4.12(f) of the Company Letter,
with respect to each Company Plan not subject to United States law (a "Company
Foreign Benefit Plan"), except as would not have a Material Adverse Effect on
the Company, (i) the fair market value of the assets of each funded Company
Foreign Benefit Plan, the liability of each insurer for any Company Foreign
Benefit Plan funded through insurance or the reserve shown on the Company's
consolidated financial statements for any unfunded Company Foreign Benefit Plan,
together with any accrued contributions, is sufficient to procure or provide for
the benefit obligations, as of the Effective Time, with respect to all current
and former participants in such plan according reasonable, country specific
actuarial assumptions and valuations and no transaction contemplated by this
Agreement shall cause such assets or insurance obligations or book reserve to be
less than such benefit obligations; and (ii) each Company Foreign Benefit Plan
required to be registered has been registered and has been maintained in good
standing with the appropriate regulatory authorities.
Section 4.13 Compliance with Worker Safety Laws. The properties,
assets and operations of the Company and its Subsidiaries are in compliance with
all applicable federal, state, local and foreign laws, rules and regulations,
orders, decrees, judgments, permits and licenses relating to public and worker
health and safety (collectively, "Worker Safety Laws"), except for any
violations that, individually or in the aggregate, would not have a Material
Adverse Effect on the Company. With respect to such properties, assets and
operations currently owned, leased or operated by the Company or any of its
Subsidiaries, and with respect to any properties, assets or operations
previously owned, leased or operated by the Company or any of its Subsidiaries,
to the knowledge of the Company, during any time such properties, assets and
operations were owned, leased or operated by the Company or any of its
Subsidiaries, there are no past or present events, conditions, circumstances,
activities, practices, incidents, actions or plans of the Company or any of its
Subsidiaries that may interfere with or prevent compliance or continued
compliance with applicable Worker Safety Laws, other than any such interference
or prevention as would not, individually or in the aggregate with any such other
interference or prevention, have a Material Adverse Effect on the Company.
Section 4.14 Liabilities; Products. (a) Except as set forth in
the Company Annual Report, as of March 31, 1999, neither the Company nor any of
its Subsidiaries had any liabilities or obligations of any nature, whether or
not accrued, contingent or otherwise, that would be required by generally
accepted accounting principles to be reflected on a consolidated balance sheet
of the Company and its Subsidiaries (or disclosed in the footnotes thereto).
Except as set forth in Section 4.14 of the Company Letter, or except as fully
reflected or reserved against in the financial statements included in the
Company SEC Documents filed prior to the date hereof, or disclosed in the
footnotes thereto, since March 31, 1999 the Company and its Subsidiaries have
incurred no liabilities (including Tax liabilities) or obligations of any
nature, absolute or
A-20
<PAGE> 72
contingent that would be required by generally accepted accounting principles to
be reflected on a consolidated balance sheet of the Company and its Subsidiaries
(or disclosed in the notes thereto), other than liabilities or obligations that
would not, individually or in the aggregate, have a Material Adverse Effect on
the Company.
(b) Except as set forth in Section 4.14(b) of the Company Letter,
since March 31, 1999, to the knowledge of the Company, neither the Company nor
any Subsidiary has received a material claim for or based upon breach of product
warranty (other than warranty service and repair claims in the ordinary course
of business not material in amount or significance), strict liability in tort,
negligent manufacture of product, negligent provision of services or any other
allegation of liability resulting in product recalls, arising from the
materials, design, testing, manufacture, packaging, labeling (including
instructions for use), or sale of its products or from the provision of
services; and, to the knowledge of the Company, there is no basis for any such
claim which, if asserted, would likely have a Material Adverse Effect on the
Company. No product sold or delivered or service rendered by the Company or any
Subsidiary is subject to any guaranty, warranty or other indemnity beyond the
applicable standard terms and conditions of sale for products delivered and
services rendered by the Company or any Subsidiary, copies of which have
previously been delivered to Parent.
(c) The Company has provided to Parent a schedule of material
products in development and planned introductions, a copy of which is attached
in Section 4.14(c) of the Company Letter. The Company has no reason to believe
that the goals set forth therein will not be achieved in all material respects,
except for such deviations as would not have a Material Adverse Effect on the
Company. The product and service engineering, development, manufacturing and
quality control processes which have been and are being followed by the Company
are reasonably designed to produce products and services which are consistent in
all material respects with the claims made about them in the Company's sales
brochures and other statements made about them by or on behalf of the Company.
Section 4.15 Labor Matters. Except as set forth in Section 4.15
of the Company Letter, neither the Company nor any of its Subsidiaries is a
party to any collective bargaining agreement or labor contract with any union.
Neither the Company nor any of its Subsidiaries has engaged in any unfair labor
practice with respect to any persons employed by or otherwise performing
services primarily for the Company or any of its Subsidiaries (the "Company
Business Personnel"), and there is no unfair labor practice complaint or
grievance against the Company or any of its Subsidiaries by any person pursuant
to the National Labor Relations Act or any comparable state or foreign law
pending or, to the knowledge of the Company, threatened in writing with respect
to the Company Business Personnel, except where such unfair labor practice,
complaint or grievance would not have a Material Adverse Effect on the Company.
There is no labor strike, dispute, slowdown or stoppage pending or, to the
knowledge of the Company, threatened against or affecting the Company or any of
its Subsidiaries which may interfere with the respective business activities of
the Company or any of its Subsidiaries, except where such dispute, strike or
work stoppage would not have a Material Adverse Effect on the Company.
A-21
<PAGE> 73
Section 4.16 Intellectual Property; Year 2000. "Company
Intellectual Property" means all trademarks, trademark registrations, trademark
rights and renewals thereof, trade names, trade name rights, patents, patent
rights, patent applications, industrial models, inventions, invention
disclosures, designs, utility models, inventor rights, software, computer
programs, computer systems, modules and related data and materials, copyrights,
copyright registrations and renewals thereof, servicemarks, servicemark
registrations and renewals thereof, servicemark rights, trade secrets,
applications for trademark and servicemark registrations, know-how, confidential
information and other proprietary rights, and any data and information of any
nature or form used or held for use in connection with the businesses of the
Company and/or the Subsidiaries as currently conducted or as currently
contemplated by the Company, together with all applications currently pending or
in process for any of the foregoing. Except as disclosed in the Company SEC
Documents filed with the SEC prior to the date hereof or except as set forth in
Section 4.16 of the Company Letter, the Company and the Subsidiaries own, or
possess adequate licenses or other valid rights to use (including the right to
sublicense to customers, suppliers or others as needed), all of the Company
Intellectual Property that is necessary, appropriate or desirable for the
conduct or contemplated conduct of the Company's or Subsidiaries' businesses,
except where the failure to own, license or have a right to use such Company
Intellectual Property would not, individually or in the aggregate, have a
Material Adverse Effect on the Company. Section 4.16 of the Company Letter lists
each material license or other material agreement pursuant to which the Company
or any Subsidiary has the right to use Company Intellectual Property utilized in
connection with any product of, or service provided by, the Company and the
Subsidiaries (the "Company Licenses"). As used in this Agreement, the term
"Company Licenses" shall not include "shrink-wrap" or "off-the-shelf" software.
There are no pending, or, to the knowledge of the Company, threatened
interferences, re-examinations, oppositions or cancellation proceedings
involving any patents or patent rights, trademarks or trademark rights, or
applications therefor, of the Company or any Subsidiary, except such as would
not, individually or in the aggregate, have a Material Adverse Effect on the
Company. There is no breach or violation by the Company or by any Subsidiary
under, and, to the knowledge of the Company, there is no breach or violation by
any other party to, any Company License that is reasonably likely to give rise
to any termination or any loss of rights thereunder. To the knowledge of the
Company, there has been no unauthorized disclosure or use of confidential
information, trade secret rights, processes and formulas, research and
development results and other know-how of the Company or any Subsidiary. Except
as set forth in Section 4.16 of the Company Letter, to the knowledge of the
Company, the conduct of the business of the Company and the Subsidiaries as
currently conducted or contemplated does not infringe upon or conflict with, in
any way, any license, trademark, trademark right, trade name, trade name right,
patent, patent right, industrial model, invention, service mark, service mark
right, copyright, trade secret or any other intellectual property rights of any
third party that, individually or in the aggregate, would have a Material
Adverse Effect on the Company. Except as disclosed in the Company SEC Documents
filed with the SEC prior to the date hereof, to the knowledge of the Company,
there are no infringements of, or conflicts with, any Company Intellectual
Property. Except as set forth in Section 4.16 of the Company Letter, neither the
Company nor any Subsidiary has licensed or otherwise permitted the use by any
third party of any proprietary information or Company Intellectual Property on
terms or in a manner which, individually or in
A-22
<PAGE> 74
the aggregate, would have a Material Adverse Effect on the Company. Except as
set forth in Section 4.16 of the Company Letter, the current and previously sold
products of the Company and its Subsidiaries and software, operations, systems
and processes (including, to the knowledge of the Company, software, operations,
systems and processes obtained from third parties) used in the conduct of the
business of the Company and its Subsidiaries, are Year 2000 Compliant, except
where the failure to be Year 2000 Compliant would not, individually or in the
aggregate, have a Material Adverse Effect on the Company, and the Company has
delivered to Parent true and correct copies of any consultant or other
third-party reports prepared on behalf of the Company with respect to such
compliance. For purposes of this Agreement, "Year 2000 Compliant" means the
ability to process (including calculate, compare, sequence, display or store),
transmit or receive data or data/time data from, into and between the twentieth
and twenty-first centuries, and the years 1999 and 2000, and leap year
calculations without error or malfunction.
Section 4.17 Title to and Sufficiency of Assets. (a) As of the
date hereof, the Company and the Subsidiaries own, and as of the Effective Time
the Company and the Subsidiaries will own, good and marketable title to all of
their assets (excluding, for purposes of this sentence, assets held under
leases), free and clear of any and all mortgages, liens, encumbrances, charges,
claims, restrictions, pledges, security interests or impositions (collectively,
"Liens"), except as set forth in the Company SEC Documents filed with the SEC
prior to the date hereof or Section 4.17 of the Company Letter and except where
the failure to own such title would not, individually or in the aggregate, have
a Material Adverse Effect on the Company. Such assets, together with all assets
held by the Company and the Subsidiaries under leases, include all tangible and
intangible personal property, contracts and rights necessary or required for the
operation of the businesses of the Company as presently conducted, except for
such assets the failure of which to have would, individually or in the
aggregate, have a Material Adverse Effect on the Company.
(b) Neither the Company nor any of its Subsidiaries owns any Real
Estate. All Real Estate assets held by the Company and the Subsidiaries under
leases are adequate for the operation of the businesses of the Company as
presently conducted. The leases to all Real Estate occupied by the Company and
the Subsidiaries which are material to the operation of the businesses of the
Company are in full force and effect and no event has occurred which with the
passage of time, the giving of notice, or both, would constitute a default or
event of default by the Company or any Subsidiary or, to the knowledge of the
Company, any other person who is a party signatory thereto. For purposes of this
Agreement, "Real Estate" means, with respect to the Company or any Subsidiary,
as applicable, all of the fee or leasehold ownership right, title and interest
of such person, in and to all real estate and improvements owned or leased by
any such person and which is used by any such person in connection with the
operation of its business.
Section 4.18 State Takeover Statutes. The Board of Directors of
the Company has, to the extent such statutes are applicable, taken all action so
to render the provisions of Section 203 of the DGCL inapplicable to the Merger
and the Stockholder Agreements and the consummation of the transactions
contemplated by this Agreement and the Stockholder
A-23
<PAGE> 75
Agreements. As of the date hereof, no other state takeover statute or similar
charter or bylaw provisions are applicable to the Merger, this Agreement, the
Stockholder Agreements and the transactions contemplated hereby and thereby.
Section 4.19 Required Vote of Company Stockholders. The
affirmative vote of the holders of at least a majority of Shares entitled to
vote is required to adopt this Agreement. No other vote of the security holders
of the Company is required by law, the Company Charter or the Amended and
Restated Bylaws of the Company or otherwise in order for the Company to
consummate the Merger and the transactions contemplated hereby.
Section 4.20 Accounts Receivable. All of the accounts and notes
receivable of the Company and its Subsidiaries set forth on the books and
records of the Company (net of the applicable reserves reflected on the books
and records of the Company and in the financial statements included in the
Company SEC Documents) (i) represent sales actually made or transactions
actually effected in the ordinary course of business for goods or services
delivered or rendered to unaffiliated customers in bona fide arm's length
transactions, (ii) constitute valid claims, and (iii) are good and collectible
at the aggregate recorded amounts thereof (net of such reserves) without right
of recourse, defense, deduction, return of goods, counterclaim, or offset and
have been or will be collected in the ordinary course of business and consistent
with past experience, except where the failure to collect such receivables in
such manner would not, individually or in the aggregate, have a Material Adverse
Effect on the Company.
Section 4.21 Inventories. Except as set forth in Section 4.21 of
the Company Letter, all inventories of the Company and its Subsidiaries consist
of items of merchantable quality and quantity usable or salable in the ordinary
course of business, are salable at prevailing market prices that are not less
than the book value amounts thereof or the price customarily charged by the
Company or the applicable Subsidiary therefor, conform to the specifications
established therefor, and have been manufactured in accordance with applicable
regulatory requirements, except to the extent that the failure of such
inventories so to consist, be saleable, conform, or be manufactured would not
have a Material Adverse Effect on the Company. Except as set forth in Section
4.21 of the Company Letter, the quantities of all inventories, materials, and
supplies of the Company and each Subsidiary (net of the obsolescence reserves
therefor shown in the financial statements included in the Company SEC Documents
and determined in the ordinary course of business consistent with past practice)
are not obsolete, damaged, slow-moving, defective, or excessive, and are
reasonable and balanced in the circumstances of the Company and its
Subsidiaries, except to the extent that the failure of such inventories to be in
such conditions would not have a Material Adverse Effect on the Company.
Section 4.22 Environmental Matters.
(a) For purposes of this Agreement, the following terms shall
have the following meanings: (i) "Hazardous Substances" means (A) petroleum and
petroleum products, by-products or breakdown products, radioactive materials,
asbestos-containing materials and polychlorinated biphenyls, and (B) any other
chemicals, materials or substances regulated as
A-24
<PAGE> 76
toxic or hazardous or as a pollutant, contaminant or waste or for which
liability or standards of care are imposed under any applicable Environmental
Law; (ii) "Environmental Law" means any law, past, present or future and as
amended, and any judicial or administrative interpretation thereof, including
any judicial or administrative order, consent decree or judgment, or common law,
relating to pollution or protection of the environment, health or safety or
natural resources, including those relating to the use, handling,
transportation, treatment, storage, disposal, release or discharge of Hazardous
Substances; and (iii) "Environmental Permit" means any permit, approval,
identification number, license or other authorization required under any
applicable Environmental Law.
(b) Except as disclosed in Section 4.22 of the Company Letter,
the Company and the Subsidiaries are and have been in compliance with all
applicable Environmental Laws, have obtained all Environmental Permits and are
in compliance with their requirements, and have resolved all past non-compliance
with Environmental Laws and Environmental Permits without any pending, on-going
or future obligation, cost or liability, except in each case for the notices set
forth in Section 4.22 of the Company Letter or where such non-compliance would
not, individually or in the aggregate, have a Material Adverse Effect on the
Company.
(c) Except as disclosed in Section 4.22 of the Company Letter,
neither the Company nor any of the Subsidiaries has (i) placed, held, located,
released, transported or disposed of any Hazardous Substances on, under, from or
at any of the Company's or any of the Subsidiaries' properties or any other
properties, nor caused any facts or conditions that could give rise to an
environmental claim, other than in a manner that would not, in all such cases
taken individually or in the aggregate, result in a Material Adverse Effect on
the Company, (ii) any knowledge or reason to know of the presence of any
Hazardous Substances on, under, emanating from, or at any of the Company's or
any of the Subsidiaries' properties or any other property but arising from the
Company's or any of the Subsidiaries' current or former properties or
operations, other than in a manner that would not result in a Material Adverse
Effect on the Company, or (iii) any knowledge or reason to know, nor has it
received any written notice since January 1, 1995 (A) of any violation of or
liability under any Environmental Laws, (B) of the institution or pendency of
any suit, action, claim, proceeding or investigation by any Governmental Entity
or any third party in connection with any such violation or liability, (C)
requiring the investigation of, response to or remediation of Hazardous
Substances at or arising from any of the Company's or any of the Subsidiaries'
current or former properties or operations or any other properties, (D) alleging
noncompliance by the Company or any of the Subsidiaries with the terms of any
Environmental Permit in any manner reasonably likely to require material
expenditures or to result in material liability or (E) demanding payment for
response to or remediation of Hazardous Substances at or arising from any of the
Company's or any of the Subsidiaries' current or former properties or operations
or any other properties, except in each case for the notices set forth in
Section 4.22 of the Company Letter.
(d) Except as disclosed in Section 4.22 of the Company Letter, no
Environmental Law imposes any obligation upon the Company or any of the
Subsidiaries arising out of or as a condition to any transaction contemplated by
this Agreement, including any requirement to
A-25
<PAGE> 77
modify or to transfer any permit or license, any requirement to file any notice
or other submission with any Governmental Entity, the placement of any notice,
acknowledgment or covenant in any land records, or the modification of or
provision of notice under any agreement, consent order or consent decree.
(e) The Company and the Subsidiaries has provided or made
available to Parent copies of any environmental assessment or audit report or
other similar studies or analyses currently in the possession of or available to
the Company or any of the Subsidiaries relating to any real property currently
or formerly owned, leased or occupied by the Company or any of the Subsidiaries.
Section 4.23 Suppliers, Customers and Employees. Except as set
forth in Section 4.23 of the Company Letter, neither the Company nor any
Subsidiary has received any notice that (a) any significant supplier will not
sell raw materials, supplies, merchandise and other goods to the Company or any
Subsidiary at any time after the Effective Time on terms and conditions
substantially similar to those used in its current sales to the Company and the
Subsidiaries, except where the failure to sell would not, individually or in the
aggregate, have a Material Adverse Effect on the Company, (b) any significant
customer intends to terminate or limit or alter its business relationship with
the Company or any Subsidiary where such termination, limitation or alteration
would have a Material Adverse Effect on the Company, or (c) any officer or other
key employee of the Company or any Subsidiary intends to terminate or has
terminated his or their employment with the Company or any Subsidiary.
Section 4.24 Insurance. The Company and its Subsidiaries carry or
are entitled to the benefits of insurance as the Company believes are in such
character and amount at least equivalent to that carried by persons engaged in
similar businesses and subject to the same or similar perils or hazards, except
for any such failures to maintain insurance policies that, individually or in
the aggregate, would not have a Material Adverse Effect on the Company. The
Company and each Subsidiary have made any and all payments required to maintain
such policies in full force and effect, except where the failure to make such
payment would not have a Material Adverse Effect on the Company.
Section 4.25 Accuracy of Information. Neither this Agreement nor
the Company Letter contains an untrue statement of a material fact or omits to
state a material fact necessary to make the statements contained therein not
misleading.
Section 4.26 Transactions with Affiliates. (a) For purposes of
this Section 4.26, the term "Affiliated Person" means (i) any holder of 5% or
more of the issued and outstanding Shares, (ii) any director or officer of the
Company or any Subsidiary, (iii) any person, firm or corporation that directly
or indirectly controls, is controlled by, or is under common control with, any
of the Company or any Subsidiary or (iv) any member of the immediate family or
any of such persons.
(b) Except as set forth in Section 4.26 of the Company Letter or
in the Company SEC Reports filed with the SEC prior to the date hereof, since
March 31, 1999, the Company and
A-26
<PAGE> 78
the Subsidiaries have not, in the ordinary course of business or otherwise, (i)
purchased, leased or otherwise acquired any material property or assets or
obtained any material services from, (ii) sold, leased or otherwise disposed of
any material property or assets or provided any material services to (except
with respect to remuneration for services rendered in the ordinary course of
business as director, officer or employee of the Company or any Subsidiary),
(iii) entered into or modified in any manner any contract with, or (iv) borrowed
any money from, or made or forgiven any loan or other advance (other than
expenses or similar advances made in the ordinary course of business) to, any
Affiliated Person.
(c) Except as set forth in Section 4.26 of the Company Letter or
in the Company SEC Reports filed with the SEC prior to the date hereof, (i) the
contracts of the Company and the Subsidiaries do not include any material
obligation or commitment between the Company or any Subsidiary and any
Affiliated Person, (ii) the assets of the Company or any Subsidiary do not
include any receivable or other obligation or commitment from an Affiliated
Person to the Company or any Subsidiary and (iii) the liabilities of the Company
and the Subsidiaries do not include any payable or other obligation or
commitment from the Company or any Subsidiary to any Affiliated Person.
(d) To the knowledge of the Company and except as set forth in
Section 4.26 of the Company Letter or in the Company SEC Reports filed with the
SEC prior to the date hereof, no Affiliated Person of any of the Company or any
Subsidiary is a party to any contract with any customer or supplier of the
Company or any Subsidiary that affects in any material manner the business,
financial condition or results of operation of the Company or any Subsidiary.
Section 4.27 Brokers. No broker, investment banker or other
person, is entitled to any broker's, finder's or other similar fee or commission
in connection with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of the Company.
Section 4.28 Opinion of Financial Advisor. The Company has
received the opinion of Houlihan Valuation Advisors, dated the date hereof, to
the effect that, as of the date of this Agreement, the Merger Consideration to
be received in the Merger by the Company's stockholders is fair to the Company's
stockholders from a financial point of view, and a complete and correct signed
copy of such opinion has been delivered to Parent, and such opinion has not been
withdrawn or modified.
ARTICLE V
COVENANTS RELATING TO CONDUCT OF BUSINESS
Section 5.1 Conduct of Business by the Company Pending the
Merger. Except as expressly permitted by clauses (i) through (xvii) of this
Section 5.1, during the period from the date of this Agreement through the
Effective Time, the Company shall, and shall cause each of its Subsidiaries to,
in all material respects carry on its business in the ordinary course of its
A-27
<PAGE> 79
business as currently conducted and, to the extent consistent therewith, use
reasonable best efforts to preserve intact its current business organizations,
keep available the services of its current officers and employees and preserve
its relationships with customers, suppliers and others having business dealings
with it. Without limiting the generality of the foregoing, and except as
otherwise expressly contemplated by this Agreement, the Company shall not, and
shall not permit any of its Subsidiaries to, without the prior written consent
of Parent:
(i) (A) other than dividends paid by wholly-owned Subsidiaries,
declare, set aside or pay any dividends on, or make any other actual,
constructive or deemed distributions in respect of, any of its capital
stock, or otherwise make any payments to its stockholders in their
capacity as such, (B) split, combine or reclassify any of its capital
stock or issue or authorize the issuance of any other securities in
respect of, in lieu of or in substitution for shares of its capital
stock or (C) purchase, redeem or otherwise acquire any shares of capital
stock of the Company or any other securities thereof or any rights,
warrants or options to acquire any such shares or other securities;
(ii) issue, deliver, sell, pledge, dispose of or otherwise
encumber any shares of its capital stock, any other voting securities or
equity equivalent or any securities convertible into, or any rights,
warrants or options (including options under the Company Stock Option
Plans) to acquire any such shares, voting securities, equity equivalent
or convertible securities, other than the issuance of Shares of upon the
exercise of Company Stock Options outstanding on the date of this
Agreement in accordance with their current terms;
(iii) amend its charter or by-laws;
(iv) acquire or agree to acquire by merging or consolidating
with, or by purchasing a substantial portion of the assets of or equity
in, or by any other manner, any business or any corporation, limited
liability company, partnership, association or other business
organization or division thereof;
(v) sell, lease or otherwise dispose of, or agree to sell, lease
or otherwise dispose of, any of its assets, other than sales of
inventory that are in the ordinary course of business consistent with
past practice and sales of assets having an aggregate fair market value
of up to $25,000;
(vi) incur any indebtedness for borrowed money, guarantee any
such indebtedness or make any loans, advances or capital contributions
to, or other investments in, any other person, other than (A) in the
ordinary course of business consistent with past practices and, in the
case of indebtedness and guarantees, in an amount not to exceed $150,000
and (B) indebtedness, loans, advances, capital contributions and
investments between the Company and any of its Subsidiaries or between
any of such Subsidiaries, in each case in the ordinary course of
business consistent with past practices;
A-28
<PAGE> 80
(vii) alter (through merger, liquidation, reorganization,
restructuring or in any other fashion) the corporate structure or
ownership of the Company or any Subsidiary;
(viii) except as provided in Sections 6.5 and 6.10 hereof, enter
into or adopt any, or amend any existing, severance plan, agreement or
arrangement or enter into or amend any Company Plan or employment or
consulting agreement;
(ix) increase the compensation payable or to become payable to
its directors, officers or employees (except for increases in the
ordinary course of business consistent with past practice in salaries or
wages of employees of the Company or any of its Subsidiaries who are not
officers of the Company or any of its Subsidiaries) or grant any
severance or termination pay to, or enter into any employment or
severance agreement with, any director or officer of the Company or any
of its Subsidiaries, or establish, adopt, enter into, or, except as may
be required to comply with applicable law, amend in any material respect
or take action to enhance in any material respect or accelerate any
rights or benefits under, any labor, collective bargaining, bonus,
profit sharing, thrift, compensation, stock option, restricted stock,
pension, retirement, deferred compensation, employment, termination,
severance or other plan, agreement, trust, fund, policy or arrangement
for the benefit of any director, officer or employee;
(x) knowingly violate or knowingly fail to perform any obligation
or duty imposed upon it or any Subsidiary by any applicable material
federal, state or local law, rule, regulation, guideline or ordinance;
(xi) make any change to accounting policies or procedures (other
than actions required to be taken by generally accepted accounting
principles);
(xii) prepare or file any Tax Return inconsistent with past
practice or, on any such Tax Return, take any position, make any
election, or adopt any method that is inconsistent with positions taken,
elections made or methods used in preparing or filing similar Tax
Returns in prior periods;
(xiii) settle or compromise any federal, state, local or foreign
income tax dispute in excess of $25,000 or make any Tax election;
(xiv) settle or compromise any claims or litigation in excess of
$25,000 or commence any litigation or proceedings;
(xv) enter into or amend any agreement or contract (i) having a
remaining term in excess of 12 months or (ii) which involves or is
expected to involve future payments by the Company of $50,000 or more or
future payments to the Company of $100,000 or more during the term
thereof; or purchase any real property, or make or agree to make any new
capital expenditure or expenditures (other than the purchase of real
property) which in the aggregate are in excess of $50,000;
A-29
<PAGE> 81
(xvi) pay, discharge or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction of any
such claims, liabilities or obligations, in the ordinary course of
business consistent with past practice or in accordance with their
terms; or
(xvii) authorize, recommend, propose or announce an intention to
do any of the foregoing, or enter into any contract, agreement,
commitment or arrangement to do any of the foregoing.
Section 5.2 No Solicitation. (a) The Company shall not, nor shall
it permit any of its Subsidiaries to, nor shall it authorize or permit any
officer, director or employee of or any financial advisor, attorney or other
advisor or representative of, the Company or any of its Subsidiaries to, (i)
solicit, initiate or encourage the submission of, any Takeover Proposal (as
hereinafter defined), (ii) enter into any agreement with respect to or approve
or recommend any Takeover Proposal or (iii) participate in any discussions or
negotiations regarding, or furnish to any person any information with respect to
the Company or any Subsidiary in connection with, or take any other action to
facilitate any inquiries or the making of any proposal that constitutes, or may
reasonably be expected to lead to, any Takeover Proposal; provided, however,
that nothing contained in this Section 5.2(a) shall prohibit the Company or its
Board of Directors from complying with Rule 14e-2 promulgated under the Exchange
Act with regard to a tender or exchange offer; and provided, further, that if
the Board of Directors of the Company reasonably determines that a Takeover
Proposal constitutes a Superior Proposal (as hereinafter defined), then, to the
extent required by the fiduciary obligations of the Board of Directors of the
Company to the Company's stockholders under applicable law, as determined in
good faith by a majority thereof after consultation with independent outside
counsel (who may be the Company's regularly engaged independent outside
counsel), the Company and its representatives may, in response to an unsolicited
Takeover Proposal, and subject to compliance with Section 5.2(b), furnish
information with respect to the Company and its Subsidiaries to any third party
pursuant to a customary confidentiality agreement (as determined by the
Company's independent outside counsel) and participate in discussions or
negotiations with such third party regarding such Takeover Proposal. Without
limiting the foregoing, it is understood that any violation of the restrictions
set forth in the preceding sentence by any officer or director of the Company or
any of its Subsidiaries or any financial advisor, attorney or other advisor or
representative of the Company or any of its Subsidiaries, whether or not such
person is purporting to act on behalf of the Company or any of its Subsidiaries
or otherwise, shall be deemed to be a breach of this Section 5.2(a) by the
Company. For purposes of this Agreement, "Takeover Proposal" means any proposal
for a merger or other business combination involving the Company or any of its
Subsidiaries or any proposal or offer to acquire in any manner, directly or
indirectly, an equity interest in, any voting securities of, or a substantial
portion of the assets of the Company or any of its Subsidiaries, other than the
transactions contemplated by this Agreement, and "Superior Proposal" means a
bona fide proposal made by a third party to acquire the Company pursuant to a
tender or exchange offer, a merger, a sale of all or substantially all its
assets or otherwise on terms which a majority of the members of the Board of
Directors of the Company determines, at a duly constituted meeting of the Board
of Directors or by unanimous written consent, in its
A-30
<PAGE> 82
reasonable good faith judgment to be more favorable to the Company's
stockholders than the Merger (after consultation with the Company's independent
financial advisor) and for which financing, to the extent required, is then
committed or which, in the reasonable good faith judgment of a majority of such
members, as expressed in a resolution adopted at a duly constituted meeting of
such members (after consultation with the Company's independent financial
advisor), is reasonably capable of being obtained by such third party.
(b) The Company shall advise Parent orally and in writing of (i)
any Takeover Proposal or any inquiry with respect to or which could lead to any
Takeover Proposal received by any officer, director, financial advisor, attorney
or other advisor or representative of the Company, (ii) the material terms of
such Takeover Proposal (including a copy of any written proposal), and (iii) the
identity of the person making any such Takeover Proposal or inquiry no later
than 24 hours following receipt of such Takeover Proposal or inquiry. If the
Company intends to furnish any third party with any information with respect to
any Takeover Proposal in accordance with Section 5.2(a), the Company shall
advise Parent orally and in writing of such intention not less than 24 hours in
advance of providing such information. The Company will keep Parent fully
informed of the status and details of any such Takeover Proposal or inquiry.
Section 5.3 Third Party Standstill Agreements. During the period
from the date of this Agreement through the Effective Time, the Company shall
not terminate, amend, modify or waive any provision of any standstill agreement
to which the Company or any of its Subsidiaries is a party (other than any
involving Parent or any of its affiliates). During such period, the Company
agrees to enforce, to the fullest extent permitted under applicable law, the
provisions of any such agreements, including, but not limited to, obtaining
injunctions to prevent any breaches of such agreements and to enforce
specifically the terms and provisions thereof in any court of the United States
or any state thereof having jurisdiction.
ARTICLE VI
ADDITIONAL AGREEMENTS
Section 6.1 Stockholder Meeting. (a) The Company shall, promptly
following the date hereof, take all necessary action to duly call, give notice
of, convene and hold a meeting of stockholders (the "Stockholder Meeting") for
the purpose of considering the approval of this Agreement and at such meeting
call for a vote and cause proxies to be voted in respect of the approval and
adoption of this Agreement. The Company shall, through its Board of Directors,
recommend to its stockholders the approval of this Agreement, and shall not
withdraw or modify such recommendation. Without limiting the generality of the
foregoing, the Company agrees that its obligations pursuant to the first
sentence of this Section 6.1 shall not be affected by the commencement, public
proposal, public disclosure or communication to the Company of any Takeover
Proposal.
A-31
<PAGE> 83
(b) The Company shall, promptly following the date hereof, take
all necessary action to prepare and file a preliminary Proxy Statement with the
SEC and shall use its reasonable best efforts to respond to any comments of the
SEC or its staff and to cause the Proxy Statement to be mailed to the Company's
stockholders as promptly as practicable after responding to all such comments to
the satisfaction of the staff. The Company shall notify Parent promptly of the
receipt of any comments from the SEC or its staff and of any request by the SEC
or its staff for amendments or supplements to the Proxy Statement or for
additional information and will supply Parent with copies of all correspondence
between the Company or any of its representatives, on the one hand, and the SEC
or its staff, on the other hand, with respect to the Proxy Statement or the
Merger. If at any time prior to the Stockholder Meeting there shall occur any
event that should be set forth in an amendment or supplement to the Proxy
Statement, the Company shall promptly prepare and mail to its stockholders such
an amendment or supplement. The Company shall not mail any Proxy Statement, or
any amendment or supplement thereto, to which Parent reasonably objects.
(c) Parent agrees to cause all Shares owned by Parent or any
Subsidiary of Parent to be voted in favor of approval of the Merger.
Section 6.2 Access to Information. Subject to currently existing
contractual and legal restrictions applicable to the Company or any of its
Subsidiaries, the Company shall, and shall cause each of its Subsidiaries to,
afford to the accountants, counsel, financial advisors and other representatives
of Parent reasonable access to, and permit them to make such inspections as they
may reasonably require of, during the period from the date of this Agreement
through the Effective Time, all of their respective properties, books,
contracts, commitments and records (including engineering records and Tax
Returns and the work papers of independent accountants, if available and subject
to the consent of such independent accountants) and, during such period, the
Company shall, and shall cause each of its Subsidiaries to (i) furnish promptly
to Parent a copy of each report, schedule, registration statement and other
document filed by it during such period pursuant to the requirements of federal
or state securities laws, (ii) furnish promptly to Parent all other information
concerning its business, properties and personnel as Parent may reasonably
request and (iii) promptly make available to Parent all personnel of the Company
and its Subsidiaries knowledgeable about matters relevant to such inspections.
No investigation pursuant to this Section 6.2 shall affect any representation or
warranty in this Agreement of any party hereto or any condition to the
obligations of the parties hereto. All information obtained by Parent pursuant
to this Section 6.2 shall be kept confidential in accordance with the
Confidentiality Agreement dated April 5, 1999 between Parent and the Company
(the "Confidentiality Agreement").
Section 6.3. Fees and Expenses. (a) Except as provided in this
Section 6.3, whether or not the Merger is consummated, all costs and expenses
incurred in connection with this Agreement and the transactions contemplated
hereby, including the fees and disbursements of counsel, financial advisors and
accountants, shall be paid by the party incurring such costs and expenses.
A-32
<PAGE> 84
(b) The Company shall pay, or cause to be paid, in same day funds
to Parent the following amounts under the circumstances and at the times set
forth as follows:
(i) if the Company terminates this Agreement under Section
8.1(f), the Company shall pay to Parent the Termination Fee (as
hereinafter defined) upon such termination and the Expenses (as
hereinafter defined) upon demand;
(ii) if Parent terminates this Agreement under Section 8.1(c),
the Company shall pay to Parent the Termination Fee within one day of
such termination and the Expenses upon demand;
(iii) if Parent or Sub terminates this Agreement under Section
8.1(d) or 8.1 (e) and at the time of any such termination, a Takeover
Proposal shall have been made (other than a Takeover Proposal made prior
to the date hereof), (x) the Company shall pay the Expenses of Parent
upon demand, and (y) if concurrently therewith or within twelve months
thereafter, (A) the Company enters into a merger agreement, acquisition
agreement or similar agreement (including a letter of intent) with
respect to a Takeover Proposal, or a Takeover Proposal is consummated,
involving any party (1) with whom the Company had any discussions with
respect to a Takeover Proposal, (2) to whom the Company furnished
information with respect to or with a view to a Takeover Proposal or (3)
who had submitted a proposal or expressed any interest publicly in a
Takeover Proposal, in the case of each of clauses (1), (2) and (3),
prior to such termination, or (B) the Company enters into a merger
agreement, acquisition agreement or similar agreement (including a
letter of intent) with respect to a Superior Proposal, or a Superior
Proposal is consummated, then, in the case of either (A) or (B) above,
the Company shall pay the Termination Fee upon the earlier of the
execution of such agreement or upon consummation of such Takeover
Proposal or Superior Proposal.
(c) "Expenses" means documented out-of-pocket fees and expenses
incurred or paid by or on behalf of Parent in connection with the Merger or the
consummation of any of the transactions contemplated by this Agreement,
including all fees and expenses of law firms, commercial banks, investment
banking firms, accountants, experts and consultants to Parent; provided that the
Expenses of Parent payable by the Company under this Section 6.3 shall not
exceed $150,000; and "Termination Fee" means $ 400,000.
Section 6.4. Stock Options. (a) Prior to the Effective Time, the
Board of Directors of the Company (or, if appropriate, any committee thereof)
shall adopt appropriate resolutions and take all other actions necessary or
appropriate to (i) cause each Company Stock Option that is outstanding as of the
date hereof to vest and to be exercisable immediately at the Effective Time and
(ii) cause each Company Stock Option that is outstanding at the Effective Time
to be canceled as of the Effective Time, in consideration for which the holder
thereof (an "Option Holder") shall be entitled to receive from the Company an
amount equal to (A) the product of (1) the number of Shares subject to such
Company Stock Option and (2) the excess, if any, of the Merger Consideration
over the exercise price per Share subject to such Company
A-33
<PAGE> 85
Stock Option, minus (B) all applicable federal, state and local Taxes required
to be withheld in respect of such payment. The amounts payable pursuant to
clause (ii) of the first sentence of this Section 6.4 shall be paid as soon as
reasonably practicable following the Effective Time. The amount payable to any
Option Holder pursuant to clause (ii) of the first sentence of this Section 6.4
shall be reduced to the extent necessary to prevent such payment, together with
any other amounts payable to such Option Holder by the Company, from
constituting a "parachute payment," within the meaning of section 280G of the
Code. The surrender of a Company Stock Option in exchange for the consideration
contemplated by clause (ii) of the first sentence of this Section 6.4 shall be
deemed a release of any and all rights the Option Holder had or may have had in
respect of any Company Stock Option held by such Option Holder.
(b) The Company shall take all actions necessary to provide that,
effective as of the Effective Time, (i) each of the Company Stock Option Plans
and any similar plan or agreement of the Company shall be terminated, (ii) any
rights under any other plan, program, agreement or arrangement to the issuance
or grant of any other interest in respect of the capital stock of the Company or
any of its Subsidiaries shall be terminated, and (iii) no Option Holder will
have any right to receive any shares of capital stock of the Company or, if
applicable, the Surviving Corporation, upon exercise of any Company Stock
Option.
(c) Prior to the Effective Time, the Company shall (i) obtain all
necessary consents and acknowledgments from (in a form acceptable to Parent)
Option Holders and (ii) take all lawful action, as is necessary to give effect
to the provisions of Section 6.4(a) and (b).
Section 6.5 Reasonable Best Efforts. (a) Upon the terms and
subject to the conditions set forth in this Agreement, each of the parties
agrees to use reasonable best efforts to take, or cause to be taken, all
actions, and to do, or cause to be done, and to assist and cooperate with the
other parties in doing, all things necessary, proper or advisable to consummate
and make effective, in the most expeditious manner practicable, the Merger and
the other transactions contemplated by this Agreement, including: (i) the
obtaining of all necessary actions or non-actions, waivers, consents and
approvals from all Governmental Entities and the making of all necessary
registrations and filings (including filings with Governmental Entities) and the
taking of all reasonable steps as may be necessary to obtain an approval or
waiver from, or to avoid an action or proceeding by, any Governmental Entity
(including those in connection with State Takeover Approvals), (ii) the
obtaining of all necessary consents, approvals or waivers from third parties,
(iii) the defending of any lawsuits or other legal proceedings, whether judicial
or administrative, challenging this Agreement or the consummation of the
transactions contemplated hereby and thereby, including seeking to have any stay
or temporary restraining order entered by any court or other Governmental Entity
vacated or reversed, and (iv) the execution and delivery of any additional
instruments necessary to consummate the transactions contemplated by this
Agreement. No party to this Agreement shall consent to any voluntary delay of
the consummation of the Merger at the behest of any Governmental Entity without
the consent of the other parties to this Agreement, which consent shall not be
unreasonably withheld.
A-34
<PAGE> 86
(b) Each party shall use all reasonable best efforts to not take
any action, or enter into any transaction, which would cause any of its
representations or warranties contained in this Agreement to be untrue or result
in a breach of any covenant made by it in this Agreement.
(c) Notwithstanding anything to the contrary contained in this
Agreement, in connection with any filing or submission required or action to be
taken by either Parent or the Company to effect the Merger and to consummate the
other transactions contemplated hereby, the Company shall not, without Parent's
prior written consent, commit to any divestiture transaction, and neither Parent
nor any of its Affiliates shall be required to divest or hold separate or
otherwise take or commit to take any action that limits its freedom of action
with respect to, or its ability to retain, the Company or any of the businesses,
product lines or assets of Parent or any of its Subsidiaries or that otherwise
would have a Material Adverse Effect on Parent.
Section 6.6 Public Announcements. Parent and the Company will not
issue any press release with respect to the transactions contemplated by this
Agreement or otherwise issue any written public statements with respect to such
transactions without prior consultation with the other party, except as may be
required by applicable law or by obligations pursuant to any listing agreement
with any national securities exchange.
Section 6.7 State Takeover Laws. If any "fair price," "business
combination" or "control share acquisition" statute or other similar statute or
regulation shall become applicable to the transactions contemplated hereby or by
the Stockholder Agreements, Parent and the Company and their respective Boards
of Directors shall use their reasonable best efforts to grant such approvals and
take such actions as are necessary so that the transactions contemplated hereby
and thereby may be consummated as promptly as practicable on the terms
contemplated hereby and thereby and otherwise act to minimize the effects of any
such statute or regulation on the transactions contemplated hereby and thereby.
Section 6.8 Indemnification; Directors and Officers Insurance.
(a) From and after the Effective Time, Parent shall cause the Surviving
Corporation to indemnify and hold harmless all past and present officers and
directors of the Company and of its Subsidiaries to the same extent and in the
same manner such persons are indemnified as of the date of this Agreement by the
Company pursuant to the DGCL, the Company Charter or the Company's Amended and
Restated Bylaws for acts or omissions occurring at or prior to the Effective
Time.
(b) Parent shall cause the Surviving Corporation to provide, for
an aggregate period of not less than five years from the Effective Time, the
Company's current directors and officers an insurance and indemnification policy
that provides coverage for events occurring prior to the Effective Time (the
"D&O Insurance") that is substantially similar to the Company's existing policy
or, if substantially equivalent insurance coverage is unavailable, the best
available coverage; provided, however, that the Surviving Corporation shall not
be required to pay an annual premium for the D&O Insurance in excess of the last
annual premiums paid prior to the date hereof but in such case shall purchase as
much coverage as possible for such amount.
A-35
<PAGE> 87
Section 6.9 Notification of Certain Matters. Parent shall use its
reasonable best efforts to give prompt notice to the Company, and the Company
shall use its reasonable best efforts to give prompt notice to Parent, of: (i)
the occurrence, or non-occurrence, of any event the occurrence, or
non-occurrence, of which it is aware and which would be reasonably likely to
cause (x) any representation or warranty contained in this Agreement and made by
it to be untrue or inaccurate in any material respect or (y) any covenant,
condition or agreement contained in this Agreement and made by it not to be
complied with or satisfied in all material respects, (ii) any failure of Parent
or the Company, as the case may be, to comply in a timely manner with or satisfy
any covenant, condition or agreement to be complied with or satisfied by it
hereunder or (iii) any change or event which would be reasonably likely to have
a Material Adverse Effect on the Company; provided, however, that the delivery
of any notice pursuant to this Section 6.9 shall not limit or otherwise affect
the remedies available hereunder to the party receiving such notice.
Section 6.10 Certain Agreements. (a) At or prior to the Effective
Time, the Company shall enter into a consulting agreement with Richard D.
Clasen, in the form attached hereto in Exhibit B.
(b) At or prior to the Effective Time, the Company shall enter
into an employment agreement with John Worden, in the form attached hereto as
Exhibit C.
Section 6.11 Company Indebtedness. The Company shall repay,
prompty after the Effective Time, the obligations set forth in Section 6.11 of
the Company Letter, unless prior thereto the Company shall have obtained the
consent of the parties thereto necessary to the consummation of the transactions
contemplated by this Agreement.
ARTICLE VII
CONDITIONS PRECEDENT TO THE MERGER
Section 7.1 Conditions to Each Party's Obligation to Effect the
Merger. The respective obligations of each party to effect the Merger shall be
subject to the fulfillment at or prior to the Effective Time of the following
conditions:
(a) Stockholder Approval. The Company Stockholder Approval shall
have been obtained.
(b) No Order. No court or other Governmental Entity having
jurisdiction over the Company or Parent, or any of their respective
Subsidiaries, shall have enacted, issued, promulgated, enforced or entered any
law, rule, regulation, executive order, decree, injunction or other order
(whether temporary, preliminary or permanent) which is then in effect and has
the effect of making the Merger illegal.
A-36
<PAGE> 88
Section 7.2 Conditions to Obligations of Parent and Sub to Effect
the Merger. The obligations of Parent and Sub to effect the Merger shall be
subject to the fulfillment at or prior to the Effective Time of the following
additional conditions:
(a) Performance of Obligations; Representations and Warranties.
The Company shall have performed in all material respects each of its agreements
contained in this Agreement required to be performed at or prior to the
Effective Time, each of the representations and warranties of the Company
contained in this Agreement that is qualified by materiality shall be true and
correct at and as of the Effective Time as if made on and as of such date and
each of the representations and warranties of the Company that is not so
qualified shall be true in all material respects at and as of the Effective Time
as if made on and as on such date, in each case except as expressly contemplated
or permitted by this Agreement, and Parent shall have received a certificate
signed on behalf of the Company by its Chief Executive Officer to such effect.
A-37
<PAGE> 89
(b) Consents. (i) The Company shall have obtained the consent or
approval of each person or Governmental Entity whose consent or approval shall
be required in connection with the transactions contemplated hereby under any
loan or credit agreement, note, mortgage, indenture, lease or other agreement or
instrument, except as to which the failure to obtain such consents and approvals
would not, in the reasonable opinion of Parent, individually or in the
aggregate, have a Material Adverse Effect on the Company or Parent or upon the
consummation of the transactions contemplated in this Agreement or in the
Stockholder Agreements or except as may be otherwise set forth in the Company
Letter.
(ii) In obtaining any approval or consent required to consummate
any of the transactions contemplated herein, or in the Stockholder
Agreements, no Governmental Entity shall have imposed or shall have
sought to impose any condition, penalty or requirement which, in the
reasonable opinion of Parent, individually or in aggregate would have a
Material Adverse Effect on the Company or Parent.
(c) Material Adverse Change. Since the date of this Agreement,
there shall have been no Material Adverse Change with respect to the Company.
Parent shall have received a certificate signed on behalf of the Company by the
Chief Executive Officer of the Company to such effect.
(d) Other Documents. The Company shall have furnished to Parent
at the Effective Time such other customary documents, certificates or
instruments as Parent may reasonably request evidencing compliance by the
Company with the terms of this Agreement.
Section 7.3. Conditions to Obligation of the Company to Effect
the Merger. The obligation of the Company to effect the Merger shall be subject
to the fulfillment at or prior to the Effective Time of the following additional
conditions:
(a) Performance of Obligations; Representations and Warranties.
Parent and Sub shall have performed in all material respects each of their
agreements contained in this Agreement required to be performed at or prior to
the Effective Time, each of the representations and warranties of Parent and Sub
contained in this Agreement that is qualified by materiality shall be true and
correct at and as of the Effective Time as if made on and as of such date and
each of the representations and warranties that is not so qualified shall be
true and correct in all material respects at and as of the Effective Time as if
made on and as of such date, in each case except as expressly contemplated or
permitted by this Agreement, and the Company shall have received a certificate
signed on behalf of Parent and Sub by its President or any Vice President to
such effect.
(b) Other Documents. Parent and Sub shall have furnished to the
Company at the Effective Time such other customary documents, certificates or
instruments as the Company may reasonably request evidencing compliance by
Parent and Sub with the terms of this Agreement.
ARTICLE VIII
A-38
<PAGE> 90
TERMINATION, AMENDMENT AND WAIVER
Section 8.1. Termination. This Agreement may be terminated at any
time prior to the Effective Time, whether before or after approval of this
Agreement by the stockholders of the Company:
(a) by mutual written consent of Parent and the Company;
(b) by either Parent or the Company:
(i) if any Governmental Entity shall have issued an order, decree
or ruling or taken any other action permanently enjoining, restraining
or otherwise prohibiting the consummation of the Merger and such order,
decree or ruling or other action shall have become final and
nonappealable;
(ii) if, at the Stockholder Meeting (including any adjournment
thereof) this Agreement shall fail to be adopted and approved by the
requisite vote of the stockholders of the Company; or
(iii) if the Merger shall not have been consummated on or before
May 31, 2000, unless the failure to consummate the Merger is the result
of a material breach of this Agreement by the party seeking to terminate
this Agreement;
(c) by Parent if (i) the Board of Directors of the Company, in
breach of Section 6.1(a), shall not have recommended, or shall have resolved not
to recommend, or shall have qualified, modified or withdrawn its recommendation
of the Merger or its declaration that the Merger is advisable and fair to and in
the best interest of the Company and its stockholders, or shall have resolved to
do so, (ii) the Board of Directors of the Company, in breach of Section 5.2,
shall have recommended to the stockholders of the Company any Takeover Proposal
or shall have resolved to do so, or (iii) a tender offer or exchange offer for
20% or more of the outstanding shares of capital stock of the Company is
commenced, and the Board of Directors of the Company fails to recommend against
acceptance of such tender offer or exchange offer by its stockholders (including
by taking no position with respect to the acceptance of such tender offer or
exchange offer by its stockholders);
(d) by Parent or Sub, if the Company shall have failed to perform
in any material respect any of its obligations or to comply in any material
respect with any agreement or covenant of the Company to be performed or
complied with by it under this Agreement, which failure cannot be or has not
been cured within 20 business days after the giving of written notice thereof to
the Company;
(e) by Parent or Sub, if there has been a breach of any of the
representations and warranties of the Company set forth in this Agreement that
are qualified as to materiality or there has been a material breach of any such
representation or warranty that is not so qualified, in each case which breach
cannot be or has not been cured within 20 business days after the giving of
written notice thereof to the Company;
A-39
<PAGE> 91
(f) by the Company, if the Board of Directors of the Company
reasonably determines that a Takeover Proposal constitutes a Superior Proposal
and a majority of the members of the Board of Directors determines, in its
reasonable good faith judgment, after consultation with independent outside
counsel, that failing to terminate this Agreement would constitute a breach of
the Board of Directors' fiduciary duties to the Company's stockholders under
applicable law; provided that the Company has complied with all provisions of
Section 5.2, including the notice provisions therein, and that it has complied
with the requirements of Section 6.3(b) relating to the payment (including the
timing of any payment) of the Expenses and the Termination Fee to the extent
required by Section 6.3(b); and provided, further that the Company may not
terminate this Agreement pursuant to this Section 8.1(f) unless and until 72
hours have elapsed following delivery to Parent of a written notice of such
determination by the Board of Directors of the Company; or
(g) by the Company, if (i) any of the representations or
warranties of Parent or Sub set forth in this Agreement that are qualified as to
materiality shall not be true and correct in any respect or any such
representation or warranty that is not so qualified shall not be true and
correct in any material respect, or (ii) Parent or Sub shall have failed to
perform in any material respect any material obligation or to comply in any
material respect with any material agreement or covenant of Parent or Sub to be
performed or complied with by it under this Agreement and, in each case, such
failure cannot be or has not been cured within 20 business days after the giving
of written notice thereof to Parent or Sub, as applicable.
The right of any party hereto to terminate this Agreement
pursuant to this Section 8.1 shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of any party hereto, any
person controlling any such party or any of their respective officers or
directors, whether prior to or after the execution of this Agreement.
Section 8.2 Effect of Termination. In the event of termination of
this Agreement by either Parent or the Company, as provided in Section 8.1, this
Agreement shall forthwith become void and there shall be no liability hereunder
on the part of the Company, Parent, Sub or their respective officers or
directors (except for the last sentence of Section 6.2 and the entirety of
Section 6.3, which shall survive the termination); provided, however, that
nothing contained in this Section 8.2 shall relieve any party hereto from any
liability for any willful breach of a representation or warranty contained in
this Agreement or the breach of any covenant contained in this Agreement.
Section 8.3 Amendment. This Agreement may be amended by the
parties hereto, by or pursuant to action taken by their respective Boards of
Directors, at any time before or after approval of the matters presented in
connection with the Merger by the stockholders of the Company, but, after any
such approval, no amendment shall be made which by law requires further approval
by such stockholders without such further approval. This Agreement may not be
amended except by an instrument in writing signed on behalf of each of the
parties hereto.
Section 8.4 Waiver. At any time prior to the Effective Time, the
parties hereto may (i) extend the time for the performance of any of the
obligations or other acts of the other
A-40
<PAGE> 92
parties hereto, (ii) waive any inaccuracies in the representations and
warranties contained herein or in any document delivered pursuant hereto and
(iii) waive compliance with any of the agreements or conditions contained herein
which may legally be waived. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party.
ARTICLE IX
GENERAL PROVISIONS
Section 9.1 Non-Survival of Representations and Warranties. The
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement shall terminate at the Effective Time.
Section 9.2 Notices. All notices and other communications
hereunder shall be in writing and shall be deemed given when delivered
personally, one day after being delivered to an overnight courier or when
telecopied (with a confirmatory copy sent by overnight courier) to the parties
at the following addresses (or at such other address for a party as shall be
specified by like notice):
(a) if to Parent or Sub, to:
Square D Company
1415 S. Roselle Road
Palatine, Illinois 60067
Attention: Franklin B. Sullivan
Facsimile No. 847-925-7367
A-41
<PAGE> 93
with copies to:
Square D Company
1415 S. Roselle Road
Palatine, Illinois 60067
Attention: Howard E. Japlon
Facsimile No. 847-925-7419
and
Sidley & Austin
Bank One Plaza
10 South Dearborn Street
Chicago, Illinois 60603
Attention: Pran Jha
Facsimile No.: 312-853-7036
(b) if to the Company, to:
EFI Electronics Corporation
1751 South 4800 West
Salt Lake City, Utah 84104
Attention: Richard D. Clasen
Facsimile No.: 801-977-3467
with a copy to:
Parr Waddoups Brown Gee & Loveless
185 South State Street, Suite 1300
Salt Lake City, Utah 84111-1536
Attention: Douglas C. Waddoups
Facsimile No.: 801-532-7750
Section 9.3 Interpretation. (a) When a reference is made in this
Agreement to a Section, such reference shall be to a Section of this Agreement
unless otherwise indicated. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. Whenever the words "include,"
"includes" or "including" are used in this Agreement, they shall be deemed to be
followed by the words "without limitation."
A-42
<PAGE> 94
(b) "Subsidiary" means any corporation, partnership, limited
liability company, joint venture or other legal entity of which Parent or the
Company, as the case may be (either alone or through or together with any other
Subsidiary), owns, directly or indirectly, 50% or more of the stock or other
equity interests the holders of which are generally entitled to vote for the
election of the board of directors or other governing body of such corporation,
partnership, limited liability company, joint venture or other legal entity.
(c) "Material Adverse Change" or "Material Adverse Effect" means,
when used with respect to the Company or Parent, as the case may be, any change
or effect that is or could reasonably be expected (as far as can be foreseen at
the time) to be materially adverse to the business, operations, assets,
liabilities, employee relationships, customer or supplier relationships,
earnings or results of operations, or the business prospects and condition
(financial or otherwise), of the Company and its Subsidiaries, taken as a whole,
or Parent and its Subsidiaries, taken as a whole, as the case may be.
Section 9.4 Counterparts. This Agreement may be executed in
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties.
Section 9.5 Entire Agreement; No Third-Party Beneficiaries. This
Agreement, except as provided in the last sentence of Section 6.2, constitutes
the entire agreement, and supersedes all prior agreements and understandings,
both written and oral, among the parties with respect to the subject matter
hereof. This Agreement, except for the provisions of Section 6.8, is not
intended to confer upon any person other than the parties hereto any rights or
remedies hereunder.
Section 9.6 Governing Law. This Agreement shall be governed by,
and construed in accordance with, the laws of the State of Delaware, regardless
of the laws that might otherwise govern under applicable principles of conflicts
of laws thereof.
Section 9.7 Assignment. Subject to Section 1.1, neither this
Agreement nor any of the rights, interests or obligations hereunder shall be
assigned by any of the parties hereto (whether by operation of law or otherwise)
without the prior written consent of the other parties. Subject to the preceding
sentence, this Agreement will be binding upon, inure to the benefit of and be
enforceable by the parties and their respective successors and permitted
assigns.
Section 9.8 Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law,
or public policy, all other terms, conditions and provisions of this Agreement
shall nevertheless remain in full force and effect so long as the economic and
legal substance of the transactions contemplated hereby are not affected in any
manner materially adverse to any party. Upon such determination that any term or
other provision is invalid, illegal or incapable of being enforced, the parties
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in a mutually acceptable
manner in order that the transactions contemplated by this Agreement may be
consummated as originally contemplated to the fullest extent possible.
A-43
<PAGE> 95
Section 9.9 Enforcement of this Agreement. The parties hereto
agree that irreparable damage would occur in the event that any of the
provisions of this Agreement were not performed in accordance with their
specific wording or were otherwise breached. It is accordingly agreed that the
parties hereto shall be entitled to an injunction or injunctions to prevent
breaches of this Agreement and to enforce specifically the terms and provisions
hereof in any court of the United States located in the State of Delaware or in
a Delaware state court, such remedy being in addition to any other remedy to
which any party is entitled at law or in equity. In addition, each of the
parties hereto (i) consents to submit such party to the personal jurisdiction of
any federal court located in the State of Delaware or any Delaware state court
in the event any dispute arises out of this Agreement or any of the transactions
contemplated hereby, (ii) agrees that such party will not attempt to deny or
defeat such personal jurisdiction by motion or other request for leave from any
such court, (iii) agrees that such party will not bring any action relating to
this Agreement or any of the transactions contemplated hereby in any court other
than a federal court sitting in the State of Delaware or a Delaware state court
and (iv) waives any right to trial by jury with respect to any claim or
proceeding related to or arising out of this Agreement or any of the
transactions contemplated hereby.
A-44
<PAGE> 96
IN WITNESS WHEREOF, Parent, Sub and the Company have caused this
Agreement to be signed by their respective officers thereunto duly authorized
all as of the date first written above.
SQUARE D COMPANY
By: /s/ Walter W. Kurczewski
------------------------------
Name: Walter W. Kurczewski
Title: Vice President
SURGE SUB INC.
By: /s/ Vincent A. Inendino
------------------------------
Name: Vincent A. Inendino
Title: Vice President
EFI ELECTRONICS CORPORATION
By: /s/ Richard D. Clasen
------------------------------
Name: Richard D. Clasen
Title: President and Chief Executive Officer
A-45
<PAGE> 97
EXHIBIT A
TO
AGREEMENT AND PLAN OF MERGER
A-46
<PAGE> 98
STOCKHOLDER AGREEMENT
STOCKHOLDER AGREEMENT (this "Agreement"), dated as of March 20,
2000, among Square D Company, a Delaware corporation ("Parent"), Surge Sub Inc.,
a Delaware corporation and a wholly owned subsidiary of Parent ("Sub"), and the
undersigned stockholder (the "Stockholder") of EFI Electronics Corporation, a
Delaware corporation (the "Company").
WHEREAS, Parent, Sub and the Company propose to enter into an
Agreement and Plan of Merger dated as of even date herewith (as the same may be
amended or supplemented, the "Merger Agreement") to provide for the merger of
Sub with and into the Company (the "Merger");
WHEREAS, the Stockholder legally and/or beneficially owns that
number of shares of common stock, par value $.0001 per share, of the Company
(the "Common Stock") appearing on the signature page hereof (such shares, as
they may be adjusted by any stock dividend, stock split, recapitalization,
combination or exchange of shares, merger, consolidation, reorganization or
other change or transaction of or by the Company (each, an "Adjustment Event"),
together with any other shares of Common Stock acquired by the Stockholder after
the date hereof and during the term of this Agreement, being collectively
referred to herein as the "Subject Shares"); and
WHEREAS, as a condition to their willingness to enter into the
Merger Agreement, Parent and Sub have requested that the Stockholder enter into
this Agreement;
NOW, THEREFORE, to induce Parent and Sub to enter into, and in
consideration of their entering into, the Merger Agreement, and in consideration
of the premises and the representations, warranties and agreements contained
herein, the parties agree as follows:
1. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER. The
Stockholder hereby represents and warrants to Parent and Sub as follows:
(a) Authority. The Stockholder has all requisite power and authority
to enter into this Agreement and to consummate the transactions contemplated
hereby. This Agreement has been duly authorized, executed and delivered by the
Stockholder and constitutes a valid and binding obligation of the Stockholder
enforceable in accordance with its terms. The execution and delivery of this
Agreement does not, and the consummation of the transactions contemplated hereby
and compliance with the terms hereof will not, conflict with, result in any
violation of or default (with or without notice or lapse of time or both) under,
any provision of any trust agreement, loan or credit agreement, note, bond,
mortgage, indenture, lease or other agreement, instrument, permit, concession,
franchise, license, judgment, order, notice, decree, statute, law, ordinance,
rule or regulation applicable to the Stockholder or to the Stockholder's
property or assets. Except for informational filings with the SEC, no consent,
approval, order or authorization of, or registration, declaration or filing
with, any court, administrative agency or commission or other governmental
authority or instrumentality, domestic, foreign or
A-47
<PAGE> 99
supranational, is required by or with respect to the Stockholder in connection
with the execution and delivery of this Agreement or the consummation by the
Stockholder of the transactions contemplated hereby.
(b) The Shares. The Stockholder has good and marketable title to the
Subject Shares, free and clear of any claims, liens, encumbrances and security
interests whatsoever. The Stockholder owns no shares of Common Stock other than
the Subject Shares.
2. REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB.
(a) Authority. Parent and Sub hereby represent and warrant to the
Stockholder that each of Parent and Sub has all requisite corporate power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by Parent and
Sub, and the consummation of the transactions contemplated hereby, have been
duly authorized by all necessary corporate action on the part of Parent and Sub.
This Agreement has been duly executed and delivered by Parent and Sub and
constitutes a valid and binding obligation of Parent and Sub enforceable in
accordance with its terms.
3. COVENANTS OF THE STOCKHOLDER. The Stockholder agrees as follows:
(a) At any meeting of stockholders of the Company called to vote
upon the Merger and the Merger Agreement or at any adjournment thereof or in any
other circumstances upon which a vote, consent or other approval with respect to
the Merger and the Merger Agreement is sought, the Stockholder shall vote (or
cause to be voted) the Subject Shares in favor of the Merger, the approval of
the Merger Agreement and the approval of the terms thereof and each of the other
transactions contemplated by the Merger Agreement, provided that the terms of
the Merger Agreement shall not have been amended to adversely affect the
Stockholder.
(b) At any meeting of stockholders of the Company or at any
adjournment thereof or in any other circumstances upon which the Stockholder's
vote, consent or other approval is sought, the Stockholder shall vote (or cause
to be voted) the Subject Shares against (i) any merger agreement or merger
(other than the Merger Agreement and the Merger), consolidation, combination,
sale of substantial assets, reorganization, recapitalization, dissolution,
liquidation or winding up of or by the Company or any other Takeover Proposal or
(ii) any amendment of the Company's certificate of incorporation or by-laws or
other proposal or transaction involving the Company or any of its subsidiaries,
which amendment or other proposal or transaction would in any manner impede,
frustrate, prevent or nullify the Merger, the Merger Agreement or any of the
other transactions contemplated by the Merger Agreement.
(c) The Stockholder agrees not to (i) sell, transfer, pledge, assign
or otherwise dispose of, or enter into any contract, option or other arrangement
(including any profit sharing arrangement) with respect to the sale, transfer,
pledge, assignment or other disposition of, the Subject Shares to any person or
(ii) enter into any voting arrangement, whether by proxy, voting agreement or
otherwise, in connection, directly or indirectly, with any Takeover Proposal.
A-48
<PAGE> 100
(d) The Stockholder shall not, nor shall the Stockholder permit any
investment banker, attorney or other adviser or representative of the
Stockholder to, (i) directly or indirectly solicit, initiate or encourage the
submission of any Takeover Proposal or (ii) directly or indirectly participate
in any discussions or negotiations regarding, or furnish to any person any
information with respect to, or take any other action to facilitate any
inquiries or the making of any proposal that constitutes, or may reasonably be
expected to lead to, any Takeover Proposal.
4. FURTHER ASSURANCES. The Stockholder will, from time to time,
execute and deliver, or cause to be executed and delivered, such additional or
further transfers, assignments, endorsements, consents and other instruments as
Parent or Sub may reasonably request for the purpose of effectively carrying out
the transactions contemplated by this Agreement.
5. ASSIGNMENT. Neither this Agreement or any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
without the prior written consent of the other parties, except that Sub may
assign, in its sole discretion, any or all of its rights, interests and
obligations hereunder to Parent or to any direct or indirect wholly owned
subsidiary of Parent. Subject to the preceding sentence, this Agreement will be
binding upon, inure to the benefit of and be enforceable by the parties and
their respective successors and assigns.
6. TERMINATION. Except as otherwise provided herein, this Agreement
shall terminate upon the earlier of (i) the Effective Time, and (ii) the
termination of the Merger Agreement in accordance with its terms.
7. GENERAL PROVISIONS.
(a) Expenses. Except as otherwise expressly provided in the Merger
Agreement, each party hereto shall pay its own expenses incurred in connection
with this Agreement.
(b) Specific Performance. The parties hereto agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions hereof in any court of the United States
or any state thereof having jurisdiction, this being in addition to any other
remedy to which they are entitled at law or in equity. Each party hereby
irrevocably submits to the exclusive jurisdiction of the United States District
Court for the District of Delaware in any action, suit or proceeding arising in
connection with this Agreement and agrees that any such action, suit or
proceeding shall be brought only in such courts (and waives any objection based
on forum non conveniens or any other objection to venue therein). Each party
hereto waives any right to a trial by jury in connection with any such action,
suit or proceeding.
(c) Notice. All notices, requests, demands and other communications
hereunder shall be deemed to have been duly given and made if in writing and if
served by personal delivery upon the party for whom it is intended or if sent by
telex or telecopier (and also confirmed in writing) to the person at the address
set forth below, or such other address as may be designated in writing
hereafter, in the same manner, by such person:
A-49
<PAGE> 101
(i) if to Parent or Sub, to:
Square D Company
1415 S. Roselle Road
Palatine, Illinois 60067
Attention: Franklin B. Sullivan
Facsimile No.: 847-925-7367
with copies to:
Square D Company
1415 S. Roselle Road
Palatine, Illinois 60067
Attention: Howard E. Japlon
Facsimile No.: 847/925-7419
and
Sidley & Austin
One First National Plaza
Chicago, Illinois 60603
Attention: Pran Jha
Facsimile No.: 312-853-7036
(ii) if to the Stockholder, to:
Richard D. Clasen
2073 Mahre Drive
Park City, Utah 84908
Facsimile No.: __________
A-50
<PAGE> 102
with a copy to:
Parr Waddoups Brown Gee & Loveless
185 South State Street, Suite 1300
Salt Lake City, Utah 84111
Attention: Douglas C. Waddoups
Facsimile No.: 801-532-7750
(d) Parties in Interest. This Agreement shall inure to the benefit
of and be binding upon the parties named herein and their respective successors
and assigns. Nothing in this Agreement, expressed or implied, is intended to
confer upon any Person other than Parent, Sub or the Stockholder, or their
permitted successors or assigns, any rights or remedies under or by reason of
this Agreement.
(e) Entire Agreement; Amendments. This Agreement contains the entire
agreement between the parties hereto with respect to the subject matter hereof
and supersedes all prior and contemporaneous agreements and understandings, oral
or written, with respect to such transactions. This Agreement may not be
changed, amended or modified orally, but only by an agreement in writing signed
by the party against whom any waiver, change, amendment, modification or
discharge may be sought.
(f) Headings. The section headings herein are for convenience only
and shall not affect the construction of this Agreement.
(g) Counterparts. This Agreement may be executed in one or more
counterparts, each of which, when executed, shall be deemed to be an original
and all of which together shall constitute one and the same document.
(h) Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
laws thereof.
(i) Capitalized Terms. Capitalized terms not otherwise defined in
this Agreement shall have the meanings set forth in the Merger Agreement.
(j) Severability. If any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced by any rule of law, or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic and legal substance of
the transactions contemplated hereby are not affected in any manner materially
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties shall negotiate
in good faith to modify this Agreement so as to effect the original intent of
the parties as closely as possible in a mutually acceptable manner in order that
the transactions contemplated by this Agreement may be consummated as originally
contemplated to the fullest extent possible.
A-51
<PAGE> 103
8. NO LIMITATIONS ON ACTIONS OF STOCKHOLDER AS A DIRECTOR.
Notwithstanding anything to the contrary in this Agreement, nothing in this
Agreement is intended or shall be construed to require the Stockholder to take
or in any way limit any action that the Stockholder may take to discharge the
Stockholder's fiduciary duties as a director of the Company.
IN WITNESS WHEREOF, each of Parent and Sub has caused this Agreement
to be signed by its officer thereunto duly authorized and the Stockholder has
duly signed this Agreement, all as of the date first written above.
SQUARE D COMPANY
By: ______________________________
Name: Walter W. Kurczewski
Title: Vice President
Surge Sub Inc.
By: ______________________________
Name: Vincent A. Inendino
Title: Vice President
RICHARD D. CLASEN
------------------------------------
Number of shares of Common Stock owned by
the Stockholder on the date hereof:
-------------------
A-52
<PAGE> 104
STOCKHOLDER AGREEMENT
STOCKHOLDER AGREEMENT (this "Agreement"), dated as of March 20,
2000, among Square D Company, a Delaware corporation ("Parent"), Surge Sub Inc.,
a Delaware corporation and a wholly owned subsidiary of Parent ("Sub"), and the
undersigned stockholder (the "Stockholder") of EFI Electronics Corporation, a
Delaware corporation (the "Company").
WHEREAS, Parent, Sub and the Company propose to enter into an
Agreement and Plan of Merger dated as of even date herewith (as the same may be
amended or supplemented, the "Merger Agreement") to provide for the merger of
Sub with and into the Company (the "Merger");
WHEREAS, the Stockholder legally and/or beneficially owns that
number of shares of common stock, par value $.0001 per share, of the Company
(the "Common Stock") appearing on the signature page hereof (such shares, as
they may be adjusted by any stock dividend, stock split, recapitalization,
combination or exchange of shares, merger, consolidation, reorganization or
other change or transaction of or by the Company (each, an "Adjustment Event"),
together with any other shares of Common Stock acquired by the Stockholder after
the date hereof and during the term of this Agreement, being collectively
referred to herein as the "Subject Shares"); and
WHEREAS, as a condition to their willingness to enter into the
Merger Agreement, Parent and Sub have requested that the Stockholder enter into
this Agreement;
NOW, THEREFORE, to induce Parent and Sub to enter into, and in
consideration of their entering into, the Merger Agreement, and in consideration
of the premises and the representations, warranties and agreements contained
herein, the parties agree as follows:
1. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER. The
Stockholder hereby represents and warrants to Parent and Sub as follows:
(a) Authority. The Stockholder has all requisite corporate power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. This Agreement has been duly authorized, executed and
delivered by the Stockholder and constitutes a valid and binding obligation of
the Stockholder enforceable in accordance with its terms. The execution and
delivery of this Agreement does not, and the consummation of the transactions
contemplated hereby and compliance with the terms hereof will not, conflict
with, result in any violation of or default (with or without notice or lapse of
time or both) under, any provision of any trust agreement, loan or credit
agreement, note, bond, mortgage, indenture, lease or other agreement,
instrument, permit, concession, franchise, license, judgment, order, notice,
decree, statute, law, ordinance, rule or regulation applicable to the
Stockholder or to the Stockholder's property or assets. Except for informational
filings with the SEC, no consent, approval, order or authorization of, or
registration, declaration or filing with, any court, administrative agency or
A-53
<PAGE> 105
commission or other governmental authority or instrumentality, domestic, foreign
or supranational, is required by or with respect to the Stockholder in
connection with the execution and delivery of this Agreement or the consummation
by the Stockholder of the transactions contemplated hereby.
(b) The Shares. The Stockholder has good and marketable title to the
Subject Shares, free and clear of any claims, liens, encumbrances and security
interests whatsoever. The Stockholder owns no shares of Common Stock other than
the Subject Shares.
2. REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB.
(a) Authority. Parent and Sub hereby represent and warrant to the
Stockholder that each of Parent and Sub has all requisite corporate power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by Parent and
Sub, and the consummation of the transactions contemplated hereby, have been
duly authorized by all necessary corporate action on the part of Parent and Sub.
This Agreement has been duly executed and delivered by Parent and Sub and
constitutes a valid and binding obligation of Parent and Sub enforceable in
accordance with its terms.
3. COVENANTS OF THE STOCKHOLDER. The Stockholder agrees as follows
(it being understood that no such agreement shall be construed to affect the
rights or obligations of any designee of the Stockholder on the Board of
Directors of the Company):
(a) At any meeting of stockholders of the Company called to vote
upon the Merger and the Merger Agreement or at any adjournment thereof or in any
other circumstances upon which a vote, consent or other approval with respect to
the Merger and the Merger Agreement is sought, the Stockholder shall vote (or
cause to be voted) the Subject Shares in favor of the Merger, the approval of
the Merger Agreement and the approval of the terms thereof and each of the other
transactions contemplated by the Merger Agreement, provided that the terms of
the Merger Agreement shall not have been amended to adversely affect the
Stockholder.
(b) At any meeting of stockholders of the Company or at any
adjournment thereof or in any other circumstances upon which the Stockholder's
vote, consent or other approval is sought, the Stockholder shall vote (or cause
to be voted) the Subject Shares against (i) any merger agreement or merger
(other than the Merger Agreement and the Merger), consolidation, combination,
sale of substantial assets, reorganization, recapitalization, dissolution,
liquidation or winding up of or by the Company or any other Takeover Proposal or
(ii) any amendment of the Company's certificate of incorporation or by-laws or
other proposal or transaction involving the Company or any of its subsidiaries,
which amendment or other proposal or transaction would in any manner impede,
frustrate, prevent or nullify the Merger, the Merger Agreement or any of the
other transactions contemplated by the Merger Agreement.
(c) The Stockholder agrees not to (i) sell, transfer, pledge, assign
or otherwise dispose of, or enter into any contract, option or other arrangement
(including any profit sharing arrangement) with respect to the sale, transfer,
pledge, assignment or other disposition of, the
A-54
<PAGE> 106
Subject Shares to any person or (ii) enter into any voting arrangement, whether
by proxy, voting agreement or otherwise, in connection, directly or indirectly,
with any Takeover Proposal.
(d) The Stockholder shall not, nor shall the Stockholder permit any
investment banker, attorney or other adviser or representative of the
Stockholder to, (i) directly or indirectly solicit, initiate or encourage the
submission of any Takeover Proposal or (ii) directly or indirectly participate
in any discussions or negotiations regarding, or furnish to any person any
information with respect to, or take any other action to facilitate any
inquiries or the making of any proposal that constitutes, or may reasonably be
expected to lead to, any Takeover Proposal.
4. FURTHER ASSURANCES. The Stockholder will, from time to time,
execute and deliver, or cause to be executed and delivered, such additional or
further transfers, assignments, endorsements, consents and other instruments as
Parent or Sub may reasonably request for the purpose of effectively carrying out
the transactions contemplated by this Agreement.
5. ASSIGNMENT. Neither this Agreement or any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
without the prior written consent of the other parties, except that Sub may
assign, in its sole discretion, any or all of its rights, interests and
obligations hereunder to Parent or to any direct or indirect wholly owned
subsidiary of Parent. Subject to the preceding sentence, this Agreement will be
binding upon, inure to the benefit of and be enforceable by the parties and
their respective successors and assigns.
6. TERMINATION. Except as otherwise provided herein, this Agreement
shall terminate upon the earlier of (i) the Effective Time, and (ii) the
termination of the Merger Agreement in accordance with its terms.
7. GENERAL PROVISIONS.
(a) Expenses. Except as otherwise expressly provided in the Merger
Agreement, each party hereto shall pay its own expenses incurred in connection
with this Agreement.
(b) Specific Performance. The parties hereto agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions hereof in any court of the United States
or any state thereof having jurisdiction, this being in addition to any other
remedy to which they are entitled at law or in equity. Each party hereby
irrevocably submits to the exclusive jurisdiction of the United States District
Court for the District of Delaware in any action, suit or proceeding arising in
connection with this Agreement and agrees that any such action, suit or
proceeding shall be brought only in such courts (and waives any objection based
on forum non conveniens or any other objection to venue therein). Each party
hereto waives any right to a trial by jury in connection with any such action,
suit or proceeding.
(c) Notice. All notices, requests, demands and other communications
hereunder shall be deemed to have been duly given and made if in writing and if
served by
A-55
<PAGE> 107
personal delivery upon the party for whom it is intended or if sent by telex or
telecopier (and also confirmed in writing) to the person at the address set
forth below, or such other address as may be designated in writing hereafter, in
the same manner, by such person:
(i) if to Parent or Sub, to:
Square D Company
1415 S. Roselle Road
Palatine, Illinois 60067
Attention: Franklin B. Sullivan
Facsimile No.: 847-925-7367
with copies to:
Square D Company
1415 S. Roselle Road
Palatine, Illinois 60067
Attention: Howard E. Japlon
Facsimile No.: 847/925-7419
and
Sidley & Austin
One First National Plaza
Chicago, Illinois 60603
Attention: Pran Jha
Facsimile No.: 312-853-7036
(ii) if to the Stockholder, to:
Hubbell Incorporated
584 Derby Milford Road
Orange, Connecticut 06477
Attention: James H. Biggart
Facsimile No.: 203/799-4333
A-56
<PAGE> 108
with copies to:
Hubbell Incorporated
584 Derby Milford Road
Orange, Connecticut
Attention: Richard W. Davies
Facsimile No.: 203/799-4333
and
Simpson Thacher & Bartlet
425 Lexington Avenue
New York, NY 10017
Attention: Richard A. Garvey
Facsimile No.: 212/455-2500
(d) Parties in Interest. This Agreement shall inure to the benefit
of and be binding upon the parties named herein and their respective successors
and assigns. Nothing in this Agreement, expressed or implied, is intended to
confer upon any Person other than Parent, Sub or the Stockholder, or their
permitted successors or assigns, any rights or remedies under or by reason of
this Agreement.
(e) Entire Agreement; Amendments. This Agreement contains the entire
agreement between the parties hereto with respect to the subject matter hereof
and supersedes all prior and contemporaneous agreements and understandings, oral
or written, with respect to such transactions. This Agreement may not be
changed, amended or modified orally, but only by an agreement in writing signed
by the party against whom any waiver, change, amendment, modification or
discharge may be sought.
(f) Headings. The section headings herein are for convenience only
and shall not affect the construction of this Agreement.
(g) Counterparts. This Agreement may be executed in one or more
counterparts, each of which, when executed, shall be deemed to be an original
and all of which together shall constitute one and the same document.
(h) Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
laws thereof.
(i) Capitalized Terms. Capitalized terms not otherwise defined in
this Agreement shall have the meanings set forth in the Merger Agreement.
(j) Severability. If any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced by any rule of law, or public
policy, all other conditions
A-57
<PAGE> 109
and provisions of this Agreement shall nevertheless remain in full force and
effect so long as the economic and legal substance of the transactions
contemplated hereby are not affected in any manner materially adverse to any
party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties shall negotiate in good
faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in a mutually acceptable manner in order that the
transactions contemplated by this Agreement may be consummated as originally
contemplated to the fullest extent possible.
8. COMPANY AGREEMENTS.
(a) Right of First Refusal. The Stockholder hereby waives its right
of first refusal and any other rights contained in Section 8 of that certain
Agreement dated as of August 26, 1977 among the Company, the Stockholder and the
stockholders listed in Exhibit A thereto in connection with the Merger, the
Merger Agreement and the transactions contemplated thereby.
(b) Warrant. The Stockholder agrees not to exercise the Warrant
granted pursuant to the Warrant Agreement dated as of August 26, 1997 between
the Company and the Stockholder, either in whole or in part, prior to the
termination of the Merger Agreement in accordance with its terms, and further
agrees that, effective as of the Effective Time, such Warrant Agreement together
with all rights of the Stockholder thereunder, shall be terminated and of no
further force or effect.
A-58
<PAGE> 110
IN WITNESS WHEREOF, each of Parent, Sub and the Stockholder has
caused this Agreement to be signed by its officer thereunto duly authorized, all
as of the date first written above.
SQUARE D COMPANY
By: _______________________________
Name: Walter W. Kurczewski
Title: Vice President
SURGE SUB INC.
By: _______________________________
Name: Vincent A. Inendino
Title: Vice President
HUBBELL INCORPORATED
By: _______________________________
Name:
Title:
Number of shares of Common Stock owned by
the Stockholder on the date hereof:
1,054,044
A-59
<PAGE> 111
STOCKHOLDER AGREEMENT
STOCKHOLDER AGREEMENT (this "Agreement"), dated as of March ____,
2000, among Square D Company, a Delaware corporation ("Parent"), Surge Sub Inc.,
a Delaware corporation and a wholly owned subsidiary of Parent ("Sub"), and the
undersigned stockholder (the "Stockholder") of EFI Electronics Corporation, a
Delaware corporation (the "Company").
WHEREAS, Parent, Sub and the Company propose to enter into an
Agreement and Plan of Merger dated as of even date herewith (as the same may be
amended or supplemented, the "Merger Agreement") to provide for the merger of
Sub with and into the Company (the "Merger");
WHEREAS, the Stockholder legally and/or beneficially owns that
number of shares of common stock, par value $.0001 per share, of the Company
(the "Common Stock") appearing on the signature page hereof (such shares, as
they may be adjusted by any stock dividend, stock split, recapitalization,
combination or exchange of shares, merger, consolidation, reorganization or
other change or transaction of or by the Company (each, an "Adjustment Event"),
together with any other shares of Common Stock acquired by the Stockholder after
the date hereof and during the term of this Agreement, being collectively
referred to herein as the "Subject Shares"); and
WHEREAS, as a condition to their willingness to enter into the
Merger Agreement, Parent and Sub have requested that the Stockholder enter into
this Agreement;
NOW, THEREFORE, to induce Parent and Sub to enter into, and in
consideration of their entering into, the Merger Agreement, and in consideration
of the premises and the representations, warranties and agreements contained
herein, the parties agree as follows:
1. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER. The
Stockholder hereby represents and warrants to Parent and Sub as follows:
(a) Authority. The Stockholder has all requisite power and authority
to enter into this Agreement and to consummate the transactions contemplated
hereby. This Agreement has been duly authorized, executed and delivered by the
Stockholder and constitutes a valid and binding obligation of the Stockholder
enforceable in accordance with its terms. The execution and delivery of this
Agreement does not, and the consummation of the transactions contemplated hereby
and compliance with the terms hereof will not, conflict with, result in any
violation of or default (with or without notice or lapse of time or both) under,
any provision of any trust agreement, loan or credit agreement, note, bond,
mortgage, indenture, lease or other agreement, instrument, permit, concession,
franchise, license, judgment, order, notice, decree, statute, law, ordinance,
rule or regulation applicable to the Stockholder or to the Stockholder's
property or assets. Except for informational filings with the SEC, no consent,
approval, order or authorization of, or registration, declaration or filing
with, any court, administrative agency or
A-60
<PAGE> 112
commission or other governmental authority or instrumentality, domestic, foreign
or supranational, is required by or with respect to the Stockholder in
connection with the execution and delivery of this Agreement or the consummation
by the Stockholder of the transactions contemplated hereby.
(b) The Shares. The Stockholder has good and marketable title to the
Subject Shares, free and clear of any claims, liens, encumbrances and security
interests whatsoever. The Stockholder owns no shares of Common Stock other than
the Subject Shares.
2. REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB.
(a) Authority. Parent and Sub hereby represent and warrant to the
Stockholder that each of Parent and Sub has all requisite corporate power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by Parent and
Sub, and the consummation of the transactions contemplated hereby, have been
duly authorized by all necessary corporate action on the part of Parent and Sub.
This Agreement has been duly executed and delivered by Parent and Sub and
constitutes a valid and binding obligation of Parent and Sub enforceable in
accordance with its terms.
3. COVENANTS OF THE STOCKHOLDER. The Stockholder agrees as follows:
(a) At any meeting of stockholders of the Company called to vote
upon the Merger and the Merger Agreement or at any adjournment thereof or in any
other circumstances upon which a vote, consent or other approval with respect to
the Merger and the Merger Agreement is sought, the Stockholder shall vote (or
cause to be voted) the Subject Shares in favor of the Merger, the approval of
the Merger Agreement and the approval of the terms thereof and each of the other
transactions contemplated by the Merger Agreement, provided that the terms of
the Merger Agreement shall not have been amended to adversely affect the
Stockholder.
(b) At any meeting of stockholders of the Company or at any
adjournment thereof or in any other circumstances upon which the Stockholder's
vote, consent or other approval is sought, the Stockholder shall vote (or cause
to be voted) the Subject Shares against (i) any merger agreement or merger
(other than the Merger Agreement and the Merger), consolidation, combination,
sale of substantial assets, reorganization, recapitalization, dissolution,
liquidation or winding up of or by the Company or any other Takeover Proposal or
(ii) any amendment of the Company's certificate of incorporation or by-laws or
other proposal or transaction involving the Company or any of its subsidiaries,
which amendment or other proposal or transaction would in any manner impede,
frustrate, prevent or nullify the Merger, the Merger Agreement or any of the
other transactions contemplated by the Merger Agreement.
(c) The Stockholder agrees not to (i) sell, transfer, pledge, assign
or otherwise dispose of, or enter into any contract, option or other arrangement
(including any profit sharing arrangement) with respect to the sale, transfer,
pledge, assignment or other disposition of, the Subject Shares to any person or
(ii) enter into any voting arrangement, whether by proxy, voting agreement or
otherwise, in connection, directly or indirectly, with any Takeover Proposal.
A-61
<PAGE> 113
(d) The Stockholder shall not, nor shall the Stockholder permit any
investment banker, attorney or other adviser or representative of the
Stockholder to, (i) directly or indirectly solicit, initiate or encourage the
submission of any Takeover Proposal or (ii) directly or indirectly participate
in any discussions or negotiations regarding, or furnish to any person any
information with respect to, or take any other action to facilitate any
inquiries or the making of any proposal that constitutes, or may reasonably be
expected to lead to, any Takeover Proposal.
4. FURTHER ASSURANCES. The Stockholder will, from time to time,
execute and deliver, or cause to be executed and delivered, such additional or
further transfers, assignments, endorsements, consents and other instruments as
Parent or Sub may reasonably request for the purpose of effectively carrying out
the transactions contemplated by this Agreement.
5. ASSIGNMENT. Neither this Agreement or any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
without the prior written consent of the other parties, except that Sub may
assign, in its sole discretion, any or all of its rights, interests and
obligations hereunder to Parent or to any direct or indirect wholly owned
subsidiary of Parent. Subject to the preceding sentence, this Agreement will be
binding upon, inure to the benefit of and be enforceable by the parties and
their respective successors and assigns.
6. TERMINATION. Except as otherwise provided herein, this Agreement
shall terminate upon the earlier of (i) the Effective Time, and (ii) the
termination of the Merger Agreement in accordance with its terms.
7. GENERAL PROVISIONS.
(a) Expenses. Except as otherwise expressly provided in the Merger
Agreement, each party hereto shall pay its own expenses incurred in connection
with this Agreement.
(b) Specific Performance. The parties hereto agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions hereof in any court of the United States
or any state thereof having jurisdiction, this being in addition to any other
remedy to which they are entitled at law or in equity. Each party hereby
irrevocably submits to the exclusive jurisdiction of the United States District
Court for the District of Delaware in any action, suit or proceeding arising in
connection with this Agreement and agrees that any such action, suit or
proceeding shall be brought only in such courts (and waives any objection based
on forum non conveniens or any other objection to venue therein). Each party
hereto waives any right to a trial by jury in connection with any such action,
suit or proceeding.
(c) Notice. All notices, requests, demands and other communications
hereunder shall be deemed to have been duly given and made if in writing and if
served by personal delivery upon the party for whom it is intended or if sent by
telex or telecopier (and also
A-62
<PAGE> 114
confirmed in writing) to the person at the address set forth below, or such
other address as may be designated in writing hereafter, in the same manner, by
such person:
(i) if to Parent or Sub, to:
Square D Company
1415 S. Roselle Road
Palatine, Illinois 60067
Attention: Franklin B. Sullivan
Facsimile No.: 847-925-7367
with copies to:
Square D Company
1415 S. Roselle Road
Palatine, Illinois 60067
Attention: Howard E. Japlon
Facsimile No.: 847/925-7419
and
Sidley & Austin
One First National Plaza
Chicago, Illinois 60603
Attention: Pran Jha
Facsimile No.: 312-853-7036
(ii) if to the Stockholder, to:
Greenwood Management Corporation
584 South State St.
Orem, Utah 84058
Facsimile No.: (801) 225-3658
(d) Parties in Interest. This Agreement shall inure to the benefit
of and be binding upon the parties named herein and their respective successors
and assigns. Nothing in this Agreement, expressed or implied, is intended to
confer upon any Person other than Parent, Sub or the Stockholder, or their
permitted successors or assigns, any rights or remedies under or by reason of
this Agreement.
(e) Entire Agreement; Amendments. This Agreement contains the entire
agreement between the parties hereto with respect to the subject matter hereof
and supersedes all prior and contemporaneous agreements and understandings, oral
or written, with respect to such transactions. This Agreement may not be
changed, amended or modified orally, but only by an agreement in writing signed
by the party against whom any waiver, change, amendment, modification or
discharge may be sought.
A-63
<PAGE> 115
(f) Headings. The section headings herein are for convenience only
and shall not affect the construction of this Agreement.
(g) Counterparts. This Agreement may be executed in one or more
counterparts, each of which, when executed, shall be deemed to be an original
and all of which together shall constitute one and the same document.
(h) Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
laws thereof.
(i) Capitalized Terms. Capitalized terms not otherwise defined in
this Agreement shall have the meanings set forth in the Merger Agreement.
(j) Severability. If any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced by any rule of law, or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic and legal substance of
the transactions contemplated hereby are not affected in any manner materially
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties shall negotiate
in good faith to modify this Agreement so as to effect the original intent of
the parties as closely as possible in a mutually acceptable manner in order that
the transactions contemplated by this Agreement may be consummated as originally
contemplated to the fullest extent possible.
A-64
<PAGE> 116
IN WITNESS WHEREOF, each of Parent and Sub and the Stockholder has
caused this Agreement to be signed by its officer thereunto duly authorized all
as of the date first written above.
SQUARE D COMPANY
By: _______________________________
Name:
Title:
SURGE SUB INC.
By: _______________________________
Name:
Title:
STOCKHOLDER:
GREENWOOD MANAGEMENT CORPORATION
By: _______________________________
Name:
Title:
Number of shares of Common Stock owned by the
Stockholder on the date hereof: 811,691
A-65
<PAGE> 117
STOCKHOLDER AGREEMENT
STOCKHOLDER AGREEMENT (this "Agreement"), dated as of March ____,
2000, among Square D Company, a Delaware corporation ("Parent"), Surge Sub Inc.,
a Delaware corporation and a wholly owned subsidiary of Parent ("Sub"), and the
undersigned stockholder (the "Stockholder") of EFI Electronics Corporation, a
Delaware corporation (the "Company").
WHEREAS, Parent, Sub and the Company propose to enter into an
Agreement and Plan of Merger dated as of even date herewith (as the same may be
amended or supplemented, the "Merger Agreement") to provide for the merger of
Sub with and into the Company (the "Merger");
WHEREAS, the Stockholder legally and/or beneficially owns that
number of shares of common stock, par value $.0001 per share, of the Company
(the "Common Stock") appearing on the signature page hereof (such shares, as
they may be adjusted by any stock dividend, stock split, recapitalization,
combination or exchange of shares, merger, consolidation, reorganization or
other change or transaction of or by the Company (each, an "Adjustment Event"),
together with any other shares of Common Stock acquired by the Stockholder after
the date hereof and during the term of this Agreement, being collectively
referred to herein as the "Subject Shares"); and
WHEREAS, as a condition to their willingness to enter into the
Merger Agreement, Parent and Sub have requested that the Stockholder enter into
this Agreement;
NOW, THEREFORE, to induce Parent and Sub to enter into, and in
consideration of their entering into, the Merger Agreement, and in consideration
of the premises and the representations, warranties and agreements contained
herein, the parties agree as follows:
1. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER. The
Stockholder hereby represents and warrants to Parent and Sub as follows:
(a) Authority. The Stockholder has all requisite power and authority
to enter into this Agreement and to consummate the transactions contemplated
hereby. This Agreement has been duly authorized, executed and delivered by the
Stockholder and constitutes a valid and binding obligation of the Stockholder
enforceable in accordance with its terms. The execution and delivery of this
Agreement does not, and the consummation of the transactions contemplated hereby
and compliance with the terms hereof will not, conflict with, result in any
violation of or default (with or without notice or lapse of time or both) under,
any provision of any trust agreement, loan or credit agreement, note, bond,
mortgage, indenture, lease or other agreement, instrument, permit, concession,
franchise, license, judgment, order, notice, decree, statute, law, ordinance,
rule or regulation applicable to the Stockholder or to the Stockholder's
property or assets. Except for informational filings with the SEC, no consent,
approval, order or authorization of, or registration, declaration or filing
with, any court, administrative agency or
A-66
<PAGE> 118
commission or other governmental authority or instrumentality, domestic, foreign
or supranational, is required by or with respect to the Stockholder in
connection with the execution and delivery of this Agreement or the consummation
by the Stockholder of the transactions contemplated hereby.
(b) The Shares. The Stockholder has good and marketable title to the
Subject Shares, free and clear of any claims, liens, encumbrances and security
interests whatsoever. The Stockholder owns no shares of Common Stock other than
the Subject Shares.
2. REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB.
(a) Authority. Parent and Sub hereby represent and warrant to the
Stockholder that each of Parent and Sub has all requisite corporate power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by Parent and
Sub, and the consummation of the transactions contemplated hereby, have been
duly authorized by all necessary corporate action on the part of Parent and Sub.
This Agreement has been duly executed and delivered by Parent and Sub and
constitutes a valid and binding obligation of Parent and Sub enforceable in
accordance with its terms.
3. COVENANTS OF THE STOCKHOLDER. The Stockholder agrees as follows:
(a) At any meeting of stockholders of the Company called to vote
upon the Merger and the Merger Agreement or at any adjournment thereof or in any
other circumstances upon which a vote, consent or other approval with respect to
the Merger and the Merger Agreement is sought, the Stockholder shall vote (or
cause to be voted) the Subject Shares in favor of the Merger, the approval of
the Merger Agreement and the approval of the terms thereof and each of the other
transactions contemplated by the Merger Agreement, provided that the terms of
the Merger Agreement shall not have been amended to adversely affect the
Stockholder.
(b) At any meeting of stockholders of the Company or at any
adjournment thereof or in any other circumstances upon which the Stockholder's
vote, consent or other approval is sought, the Stockholder shall vote (or cause
to be voted) the Subject Shares against (i) any merger agreement or merger
(other than the Merger Agreement and the Merger), consolidation, combination,
sale of substantial assets, reorganization, recapitalization, dissolution,
liquidation or winding up of or by the Company or any other Takeover Proposal or
(ii) any amendment of the Company's certificate of incorporation or by-laws or
other proposal or transaction involving the Company or any of its subsidiaries,
which amendment or other proposal or transaction would in any manner impede,
frustrate, prevent or nullify the Merger, the Merger Agreement or any of the
other transactions contemplated by the Merger Agreement.
(c) The Stockholder agrees not to (i) sell, transfer, pledge, assign
or otherwise dispose of, or enter into any contract, option or other arrangement
(including any profit sharing arrangement) with respect to the sale, transfer,
pledge, assignment or other disposition of, the Subject Shares to any person or
(ii) enter into any voting arrangement, whether by proxy, voting agreement or
otherwise, in connection, directly or indirectly, with any Takeover Proposal.
A-67
<PAGE> 119
(d) The Stockholder shall not, nor shall the Stockholder permit any
investment banker, attorney or other adviser or representative of the
Stockholder to, (i) directly or indirectly solicit, initiate or encourage the
submission of any Takeover Proposal or (ii) directly or indirectly participate
in any discussions or negotiations regarding, or furnish to any person any
information with respect to, or take any other action to facilitate any
inquiries or the making of any proposal that constitutes, or may reasonably be
expected to lead to, any Takeover Proposal.
4. FURTHER ASSURANCES. The Stockholder will, from time to time,
execute and deliver, or cause to be executed and delivered, such additional or
further transfers, assignments, endorsements, consents and other instruments as
Parent or Sub may reasonably request for the purpose of effectively carrying out
the transactions contemplated by this Agreement.
5. ASSIGNMENT. Neither this Agreement or any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
without the prior written consent of the other parties, except that Sub may
assign, in its sole discretion, any or all of its rights, interests and
obligations hereunder to Parent or to any direct or indirect wholly owned
subsidiary of Parent. Subject to the preceding sentence, this Agreement will be
binding upon, inure to the benefit of and be enforceable by the parties and
their respective successors and assigns.
6. TERMINATION. Except as otherwise provided herein, this Agreement
shall terminate upon the earlier of (i) the Effective Time, and (ii) the
termination of the Merger Agreement in accordance with its terms.
7. GENERAL PROVISIONS.
(a) Expenses. Except as otherwise expressly provided in the Merger
Agreement, each party hereto shall pay its own expenses incurred in connection
with this Agreement.
(b) Specific Performance. The parties hereto agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions hereof in any court of the United States
or any state thereof having jurisdiction, this being in addition to any other
remedy to which they are entitled at law or in equity. Each party hereby
irrevocably submits to the exclusive jurisdiction of the United States District
Court for the District of Delaware in any action, suit or proceeding arising in
connection with this Agreement and agrees that any such action, suit or
proceeding shall be brought only in such courts (and waives any objection based
on forum non conveniens or any other objection to venue therein). Each party
hereto waives any right to a trial by jury in connection with any such action,
suit or proceeding.
(c) Notice. All notices, requests, demands and other communications
hereunder shall be deemed to have been duly given and made if in writing and if
served by personal delivery upon the party for whom it is intended or if sent by
telex or telecopier (and also
A-68
<PAGE> 120
confirmed in writing) to the person at the address set forth below, or such
other address as may be designated in writing hereafter, in the same manner, by
such person:
(i) if to Parent or Sub, to:
Square D Company
1415 S. Roselle Road
Palatine, Illinois 60067
Attention: Franklin B. Sullivan
Facsimile No.: 847-925-7367
with copies to:
Square D Company
1415 S. Roselle Road
Palatine, Illinois 60067
Attention: Howard E. Japlon
Facsimile No.: 847/925-7419
and
Sidley & Austin
One First National Plaza
Chicago, Illinois 60603
Attention: Pran Jha
Facsimile No.: 312-853-7036
(ii) if to the Stockholder, to:
Gaylord K. Swim & Lauralyn B. Swim, Trustees
Gaylord K. Swim Family Living Trust
584 South State St.
Orem, Utah 84058
Facsimile No.: (801) 225-3658
(d) Parties in Interest. This Agreement shall inure to the benefit
of and be binding upon the parties named herein and their respective successors
and assigns. Nothing in this Agreement, expressed or implied, is intended to
confer upon any Person other than Parent, Sub or the Stockholder, or their
permitted successors or assigns, any rights or remedies under or by reason of
this Agreement.
(e) Entire Agreement; Amendments. This Agreement contains the entire
agreement between the parties hereto with respect to the subject matter hereof
and supersedes all prior and contemporaneous agreements and understandings, oral
or written, with respect to such transactions. This Agreement may not be
changed, amended or modified orally, but only by an
A-69
<PAGE> 121
agreement in writing signed by the party against whom any waiver, change,
amendment, modification or discharge may be sought.
(f) Headings. The section headings herein are for convenience only
and shall not affect the construction of this Agreement.
(g) Counterparts. This Agreement may be executed in one or more
counterparts, each of which, when executed, shall be deemed to be an original
and all of which together shall constitute one and the same document.
(h) Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
laws thereof.
(i) Capitalized Terms. Capitalized terms not otherwise defined in
this Agreement shall have the meanings set forth in the Merger Agreement.
(j) Severability. If any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced by any rule of law, or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic and legal substance of
the transactions contemplated hereby are not affected in any manner materially
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties shall negotiate
in good faith to modify this Agreement so as to effect the original intent of
the parties as closely as possible in a mutually acceptable manner in order that
the transactions contemplated by this Agreement may be consummated as originally
contemplated to the fullest extent possible.
A-70
<PAGE> 122
IN WITNESS WHEREOF, each of Parent and Sub has caused this Agreement
to be signed by its officer thereunto duly authorized and the Stockholder by its
trustees has duly signed this Agreement, all as of the date first written above.
SQUARE D COMPANY
By: _______________________________
Name:
Title:
SURGE SUB INC.
By: _______________________________
Name:
Title:
STOCKHOLDER:
GAYLORD K. SWIM
FAMILY LIVING TRUST
By: _______________________________
Gaylord K. Swim, Trustee
By: _________________________
Lauralyn B. Swim, Trustee
Number of shares of Common Stock owned by the
Stockholder on the date hereof: 505,567
A-71
<PAGE> 123
EXHIBIT B
TO
AGREEMENT AND PLAN OF MERGER
A-72
<PAGE> 124
CONSULTING AGREEMENT
This Consulting Agreement (this "Agreement") is entered into as of
March 20, 2000 between EFI Electronics Corporation, a Delaware corporation (the
"Company"), and Richard D. Clasen (the "Executive").
WHEREAS, the Company desires to obtain the benefit of the
Executive's knowledge and experience by retaining the Executive as a consultant
for a transitional period following the Company's acquisition by Square D
Company, and the Executive desires to accept such position, upon the terms and
subject to the conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual promises and
agreements contained herein and other good and valuable consideration, the
receipt, adequacy and sufficiency of which are hereby acknowledged, the Company
and the Executive hereby agree as follows:
1. TERM OF AGREEMENT. This Agreement shall become effective upon the
consummation of the Merger and shall terminate and be of no further force or
effect if the Merger Agreement shall be terminated. The Company hereby agrees to
retain the Executive as a Executive, and the Executive hereby agrees to be
retained by the Company, upon the terms and subject to the conditions hereof for
the period commencing on the Effective Time of the Merger and ending on the date
which is the first anniversary of the Effective Time of the Merger, unless
earlier terminated pursuant to Section 5 hereof (the "Consulting Period"). As
used herein, the terms "Effective Time" and "Merger" shall have the meanings
ascribed to such terms in the Agreement and Plan of Merger of even date herewith
by and among Square D Company, Surge Sub Inc. and the Company.
2. CONSULTING SERVICES. During the Consulting Period, the Executive
shall make himself available to perform consulting services with respect to the
businesses conducted by the Company. Such consulting services shall be related
to such matters as the Chief Executive Officer of the Company may designate from
time to time. The Executive shall comply with reasonable requests for the
Executive's consulting services and shall devote reasonable time and his
reasonable best efforts, skill and attention to the performance of such
consulting services, including travel reasonably required in the performance of
such consulting services; provided, however, that the Executive shall not be
required to devote more than 100 hours during the Consulting Period or more than
50 hours during any calendar quarter during the Consulting Period to the
performance of such consulting services.
3. INDEPENDENT CONTRACTOR STATUS. The Executive shall perform the
consulting services described in Section 2 hereof as an independent contractor
without the power to bind or represent the Company for any purpose whatsoever.
The Executive shall not, by virtue of being a Executive hereunder, be eligible
to receive any employee benefits
A-73
<PAGE> 125
for which officers or other employees of the Company are eligible at any time.
The Executive hereby acknowledges his separate responsibility for all federal
and state withholding taxes, Federal Insurance Contribution Act taxes and
workers' compensation and unemployment compensation taxes, if applicable, and
agrees to indemnify and hold the Company harmless from any claim or liability
therefor.
4. COMPENSATION. As compensation for the consulting services to be
performed by the Executive hereunder, the Company shall pay the Executive a
consulting fee at the rate of $100,000 per annum, payable in four quarterly
installments commencing on August 1, 2000. The Company shall reimburse the
Executive, in accordance with the Company's policies and procedures, for all
proper expenses incurred by the Executive in providing consulting services
hereunder.
5. TERMINATION. (a) This Agreement may be terminated at any time by
the Executive on 30 days prior written notice to the Company. In the event of
such termination by the Executive, the Company shall pay to the Executive any
accrued and unpaid consulting fee payable to the Executive pursuant to Section 4
hereof and shall reimburse the Executive for expenses incurred by the Executive
pursuant to Section 4 hereof prior to the date of such termination.
(b) This Agreement may be terminated at any time by the Company upon
written notice to the Executive in the event that the Executive shall breach any
covenant contained in Section 2, 6, 7 or 8 hereof.
6. NONCOMPETITION; NONSOLICITATION. (a) The Executive acknowledges
that during the Consulting Period he will become familiar with trade secrets and
other confidential information concerning the Company and its subsidiaries and
that his services will be of special, unique and extraordinary value to the
Company and its subsidiaries.
(b) The Executive agrees that during the Consulting Period he shall
not in any manner, directly or indirectly, perform services for any other person
or entity relating to the design, development, manufacture, marketing, sale or
service of a Competitive Product that is sold or intended for use or sale in any
geographic area in which the Company actively markets its product. As used in
this Agreement, the term "Competitive Product" means any product, product line
or service (including any component thereof or research to develop information
used in connection with a product or service) that is designed, developed
manufactured, marketed, serviced or sold by anyone other than the Company and is
the same, performs the same function, or is used for the same purposes as a
Company product.
(c) The Executive further agrees that during the Consulting Period
he shall not (i) in any manner, directly or indirectly, solicit, recruit, induce
or attempt to induce any employee of the Company or its subsidiaries to
terminate or abandon his or her employment with the Company for any purpose
whatsoever or (ii) in connection with any
A-74
<PAGE> 126
business to which Section 6(b) applies, call on, service, solicit or otherwise
do business with any customer of the Company or its subsidiaries.
(d) Nothing in this Section 6 shall prohibit the Executive from
being (i) a stockholder in a mutual fund or a diversified investment company or
(ii) a passive owner of not more than two percent of the outstanding stock of
any class of a corporation, any securities of which are publicly traded, so long
as the Executive has no active participation in the business of such
corporation.
(e) If, at any time of enforcement of this Section 6, a court or an
arbitrator holds that the restrictions stated herein are unreasonable under
circumstances then existing, the parties hereto agree that the maximum period,
scope or geographical area reasonable under such circumstances shall be
substituted for the stated period, scope or area and that the court or
arbitrator shall be allowed to revise the restrictions contained herein to cover
the maximum period, scope and area permitted by law. This Agreement shall not
authorize a court or arbitrator to increase or broaden any of the restrictions
in this Section.
7. CONFIDENTIALITY. The Executive shall not, at any time during the
Consulting Period, make use of or disclose, directly or indirectly, any (i)
trade secret or other confidential or secret information of the Company or of
any of its subsidiaries or (ii) other technical, business, proprietary or
financial information of the Company or of any of its subsidiaries not available
to the public generally or to the competitors of the Company or to the
competitors of any of its subsidiaries ("Confidential Information"), except to
the extent that such Confidential Information (a) becomes a matter of public
record or is published in a newspaper, magazine or other periodical available to
the general public, other than as a result of any act or omission of the
Executive, (b) is required to be disclosed by any law, regulation or order of
any court or regulatory commission, department or agency, provided that the
Executive gives prompt notice of such requirement to the Company to enable the
Company to seek an appropriate protective order, or (c) is necessary to perform
properly the Executive's duties under this Agreement. Promptly following the
termination of the Consulting Period, the Executive shall surrender to the
Company all records, memoranda, notes, plans, reports, computer tapes and
software and other documents and data which constitute Confidential Information
which he may then possess or have under his control (together with all copies
thereof).
8. INVENTIONS. The Executive hereby assigns to the Company his
entire right, title and interest in and to all discoveries and improvements,
patentable or otherwise, trade secrets and ideas, writings and copyrightable
material, which may be conceived by the Executive or developed or acquired by
him during the Consulting Period, which pertain to the business of the Company
or any of its subsidiaries. The Executive agrees to disclose fully all such
developments to the Company upon its request, which disclosure shall be made in
writing promptly following any such request. The Executive shall, upon the
Company's request, execute, acknowledge and deliver to the Company all
instruments and do all other acts which are necessary or desirable to enable the
Company or any of its
A-75
<PAGE> 127
subsidiaries to file and prosecute applications for, and to acquire, maintain
and enforce, all patents, trademarks and copyrights in all countries.
9. ENFORCEMENT. The parties hereto agree that the Company and its
subsidiaries would be damaged irreparably in the event that any provision of
Section 6, 7 or 8 of this Agreement were not performed in accordance with its
terms or were otherwise breached and that money damages would be an inadequate
remedy for any such nonperformance or breach. Accordingly, the Company and its
successors and permitted assigns shall be entitled, in addition to other rights
and remedies existing in their favor, to an injunction or injunctions to prevent
any breach or threatened breach of any of such provisions and to enforce such
provisions specifically (without posting a bond or other security). The
Executive agrees that he will submit himself to the personal jurisdiction of the
courts of the State of Utah in any action by the Company to enforce an
arbitration award against him or to obtain interim injunctive or other relief
pending an arbitration decision.
10. REPRESENTATIONS. The Executive represents and warrants to the
Company that (i) the execution, delivery and performance of this Agreement by
the Executive does not and will not conflict with, breach, violate or cause a
default under any contract, agreement, instrument, order, judgment or decree to
which the Executive is a party or by which he is bound, (ii) the Executive is
not a party to or bound by any employment agreement, noncompetition agreement or
confidentiality agreement with any other person or entity and (iii) upon the
execution and delivery of this Agreement by the Company, this Agreement shall be
the valid and binding obligation of the Executive, enforceable in accordance
with its terms.
11. SURVIVAL. Sections 7, 8 and 9 of this Agreement shall survive
and continue in full force and effect in accordance with their respective terms,
notwithstanding any termination of the Consulting Period.
12. ARBITRATION. Any dispute or controversy between the Company and
the Executive, whether arising out of or relating to this Agreement, the breach
of this Agreement, or otherwise, shall be settled by arbitration in Utah
administered by the American Arbitration Association, with any such dispute or
controversy arising under this Agreement being so administered in accordance
with its Commercial Rules then in effect, and judgment on the award rendered by
the arbitrator may be entered in any court having jurisdiction thereof. The
arbitrator shall have the authority to award any remedy or relief that a court
of competent jurisdiction could order or grant, including, without limitation,
the issuance of an injunction. However, either party may, without inconsistency
with this arbitration provision, apply to any court having jurisdiction over
such dispute or controversy and seek interim provisional, injunctive or other
equitable relief until the arbitration award is rendered or the controversy is
otherwise resolved. Except as necessary in court proceedings to enforce this
arbitration provision or an award rendered hereunder, or to obtain interim
relief, neither a party nor an arbitrator may disclose the existence, content or
results of any arbitration hereunder without the prior written consent of the
Company and
A-76
<PAGE> 128
the Executive. The Company and the Executive acknowledge that this Agreement
evidences a transaction involving interstate commerce. Notwithstanding any
choice of law provision included in this Agreement, the United States Federal
Arbitration Act shall govern the interpretation and enforcement of this
arbitration provision.
13. NOTICES. All notices and other communications required or
permitted hereunder shall be in writing and shall be deemed given when (i)
delivered personally or by overnight courier to the following address of the
other party hereto (or such other address for such party as shall be specified
by notice given pursuant to this Section) or (ii) sent by facsimile to the
following facsimile number of the other party hereto (or such other facsimile
number for such party as shall be specified by notice given pursuant to this
Section), with the confirmatory copy delivered by overnight courier to the
address of such party pursuant to this Section:
If to the Company, to:
EFI Electronics Corporation
1751 South 4800 West
Salt Lake City, Utah 84104
If to the Executive, to:
Mr. Richard D. Clasen
2073 Mahre Drive
Park City, Utah 84098
14. SEVERABILITY. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
the validity, legality or enforceability of any other provision of this
Agreement or the validity, legality or enforceability of such provision in any
other jurisdiction, but this Agreement shall be reformed, construed and enforced
in such jurisdiction as if such invalid, illegal or unenforceable provision had
never been contained herein.
15. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement and understanding between the parties with respect to the subject
matter hereof and supersedes and preempts any prior understandings, agreements
or representations by or between the parties, written or oral, which may have
related in any manner to the subject matter hereof.
A-77
<PAGE> 129
16. SUCCESSORS AND ASSIGNS. This Agreement shall be enforceable by
the Executive and his heirs, executors, administrators and legal
representatives, and by the Company and its successors and assigns.
17. GOVERNING LAW. This Agreement shall be governed by and construed
and enforced in accordance with the internal laws of the State of Utah without
regard to principles of conflict of laws.
18. AMENDMENT AND WAIVER. The provisions of this Agreement may be
amended or waived only by the written agreement of the Company and the
Executive, and no course of conduct or failure or delay in enforcing the
provisions of this Agreement shall affect the validity, binding effect or
enforceability of this Agreement.
19. COUNTERPARTS. This Agreement may be executed in two
counterparts, each of which shall be deemed to be an original and both of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first written above.
EFI ELECTRONICS CORPORATION
By:________________________________
Title: ____________________________
RICHARD D. CLASEN
-----------------------------------
A-78
<PAGE> 130
EXHIBIT C
TO
AGREEMENT AND PLAN OF MERGER
A-79
<PAGE> 131
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT, dated as of March 20, 2000, is made and
entered into by and between EFI Electronics Corporation, a Delaware Corporation
(the "Company"), and John R. Worden, (the "Executive").
WHEREAS, concurrently herewith, Square D Company ("Square D"), Surge Sub
Inc. and the Company are entering into an Agreement and Plan of Merger (the
"Merger Agreement") pursuant to which Surge Sub Inc. will be merging (the
"Merger") with and into the Company and the Company shall then become a
wholly-owned subsidiary of Square D;
WHEREAS, commencing upon the consummation of the Merger, the Company
desires to continue the employment of the Executive as an executive officer of
the Company and the Executive agrees to be so bound, all on the terms and
subject to the conditions set forth herein;
WHEREAS, the Company desires to bind the Executive to certain
restrictive covenants and the Executive agrees to be so bound, all on the terms
and subject to the conditions set forth herein;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Employment; Term
1.1 This Agreement shall become effective upon the consummation of
the Merger and shall terminate and be of no further force or effect if the
Merger Agreement shall be terminated. Subject to the terms and conditions set
forth herein and unless sooner terminated as hereinafter provided, for the
period commencing on the consummation of the Merger and terminating on the third
anniversary of the Closing Date (the "Term"), the Company shall employ the
Executive as Executive Vice President, Sales & Marketing or in such other
capacity as the Company shall hereafter from time to time prescribe. The
Executive accepts such employment and agrees to devote his best efforts to
perform faithfully, diligently and competently all duties and responsibilities
of his position and such other duties as are commensurate with the Executive's
position that may from time to time be assigned to the Executive by the
President of the Company.
1.2 The Executive shall report to the President of the Company and
shall perform his duties hereunder at the offices of the Company in Salt Lake
City, Utah or such other location as designated by the Company.
2. Compensation and Benefits
2.1 For the services to be performed and the duties and
responsibilities to be assumed hereunder, the Company shall pay to the
Executive, in accordance with the
A-80
<PAGE> 132
Company's normal payroll practices, direct salary compensation ("Salary") at the
rate of not less than $132,000 per year. The Company shall review the Salary
annually during the Term and any increase in Salary shall be made at the sole
discretion of the Company. The Salary shall be payable to the Executive in
accordance with the Company's ordinary practices for salaried employees.
2.2 The Executive shall continue his participation in the Company's
annual incentive plan ("Bonus") on the same terms as he currently participates.
The Company reserves the right to change or amend the terms of any such annual
incentive plan, provided that the Executive's potential Bonus shall not be less
than 50% of Salary. In no event shall any Bonus be paid to the Executive for any
calendar year of the Company unless the Executive is employed throughout the
entire calendar year by the Company. The Bonus shall be determined from the
Company's internal accounting records, which shall be finally approved by the
Board of Directors of the Company. The Bonus awarded to the Executive in respect
of any calendar year shall be paid at the same time as bonuses are paid to other
plan participants.
2.3 As an inducement for employee to maintain his employment with
Employer, Executive is eligible to be paid a retention award ("Award") in the
aggregate amount of $200,000 payable in three installments. If the Executive
remains continuously and actively employed by the Company for the entire first
year and the entire second year of the Term, the Company shall pay the Executive
a lump-sum Award of $20,000 for each of such years payable promptly following
the end of each such year. If the Executive remains continuously and actively
employed by the Company for the entire Term, the Company shall pay the Executive
an additional lump-sum Award of $160,000 payable promptly following the end of
the Term.
2.4 The Company shall promptly reimburse the Executive for all
ordinary, necessary and reasonable out-of-pocket trade or business expenses
incurred in the performance of his duties and responsibilities for the Company
under this Agreement. The reimbursement of all such expenses shall be made upon
presentation of evidence reasonably satisfactory to the Company of the amounts
and nature of such expenses in accordance with the Company's policies and
practices.
2.5 During the Term, the Executive shall be entitled to participate
in such employee benefit plans and programs as are maintained by the Company, to
the extent that his position, service, compensation, age health and other
qualifications makes him eligible to participate. The Company does not promise
the adoption or the continuance of any particular plan or program during the
Term. The Executive's (and his eligible dependents') participation in any such
plan or program shall be subject to the provisions, rules, regulations and laws
applicable thereto. During the Term, the Executive shall be entitled to such
other fringe benefits as are provided to employees of the Company with
comparable positions, service and compensation as the Executive. The Executive
shall be entitled to reasonable vacations in accordance with the Company's
policies applicable to its executive officers. Such vacations shall be taken at
such time or times as shall be mutually determined by the Company and the
Executive.
A-81
<PAGE> 133
2.6 Subject to the approval of Square D and adoption by the
Company's Board of Directors, it is currently anticipated that the Company will
implement a three-year performance based incentive plan (the "LTIP"). Subject to
such approval and adoption, it is currently anticipated that the Executive will
participate in the LTIP with a potential LTIP payment equal to one-year's
Salary. The Company would reserve the right to charge or amend the terms of any
such LTIP. In no event would any LTIP payment be made to the Executive unless
the Executive were employed throughout the entire term of the LTIP. The LTIP
payment would be determined from the Company's internal accounting records,
which shall be finally approved by the Board of Directors of the Company.
2.7 The Company hereby waives its right to repayment from the
Executive of the sum of $19,188, representing the Executive's remaining
obligation to the Company with respect to the 1999 fiscal year bonus advanced to
the Executive by the Company; provided that such amount shall be offset against
the fiscal year 2000 bonus, if any, payable to the Executive.
3. Restrictive Covenants
3.1 The Executive acknowledges that his services to the Company are
of a special, unique and intellectual character, and his position with the
Company places him in a position of confidence and trust. The Executive further
acknowledges that in rendering services to the Company he necessarily has
developed or gained access to confidential information and trade secrets of the
Company. The Executive and the Company agree that, in the course of employment,
the Executive has developed a personal acquaintanceship and relationship with
the Company's customers, suppliers and employees. Accordingly, as an inducement
to the Company to enter into this Agreement, the Executive agrees that it is
reasonable and necessary for the protection of the goodwill and business of the
Company that the Executive make the covenants contained in Sections 3.2-3.5
hereof.
3.2. The Executive shall not during the Term and for the earlier of
two years thereafter or two years after the termination of the Executive's
employment in accordance with the terms hereof (the "Restricted Period"), carry
on any business, whether directly or indirectly, as an individual, partner,
corporation, owner, operator, shareholder, director, officer, principal, agent
or affiliate which is directly competitive with the business of the Company,
provided that the foregoing shall not be deemed to apply to any investments the
Executive shall make in any publicly-traded company so long as the Executive's
aggregate holdings do not exceed five percent (5%) of the outstanding voting
securities of such company.
3.3 The Executive shall not during the Restricted Period directly or
indirectly perform services (that are the same as or similar to the services the
Executive performed for the Company in the two years preceding his employment)
for any other person or entity relating to the design, development, manufacture,
marketing, sale or
A-82
<PAGE> 134
service of a Competitive Product that is sold or intended for use or sale in any
area in which the Company actively markets its product. As used in this
Agreement, the term "Competitive Product" means any product, product line or
service (including any component thereof or research to develop information used
in connection with a product or service) that is designed, developed,
manufactured, marketed, serviced or sold by anyone other than the Company and is
the same, performs the same function, or is used for the same purposes as a
Company product.
3.4 The Executive shall not during the Restricted Period directly or
indirectly call upon, solicit, divert or take away any Company customer for the
purpose of inducing such customer to purchase a Competitive Product. This
promise applies only to those customers whom the Executive called upon or
otherwise had contact with during the last two years of his employment with the
Company. The Executive further promises that he will not disclose the Company's
customer or price lists to any person or entity at any time in the future.
3.5 The Executive shall not during the Restricted Period solicit,
recruit or otherwise attempt to induce any employee of the Company or its
affiliates to leave the employ of the Company or its affiliates, as the case may
be, to join any business which directly or indirectly designs, manufactures,
markets, sells or services a Competitive Product).
4. Confidential Information
4.1 The Executive recognizes that he will occupy a position of trust
and confidence with the Company as to Confidential Information (as defined
herein) pertaining to the Company and its affiliates. As an inducement for the
Company to enter into this Agreement, the Executive agrees that he will hold in
strictest confidence and will not, other than as required by law, at any time
(whether during or after termination of this Agreement), disclose to any third
party, or use for his own benefit, or for the benefit of any third party, any
Confidential Information.
4.2 The Executive (and if deceased, the Executive's personal
representative) shall promptly following a request therefor from the Company
return to the Company, without retaining copies, all tangible items which are or
which contain Confidential Information. For purposes of this Agreement,
"Confidential Information" shall mean any (i) trade secret or other confidential
or secret information of the Company or of any of its affiliates or (ii) other
technical, business, proprietary or financial information of the Company or any
of its affiliates not available to the public generally or to the competitors of
the Company or any of its affiliates.
5. Inventions
5.1 The Executive acknowledges that, in his capacity as an executive
officer of the Company, he will be involved in (i) the conception of making of
improvements, discoveries and inventions or the like (whether patentable or
unpatentable and whether or not reduced to practice), (ii) the authorship of
copyrightable works and
A-83
<PAGE> 135
(iii) the development of trade secrets relating to the Company or its
affiliates. The Executive acknowledges that all such intellectual property is
the exclusive property of the Company. The Executive hereby waives any rights he
may have in or to such intellectual property, and the Executive hereby assigns
all right, title and interest in and to such intellectual property. At the
request of the Company and at no expense to the Executive, the Executive shall
execute and deliver all such papers, including, without limitation, any
assignment documents, and shall provide such cooperation as may be necessary or
desirable, or as the Company may request, in order to enable the Company to
secure and exercise its rights to such intellectual property.
6. Specific Performance
6.1 The Executive agrees that any violation by him of Sections 3, 4,
or 5 of this Agreement would be highly injurious to the Company and its
affiliates and would cause irreparable harm to the Company and its affiliates.
By reason of the foregoing, the Executive consents and agrees that if he
violates any provision of Sections 3, 4 or 5 of this Agreement, the Company and
its affiliates shall be entitled, in addition to other rights and remedies that
they may have, to apply to any court of competent jurisdiction for specific
performance and/or injunctive or other relief in order to enforce, or prevent
any continuing violation of, the provisions of such section. In the event the
Executive breaches a covenant contained in this Agreement, the Restricted Period
applicable to the Executive with respect to such breached covenant shall be
extended for the period of such breach. The Executive also recognizes that the
territorial, time and scope limitations set forth in Sections 3 and 4 are
reasonable and are properly required for the protection of the Company and its
affiliates and in the event that any such territorial, time or scope limitation
is deemed to be unreasonable by a court of competent jurisdiction, the Company
and the Executive agree, and the Executive submits, to the reduction of any or
all of such territory, time or scope limitations to such an area, period or
scope as such court shall deem reasonable under the circumstances.
7. Termination for Cause
7.1 During the Term, the Executive's employment with the Company may
be terminated "for cause," which shall include (i) the Executive's conviction
for, or plea of nolo contendere to, a felony or a crime involving moral
turpitude; (ii) the Executive's commission of an act involving personal
dishonesty or fraud involving personal profit in connection with the Executive's
employment with the Company; (iii) the Executive's commission of an act
involving willful misconduct or gross negligence on the part of the Executive in
the conduct of his duties hereunder; (iv) the Executive's breach of any material
provision of this Agreement where such breach continues for a period of twenty
(20) days after the Executive's receipt of written notice of such breach from
the Company; or (v) willful violation of the Company's policies and practices.
In the event of termination under this Section 7, the Company's obligations
under this Agreement shall cease and the Executive shall forfeit all his rights
to receive any compensation or benefits under this Agreement, except that the
Executive shall be
A-84
<PAGE> 136
entitled to his Salary and benefits for services already performed as of the
date of termination of the Executive's employment hereunder.
8. Good Reason
8.1 The Executive shall be entitled to terminate his employment
hereunder at any time for Good Reason. For the purposes of this Agreement, the
Executive shall have "Good Reason" to terminate his employment hereunder (i)
upon a significant demotion or material adverse change in his duties and
responsibilities; (ii) upon a material breach by the Company of its agreements
and covenants set forth herein; or (iii) upon a requirement to relocate, except
for office relocations that would not increase the Executive's one-way commute
distance by more than fifty (50) miles from the most recent principal residence
selected by the Executive prior to notice of relocation.
9. Death or Disability
9.1 This Agreement shall terminate upon the Executive's death.
9.2 If the Executive becomes permanently disabled (determined as
provided below) during the Term, his employment with the Company shall terminate
as of the date such permanent disability is determined. The Executive shall be
considered to be permanently disabled for purposes of this Agreement if he is
unable by reason of accident or illness (including mental illness) to perform
the material duties of his regular position with the Company and is (i) not
expected to recover from his disability within a period of six (6) months from
the commencement of the disability; or (ii) not expected to be able to perform
the material duties of his regular position with the Company for a period of six
(6) months in any consecutive twelve (12) month period as a result of the same
disability. If at any time the Executive claims or is claimed to be permanently
disabled, a physician acceptable to both the Executive, or his personal
representative, and the Company (which acceptances shall not be unreasonably
withheld) shall be retained by the Company and shall examine the Executive. The
Executive shall cooperate fully with the physician. If the physician determines
that the Executive is permanently disabled, the physician shall deliver to the
Company a certificate certifying both that the Executive is permanently disabled
and the date upon which the condition of permanent disability commenced. The
determination of the physician shall be conclusive.
9.3 The Executive's right to his compensation and benefits under
this Agreement shall cease upon his death or disability, except that the
Executive (or his estate or heirs) shall be entitled to his Salary and a pro
rata portion of his Award and benefits for services already performed as of the
date of his death or disability.
10. Effect of Termination
10.1 If the Company terminates the Executive's employment hereunder
for any reason other than for cause, death or disability during the Term or the
Executive terminates this Agreement for Good Reason during the Term, the Company
shall pay the
A-85
<PAGE> 137
Executive in one lump sum an amount equal to the unpaid installments of the
Award. The Company shall also pay the premiums required to maintain COBRA
continuation coverage for the benefit of the Executive and his eligible
dependents for a period of six (6) months following termination of employment,
assuming the Executive and his dependents are otherwise eligible.
10.2 If the Executive terminates his employment with the Company for
any reason whatsoever other than for Good Reason, the Company's obligations
under this Agreement shall cease and the Executive shall forfeit all his rights
to receive any compensation or benefits under this Agreement, except that the
Executive shall be entitled to his Salary and benefits for services already
performed as of the date of termination of this Agreement.
10.3 Any amounts payable to the Executive pursuant to this Section
10 shall be paid in full in a lump sum not more than sixty (60) days following
the date of termination of the Executive's employment hereunder.
10.4 The Executive shall not be required to mitigate the amount of
any payment contemplated by this Section 10 (whether by seeking new employment
or in any other manner), nor shall any such payment be reduced by any earnings
that the Executive may receive from any other source.
10.5 The transfer of the Executive's employment from the Company to
an affiliate of the Company and the assumption of this Agreement by such
affiliate shall not constitute a termination of employment for purposes of this
Section 10.
10.6 Notwithstanding anything to the contrary contained in this
Agreement, no amount shall be payable to the Executive (or the Executive's
executor or other legal representative in the case of the Executive's death or
Disability) pursuant to this Section 10 unless and until the Executive (or the
Executive's executor or other legal representative in the case of the
Executive's death or Disability) executes a general release in the form of
Exhibit A hereto.
11. Miscellaneous
11.1 This Employment Agreement shall be governed by and construed in
accordance with the laws of the State of Utah, as such laws are applied to
contracts entered into and to be performed entirely within the State of Utah.
11.2 Nothing contained in this Employment Agreement shall be
construed so as to require the commission of any act contrary to law and
whenever there is any conflict between any provisions of this Employment
Agreement and any statute, law, ordinance, order or regulation, the latter shall
prevail, but in such event any such provision of this Employment Agreement shall
be curtailed and limited only to the extent necessary to bring it within any
applicable legal requirements. If any provision of the
A-86
<PAGE> 138
Employment Agreement should be held invalid and unenforceable, the remaining
provisions shall be unaffected by such a holding.
11.3 Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given upon personal delivery or upon
receipt by the office of the addressee after deposit with the United States Post
Office, by registered or certified mail, postage prepaid, return receipt
requested, addressed to the Company or the Executive at the address shown below
the respective signature line, or at such other address as such party may
designate by ten (10) days' advance written notice to the other party.
11.4 Notwithstanding anything to the contrary contained herein, the
parties to this Agreement may terminate, or may make any modification or
amendment to this Agreement by a mutual agreement in writing. Such written
termination or modification must be made by a member of the senior management
staff of the Company. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective heirs, successors and
permitted assigns. As to the Executive, this Agreement is a personal service
contract and shall not be assignable by the Executive, but all obligations and
agreements of the Executive hereunder shall be binding upon and enforceable
against the Executive and the Executive's personal representatives, heirs,
legatees and devisees.
11.5 Notwithstanding anything to the contrary contained herein, the
Executive's rights and obligations under Sections 3, 4, 5, 6 and 10 shall
survive the expiration or termination of this Agreement (other than a
termination pursuant to Section 1).
11.6 No waiver of any provision of this Agreement shall be valid
unless in writing and signed by the waiving party. No waiver of any provision of
this Agreement shall be deemed, or shall constitute, a waiver of any other
provision, whether or not similar, nor shall any waiver constitute a continuing
waiver, unless so provided in the waiver.
11.7 The Company shall require any successor (whether direct or
indirect and either by purchase, lease, merger, consolidation, liquidation or
otherwise) to all or substantially all of the Company's business and for assets,
by an agreement in form and substance reasonably satisfactory to the Executive,
to assume this Agreement and to agree expressly to perform this Agreement in the
same manner and to the same extent as the Company would be required to perform
in the absence of a successor. Regardless of such assumption, the Company shall
remain liable for performance of this Agreement if the successor corporation
fails to perform this Agreement.
11.8 This Agreement shall supersede any existing agreement, oral or
written, between the Company and the Executive, including, but not limited to,
the Company's current Change of Control Policy. This Agreement shall become
effective upon the consummation of the transactions contemplated by the Merger
Agreement.
A-87
<PAGE> 139
IN WITNESS WHEREOF, the parties have executed this Employment Agreement
as of the date first above written.
EFI ELECTRONICS CORPORATION
1751 South 4800 West
Salt Lake City, Utah 84104
By:
-------------------------------
EXECUTIVE:
- ----------------------------------
John R. Worden
Vice President, Sales & Marketing
4430 South Mathews
Salt Lake City, Utah 84124
A-88
<PAGE> 140
ANNEX B
FAIRNESS OPINION OF HOULIHAN VALUATION ADVISORS
B-1
<PAGE> 141
March 20, 2000
Mr. Gaylord K. Swim, Chairman
EFI Electronics Corporation
1751 South 4800 West
Salt Lake City, UT 84104
Re: Fairness Opinion - EFI Electronics Corporation
Dear Mr. Swim:
Houlihan Valuation Advisors ("Houlihan") has been retained by the Board of
Directors of EFI Electronics Corporation (hereinafter referred to as "EFI" or
"the Company") to issue a fairness opinion regarding the purchase of 100% of the
issued and outstanding common stock of EFI by Square D Company (hereinafter
referred to as "Square D"), which is a wholly owned subsidiary of Schneider
Electric S.A.. The fairness opinion ("the Opinion") is issued from a financial
point of view from the perspective of the public shareholders of EFI. The
Opinion is as of March 20, 2000, the date of the Agreement and Plan of Merger
among Square D, Surge Sub, Inc. ("Merger Sub"), and EFI ("the Agreement"), and
is valid as of that date. Circumstances could change, which would render the
Opinion invalid as of the actual closing date. To be valid as of the closing
date, the Opinion will have to be reviewed and updated by Houlihan.
On March 20, 2000, the respective Boards of Directors of Square D, Merger Sub,
and the Company approved the acquisition of the Company by Square D. In
furtherance of such acquisition, the respective Boards of Directors of Square D,
Merger Sub and the Company approved the merger of Merger Sub with and into the
Company (the "Merger") upon the terms and subject to the conditions set forth in
the Agreement, whereby each issued and outstanding share, other than shares
owned directly or indirectly by Square D or the Company and dissenting shares,
will be converted into the right to receive $1.50 per share in cash (the
"Transaction").
In delivering this opinion, Houlihan has completed the following tasks:
~ Reviewed audited financial statements and the annual reports of
EFI for the years ended March 31, 1995-1999
~ Reviewed the Company's March 31, 1999 Form 10-KSB filing with
the U.S. Securities and Exchange Commission
~ Reviewed the Company's September 30, 1999 Form 10-QSB filing
with the U.S. Securities and Exchange Commission
B-2
<PAGE> 142
~ Reviewed the Company's December 31, 1999 Form 10-QSB filing with
the U.S. Securities and Exchange Commission
~ Reviewed EFI's Notices of Annual Meeting of Stockholders for
July 29, 1997, July 29, 1998 and July 29, 1999
~ Reviewed Company supplied data regarding outstanding options and
warrants for EFI's common stock
~ Reviewed the management organization of EFI
~ Reviewed transaction premium data for electronics firms prepared
by Houlihan Lokey Howard & Zukin as presented in Mergerstat
Review 1999
~ Reviewed employment agreements between EFI and Richard D. Clasen
and Henry Daunert
~ Reviewed EFI Electronics Corporation 1998 Incentive Plan
~ Reviewed EFI Electronics Corporation Nonqualified Stock Option
Plan and Incentive Stock Option Plan as amended May 1991
~ Discussed the financial condition, results of operations,
business and prospects of EFI with Company management
~ Compared the results of operations and financial condition of
EFI with those of certain other publicly-traded electronics
equipment manufacturing firms that Houlihan deemed to be
reasonably comparable
~ Reviewed historical market prices and trading volumes for EFI
common stock for the period of January 4, 1999 through March 20,
2000
~ Reviewed the EFI Electronics Business Review prepared in 1999 by
Company management
~ Reviewed "aggressive" and "conservative" financial projections
for the fiscal years 2000-2002 prepared by Company management
~ Reviewed FY2000 Operating Statement Consolidated - Expected
(12/15/99), prepared by Company management
~ Reviewed interim financial statements prepared by Company
management (unaudited) for the months ended January 31 and
February 29, 2000 and fiscal year-to-date as of February 29,
2000
~ Reviewed the Agreement and Plan of Merger among Square D, Merger
Sub, and EFI dated March 20, 2000
In addition to a review of the above-described documents, the following
analytical procedures were conducted in arriving at our Opinion:
~ Houlihan met with representatives of the Company at the
Company's offices in Salt Lake City, Utah and conducted
discussions regarding matters pertinent
B-3
<PAGE> 143
to our analysis. Inquiries were made with certain officers of
the Company who have senior responsibility for operating matters
regarding: (i) the operations, financial condition, future
prospects and projected operations and performance of the
Company; (ii) whether management is aware of any events or
conditions which might cause any of the assumptions set forth in
this Opinion to be incorrect; and (iii) whether management is
aware of any material change in the Company's assets, financial
condition or business outlook since February 29, 2000, the date
of the Company's most recent internal financial statements
~ Generally recognized financial analysis and valuation procedures
were undertaken to ascertain the financial condition of EFI as
well as to estimate its fair market value
~ Performed such other analyses and reviewed and analyzed such
other information as Houlihan deemed appropriate
In rendering this opinion, Houlihan did not assume responsibility for
independently verifying, and did not independently verify, any financial or
other information concerning EFI furnished to it by the Company, or the publicly
available financial and other information regarding EFI and other electronics
equipment manufacturing firms. Houlihan has assumed that all such information is
accurate and complete. Houlihan has further relied on assurances of Company
management that they are not aware of any facts that would make such financial
or other information relating to such entities inaccurate or misleading.
With respect to financial forecasts for EFI prepared by Company management,
Houlihan has assumed, for the purposes of this opinion, that the forecasts have
been reasonably prepared on bases reflecting the best available estimates and
judgments of management at the time of preparation as to the future financial
performance of EFI and its subsidiaries. We assume no responsibility for the
projections or the assumptions relating to them.
Houlihan has assumed that there has been no material change in EFI's assets,
financial condition, results of operations, business or prospects since February
29, 2000, the date of the most recent internally generated financial statements
of the Company. Houlihan did not undertake an independent appraisal of the
assets or liabilities of EFI nor was Houlihan furnished with any such
appraisals.
Houlihan's conclusions and opinion are necessarily based upon economic, market
and other conditions and the information made available to Houlihan as of the
date of the Opinion. Houlihan expresses no opinion on matters of a legal,
regulatory, tax or accounting nature related to the Transaction.
We have not been requested to, and did not, solicit third party indications of
interest in purchasing the common stock involved in the Transaction.
Furthermore, at your request, we have not negotiated the Transaction or advised
you with respect to alternatives to it.
B-4
<PAGE> 144
LIMITING CONDITIONS
The Opinion is subject to the following limiting conditions:
1. Neither Houlihan nor its principals have any present or intended
interest in EFI, Square D, Schneider, or in any related entities.
Houlihan's fees for the Opinion are based on professional time and a
charge for the Opinion, and are in no way contingent upon the final
conclusions derived.
2. The Opinion is intended only for the specific use and purpose stated
herein. It is intended for no other uses and is not to be copied or
given to unauthorized persons without the direct written consent of
Houlihan. The Opinion and information contained herein are valid only
for the stated purpose and date of the Opinion, and should in no way be
construed to be investment advice.
3. It is beyond the scope of the Opinion to render any opinion relative to
the solvency or insolvency of EFI, Square D, or Schneider either prior
to or following the Transaction. Houlihan has not been requested to
render such an opinion, and nothing in the Opinion should be construed
as such.
4. This engagement is limited to the production of the Opinion and the
conclusions and opinions contained herein. Houlihan has no obligation to
provide future services (e.g., expert testimony in court or before
governmental agencies) related to the contents of the Opinion unless
prior arrangements for such services have been made.
It is our understanding that EFI's Board of Directors either has had or will
have the opportunity to make their own independent investigation of the
Transaction, and their decision to participate in the Transaction should be
based primarily on such investigation. Delivery of the Opinion to EFI, its Board
of Directors, or the stockholders of EFI is subject to the conditions,
limitations and assumptions set forth in the Opinion.
This opinion is for the benefit of the Directors of EFI and shall not be relied
upon by others and shall not be published or otherwise used, nor shall any
public references to Houlihan be made without our written consent. However,
notwithstanding the foregoing, Houlihan consents to a description of and the
inclusion of the text of its written Opinion in the proxy and prospectus to be
issued in connection with the special meeting of the Company's Stockholders.
This opinion is not intended to be and does not constitute a recommendation to
any Stockholder as to how such Stockholder should vote with respect to the
Transaction.
B-5
<PAGE> 145
CONCLUSIONS
Based upon the foregoing and in reliance thereon, it is our opinion that the
Transaction, assuming it is consummated as proposed, is fair from a financial
point of view to the public shareholders of EFI based on the circumstances
existing as of March 20, 2000. Houlihan reserves the right, in the event that
events or facts subsequent to the date of the Opinion become known which have a
material impact on the value of the Company, to supplement or withdraw the
Opinion prior to the closing date of the Transaction.
HOULIHAN VALUATION ADVISORS
/s/ FREDERIC L. JONES
- -----------------------------
Frederic L. Jones, ASA
B-6
<PAGE> 146
March 20, 2000
Mr. Gaylord Swim, Chairman
EFI Electronics Corporation
1751 South 4800 West
Salt Lake City, UT 84104
Re: Fairness Opinion Memorandum - EFI Electronics Corporation
Dear Mr. Swim:
In conjunction with the Fairness Opinion ("the Opinion") issued by Houlihan
Valuation Advisors ("Houlihan") as of this date in reference to the Agreement
and Plan of Merger among Square D Company ("Square D"), Surge Sub Inc. ("Merger
Sub"), and EFI Electronics Corporation ("the Agreement") dated March 20, 2000,
whereby Square D will purchase all of the issued and outstanding common stock of
EFI Electronics Corporation (hereinafter referred to as "EFI" or "the Company"),
Houlihan has prepared this Fairness Memorandum for the Company's Board of
Directors. The Fairness Memorandum supplements the Opinion for the purpose of
providing more detailed discussion and documentation regarding the analysis
conducted by Houlihan in conjunction with the issuance of the Opinion.
DESCRIPTION OF THE TRANSACTION
On March 20, 2000, the respective Boards of Directors of Square D, Merger Sub,
and the Company approved the acquisition of the Company by Square D. In
furtherance of such acquisition, the respective Boards of Directors of Square D,
Merger Sub and the Company approved the merger of Merger Sub with and into the
Company (the "Merger") upon the terms and subject to the conditions set forth in
the Agreement, whereby each issued and outstanding share, other than shares
owned directly or indirectly by Square D or the Company and dissenting shares,
will be converted into the right to receive $1.50 per share in cash (the
"Transaction").
DESCRIPTION OF EFI
EFI is a leading designer and manufacturer of transient voltage surge
suppression ("TVSS") products. EFI's mission is to "deliver high quality,
innovative and competitive power protection programs and solutions in a fashion
that optimizes the value to all stakeholders." The Company sells its products in
several global markets. The markets for its products are extremely fragmented in
the United States, organized and stable in Europe, and are in the developmental
stages in most other geographical locations.
The Company had annual sales of $13.9 million in fiscal 1999. Trailing
twelve-month sales as of December 31, 1999 were $12.0 million. EFI employs about
77 people. EFI's headquarters and manufacturing facility are in Salt Lake City,
Utah, with a subsidiary
B-7
<PAGE> 147
engaged in international sales and distribution located in Barcelona, Spain. The
Company sells its products in a diverse global market.
Since there are no dominant providers of TVSS equipment in the U.S. and
opportunities in the Pacific Rim and Latin America are emerging, EFI management
believes that a near-term opportunity exists to develop a $50-$100 million
business. Despite positioning itself well technically and operationally, it is
management's opinion that a lack of capital resources and distribution channels
will limit how fast the Company can take advantage of this opportunity. In
addition, as a public company, EFI is under constant pressure to increase
earnings in the short term, which can limit long-term growth.
Since mid-1999, the Company has been seeking a partner with established,
complimentary sales and distribution channels and the necessary capital
resources to support the projected business activity. With access to a broader
market and with capital to support expanded business activities, EFI management
believes that it can 1) consolidate a portion of the U.S. market through
acquisition or otherwise, becoming a leader in several distribution channels, 2)
attack the established European market with a new line of products, which are
currently in development with two major partners, and 3) leverage its products,
manufacturing and market knowledge to develop worldwide markets.
EFI OVERVIEW
EFI Corporation, a predecessor to EFI, was incorporated in the State of Utah on
April 4, 1979. The Company began manufacturing and selling TVSS devices in
December 1982. In June 1987, EFI Corporation merged with a publicly traded
Delaware corporate shell. The surviving company was renamed EFI Electronics
Corporation and the officers and directors of EFI Corporation became the
officers and directors of the surviving corporation.
In February 1991, the Company began manufacturing uninterruptible power supply
("UPS") systems for sale and distribution through the same channels as its TVSS
products. The UPS business failed to achieve its goals, resulting in losses.
After expending significant resources and losing focus on its base TVSS
business, EFI nearly became insolvent.
In September 1994, Richard D. Clasen was appointed president and chief executive
officer of the Company. His mission was to evaluate the Company's markets,
products and resources and turn around a rapidly deteriorating situation. In his
analysis, Mr. Clasen determined that the UPS business must be sold or wound
down. In addition, he found that the Company's plug-in products were inadequate
to meet a changing, low cost, competitive environment. The Company's line of
hardwire products were also dated and inadequate and were in need of
rejuvenation in order to re-establish the Company's position in markets served
by these products.
Certain strategic changes were made as a result of Mr. Clasen's analysis. In
June 1995, the exclusive rights to the Company's UPS products were sold to
Valence, L.L.C. The
B-8
<PAGE> 148
Company developed a completely new line of plug-in TVSS products that began
shipment in February 1996. Also, the Company began selling to the bid/spec
hardwire market in late 1994. EFI announced an entirely new line of hardwire
products in the fourth quarter of fiscal year 1998 with break-through technology
and significant price/performance improvements. These products incorporated new
technology covered by two new patents owned by the Company.
In accordance with these actions, management began reducing the expense base of
the Company. Annual expenses were reduced by 32 percent over fiscal years 1995
through 1997, and the number of employees was reduced similarly. Accounts
receivable aging was shortened from 71 days to 53 days and inventory turns
increased by more than 4 times. Profitability began to be tracked according to
major distribution channels. Banking relationships and debt were restructured to
support recovery and future growth.
The Company was successful in completing several supply agreements with large
private label or OEM customers having significant market presence and/or other
products to meet competitive demands. These customers include Thomson Consumer
Electronics ("TCE", using RCA and GE labels), a leader in consumer electronics;
Hubbell Incorporated, a major manufacturer and supplier of electrical
distribution products; and General Electric-Europe.
In September 1997, the Company signed an agreement with TCE in which EFI would
provide design, material sourcing, marketing and post sales product support
services for a fee based on unit product volume produced by third party
manufacturers in Asia. This agreement allows EFI to profit from participation in
the consumer market without an investment in working capital, tooling, etc.
In 1993, the Company entered into a joint venture with a group in Europe to
develop an international presence. The Company also began selling its products
in Mexico and Latin America. In January 1998, the Company purchased all of its
joint venture's shares and consolidated its international operations within its
wholly owned subsidiary, EFI Electronics Europe, S.A. In fiscal 2000,
international revenue is expected to account for 22 percent of total revenue.
Management projects that international revenue will approach 40 percent of total
sales over the next three years.
FINANCIAL PERFORMANCE - FISCAL YEAR 1999: Positive revenue growth was
experienced from 1995 to 1998. In fiscal year 1999, however, revenue growth did
not occur. As discussed above, the relationship with TCE changed from a product
to a fee basis, which reduced gross revenues. In 1999 the Company recognized
$944,000 of fee income. The equivalent amount of product income would have added
$2.0 million of net revenue to fiscal year 1999 results. Also in 1999, the
Company changed from selling directly to electrical distribution accounts to an
arrangement whereby Hubbell serviced those accounts. This change reduced total
revenue by more than $1.0 million. Although this change in distribution methods
had a negative short-term impact on revenue, management expects the long-term
impact to be positive. During this same period, the Company ceased doing
business with a large consumer products company because of
B-9
<PAGE> 149
inadequate returns, thereby reducing revenue an additional $1.2 million in
fiscal year 1999. As a result of the strategic changes, revenues in 1999 were
approximately $2.5 million less than 1998 revenues.
Simultaneous with an expansion of strategic alliances and international
presence, EFI management also sought to change its mix of products from plug-in
to hard-wire models. This change was made due to relatively better margins and
less competition in markets that use hard-wire products.
EXPENSE TRENDS: Part of the Company's recovery strategy has been to reduce
operating expenses. From fiscal year 1995 to 1997, operating expenses decreased
24 percent. The number of employees was also reduced by a similar percent.
These reductions were the result of the restructuring of the major departments
of the Company and the continual improvement philosophy of Company management.
The accounting staff was cut from 7 to 3, while the accuracy and timeliness of
data was improved. The marketing staff and its expenses were reduced by more
than 40 percent as a result of the changing strategy from product marketing to
partnerships.
Management used income from TVSS operations as the catalyst for future growth
and success. As a result of rising revenues and expense control, operating
income improved significantly between 1995 and 1998. In 1999, however, the trend
of improved operating income reversed as a result of several factors. First, as
described above, sales decreased. In addition, an increase in manufacturing
expenses resulted from moving and consolidating the Company's production and
administrative facilities in late fiscal year 1998. Finally, cost of sales
increased as the Company sold off its inventory of consumer products at close to
cost. For the 1999 fiscal year, the Company reported a net loss of $735,400.
FINANCIAL PERFORMANCE - FIRST ELEVEN MONTHS OF FISCAL 2000: For the eleven
months ended February 29, 2000, total sales were $10.7 million, a decrease of
$1.9 million from the similar 1999 period. Additionally, operating income for
the 2000 eleven-month period was approximately $196,000, a decrease of $24,000
from the previous eleven-month period. Net loss for the eleven-month period
ended February 29, 2000 was $359,000 compared to a net loss of $344,000 for the
similar 1999 period, representing an increase in net loss for the 2000
eleven-month period over the similar 1999 period of $15,000.
PRODUCTS: With over 20 years experience in the power quality business, EFI has
developed an extensive set of transient voltage surge suppression products.
While most TVSS vendors focus on specific markets or distribution channels,
EFI's product line transcends market, distribution and geographic borders to
provide complete solutions for most customers in most areas of the world. EFI
offers products in four general categories.
Hard-Wired: Hard-wired products include arrestors and DIN rail mountable
suppressors that can be installed inside electrical cabinets as well as compact,
direct-wired
B-10
<PAGE> 150
suppressors for branch panel and equipment protection. These devices are sold
worldwide through electrical wholesalers, utility distributors and specialty
distributors under the EFI brand names Titan, LineMaster and Home Guard and
private brands for Hubbell Wiring Device-Kellems, GE Power Controls, PSP
Products and others.
Panel and Custom: Panel and custom products consist of single and multiphase
protection systems enclosed in metal or plastic housings that generally have
field replaceable suppression modules. These products are designed to be
directly connected to power distribution cabinets, either at a service entrance
for full facility protection or inside a facility at branch panels or equipment
disconnects. These devices are sold through the private brand Haworth, in
addition to the same distribution channels as hard-wired products.
Suppressed Meter Socket Adapter: The suppressed meter socket adapter is used
primarily on residential 200A meter sockets for entire home protection. These
devices are sold primarily in North America but are also useable in other
countries having similar meter socket standards. Due to limited access to the
meter sockets, the suppressed meter socket adapters are sold primarily through
utility partners, including Home Guard, Hubbell Wiring Device-Kellems, PSP
Products and others.
Plug-In Point-of-Use: Plug-in point-of-use products include all portable
products that plug directly into the wall outlet for point-of-use protection.
The most popular devices are the cord-connected plug strips. Other point-of-use
products include wall mount devices that plug directly into the wall outlet, the
Power Control Center for PC and workstation protection, and telephone and cable
suppressors to prevent damage from disturbances on the telephone and cable
lines. These products are sold primarily in the U.S. through computer and office
products distributors, electrical wholesalers and specialty distributors, as
well as directly to the U.S. government.
DEPENDENCE ON CUSTOMERS: Consistent with the Company's strategy to develop large
OEM/private label accounts, two private label customers represented 15% and 12%
of the Company's net sales in the fiscal year ended March 31, 1999. The
Company's five largest customers accounted for 53% of net sales. Management
expects the number of customers representing more than 10% of the Company's net
sales to increase. The loss or insolvency of any one or more of these customers
could have a material adverse effect on the Company's results of operations.
DESCRIPTION OF SCHNEIDER ELECTRIC S.A.
Schneider Electric S.A. ("Schneider"), headquartered in Paris, France, is a
global electrical equipment industry leader with annual sales of approximately
$7.8 billion. It is the world's leading manufacturer of electrical distribution,
industrial control and automation products and systems. Schneider is the only
electrical manufacturer dedicated solely to the distribution and control of
electricity. In North America, the brands of Schneider include Square D (U.S.),
Federal Pacific in Mexico, and Federal Pioneer in Canada.
B-11
<PAGE> 151
HOULIHAN ANALYSES OF EFI AND THE TRANSACTION
In arriving at its Opinion, Houlihan, among other things, reviewed: (i) certain
publicly available financial information and other information concerning EFI
and the electronic equipment manufacturing industry, (ii) certain internal
analyses and other information furnished to it by EFI, including financial
forecasts prepared and provided by the management of the Company; (iii) the
financial terms of the Transaction as set forth in the Agreement; (iv) held
discussions with certain members of the management of the Company concerning the
business, operations and prospects of the Company, as well as other matters it
believed relevant to its inquiry; (v) compared certain financial data of the
Company with financial data of such other publicly traded companies Houlihan
deemed reasonably comparable, (vi) compared the Transaction price for the common
stock of the Company with other transactions which Houlihan deemed reasonably
comparable; (vii) reviewed certain documents filed by the Company with the
Securities and Exchange Commission pursuant to the Securities and Exchange Act
of 1934, as amended, (viii) reviewed the reported prices and trading activity
for the common stock of EFI; and (ix) performed such other studies, analyses and
investigations as Houlihan deemed appropriate. Houlihan's review was subject to
the assumptions and limitations described below.
In conducting its review and arriving at its opinion, Houlihan assumed and
relied upon, without independent verification, the accuracy, completeness and
fairness of the information furnished to or otherwise reviewed by or discussed
with it for purpose of rendering its opinion. With respect to the financial
projections of EFI and other information relating to the prospects of EFI
provided to Houlihan by Company management, Houlihan assumed that such
projections and other information were reasonably prepared and reflect the best
currently available judgments and estimates of the management of EFI as to the
likely future financial performance of the Company. The financial projections of
EFI that were provided to Houlihan were utilized and relied upon by Houlihan in
the "Analysis of Selected Publicly Traded Companies", "Discounted Cash Flow
Analysis" and "Selected Comparable Transactions Analysis" summarized below. The
Houlihan Opinion is based on market, economic and other conditions as they
existed and could be evaluated as of the date of the Opinion.
The following is a summary of the analyses performed and factors considered by
Houlihan in connection with rendering the Opinion:
INDUSTRY TRENDS
SWITCHGEAR: Switchgear protects electrical equipment from problems in voltage,
frequency, continuous current and other operating conditions. Switchgear is
required for load switching, for short-circuit protection and in industrial and
commercial power systems to protect and control circuit loads.
GLOBAL MARKET TRENDS: The switchgear market is driven primarily by the demand
for electricity, which is a function of the number of homes and commercial
enterprises, as well as by the replacement of outdated equipment by electric
utilities. The demand for switchgear equipment was strong from 1992-1996,
growing 3.5 percent annually, resulting from 8
B-12
<PAGE> 152
percent annual growth in residential construction and 6 percent annual growth in
investment in nonresidential structures.
GLOBAL INDUSTRY PROSPECTS: In the switchgear industry, the value of exports has
consistently exceeded the value of imports. The largest demand for U.S.
switchgear products came from Canada (20 percent), Mexico (15 percent), the
Dominican Republic (11 percent) and Japan (7 percent). The largest source of
imported switchgear products came from Mexico, with 38 percent of imports
originating there. The United States also imports from the Dominican Republic,
Ireland, Germany and Japan, among other countries.
To gain market share in overseas markets, U.S. switchgear manufacturers have
been acquiring foreign electrical equipment firms and then sharing technology
and critical capital investment funds to modernize production facilities. This
strategy allows U.S. manufacturers to compete on equal footing with local
suppliers, who often are favored in government contracts, and it limits U.S.
firms' exposure to currency fluctuations.
INDUSTRY AND TRADE PROJECTIONS: A slowdown in both residential and commercial
construction is forecast to negatively affect shipments in the switchgear
industry. Overall output is expected to grow 1.6 percent annually between 1996
and 2002. Much of the increased demand for switchgear products will come from
abroad as developing countries expand their infrastructure systems and U.S.
firms service those markets with a complete line of electrical equipment.
Exports by the switchgear industry are forecast to grow at an average annual
rate of 6 percent between 1996 and 2002.1
ANALYSIS OF HISTORICAL FINANCIAL POSITION
In rendering its opinion, Houlihan reviewed and analyzed the historical and
current financial condition of EFI, which included an assessment of EFI's recent
financial statements, an analysis of EFI's revenue, growth and operating
performance trends, an assessment of EFI's revenue mix, margin changes,
leverage, client concentration and product breadth, and a review of industry
market conditions including industry consolidations.
RESULTS OF OPERATIONS: Net sales for the year ended March 31, 1999 decreased by
$2.5 million (15%) compared to the prior year. This decrease in net sales was
comprised of a decline in domestic sales of $3.1 million that was partially
offset by an increase in international business of $625,000. Net sales from
domestic customers were negatively affected by two major factors that were the
result of changes in domestic sales and marketing strategy that are expected by
management to have positive long-term impact. As discussed above, the Company
entered into an agreement with Hubbell in 1997 whereby Hubbell assumed
responsibility for selling the Company's full line of electrical distribution
products in U.S. markets. Management believes that Hubbell, which is a market
leader in electrical distribution, has a much greater long-term potential to
obtain
- --------
1 Source: U.S. Industry and Trade Outlook 1999, The McGraw-Hill Companies and
U.S. Department of Commerce/International Trade Administration
B-13
<PAGE> 153
electrical distribution market share than does the Company. Sales of EFI
products by Hubbell were launched in March 1998. At that time the Company
discontinued its direct sales to electrical distribution customers. In fiscal
1999, however, combined EFI sales to Hubbell and to electrical distribution and
electrical resellers decreased by $1.1 million compared to the prior year.
In fiscal 1998 and prior years, the Company manufactured and sold private label
products to Thompson Consumer Electronics under the RCA label and to a large
supplier that sold its products through consumer office products distribution
channels. These sales required significant management attention, custom parts
inventories, long customer payment cycles and low margins. Management determined
that these sales were not profitable. A contract was executed in 1997 with
Thompson to design Thompson products, to assist in sourcing material and
managing an offshore manufacturer of these products, and to perform post sales
and warranty support services. In exchange, the Company receives fee income that
is significantly less than product sales revenue, but which is more profitable.
Sales to the consumer office products supplier were discontinued. These changes
accounted for a decrease in net sales of approximately $1.8 million.
Sales to the US Government were flat in fiscal 1999 compared to the prior year.
Sales to utility customers were slightly less in fiscal 1999 compared to the
prior year.
Net sales from international customers increased by $625,000 in fiscal 1999
compared to the prior year. The increase in sales resulted from three factors:
~ The full year impact of consolidated net sales from the
Company's acquisition of EFI Electronics Europe, S.L. on January
1, 1998 ($575,000)
~ An increase in sales to Latin American customers ($250,000)
~ A decrease in sales compared to the prior year from Asian
customers due to the significant decline in economic conditions
in that region ($200,000).
The net loss for the fiscal year ended March 31, 1999 was $735,000, $490,000
more than the net loss recorded for the previous year. This increase in loss was
due primarily to the Company's change in its method of calculating absorption of
indirect costs into inventory (which reduced gross margin $300,000) and to the
decrease in sales volume.
Net sales in the eleven-month period of April 1, 1999 - February 29, 2000 also
decreased approximately $1.9 million (or 15.5%) from the same period a year
earlier. In the prior year, the Company was beginning the transition from
selling certain of its products directly to electrical distribution customers to
selling its products to Hubbell. During the period, Hubbell placed significant
stocking orders. The Company also had some residual direct sales to electrical
distributors. In the eleven-months ended February 29, 2000 there were no direct
sales to electrical distributors and sales to Hubbell were at a maintenance
level. The combination of these factors accounted for a significant portion of
the reduction in sales.
B-14
<PAGE> 154
For the eleven-months ended February 29, 2000, gross profit decreased by
$102,000 (2.5%) from the similar period of the previous year. During the period,
gross margin was 38% compared to 32.9% for the previous year. The improvement in
gross margin percentage was due to several factors:
~ Fee income from Thompson yielded a substantially greater margin
than the product sales it displaced
~ During the last half of fiscal 1999, the Company focused on
decreasing its direct product costs for several product lines.
The impact of these reductions began to be realized in the
fourth quarter of the last fiscal year.
Operating expenses for the eleven-month period ended February 29, 2000 were
$79,000 lower than in the previous year comparable period. Research and
development costs were $2,500 more than the previous year, while selling,
general and administrative expenses decreased $81,000 during the period compared
to the previous year.
Despite reductions in costs, the Company's net loss increased $15,000 (prior to
adjustments for foreign currency translation) in the eleven-month period ended
February 29, 2000 compared to the same period in the previous year.
CAPITAL STRUCTURE: In the almost six year period from March 31, 1995 to February
29, 2000, the Company's financial risk increased somewhat. Although long-term
debt as a percent of equity declined during the period (140.0% in 1995 compared
to 90.5% as of February 29, 2000), total debt as a percent of assets increased
somewhat (74.5% in 1995 compared to 78.2% as of February 29, 2000). The
Company's liquidity as measured by the quick and current ratios, however,
declined over the period. The current ratio declined from 1.8 times in 1995 to
0.9 times as of February 29, 2000. Similarly, the quick ratio declined from 1.0
times in 1995 to 0.5 times as of February 29, 2000.
The Company had a revolving line of credit in place with a bank as of the date
of the Opinion. The revolving line of credit provides for borrowings up to $3.7
million collateralized by accounts receivable and inventories. Interest was
payable monthly at a rate of prime plus 2.5%. Principal payments are made as
cash is received from customers for accounts receivable. Borrowings are based on
formulas involving balances of eligible accounts receivable and inventories. The
line of credit agreement expires in March 2001. As of February 29, 2000, the
balance outstanding on the revolving line of credit was approximately $1.84
million.
SUMMARY OF EFI'S FINANCIAL CONDITION AS OF FEBRUARY 29, 2000: In each of the
five fiscal years examined (fiscal years ended March 31, 1995-1999), and in the
eleven-month period ended February 29, 2000, the Company generated significant
losses. Annual losses, however, declined over the period, from almost $2.0
million in 1995 to approximately $735,000 in 1999. For the eleven-month period
ended February 29, 2000, the Company reported a year-to-date loss of $359,000
compared to a reported year-to-date loss of $344,000 for the same period in the
previous year. Between 1995 and 1999, sales increased from $12.9 million in 1995
to a high of $16.4 million in 1998, decreasing
B-15
<PAGE> 155
in 1999 to approximately $14.0 million. Sales for the eleven-month period ended
February 29, 2000 were $10.7 million compared to $12.7 million for the
corresponding period in the previous year.
To fund its operations between 1995 and February 29, 2000, the Company sold
additional common stock and increased borrowings. In addition, as of February
29, 2000 the Company had loans outstanding to a shareholder in the amount of
$900,000 with an annual interest rate of 12%.
COMPARISON OF EFI'S FINANCIAL PERFORMANCE WITH THE INDUSTRY
To acquire a better understanding of EFI's 1999 performance, its record was
compared with the average experience of other manufacturers of electronic
equipment. Houlihan included data for the following companies ("Sample Group")
in its analysis: American Power Conversion, Ault, C&D Technologies, Littelfuse,
Power-One, Spectrum Control and Vicor. Although the activities of the companies
in the Sample Group may not be totally consistent with those of EFI, the
information is nevertheless considered representative of firms engaged in the
same types of activities as the Company. As such, the data provide a reasonable
backdrop for a comparative analysis of the Company's performance.
EFI is a significantly smaller company than the median of the Sample Group with
trailing twelve-month sales of $12.0 million compared to the median of $176.6
million for the Sample Group. Over the past three years, EFI experienced a
decline in sales, with trailing twelve-month sales of $12.0 million compared to
sales for fiscal 1999 of $13.9 million, and sales for fiscal 1998 of $16.4
million and $13.8 million in 1997 compared to the sample group median sales
growth for the same period of 6.6% per year. The median net margin for the
Sample Group for the last twelve-month period was 6.7% compared to a net loss as
a percent of sales for EFI of 7.5%.
EFI is also a significantly smaller company than the median of the Sample Group
as measured by total assets. EFI had total assets as of February 29, 2000 of
$7.0 million compared to the Sample Group median of $241.1 million.
Based on the March 20, 2000 stock price for EFI, its price-to-revenue multiple
was 0.4 times compared to the median of the Sample Group of 2.0 times. EFI's
price to book ratio was also lower than the median of the industry Sample Group
(3.4 times vs. 4.4 times).
EFI's asset turnover ratio, which measures the efficiency with which the assets
of the firm are utilized, was somewhat better than the Sample Group median. The
Company's total asset turnover ratio was 1.7 times compared to the Sample Group
median of 1.3 times.
The financial risk of EFI appeared to be substantially greater than that of the
Sample Group of companies. The Company's liquidity, as measured by the current
ratio, was substantially less than the median of the Sample Group (0.9 times vs.
3.3 times). EFI was also substantially more leveraged than the median of the
Sample Group as measured by
B-16
<PAGE> 156
total liabilities as a percent of total assets (78.2% compared to 48.5%) and
equity as a percent of total assets (21.8% compared to 51.5%).
In summary, EFI appears to represent a substantially inferior investment
opportunity compared to the median of the Sample Group companies. EFI
experienced a decline in sales over the past 3 years compared to a median annual
increase in sales of the Sample Group of companies of 6.6%. EFI's operations
have generated substantial losses in each of the past five years and for the
eleven-month period ended February 29, 2000. By contrast, the Sample Group of
companies generated median net income as a percent of sales of 6.7% for the last
twelve-month period. EFI's financial risk also appears to be substantially
greater than the median of the Sample Group of companies as measured by the
current ratio as well as total liabilities as a percent of assets and equity as
a percent of total assets.
ANALYSIS OF EFI'S RECENT STOCK PERFORMANCE
PUBLIC MARKET FOR EFI COMMON STOCK: EFI's common stock is traded on the Over the
Counter market under the symbol EFIC. For the 30-day trading period between
January 27, 2000 through March 20, 2000 (the last day trades in the Company's
stock occurred prior to the announcement of the Agreement), 160,200 shares of
EFI common stock were traded on the OTC market, which was an average of 5,340
shares traded per trading day. The weighted average closing price of the shares
traded during the 30-day period was $1.10 per share.
During the twelve-month period of March 1, 1999 and February 29, 2000, a total
of 2,605,464 shares of the Company's common stock were traded in the public
marketplace, which was an average of 11,016 shares per trading day. The weighted
average closing price of the shares traded during the period was $1.075 per
share. The stock closed at a high for the period on March 24, 1999 at $1.937 per
share and at a low for the period at $0.875 per share on September 10, 1999.
Of the common shares issued and outstanding, available market data indicates
that only approximately 1.7 million shares of the Company's common stock are
available for trading. The above data indicates that there has been a limited
amount of trading activity in the public market of the Company's common stock.
In addition, no cash dividends have been paid on the Company's common stock and
management does not anticipate that dividends will be paid in the foreseeable
future.
STOCK PERFORMANCE RELATIVE TO S&P COMPOSITE AVERAGE: Houlihan reviewed the daily
closing per share market price of EFI common stock and compared the movement of
such daily closing prices with the movement of the S&P 500 composite average
over the period from March 1995 through February 2000. Houlihan noted that, on a
relative basis, EFI performed somewhat below the S&P 500 composite average from
1995 through 1997. Since January 1998, however, EFI's performance started a
downward trend compared to the S&P 500, performing substantially below the index
from January 1998 through February 2000.
B-17
<PAGE> 157
ANALYSIS OF INDICATED MARKET VALUE OF THE COMPANY BASED ON RECENT STOCK
PRICE Based on the above-discussed analysis of the closing stock prices and
trading volumes of the Company's common stock in the public markets in a 30-day
period prior to the announcement of a definitive transaction, Houlihan estimated
the indicated value of the Company on a controlling interest basis as of March
20, 2000. As discussed, the weighted average closing price of the Company's
common stock during the 30-day trading period between January 24 and March 14,
2000 was $1.107 per share. Based on an analysis of transactions in comparable
companies (discussed below under the heading "Selected Comparable Transaction
Analysis"), Houlihan determined that the median premium paid for control of
companies over minority interest value was 24.4%. Applying the median premium to
EFI's weighted average stock price of $1.107 per share yields a per share value
on a controlling interest value of $1.38. Houlihan also adjusted the Company's
$1.107 per share minority interest market price by an historical overall market
control premium of 35%, which yielded a value per share of $1.50 on a
controlling interest basis. The mean of the two approaches yielded a per share
controlling interest market value of $1.437 per share.
The number of shares of common stock issued and outstanding on a fully diluted
basis as of March 20, 2000 was 6,101,807 (based on a Transaction price of $1.50
per share). Multiplying the number of shares outstanding by the estimated
controlling interest value per share yielded an estimated market value for the
Company on a controlling interest basis of $8.77 million as of March 20, 2000.
Adjusting for costs associated with the exercise of outstanding options and
warrants ($590,558), the net indicated market value on a controlling interest
basis of the issued and outstanding shares of common stock on a fully diluted
basis as of March 20, 2000 was $8.18 million.
ANALYSIS OF MARKET MULTIPLES OF SELECTED COMPARABLE PUBLIC
COMPANIES Houlihan examined EFI's market valuation as compared to the valuation
in the public market of other selected publicly traded electronic equipment
manufacturing companies. Houlihan compared certain financial information
relating to EFI to certain corresponding information from the Sample Group. Such
financial information included, among other things, common equity valuation,
capitalization ratios, operating performance, and ratios of common equity prices
per share to earnings, sales and book value per share. The financial information
used in connection with the multiples with respect to EFI and the Sample Group
was based on the latest reported twelve-month period as derived from publicly
available information.
Houlihan compared financial information of the Sample Group based on public
market valuation with the corresponding financial multiples for the Company
based on Transaction consideration to be received of $1.50 per share by the
Company's shareholders. The analysis was based on EFI's book value as of
February 29, 2000 (the latest available financial information for the Company)
and trailing twelve-month sales for the twelve-month period ended December 31,
1999.
Application of price to earnings and price to cash flow multiples to EFI's
financial results was not meaningful. For the trailing 12-month period, the
Company had a loss of
B-18
<PAGE> 158
approximately $926,000 (a loss equal to 7.7% of sales) compared to the industry
median net margin of 6.7% of sales.
Based on a proposed transaction price of $1.50 per share, EFI's implied price to
sales multiple of 0.7 times is lower than the Sample Group median of 2.0 times.
However, Houlihan noted that all of the Sample Group companies had positive net
income, with a median net income of 6.7% of sales. It was also noted by Houlihan
that the Sample Group of companies experienced an average increase in sales over
the past three years of 6.6% compared to a decrease in sales for EFI over the
last three years. When compared to the Sample Group, EFI's lack of sales
increases and lack of profitability justify a significant discount from the
price to revenue ratio of the Sample Group. The 65% discount represented by the
difference between a price to revenue ratio of 2.0 times for the Sample Group
and 0.7 times for EFI based on a per share sale price of $1.50 is, in Houlihan's
opinion, reasonable. It was noted by Houlihan that the results of operations
through February 29, 2000 indicate that the Company will generate a significant
loss again in fiscal 2000. In addition, sales for the eleven-month period ended
February 29, 2000 declined significantly compared to the same eleven-month
period of the previous year. Both of these factors would further substantiate a
substantial discount of the price to revenue multiple applicable to EFI derived
from the Sample Group price-to-revenue multiples.
EFI's implied price to book multiple of 5.5 times based on a transaction price
of $1.50 per share is substantially greater than the median price to book
multiple for the Sample Group of 4.4 times. Houlihan's analysis indicated that
such a high price to book multiple represented by the $1.50 per share
transaction price might not be reflective of current public market conditions.
Houlihan noted that EFI's equity as a percent of total assets was 21.8% compared
to the median equity as a percent of total assets of the Sample Group of 51.5%.
Clearly, EFI's financial risk is substantially greater than the Sample Group
median by virtue of its much greater financial leverage.
DISCOUNTED CASH FLOW ANALYSIS
Houlihan performed a discounted cash flow analysis based on EFI management's
projected operating statements for the fiscal years ending March 31, 2000 -
2002. The discounted cash flow approach values a business based on the current
value of the future cash flow that the business will generate plus the estimated
value of the business at some future date. To establish a current value under
this approach, future cash flow must be estimated and an appropriate discount
rate determined. Houlihan used estimates of projected financial performance for
EFI for the years ending March 31, 2000-2002 prepared by EFI management.
Management's projections were prepared assuming that EFI was a stand-alone
entity, reliant upon internally generated cash flow to fund its on-going
activities. Management projected that the terms of the current stockholder loans
of the Company had been extended three years with the notes having a five-year
amortization schedule, and with the balance of any unpaid principal and interest
payable at the end of three years. Houlihan aggregated the present value of the
projected earnings with the present value of the Company's projected terminal
value. The terminal value
B-19
<PAGE> 159
was computed based on projected net income in the calendar year 2003, to which a
terminal capitalization rate was applied.
Company management prepared two sets of projections, one termed "aggressive",
and the other termed "conservative". Houlihan discounted these cash flows using
market derived discount rates, adjusted to reflect the risk characteristics of
the Company and the risks associated with the assumptions underlying each set of
projections. Houlihan arrived at such discount and capitalization rates based on
its judgment of the estimated cost of equity capital of EFI, which included
consideration of historical rates of return for publicly traded common stock,
risks inherent in the industry, and specific risks associated with the
continuing operations of the Company on a stand-alone basis. Houlihan noted that
this analysis, which was based on projections prepared by Company management,
indicated a value estimate of $4.0 million based on the "conservative"
projections and $10.9 million under the "aggressive" projections. Both of these
values were on a controlling interest basis as of March 20, 2000. In its
analysis, Houlihan placed greater weight on the "conservative" projections
prepared by management in light of the Company's historical operating results
and the continuing losses reflected by the February 29, 2000 eleven-month income
statements. Despite the losses through February 29, 2000, management projects
that March will be a strong month and that the Company will attain breakeven
results or slightly better for fiscal 2000. Houlihan noted that under
management's "conservative" projections, a before-tax profit of $36,000 was
projected for fiscal 2000.
SELECTED COMPARABLE TRANSACTIONS ANALYSIS
Houlihan reviewed nine recent merger and acquisition transactions occurring
since 1998 involving electronics manufacturing companies considered by Houlihan
to be reasonably comparable to the Company and for which information was
publicly available. The following transactions were included by Houlihan in the
analysis: Teldata Communications Ltd., Total Control Products, Inc., RF Power
Products, Inc., Corcom, Inc., Astec, Electronic Specialty Corp., Melcher Group,
Altron, and Sigma Circuits, Inc. For each of the comparable transactions,
Houlihan calculated, among other things, total transaction value as a multiple
of sales, book value and earnings; and analyzed premiums paid for acquisition of
controlling interests over the market price of minority interests prior to the
announcement of the sale of the subject company.
On a controlling interest basis, multiples of transaction price to revenue
ranged from 0.3 times to 2.4 times. The median transaction price to revenue
multiple for the group was 1.1 times. Multiples of transaction price to book
value ranged from 1.7 times to 9.6 times for the companies in the comparable
group. The median transaction price to book multiple for the group was 2.7
times.
The multiples derived from this analysis were adjusted to reflect differences
between the sample group and EFI. The median sample group price to book ratio
was discounted 5% to reflect the marketability differences of the sample group
companies and EFI, such differences resulting primarily from the Company's lack
of historical profitability The resulting adjusted price to book ratio of 2.57
yielded an implied equity value of the
B-20
<PAGE> 160
Company on a controlling interest basis of $3.9 million. The median sample group
price to revenue ratio was discounted 45% to reflect the Company's lack of
profitability. The resulting price to revenue ratio of .62 times resulted in an
implied equity value for EFI on a controlling interest basis of $7.6 million.
Houlihan notes, however, that the reasons for and the circumstances surrounding
the comparable transactions were specific to each transaction. Because of the
inherent differences between the business, operations and prospects of the
Company and the businesses, operations and prospects of the companies in the
comparable transactions group, it is Houlihan's opinion that it was
inappropriate to rely solely on the quantitative results of the analysis.
Accordingly, Houlihan also made qualitative judgments concerning differences
between the characteristics of the comparable transactions and the Transaction
that would affect the acquisition values of the Company and such acquired
companies.
RELEVANT MARKET AND ECONOMIC FACTORS
In rendering its opinion, Houlihan considered, among other factors, the
condition of the U.S. stock markets, particularly as it relates to the
electronics manufacturing industry, and the current level of economic activity.
Houlihan also considered the trends of consolidations in this industry and the
potential impact of such consolidations on EFI's future operations.
No company used in the analysis of selected publicly traded companies or any
transaction used in the analysis of selected transactions summarized above is
identical to EFI. Accordingly, such analyses must take into consideration
differences in the financial and operating characteristics of the industry
sample group, selected transactions and other factors that would affect the
public trading value and acquisition value of such companies and industry
groups.
While the foregoing summary describes the analyses and factors that Houlihan
deemed material for presentation to the EFI Board of Directors, it is not a
comprehensive description of all analyses and factors considered by Houlihan.
The preparation of a fairness opinion is a complex process involving various
determinations as to the most appropriate and relevant methods of financial
analysis and the applications of these methods to the particular circumstances
and, therefore, such an opinion is not readily susceptible to summary
description. Houlihan believes that its analyses must be considered as a whole
and that selecting portions of its analyses and of the factors considered by it,
without considering all analyses and factors, would create an incomplete view of
the evaluation process underlying the Houlihan Opinion. In performing its
analyses, Houlihan considered general economic, market and financial conditions
and other matters, many of which are beyond the control of EFI. The analyses
performed by Houlihan are not necessarily indicative of actual values or future
results, which may be significantly more or less favorable than those suggested
by such analyses. Accordingly, such analyses and estimates are inherently
subject to substantial uncertainty. Additionally, analyses relating to the value
of a business do not purport to be appraisals or to reflect the prices at which
the business may actually be sold.
B-21
<PAGE> 161
Pursuant to a letter agreement dated November 30, 1999 between EFI and Houlihan,
the fee payable to Houlihan for rendering the Houlihan Opinion is $32,000. In
addition, EFI has agreed to reimburse Houlihan for its reasonable out-of-pocket
expenses incurred in connection with rendering financial advisory services. EFI
has agreed to indemnify Houlihan and its directors, officers, agents, employees
and controlling persons, for certain costs, expenses, losses, claims, damages
and liabilities related to or arising out of its rendering of services under its
engagement as financial advisors.
The Board of Directors of EFI retained Houlihan to act as its advisor based upon
Houlihan's qualifications, reputation, experience and expertise. Houlihan, as a
customary part of its business, is engaged in valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, private placements and valuations for estate, corporate and other
purposes.
HOULIHAN VALUATION ADVISORS
/s/ FREDERIC L. JONES
- ---------------------------
Frederic L. Jones, ASA
B-22
<PAGE> 162
ANNEX C
(1) EFI'S ANNUAL REPORT ON FORM 10-KSB FOR THE FISCAL YEAR ENDED MARCH 31,
1999
(2) EFI'S QUARTERLY REPORT ON FORM 10-QSB FOR THE QUARTER ENDED JUNE 30,
1999
(3) EFI'S QUARTERLY REPORT ON FORM 10-QSB FOR THE QUARTER ENDED SEPTEMBER
30, 1999
(4) EFI'S QUARTERLY REPORT ON FORM 10-QSB FOR THE QUARTER ENDED DECEMBER 31,
1999
C-1
<PAGE> 163
FORM 10-KSB
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
For the Fiscal Year Ended March 31, 1999
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
OR
[ ] 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: 0-15967
EFI ELECTRONICS CORPORATION
(Exact name of small business issuer as specified in its charter)
Delaware 75-2072203
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1751 South 4800 West, Salt Lake City, Utah 84104
(Address of principal executive offices)
Issuer's telephone number, including area code: (801) 977-9009
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None n/a
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.0001 PAR VALUE
[X] Check 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 past
twelve 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.
[X] Check if there is no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB.
Issuer's revenues for its most recent fiscal year: $13,890,564
Aggregate market value of the voting stock
(which consists solely of shares of $.0001 par value common stock) held by
non-affiliates of the registrant as of June 10, 1999, computed by reference to
the closing sale price of the registrant's common stock as reported by the
NASDAQ Small Cap Market on such date: $4,703,467
Number of shares of the registrant's common stock outstanding at
June 10, 1999: 5,574,479
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement relating to the Annual Meeting of
Shareholders scheduled for July 29, 1999 are incorporated by reference in Part
C-2
<PAGE> 164
III of this report.
Transitional Small Business Disclosure Format Yes[X] No [ ]
PART I
Item 1. Business
General Development of Business
EFI Electronics Corporation ("EFI" or the "Company") was incorporated under the
laws of the State of Utah on April 4, 1979, and in December 1982 began
manufacturing and selling transient voltage surge suppression ("TVSS") devices
which represent the Company's principal products. In June 1987, EFI merged with
and into Halyx Development Company, Incorporated, a publicly traded Delaware
corporation, which was the surviving corporation in the merger.
In February 1991, the Company began manufacturing uninterruptible power supply
("UPS") systems for sale and distribution through the same channels as its TVSS
products. In February 1995, management concluded that the UPS product line was
not yielding the desired return on investment. In June 1995, Valence, L.L.C.
("Valence"), an unrelated party, purchased the exclusive rights to the Company's
UPS products along with related inventory and assets.
In July 1993, the Company established a joint venture headquartered in
Barcelona, Spain with an independent group for the purpose of developing a
market for TVSS products through European distributors and machine tool
manufacturers. The name of this entity is EFI Electronics Europe, S.L. As of
January 1, 1998, the Company acquired 100% of the common stock of this entity
and contracted with the manager of the joint venture to remain as manager of the
Company's wholly owned subsidiary for a period of three years.
On July 1, 1998, the Company established a joint venture with a Singapore-based
corporation involved in distribution of programmable controllers and other
related industrial electrical devices. The purpose of this venture is to develop
the TVSS market in the Pacific Rim and India among industrial customers. The
name of this Singapore-based corporation is EFI Asia Pacific, LTD.
Narrative Description of Business
Company Overview--The Company is primarily engaged in the manufacture and
marketing of TVSS products. TVSS devices protect electronic equipment from
electrical disturbances such as lightning, grid switching, switching of air
conditioners, power tools, elevators, welding units, and electrical accidents.
These disturbances can produce high speed, high energy transient voltage spikes
and surges which can cause hardware failure, data/communication disruptions and
transient induced software "bugs" resulting in equipment damage and/or down
time. EFI's first hardwire product for industrial users was introduced in
November 1981, followed by introduction of similar plug-in products for computer
and telecommunication equipment which were introduced in early 1983 and 1984,
respectively. Since the early 1980's, the Company has continued to develop new
products for both plug-in and hardwire uses. The Company believes it has the
broadest line of TVSS products in the market and is known for its innovative
solutions, high quality and engineering competence.
Products--The Company is presently engaged in the design, development, assembly,
and marketing of TVSS devices to protect computer systems and other
micro-electronic equipment. The increasing use of micro-electronic systems
increases the need for surge suppression products in several markets. These
markets include office products (computers, fax machines, copiers, cash
registers, etc.), commercial and industrial products for medical facilities,
telecommunication installations, security systems, factories, automated
environments, as well as residential applications such as home theater, home
office and appliances.
All EFI TVSS products are designed and manufactured to meet Underwriters
Laboratories ("UL") and Canadian Standards Association ("cUL") standards for
C-3
<PAGE> 165
quality and safety. Several of the Company's products that are sold
[GRAPHIC OMITTED] EFI Electronics
Item 1. Business (continued)
internationally also meet requirements for European Conformity ("CE"). EFI's
basic suppression circuit was patented in 1986, with additional patents granted
in 1991 and 1992. EFI's products also provide additional safety features such as
thermal fusing, circuit breaker protection, and complete diagnostics.
Currently, EFI offers a broad range of TVSS products using EFI brand
identification and private label marks. These products include the broad
categories of plug-in and hardwired products. The Company offers three major
branded product lines. These three product lines are:
Powertracker(R) products which include plugstrips, wall-mounted
devices, data line modules and power control centers. These products
offer a variety of configurations as to number of outlets, on/off
switching and diagnostics that indicate reverse polarity, improper
grounding and protection availability. Three different suppression
levels are available to provide the protection desired. Models with
telephone and coaxial line protection are also available. These
products are offered in models to protect computer systems and
peripherals, copiers, fax machines, DSS satellite systems, audio/visual
equipment, telecommunication equipment and data lines.
Linemaster(R) products are industrial wire-in devices that provide a
full range of protection from full facility protection at the service
entrance to distribution panel protection for a specific area, to
electronic equipment protection at a dedicated branch panel. This
product line includes both hardwire panels and smaller custom modules
for use with or within specific microprocessor-based customer products.
Titan(R) products use the same technology as upper-end Linemaster(R)
products, but have significantly greater performance and optional
features not offered on Linemaster(R) products. Titan(R) products are
sold on a bid basis to contractors as specified by building and
architectural engineers.
In addition to branded products, the Company has adapted its products for use by
private label customers. In some cases these products are specifically designed
for such customers and are differentiated from Company branded products.
Hubbell, Incorporated ("Hubbell"), a leading electrical and wiring device
manufacturer, and Thomson Consumer Electronics, using the "RCA" brand name, are
examples of such customers for which the Company has designed unique products
that are sold under the brand names of these companies. In addition, the Company
has relationships with original equipment manufacturers ("OEM") which
incorporate the Company's TVSS products directly into equipment requiring
electronic protection.
Competition
EFI experiences active competition in each of its TVSS product categories.
However, EFI believes its extensive product lines of plug-in and hardwire
products are a competitive advantage. A description of the principal competitive
factors in each category of EFI's products is set forth below.
Plug-in Products--These products sell through a variety of distribution and
OEM/private label channels that include value added resellers ("VAR"), office
C-4
<PAGE> 166
products dealers, government and retail outlets. These markets are intensely
price competitive and are characterized by imported low-priced products from
foreign manufacturers for resale by many large brand name companies. These
companies are often engaged in the sale of a wide range of products and
accessories that include TVSS devices. EFI believes its plug-in products'
competitive advantages are product design, product performance and competitive
costs through continuing cost reduction activities.
Hardwire Products--These products are sold in a wide variety of markets and to
diverse customer groups including process control equipment, medical equipment,
modular office systems and telecommunication equipment
[GRAPHIC OMITTED] EFI Electronics
Item 1. Business (continued)
manufacturers; government agencies, electrical contractors and public utilities.
Many of these products are sold through power VARs and electrical wholesalers.
Many customers require custom designed products that are needed as part of the
installation of their equipment. Public utilities are now selling protection
devices to both home and business power users.
There are a number of companies that manufacture hardwire TVSS products for
these markets. However, most manufacturers compete on the basis of product
performance and technical support rather than price. EFI believes its products
in these markets compete favorably with respect to technical support and
performance. However, as the market matures and pricing pressure begins to
occur, the Company believes it can leverage its low cost structure gained from
plug-in products to compete favorably with competitors that have much higher
product costs.
Marketing
EFI delivers its products through a variety of marketing channels including
national and regional distributors that service retail computer resellers and
office products dealers. EFI also markets directly to OEM/private label
customers and the U.S. Government. EFI's marketing strategy is to provide
superior performance and features at a competitive price with aggressive product
and connected equipment warranties. Following is a description of EFI's
principal marketing strategies for each major TVSS channel:
EFI brand products are sold directly to large national and regional
suppliers of computers and office products. These suppliers distribute
to VARs, computer and office product dealers, utilities and consumer
retailers. In addition, EFI's Titan products are sold to VARs that
provide solutions and support for power problems.
Government products are sold via the General Services Administration
("GSA") schedule and on a bid basis through direct sales. EFI also uses
manufacturer's representatives for government sales.
OEM/private label product sales are made by direct sales to other
manufacturers and product merchandisers.
Dependence on Customers
Consistent with the Company's strategy to develop large OEM/private label
accounts, two private label customers represented 15% and 12% of the Company's
net sales in fiscal 1999, respectively. The five largest customers accounted for
C-5
<PAGE> 167
53% of net sales. Management expects the number of customers representing more
than 10% of Company net sales to increase. The loss or insolvency of any one or
more of these customers could have a material adverse effect on the Company's
results of operations. In fiscal 1998, one customer represented 16% of the
Company's net sales. The five largest customers accounted for 44% of net sales
in fiscal 1998.
Patents and Trademarks
In December 1986, EFI was issued a patent related to the suppression network
utilized in its plug-in and hardwire product lines. In June 1991, EFI was issued
a patent on its meter base surge suppression product. In June 1992, EFI was
issued a patent on the CATV circuitry that EFI had developed and uses in many of
its products. In January 1996, the Company purchased rights to a patent for a
system that allows replacement of suppression modules under power. In March
1998, EFI was issued a patent on a unique TVSS technology comprised of an array
of varistor discs that yields significantly greater performance at similar cost
but in a much smaller space than equivalent individual varistors. Each of these
patents has a life of 20 years from its filing date or 17 years from issuance.
EFI considers these patents to be significant and material competitive
advantages. The Company also has one or more pending patent applications that
cover recently developed products.
[GRAPHIC OMITTED] EFI Electronics
Item 1. Business (continued)
The Company has also registered its EFI(R) name and trademark, as well as its
Sine Wave Tracker(R), Omni-Phase(R), HomeGuard(R), Mastershield(R),
Powertracker(R), Titan(R), Linemaster(R), Surge Defender(R) and SurgeNet(R)
trademarks, which appear on the Company's products. The trademarks are also
deemed significant to EFI because of the importance of name recognition in the
markets in which EFI products are sold.
Research and Development
EFI is continually engaged in the research and development of new products and
refinements of existing TVSS products. The Company employs five research and
development professionals. Major advances have been made to shorten the design
cycle by establishing product teams made up of representatives from sales,
finance, marketing, manufacturing, and engineering. These teams focus on the
product step by step and make changes throughout the cycle, rather than making
the changes at the end of the process. Research and development expenses for
fiscal years ended March 31, 1999 and 1998 were $679,338 and $917,726,
respectively.
Manufacturing Process
EFI's products are assembled at the Company's production facility in Salt Lake
City, Utah, primarily using standard electronic components. EFI focuses on
automating the assembly process as much as possible. EFI's team approach to
development is focused on creating products that are easier and less expensive
to produce. Although some components are custom designed, EFI has not
experienced serious delays or shortages in obtaining necessary components. Most
components are available from alternative sources. EFI considers its
relationships with suppliers to be satisfactory.
EFI maintains substantial inventories of product components in order to meet
C-6
<PAGE> 168
rapid delivery requirements of customers. Return of EFI branded merchandise from
the customer is permitted at the Company's option and is subject to a 25%
restocking charge. Such returns require concurrent orders of equal or greater
value than the product returned. EFI's normal credit terms closely match the
industry that typically extends Net 45 to Net 60-day terms. Backlog at the
beginning of any given month is generally about 25% of the net sales for that
month.
Employees
As of March 31, 1999, EFI employed 76 full-time people, including 19 sales and
marketing personnel, 5 engineers, 41 manufacturing employees, and 11 executive
and administrative personnel. These include 5 employees of EFI Electronics
Europe, S.L. that are located in Spain. In addition, EFI employs contract
temporary employees to support peak activity in its manufacturing operations.
EFI is not a party to any collective bargaining agreements, has not experienced
any work stoppages, and has had no difficulty employing qualified people. EFI
considers its employee relations to be satisfactory.
Item 2. Properties
The Company's principal offices are located at 1751 South 4800 West, Salt Lake
City, Utah 84104, telephone number (801) 977-9009. This facility is located in a
light industrial park and consists of 56,000 square feet, of which approximately
11,000 square feet are used for executive and administrative offices and the
balance for manufacturing, and assembly. A lease terminating in October 2009
covers this facility. Monthly lease payments are $22,586 plus taxes, insurance,
and maintenance. The facilities have been renovated to specifications provided
by the Company. EFI Electronics Europe, S.L. leases approximately 3,000 square
feet of office and warehouse space in Barcelona, Spain, with monthly lease
payments of $981. The lease for this space terminates in December 2002.
Item 3. Legal Proceedings
None
Item 4. Submission of Matters to a Vote of Security Holders
None.
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters
The Company's Common Stock ("the Common Stock") is traded over-the-counter and
is included in the NASDAQ Small Cap Market under the symbol "EFIC." The
following table shows the range high and low bid information for the Common
Stock for the quarters indicated. Such quotations reflect inter-dealer prices,
without retail markup, markdown or commission and may not necessarily represent
actual transactions.
<TABLE>
<CAPTION>
QUARTER ENDED LOW HIGH
<S> <C> <C>
March 31, 1999 $ .78 $ 2.00
December 31, 1998 0.63 1.31
September 30, 1998 1.00 1.75
June 30, 1998 1.50 2.19
March 31, 1998 1.88 2.31
December 31, 1997 2.00 3.00
September 30, 1997 1.50 3.38
June 30, 1997 1.31 2.13
</TABLE>
As of June 10, 1999, there were approximately 270 record holders of the Common
Stock, which number does not include shareholders whose stock is held through
securities position listings.
C-7
<PAGE> 169
The Company has never paid dividends on its Common Stock. Under the terms of the
Company's line of credit agreement and agreement with Hubbell, the Company may
not pay cash dividends to shareholders. In the event these restrictions are
removed, payment of dividends is within the discretion of the Company's board of
directors, subject to certain legal limitations, and will depend upon earnings,
capital requirements and the operating and financial conditions of the Company.
At the present time, the Company's anticipated capital requirements are such
that it intends to follow a policy of retaining any earnings in order to finance
the development and growth of its business.
[GRAPHIC OMITTED] EFI Electronics
Item 6. Management's Discussion and Analysis or Plan of Operations
Selected Financial Data
The following Selected Financial Data should be read in conjunction with
Management's Discussion and Analysis or Plan of Operations, and the consolidated
financial statements and accompanying notes appearing in this report.
<TABLE>
<CAPTION>
For the years ended March 31, 1999 1998
<S> <C> <C>
Consolidated Statement of Operations Data:
Net sales $13,890,564 $16,372,366
Cost of sales 9,357,776 11,037,479
Unusual item 299,990 -0-
Gross profit 4,232,798 5,334,887
Operating expenses 4,436,295 4,944,065
Earnings/(loss) from operations (203,497) 390,822
Other expense, net (528,996) (607,173)
Loss before income taxes (732,493) (216,351)
Income taxes (2,800) (29,400)
Net loss $ (735,293) $ (245,751)
Net loss per share
Basic $ (0.13) $ (0.05)
Diluted $ (0.13) $ (0.05)
Consolidated Balance Sheet Data:
Working capital (deficit) $ (250,122) $ 375,067
Total assets 8,080,827 10,276,694
Long term debt, less current
maturities 981,076 1,248,580
Total liabilities 6,199,593 7,710,591
Stockholders' equity 1,881,234 2,566,105
Current ratio 1.0 to 1 1.1 to 1
Total liabilities to net worth 3.3 to 1 3.0 to 1
</TABLE>
Consolidated Results of Operations:
The following table sets forth certain operational data as a percentage
of net sales for the past two fiscal years: 1999 1998
<TABLE>
<S> <C> <C>
Net sales 100.00% 100.00%
Cost of sales 67.37 67.41
</TABLE>
C-8
<PAGE> 170
<TABLE>
<S> <C> <C>
Unusual item 2.16 -
Gross profit 30.47 32.59
Operating expenses 31.94 30.20
Earnings/(loss) from operations (1.47) 2.39
Other expense, net (3.80) (3.71)
Loss before income taxes (5.27) (1.32)
Income taxes (0.02) (0.18)
Net loss (5.29)% (1.50)%
</TABLE>
[GRAPHIC OMITTED] EFI Electronics
Item 6. Management's Discussion and Analysis or Plan of Operations (continued)
Results of Operations
Net Sales for the year ended March 31, 1999, decreased by $2.5 million (15%)
compared to the prior year. This decrease in net sales was comprised of a
decline in domestic sales of $3.1 million that was offset by an increase in
international business of $625 thousand.
Domestic Sales. Net sales from domestic customers were negatively affected by
two major factors that were the result of changes in domestic sales and
marketing strategy that are expected to have significant positive long-term
impact.
In August 1997, the Company contracted with Hubbell, Incorporated ("Hubbell") to
sell a full line of products through Hubbell into the electrical distribution
market. Management believes that Hubbell, which is a market leader in electrical
distribution, has a much greater long-term potential to obtain electrical
distribution market share than does the Company. Hubbell products were launched
in March 1998, at which time the Company discontinued its direct sales to
electrical distribution customers. As a result, total combined sales to Hubbell
and to electrical distribution and electrical resellers decreased in fiscal 1999
compared to the prior year by $1.1 million. Management believes that this
near-term decline will be offset by significant net sales increases in future
periods as Hubbell gains market share.
In fiscal 1998 and prior years, the Company manufactured and sold private label
products to Thomson Consumer Electronics ("TCE") under the RCA label and to a
large supplier that sold its products into the consumer office products channel.
These sales required significant management attention, custom parts inventories,
long customer payment cycles and very low margins. Management determined that
these sales were not profitable. A contract was executed in 1997 with TCE to
design TCE products, to assist in sourcing material and managing an offshore
manufacturer of these products, and to perform post sales and warranty support
services. In exchange, the Company receives fee income that is significantly
less than product sale revenue but which is more profitable. Sales to the
consumer office products supplier were discontinued. These changes accounted for
a decrease in net sales of approximately $1.8 million.
Sales to the US Government were flat in fiscal 1999 compared to the prior year.
Sales to utility customers were slightly less in fiscal 1999 compared to the
prior year. Management expects significant growth in the government business
during fiscal 2000.
International Sales. Net sales from international customers increased by $625
thousand in fiscal 1999 as compared to the prior year. This increase was the
C-9
<PAGE> 171
result of three factors:
The full year impact of consolidated net sales from the Company's
acquisition of EFI Electronics Europe, S.L. on January 1, 1998 ($575
thousand).
An increase in sales to Latin American customers ($250 thousand).
A decrease in sales compared to the prior year from Asian customers due
to the significant decline in economic conditions in this region ($200
thousand). The Company has noted an improvement in the Asian market and
anticipates an increase in demand for its products during fiscal 2000.
Gross Profit on sales for the year ended March 31, 1999, decreased by $1.1
million compared to the year ended March 31, 1998. This decline was primarily
the result of two factors. As more fully explained in Note 15 to the financial
statements (Unusual Item), the Company changed its method of calculating
absorption of indirect costs into inventory, which reduced gross profit by $300
thousand. In addition, gross profit declined by approximately $800 as a result
of a decrease in sales.
Gross margin as a percentage of sales, excluding the Unusual Item, was virtually
unchanged. This, however, does not reflect several important factors related to
the changes in strategy discussed above. Gross margin dollars and percentage
were positively impacted by the change from TCE product to fee business even
though the revenue level has been reduced.
[GRAPHIC OMITTED] EFI Electronics
Item 6. Management's Discussion and Analysis or Plan of Operations (continued)
Elimination of a consumer office products supplier as described above has
reduced gross margin dollars but had a positive impact on gross margin
percentage. Gross profit dollars and percentage were negatively affected by the
change to Hubbell for sales to electrical distributors as discussed above.
Margins to Hubbell are lower than were direct sales to electrical distributors.
However, as discussed below, the Company has been able to reduce its sales and
marketing expenses to offset a portion of this decrease. Gross margin percentage
was negatively impacted by certain fixed production costs such as depreciation
and occupancy expenses which did not decrease as net sales decreased.
Operating Expenses decreased by $508 thousand during the 1999 fiscal year
compared to the year ended March 31, 1998.
Research and development costs decreased by $238 thousand for the 1999 fiscal
year. In fiscal 1998, all TVSS manufacturers were required to comply with new
standards set by Underwriters' Laboratories (UL). The costs for design,
prototyping and fees at UL to complete this re-certification exceeded $300
thousand in fiscal 1998. Simultaneously, the Company introduced a new hardwire
product line in conjunction with its agreement with Hubbell. In fiscal 1999, the
UL costs did not recur and the cost of new product development was less than the
prior year.
Selling, general and administrative costs decreased by $393 thousand over the
prior year. This decrease was primarily the result of sales and marketing costs,
which decreased $378 thousand in fiscal 1999 compared to the prior year as a
result of sales through Hubbell rather than directly to electrical distributors,
as described above. These savings occurred in headcount, travel, promotional
costs and outside sales commissions.
C-10
<PAGE> 172
Amortization of goodwill was $124 thousand in fiscal 1999 and did not exist in
fiscal 1998.
Other Expense decreased to $529 thousand for the year ended March 31, 1999
compared to $607 thousand for the year ended March 31, 1998. A significant
reduction in interest expense ($125 thousand) was partially offset by a loss
associated with the Company's interest in an Asian start-up joint venture ($25
thousand) and an amount accrued for severance payments resulting from year-end
headcount reductions ($22 thousand).
Net Loss of $735 thousand for the year ended March 31, 1999 was $490 thousand
more than the loss recorded for the year ended March 31, 1998. This increase in
the loss was due primarily to the Unusual Item mentioned above and to the
decrease in sales volume. These were partially offset by reductions in operating
expenses.
Liquidity and Capital Resources
Cash provided by operating activities was $1.7 million during the year as
compared to a $634 thousand use of cash in fiscal year 1998. This significant
improvement was the result of many items, the most significant of which were:
Receivables decreased by $1.7 million (43%) during the current fiscal year
compared to an increase in the prior year of $991 thousand. As described above,
the Company changed from product sales to TCE to fee income and discontinued
sales to a consumer office products company. These accounts required
significantly extended payment terms. In addition, fourth quarter sales
decreased by 40% from fiscal year 1998 to fiscal 1999. Past due accounts as a
percentage of trade receivables decreased substantially during the current year
as a result of aggressive collection efforts and more restrictive credit
policies.
Inventories decreased by $607 thousand during fiscal 1999. This decrease was
related to:
reductions resulting from implementation of a new Enterprise Resource
Planning system, which improved control over operations,
[GRAPHIC OMITTED] EFI Electronics
Item 6.Management's Discussion and Analysis or Plan of Operations (continued)
a charge related to the Unusual Item discussed above and in Note 15,
changes in the relationship with certain customers that required custom
inventory, as described above, allowed liquidation of these items, an
increase in the provision for obsolete inventory related to disposition
of certain finished goods that were obsolete from the UL standard
changes described above and could not be sold, finished goods inventory
increased at March 31, 1999 by $295 thousand as a result of lower sales
during the last six weeks of the year as compared to the prior year end
and a change in strategy to carry more finished goods to improve lead
times and service to customers.
Accounts payable decreased $770 thousand during the current fiscal year compared
to an increase of $453 thousand in accounts payable in fiscal 1998. As a result
of cash flow improvements in other areas, the Company has significantly improved
its position with suppliers as of the end of fiscal 1999. Relationships with
suppliers and lenders are presently considered satisfactory.
C-11
<PAGE> 173
Cash used in investing activities was $643 thousand in fiscal 1999 compared to
$996 thousand in the prior year. This reduction in cash usage was primarily the
result of reductions in capital expenditures. During fiscal 1998, the Company
invested in tooling and other costs associated with a completely new line of
hardwire products. Development projects in fiscal 1999 either involved less
tooling investment or such investment was paid directly by customers.
Cash used in financing activities was $808 thousand in fiscal 1999 compared to
$1.6 million of cash provided by financing activities in the prior year. Whereas
the Company required significant cash resources in fiscal 1998, including an
equity infusion of $1.7 million, to fund capital expenditures and working
capital requirements, the Company generated enough operating cash flow in fiscal
1999 to not only fund capital expenditures but to also reduce its total debt by
more than $800 thousand.
Outlook
During fiscal 1998, the Company negotiated two long-term exclusive supply
agreements with customers who are channel leaders. It is anticipated that these
agreements will generate significant net sales and income in the future as these
companies gain market presence. However, since both of these companies are in
the process of entering markets and gaining market share in markets in which the
Company was previously active, these agreements negatively affected sales and
the results of Company operations in fiscal year 1999, during the transition to
the new sales and marketing strategy described above.
The statements contained in this Annual Report on Form 10-KSB that are not
purely historical are "forward-looking statements" within the meaning of Section
27A of the Securities Act and Section 21E of the Exchange Act. All
forward-looking statements involve various risks and uncertainties.
Forward-looking statements contained in this Report include statements regarding
the Company's plans and opportunities, existing or anticipated products, market
opportunities, expectations, goals, revenues, financial performance, strategies,
intentions for the future and any other statements to the effect that the
Company or its management "believes", "expects", "anticipates", "plans", or
other similar expressions. Such forward-looking statements may be included under
Items 1, 2, 3 and 6 of this report. All forward-looking statements included in
this Report are made as of the date hereof, based on information available to
the Company as of such date, and the Company assumes no obligation to update any
forward-looking statements. It is important to note that such statements may not
prove to be accurate, and that the Company's actual results and future events
could differ materially from those anticipated in such statements. Many factors
could cause actual results to differ materially from the Company's expectations,
including, without limitation, the factors identified below.
[GRAPHIC OMITTED] EFI Electronics
Item 6. Management's Discussion and Analysis or Plan of Operations (continued)
The Company's future results will be impacted by the Company's ability to
implement and finance a growth strategy, which, in turn, is dependent upon the
ability and willingness of key customers to penetrate markets that the Company
has ceded to them. The Company's growth strategy also includes expectations of
significant growth in international markets. These involve acquisition and
development of certain customers and markets that may or may not occur. In
addition, future results may also be affected by other factors including the
Company's response to existing or emerging competition, demand for Company
products, the Company's efforts to develop and maintain customer and employee
C-12
<PAGE> 174
relationships, economic fluctuations and employee-related risks and expenses.
All written and oral forward-looking statements attributable to the Company or
person acting on its behalf are expressly qualified in their entirety by this
section and other factors included elsewhere in this report.
Liquidity and capital resources. Although Company liquidity is negative at March
31, 1999, management believes the Company can fund its operations during fiscal
2000 from financing arrangements in place and internally generated cash flows.
As disclosed in Note 6 to the financial statements, the Company has $991
thousand of current maturities of long term debt due in fiscal 2000. Of this
amount,$600,000 is due to a shareholder and board member of the Company.
Management expects to either refinance this obligation or extend its term beyond
one year.
Inflation. The Company's activities have not been, and in the near term are not
expected to be, materially affected by inflation or changing prices in general.
Year 2000. Management implemented a plan for compliance with Year 2000
requirements in fiscal 1998. This plan included the upgrade of all hardware
systems in fiscal 1998 at a capital cost of approximately $125 thousand;
implementation of a new enterprise management system in fiscal 1999, described
below; and evaluation of other hardware, suppliers, customers, financial
institutions, etc., with whatever corrective action is required, in fiscal 2000.
The Company contracted with a global supplier of enterprise management software
to install an information system that is Y2K compliant. This system was
installed in January 1999. The previous system was significantly out of date and
had many deficiencies as a management tool. Implementation of the new system has
been part of ongoing improvements to Company operations with Y2K compliance
being an important but incidental benefit. This system and resulting Y2K
compliance cost the Company approximately $300,000 in fiscal 1999 for capital
expenditures to be amortized over 3-7 years. In addition, significant internal
resources were diverted to this project.Internal resources used for this project
are comprised of existing human resources that caused no incremental financial
costs to the Company as a result of this project.
In addition, the Company has taken steps to ensure that its banking and lending
relationships are with Y2K compliant financial institutions. During fiscal 2000,
the Company will work with its major customers and suppliers to ensure that Y2K
compliance issues will not interrupt the normal activities supported by these
relationships. None of these items is expected to involved material investment
or expense in fiscal 2000.
Stock-based compensation. As disclosed in Note 11 to the Company's consolidated
financial statements, the Company has adopted only the disclosure provisions of
Financial Accounting Standards No.123, "Accounting for Stock-Based Compensation"
(FAS123). The disclosure impact of this information is immaterial to Company
operations.
European Union common currency (Euro). The Company owns a Spanish subsidiary
that is subject to the provisions of the European Union with regard to the
adoption of the Euro. In addition, the Company sells product into the European
Union (representing less than 10% of sales). The Company's new ERP system
described above is capable of meeting known requirements related to this change.
Management does not believe that this change will have any material impact on
the Company's competitive position in the market or its cost of doing business
within the European Union.
Item 7. Financial Data
Index to Consolidated Financial Statements
<TABLE>
<CAPTION>
Item Page Item Page
<S> <C> <C> <C>
Report of Independent Accountants 12 Statements of Cash Flows 15 - 16
Statements of Operations 13 Statements of Stockholders' Equity 17
</TABLE>
C-13
<PAGE> 175
<TABLE>
<S> <C> <C> <C>
Balance Sheets 14 Notes to Financial Statements 18 - 27
</TABLE>
Report of Independent Accountants
To the Stockholders and Board of Directors of EFI Electronics Corporation:
We have audited the accompanying consolidated balance sheets of EFI Electronics
Corporation and Subsidiary as of March 31, 1999 and 1998, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of EFI Electronics
Corporation and Subsidiary as of March 31, 1999 and 1998, and the results of
their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.
/s/ GRANT THORNTON LLP
Salt Lake City, Utah
May 14, 1999
[GRAPHIC OMITTED] EFI Electronics
Item 7. Financial Data (continued)
Consolidated Statements of Operations
<TABLE>
<CAPTION>
For the years ended March 31, 1999 1998 Notes
<S> <C> <C> <C>
Net sales $ 13,890,564 $16,372,366 1,14
Cost of sales 9,357,776 11,037,479
Unusual item 299,990 -0- 15
Gross profit 4,232,798 5,334,887
Operating expenses:
Selling, general and administrative 3,633,157 4,026,339
Research and development 679,338 917,726 1
Amortization of goodwill 123,800 -0-
Total operating expenses 4,436,295 4,944,065
Earnings / (loss) from operations (203,497) 390,822
Other income/(expense):
</TABLE>
C-14
<PAGE> 176
<TABLE>
<S> <C> <C> <C>
Equity in loss from joint ventures (25,262) (3,936) 12
Other, net (20,727) 4,858
Interest expense (483,007) (608,095) 5,6
(528,996) (607,173)
Loss before income taxes (732,493) (216,351)
Income taxes (2,800) (29,400) 1,10
Net loss $ (735,293) $ (245,751) 11,15
Loss per share:
Basic $ (0.13) $ (0.05) 1,11,13
Diluted $ (0.13) $ (0.05) 1,11,13
Weighted average shares outstanding:
Basic 5,565,521 4,903,596 1,11
Diluted 5,565,521 4,903,596 1,11
</TABLE>
The accompanying notes are an integral part of these financial statements
Item 7. Financial Data (continued)
Consolidated Balance Sheets
<TABLE>
<CAPTION>
As of March 31, 1999 1998 Notes
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 263,135 $ 9,566 1
Receivables, net 2,241,200 3,981,682 1,2,6
Inventories, net 2,119,336 2,726,606 1,3,6,15
Prepaid expenses 221,986 90,817
Total current assets 4,845,657 6,808,671
Property, net 2,448,376 2,539,290 1,4,5,6
Other assets:
Goodwill, net 742,803 866,603 1,12
Other assets 43,991 62,130
Total other assets 786,794 928,733
Total assets $ 8,080,827 $ 10,276,694
Liabilities
Current liabilities:
Revolving line of credit $ 2,583,210 $ 3,472,935 6
Current maturities of capital
lease obligations 177,763 159,242 5
Current maturities of notes payable 990,533 681,690 6
Accounts payable 825,291 1,595,440
Reserve for customer warranty
claims estimated to be due within
one year 215,000 230,000 1
Accrued liabilities 303,982 294,297
Total current liabilities 5,095,779 6,433,604
Long-term liabilities:
</TABLE>
C-15
<PAGE> 177
<TABLE>
<S> <C> <C> <C>
Capital lease obligations, less
current maturities 163,350 353,498 5
Notes payable, less current maturities 817,726 895,082 6
Reserve for customer warranty claims estimated
to be due beyond one year 122,738 28,405 1
Total long-term liabilities 1,103,814 1,276,985
Total liabilities 6,199,593 7,710,589
Commitments and contingencies - - 5,7
Stockholders' Equity
Common stock, $.0001 par value; 20,000,000 shares authorized; 5,574,479 and
5,504,644 shares issued and outstanding in 1999 and
1998, respectively 558 551 1,11
Additional paid-in capital 3,117,190 3,045,139
Accumulated other comprehensive loss (27,506) (5,870) 1
Accumulated deficit (999,008) (263,715)
2,091,234 2,776,105
Less: Notes receivable from officer (210,000) (210,000) 8
Total stockholders' equity 1,881,234 2,566,105
Total liabilities and
stockholders' equity $ 8,080,827 $ 10,276,694
</TABLE>
The accompanying notes are an integral part of these financial statements.
[GRAPHIC OMITTED] EFI Electronics
Item 7. Financial Data (continued)
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
For the years ended March 31, 1999 1998
<S> <C> <C>
Cash flows from operating activities:
Net loss $(735,293) $ (245,751)
Adjustments to reconcile net loss to net cash
provided by/(used in) operating activities:
Unusual item 299,990 -0-
Depreciation and amortization 874,197 665,428
Loss on property dispositions -0- 102,695
Provision for obsolete inventory 206,935 75,000
Provision for customer warranty expense 287,902 185,706
Provision for bad debts 45,337 20,000
Equity in loss from joint ventures 25,262 3,936
Increase/(decrease) in cash due to change in:
Receivables 1,695,145 (991,427)
Inventories 100,345 (439,417)
Prepaid expenses (81,169) (48,026)
Other assets 2,162 (19,436)
Accounts payable (770,149) 452,803
Warranty claims (208,569) (221,293)
Accrued income taxes payable -0- (113,309)
Accrued liabilities (15,577) (60,661)
Net cash provided by/(used in) operating activities 1,726,518 (633,752)
Cash flows from investing activities:
Capital expenditures (643,506) (1,080,793)
Purchase of EFI Electronics Europe, S.L. -0- (125,000)
Proceeds from sale of property -0- 61,896
Distribution from joint venture -0- 147,880
Net cash used in investing activities (643,506) (996,017)
</TABLE>
C-16
<PAGE> 178
<TABLE>
<S> <C> <C>
Cash flows from financing activities:
Net borrowings/(payments) under line of credit (889,725) 274,554
Proceeds from borrowings under notes payable 600,000 205,000
Principal payments of capital lease obligations (171,627) (70,697)
Principal payments of notes payable (368,513) (482,918)
Proceeds from issuance of common stock -0- 1,695,356
Proceeds from exercise of stock options 22,058 13,787
Net cash provided by/(used in) financing activities (807,807) 1,635,082
Effect of exchange rate changes on cash (21,636) (5,870)
Net increase/(decrease)/in cash and cash equivalents 253,569 (557)
Cash and cash equivalents at beginning of year 9,566 10,123
Cash and cash equivalents at end of year $ 263,135 $ 9,566
</TABLE>
The accompanying notes are an integral part of these financial statements.
-continued-
[GRAPHIC OMITTED] EFI Electronics
Item 7. Financial Data (continued)
Consolidated Statements of Cash Flows (continued)
Supplemental disclosures of cash flow information:
<TABLE>
<CAPTION>
For the years ended March 31, 1999 1998
<S> <C> <C>
Cash paid during the year for
Income taxes $ -0- $113,309
Interest $502,237 $539,215
</TABLE>
Supplemental schedule of non-cash investing and financing activities:
1999 The Company issued 50,000 shares of Common Stock to an officer under
terms related to his employment.
The Company retired $307,624 of fully depreciated property.
1998 The Company acquired all of the remaining outstanding shares of EFI
Electronics Europe, S.L. on January 1, 1998, in exchange for $125,000
cash, notes payable of $275,000 and 220,000 shares of the Company's
Common Stock valued at $1.86 per share. The Company recorded goodwill
of $866,603 on the acquisition.
The Company retired $602,273 of fully depreciated property.
The Company entered into capital lease obligations for the acquisition
of equipment in the amount of $583,437.
C-17
<PAGE> 179
The accompanying notes are an integral part of these financial statements.
[GRAPHIC OMITTED] EFI ELECTRONICS
Item 7. Financial Data (continued)
Consolidated Statements of Stockholders' Equity
For the years ended March 31, 1999 and March 31, 1998:
<TABLE>
<CAPTION>
Accumulated
Additional Other Comp- Note
Common Stock Paid-in rehensive Accumulated Receivable
Shares Amount Capital Loss Deficit from Officer Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at April 1, 1997 4,216,174 $ 422 $926,925 $ -0- $(17,964) $(210,000) $ 699,383
Comprehensive income:
Net loss (245,751) (245,751)
Foreign currency translation
adjustment (5,870) (5,870)
Total comprehensive loss (251,621)
Common stock issued for cash
at $1.69 1,054,044 105 1,695,251 -0- -0- -0- 1,695,356
Exercise of stock options at
$1.06 to $1.25 per share 14,426 2 13,785 -0- -0- -0- 13,787
Common stock issued for
purchase of joint venture
at $1.86 per share 220,000 22 409,178 -0- -0- -0- 409,200
Balance at March 31, 1998 5,504,644 551 3,045,139 (5,870) (263,715) (210,000) 2,566,105
Comprehensive income:
Net loss (735,293) (735,293)
Foreign currency translation
adjustment (21,636) (21,636)
Total comprehensive loss (756,929)
Exercise of stock options at
$1.06 to $1.11 per share 19,835 2 22,056 -0- -0- -0- 22,058
Stock issued to officer 50,000 5 49,995 -0- -0- -0- 50,000
Balance at March 31, 1999 5,574,479 $558 $3,117,190 $(27,506) $(999,008) $(210,000) $1,881,234
</TABLE>
C-18
<PAGE> 180
The accompanying notes are an integral part of these financial statements.
[GRAPHIC OMITTED] EFI Electronics
Item 7. Financial Data (continued)
Notes To Consolidated Financial Statements
Note 1 The Company and Summary of Significant Accounting Policies:
EFI Electronics Corporation ("EFI" or the "Company") is a Delaware corporation
that manufactures and sells transient voltage surge suppression ("TVSS")
products both domestically and internationally. The accounting policies of the
Company conform to generally accepted accounting principles. The following is a
summary of the most significant of such policies:
Principals of consolidation--On January 1, 1998, the Company purchased all of
the remaining outstanding common stock of EFI Electronics Europe, S.L., a
company incorporated in Spain in July 1993 as a 50% owned joint venture, engaged
in the sale of TVSS panel products to European distributors and machine tool
manufacturers. Prior to acquiring all of the outstanding common stock, the
Company's equity in earnings and investment from this operation were translated
into U.S. Dollars at the rate of exchange as of December 31, 1997, which
approximated the average rate during the period. Foreign exchange gains or
losses have not been material. Beginning January 1, 1998, the financial results
of this operation have been consolidated into the financial results of the
Company.
During fiscal 1999, the Company entered into a joint venture with a
Singapore-based corporation resulting in the establishment of EFI Asia Pacific,
LTD. The Company accounts for its 50% interest in the joint venture by
recognizing its equity in the earnings of the joint venture translated at an
exchange rate that approximates the average exchange rate for the period.
Estimates--The preparation of consolidated financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect reported amounts of assets, liabilities,
net sales and expenses during the reporting period. Estimates also affect the
disclosure of contingent assets and liabilities at the date of the financial
statements. Actual results could differ from these estimates.
Reclassifications--Certain reclassifications have been made to the 1998
financial statements to conform with the 1999 presentation.
Revenue recognition--Revenue is recognized when product is shipped, fee income
is earned and/or services are performed.
Research and development--The Company conducts research and development to
develop new products. Research and development costs have been charged to
expense as incurred.
Stock-based compensation--The Company has adopted only the disclosure provisions
of Financial Accounting Standards No.23, "Accounting for Stock-Based
Compensation" (FAS 123).Therefore, the Company continues to account for
stock-based compensation under Accounting Principles Board Opinion No. 25, under
which no compensation cost has been recognized.
C-19
<PAGE> 181
Income taxes--The Company utilizes the liability method of accounting for income
taxes. Under the liability method, deferred tax assets and liabilities are
determined based on differences between the financial reporting and tax bases of
assets and liabilities and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to reverse. An
allowance against deferred tax assets is recorded when it is more likely than
not that such tax benefits will not be realized. Research tax credits are
recognized as utilized.
Loss per share--Basic loss per common share is based on the weighted average
number of common shares outstanding during each period. Diluted loss per common
share is based on shares outstanding (computed as under basic EPS) and
potentially dilutive common shares. Potential common shares included in the
dilutive loss per share calculation include stock options and warrants granted.
Cash and cash equivalents--The Company considers all highly liquid investments
with an original maturity date of three months or less when purchased to be cash
equivalents. Cash and cash equivalents are placed with federally insured
financial institutions. These balances are generally not significant since they
are transferred to reduce the Company's revolving line of credit on a daily
basis.
Accounts receivable and concentration of credit risk--The Company's financial
instruments that are exposed to concentrations of credit risk consist primarily
of cash, cash equivalents and trade receivables. Consistent with the Company's
strategy to develop large OEM/private label accounts, two private label
customers represented 15% and 12% of the Company's net sales in fiscal 1999,
respectively.
[GRAPHIC OMITTED] EFI Electronics
Item 7. Financial Data (continued)
Note 1 The Company and Summary of Significant Accounting Policies (continued)
The five largest customers accounted for 53% of net sales. Accounts receivable
for these customers represent 38% of total accounts receivable outstanding as of
March 31, 1999.
The allowance for doubtful accounts is based upon an evaluation of the aging of
accounts receivable, general economic conditions and known or suspected ability
of customers to pay their indebtedness.
Inventories--Raw materials are stated at the lower of cost (first-in, first-out
basis) or market. Work-in-process and finished goods are stated at the lower of
average cost or market. An allowance for obsolete inventory is based on an
evaluation of the economic usefulness of each item and the period over which
such use is expected.
Property--Property is stated at cost and depreciated or amortized on the
straight-line method over the 3- to 10-year lives of assets. Gains and losses on
disposal of property are accounted for and disclosed separately on the statement
of operations.
Goodwill--The excess cost of subsidiary stock over book value is being amortized
by the straight-line method over a period of seven years. The Company reviews
goodwill annually to assess recoverability. Impairment would be recognized in
operating results if expected future operating undiscounted cash flows of the
C-20
<PAGE> 182
acquired subsidiary are less than the carrying value of goodwill.
Product warranty and product returns--The Company offers replacement product
warranties ranging from 5 years to lifetime. EFI's customers have no contractual
right to return products not covered by product warranty. However, as an
accommodation to customers, product returns for credit are allowed under certain
circumstances at EFI's option. The Company does not allow return of custom, OEM
or private label products.
In addition, the Company offers warranties on certain of its plug-in products to
repair or replace equipment that is plugged into Company products that is
damaged by electrical disturbances. The Company maintains warranty reserves for
possible future claims based on actual claims paid, cumulative claims experience
by product, average product life for claims and average claim by product.
Common stock--The Company follows the practice of recording amounts received
upon the exercise of options by crediting Common Stock and additional paid-in
capital. No charges are reflected in the consolidated statements of operations
as a result of the grant or exercise of stock options. The Company realizes an
income tax benefit from the exercise of certain stock options. This benefit
results in a decrease in current income taxes payable and an increase in Common
Stock and additional paid-in capital.
Foreign currency translation--The asset and liability accounts of EFI's foreign
subsidiary and joint venture, which were originally recorded in local
currencies, are translated for financial consolidation and reporting purposes
into U.S. Dollar amounts at period-end rates of exchange. Net sales and expense
accounts are translated at the average daily rates during the period.
Transaction gains and losses, the amounts of which are not material, are
included in other income and expense. Foreign currency translation adjustments
are a component of comprehensive income (loss) and are accumulated as a separate
component of stockholders' equity.
Note 2 Receivables:
At March 31, 1999 and 1998, receivables consisted of the following:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Trade and other receivables $ 2,256,864 $ 4,026,047
Less allowance for doubtful accounts (15,664) (44,365)
Receivables, net $ 2,241,200 $ 3,981,682
</TABLE>
The allowance for doubtful accounts is based upon an evaluation of the aging of
accounts receivables, general economic conditions and known or suspected ability
of customers to pay their indebtedness.
[GRAPHIC OMITTED] EFI Electronics
Item 7. Financial Data (continued)
Note 3 Inventories:
At March 31, 1999 and 1998, inventories consisted of the following:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Raw materials $ 1,238,439 $ 1,937,961
Work-in-process 121,775 269,732
Finished goods 889,344 593,913
</TABLE>
C-21
<PAGE> 183
<TABLE>
<S> <C> <C>
2,249,558 2,801,606
Less allowance for obsolete inventory (130,222) (75,000)
Inventory, net $ 2,119,336 $ 2,726,606
</TABLE>
Raw materials are stated at the lower of cost (first-in, first-out basis) or
market. Work-in-process and finished goods are stated at the lower of average
cost or market. An allowance for obsolete inventory is based on an evaluation of
the economic usefulness of each item and the period over which such use is
expected.
Note 4 Property:
At March 31, 1999 and 1998, property consisted of the following:
<TABLE>
<CAPTION>
Life
1999 1998 (Years)
<S> <C> <C> <C> <C>
Machinery and equipment $5,082,418 $ 4,843,313 3 - 10
Furniture and fixtures 554,650 460,401 5 - 10
Leasehold improvements 72,407 85,968 5 - 10
Software 239,504 222,350 3 - 5
5,948,979 5,612,032
Less accumulated depreciation and
amortization (3,500,603) (3,072,742)
Property, net $ 2,448,376 $ 2,539,290
</TABLE>
Property is stated at cost and depreciated on the straight-line method over the
3- to 10-year lives of assets. Gains and losses on disposal of property are
accounted for and disclosed separately on the statement of operations.
Included in the above total as of March 31, 1999 are assets with a cost of
$1,567,542, which are fully depreciated and still in service. During fiscal 1999
and fiscal 1998, the Company retired assets that were fully depreciated, with a
cost of $307,624 and $602,273, respectively.
Note 5 Capital Lease Obligations:
Maturities of capital lease obligations at March 31, 1999, consist of the
following:
<TABLE>
<CAPTION>
Fiscal year ended March 31,
<S> <C>
2000 $212,253
2001 157,756
2002 31,643
Thereafter -0-
Total minimum lease payments 401,652
Less: amounts representing interest (60,539)
Present value of net minimum lease payments 341,113
Less: current maturities (177,763)
Total capital lease obligations,
less current maturities $163,350
</TABLE>
Included in property is $618,208 of equipment under capital leases at March 31,
1999. The related accumulated amortization is $158,572.
[GRAPHIC OMITTED] EFI Electronics
C-22
<PAGE> 184
Item 7. Financial Data (continued)
Note 6 Notes Payable and Revolving Line of Credit:
At March 31, 1999 and 1998, notes payable and revolving line of credit, the
carrying value of which approximates fair value, consisted of the following:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Revolving line of credit $ 2,583,210 $ 3,472,935
Notes payable:
Collateralized promissory note $654,877 $ 848,695
Uncollateralized subordinated
notes-director 900,000 300,000
Collateralized promissory
note-machinery 133,243 174,247
Uncollateralized note-acquisition 120,139 253,830
1,808,259 1,576,772
Less current maturities of notes payable (990,533) (681,690)
Total notes payable, less current maturities $817,726 $ 895,082
</TABLE>
The revolving line of credit in place at March 31, 1999, provides for borrowings
up to $3,700,000 collateralized by accounts receivable and inventories. Interest
is payable monthly at a rate of prime (7.75% as of March 31, 1999) plus 1.5%.
Principal payments are made as cash is received from customers for accounts
receivable. Borrowings are based on formulas involving balances of accounts
receivable, inventories and certain ineligible amounts. There are no other
minimum payments due regardless of cash received. The line of credit agreement
expires in March 2001.
At March 31, 1999, the revolving line of credit contained certain financial
covenants, including, but not limited to, provisions that the Company maintain
certain levels of net worth, achieve certain results of operations, meet certain
financial ratios, and restrict the amount of capital expenditures and the
payment of dividends. At times throughout the year, including March 31, 1999,
the Company has been in violation of certain of these covenants. As of December
31, 1998, the Company had obtained appropriate waivers. As of March 31, 1999,
the Company has applied for appropriate waivers for all covenants in violation
pertaining to this line of credit.
The collateralized promissory note is collateralized by the Company's property.
Interest is payable monthly at a rate of prime (7.75% as of March 31, 1999) plus
0.75%. The total monthly payment (principal and interest) equals $23,500. The
balance of the note is due October 1, 2001.
The uncollateralized subordinated notes-director are payable to a major
shareholder and director of the Company. Interest is at a rate of 12%per annum.
Interest is paid monthly. A principal installment of $600,000 is due on
September 30, 1999. All unpaid remaining principal and interest are due on June
30, 2000. The notes are subordinated to the revolving line of credit.
The collateralized promissory note-machinery is collateralized by manufacturing
equipment. Interest is payable monthly at a rate of prime (7.75% as of March 31,
1999) plus 2.5%. Principal payments of $3,417 are made monthly. The balance of
the note is due March 31, 2000.
The uncollateralized promissory note-acquisition is payable to the previous 50%
owner of EFI Electronics Europe, S.L. Interest is at a rate of prime (7.75% as
of March 31, 1999). Principal and interest payments of $12,500 are made monthly.
The balance of the note is due December 31, 1999.
Minimum principal payments on notes payable are as follows:
<TABLE>
<CAPTION>
Fiscal year ending March 31,
<S> <C>
2000 $990,533
2001 659,187
2002 158,539
</TABLE>
C-23
<PAGE> 185
<TABLE>
<S> <C>
Thereafter -0-
Total $1,808,259
</TABLE>
[GRAPHIC OMITTED] EFI Electronics
Item 7. Financial Data (continued)
Note 7 Commitments and Contingencies:
Operating leases. The Company leases its principal facilities in the U.S. and
Spain through October 2009 and December 2002, respectively. Monthly lease
payments are $23,567 plus taxes, insurance and maintenance. Rental expense for
1999 and 1998 was $282,804 and $268,155, respectively.
Minimum payments of these lease commitments are as follows:
<TABLE>
<CAPTION>
Fiscal year ending March 31,
<S> <C>
2000 $282,804
2001 282,804
2002 279,861
2003 271,032
2004 271,032
Thereafter 1,242,230
Total $2,629,763
</TABLE>
Employment agreements. The Company has entered into two long-term employment
agreements with an officer and another key employee. One agreement is
automatically renewable and includes minimum annual salary payments in the
amount of $150,000 and includes certain termination payments upon dismissal. The
other agreement is in force until March 31, 2001 and requires minimum annual
salary payments of $60,000.
Litigation. The Company is involved in litigation as a normal part of its
ongoing operations from time to time. At March 31, 1999, there was no litigation
which would have a material impact on the financial condition of the Company or
results of operations.
Note 8 Related Party Transactions:
In addition to the notes payable discussed in Note 6, as of March 31, 1999, the
Company held two notes receivable from an officer of the Company. These notes
receivable bear interest at the Fed Funds rate (4.98% as of March 31, 1999). The
first note in the amount of $150,000 is secured by 100,000 shares of Common
Stock and is due in full by the earlier of 60 days after termination of
employment or September 12, 2000. The second note in the amount of $60,000 is
secured by 66,667 shares of Common Stock and is due in full by the earlier of 60
days after termination of employment or December 4, 2002. Because of the nature
of these agreements, these notes receivable are reflected as a reduction of
stockholders' equity. Interest will be recognized in addition to the note amount
when paid.
Note 9 Employee Benefit Plan:
The Company has a contributory 401(k) savings and profit sharing plan covering
all full-time employees. The employer contribution amount is determined at the
discretion of the board of directors. Any contribution made by the Company vests
on a straight line basis over a period of five years. During the years ended
March 31, 1999 and 1998, the Company matched employee contributions to the
C-24
<PAGE> 186
401(k) savings and profit sharing plan up to 3% in fiscal 1999 and 1% in fiscal
1998 of employee base wages resulting in total contributions of $63,378 and
$15,661, respectively.
Note 10 Income Taxes:
Income taxes for the years ended March 31, 1999 and 1998, consist of the
following:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Current
Federal $ -0- $ -0-
State -0- (7,197)
Foreign (2,800) (22,203)
(2,800) (29,400)
Deferred -0- -0-
Total $ (2,800) $ (29,400)
</TABLE>
[GRAPHIC OMITTED] EFI Electronics
Item 7. Financial Data (continued)
Note 10 Income Taxes (continued):
The reported provision for income taxes is different than the amount computed by
applying the statutory federal income tax rate of 34% to the loss before income
taxes as follows:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Benefit at statutory rates $ 249,000 $ 73,600
Increase in valuation allowance (242,300) (95,900)
State income taxes 22,700 (200)
Assessment for prior year's taxes -0- (7,200)
Difference between U.S. statutory rate
and foreign rate -0- 11,100
Non-deductible items (9,600) (10,800)
Goodwill amortization (22,600) -0-
Total $ (2,800) $ (29,400)
</TABLE>
In accordance with SFAS No. 109, the deferred tax assets and liabilities as of
March 31, 1999 and March 31, 1998, are comprised of the estimated future tax
(provision)/benefit due to different financial reporting and income tax basis
related to:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Deferred tax assets:
Net operating loss carry-forward $1,757,000 $1,575,00
Research and development credit carry-forwards 30,000 30,000
Asset reserves and accrued liabilities 244,000 197,000
Total deferred tax assets 2,031,000 1,802,000
Deferred tax liabilities:
Depreciation (14,000) (41,000)
Valuation allowance (2,017,000) (1,761,000)
Net deferred tax liability $ -0- $ -0-
</TABLE>
The Company has concluded that since it is uncertain as to whether the Company
will be able to recognize the benefit of its operating loss, research and
development credit carry-forwards and other deferred tax assets, a full
C-25
<PAGE> 187
valuation allowance should be provided. At March 31, 1999, the Company had net
operating loss carry-forwards of approximately $4,712,000 and research and
development credit carry-forwards of approximately $30,000. The net operating
loss carry-forwards expire from 2010 and 2019 and the research and development
credits expire from 2006 to 2010.
Note 11 Stockholders' Equity:
Stock Options and Warrants
In July 1988, the Company adopted an incentive and non-qualified stock option
plan ("the 1988 Plan") and terminated a prior incentive stock option plan. Under
the 1988 Plan, as amended in May, 1991, incentive stock options or non-qualified
stock options, up to a maximum of 700,000 shares, may be granted to key
employees and other persons to purchase the Company's Common Stock. The stock
options are exercisable at various times as determined by the board of directors
but not less than six months from the date of grant and terminate not more than
ten years from the date of grant.
In January 1995, the Company modified the stock option plan. Substantially all
of the existing grants were canceled and new grants were issued in place of the
old. The price of the new grants was set at the fair market value of $1.06 at
the date of the grant and the number of options issued to each employee was
based on the number of each employee's original options adjusted by the options'
original grant price compared to the new option price.
In July 1998, the Company adopted an additional incentive stock option plan
("the 1998 Plan") providing for issuance of up to 750,000 qualified or
non-qualified options, restricted stock grants and other incentive-based
instruments. Concurrently, the number of options available under the 1988 Plan
was reduced to 625,000 shares, which was the approximate number outstanding at
that time.
Incentive stock options can be granted to employees to purchase the Company's
Common Stock at its fair market value, as defined, at the date of grant. No
individual may be granted stock options exceeding $100,000 in fair market value
in any one year. Non-qualified
[GRAPHIC OMITTED] EFI Electronics
Item 7. Financial Data (continued)
Note 11 Stockholders' Equity (continued):
stock options can be granted to outside directors and other individuals as well
as employees to purchase the Company's Common Stock at its fair market value, as
defined, at the date of grant.
In January 1996, the Company issued warrants for 20,000 shares of Common Stock
to a major shareholder as an incentive to initiate a $500,000 uncollateralized
loan to the Company (Note 6). The exercise price is $1.375 per share and the
warrants expire in January 2001.
Stock-Based Compensation
The Company has adopted only the disclosure provisions of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" (FAS 123).
Therefore, the Company continues to account for stock based compensation under
Accounting Principles Board Opinion No. 25, under which no compensation cost has
been recognized. If the Company had elected to recognize compensation expense
based upon the fair value at the grant date for awards under these plans
C-26
<PAGE> 188
consistent with the methodology prescribed by FAS 123, the Company's net loss
and loss per share would be adjusted to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
Fiscal Year Ended March 31,
1999 1998
<S> <C> <C> <C>
Net loss As reported $ (735,293) $ (245,751)
Pro Forma (895,225) (359,029)
Loss per share - basic As reported (0.13) (0.05)
Pro Forma (0.16) (0.07)
Loss per share - diluted As reported (0.13) (0.05)
Pro Forma (0.16) (0.07)
</TABLE>
These pro forma amounts may not be representative of future disclosure because
they do not take into effect pro forma compensation expense related to grants
made before 1995. The fair value of these options was estimated at the date of
grant using the Modified Black-Scholes American option-pricing model with the
following weighted-average assumptions for the fiscal years ended March 31, 1999
and 1998: expected volatility of 133.23% and 78.40%, respectively; risk-free
interest rate of 5.60% and 5.66%, respectively; and expected life of 7.70 and
5.36 years, respectively. The weighted-average fair value of options and
warrants granted was $1.73 and $1.54 in fiscal years ended March 31, 1999 and
1998, respectively.
Option pricing models require the input of highly subjective assumptions
including the expected stock price volatility. Also, the Company's employee
stock options and warrants have characteristics significantly different from
those of traded options and warrants, and changes in the subjective input
assumptions can materially affect the fair value estimate. Management believes
the best input assumptions available were used to value the options and warrants
and the resulting values are reasonable.The following is a summary of the
activity relating to warrants and options through March 31, 1999:
<TABLE>
<CAPTION>
Warrants and Exercise Weighted average
Stock Options price exercise price
<S> <C> <C> <C>
Outstanding at April 1, 1997 575,480 $1.00 - 2.75 $1.31
Granted 106,108 1.63 - 2.75 2.03
Exercised (15,134) 1.00 - 1.25 1.03
Expired (20,625) 1.00 - 2.125 1.76
Outstanding at March 31, 1998 645,829 1.06 - 2.75 1.43
Granted 391,118 0.81 - 2.13 1.96
Exercised (22,003) 1.06 - 1.25 1.17
Expired (19,948) 1.06 - 2.75 1.23
Outstanding at March 31, 1999 994,996 0.81 - 2.75 1.73
Exercisable at March 31, 1999 528,161 $1.06 - 2.75 $ 1.50
</TABLE>
Item 7. Financial Data (continued)
Note 11 Stockholders' Equity (continued):
The following table summarizes information concerning currently outstanding and
exercisable stock options and warrants:
Options and Warrants Outstanding
Weighted-Average
Remaining
<TABLE>
<CAPTION>
Range of Number Contractual Life Weighted-Average
Exercise Prices Outstanding (Years) Exercise Price
<S> <C> <C> <C>
$0.81-1.00 20,000 8.05 $0.92
1.06 - 1.69 625,409 7.08 1.34
2.00 - 2.75 349,587 8.76 2.17
</TABLE>
C-27
<PAGE> 189
<TABLE>
<S> <C> <C> <C>
994,996
</TABLE>
Options and Warrants Exercisable
<TABLE>
<CAPTION>
Range of Number Weighted-Average
Exercise Prices Outstanding Exercise Price
<S> <C> <C>
$ 0.81-1.00 -0- $ -0-
1.06 - 1.69 438,515 1.37
2.00 - 2.75 89,646 2.15
528,161
</TABLE>
Note 12 Investment in Subsidiary and Joint Venture:
Subsidiary. On January 1, 1998, the Company acquired all of the remaining
outstanding common stock of EFI Electronics Europe, S.L., in a business
combination accounted for as a purchase. EFI Electronics Europe, S.L. was
incorporated in Spain in July 1993 as a 50% owned joint venture, engaged in the
sale of TVSS panel products to European distributors and machine tool
manufacturers. Prior to acquiring all of the outstanding common stock, the
Company's equity in earnings and investment from this operation were translated
into U.S. Dollars at the rate of exchange as of December 31,1997, which
approximated the average rate during the period. Beginning January 1,1998, the
financial results of this operation have been consolidated into the financial
results of the Company. The total cost of the acquisition consisted of $125,000
cash, notes payable of $275,000 and 220,000 shares of the Company's Common Stock
valued at $1.86 per share. The Company recorded goodwill of $866,603, which
represents the excess of consideration paid over the net book value of the
acquired company. Goodwill is being amortized by the straight-line
method over seven years.
The following summarizes pro forma (unaudited) information of the Company
assuming the acquisition had occurred on April 1, 1997:
<TABLE>
<CAPTION>
March 31, 1998
($000s except
per share amounts)
<S> <C>
Net sales $16,947
Net loss (383)
Loss per share-basic & diluted $(0.08)
</TABLE>
Joint Venture. During fiscal 1999, the Company entered into a joint venture with
a Singapore-based corporation resulting in the establishment of EFI Asia
Pacific, LTD ("EFI Asia"), also a Singapore-based corporation. The Company
accounts for its 50% interest in the joint venture by recognizing its equity in
the earnings of the joint venture translated at an exchange rate that
approximates the average exchange rate for the period. EFI Asia experienced a
loss in its first year of operation. The Company recognized its portion of the
loss by reducing its investment in EFI Asia to zero and recording a liability
for the difference between this loss and the amount of the original investment
since the joint venture agreement may require up to $30,000 more in capital
contribution in future periods.
[GRAPHIC OMITTED] EFI Electronics
Item 7. Financial Data (continued)
Note 13 Loss per Share (continued):
C-28
<PAGE> 190
The following data show the amounts used in computing loss per common share,
including the weighted average number of shares and dilutive potential Common
Stock.
<TABLE>
<CAPTION>
Fiscal Year Ended March 31,
1999 1998
<S> <C> <C>
Shares outstanding during
the entire period 5,504,644 4,216,174
Weighted average shares
issued during the period 60,877 687,422
Weighted average number of
shares used in basic EPS 5,565,521 4,903,596
Dilutive effect of stock
options and warrants -0- -0-
Weighted average number of shares
and dilutive potential stock used
in diluted EPS 5,565,521 4,903,596
</TABLE>
For the years March 31, 1999 and 1998, all of the options and warrants that were
outstanding, as described in Note 11, were not included in the computation of
diluted EPS because to do so would have been anti-dilutive.
Note 14 Business Segments:
The Company's operations involve a line of TVSS products comprised of several
different related categories. The Company's chief operating decision makers
utilize information about domestic and international geographic operations to
determine the allocation of resources and in assessing performance. Although
analysis of various markets, products or channels is performed on an as needed
basis, management considers the distinction between domestic and international
operations to be the only reportable operating segments.
The accounting policies used to develop segment information correspond to those
described in the summary of significant accounting policies. All inter-segment
transactions are eliminated from the following segment information. Net sales
for the international segment includes sales to customers primarily in Spain and
other European countries. Sales to individual European countries are not
significant nor is that information used by the chief operating decision maker
of the Company.
Segment information for domestic and international operations is as follows (in
$000s):
<TABLE>
<CAPTION>
Net sales 1999 1998
<S> <C> <C>
Domestic $11,422 $14,528
International 2,469 1,844
Total $13,891 $16,372
Loss from operations
Domestic $1,649 $2,490
International 569 277
Total 2,218 2,767
Research and development 679 918
General and administrative 1,442 1,458
Unusual item 300 -0-
Total $ (203) $ 391
Identifiable assets
Domestic $7,872 $9,916
International 1,004 886
Eliminations (795) (525)
Total $8,081 $10,277
</TABLE>
C-29
<PAGE> 191
[GRAPHIC OMITTED] EFI Electronics
Item 7. Financial Data (continued)
Note 15 Unusual Item:
The Company's method of calculating the amount of indirect cost included in the
valuation of inventory has been based on a factor applied in total to all direct
material and labor dollars. The factor applied was developed from the ratio of
indirect costs to periodic purchases. This method was selected at a time when
direct material and labor costs comprised most of the cost of product sales and
because the Company's computer system did not allow more precise calculation at
the individual item level.
As the Company's business model has changed over the past several years to
include a higher percentage of hardwire products that have much greater indirect
support costs and a lower percentage of direct labor and material cost as
compared to total cost, the valuation method used has become inadequate for
inventory and cost of sales valuations. In addition, the Company has reduced its
inventory and significantly improved its manufacturing efficiency, both of which
have caused changes in inventory valuation that do not reflect changes in the
underlying economic value of this asset. These improvements have increased the
factor applied to direct material and labor dollars over the last several years,
causing a greater percentage of inventory value to be based on indirect costs.
In January 1999, the Company implemented a new Enterprise Resource Planning(ERP)
system that includes the ability to more precisely value the indirect cost
component of the Company's inventory. After careful evaluation, the Company has
implemented a multi-driver based costing system based upon separate valuation of
several components of indirect costs that are applied at different stages of the
inventory valuation process.
The impact of this change is a one-time reduction in inventory of $299,990 as of
March 31,1999 and an increase to the Company's cost of sales by the same amount.
Due to the detailed nature of the calculations supporting this adjustment, it is
not possible to estimate the impact of this change either quarterly or for the
year ended March 31, 1998.
Note 16 Quarterly Financial Data (unaudited):
Summarized financial data by quarter for 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
Net Earnings (Loss)
Net Earnings per share -diluted
Quarter ended Net Sales Gross Profit (Loss)
1999:
<S> <C> <C> <C> <C>
June 30, 1998 $3,582,053 $1,275,740 $ 27,110 $ 0.00
September 30, 1998 4,269,608 1,426,944 126,369 0.02
December 31, 1998 3,461,503 1,188,742 37,464 0.01
March 31, 1999 2,577,400 341,372 (926,236) (0.16)
Total $13,890,564 $4,232,798 $(735,293) (0.13)
1998:
June 30, 1997 $ 3,639,459 $1,354,602 $ 43,002 $ 0.01
September 30, 1997 4,190,824 1,378,027 90,304 0.02
December 31, 1997 4,248,981 1,549,688 32,688 0.01
March 31, 1998 4,293,102 1,052,570 (411,745) (0.09)
Total $16,372,366 $5,334,887 $(245,751) $(0.05)
</TABLE>
C-30
<PAGE> 192
Item 8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
None.
[GRAPHIC OMITTED] EFI Electronics
PART III
Items 9, 10, 11 and 12.
These items are incorporated by reference to the Company's Proxy Statement
related to the Annual Meeting of Shareholders to be held on July 29, 1999, to be
filed with the Securities and Exchange Commission pursuant to Regulation 14A
under the Securities Exchange Act of 1934.
Item 13. Exhibits and Reports on Form 8-K
(a) Exhibits:
<TABLE>
<CAPTION>
S-B Incorporated Filed
Number Exhibit by Reference Herewith
<S> <C> <C> <C>
3.1 Certificate of Incorporation (1)
as restated and Amended
3.2 Amended and Restated Bylaws (2)
10.1 Non-Qualified Stock Option Plan and (3)
Incentive Stock Option Plan As
Amended (May 1991)
10.2 Lease Agreement, dated July 21, 1997 (4)
between Ninigret Park Development
L.C., as landlord and the Company,
as tenant
10.3 Supply Agreement, dated August 26, (5)
1997, between the Company and Hubbell
Incorporated (Delaware), a
Delaware corporation
10.4 Employment Contract, dated (6)
September 12, 1994, between the
Company and Richard D. Clasen
21 List of subsidiaries X
23.1 Independent Accountant' Consent-Grant
Thornton LLP X
27 Financial Data Schedule X
</TABLE>
(1) Incorporated by reference to Exhibit Nos. 1 and 2 to Annual Report on
Form 10-K ( File No. 0-15967) for fiscal year ended April 1, 1998,
and as Exhibit Nos. 4.3 and 4.4 to Registration Statement on Form S-8
filed on May 1, 1991.
(2) Incorporated by reference to Exhibit No. 1 to Annual Report on Form
C-31
<PAGE> 193
10-K for fiscal year ended March 31, 1989.
(3) Incorporated by reference to Exhibit No. 1 to Annual Report on Form
10-K for fiscal year ended March 29, 1991.
(4) Incorporated by reference to Exhibit No. 10.1 to Annual Report on
Form 10-KSB for fiscal year ended March 31, 1998.
(5) Incorporated by reference to Exhibit No. 10.3 to Annual Report on
Form 10-KSB for fiscal year ended March 31, 1998.
(6) Incorporated by reference to Exhibit No. 10.4 to Annual Report on
Form 10-KSB for fiscal year ended March 31, 1998.
(b) Reports on Form 8-K:
None.
[GRAPHIC OMITTED] EFI Electronics
Signatures
Pursuant to the requirements of Section 13 or 15(d) 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 on June 18, 1999.
EFI ELECTRONICS CORPORATION
By: Richard D. Clasen
Chief Executive Officer and President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Capacity in Which Signed Date
<S> <C> <C>
Richard D. Clasen Chief Executive Officer, President June 18, 1999
and Director (Principal Executive Officer)
David G. Bevan Chief Financial Officer, Executive June 18, 1999
Vice President & Secretary
</TABLE>
C-32
<PAGE> 194
<TABLE>
<S> <C> <C>
(Principal Financial Officer)
Gaylord K. Swim Chairman of the Board and Directors June 18, 1999
James H. Biggart Director June 18, 1999
Hans Imhof Director June 18, 1999
Reino Kerttula Director June 18, 1999
</TABLE>
EFI Electronics Corporation Subsidiaries
<TABLE>
<CAPTION>
Company Name Venue of Incorporation
<S> <C>
EFI Electronics Europe S.L. Barcelona, Spain
</TABLE>
Independent Accountant's Consent - Grant Thornton L.L.P.
We have issued our report dated May 14, 1999, accompanying the consolidated
financial statements of EFI Electronics Corporation and Subsidiary, incorporated
by reference or included in the Annual Report of EFI Electronics Corporation, on
Form 10-KSB for the year ended March 31, 1999. We hereby consent to the
incorporation by reference of said report in the Registration Statement of EFI
Electronics Corporation, on Form S-8 ( File No. 33-41154 filed June 12, 1999).
/s/ GRANT THORNTON L.L.P.
Salt Lake City, Utah
June 16, 1999
C-33
<PAGE> 195
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended June 30, 1999
[ ] 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: 0-15967
EFI ELECTRONICS CORPORATION
(Exact name of small business issuer as specified in its charter)
Delaware 75-2072203
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1751 South 4800 West, Salt Lake City, Utah 84104
(Address of principal executive offices)
Registrant's telephone number, including area code: (801) 977-9009
Check 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 past
twelve 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 [ ]
Number of shares of the registrant's $0.0001 par value common stock
outstanding at August 13, 1999: 5,574,479
C-34
<PAGE> 196
Table of Contents
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION PAGE
<S> <C> <C>
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as of June 30, 1999 (Unaudited)
and March 31, 1999 .......................................... 3
Consolidated Statements of Earnings and Comprehensive Income
for the three months ended June 30, 1999 and 1998
(Unaudited).................................................. 4
Consolidated Statements of Cash Flows for the three months
ended June 30, 1999 and 1998 (Unaudited)..................... 5
Notes to Financial Statements (Unaudited).................... 6-7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................... 8-10
PART II OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K............................. 11
Signatures................................................... 11
</TABLE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, 1999 MARCH 31, 1999
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 47,218 $ 263,135
Receivables, net 2,513,304 2,241,200
Inventories, net 1,922,444 2,119,336
Prepaid expenses 161,131 221,986
Total current assets 4,644,097 4,845,657
Property - net 2,363,967 2,448,376
Other assets:
Goodwill, net 711,804 742,803
Other assets 49,295 43,991
Total other assets 761,099 786,794
Total assets $7,769,163 $8,080,827
LIABILITIES
Current liabilities:
Revolving line of credit $2,186,694 $2,583,210
Current maturities of capital
lease obligations 156,280 177,763
</TABLE>
C-35
<PAGE> 197
<TABLE>
<S> <C> <C>
Current maturities of notes payable 961,344 990,533
Accounts payable 1,062,915 825,291
Reserve for customer warranty
claims - current 215,000 215,000
Accrued liabilities 277,009 303,982
Total current liabilities 4,859,242 5,095,779
Long-term liabilities:
Reserve for customer
warranty claims - long-term 177,191 122,738
Capital lease obligations, less
current maturities 141,728 163,350
Notes payable, less current maturities 745,353 817,726
Total long-term liabilities 1,064,272 1,103,814
Total Liabilities 5,923,514 6,199,593
STOCKHOLDERS' EQUITY
Common stock 558 558
Additional paid-in capital 3,117,190 3,117,190
Accumulated other comprehensive loss
foreign currency translation
adjustment (94,588) (27,506)
Accumulated deficit (967,511) (999,008)
2,055,649 2,091,234
Less:Stock subscriptions and
notes receivable
from management (210,000) (210,000)
Total stockholders' equity 1,845,649 1,881,234
Total liabilities and
stockholders' equity $ 7,769,163 $ 8,080,827
</TABLE>
See notes to financial statements.
CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME (Unaudited)
<TABLE>
<CAPTION>
For the three months ended June 30, 1999 1998
<S> <C> <C>
Net sales $ 3,229,606 $ 3,582,053
Cost of sales 1,929,890 2,306,313
Gross profit 1,299,716 1,275,740
Operating expenses:
Selling, General and
Administrative expenses 918,096 876,597
Research and development 183,843 206,132
Total operating expenses 1,101,939 1,082,729
Earnings from operations 197,777 193,011
Other income/(expense):
Interest expense (130,133) (137,053)
Other, net (36,147) (28,848)
Total other expense, net (166,280) (165,901)
Earnings before income taxes 31,497 27,110
Income taxes -0- -0-
Net earnings 31,497 27,110
Other comprehensive income - foreign
currency translation adjustment (31,646) 7,388
Comprehensive income / (loss) $ ( 149) $ 34,498
Earnings per share:
Basic $ 0.01 $ 0.00
Diluted $ 0.01 $ 0.00
Weighted average shares outstanding
</TABLE>
C-36
<PAGE> 198
<TABLE>
<S> <C> <C>
Basic 5,574,479 5,537,297
Diluted 5,576,550 5,675,022
</TABLE>
See notes to financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
<TABLE>
<CAPTION>
For the three months ended June 30, 1999 1998
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 31,497 $ 27,110
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation 180,619 182,469
Amortization 30,998 35,882
Provision for excess and obsolete inventory 25,000 57,975
Provision for bad debts 2,500 9,408
Provision for warranty expenses 83,270 32,061
Increase/(decrease) in cash due to changes in:
Receivables (304,680) 589,836
Inventories 161,397 (245,692)
Prepaid expenses 59,658 (30,122)
Other assets 3,708 (7,279)
Accounts payable 246,141 (137,087)
Warranty payments (28,815) (724)
Accrued liabilities (35,782) (29,569)
Net cash provided by operating activities 455,511 484,268
Cash flows from investing activities:
Capital expenditures (99,637) (133,618)
Net cash used in investing activities (99,637) (133,618)
Cash flows from financing activities:
Net change under revolving line of credit (396,516) (265,600)
Principal payments on notes payable (101,563) (81,538)
Principal payments under capital
lease obligations (42,066) (41,241)
Proceeds from exercise of stock options -0- 22,058
Net cash used in financing activities (540,145) (366,321)
Effect of exchange rate changes on cash (31,646) 7,388
Net decrease in cash and cash equivalents (215,917) (8,283)
Cash and cash equivalents at beginning of period 263,135 9,566
Cash and cash equivalents at end of period $ 47,218 $ 1,283
Supplemental disclosures of cash flow information: Cash paid during the period
for:
Income taxes $ -0- $ -0-
Interest $ 110,060 $ 153,000
</TABLE>
C-37
<PAGE> 199
See notes to financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
In the opinion of management, the accompanying consolidated financial statements
contain adjustments, consisting of normal recurring accruals, necessary for a
fair presentation of the financial position of EFI Electronics Corporation (the
"Company") and subsidiary at June 30, 1999 and March 31, 1999, and the results
of their operations and their cash flows for the three months ended June 30,
1999 and 1998. The results of operations for the three months ended June 30,
1999 are not necessarily indicative of the results that may be expected for the
year ending March 31, 2000.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted as specified by the instructions to Form 10-QSB
and Item 310 of Regulation S-B. It is suggested that these financial statements
and related notes be read in conjunction with the Company's 1999 Form 10-KSB for
the year ended March 31, 1999 included in the Annual Report to Shareholders.
1. RECEIVABLES
Receivables consisted of the following:
<TABLE>
<CAPTION>
June 30,1999 March 31, 1999
(Unaudited)
<S> <C> <C>
Trade and other receivables $ 2,528,686 $ 2,256,864
Allowance for doubtful accounts (15,382) (15,664)
Receivables, net $ 2,513,304 $ 2,241,200
</TABLE>
2. INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
June 30, 1999 March 31, 1999
(Unaudited)
<S> <C> <C>
Raw materials $1,173,264 $ 1,238,439
Work-in-process 155,309 121,775
Finished goods 749,093 889,344
2,077,666 2,249,558
Less allowance for excess
and obsolete inventory (155,222) (130,222)
Inventories, net $1,922,444 $ 2,119,336
</TABLE>
3. NET EARNINGS PER COMMON SHARE
Net earnings per common share and common equivalent share are computed based on
the number of common and dilutive common stock equivalent shares outstanding and
are adjusted for the assumed conversion of shares issuable upon exercise of
options or warrants, after the assumed repurchase of common shares with the
related proceeds. Stock subscriptions receivable are treated as outstanding
shares for purposes of this computation.
C-38
<PAGE> 200
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - Continued
NET EARNINGS PER COMMON SHARE, continued
The following data show the amounts used in computing earnings per common share,
including the weighted average number of shares and dilutive potential common
stock.
<TABLE>
<CAPTION>
Three Months Ended June 30,
1999 1998
<S> <C> <C>
Shares outstanding during the entire period 5,574,479 5,504,644
Weighted average shares issued during the period -0- 32,653
Weighted average number of shares used in
basic EPS 5,574,479 5,537,297
Dilutive effect of stock options and warrants 2,071 137,725
Weighted average number of shares and dilutive
potential stock used in dilutive EPS 5,576,550 5,675,022
</TABLE>
4. REVOLVING LINE OF CREDIT, CAPITAL LEASE OBLIGATIONS AND NOTES PAYABLE
At June 30 and March 31, 1999, the revolving line of credit, capital lease
obligations and notes payable, the carrying values of which approximate fair
value, consisted of the following:
<TABLE>
<CAPTION>
June 30, 1999 March 31, 1999
(Unaudited)
<S> <C> <C>
Revolving line of credit $ 2,186,694 $ 2,583,210
Capital lease obligations $ 298,008 $ 341,113
Less current maturities (156,280) (177,763)
Capital lease obligations less
current maturities $ 141,728 $ 163,350
Notes payable:
Collateralized promissory note $ 598,173 $ 654,877
Uncollateralized subordinated
note - director 900,000 900,000
Collateralized promissory
note - machinery 122,992 133,243
Uncollateralized note - acquisition 85,532 120,139
1,706,697 1,808,259
Current maturities (961,344) (990,533)
Total notes payable, less
current maturities $ 745,353 $ 817,726
</TABLE>
The revolving line of credit in place at June 30, 1999, provides for borrowings
up to $3,700,000 collateralized by accounts receivable and inventories. Interest
is payable monthly at a rate of prime (7.75% as of June 30, 1999) plus 1.5%.
Principal payments are made as cash is received from customers for accounts
receivable. Borrowings are based on formulas involving balances of eligible
accounts receivable and inventories. The line of credit agreement expires in
March 2001.
Item 2. Management's Discussion and Analysis of
C-39
<PAGE> 201
Financial Condition and Results of Operations
The following discussion should be read in conjunction with the consolidated
financial statements and notes thereto contained elsewhere herein.
Results of Operations:
Net sales decreased $352 thousand (10%) for the three months ended June 30, 1999
compared to the three months ended June 30, 1998. In the prior year, the Company
was beginning the transition from selling its products directly to electrical
distribution customers to selling its products to Hubbell Incorporated
("Hubbell") for resale into electrical distribution. During this period, Hubbell
placed significant stocking orders. The Company also had some residual direct
sales to electrical distributors. In the current quarter there were no direct
sales to electrical distributors and sales to Hubbell were at a maintenance
level. The combination of these factors reduced sales by $479 thousand in the
current quarter.
Sales to the US government increased $233 thousand in the current period as
compared to the prior year. During the past year, the Company has begun
developing new government opportunities and expects this area of its business to
expand.
Fee income from Thomson Consumer Electronics ("TCE") increased $98 thousand for
the current period. During the three months ended June 30, 1998, the Company
changed its method of doing business with TCE from product sales to fee income.
This increase in fee income was offset by reduction of product sales to TCE of
more than $200 thousand. However, the margin on the fee income exceeded the
margin on product sales lost.
Gross Profit increased $24 thousand in the current period as compared to the
prior year. As a percentage of sales, gross profit increased from 36% for the
three months ended June 30, 1998 to 40% in the current three month period. This
increase is due to several factors as follows:
Fee income from TCE yields a substantially greater margin than the product sales
that it displaces.
During the last half of fiscal 1999, the Company focused on decreasing its
direct product costs for several product lines. The impact of these reductions
began during the fourth quarter of the last fiscal year. This reduction effort
will be completed by the third quarter of the current fiscal year, which
management anticipates will reduce direct product costs by approximately $750
thousand per year.
Indirect costs decreased by $100 thousand in the current period as compared to
the prior year. This is the result of staff headcount reductions made in March
1999 and substantial improvements in productivity.
Operating Expenses increased $19 thousand during the three months ended June 30,
1999 compared to the same period of the prior year. Research and development
expenses decreased $22 thousand as the result of reductions in payments to
Underwriters Laboratories (UL). These reductions were the result of
non-recurring expenses in the prior period that related to re-certification of
all Company products.
Selling, general and administrative expenses increased $41 thousand primarily as
a result of an increase in bonus expense accrual for the current period.
Net Earnings increased $4 thousand for the three months ended June 30, 1999,
compared to the same period in the prior year. This increase was primarily the
result of significant improvements in gross margin performance offset by a small
increase in expenses, as described above.
Liquidity and Capital Resources:
Cash flows from operating activities were $456 thousand for the three months
ended June 30, 1999, compared to $484 thousand for the three months ended June
30, 1998. This small change was the result of several factors, none of which are
individually significant.
C-40
<PAGE> 202
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations - continued
Accounts receivable increased by $305 thousand in the current period,
principally as a result of slow payments by two customers, which the Company is
working to correct. In the prior year, accounts receivable decreased as a result
of elimination of two customers that were chronically late with their payments.
Inventories decreased in the current period by $161 thousand due to much better
inventory planning and control resulting from implementation of a new enterprise
resource planning "ERP" system in January 1999. Since implementation, the direct
cost of inventory has decreased more than $500 thousand. In the prior year,
inventories increased as a result of the ramp up for Hubbell stocking orders
discussed above.
Accounts payable increased $246 thousand for the three months ended June 30,
1999 compared to a decrease of $137 thousand in the same period of the prior
year. These changes are the result of timing of supplier invoicing and payments,
neither of which are indicative of underlying changes in payment patterns.
Factors Affecting Future Results:
The statements contained in this Report that are not purely historical are
"forward-looking statements" within the meaning of Section 27A of the Securities
Act and Section 21E of the Exchange Act. All forward-looking statements involve
various risks and uncertainties. Forward-looking statements contained in this
Report include statements regarding the Company's plans and opportunities,
existing or anticipated products, market opportunities, expectations, goals,
revenues, financial performance, strategies, intentions for the future and any
other statements to the effect that the Company or its management "believes",
"expects", "anticipates", "plans", or other similar expressions. Such
forward-looking statements may be included under Items 1 and 2 of Part I of this
Report. All forward-looking statements included in this Report are made as of
the date hereof, based on information available to the Company as of such date,
and the Company assumes no obligation to update a forward-looking statements. It
is important to note that such statements may not prove to be accurate, and that
the Company's actual results and future events could differ materially from
those anticipated in such statements. Many factors could cause actual results to
differ materially from the Company's expectations, including, without
limitation, the factors identified below.
The Company's future results will be impacted by the Company's ability to
implement and finance a growth strategy, which, in turn, is dependent upon the
ability and willingness of key customers to penetrate markets that the Company
has ceded to them. The Company's growth strategy also includes expectations of
significant growth in international markets. These involve acquisition and
development of certain customers and markets that may or may not occur. In
addition, future results may also be affected by other factors including the
Company's response to existing or emerging competition, demand for Company
products, the Company's efforts to develop and maintain customer and employee
relationships, economic fluctuations and employee-related risks and expenses.
All written and oral forward-looking statements attributable to the Company or
person acting on its behalf are expressly qualified in their entirety by this
section and other factors included elsewhere in this report.
Liquidity and capital resources. Although the Company's liquidity was negative
at June 30, 1999, management believes the Company can fund its operations during
fiscal 2000 from financing arrangements in place and internally generated cash
flows. As disclosed in Note 4 to the Company's consolidated financial
statements, the Company has $961 thousand of current maturities of long term
C-41
<PAGE> 203
debt due in fiscal 2000. Of this amount, $600,000 is due to a shareholder and
board member of the Company. Management expects to either refinance or
restructure this obligation or extend its term beyond one year.
Year 2000. Management implemented a plan for compliance with Year 2000
requirements in fiscal 1998. This plan included the upgrade of all hardware
systems in fiscal 1998 at a capital cost of approximately $125 thousand;
implementation of a new enterprise management system in fiscal 1999, described
below; and evaluation of other hardware, suppliers, customers, financial
institutions, and other third parties with whatever corrective action is
required, in fiscal 2000.
The Company contracted with a global supplier of enterprise management software
to install an information system that is
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations - continued
Y2K compliant. This system was installed in January 1999. The previous system
was significantly out of date and had many deficiencies as a management tool.
Implementation of the new system has been part of ongoing improvements to
Company operations with Y2K compliance being an important but incidental
benefit. This system and resulting Y2K compliance cost the Company approximately
$300,000 in fiscal 1999 for capital expenditures to be amortized over 3-7 years.
In addition, significant internal resources were diverted to this project.
Internal resources used for this project are comprised of existing human
resources that caused no incremental financial costs to the Company as a result
of this project.
In addition, the Company has taken steps to ensure that its banking and lending
relationships are with Y2K compliant financial institutions. During fiscal 2000,
the Company will work with its major customers and suppliers to ensure that Y2K
compliance issues will not interrupt the normal activities supported by these
relationships. None of these items is expected to involve material investment or
expense to the Company in fiscal 2000.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-k
Exhibits
Exhibit 27 - Financial Data Schedule
Reports on Form 8-K
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.
C-42
<PAGE> 204
EFI ELECTRONICS CORPORATION
(Registrant)
August 13, 1999
Richard D. Clasen
Chief Executive Officer, President and
Director (Principal Executive Officer)
August 13, 1999
David G. Bevan
Chief Financial Officer, Executive Vice
President & Secretary (Principal
Financial Officer)
C-43
<PAGE> 205
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended September 30, 1999
[ ] 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: 0-15967
EFI ELECTRONICS CORPORATION
(Exact name of small business issuer as specified in its charter)
Delaware 75-2072203
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1751 South 4800 West, Salt Lake City, Utah 84104
(Address of principal executive offices)
Registrant's telephone number, including area code: (801) 977-9009
Check 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 past
twelve 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. [X] Yes No [ ]
Number of shares of the registrant's $0.0001 par value common stock
outstanding at November 12, 1999: 5,574,460
C-44
<PAGE> 206
INDEX TO FORM 10-QSB
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION PAGE
<S> <C> <C>
Item 1. Consolidated Financial Statements
Balance Sheets as of September 30, 1999 (Unaudited) and
March 31,.......................................................... 3
Statements of Earnings and Comprehensive Income (Loss) (Unaudited)
for the three months ended September 30, 1999 and 1998 ............ 4
Statements of Earnings and Comprehensive Income (Loss) (Unaudited)
for the six months ended September 30, 1999 and 1998 .............. 5
Statements of Cash Flows ( Unaudited) for the six months
ended September 30, 1999 and 1998 (Unaudited)...................... 6
Notes to Financial Statements (Unaudited).......................... 7 - 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................................... 10 - 12
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders............ 13
Item 6. Exhibits and Reports on Form 8-K............................... 13
Signatures.............................................................. 13
</TABLE>
EFI Electronics Corporation
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999 MARCH 31, 1999
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 65,848 $ 263,135
Receivables, net 2,437,909 2,241,200
Inventories, net 1,950,110 2,119,336
Prepaid expenses 142,861 221,986
Total current assets 4,596,728 4,845,657
</TABLE>
C-45
<PAGE> 207
<TABLE>
<S> <C> <C>
Property - net 2,369,137 2,448,376
Other assets:
Goodwill, net 680,805 742,803
Other assets 72,787 43,991
Total other assets 753,592 786,794
Total assets $7,719,457 $8,080,827
LIABILITIES
Current liabilities:
Revolving line of credit $1,918,937 $2,583,210
Current maturities of
capital lease obligations 161,676 177,763
Current maturities of notes payable 933,004 990,533
Accounts payable 1,405,767 825,291
Reserve for customer warranty claims
current 201,014 215,000
Accrued liabilities 129,324 303,982
Total current liabilities 4,749,722 5,095,779
Long-term liabilities:
Reserve for customer warranty
claims long-term 205,371 122,738
Capital lease obligations, less
current maturities 94,518 163,350
Notes payable, less current maturities 813,365 817,726
Total long-term liabilities 1,113,254 1,103,814
Total Liabilities 5,862,976 6,199,593
STOCKHOLDERS' EQUITY
Common stock 558 558
Additional paid-in capital 3,117,190 3,117,190
Accumulated other comprehensive loss -
foreign currency
translation adjustment (124,722) (27,506)
Accumulated deficit (926,545) (999,008)
2,066,481 2,091,234
Less:
Notes receivable from officer (210,000) (210,000)
Total stockholders' equity 1,856,481 1,881,234
Total liabilities
and stockholders' equity $7,719,457 $8,080,827
</TABLE>
See notes to financial statements.
EFI Electronics Corporation
CONSOLIDATED STATEMENT OF EARNINGS
AND COMPREHENSIVE INCOME ( LOSS ) (Unaudited)
<TABLE>
<CAPTION>
For the three months ended September 1999 1998
<S> <C> <C>
Net sales $ 3,294,232 $ 4,269,608
Cost of sales 2,092,087 2,842,664
Gross profit 1,202,145 1,426,944
Operating expenses:
Selling, general and
administrative expenses 868,512 984,493
Research and development 150,051 147,395
Total operating expenses 1,018,563 1,131,888
Earnings from operations 183,582 295,056
Other income/(expense):
</TABLE>
C-46
<PAGE> 208
<TABLE>
<S> <C> <C>
Interest expense (109,201) (133,309)
Other, net (33,415) (35,378)
Total other expense, net (142,616) (168,687)
Earnings before income taxes 40,966 126,369
Income taxes -0- -0-
Net earnings 40,966 126,369
Other comprehensive income - foreign currency
translation adjustment (65,570) 54,412
Comprehensive income / (loss) $ (24,604) $ 180,781
Earnings per share:
Basic $ 0.01 $ 0.02
Diluted $ 0.01 $ 0.02
Weighted average shares outstanding
Basic 5,574,460 5,574,460
Diluted 5,581,023 5,574,460
</TABLE>
See notes to financial statements.
EFI Electronics Corporation
CONSOLIDATED STATEMENT OF EARNINGS AND COMPREHENSIVE INCOME (LOSS) (Unaudited)
<TABLE>
<CAPTION>
For the six months ended September 30, 1999 1998
<S> <C> <C>
Net sales $ 6,523,838 $ 7,851,661
Cost of sales 4,021,977 5,148,977
Gross profit 2,501,861 2,702,684
Operating expenses:
Selling, general and
administrative expenses 1,786,608 1,861,090
Research and development 333,894 353,527
Total operating expenses 2,120,502 2,214,617
Earnings from operations 381,359 488,067
Other income/(expense):
Interest expense (239,334) (270,362)
Other, net (69,562) (64,226)
Total other expense, net (308,896) (334,588)
Earnings before income taxes 72,463 153,479
Income taxes -0- -0-
Net earnings $ 72,463 $ 153,479
Other comprehensive income foreign currency
translation adjustment (97,216) 61,800
Comprehensive income / (loss) $ (24,753) $ 215,279
Earnings per share:
Basic $ 0.01 $ 0.03
</TABLE>
C-47
<PAGE> 209
<TABLE>
<S> <C> <C>
Diluted $ 0.01 $ 0.03
Weighted average shares outstanding
Basic 5,574,460 5,556,448
Diluted 5,579,184 5,556,448
</TABLE>
See notes to financial statements.
EFI ELECTRONICS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
<TABLE>
<CAPTION>
For the six months ended September 30, 1999 1998
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 72,463 $ 153,479
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation 351,505 364,843
Amortization 61,999 70,514
Provision for obsolete inventory 50,000 100,475
Provision for bad debts 49,522 21,244
Provision for warranty expenses 201,542 132,463
Increase/(decrease) in cash due to change in:
Receivables (255,314) 341,577
Inventories 119,719 (403,041)
Prepaid expenses 78,288 (71,148)
Other assets 10,215 5,169
Accounts payable 582,953 142,101
Warranty payments (132,895) (42,252)
Accrued liabilities (174,465) 105,073
Net cash provided by
operating activities 1,015,532 920,497
Cash flows from investing activities:
Investment in subsidiary (39,011) -0-
Capital expenditures (273,363) (425,403)
Net cash used in investing
activities (312,374) (425,403)
Cash flows from financing activities:
Net change under revolving line of credit (664,273) (230,883)
Principal payments on notes payable (204,129) (161,623)
Principal payments under capital
lease obligations (84,537) (77,477)
Proceeds from borrowings under
capital lease obligations 142,238 -0-
Proceeds from exercise of stock options -0- 22,058
Net cash (used in)
financing activities (810,701) (447,925)
Effect of exchange rate changes on cash (89,744) 61,800
Net increase in cash and cash equivalents (197,288) 108,969
</TABLE>
C-48
<PAGE> 210
<TABLE>
<S> <C> <C>
Cash and cash equivalents at beginning of period 263,135 9,566
Cash and cash equivalents at end of period $ 65,848 $ 118,535
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Income taxes $ -0- $ -0-
Interest $ 220,821 $ 278,000
</TABLE>
Supplemental schedule of non-cash investing activities:
1999 The Company retired fully depreciated property having
an initial cost of $307,624.
See notes to financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
In the opinion of Management, the accompanying consolidated financial statements
contain adjustments, consisting of normal recurring adjustments, necessary for a
fair presentation of the financial position of EFI Electronics Corporation (the
"Company") and subsidiary at September 30, 1999 and March 31, 1999, and the
results of their operations and their cash flows for the three and six months
ended September 30, 1999 and 1998. The results of operations for the three
months and six months ended September 30, 1999 are not necessarily indicative of
the results that may be expected for the year ending March 31, 2000.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted as specified by the instructions to Form 10-QSB
and Item 310 of Regulation S-B. It is suggested that these financial statements
and related notes be read in conjunction with the Company's 1999 Form 10-KSB for
the year ended March 31, 1999 included in the Annual Report to Shareholders.
1. RECEIVABLES
Receivables consisted of the following:
<TABLE>
<CAPTION>
September 30, 1999 March 31, 1999
<S> <C> <C>
Trade and other receivables $2,489,112 $ 2,256,864
Allowance for doubtful accounts (51,203) (15,664)
Total Receivables $2,437,909 $ 2,241,200
</TABLE>
2. INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
September 30, 1999 March 31, 1999
<S> <C> <C>
Raw materials $1,398,065 $ 1,238,439
Work-in-process 101,562 121,775
Finished goods 490,552 889,344
1,990,179 2,249,558
Less allowance for obsolete inventory (40,069) (130,222)
Inventories, net $1,950,110 $ 2,119,336
</TABLE>
3. NET EARNINGS PER COMMON SHARE
Basic earnings per share is computed by dividing net earnings by the weighted
average number of shares outstanding during each period. Diluted earnings per
share are similarly calculated, except that the weighted average number of
shares outstanding includes shares that may be issued subject to existing rights
with dilutive potential.
C-49
<PAGE> 211
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued (Unaudited)
EARNINGS PER SHARE, continued
The following data show the amounts used in computing earnings per share,
including the weighted average number of shares and dilutive potential common
stock.
<TABLE>
<CAPTION>
Six Months Ended September 30,
1999 1998
<S> <C> <C>
Shares outstanding during
the entire period 5,574,460 5,504,644
Weighted average shares
issued during the period -0- 51,804
Weighted average number of _________ _________
shares used in basic EPS 5,574,460 5,556,448
Dilutive effect of stock
options and warrants 4,724 -0-
Weighted average number of
shares and dilutive __________ __________
potential stock used in dilutive EPS 5,579,184 5,556,448
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended September 30,
1999 1998
<S> <C> <C>
Shares outstanding during
the entire period 5,574,460 5,574,414
Weighted average shares
issued during the period -0- 46
Weighted average number of _________ _________
shares used in basic EPS 5,574,460 5,574,460
Dilutive effect of stock
options and warrants 6,563 -0-
Weighted average number of
shares and dilutive __________ _________
potential stock used in dilutive EPS 5,581,023 5,574,460
</TABLE>
4. REVOLVING LINE OF CREDIT, CAPITAL LEASE OBLIGATIONS AND NOTES PAYABLE
At September 30 and March 31, 1999, revolving line of credit, capital lease
obligations and notes payable, the carrying value of which approximates fair
value, consisted of the following:
<TABLE>
<CAPTION>
September 30, 1999 March 31, 1999
<S> <C> <C>
Revolving line of credit $ 1,918,937 $ 2,583,210
Capitalized lease obligations $ 256,194 $ 341,113
Less current maturities (161,676) (177,763)
Capitalized lease obligations ________ ________
(less current maturities) $ 94,518 $ 163,350
</TABLE>
C-50
<PAGE> 212
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued (Unaudited)
REVOLVING LINE OF CREDIT, CAPITAL LEASE OBLIGATIONS AND NOTES PAYABLE, continued
<TABLE>
<CAPTION>
September 30, 1999 March 31, 1999
<S> <C> <C>
Notes payable:
Collateralized promissory note $540,517 $ 654,877
Uncollateralized subordinated
note - director 900,000 900,000
Collateralized promissory
note - machinery 112,740 133,243
Uncollateralized note - acquisition 50,874 120,139
--------- ---------
1,604,131 1,808,259
Less current maturities (933,004) (990,533)
Total notes payable, less _________ _________
current installments $ 671,127 $ 817,726
</TABLE>
The revolving line of credit in place at September 30, 1999, provides for
borrowings up to $3,700,000 collateralized by accounts receivable and
inventories. Interest is payable monthly at a rate of prime (8.25% as of
September 30, 1999) plus 2.5%. Principal payments are made as cash is received
from customers for accounts receivable. Borrowings are based on formulas
involving balances of eligible accounts receivable and inventories. The line of
credit agreement expires in March 2001.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
General:
The following discussion should be read in conjunction with the unaudited
financial statements and notes contained in this report and in conjunction with
" Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the audited consolidated financial statements included in the
Company's report on Form 10-KSB for the year ended March 31, 1999.
C-51
<PAGE> 213
Results of Operations:
Net Sales for the three-month period ended September 30, 1999, decreased by $975
thousand (23%) compared to the three month period ended September 30, 1998. For
the six months ended September 30, 1999, net sales decreased $1.3 million (17%)
over the previous year.
In the prior year, the Company was beginning the transition from selling certain
of its products directly to electrical distribution customers to selling its
products to Hubbell Incorporated ( "Hubbell" ) for resale into electrical
distribution markets. During this period, Hubbell placed significant stocking
orders. The Company also had some residual direct sales to electrical
distributors. In the three-month period and six month period ended September 30,
1999 there were no direct sales to electrical distributors and sales to Hubbell
were at a maintenance level. The combination of these factors reduced sales by
$331 thousand in the three-month period and $810 thousand year to date in 1999.
In June 1998, the Company changed its method of doing business with Thompson
Consumer Electronics ( "TCE" ). The Company no longer sells products to TCE,
instead the Company is paid a fee income based on the number of units sold by
TCE. This change resulted in a reduction of revenue from this source of $457
thousand in the three-month period and $576 thousand year to date in 1999. This
revenue decrease was partially offset by improved gross profit from the fee
income.
In the three-month period ending September 30, 1998, the Company sold $277
thousand of custom obsolete inventory to a previous private label customer at
much lower than average margins in order to avoid writing this inventory off.
This one-time event did not recur in the current year.
Sales to the US government and other customers for both the current three-month
period and year to date in 1999 were slightly ahead of the same periods in the
prior year.
Gross Profit for the three-month period ended September 30, 1999, declined $225
thousand (16%) compared to the three months ended September 30, 1998. For the
six months ended September 30, 1999, gross profit decreased by $201 thousand
(7%). The Company's gross margin improved to 36% of net sales in the three-month
period ended September 30, 1999 as compared to 33% in the prior year. For the
six months ended September 30, 1999 gross margin was 38% as compared to 34% in
the prior year. The decrease in the amount of gross profit was attributable to
the sales decline offset by significant improvements in indirect costs and
direct material. The improvement of gross margin percentage was due to several
factors as follows:
Fee income from TCE yields a substantially greater margin than the product sales
that it displaces. During the last half of fiscal 1999, the Company focused on
decreasing its direct product costs for several product lines. The impact of
these reductions began during the fourth quarter of the last fiscal year. This
reduction effort will be completed by the third quarter of the current fiscal
year, which management anticipates will reduce direct product costs by
approximately $750 thousand per year.
Indirect costs decreased by $166 thousand in the current three-month period and
$240 thousand year to date. This is the result of staff headcount reductions
made in March 1999, reductions in scrap and rework and substantial improvements
in productivity.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations, continued
C-52
<PAGE> 214
Operating Expenses for the three months ended September 30, 1999 decreased by
$113 thousand (10%), compared to the three months ended September 30, 1998. For
the six month period ended September 30, 1999, operating expenses were $94
thousand (4%) lower than in the previous year.
Research and development expenses increased only $3 thousand for the three-month
period, but decreased year to date by $20 thousand as the result of reductions
in payments to Underwriters Laboratories (UL). These reductions were the result
of non-recurring expenses in the prior period that related to re-certification
of all Company products.
Selling, general and administrative expenses decreased $116 thousand during the
three month period of 1999 and $74 thousand year to date as a result of lower
selling expenses related to the change from selling direct to electrical
distribution to Hubbell as described above and lower bonus expenses.
Net Earnings for the three months ended September 30, 1999, declined by $85
thousand as compared to the three months ended September 30, 1998, as a result
of the above described factors. These same factors accounted for the $81
thousand decline in net earnings for the six-month period ended September 30,
1999 as compared to the same period in 1998.
Liquidity and Capital Resources:
Cash Flows from Operating Activities for the six months ended September 30, 1999
increased by $95 thousand compared to the six months ended September 30, 1998.
In addition to net earnings and non-cash items for the six months, the items
that influenced this increase are described below:
Receivables increased by $197 thousand net of bad debt allowance during
the first half. This increase is due primarily to significantly higher
sales in September as compared to the other months in the quarter.
Inventories decreased by $169 thousand. This decrease is due primarily
to the strong sales effort at quarter end.
Accounts payable increased by $583 thousand during the first six months
of fiscal 2000. The Company has maintained adequate relationships with
its suppliers and remains on "open account" with all significant
vendors.
Accrued liabilities decreased $174 thousand for the period ended
September 30, 1999. This decrease is due to normal fluctuations in
payroll and fringe benefit accruals, which are affected by timing of
actual payments made.
Reserve for customer warranty increased $68 thousand as a result of
increased product shipments.
Cash Flows used in Investing Activities decreased for the six months ended
September 30, 1999 by $113 thousand compared to the six months ended September
30, 1998, primarily as a result of reductions in capital expenditures.
Cash Flows used in Financing Activities increased by $363 thousand for the six
months ended September 30, 1999 compared to the six months ended September 30,
1998 as the Company significantly reduced its reliance on outside sources of
financing.
Management believes that existing cash balances, borrowings available under the
line of credit, and cash generated from operations will be adequate to meet the
Company's anticipated cash requirements through March 31, 2000. Management's
expectations are subject to risks and uncertainties that include, but are not
limited to, the Company's dependence on several key customers and its limited
liquidity and financial condition.
C-53
<PAGE> 215
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations, continued
Factors Affecting Future Results:
This Form 10-QSB may contain forward-looking statements within the meaning of
that term in the Private Securities Litigation Reform Act of 1995 (Section 27A
of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934). These can be identified by the use of forward-looking terminology such
as"may," "will," "should," "expect," "anticipate," "estimate," or "continue," or
the negative thereof or other variations thereon or comparable terminology.
Additional written or oral forward-looking statements may be made by the Company
from time to time, in filings with the Securities and Exchange Commission or
otherwise.
These forward-looking statements are subject to risks and uncertainties that
include, but are not limited to the Company's limited liquidity and reliance on
certain customers that represent significant portions of the Company's total
revenue, as well as those identified in this report, described from time to time
in the Company's other Securities and Exchange Commission filings, or discussed
in the Company's press releases. Actual results may vary materially from
expectations. Readers are cautioned not to place undue reliance on any
forward-looking statements contained herein, which speak only as of the date
hereof. The Company undertakes no obligation to publicly release the result of
any revisions to these forward-looking statements that may be made to reflect
events or circumstances after the date hereof or to reflect the occurrence of
unexpected events.
Year 2000
The Company has addressed Year 2000 (Y2K) compliance issues. The Company's
current software information systems are Y2K compliant. The Company installed an
information system that complies with Y2K requirements. Compliance with Y2K
requirements cost the Company an estimated $300,000 in fiscal year 1999 capital
expenditures amortized over 3-7 years. In addition, significant internal
resources were diverted to this project.
In addition, the Company has taken steps to ensure that its banking and lending
relationships are with Y2K compliant financial institutions. During fiscal 2000,
the Company will continue to work with its major customers and suppliers to
ensure that Y2K compliance issues will not interrupt the normal activities
supported by these relationships. None of these items is expected to involve
material investment or expense to the Company in fiscal 2000
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
C-54
<PAGE> 216
The registrant held its Annual Meeting of Shareholders on July 29, 1999. The
shareholders elected the following Board of Directors to serve for one year:
<TABLE>
<CAPTION>
Name Shares Voted For
<S> <C>
Gaylord K. Swim 4,233,122
Richard D. Clasen 4,233,122
Hans Imhof 4,233,122
James H. Biggart 4,232,913
Reino Kerttula 4,232,913
</TABLE>
The shareholders ratified the appointment of Grant Thornton LLP as independent
auditors for the fiscal year 2000 by a vote of 4,241,774 for and 3,767 against.
Item 6. Exhibits and Reports on Form 8-K
A) Exhibits.
Exhibit 27 - Financial Data Schedule
Reports on Form 8-K
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.
EFI ELECTRONICS CORPORATION
(Registrant)
November 12, 1999
Richard D. Clasen
Chief Executive Officer, President and
Director (Principal Executive Officer)
November 12, 1999
David G. Bevan
Chief Financial Officer, Executive Vice
President & Secretary (Principal
Financial Officer)
C-55
<PAGE> 217
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended December 31, 1999
[ ] 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: 0-15967
EFI ELECTRONICS CORPORATION
(Exact name of small business issuer as specified in its charter)
Delaware 75-2072203
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1751 South 4800 West, Salt Lake City, Utah 84104
(Address of principal executive offices)
Registrant's telephone number, including area code: (801) 977-9009
Check 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 past
twelve 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. [X] Yes [ ] No
Number of shares of the registrant's $0.0001 par value common stock
outstanding at February 1, 2000 5,575,638 shares.
Transitional Small Business Disclosure Format Yes [ ] No [X]
C-56
<PAGE> 218
EFI Electronics Corporation
INDEX TO FORM 10-QSB
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION PAGE
<S> <C> <C>
Item 1. Consolidated Financial Statements
Balance Sheets as of December 31, 1999 (Unaudited) and
March 31, 1999 ............................................. 3
Statements of Operations and Comprehensive Income (Loss)
(Unaudited)
for the three months ended December 31, 1999 and 1998 ...... 4
Statements of Operations and Comprehensive Income (Loss)
(Unaudited)
for the nine months ended December 31, 1999 and 1998 ....... 5
Statements of Cash Flows ( Unaudited) for the nine months
ended December 31, 1999 and 1998 ........................... 6
Notes to Financial Statements (Unaudited)............. 7 - 9
Item 2. Management's Discussion and Analysis or
Plan of Operations ................................ 10 - 12
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K......................... 13
Signatures.......................................................... 13
</TABLE>
EFI Electronics Corporation
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, 1999 March 31, 1999
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 26,102 $ 263,135
Receivables, net 2,390,321 2,241,200
</TABLE>
C-57
<PAGE> 219
<TABLE>
<S> <C> <C>
Inventories, net 1,693,449 2,119,336
Prepaid expenses 118,118 221,986
Total current assets 4,227,990 4,845,657
Property - net 2,455,355 2,448,376
Other assets:
Goodwill, net 649,806 742,803
Other assets 76,281 43,991
Total other assets 726,087 786,794
Total assets $7,409,432 $8,080,827
LIABILITIES
Current liabilities:
Revolving line of credit $ 1,783,624 $ 2,583,210
Current maturities of
capital lease obligations 159,958 177,763
Current maturities of notes payable 503,940 990,533
Accounts payable 1,157,100 825,291
Reserve for customer
warranty claims - current 192,751 215,000
Accrued liabilities 340,931 303,982
Total current liabilities 4,138,304 5,095,779
Long-term liabilities:
Reserve for customer warranty
claims - long-term 185,193 122,738
Capital lease obligations,
less current maturities 323,986 163,350
Notes payable, less current maturities 996,685 817,726
Total long-term liabilities 1,505,864 1,103,814
Total liabilities 5,644,168 6,199,593
STOCKHOLDERS' EQUITY
Common stock 558 558
Additional paid-in capital 3,117,190 3,117,190
Accumulated other comprehensive loss -
foreign currency translation
adjustment (156,047) (27,506)
Accumulated deficit (986,437) (999,008)
1,975,264 2,091,234
Less:
Notes receivable from officer (210,000) (210,000)
Total stockholders' equity 1,765,264 1,881,234
Total liabilities and
stockholders' equity $7,409,432 $8,080,827
</TABLE>
See notes to financial statements.
EFI Electronics Corporation
CONSOLIDATED STATEMENTS
OF OPERATIONS AND COMPREHENSIVE
INCOME (LOSS) (Unaudited)
<TABLE>
<CAPTION>
For the three months ended December 31, 1999 1998
<S> <C> <C>
Net sales $ 2,853,241 $ 3,461,503
Cost of sales 1,686,451 2,272,761
Gross profit 1,166,790 1,188,742
Operating expenses:
</TABLE>
C-58
<PAGE> 220
<TABLE>
<S> <C> <C>
Selling, general and
administrative expenses 901,813 858,328
Research and development 172,730 156,894
Total operating expenses 1,074,543 1,015,222
Earnings from operations 92,247 173,520
Other income/(expense):
Interest expense (106,253) (108,990)
Other, net (45,886) (27,066)
Total other expense, net (152,139) (136,056)
Earnings/(loss) before income taxes (59,892) 37,464
Income taxes -0- -0-
Net earnings/(loss) (59,892) 37,464
Other comprehensive income - foreign currency
translation adjustment (31,775) (64,067)
Comprehensive income/(loss) $ ( 91,667) $ (26,603)
Earnings/ (loss) per share:
Basic $ ( 0.01) $ 0.01
Diluted $ ( 0.01) $ 0.01
Weighted average shares outstanding
Basic 5,574,853 5,574,460
Diluted 5,574,853 5,574,460
</TABLE>
See notes to financial statements.
EFI Electronics Corporation
CONSOLIDATED STATEMENTS
OF OPERATIONS AND
COMPREHENSIVE INCOME (LOSS)
(Unaudited)
<TABLE>
<CAPTION>
For the nine months ended December 31, 1999 1998
<S> <C> <C>
Net sales $ 9,377,079 $ 11,313,164
Cost of sales 5,708,428 7,421,738
Gross profit 3,668,651 3,891,426
Operating expenses:
Selling, general and
administrative expenses 2,688,421 2,719,418
Research and development 506,624 510,421
Total operating expenses 3,195,045 3,229,839
Earnings from operations 473,606 661,587
Other income/(expense):
Interest expense (345,587) (379,352)
Other, net (115,448) (91,292)
Total other expense, net (461,035) (470,644)
Earnings before income taxes 12,571 190,943
Income taxes -0- -0-
</TABLE>
C-59
<PAGE> 221
<TABLE>
<S> <C> <C>
Net earnings $ 12,571 $ 190,943
Other comprehensive income - foreign currency
translation adjustment (128,541) (8,137)
Comprehensive income/(loss) $(115,970) $ 182,806
Earnings per share:
Basic $ 0.00 $ 0.03
Diluted $ 0.00 $ 0.03
Weighted average shares outstanding
Basic 5,574,591 5,556,448
Diluted 5,582,674 5,556,448
</TABLE>
See notes to financial statements.
EFI ELECTRONICS CORPORATION
CONSOLIDATED STATEMENTS OF CASHFLOWS (Unaudited)
<TABLE>
<CAPTION>
For the nine months ended December 31, 1999 1998
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 12,571 $ 190,943
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation 481,056 536,985
Amortization 92,997 92,851
Provision for obsolete inventory (52,653) 127,503
Provision for bad debts 35,977 38,273
Provision for warranty expenses 209,273 300,049
Increase/(decrease) in cash due to change in:
Receivables (171,899) 1,195,812
Inventories 488,481 (90,226)
Prepaid expenses 45,269 (58,514)
Other assets 6,721 17,464
Accounts payable 343,024 (661,371)
Warranty payments (169,066) (190,255)
Accrued liabilities 37,837 49,518
Net cash provided by operating activities 1,359,588 1,549,032
Cash flows from investing activities:
Investment in joint venture (39,011) -0-
Capital expenditures (221,845) (521,903)
Net cash used in investing activities (260,856) (521,903)
Cash flows from financing activities:
Net change under revolving line of credit (799,586) (649,168)
Principal payments on notes payable (307,634) (275,364)
Principal payments under capital lease obligations(126,455) (117,747)
Proceeds from exercise of stock options -0- 22,058
</TABLE>
C-60
<PAGE> 222
<TABLE>
<S> <C> <C>
Net cash (used in) financing activities (1,233,675) (1,020,221)
Effect of exchange rate changes on cash (102,090) (2,267)
Net increase/(decrease)in cash and cash equivalents (237,033) 4,641
Cash and cash equivalents at beginning of period 263,135 9,566
Cash and cash equivalents at end of period $ 26,102 $ 14,207
</TABLE>
Supplemental disclosures of cash flow information: Cash paid during the period
for:
<TABLE>
<S> <C> <C>
Income taxes $ -0- $ -0-
Interest $ 327,788 $ 402,154
</TABLE>
Supplemental schedule of non-cash investing activities:
1999 The Company retired fully depreciated property having an initial cost
of $307,624.
See notes to financial statements.
EFI ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
In the opinion of Management, the accompanying consolidated financial statements
contain adjustments, consisting of normal recurring adjustments, necessary for a
fair presentation of the financial position of EFI Electronics Corporation (the
"Company") and subsidiary at December 31, 1999 and March 31, 1999, and the
results of their operations and their cash flows for the three and nine months
ended December 31, 1999 and 1998. The results of operations for the three months
and nine months ended December 31, 1999 are not necessarily indicative of the
results that may be expected for the year ending March 31, 2000.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted as specified by the instructions to Form 10-QSB
and Item 310 of Regulation S-B. It is suggested that these financial statements
and related notes be read in conjunction with the Company's Annual Report on
Form 10-KSB for the year ended March 31, 1999.
1. RECEIVABLES
Receivables consisted of the following:
<TABLE>
<CAPTION>
December 31,1999 March 31, 1999
<S> <C> <C>
Trade and other receivables $2,441,572 $ 2,256,864
Allowance for doubtful accounts (51,251) (15,664)
Total Receivables $2,390,321 $ 2,241,200
</TABLE>
2. INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
December 31, 1999 March 31, 1999
<S> <C> <C>
Raw materials $1,309,741 $ 1,238,439
Work-in-process 118,449 121,775
Finished goods 342,829 889,344
1,771,019 2,249,558
Less allowance for obsolete inventory (77,570) (130,222)
Inventories, net $1,693,449 $ 2,119,336
</TABLE>
3. NET EARNINGS/(LOSS) PER COMMON SHARE
C-61
<PAGE> 223
Basic earnings/(loss) per share is computed by dividing net earnings by the
weighted average number of shares outstanding during each period. Diluted
earnings/(loss) per share are similarly calculated, except that the weighted
average number of shares outstanding includes shares that may be issued subject
to existing rights with dilutive potential.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - Continued
EARNINGS/(LOSS) PER SHARE, continued
The following data show the amounts used in computing earnings per share,
including the weighted average number of shares and dilutive potential common
stock.
<TABLE>
<CAPTION>
Nine Months Ended December 31,
1999 1998
<S> <C> <C>
Shares outstanding during
the entire period 5,574,460 5,504,644
Weighted average shares issued
during the period 131 51,804
--------- ----------
Weighted average number of
shares used in basic EPS 5,574,591 5,556,448
Dilutive effect of stock
options and warrants 8,083 -0-
Weighted average number of ---------- ----------
shares and dilutive potential
stock used in diluted EPS 5,582,674 5,556,448
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended December 31,
1999 1998
<S> <C> <C>
Shares outstanding during
the entire period 5,574,460 5,574,414
Weighted average shares issued
during the period 393 46
---------- ----------
Weighted average number of
shares used in basic EPS 5,574,853 5,574,460
Dilutive effect of stock
options and warrants -0- -0-
Weighted average number of
shares and dilutive potential ---------- ----------
stock used in diluted EPS 5,574,853 5,574,460
</TABLE>
4. REVOLVING LINE OF CREDIT, CAPITAL LEASE OBLIGATIONS AND NOTES PAYABLE
At December 31 and March 31, 1999, revolving line of credit, capital lease
obligations and notes payable, the carrying value of which approximates fair
value, consisted of the following:
<TABLE>
<CAPTION>
December 31, 1999 March 31, 1999
<S> <C> <C>
Revolving line of credit $ 1,783,624 $ 2,583,210
Capitalized lease obligations $ 483,944 $ 341,113
Less current maturities (159,958) (177,763)
Capitalized lease obligations ---------- ----------
</TABLE>
C-62
<PAGE> 224
<TABLE>
<S> <C> <C>
(less current maturities) $ 323,986 $ 163,350
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - Continued
REVOLVING LINE OF CREDIT, CAPITAL LEASE OBLIGATIONS AND NOTES PAYABLE, continued
<TABLE>
<CAPTION>
December 31, 1999 March 31, 1999
<S> <C> <C>
Notes payable:
Collateralized promissory note $ 481,920 $ 654,877
Uncollateralized subordinated
note - director 900,000 900,000
Collateralized promissory
note - machinery 102,490 133,243
Uncollateralized note
- acquisition 16,215 120,139
1,500,625 1,808,259
Less current maturities (503,940) (990,533)
Total notes payable, less
current installments $ 996,685 $ 817,726
</TABLE>
The revolving line of credit in place at December 31, 1999 provides for
borrowings up to $3,700,000 collateralized by accounts receivable and
inventories. Interest is payable monthly at a rate of prime (8.5% as of December
31, 1999) plus 2.5%. Principal payments are made as cash is received from
customers for accounts receivable. Borrowings are based on formulas involving
balances of eligible accounts receivable and inventories. The line of credit
agreement expires in March 2001.
Item 2. Management's Discussion and Analysis or Plan of Operations
General:
The following discussion should be read in conjunction with the unaudited
financial statements and notes contained in this report and in conjunction with
"Management's Discussion and Analysis or Plan of Operations" and the audited
consolidated financial statements and notes included in the Company's Annual
report on Form 10-KSB for the year ended March 31, 1999.
Results of Operations:
Net Sales for the three-month period ended December 31, 1999 decreased by
approximately $608 thousand (18%) compared to the three month period ended
December 31, 1998. For the nine months ended December 31, 1999, net sales
decreased approximately $1.9 million (17%) over the same period of the previous
year. The following factors were primarily responsible for the changes.
In the prior year, the Company was beginning the transition from selling certain
of its products directly to electrical distribution customers to selling its
products to Hubbell Incorporated ("Hubbell") for resale into electrical
distribution markets. During this period, Hubbell placed significant stocking
orders. The Company also had some residual direct sales to electrical
distributors. In the three-month period and nine-month period ended December 31,
1999 there were no direct sales to electrical distributors and sales to Hubbell
C-63
<PAGE> 225
were at a maintenance level. The combination of these factors reduced sales by
approximately $229 thousand in the three-month period and approximately $1.0
million in the nine month period.
In June 1998, the Company changed its method of doing business with Thompson
Consumer Electronics ("TCE"). The Company no longer sells products to TCE
instead the Company is paid a fee income based on the number of units sold by
TCE. Fee income for the three-month period ended December 31, 1999 increased
approximately $67 thousand compared to the comparable three-month period in
1998. However, on a year-to-date basis this change reduced revenue by $509
thousand in 1999. The revenue decrease was offset by improved gross profit from
the fee income.
Sales to US government agencies for the three-month period ended December 31,
1999 were approximately $211 thousand lower as compared to the same three- month
period in 1998. Government sales for the nine-month period ended December 31,
1999 were approximately $160 thousand lower than for the comparable nine-month
period in 1998. The decrease was due to the inventory reductions associated with
the closing of the GSA regional warehouses, conclusion of the Social Security
Administration contract and reduced computer sales during the third quarter of
FY 2000 with respect to the Y2K issue. The Company expects an increase in
Government sale during the next three month period.
International sales for the three-month period ended December 31, 1999 were
$47,000 lower, primarily due to a slow down in the European machine tool market.
International sales for the nine months ended December 31, 1999 were slightly
below the comparable nine-month period in 1998.
In 1998, the Company sold approximately $277 thousand of custom obsolete
inventory to a previous private label customer at much lower than average
margins. This decision enabled the Company to recover its manufacturing cost and
avoid a significant inventory write-off. This one-time event did not recur in
the current year.
Gross Profit for the three-month period ended December 31, 1999, declined
approximately $22 thousand (2%) compared to the three months ended December 31,
1998. For the nine months ended December 31, 1999, gross profit decreased by
approximately $223 thousand (6%). The Company's gross margin improved to 41% of
net sales in the three-month period ended December 31, 1999 as compared to 34%
in the prior year. For the nine months ended December 31, 1999 gross margin was
39% as compared to 34% in the prior year. The decrease in the amount of gross
profit was primarily attributable to the sales decline offset by significant
improvements in indirect costs and direct material. The improvement of gross
margin percentage was primarily due to the following factors:
Item 2. Management's Discussion and Analysis or Plan of Operations
Fee income from TCE yields a substantially greater margin than the product sales
that it displaces.
During the last half of fiscal 1999, the Company focused on decreasing its
direct product costs for several product lines. The impact of these reductions
began during the fourth quarter of fiscal year 1999. This reduction effort has
continued during the current fiscal year. Management anticipates the program
will reduce direct product costs by approximately $750 thousand per year.
Indirect costs decreased by approximately $212 thousand in the three-month
period ended December 31, 1999 and approximately $452 thousand for the nine
month period ended December 31, 1999. This is primarily the result of staff
headcount reductions made in March 1999, reductions in scrap and rework and
substantial improvements in productivity.
Operating Expenses for the three months ended December 31, 1999 increased by
approximately $59 thousand (6%), compared to the three months ended December 31,
1998. For the nine month period ended December 31, 1999, operating expenses were
C-64
<PAGE> 226
approximately $35 thousand (1%) lower than in the same period of the previous
year.
Research and development expenses increased approximately $16 thousand for the
three-month period due to certification expenses for several new products.
Research and development expenses for the nine-month period ended December 31,
1999 were slightly lower than in the previous year.
Selling, general and administrative expenses increased approximately $43
thousand during the three-month period ended December 31, 1999. The Company
experienced one-time expenses associated with its ISO registration program and
increases in its employee compensation costs. For the nine-month period ended
December 31, 1999 administrative expenses were approximately $31 thousand lower
than the same period of the prior year due primarily to the change from selling
direct to electrical distribution customers to selling to Hubbell, as described
above, and lower bonus expenses.
Net Earnings/(Loss) for the three months ended December 31, 1999 declined by
approximately $97 thousand as compared to the three months ended December 31,
1998, as a result of the sales decline and the increase in operating expenses.
These earnings reductions were partially offset by improved gross margins and
manufacturing efficiencies. These same factors primarily accounted for the
approximate $178 thousand decline in net earnings for the nine-month period
ended December 31, 1999 as compared to the same period in 1998.
Liquidity and Capital Resources:
Cash Flows From Operating Activities for the nine months ended December 31, 1999
decreased by approximately $189 thousand compared to the nine months ended
December 31, 1998. In addition to net earnings and non-cash items for the nine
months, the items that influenced this decrease are described below:
Receivables increased by approximately $136 thousand net of bad debt
allowance during the nine-month period. This increase was due primarily
to significantly higher sales in December as compared to the other
months in the quarter.
Inventories decreased by approximately $436 thousand. This decrease was
due primarily to the strong sales effort at quarter end.
Accounts payable increased by approximately $343 thousand. The Company
has maintained adequate relationships with its suppliers and remains on
"open account" with all significant vendors.
Item 2. Management's Discussion and Analysis or Plan of Operations
Accrued liabilities increased approximately $38 thousand. This increase
was due primarily to normal fluctuations in payroll and fringe benefit
accruals, which are affected by timing of actual payments.
Reserve for customer warranty increased approximately $40 thousand as a
result of increased product shipments.
Cash Flows Used In Investing Activities increased slightly for the nine months
ended December 31, 1999 as compared to the nine months ended December 31, 1998.
An increase in the Company's investment in the EFI Asia Pacific joint venture
was partially offset by reduced capital expenditures.
Cash Flows Used In Financing Activities decreased by approximately $58 thousand
for the nine months ended December 31, 1999 compared to the nine months ended
December 31, 1998 as the Company utilized external financing sources to launch a
new product introduction.
Management believes that existing cash balances, borrowings available under the
C-65
<PAGE> 227
line of credit, and cash generated from operations will be adequate to meet the
Company's anticipated cash requirements through March 31, 2000. Management's
expectations are subject to risks and uncertainties that include, but are not
limited to, the Company's dependence on several key customers and its limited
liquidity and financial condition.
Factors Affecting Future Results:
This Form 10-QSB may contain forward-looking statements within the meaning of
that term in the Private Securities Litigation Reform Act of 1995 (Section 27A
of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934). These can be identified by the use of forward-looking terminology such as
"may," "will," "should," "expect," "anticipate," "estimate," or "continue," or
the negative thereof or other variations thereon or comparable terminology.
Additional written or oral forward-looking statements may be made by the Company
from time to time, in filings with the Securities and Exchange Commission or
otherwise.
These forward-looking statements are subject to risks and uncertainties that
include, but are not limited to, the Company's limited liquidity and reliance on
certain customers that represent significant portions of the Company's total
revenue, as well as those identified in this report, described from time to time
in the Company's other Securities and Exchange Commission filings, or discussed
in the Company's press releases. Actual results may vary materially from
expectations. Readers are cautioned not to place undue reliance on any
forward-looking statements contained herein, which speak only as of the date
hereof. The Company undertakes no obligation to update these forward-looking
statements to reflect events or circumstances after the date hereof or to
reflect the occurrence of unexpected events.
Year 2000
The Company addressed Year 2000 (Y2K) compliance issues. The Company's current
software information systems are Y2K compliant. The Company installed an
information system that complied with Y2K requirements. Compliance with Y2K
requirements cost the Company an estimated $300,000 in fiscal year 1999 capital
expenditures to be amortized over 3-7 years.
In addition, the Company took steps to ensure that its banking and lending
relationships were with Y2K compliant financial institutions.During fiscal 2000,
the Company continued to work with its major customers and suppliers to ensure
that Y2K compliance issues would not interrupt the normal activities supported
by these relationships. None of these items is expected to involve material
investment or expense to the Company in fiscal 2000.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
A) Exhibits.
Exhibit 27 - Financial Data Schedule
B) Reports on Form 8-K
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.
EFI ELECTRONICS CORPORATION
C-66
<PAGE> 228
(Registrant)
February 15, 2000
----------------------------------
Richard D. Clasen
Chief Executive Officer, President and
Director (Principal Executive Officer)
February 15, 2000
-----------------------------------
James A. Grada
Controller ( Principal Financial Officer)
C-67
<PAGE> 229
ANNEX D
DISSENTER'S APPRAISAL RIGHTS
D-1
<PAGE> 230
Delaware General Corporation Law, 8 Del. C. Section 262. APPRAISAL RIGHTS.
(a) Any stockholder of a corporation of this State who holds shares of stock on
the date of the making of a demand pursuant to subsection (d) of this section
with respect to such shares, who continuously holds such shares through the
effective date of the merger or consolidation, who has otherwise complied with
subsection (d) of this section and who has neither voted in favor of the merger
or consolidation nor consented thereto in writing pursuant to Section 228 of
this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and the
words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or series of
stock of a constituent corporation in a merger or consolidation to be effected
pursuant to Section 251 (other than a merger effected pursuant to Section 251(g)
of this title), Section 252, Section 254, Section 257, Section 258, Section 263
or Section 264 of this title.
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock, or
depositary receipts in respect thereof, at the record date fixed to determine
the stockholders entitled to receive notice of and to vote at the meeting of
stockholders to act upon the agreement of merger or consolidation, were either
(i) listed on a national securities exchange or designated as a national market
system security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or (ii) held of record by more than 2,000 holders;
and further provided that no appraisal rights shall be available for any shares
of stock of the constituent corporation surviving a merger if the merger did not
require for its approval the vote of the stockholders of the surviving
corporation as provided in subsection (f) of Section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series of
stock of a constituent corporation if the holders thereof are required by the
terms of an agreement of merger or consolidation pursuant to Sections 251, 252,
254, 257, 258, 263 and 264 of this title to accept for such stock anything
except:
a. Shares of stock of the corporation surviving or resulting
from such merger or consolidation, or depository receipts in respect
thereof;
b. Shares of stock of any other corporation, or depository
receipts in respect thereof, which shares of stock (or depository
receipts in respect thereof) or depository receipts at the effective
date of the merger or consolidation will be either listed on a national
securities exchange or designated as a national market system security
on an interdealer quotation system by the National Association of
Securities Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
D-2
<PAGE> 231
d. Any combination of the shares of stock, depository receipts
and cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under Section 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall be
available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting, shall
notify each of its stockholders who was such on the record date for such meeting
with respect to shares for which appraisal rights are available pursuant to
subsection (b) or (c) hereof that appraisal rights are available for any or all
of the shares of the constituent corporations, and shall include in such notice
a copy of this section. Each stockholder electing to demand the appraisal of
such stockholder's shares shall deliver to the corporation, before the taking of
the vote on the merger or consolidation, a written demand for appraisal of such
stockholder's shares. Such demand will be sufficient if it reasonably informs
the corporation of the identity of the stockholder and that the stockholder
intends thereby to demand the appraisal of such stockholder's shares. A proxy or
vote against the merger or consolidation shall not constitute such a demand. A
stockholder electing to take such action must do so by a separate written
demand, as herein provided. Within 10 days after the effective date of such
merger or consolidation, the surviving or resulting corporation shall notify
each stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become effective;
or
(2) If the merger or consolidation was approved pursuant to Section 228 or
Section 253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days thereafter,
shall notify each of the holders of any class or series of stock of such
constituent corporation who are entitled to appraisal rights of the approval of
the merger or consolidation and that appraisal rights are available for any or
all shares of such class or series of stock of such constituent corporation, and
shall include in such notice a copy of this section; provided that, if the
notice is given on or after the effective date of the merger or consolidation,
such notice shall be given by the surviving or resulting corporation to all such
holders of any class or series of stock of a constituent corporation that are
entitled to appraisal rights. Such notice may, and, if given on or after the
effective date of the merger or consolidation, shall, also notify such
stockholders of the effective date of the merger or consolidation. Any
stockholder entitled to appraisal rights may, within 20 days after the date of
mailing of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the appraisal of
such holder's
D-3
<PAGE> 232
shares. If such notice did not notify stockholders of the effective date of the
merger or consolidation, either (i) each such constituent corporation shall send
a second notice before the effective date of the merger or consolidation
notifying each of the holders of any class or series of stock of such
constituent corporation that are entitled to appraisal rights of the effective
date of the merger or consolidation or (ii) the surviving or resulting
corporation shall send such a second notice to all such holders on or within 10
days after such effective date; provided, however, that if such second notice is
sent more than 20 days following the sending of the first notice, such second
notice need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with this
subsection. An affidavit of the secretary or assistant secretary or of the
transfer agent of the corporation that is required to give either notice that
such notice has been given shall, in the absence of fraud, be prima facie
evidence of the facts stated therein. For purposes of determining the
stockholders entitled to receive either notice, each constituent corporation may
fix, in advance, a record date that shall be not more than 10 days prior to the
date the notice is given, provided, that if the notice is given on or after the
effective date of the merger or consolidation, the record date shall be such
effective date. If no record date is fixed and the notice is given prior to the
effective date, the record date shall be the close of business on the day next
preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or consolidation, the
surviving or resulting corporation or any stockholder who has complied with
subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger or
consolidation, any stockholder shall have the right to withdraw such
stockholder's demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
such stockholder's written request for such a statement is received by the
surviving or resulting corporation or within 10 days after expiration of the
period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in Chancery
in which the petition was filed a duly verified list containing the names and
addresses of all stockholders who have demanded payment for their shares and
with whom agreements as to the value of their shares have not been reached by
the surviving or resulting corporation. If the petition shall be filed by the
surviving or resulting corporation, the petition shall be accompanied by such a
duly verified list. The Register in Chancery, if so ordered by the Court, shall
give notice of the time and place fixed for the hearing of such petition by
registered or certified mail to the surviving or resulting corporation and to
the stockholders shown on the list at the addresses therein stated. Such notice
shall also be given by 1 or more publications at least 1 week before the day of
the hearing, in a newspaper of general circulation published in the City of
Wilmington, Delaware or such publication as the Court deems advisable. The forms
of the notices by mail and by publication shall be approved by the Court, and
the costs thereof shall be borne by the surviving or resulting corporation.
D-4
<PAGE> 233
(g) At the hearing on such petition, the Court shall determine the stockholders
who have complied with this section and who have become entitled to appraisal
rights. The Court may require the stockholders who have demanded an appraisal
for their shares and who hold stock represented by certificates to submit their
certificates of stock to the Register in Chancery for notation thereon of the
pendency of the appraisal proceedings; and if any stockholder fails to comply
with such direction, the Court may dismiss the proceedings as to such
stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court shall
appraise the shares, determining their fair value exclusive of any element of
value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted
such stockholder's certificates of stock to the Register in Chancery, if such is
required, may participate fully in all proceedings until it is finally
determined that such stockholder is not entitled to appraisal rights under this
section.
(i) The Court shall direct the payment of the fair value of the shares, together
with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed upon
the parties as the Court deems equitable in the circumstances. Upon application
of a stockholder, the Court may order all or a portion of the expenses incurred
by any stockholder in connection with the appraisal proceeding, including,
without limitation, reasonable attorney's fees and the fees and expenses of
experts, to be charged pro rata against the value of all the shares entitled to
an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded appraisal rights as provided in subsection (d) of
this section shall be entitled to vote such stock for any purpose or to received
payment of dividends or other distributions on the stock (except dividends or
other distributions payable to stockholders of record at a date which is prior
to the effective date of the merger or consolidation); provided, however, that
if no petition for an appraisal shall be filed within the time provided in
subsection (e) of this section, or if such stockholder shall deliver to the
surviving or resulting corporation a written withdrawal of such stockholder's
demand for an appraisal and an acceptance of the merger or consolidation, either
within 60 days after the effective date of the merger or consolidation as
provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the Court
of Chancery shall be dismissed as to any stockholder without the approval of the
Court, and such approval may be conditioned upon such terms as the Court deems
just.
D-5
<PAGE> 234
(l) The shares of the surviving or resulting corporation to which the shares of
such objecting stockholders would have been converted had they assented to the
merger or consolidation shall have the status of authorized and unissued shares
of the surviving or resulting corporation.
D-6
