FORM 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1997
OR
[ ] TRANSITION PERIOD PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ______________________ to _____________________
COMMISSION FILE NO: 1-9917
CATALINA LIGHTING, INC.
(Exact name of Registrant as specified in its charter)
FLORIDA 59-1548266
State or other jurisdiction of (I.R.S Employer
incorporation or organization Identification Number)
18191 N.W. 68TH AVENUE, MIAMI, FLORIDA 33015
(Address of principal executive offices, including zip code)
(305) 558-4777
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
Common Stock, par value New York Stock Exchange
$.01 per share
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ___.
Indicate by check mark if disclosure of delinquent filers pursuant to
item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in the definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.[ ]
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The aggregate market value of voting stock held by non-affiliates of the
Registrant computed by reference to the closing price of such stock, as reported
by the New York Stock Exchange, on December 15, 1997 was $38.2 million.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Definitive Proxy Statement for the Company for its 1998
Annual Meeting of Stockholders are incorporated by reference into Part III.
Number of shares outstanding of Registrant's common stock, as of
December 15, 1997: 7,109,069
Exhibit Index at Page 56
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FORM 10-K
CATALINA LIGHTING, INC.
PART I
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Annual Report on Form 10-K (this "Form
10-K"), including statements under "Item 1. Business" and "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
including without limitation expectations as to future sales and profitability,
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995 (the "Reform Act"). Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors which may cause the actual results, performance or achievements of
Catalina Lighting, Inc. (the "Company") and its subsidiaries to be materially
different from any future results, performance or achievements expressed or
implied by such forward-looking statements. Such factors include, but are not
limited to, the following: the highly competitive nature of the lighting
industry; reliance on certain key customers; consumer demand for lighting
products; dependence on imports from China; general economic and business
conditions; operating costs; advertising and promotional efforts; brand
awareness; the existence or absence of adverse publicity; acceptance of new
product offerings; changing trends in customer tastes; changes in business
strategy; availability, terms and deployment of capital; availability and cost
of raw materials and supplies; the costs and other effects of legal and
administrative proceedings; and other factors referenced in this Form 10-K. The
Company will not undertake and specifically declines any obligation to update or
correct any forward-looking statements to reflect events or circumstances after
the date of such statements or to reflect the occurrence of anticipated or
unanticipated events.
ITEM 1. BUSINESS.
GENERAL
Catalina Lighting, Inc. was incorporated under the laws of the state of
Florida in 1974 and became a public company in 1988. The Company designs,
manufactures, contracts for the manufacture of, imports and distributes a broad
line of lighting fixtures and lamps under the Westinghouse/Registered trademark/
brand, and the Catalina/Registered trademark/, Dana/Registered trademark/,
Meridian Lamps/Registered trademark/ and Illuminada/Registered trademark/ trade
names. The Company also functions as an original equipment manufacturer, selling
goods under its customers' private labels. The Company sells principally in the
United States through a variety of retailers including home centers, national
retail chains, office superstore chains, warehouse clubs, discount department
stores, catalog showrooms, lighting showrooms and hardware stores. The Company
also sells its products in Europe and Canada, and, to a lesser extent, in
Mexico, Asia, Latin America and Australia. Currently, its product line is
comprised almost entirely of lighting fixtures and lamps. The Company has
supplemented its product lines through acquisitions but has remained focused on
lighting products and has no plans to materially change its sales focus in the
near future.
STRATEGY
In order to expand its retail distribution network and more efficiently
and profitably service its customers, the Company focuses on the following
strategies:
TARGETED DISTRIBUTION. The Company distributes a diverse product line
through multiple retail channels. The Company targets rapidly growing and large
retailers, including leading home centers, office product superstores, warehouse
clubs, discount department stores, catalog showrooms, lighting showrooms and
hardware stores. Large retailers assure a broad distribution of a variety of the
Company's products while high-growth retailers provide the Company with rapid
penetration of selected industry segments. Secondarily, the Company targets
smaller chains within the above retail categories. While sales to each of these
retailers are smaller than those to their larger counterparts, these smaller
retailers are more numerous than their larger competitors and account for a
significant portion of the lighting industry. The Company's distribution
strategy provides it with numerous sources of demand and promotes the Company's
brand names broadly throughout the residential and office lighting markets in
the United States, Europe and Canada, and to a lesser extent Asia, Mexico, Latin
America and Australia.
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PROGRAM SELLING. In its primary domestic markets, the Company strives
to be the primary source of lighting products to its retailers by offering a
complete program of lighting products in a variety of categories. The
availability of over 1000 styles of such products as outdoor/security lighting,
table, floor and torchiere lamps, chandeliers, recessed and track lighting and
wall and ceiling lights - the majority of which are available in several colors
or finishes - provides retailers the opportunity to source most of their
lighting products through the Company on a "one stop shopping" basis. The
Company believes that its broad selection of affordable products coupled with
its ability to aid its retail customers in developing a complete lighting
program gives it a competitive advantage.
INTERNATIONAL EXPANSION The Company's Hong Kong based subsidiary,
Go-Gro Industries Limited ("Go-Gro"), sells its products to wholesale
distributors in Europe and, to a lesser extent, various customers in Asia.
Go-Gro is also a major supplier to the Company's U.S. and Canadian subsidiaries.
Management believes the Company's products and services are well suited for
further growth in these and other markets. The Company expects to join forces
with sales representatives and distributors in Europe and utilize their
knowledge of local markets' tastes in products, social customs, and trading
nuances to facilitate the Company's entry into those countries. The Company's
current plans include expansion of Go-Gro's existing sales and marketing
operations in Europe, including the United Kingdom.
TURNKEY DEPARTMENTS. The Company consults with many of its domestic
retail customers to establish departments which allow the Company to display its
products in a customized layout designed to meet each retailer's specific
merchandising and marketing goals. The Company can design, assemble and maintain
these departments and provide the retailer with shelving plan-o-grams, signs,
point-of-purchase promotional strategies and in-store inventory stocking
programs. Turnkey departments ensure the Company's retail customers efficient
and convenient management of the Company's products within their stores and
allow the Company to maintain an attractive and informative presentation of its
products.
WAREHOUSE SUPPLY OF IMPORTED GOODS. The Company's warehouses in the
United States, Canada and Mexico enable it to provide the cost advantage of
imported products with the convenience of short delivery time. Warehouse sales
allow retailers to receive products in several days as compared to several
months for items shipped directly to them from Asia. Timely deliveries increase
the customer's inventory turns and profits making the Company a valuable partner
in the retailer's business.
PRODUCTS
The Company markets a diverse product line used primarily in
residential and office settings. The Company's product line is comprised almost
entirely of two main categories: lighting fixtures and lamps. Lighting fixtures
consist of outdoor/security lighting, chandeliers, recessed and track lighting,
and wall and ceiling lights. Lamps sold by the Company include both table and
floor models and may be either functional or decorative. Functional lamps
consist of halogen desk lamps, bankers lamps, swing arm desk lamps, torchiere
lamps, magnifier lamps, and any other lamps generally used for task oriented
functions. Decorative lamps are fashion oriented and made of such materials as
metal, ceramic, stained glass, and crystal glass. The Company also sells other
lighting-related products such as flashlights and ceiling fans. The Company may
continue to expand its product lines internally or through acquisitions.
The Company's products are manufactured and assembled according to the
Company's design specifications. The finished products are packaged and labeled
under one of the Company's brand names: Westinghouse/Registered trademark/,
Catalina/Registered trademark/, Dana/Registered trademark/, Meridian
Lamps/Registered trademark/ and Illuminada/Registered trademark/. The Company
also functions as an original equipment manufacturer, selling goods under its
customers' private labels.
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CUSTOMERS
The Company distributes its products in North America principally
through major retail outlets, including home centers, national retail chains,
office superstore chains, discount department stores, warehouse clubs, catalog
showrooms, furniture and lighting stores and hardware stores. Products are also
sold to a large extent in Europe to wholesale distributors under their private
labels and to selected retail customers in Europe, Australia and Asia. In fiscal
1997 and 1996, Home Depot accounted for 22.1% and 9.8% of the Company's net
sales. For the fiscal years ended September 30, 1997 and 1996, net sales to the
Company's ten largest customers represented approximately 63% and 57%,
respectively, of the Company's total revenues. The Company believes its
relationships with its customers are good.
DISTRIBUTION METHODS
The Company utilizes two methods to sell products: warehouse sales and
direct sales. The backlog of unshipped orders at November 30, 1997 and 1996 was
$20.0 million and $20.4 million, respectively. Although these orders are subject
to cancellation by the customers, the Company believes substantially all such
orders are firm.
The Company purchases products overseas for its own account and
warehouses the products in a 473,000 square foot Company-owned facility in
Tupelo, Mississippi and in leased facilities in Montreal, Canada, Mexico City,
Mexico and in a public warehouse in California. The Company is responsible for
costs of shipping, insurance, customs clearance and duties, storage and
distribution related to such warehouse products and therefore, warehouse sales
usually command higher per unit sales prices than direct sales of the same
items. For the fiscal years ended September 30, 1997 and 1996, warehouse sales
accounted for 39% and 48%, respectively, of net sales.
The Company's direct sales are made either by delivering lighting
products to the retailers' common carriers at a shipping point in Asia or by
shipping the products from Asia directly to retailers' distribution centers,
warehouses or stores. Direct sales are made in large quantities (generally
container-sized lots) to customers, who pay pursuant to their own international,
irrevocable letters of credit (which may or may not be transferable depending on
whether the goods are manufactured by Go-Gro) or on open credit with the
Company. Upon receipt of a customer's transferable letter of credit, the Company
transfers the portion of the letter of credit covering the cost of merchandise
to its supplier. The terms of the transfer provide that draws may not be made by
the supplier until the Company is entitled to be paid pursuant to the terms of
the customer's letter of credit. The Company has the right to draw upon the
customer's letter of credit once the products are inspected by the Company or
its agents, delivered to the port of embarkation and the appropriate
documentation has been presented to the issuing bank within the time periods
established by such letter of credit. For fiscal years ended September 30, 1997
and 1996, 61% and 52%, respectively, of net sales were attributable to direct
sales.
The relative proportion of the Company's sales generated by each method
is dependent upon customer buying preferences and Company sales strategies.
Purchasing on a direct basis allows the customer to generally pay a lower per
unit price than purchasing the same items from the warehouse, but such method
requires the customer to purchase in greater quantities and thus assume the
costs, risks and liquidity requirements associated with holding larger
inventories. Customer buying preferences are influenced by a number of business,
economic and other factors. The underlying factors driving customer buying
preferences often vary from customer to customer and are subject to change, thus
customer buying preferences over time are inherently difficult to predict.
SOURCES OF PRODUCTS
Virtually all of the products sold by the Company are obtained from
factories located in China. The Company manufactures a portion of these products
and purchases the remainder from independent suppliers.
In 1994 the Company purchased Go-Gro, a lighting products manufacturer
with its administrative office located in Hong Kong and production facilities
located in the Guangdong Province of China. Go-Gro's production equipment is
owned by Shenzhen Jiadianbao Electrical Products Co., Ltd. (SJE), Go-Gro's
cooperative joint venture subsidiary. Approximately 50% of SJE's factory
buildings are leased from the Company's joint venture partner in SJE, Shenzhen
Baoanqu Fuda Industries Co. Ltd. ("Fuda"), a Chinese company, the remaining 50%
is owned by SJE. Under the terms of the cooperative joint venture agreement with
Fuda, Go-Gro is entitled to 100% of the manufacturing profits and losses of SJE,
while Fuda is entitled to a yearly management fee from SJE of approximately
$400,000 in addition to the rent for the factory buildings. Go-Gro manufactures
an extensive product line consisting primarily of lamps sold mainly to wholesale
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distributors and retailers in Europe, the Company and its subsidiaries and to a
lesser extent, retailers in Asia and Australia. Go-Gro and its subsidiaries
employ approximately 3,000 people.
SJE leases factory buildings in three separate locations in China.
During 1995, the Company initiated a consolidation of its Go-Gro/SJE
manufacturing facilities into one large compound in order to achieve certain
manufacturing efficiencies and to control its occupancy costs in what management
believes will be an inflationary business environment. In April 1995, SJE and
the Bureau of National Land Planning Bao-An Branch of Shenzhen City entered into
a Land Use Agreement covering approximately 467,300 square feet in Bao-An
County, Shenzhen City, People's Republic of China. The agreement provides SJE
with the right to use this land until January 18, 2042. The land use rights are
non-transferable. Under the terms of the SJE joint venture agreement, ownership
of the land and buildings of SJE is divided 70% to Go-Gro and 30% to Fuda. Land
costs, including the land use rights, approximated $2.6 million of which Go-Gro
has paid its 70% proportionate share of $1.8 million.
Under the terms of this agreement, as amended, SJE is obligated to
construct approximately 500,000 square feet of factory buildings and 211,000
square feet of dormitories and offices, of which 40 percent was required to be
and was completed by April 1, 1997. The remainder of the construction is
required to be completed by December 31, 1999. The total cost for this project
is estimated at $15.5 million (of which $10.3 million had been expended as of
September 30, 1997) and includes approximately $1 million for a Municipal
Coordination Facilities Fee (MCFF). The MCFF was based upon the square footage
to be constructed. The agreement calls for the MCFF to be paid in installments
beginning in January 1997 and continuing through June 1998, with 46% of the
total fee due and paid by September 1997. A 162,000 square foot factory, 77,000
square foot warehouse and 60,000 square foot dormitory were completed in April
1997 and became fully operational in June 1997.
Goods produced by Go-Gro constituted approximately 41% in 1997 and 36%
in 1996, of the total products either purchased or manufactured by the Company.
The raw materials essential to Go-Gro's manufacturing process are purchased from
distributors located in various countries as follows: plastic resin (Germany and
china), steel (Korea and Japan), cable (China), light bulbs (China and Taiwan),
lampholders (China) and other various components (China, Europe, U.S., Taiwan
and others).
The Company chooses manufacturers based on price, quality of
merchandise, reliability and ability to meet the Company's timing requirements
for delivery. Manufacturing commitments are made on a purchase order basis. The
Company or its customer is often required to post a letter of credit prior to
shipment.
The Company has employees located in the U.S., Hong Kong and China who
supervise the Company's manufacturing contractors. These employees'
responsibilities include the establishment and ongoing development of close
relationships with the manufacturers, setting product and manufacturing
standards, performing quality assurance functions including inspection at
various stages, tracking costs, performing and/or working with manufacturing
engineering, and oversight of the manufacturing processes. The Company maintains
a quality control and quality assurance program and has established inspection
and test criteria for each of its products. These methods are applied by the
Company or its agents regularly to product samples in each manufacturing
location prior to shipment and each shipment must pass quality control
inspection.
The Company expects to continue to use a limited number of contract
manufacturers and accordingly will continue to be highly dependent upon sources
outside the Company for timely production and quality workmanship.
In fiscal 1997 and 1996, Chinese suppliers, other than Go-Gro,
accounted for approximately 53% and 57%, respectively, of the total products
either purchased or manufactured by the Company. Shunde No. 1 Lamp Factory
("Shunde") accounted for approximately 19% of the total products either
purchased or manufactured by the Company in 1997 and 21% in 1996 and Weing
Panasonic accounted for 13% and 5% of the same total in 1997 and 1996,
respectively. Purchases from the top five independent suppliers comprised 43%
and 42%, respectively, of the total of the products either purchased or
manufactured by the Company for fiscal 1997 and 1996. Other than Shunde and
Weing Panasonic, no independent supplier accounted for more than 10% of the
total of the products either purchased or manufactured by the Company in 1997.
On June 21, 1996, the Company entered into an agreement with Shunde
whereby Shunde agreed to manufacture lighting products for the Company to be
sold in North and South America and the European Community on an exclusive basis
for a three year period beginning October 1, 1996 in return for annual minimum
purchase requirements from the
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Company. The agreement is terminable if the Company does not meet its minimum
purchase requirements, at which time the exclusivity clause would cease.
However, no amounts would be due Shunde for failure to meet the purchase
requirements.
While the Company purchases its products from a small number of large
suppliers with whom it maintains close alliances, the same products could be
purchased from numerous other suppliers.
The continued importation of products from China and the Company's
business could be affected by any trade issues impacting U.S. - China relations.
On May 29, 1997, the President of the United States extended to the
People's Republic of China "Most Favored Nation" ("MFN") treatment for the entry
of goods into the United States for an additional year, beginning July 3, 1997.
In the context of United States tariff legislation, MFN treatment means that
products are subject to favorable duty rates upon entry into the United States.
On June 24, 1997 the House of Representatives supported the President's decision
and rejected a bill to impose trade sanctions against China due to alleged human
rights abuses. Members of Congress and the "human rights community" will
continue to monitor the human rights issues in China and adverse developments in
human rights and other trade issues in China could affect U.S. - China
relations. As a result of various political and trade disagreements between the
U.S. Government and China, it is possible restrictions could be placed on trade
with China in the future which could adversely impact the Company's operations
and financial position.
The Company obtained a political risk insurance policy issued by the
Multilateral Investment Guarantee Agency, a member of the World Bank Group, in
the amount of $14.4 million covering its purchase and expansion of SJE in China.
The contract is a long-term non-cancelable guarantee covering the risks of
expropriation and war and civil disturbance. The Company obtained guarantees to
cover existing assets of $11.0 million and stand-by guarantees of $3.4 million
on construction of its SJE facilities.
As a result of various political and trade disagreements between the
U.S. Government and China, it is possible restrictions could be placed on trade
with China in the future which could adversely impact the Company's operations.
In June 1997, the Company ceased manufacturing operations at Meridian
Lamps, Inc. ("Meridian"), a wholly-owned subsidiary with a manufacturing
facility located in Meridian, Mississippi, which commenced operations in late
December 1994. Meridian produced decorative table and floor lamps. The Meridian
facility consists of 123,000 square feet with both manufacturing and warehousing
capabilities. The Company leased the facility in June 1997. Meridian's
operations generated $2.8 million in net sales during fiscals 1997 and 1996.
COMPETITION
The Company's product lines span major segments within the lighting
industry and, accordingly, the Company's products compete in a number of
different markets with a number of different competitors. The Company competes
with other independent distributors, importers, manufacturers, and suppliers of
lighting fixtures and other consumer products. The lighting industry is highly
competitive. Other competitors market similar products that compete with the
Company on the basis of price. Some of these competitors do not maintain
warehouse operations or perform some of the services provided by the Company
which require the Company to charge higher prices. The relatively low barriers
to entry into the lighting industry and the limited proprietary nature of many
lighting products also permit new competitors to enter the industry easily. The
ability of the Company to compete successfully in this highly competitive market
depends upon its ability to manufacture and purchase quality products on
favorable terms, ensure its products meet safety standards, deliver the goods
promptly at competitive prices, and provide a wide range of services such as
electronic data interchange and customized products, packaging, and store
displays.
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INDEPENDENT SAFETY TESTING
As part of its marketing strategy, the Company voluntarily submits its
products to recognized product safety testing laboratories in countries in which
it markets its products. Such laboratories include Underwriters Laboratories
(UL) in the United States, Canadian Standards Association (CSA) in Canada,
Association Nacional de Normalizacion y Certification del Sector Electrico
(ANCE) in Mexico and various European electrical testing organizations. If the
product is acceptable, the laboratory issues a report which provides a technical
description of the product. It also provides the Company's suppliers with
procedures to follow in producing the products and periodically conducts
inspections at such suppliers' facilities for compliance. Electrical products
which are manufactured in accordance with safety certification marks are
generally recognized by consumers as safe products and such certification marks
are often required by various governmental authorities to comply with local
codes and ordinances. The Company does not anticipate any difficulty in
maintaining the right to use the listing marks of these laboratories.
PRODUCT LIABILITY
The Company is engaged in a business which could expose it to possible
claims for injury resulting from the failure of its products. While the Company
maintains $1 million in product liability insurance per occurrence, $2 million
in the aggregate, as well as a $25 million aggregate umbrella insurance policy
and $25 million excess umbrella insurance, there can be no assurance that claims
will not exceed available insurance coverage or that the Company will be able to
maintain the same level of insurance. See "Legal Proceedings".
TRADEMARKS AND PATENTS
On April 26, 1996, the Company entered into a license agreement with
Westinghouse Electric Corporation ("Westinghouse") to market and distribute a
full range of lighting fixtures, lamps and other lighting products under the
Westinghouse brand name in exchange for royalty payments. The agreement
terminates on September 30, 2001. The Company has an option to extend the
agreement for an additional ten years. The royalty payments are due quarterly
and are based on a percent of the value of the Company's net shipments of
Westinghouse branded products, subject to annual minimum payments due. Either
party has the right to terminate the agreement during years three through five
of the agreement if the Company does not meet the minimum net shipments required
under the agreement. Net sales of Westinghouse branded products amounted to $9.0
million and $800,000 for the years ended September 30, 1997 and 1996,
respectively.
On December 17, 1996 White Consolidated Industries, Inc. ("White"),
which has acquired certain limited trademark rights from Westinghouse Electric
Corp. ("Westinghouse") to market certain household products under the
White-Westinghouse trademark, notified the Company of a lawsuit against
Westinghouse and the Company filed in the United States District Court, for the
Northern District of Ohio. The lawsuit challenged the Company's right to use the
Westinghouse trademarks on its lighting products and alleges trademark
infringement. On December 24, 1996, Westinghouse and the Company served a
Complaint and Motion for Preliminary Injunction against White, AB Electrolux,
Steel City Vacuum Co., Inc., Salton/Maxim Housewares, Inc., Newtech Electronics
Corp., and Windmere Durable Holdings, Inc. in the United States District Court,
Eastern District of Pennsylvania, Case No. 96-2294 alleging that the defendants
had violated Westinghouse's trademark rights, breached the Agreement between
Westinghouse and White and sought an injunction to enjoin White against
interference with their contractual arrangements. In October 1997, the cases
were consolidated in the Pennsylvania case and on November 7, 1997 White filed a
Counterclaim and Third Party Claims against Westinghouse, Catalina and Minami
International Corporation alleging trademark infringement, trademark dilution,
false designation of origin, false advertising and unfair competition and
seeking injunctive relief and damages. Both the Company and Westinghouse
vigorously dispute White's allegations. Pursuant to the License Agreement
between Westinghouse and the Company, Westinghouse is defending and indemnifying
the Company for all costs and expenses for claims, damages and losses, including
the costs of litigation. Discovery is proceeding and the case could be tried in
late 1998.
The Company's licensed brand, Westinghouse/Registered trademark/ and
the Company's own trademarks, Catalina/Registered trademark/, Dana/Registered
trademark/, Meridian Lamps/Registered trademark/ and Illuminada/Registered
trademark/ are registered in the United States, Canada and Mexico as well as in
numerous countries in the European Community and Asia. The Company is in the
process of registering its trademarks in Central and South America.
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EMPLOYEES
As of December 15, 1997 the Company employed approximately 225 people
in the United States, Canada and Mexico. The Hong Kong and China operations,
including Go-Gro's cooperative joint venture, employed approximately 3,000
people. None of the Company's employees are represented by a collective
bargaining unit and the Company believes that its relationships with its
employees are good.
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES
Please see Note 13 of Notes to Consolidated Financial Statements.
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EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information as of December 15,
1997 with respect to the executive officers of the Company:
NAME AGE POSITION WITH THE COMPANY
- ------------------------ ------ ---------------------------------------------
Robert Hersh 51 Chairman, President,
Chief Executive Officer, Director
Dean S. Rappaport 45 Executive Vice President,
Chief Operating Officer, Director
William D. Stewart 49 Executive Vice President, Director
Nathan Katz 42 Executive Vice President
David W. Sasnett 41 Senior Vice President, Chief Financial
Officer, Chief Accounting Officer
Janet P. Ailstock 49 Vice President, General Counsel
Thomas M. Bluth 40 Vice President, Secretary, Treasurer
Wai Check Lau 50 President of Go-Gro Industries Limited
None of the Company's officers has any family relationship with any
director or other officer. "Family relationship" for this purpose means any
relationship by blood, marriage, or adoption, not more remote than first cousin.
ROBERT HERSH has been the President and Chief Executive Officer of the
Company since April 1991, Chairman of the Board since June 1991 and a Director
of the Company since April 1988. Mr. Hersh served as the Executive Vice
President of the Company from 1985 to April 1991 and as Secretary from June 1989
until June 1991.
DEAN S. RAPPAPORT has been Executive Vice President of the Company
since January 1988 and a Director of the Company since April 1988. From January
1988 to November 1996 Mr. Rappaport was Chief Financial Officer and Treasurer of
the Company. Mr. Rappaport was promoted to Chief Operating Officer of the
Company in November 1996. From 1984 until he joined the Company, Mr. Rappaport
was a partner with Wachsman & Rappaport, P.A., a public accounting firm located
in Margate, Florida.
WILLIAM D. STEWART has been Executive Vice President of the Company
since 1989, and a Director of the Company since April 1994. From 1985 until he
joined the Company, Mr. Stewart was an Executive Vice President of Crest
Industries, Inc., a distributor of home improvement products.
NATHAN KATZ has been Executive Vice President of the Company since
October 1, 1993 and Chief Executive Officer of Dana Lighting, Inc., a
wholly-owned subsidiary of the Company since August 1989. From October 1983 to
August 1989, Mr. Katz was the Chief Executive Officer of Dana Imports, Inc., an
importer of lamps located in Boston, Massachusetts.
DAVID W. SASNETT has been a Vice President of the Company since
November 1994. In November 1997, Mr. Sasnett became a Senior Vice President of
the Company. In November 1996, Mr. Sasnett became the Chief Financial Officer of
the Company. Prior to that time, he was the Company's Controller and Chief
Accounting Officer. From 1993 until he joined the Company, Mr. Sasnett was the
Vice President - Finance and Controller of Hamilton Bank, N.A. and from 1980 to
1993 was employed by the international accounting firm of Deloitte & Touche.
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JANET P. AILSTOCK has been Vice President and General Counsel for the
Company since April 1992. Prior to joining the Company, from 1986 to 1992 Ms.
Ailstock was associated with the law firm of Fine, Jacobson, Schwartz, Nash and
Block practicing in the area of securities and corporate law.
THOMAS M. BLUTH has been Vice President since August 1994 and Secretary
of the Company since November 1994. Mr. Bluth became Treasurer of the Company in
November 1996. From 1989 until he joined the Company, Mr. Bluth was Vice
President and General Counsel for Ellis Diversified, Inc. From 1987 to 1989, Mr.
Bluth was the Assistant Tax Director for Southwestern Bell Corporation.
WAI CHECK LAU was President of Go-Gro Industries Limited since 1985. On
December 4, 1997 Mr. Lau submitted his resignation from Go-Gro and the Company,
effective January 23, 1998.
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ITEM 2. PROPERTIES.
The following table sets forth details about the Company's offices,
manufacturing plants and warehouse facilities:
LEASED/
LOCATION FACILITY OWNED
- -------------------- ------------------------ -----------------
Miami, FL Headquarters/office owned (1)
Dallas, TX office/warehouse leased (2)
Tupelo, MS warehouse owned (1)
warehouse leased
Easton, MA office/warehouse leased
Meridian, MS manufacturing plant / owned (1) (4)
warehouse
Montreal, Canada office/warehouse leased
Mexico office leased
warehouse leased
Hong Kong office leased
China office/manufacturing leased
plants/warehouse
dormitories leased
manufacturing plant/ owned (3)
warehouse/dormitories
Taiwan office leased
- -------------------- ------------------------ -----------------
(1) Owned subject to a first mortgage.
(2) The Company has subleased all space under this lease to unrelated parties.
(3) This facility is owned by a joint venture in which the Company has a 70%
interest as to ownership of the facility. The joint venture purchased land
use rights which terminate in the year 2042.
(4) The Company has leased this facility to an unrelated party.
Additionally, the Company has a month-to-month lease agreement with a public
warehouse in California which provides handling services for the Company's
inventory.
All of the Company's properties are fully utilized with the exception of the
Dallas and the Meridian facilities, which have been fully subleased and leased,
respectively. All of the Company's properties are suitable for its operations,
with the exception of the Meridian facility, which the Company ultimately
expects to sell.
Page 12
<PAGE>
ITEM 3. LEGAL PROCEEDINGS.
On June 4, 1991, the Company was served with a copy of the Complaint in
the matter of Browder vs. Catalina Lighting, Inc., Robert Hersh, Dean S.
Rappaport and Henry Gayer, Case No. 91-23683, in the Circuit Court of the 11th
Judicial Circuit in and for Dade County, Florida. The plaintiff in the action,
the former President and Chief Executive Officer of the Company, contended that
his employment was wrongfully terminated and as such brought action for breach
of contract, defamation, slander, libel and intentional interference with
business and contractual relationships, including claims for damages in excess
of $5 million against the Company and $3 million against the named directors.
During the course of the litigation the Company prevailed on its Motions for
Summary Judgment and the Court dismissed the plaintiff's claims of libel and
indemnification. On February 3, 1997, the plaintiff voluntarily dismissed the
remaining defamation claims against the Company and Directors. The breach of
contract claim was tried in February, 1997 and the jury returned a verdict
against the Company for total damages of $2.4 million (including prejudgment
interest). On July 14, 1997, the Court also granted plaintiff's motion for
attorney fees and costs of $1.9 million. A provision of $4.3 million was
recorded by the Company during the quarter ended March 31, 1997 and a $258,000
provision for post-judgment interest was recorded through September 30, 1997.
The Company plans to appeal the verdict and attorney fee award.
On February 23, 1993, Dana Lighting (now Catalina Industries, Inc.), a
subsidiary of the Company, and Nathan Katz, President of Dana, were served with
a copy of the Complaint in a matter captioned Holmes Products Corp. vs. Dana
Lighting, Inc. and Nathan Katz, Case No. 93-0249 in the Superior Court of the
Commonwealth of Massachusetts, City of Worcester, Massachusetts. The plaintiff
in the action alleges that Dana Lighting engaged in acts constituting tortuous
interference with contractual actions, interference with prospective economic
relationship with plaintiff's supplier and unfair competition. Plaintiff seeks
injunctive relief and damages in excess of $10 million. Dana filed its Answer to
the Complaint on March 15, 1993 denying all allegations, and Plaintiff's request
for a temporary restraining order was denied by the Court. The supplier and
Dana's President have filed affidavits with the Court denying that Dana engaged
in such acts. In July 1994, Holmes Products Corp. amended the Complaint to
include allegations of a violation of civil RICO and a violation of the Federal
Antitrust laws. On July 22, 1994, Dana Lighting removed the case from State
Court to the United States District Court for the District Court of
Massachusetts. On March 19, 1997, the Court granted Dana's motion for summary
judgment and dismissed the claims against the Company regarding violation of
civil RICO, Federal Antitrust and State unfair competition. Subsequently, the
Federal Court remanded the counts alleging interference with contractual
relations and prospective business relations to the Massachusetts Superior
Court, City of Worcester. Plaintiff has filed an appeal of the Federal Court's
dismissal of the state unfair competition and unjust enrichment claims with the
federal appeals court. Management believes that the Complaint is totally without
merit and disputes that any of the alleged acts or damages occurred or that Dana
is liable in any matter. The Company intends to defend this case vigorously and
the outcome of this case cannot presently be determined. No provision for any
liability that may result from this litigation has been recorded in the
accompanying consolidated financial statements.
On December 17, 1996 White Consolidated Industries, Inc. ("White"),
which has acquired certain limited trademark rights from Westinghouse Electric
Corp. ("Westinghouse") to market certain household products under the
White-Westinghouse trademark, notified the Company of a lawsuit against
Westinghouse and the Company filed in the United States District Court, for the
Northern District of Ohio. The lawsuit challenged the Company's right to use the
Westinghouse trademarks on its lighting products and alleges trademark
infringement. On December 24, 1996, Westinghouse and the Company served a
Complaint and Motion for Preliminary Injunction against White, AB Electrolux,
Steel City Vacuum Co., Inc., Salton/Maxim Housewares, Inc., Newtech Electronics
Corp., and Windmere Durable Holdings, Inc. in the United States District Court,
Eastern District of Pennsylvania, Case No. 96-2294 alleging that the defendants
had violated Westinghouse's trademark rights, breached the Agreement between
Westinghouse and White and sought an injunction to enjoin White against
interference with their contractual arrangements. In October 1997, the cases
were consolidated in the Pennsylvania case and on November 7, 1997 White filed a
Counterclaim and Third Party Claims against Westinghouse, Catalina and Minami
International Corporation alleging trademark infringement, trademark dilution,
false designation of origin, false advertising and unfair competition and
seeking injunctive relief and damages. Both the Company and Westinghouse
vigorously dispute White's allegations. Pursuant to the License Agreement
between Westinghouse and the Company, Westinghouse is defending and indemnifying
the Company for all costs and expenses for claims, damages and losses, including
the costs of litigation. Discovery is proceeding and the case could be tried in
late 1998.
The Company has recently received a number of claims relating to
halogen torchieres sold by the Company to various retailers. While the Company
is still in the process of evaluating these claims, management does not
currently believe they will result in material uninsured liability to the
Company. See "Product Liability."
The Company is also a defendant in other legal proceedings arising in
the course of business. In the opinion of management the ultimate resolution of
these other legal proceedings will not have a material adverse effect on the
financial position or annual results of operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
During the quarter ended September 30, 1997, no matters were submitted
for a vote of the Company's stockholders.
Page 13
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The Company's common stock is traded on the New York Stock Exchange
under the symbol LTG. The following table sets forth, for the periods indicated,
the high and low closing prices of the common stock as reported by the New York
Stock Exchange.
High Low
Fiscal Year Ended September 30, 1996
First Quarter 5 3/8 3 5/8
Second Quarter 6 3/4 4 3/4
Third Quarter 7 1/8 5 3/8
Fourth Quarter 5 3/4 3 1/2
Fiscal Year Ended September 30, 1997
First Quarter 5 1/4 3 3/4
Second Quarter 5 1/2 3 5/8
Third Quarter 4 1/8 3
Fourth Quarter 6 7/16 3 7/8
On December 15, 1997, the closing price of the Company's common stock
as reported on the New York Stock Exchange was $5 3/8. As of December 15, 1997,
there were 161 holders of record of the Company's common stock, several of which
are brokerage firms which hold shares in street name on behalf of their clients
and whose holdings comprise a majority of the Company's outstanding shares.
The Company has never paid cash dividends on its common stock. The
Company intends to retain future earnings, if any, to finance the expansion of
its business and does not anticipate that any cash dividends will be paid in the
foreseeable future. In addition, the terms of the Company's domestic credit
facility and convertible subordinated notes prohibit the payment of any cash
dividends or other distribution on any shares of the Company's common stock,
other than dividends payable solely in shares of common stock, unless approval
is obtained from the lenders. Future dividend policy will depend on the
Company's earnings, capital and financing requirements, expansion plans,
financial condition and other relevant factors.
Page 14
<PAGE>
<TABLE>
<CAPTION>
ITEM 6. SELECTED FINANCIAL DATA.
(in thousands, except per share data)
AT OR FOR THE YEARS ENDED SEPTEMBER 30,
---------------------------------------------------------
1997 (1) 1996 1995 (2) 1994 (3) 1993
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net sales $ 196,955 $ 184,630 $ 176,292 $ 142,123 $ 112,791
Net income (loss) $ (3,093) $ 1,603 $ 400 $ 5,510 $ 4,404
Primary earnings (loss) per share $ (0.44) $ 0.21 $ 0.05 $ 0.75 $ 0.69
Fully diluted earnings (loss) per share $ (0.44) $ 0.21 $ 0.05 $ 0.74 $ 0.65
Total assets $ 116,581 $ 117,462 $ 120,051 $ 101,428 $ 65,904
Long-term borrowings $ 39,737 $ 36,571 $ 46,299 $ 30,068 $ 20,316
</TABLE>
Certain amounts presented above for prior years have been reclassified to
conform to the current year's presentation. No cash dividends were declared
during the five year period ended September 30, 1997.
(1) Includes $930,000 in plant closing costs due to the termination of
manufacturing operations at Meridian and $7.5 million in litigation
costs and related professional fees.
(2) Includes operating results for Meridian from December 15, 1994 to
September 30, 1995.
(3) Includes assets and liabilities acquired upon the acquisition of Go-Gro
on July 30, 1994 and the operating results for Go-Gro for the period
July 31, 1994 to September 30, 1994.
Page 15
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
Certain statements in this Management's Discussion and Analysis of
Financial Condition and Results of Operations, including without limitation
expectations as to future sales and profitability, constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995 (the "Reform Act"). Such forward-looking statements involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Company and its subsidiaries to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
but are not limited to, the following: the highly competitive nature of the
lighting industry; reliance on certain key customers; consumer demand for
lighting products; dependence on imports from China; general economic and
business conditions; operating costs; advertising and promotional efforts; brand
awareness; the existence or absence of adverse publicity; acceptance of new
product offerings; changing trends in customer tastes; changes in business
strategy; availability, terms and deployment of capital; availability and cost
of raw materials and supplies; the costs and other effects of legal and
administrative proceedings; and other factors referenced in this Form 10-K. The
Company will not undertake and specifically declines any obligation to update or
correct any forward-looking statements to reflect events or circumstances after
the date of such statements or to reflect the occurrence of anticipated or
unanticipated events.
The Company's fiscal years ended September 30, 1997, 1996 and 1995 are
referred to herein as "1997", "1996" and "1995", respectively.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the percentage
relationship to net sales of amounts presented in the Company's consolidated
statements of operations.
YEARS ENDED
SEPTEMBER 30,
-------------------------------
1997 1996 1995
--------- -------- --------
Net sales 100.0 % 100.0 % 100.0 %
Cost of sales 83.5 83.2 84.1
--------- -------- --------
Gross proft 16.5 16.8 15.9
Selling, general and
administrative expenses 13.1 13.7 13.6
Plant closing costs 0.5 - -
Litigation charges and related
professional fees 3.8 0.2 -
--------- -------- --------
Operating income (loss) (0.9) 2.9 2.3
Interest expense (2.1) (1.8) (2.0)
Other income - 0.2 0.2
--------- -------- --------
Income (loss) before income taxes (3.0) 1.3 0.5
Income tax benefit (provision) 1.4 (0.5) (0.3)
--------- -------- --------
Net income (loss) (1.6) % 0.8 % 0.2 %
========= ======== ========
COMPARISON OF FISCAL YEARS ENDED SEPTEMBER 30, 1997 AND 1996
Net sales and gross profit for 1997 were $197 million and $32.5
million, respectively, as compared to $184.6 million and $30.9 million,
respectively, for 1996. The Company incurred a net loss of $3.1 million ($.44
per share) in 1997 due to plant closing costs and litigation costs, as compared
to net income of $1.6 million ($.21 per share) in 1996.
Net sales increased by $12.3 million from the prior year due to an
increase in units sold. The increase in sales reflects the benefits of the
Company's strategy to strengthen its relationships with certain major U.S. and
European retailers. Lamp sales increased by $10.7 million and net sales for the
Company's other principal line of products, lighting fixtures, increased by $1.6
million. Lamps and lighting fixtures accounted for 67% and 33%, respectively, of
net sales in 1997 as compared to 66% and 34%, respectively, in 1996. In 1997 and
1996, Home Depot accounted for 22.1% and 9.8%, respectively, of the Company's
net sales. In 1996, Builders Square and its affiliate Kmart accounted for 11% of
net sales. In 1997, the respective percentages of net sales represented by Kmart
and Builders Square (which were no longer affiliates at September 30, 1997) were
7.1% and 4.6%. For the fiscal years ended September 30, 1997 and 1996, net sales
to the Company's ten largest customers represented approximately 63% and 57%,
respectively, of the Company's total revenues.
During the two months subsequent to September 30, 1997 the Company
experienced a decline in net sales of approximately $10 million as compared to
the same period of the prior year. Approximately $3 million of this decline is
attributable to a decrease in unit sales of one product class, halogen
torchieres (gross sales of halogen torchieres were $36.2 million and $33.1
million for the 1997 and 1996 fiscal years respectively). The sales decline for
the halogen torchieres occurred after media attention focused on incidents of
fire associated with this product. Current versions of the halogen torchiere
sold by the Company incorporate new safety devices exceeding the new safety
requirements for this product recently promulgated by Underwriters Laboratory.
During fiscal 1998 the Company expects to introduce new versions of the
torchiere incorporating new technologies to address the declining sales of this
product category. However, there can be no assurance these versions will be as
successful as the previous models and torchiere sales for the balance of 1998
are not expected to equal 1997 sales levels. Another $1.7 million of the decline
related to sales of products which have been discontinued. Management believes
the remainder of the $10 million sales decrease is due to a variety of factors
including the consolidation of the customer base, delayed new product placement
in Europe and the purchasing patterns of the Company's customers in general,
which can vary from quarter to quarter. The Company estimates net sales for the
quarter ending December 31, 1997 will be approximately $10 million less than the
same quarter of the prior year due to these factors. Sales during the early
portion of the 1998 calendar year could continue to be affected by these
factors, however management believes these factors (other than torchiere sales)
should not significantly impact overall sales for the second half of fiscal
1998.
Page 16
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
COMPARISON OF FISCAL YEARS ENDED SEPTEMBER 30, 1997 AND 1996 (CONTINUED)
Gross profit increased by $1.5 million in 1997 due to added sales
volume but decreased as a percentage of net sales from 16.8% to 16.5%. Certain
major domestic retailers accounted for a larger percentage of the Company's
sales in 1997 than 1996 due to the Company's sales focus on these major
retailers and the consolidation of the customer base. Many of these major
retailers (most notably Home Depot and Kmart) are currently purchasing from the
Company primarily on a direct basis, whereby the merchandise is shipped directly
from the factory to the customer, rather than from the Company's warehouses.
Approximately 61% of the Company's sales in 1997 were made on a direct basis,
whereby the merchandise is shipped directly from the factory to the customer, as
compared to 52% in 1996. Sales made by the Company on a direct basis typically
generate lower margins than sales from the Company's warehouses, and the higher
relative proportion of direct sales was a contributing factor to the decline in
the gross profit percentage. The relative proportion of the Company's sales made
on a direct basis is dependent upon customer buying preferences, which are
influenced by a number of factors that vary from customer to customer and are
subject to change and thus cause the Company's gross margin percentage to be
inherently difficult to predict. Nevertheless the Company believes that the
majority of any future sales growth will be comprised of direct sales made to
the Company's larger customers. The lower gross profit percentage for 1997 also
reflects an $870,000 provision for discontinued inventory resulting from
management's decision to cease operations at its Meridian factory (see separate
discussion below). The impact of these factors lowering the gross profit
percentage was partially offset by lower provisions for sales incentives as a
percentage of sales, stemming from favorable incentive experience and a decrease
in purchasing and warehousing costs as a result of the consolidation of the
Company's warehousing operations during fiscal 1996.
Selling, general and administrative expenses ("SG&A") were 13.1% of
sales in 1997 compared to 13.7% in 1996. The decrease in these expenses as a
percentage of net sales is attributable to higher sales. SG&A increased by
$628,000 from 1996 due to additional costs incurred in the Orient to support the
Company's growth and restructuring of operations ($881,000), U.S. personnel
costs ($644,000) and an increase in consulting and professional fees due to
costs incurred to set up the Company's new computer system and introduce
Westinghouse brand name products ($580,000). These increases were partially
offset by lower depreciation expense ($600,000) principally attributable to the
accelerated depreciation in the prior year of the Company's previous computer
system, lower merchandising and display costs ($268,000), and lower costs
incurred at the Meridian facility ($594,000) as a result of the decision to
cease Meridian's operations.
Litigation charges and related professional fees aggregated $7.5
million and represent the amount provided for an adverse jury verdict (currently
under appeal) of $4.3 million on litigation with the Company's former Chief
Executive Officer, a payment of $1,000,000 to settle patent litigation, and the
related professional fees of $2.2 million incurred for these matters (see Note
15 of Notes to Consolidated Financial Statements).
Interest expense increased from $3.3 million in 1996 to $4.1 million in
1997 due to increased borrowings to finance capital expenditures and a $258,000
provision for interest related to the $4.3 million adverse jury verdict.
Other income of $385,000 in 1996 consisted primarily of gains on the
sale of intangible assets and investment income.
Effective income tax rates for 1997 and 1996 were 46.9% and 34.6%,
respectively. The higher effective tax rate for 1997 is attributable to the
combination of (1) foreign pretax income, which is taxed at a significantly
lower rate than U.S. income, and (2) a pretax loss for U.S. operations, on which
the Company recorded a tax benefit at the applicable U.S. rates. The Company's
effective income tax rate is dependent both on the total amount of pretax income
generated and the relative distribution of such total income between domestic
and foreign operations. Consequently, the Company's effective tax rate may vary
in future periods.
MERIDIAN
In March 1997, the Company committed to a plan to cease manufacturing
operations and close its Meridian Lamps, Inc. ("Meridian") facility by September
30, 1997. The pretax loss for Meridian was $3.5 million for 1997 and $2.4
million for 1996. Net sales were $2.8 million for both years.
Page 17
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Cost of sales in 1997 was $4.7 million and exceeded sales by $1.9
million. Gross profit during 1997 was adversely affected by a provision for
discontinued inventory amounting to $870,000 as a result of management's
decision to cease operations at Meridian and significant underutilization of
plant capacity due to insufficient sales volume resulting in negative
manufacturing variances.
Cost of sales exceeded sales by $1.2 million in 1996 mainly due to
negative unplanned manufacturing variances arising principally from
underutilization of plant capacity, a provision for inventory, research and
development costs and additional storage expenses.
In 1997, in conjunction with the decision to cease Meridian's
operations, the Company recorded a $930,000 charge to write down the plant and
related equipment to fair market value (less disposition costs) and to provide
for severance payments to Meridian's employees.
Other expenses for Meridian in 1997 and 1996 were $703,000 and
$1,184,000, respectively, consisting mostly of administrative payroll and
benefits, marketing and merchandising expenses, interest expense and the
amortization of start up costs in 1996.
As of June 30, 1997, the Company had ceased operations at Meridian and
subleased the facility.
COMPARISON OF FISCAL YEARS ENDED SEPTEMBER 30, 1996 AND 1995
Net sales and gross profit for 1996 were $184.6 million and $30.9
million, respectively, as compared to $176.3 million and $27.9 million,
respectively, for 1995. The Company generated net income of $1.6 million ($.21
per share) in 1996 as compared to net income of $400,000 ($.05 per share) in
1995, as the pretax operating results of the Company's Hong Kong manufacturing
subsidiary (Go-Gro) improved significantly.
In 1996, Kmart accounted for 3.9% of the Company's net sales while its
affiliate, Builders Square, accounted for 7.1% of net sales. In 1995, the
respective percentages of net sales for Kmart and Builders Square were 5.9% and
6.9%. For the fiscal years ended September 30, 1996 and 1995, net sales to the
Company's ten largest customers represented approximately 57% and 53%,
respectively, of the Company's net sales.
DISTRIBUTION OPERATIONS
Distribution operations contributed pretax income of approximately $3.3
million in 1996 and $3.2 million in 1995.
Net sales from distribution operations aggregated $153.8 million in
1996, as compared to $148.3 million in 1995. The $5.5 million increase in net
sales reflects additional sales in Canada of $3 million. An increase in gross
sales was partially offset by an increase in provisions for sales incentives of
$3.4 million resulting from competitive pressures. Sales of lamps increased by a
total of $13.5 million reflecting increased unit sales. Sales of lamps accounted
for 64% of sales in 1996 compared to 58% in 1995. The Company's net sales for
its other principal line of products, lighting fixtures, decreased by $8 million
or 12.8% from 1995 to 1996. Management attributes this decline to a weakened
customer base arising from the financial difficulties experienced by several of
the Company's more significant customers for lighting fixtures.
Gross profit from distribution operations increased to $23.9 million in
1996 from $22.9 million in 1995. As a percentage of net sales, gross profit from
distribution operations was 15.5% and 15.4% for 1996 and 1995, respectively. The
$1 million increase in gross profit is attributable for the most part to the
incremental contribution of higher sales. The gross profit percentage for 1996
reflects higher margins on sales of new products and higher margins on warehouse
sales, which offset the impact on the gross profit percentage of the higher
proportion of total distribution sales represented by direct sales (which are
made at lower margins than warehouse sales of the same items) and the increase
in provisions for sales incentives. Warehouse sales decreased to comprise 54% of
distribution sales in 1996, as compared to 61% in 1995.
Page 18
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
DISTRIBUTION OPERATIONS (CONTINUED)
Selling, general and administrative expenses ("SG&A") for distribution
operations amounted to $18.3 million in 1996, as compared to $17.7 million in
1995. The added SG&A is comprised of increases in depreciation and amortization
of property and equipment ($472,000) as the Company accelerated the amortization
of its computer system in connection with the planned purchase of a new system
in 1997, expenses related to Mexican operations which commenced during fiscal
1996 ($275,000) and factoring costs related to the insurance of additional
customer accounts ($181,000). These increases were offset by a reduction in the
amortization of deferred costs of $214,000.
Interest expense on distribution-related financing rose to $2.3 million
in 1996 from $2.1 million in 1995 primarily due to additional average
outstanding borrowings.
MANUFACTURING OPERATIONS
Excluding certain administrative costs incurred at the corporate
headquarters, in 1996 the Company's foreign and domestic manufacturing
operations recorded a pretax loss of $867,000. This compares to a pretax loss
from manufacturing operations of $2.4 million in 1995. An analysis of the
results for the Company's two manufacturing subsidiaries is as follows:
Go-Gro:
Go-Gro generated $1.6 million in pretax income in 1996 while reporting
a pretax loss of $600,000 in 1995. Sales by Go-Gro to non-related companies
primarily located in Europe, increased by $2.4 million, or 9%, in 1996 to $28
million. Go-Gro also recorded intercompany sales to the Company and its
subsidiaries (which are eliminated for financial statement purposes and the
profit on such sales deferred until the goods are sold to third parties) of
$25.3 million in 1996 and $17.3 million in 1995. Gross profit increased in total
dollars in 1996 by $2.3 million to $8.3 million as a result of the overall
increase in shipments.
SG&A was $6.3 million for 1996, up $735,000 from 1995 mostly due to
added payroll and benefits related to new employees hired to pursue additional
sales in the European market and to support the increased sales volume. Interest
expense declined in 1996 by $424,000 due to lower outstanding borrowings while
other income increased by $129,000, mostly reflecting the sale of intangibles
and increased income from an investee.
Meridian:
Meridian's pretax loss of $1.8 million for 1995 is not comparable to
the pretax loss of $2.4 million for 1996 as Meridian did not commence operations
until mid December 1994. Net sales for Meridian were $2.8 million in 1996 and
$2.3 million in 1995. An additional $500,000 in Meridian product was sold in
1995 through the Company's distribution operations.
Cost of sales for 1996 was $4 million. The following factors increased
costs of sales during 1996:
(1) a sales volume insufficient to avoid significant underutilization of
plant capacity (the plant operated at approximately 50% of capacity),
resulting in negative manufacturing variances;
(2) unit production that has exceeded unit sales to date, resulting in
additional storage expenses and a provision for excess inventory;
(3) costs required to develop new products.
Cost of sales exceeded sales in 1995 by $870,000 due entirely to
manufacturing inefficiencies related to the start up nature of Meridian's
operations during this period.
Meridian's remaining expenses for 1996 increased by $244,000 from 1995
as Meridian was operational for twelve months in 1996 as compared to only nine
months in 1995.
Page 19
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
INCOME TAX PROVISION
The effective income tax rates for 1996 and 1995 were 34.6% and 51.9%,
respectively. The decrease in the effective rate from 1995 is mostly
attributable to higher proportionate foreign income which is taxed at a lower
rate than U.S. income. The high effective tax rate for 1995 reflects the impact
on pretax income of amounts expensed by the Company for financial statement
purposes which are not deductible for tax purposes (consisting primarily of
goodwill amortization and interest incurred by certain foreign subsidiaries),
which have the effect of increasing the effective tax rate.
LIQUIDITY AND CAPITAL RESOURCES
The Company meets its short-term liquidity needs through cash provided
by operations, accounts payable, borrowings under various credit facilities with
banks, and the use of letters of credit from customers to fund certain of its
direct sales activities. Lease obligations, mortgage notes, convertible
subordinated notes, bonds and capital stock are additional sources for the
longer-term liquidity and financing needs of the Company. Management believes
the Company's available sources of cash will enable it to fulfill its known
liquidity requirements for the foreseeable future.
1997 CASH FLOWS
The Company's operating, investing and financing activities resulted in
a net increase in cash and cash equivalents of $81,000 from September 30, 1996
to September 30, 1997.
Net cash of $6.2 million was provided by operating activities. Such
cash combined with an increase in outstanding borrowings under the credit lines,
was used to pay for certain capital expenditures and to make a $1.5 million
escrow payment on the Meridian bonds.
Capital expenditures during the year included $6.5 million in costs
incurred by Go-Gro for the construction of a China factory and dormitory and the
purchase of machinery, molds and equipment, $623,000 for the purchase of
computer hardware and software, $325,000 for merchandising products and $320,000
for leasehold improvements. In addition, machinery for the Go-Gro factory
amounting to $669,000 was acquired and financed by one of the Company's leasing
facilities.
Management estimates that capital expenditures in fiscal 1998 will
approximate $3.3 million, representing additional construction costs and
equipment for the China facilities, computer software and hardware and other
miscellaneous capital additions. These capital expenditures will be financed by
leasing facilities with financial institutions and funds from operations.
CREDIT AND LEASING FACILITIES, BONDS, MORTGAGE AND CONVERTIBLE SUBORDINATED
NOTES
The Company has a $65 million credit facility with a group of
commercial banks. This facility provides credit in the form of a $7.6 million
non-revolving loan and $57.4 million in revolving loans, acceptances, and trade
and stand-by letters of credit, matures March 31, 1999 and provides for
quarterly principal payments of $950,000 which commenced on June 1, 1997 on the
non-revolving loan. As the non-revolving loan is reduced, the remaining credit
facility is increased by a similar amount. The non-revolving loan bears
interest, payable monthly, at prime plus 1% and other borrowings under the
facility bear interest, payable monthly, at the Company's preference of either
the prime rate or the LIBOR rate plus a variable spread based upon earnings,
debt and interest expense levels defined under the credit agreement (LIBOR plus
2.5% at September 30, 1997). The effective rates for the non-revolving loan and
the other borrowings were 9.5% and 8.2%, respectively, at September 30, 1997.
Obligations under this facility are secured by substantially all of the
Company's U.S. assets. The Company is required to comply with various covenants
in connection with this facility and borrowings are subject to a borrowing base
calculated from U.S. receivables and inventory. In addition, the agreement
prohibits the payment of any cash dividends or other distribution on any shares
of the Company's common stock, other than dividends payable solely in shares of
common stock, unless approval is obtained from the lenders. At September 30,
1997, the Company had used $33.6 million under this credit facility (loans
amounted to $24.8 million of which $3.8 million was included in current notes
payable-credit lines) and $3.5 million was available for additional borrowings
under the borrowing base calculation.
Page 20
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
CREDIT AND LEASING FACILITIES, BONDS, MORTGAGE AND CONVERTIBLE SUBORDINATED
NOTES (CONTINUED)
The Company's Canadian and Hong Kong subsidiaries have credit
facilities with foreign banks of 4 million Canadian dollars (approximately U.S.
$2.9 million) and 35 million Hong Kong dollars (approximately U.S. $4.5
million), respectively. Borrowings under the Canadian facility are secured by
substantially all of the assets of the Canadian subsidiary and are limited under
a borrowing base defined as the aggregate of certain percentages of accounts
receivable and inventory. Advances bear interest at the Canadian prime rate plus
.5% (5.25% at September 30, 1997). At September 30, 1997, borrowings amounted to
U.S. $1.8 million (included in current notes payable-credit lines) and U.S.
$445,000 was available for additional borrowings under the borrowing base
calculation. The Hong Kong facility provides credit in the form of acceptances,
trade and stand-by letters of credit, overdraft protection and negotiation of
discrepant documents presented under export letters of credit issued by banks.
Advances bear interest at the Hong Kong prime rate plus .25% (9% at September
30, 1997). Each of these credit facilities are payable upon demand and are
subject to annual reviews by the banks. At September 30, 1997, there were no
borrowings under this facility and U.S. $3.5 million was available for
borrowings. With respect to the Canadian facility, the agreement prohibits the
payment of dividends and the Company is required to comply with various
covenants, which effectively restrict the amount of funds which may be
transferred from the Canadian subsidiary to the Company. The Hong Kong facility
limits dividends that may be paid to the Company but does not limit advances or
loans from Go-Gro to the Company.
The Company has outstanding $7.6 million of 8% convertible subordinated
notes due March 15, 2002. The notes are convertible into common shares of the
Company's stock at a conversion price of $7.31 per share, subject to certain
anti-dilution adjustments (as defined in the Note Agreement), at any time prior
to maturity. The notes are subordinated in right of payment to all existing and
future senior indebtedness of the Company and the notes are callable at the
option of the Company with certain required premium payments. Principal payments
of approximately $2.5 million are required on March 15 in each of the years 2000
and 2001. The remaining outstanding principal and interest is due in full on
March 15, 2002. Interest is payable semiannually. The terms of the Note
Agreement require the Company to maintain specific interest coverage ratio
levels in order to increase its credit facilities or otherwise incur new debt
and to maintain a minimum consolidated net worth. In addition, the Note
Agreement prohibits the declaration or payment of dividends on any shares of the
Company's capital stock, except dividends or other distributions payable solely
in shares of the Company's common stock, and the purchase or retirement of any
shares of capital stock or other capital distributions.
The Company arranged for the issuance in 1995 of $10.5 million in State
of Mississippi Variable Rate Industrial Revenue Development Bonds to finance
(along with internally generated cash flow and the Company's $1 million leasing
facility) its warehouse located near Tupelo, Mississippi. The bonds have a
stated maturity of May 1, 2010 and require mandatory sinking fund redemption
payments, payable monthly, of $900,000 per year from 1996 to 2002, $600,000 per
year in 2003 and 2004, and $500,000 per year from 2005 to 2010. The bonds bear
interest at a variable rate (5.7% at September 30, 1997) that is adjustable
weekly to the rate the remarketing agent for the bonds deems to be the market
rate for such bonds. The bonds are secured by a lien on the land, building, and
all other property financed by the bonds. Additional security is provided by an
$8.9 million direct pay letter of credit which is not part of the Company's
credit line.
The Company financed the purchase and improvements of its Meridian
manufacturing facility through the issuance of a series of State of Mississippi
General Obligation Bonds (Mississippi Small Enterprise Development Finance Act
Issue, 1994 Series GG) with an aggregate available principal balance of
$1,605,000, a weighted average coupon rate of 6.23% and a contractual maturity
of November 1, 2009. The bonds are secured by a first mortgage on land, building
and improvements and a $1,713,000 standby letter of credit which is not part of
the Company's credit line. Interest on the bonds is payable semiannually and
principal payments are due annually. In June 1997, the Company ceased
manufacturing operations at Meridian and leased the facility to a
non-manufacturing entity and in August 1997 made a $1.5 million payment to
escrow on the bonds. The Company plans to redeem the bonds at their earliest
redemption date, approximately November 1, 1999.
The Company has a $1 million facility with a U.S. financial institution
to finance the purchase of equipment in the United States, of which $599,000 was
available at September 30, 1997. In addition, the Company has a leasing facility
for $9 million Hong Kong dollars (approximately U.S. $1.2 million) with a Hong
Kong financial institution to finance the purchase of equipment for its China
facilities of which $494,000 was available at September 30, 1997.
The Company financed its corporate headquarters in Miami, Florida with
a loan payable monthly through 1999, based on a 15 year amortization schedule,
with a balloon payment in 1999, bearing interest at 8% and secured by a mortgage
on the land and building.
Page 21
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
OTHER
Shenzhen Jiadianbao Electrical Products Co., Ltd. ("SJE"), a
cooperative joint venture subsidiary of Go-Gro, and the Bureau of National Land
Planning Bao-An Branch of Shenzhen City entered into a Land Use Agreement
covering approximately 467,300 square feet in Bao-An County, Shenzhen City,
People's Republic of China on April 11, 1995. The agreement provides SJE with
the right to use the above land until January 18, 2042. The land use rights are
non-transferable. Under the terms of the SJE joint venture agreement, ownership
of the land and buildings of SJE is divided 70% to Go-Gro and 30% to the other
joint venture partner. Land costs, including the land use rights, approximated
$2.6 million of which Go-Gro has paid its 70% proportionate share of $1.8
million.
Under the terms of this agreement, as amended, SJE is obligated to
construct approximately 500,000 square feet of factory buildings and 211,000
square feet of dormitories and offices, with 40 percent of the construction
required to be completed by April 1, 1997 (and was completed) and the remainder
by December 31, 1999. The total cost for this project is estimated at $15.5
million (of which $10.3 million had been expended as of September 30, 1997) and
includes approximately $1 million for a Municipal Coordination Facilities Fee
(MCFF). The MCFF is based upon the square footage to be constructed. The
agreement calls for the MCFF to be paid in installments beginning in January
1997 and continuing through June 1998, with 46% of the total fee due by
September 1997. A 162,000 square foot factory, a 77,000 square foot warehouse
and a 60,000 square foot dormitory were completed in April 1997 and became fully
operational in June 1997.
On April 26, 1996, the Company entered into a license agreement with
Westinghouse Electric Corporation to market and distribute a full range of
lighting fixtures, lamps and other lighting products under the Westinghouse
brand name in exchange for royalty payments. The agreement terminates on
September 30, 2001. Catalina has an option to extend the agreement for an
additional ten years. The royalty payments are due quarterly and are based on a
percent of the value of the Company's net shipments of Westinghouse branded
products, subject to annual minimum payments due. Either party has the right to
terminate the agreement during years three through five of the agreement if the
Company does not meet the minimum net shipments required under the agreement.
See also Item 1, "Trademarks and Patents".
The Year 2000 Issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Any of the
Company's programs that have time sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in system
failure or miscalculations. The Company is in the process of identifying and
assessing the systems that could be affected by the Year 2000 Issue and is
developing an implementation plan to resolve the issue. The Company expects to
complete the assessment, formalize its plan for corrective action, and estimate
the potential incremental costs required to address this issue by December 1998.
The Company presently believes that, with modifications to existing software and
conversions to new software, the Year 2000 problem will not pose significant
operational problems for the Company's computer systems as so modified and
converted.
RENEWAL OF CHINA'S MOST FAVORED NATION STATUS
The continued importation into the U.S. of products manufactured in
China could be affected by any one of several significant trade issues that
presently impact U.S. - China relations. On May 29, 1997, the President of the
United States extended to the People's Republic of China "Most Favored Nation"
("MFN") treatment for the entry of goods into the United States for an
additional year, beginning July 3, 1997. In the context of United States tariff
legislation, MFN treatment means that products are subject to favorable duty
rates upon entry into the United States. On June 24, 1997 the House of
Representatives supported the President's decision and rejected a bill to impose
trade sanctions against China due to alleged human rights abuses. Members of
Congress and the "human rights community" will continue to monitor the human
rights issues in China and adverse developments in human rights and other trade
issues in China could affect U.S. - China relations. As a result of various
political and trade disagreements between the U.S. Government and China, it is
possible restrictions could be placed on trade with China in the future which
could adversely impact the Company's operations and financial position.
Page 22
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
FOREIGN EXCHANGE FLUCTUATIONS
The Company expects to continue to obtain most of its products from
China. Large fluctuations in currency exchange rates could have a material
effect on the Company's cost of products, thereby decreasing the Company's
ability to compete. All purchases of finished goods are made in U.S.
dollar-denominated letters of credit which limit the Company's exposure to
foreign currency fluctuations with respect to fluctuations that would impact
existing outstanding purchase commitments. However, the Company is subject to
foreign currency fluctuations to the extent such fluctuations affect the cost of
products purchased (or manufactured) or the Company's ability to sell into
domestic or foreign markets. The Company's Canadian and Mexican subsidiaries are
subject to fluctuations between the U.S. dollar currency in which they purchase
goods and the Canadian dollar and Mexican peso currencies in which they sell
goods, however the Company's foreign exchange risk is not significant with
respect to Canada and Mexico due to the relative size of these subsidiaries in
comparison with the Company.
IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards Number 128 "Earnings per Share"
("SFAS 128") which changes the method of calculating earnings per share. SFAS
128 requires the presentation of "basic" earnings per share and "diluted"
earnings per share on the face of the income statement. Basic earnings per share
is computed by dividing the net income or loss attributable to common
shareholders by the weighted average common shares outstanding for the period.
Diluted earnings per share reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock or resulted in the issuance of common stock that then shared
in the earnings of the entity. Diluted earnings per share is computed similarly
to fully diluted earnings per share under APB Opinion No. 15. SFAS 128 is
effective for financial statements for periods ending after December 15, 1997.
The Company will adopt SFAS 128 in the first quarter of the fiscal year ending
September 30, 1998, as early adoption is not permitted. Upon adoption, earnings
per share data for prior periods are required to be restated. The pro forma
basic earnings (loss) per share and diluted earnings (loss) per share calculated
in accordance with SFAS 128 for the years ended September 30, 1997, 1996 and
1995 are as follows:
YEARS ENDED
SEPTEMBER 30,
-------------------------------
1997 1996 1995
--------- -------- --------
Pro Forma Basic Earnings (Loss) Per Share $ (0.44) $ 0.23 $ 0.06
Pro Forma Diluted Earnings (Loss) Per Share $ (0.44) $ 0.21 $ 0.05
In June 1997, SFAS No. 130, "Reporting Comprehensive Income," was
issued. SFAS No. 130 establishes standards for the reporting and display of
comprehensive income and its components (revenues, expenses, gains, and losses)
in a full set of general-purpose financial statements. SFAS No. 130 requires
that all items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. SFAS No. 130
requires that a company (a) classify items of other comprehensive income by
their nature in a financial statement and (b) display the accumulated balance of
other comprehensive income separately from retained earnings and additional
paid-in capital in the equity section of the balance sheet. SFAS No. 130 is
effective for fiscal years beginning after December 15, 1997. Reclassification
of financial statements for earlier periods provided for comparative purposes is
required. The Company has not determined the effect, if any, that SFAS No. 130
will have on its consolidated financial statements.
Page 23
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS (CONTINUED)
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," was also issued in June 1997. SFAS No. 131 establishes standards
for the way that public companies report selected information about operating
segments in financial statements and requires that those companies report
selected information about segments in interim and annual financial reports
issued to shareholders. It also establishes standards for related disclosures
about products and services, geographic areas, and major customers. SFAS No.
131, which supersedes SFAS No. 14, "Financial Reporting for Segments of a
Business Enterprise", but retains the requirement to report information about
major customers, requires that a public company report financial and descriptive
information about its reportable operating segments. Operating segments are
components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing performance. Generally,
financial information is required to be reported on the basis that it is used
internally for evaluating segment performance and deciding how to allocate
resources to segments. SFAS No. 131 requires that a public company report a
measure of segment profit or loss, certain specific revenue and expense items,
and segment assets. However, SFAS No. 131 does not require the reporting of
information that is not prepared for internal use if reporting it would be
impracticable. SFAS No. 131 also requires that a public company report
descriptive information about the way that the operating segments were
determined, the products and services provided by the operating segments,
differences between the measurements used in reporting segment information and
those used in the enterprise's general-purpose financial statements, and changes
in the measurement, of segment amounts from period to period. SFAS No. 131 is
effective for financial statements for periods beginning after December 15,
1997. The Company has not determined the effects, if any, that SFAS No. 131 will
have on the disclosures in its consolidated financial statements.
IMPACT OF INFLATION AND ECONOMIC CONDITIONS
During 1995 Go-Gro experienced price increases in the costs of raw
materials, which reduced Go-Gro's profitability due to an inability to
immediately pass on such price increases to its customers. The Company believes
that increased prices could have an initial adverse impact on the Company's net
sales and income from continuing operations but that, over time, increased
prices can be passed on to its customers.
During late 1997 various countries in Southeast Asia (including
Thailand, South Korea, Malaysia, the Philippines and Indonesia) were involved in
an emerging crisis impacting their economies and characterized by currency
devaluations, rising interest rates, deteriorating economic growth and declining
capital markets. The Company does not conduct business with, or have a
significant investment in, any of these countries. However, this crisis could
have serious adverse repercussions on the financial stability of all countries
in the region, including Hong Kong and China, and has implications for the
global financial system as well, including the United States. The Company is
presently unable to determine what impact, if any, this Asian economic crisis
will have on its business.
Page 24
<PAGE>
<TABLE>
<CAPTION>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
PAGE
----
<S> <C>
Independent Auditors' Report....................................................................................... 26
Consolidated Balance Sheets - September 30, 1997 and 1996.......................................................... 27
Consolidated Statements of Operations - Years Ended September 30, 1997, 1996 and 1995.............................. 28
Consolidated Statements of Stockholders' Equity - Years Ended September 30, 1997,
1996 and 1995............................................................................................. 29
Consolidated Statements of Cash Flows - Years Ended September 30, 1997, 1996 and 1995.............................. 30
Notes to Consolidated Financial Statements......................................................................... 32
Schedule II - Valuation and Qualifying Accounts - Years ended September 30, 1997, 1996 and 1995.................... 54
</TABLE>
(All other schedules have been omitted as the related information is not
required or applicable)
Page 25
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Catalina Lighting, Inc.
Miami, Florida
We have audited the accompanying consolidated balance sheets of Catalina
Lighting, Inc. and its subsidiaries as of September 30, 1997 and 1996, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended September 30, 1997. Our
audits also included the financial statement schedule listed in Item 14 a(2).
These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on the financial statements and financial statement schedule based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Catalina Lighting, Inc. and its
subsidiaries as of September 30, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
September 30, 1997 in conformity with generally accepted accounting principles.
Also, in our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ Deloitte & Touche LLP
Certified Public Accountants
Miami, Florida
December 2, 1997
Page 26
<PAGE>
<TABLE>
<CAPTION>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30,
-----------------------
1997 1996
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 1,847 $ 1,766
Accounts receivable, net of allowances
of $8,314,000 and $7,313,000, respectively 24,169 29,644
Inventories 34,612 39,648
Income taxes receivable 2,380 -
Other current assets 5,406 5,009
--------- ---------
Total current assets 68,414 76,067
Property and equipment, net 29,969 26,003
Restricted cash equivalents and short-term investments 1,883 378
Goodwill, net 11,473 11,344
Other assets 4,842 3,670
--------- ---------
$ 116,581 $ 117,462
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Notes payable - credit lines $ 5,574 $ 3,963
Accounts and letters of credit payable 18,099 25,289
Current maturities of bonds payable 970 970
Current maturities of other long-term debt 476 363
Income taxes payable - 21
Other current liabilities 5,586 5,500
--------- ---------
Total current liabilities 30,705 36,106
Notes payable - credit lines 21,000 17,044
Convertible subordinated notes 7,600 7,600
Bonds payable - real estate related 9,195 10,165
Other long-term debt 1,942 1,762
Other liabilities 5,082 811
--------- ---------
Total liabilities 75,524 73,488
--------- ---------
Commitments and contingencies
Stockholders' equity
Preferred stock, $.01 par value
Authorized 1,000,000 shares; none issued - -
Common stock, $.01 par value
Authorized 20,000,000 shares; issued and
outstanding 7,094,569 shares and 7,063,587
shares, respectively 71 71
Additional paid-in capital 26,311 26,135
Retained earnings 14,675 17,768
--------- ---------
Total stockholders' equity 41,057 43,974
--------- ---------
$ 116,581 $ 117,462
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
Page 27
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEARS ENDED SEPTEMBER 30,
-------------------------------
1997 1996 1995
--------- --------- ---------
Net sales $ 196,955 $ 184,630 $ 176,292
Cost of sales 164,493 153,698 148,343
--------- --------- ---------
GROSS PROFIT 32,462 30,932 27,949
Selling, general and administrative expenses 25,946 25,318 23,881
Plant closing costs 930 - -
Litigation charges and related professional fees 7,453 293 17
--------- --------- ---------
OPERATING INCOME (LOSS) (1,867) 5,321 4,051
--------- --------- ---------
Other income (expenses)
Interest expense (4,088) (3,254) (3,537)
Other income 128 385 317
--------- --------- ---------
Total other expenses (3,960) (2,869) (3,220)
--------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES (5,827) 2,452 831
Income tax (provision) benefit 2,734 (849) (431)
--------- --------- ---------
NET INCOME (LOSS) $ (3,093) $ 1,603 $ 400
========= ========= =========
EARNINGS (LOSS) PER SHARE
PRIMARY
Earnings (loss) per share $ (0.44) $ 0.21 $ 0.05
Weighted average number of shares 7,071 7,798 7,800
FULLY DILUTED
Earnings (loss) per share $ (0.44) $ 0.21 $ 0.05
Weighted average number of shares 7,071 7,805 7,800
See accompanying notes to consolidated financial statements.
Page 28
<PAGE>
<TABLE>
<CAPTION>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
(IN THOUSANDS, EXCEPT SHARE DATA)
COMMON STOCK ADDITIONAL TOTAL
------------------ PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
--------- ------ ---------- -------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE AT SEPTEMBER 30, 1994 6,923,652 $ 69 $ 25,483 $ 15,765 $ 41,317
Exercise of stock options 70,601 1 411 - 412
Net income - - - 400 400
--------- ---- -------- -------- --------
BALANCE AT SEPTEMBER 30, 1995 6,994,253 70 25,894 16,165 42,129
Exercise of stock options 64,334 1 226 - 227
Common stock issued under employment agreement 5,000 - 15 - 15
Net income - - - 1,603 1,603
--------- ---- -------- -------- --------
BALANCE AT SEPTEMBER 30, 1996 7,063,587 $ 71 $ 26,135 $ 17,768 $ 43,974
Exercise of stock options 17,166 - 80 - 80
Common stock issued under employment agreement 5,000 - 9 - 9
Common stock issued in settlement
of litigation 2,566 - 10 - 10
Common stock issued as compensation 6,250 - 19 - 19
Stock options issued under sales agreement - - 58 - 58
Net loss - - - (3,093) (3,093)
--------- ---- -------- -------- --------
BALANCE AT SEPTEMBER 30, 1997 7,094,569 $ 71 $ 26,311 $ 14,675 $ 41,057
========= ==== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
Page 29
<PAGE>
<TABLE>
<CAPTION>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEARS ENDED SEPTEMBER 30,
-----------------------------
1997 1996 1995
--------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (3,093) $ 1,603 $ 400
--------- -------- --------
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Provision for impairment of long-lived assets 735 - -
Provision for litigation judgement under appeal 4,487 - -
Depreciation and amortization 5,184 6,266 5,239
Deferred income taxes (1,452) (1,335) (1,506)
(Gain) loss on disposition of property and equipment 35 53 (328)
Other 92 - -
Change in assets and liabilities, net of effects of
acquisitions:
Decrease (increase) in accounts receivable 5,475 2,103 (246)
Decrease (increase) in inventories 5,036 658 (7,159)
Decrease (increase) in income taxes receivable (2,380) - -
Decrease (increase) in other current assets (393) 452 772
Decrease (increase) in other assets (473) (544) (1,564)
Increase (decrease) in income taxes payable (21) (425) 334
Increase (decrease) in accounts payable, letters of credit
payable and other liabilities (7,035) 3,642 2,758
--------- -------- --------
Total adjustments 9,290 10,870 (1,700)
--------- -------- --------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 6,197 12,473 (1,300)
--------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, net (7,955) (9,479) (13,595)
Payments for Go-Gro acquisition, net of cash acquired (626) (144) (586)
Return of funds escrowed in conjunction with the
acquisition of Go-Gro - - 1,904
Collection of receivable from stockholder - - 1,850
Payment to affiliated company - - (2,002)
Decrease (increase) in restricted cash equivalents and
short-term investments (1,505) 5,961 (5,862)
--------- -------- --------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (10,086) (3,662) (18,291)
--------- -------- --------
</TABLE>
(Continued on page 31)
Page 30
<PAGE>
<TABLE>
<CAPTION>
CATALINA LIGHTING, INC. SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(IN THOUSANDS)
YEARS ENDED SEPTEMBER 30,
-----------------------------
1997 1996 1995
--------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable - credit lines 35,450 43,400 43,900
Payments on notes payable - credit lines (29,594) (50,556) (30,768)
Net proceeds from (payments on) notes payable-credit lines
due on demand (289) 459 277
Payment on convertible subordinated notes - - (7,600)
Payments on other long-term debt (707) (581) (812)
Proceeds from the issuance of bonds payable - 99 11,936
Payments on bonds payable (970) (900) -
Proceeds from issuance of common stock and
related income tax benefit 80 227 412
--------- -------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 3,970 (7,852) 17,345
--------- -------- --------
Net increase (decrease) in cash and cash equivalents 81 959 (2,246)
Cash and cash equivalents at beginning of year 1,766 807 3,053
--------- -------- --------
Cash and cash equivalents at end of year $ 1,847 $ 1,766 $ 807
========= ======== ========
</TABLE>
SUPPLEMENTAL CASH FLOW INFORMATION
YEARS ENDED SEPTEMBER 30,
---------------------------------
1997 1996 1995
------- ------- -------
Cash paid for:
Interest $ 3,833 $ 3,457 $ 3,595
======= ======= =======
Income taxes $ 1,168 $ 2,671 $ 1,352
======= ======= =======
During the years ended September 30, 1997, 1996 and 1995 capital lease
obligations aggregating approximately $781,000, $573,000 and $189,000,
respectively, were incurred when the Company entered into leases for new office,
computer, machinery and warehouse equipment.
In 1997 and 1996, the Company issued 5,000 common shares to an employee
as salary, pursuant to an employment agreement with such employee.
In 1995, the Company sold racking and equipment with a net book value
of $216,000 receiving as payment a note receivable for $572,000.
See accompanying notes to consolidated financial statements.
Page 31
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND NATURE OF OPERATIONS
(a) The Business
Catalina Lighting, Inc. ("the Company") is a United States-based wholesaler,
distributor and manufacturer of lamps, lighting fixtures and other lighting
related products. The Company sells principally in the U.S. to a variety of
retailers including home centers, national retail chains, office superstore
chains, warehouse clubs, discount department stores and catalog showrooms. The
Company also sells its products in Europe, Canada and other foreign markets.
(b) Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its majority-owned subsidiaries. The consolidated statements include the results
of the wholly-owned subsidiary Go-Gro Industries Limited ("Go-Gro") and Meridian
Lamps, Inc. ("Meridian"), a wholly-owned subsidiary formed by the Company that
commenced operations in fiscal 1995 and ceased operations in June 1997. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
(c) Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
d) Geographic Risks
Substantially all of the Company's products are obtained from suppliers located
in China. Any inability by the Company to continue to obtain its products from
China could significantly disrupt the Company's business. In addition, in the
Company's consolidated balance sheet at September 30, 1997 are net assets of
$23.8 million of Company subsidiaries located in China and Hong Kong (which
became a sovereign territory of China in 1997). The Company maintains
approximately $14 million in noncancelable political risk insurance.
(e) Cash and Cash Equivalents
Cash on hand and in banks, money market funds and other short-term securities
with maturities of three months or less when purchased are considered cash and
cash equivalents.
(f) Accounts Receivable
Pursuant to an agreement between the Company and a bank, the bank assumes the
credit risk of certain of the Company's U.S. and Canadian receivables. The
Company pays a fee of .50 percent of billings to customers covered by the
arrangement. In addition, the Company insures certain of its foreign receivables
with an insurance company. Gross accounts receivable secured under such
agreements at September 30, 1997 and 1996 amounted to $15.3 million and $19.2
million, respectively. In addition, certain of the Company's sales are made to
customers who pay pursuant to their own international, irrevocable, transferable
letters of credit. Gross accounts receivable secured by such letters of credit
at September 30, 1997 and 1996 amounted to $8.7 million and $8.1 million,
respectively.
The Company provides allowances against accounts receivable for doubtful
accounts, sales returns and sales incentives.
Page 32
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995 (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND NATURE OF OPERATIONS
(CONTINUED)
(g) Inventories
Inventories are stated at the lower of cost or market. Cost is determined using
the first-in, first-out (FIFO) method.
(h) Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation and
amortization. Interest expense incurred for the construction of facilities is
capitalized until such facilities are ready for use. Depreciation is computed
using the straight-line method over the estimated useful lives of the related
assets. Amortization of leasehold improvements is computed using the
straight-line method over the shorter of the lease term or estimated useful
lives of the related assets.
(i) Restricted Cash Equivalents and Short-Term Investments
The Company's restricted cash equivalents and short term investments at
September 30, 1997 and 1996 represented sinking fund payments on bonds issued to
finance the Tupelo warehouse and investment income earned on such payments and
at September 30, 1997, a $1.5 million escrow payment made on the bonds which
financed the Meridian facility.
(j) Goodwill
Goodwill represents the excess of cost over fair value of net assets acquired
and is being amortized on a straight-line basis over periods from twenty to
forty years. The Company periodically evaluates the recoverability of recorded
costs for goodwill based upon estimations of future undiscounted operating
income from the related acquired companies. Should the Company determine it
probable that future estimated undiscounted operating income from any of its
acquired companies will be less than the carrying amount of the associated
goodwill, an impairment of goodwill would be recognized, and goodwill would be
reduced to the amount estimated to be recoverable. Accumulated amortization of
goodwill amounted to $2 million and $1.5 million at September 30, 1997 and 1996,
respectively.
(k) Capital Leases
Leases that transfer substantially all of the benefits and risks of ownership to
the Company are accounted for as the acquisition of assets and assumption of
obligations under the capital lease standards issued by the Financial Accounting
Standards Board. Accordingly, capitalized leased assets are recorded as property
and equipment and the present values of the minimum lease payments are recorded
as capital lease obligations under other long-term debt. Depreciation of such
assets is computed using the shorter of the lease terms or estimated useful
lives of the assets and is included in depreciation expense.
(l) Income Taxes
The Company and its wholly-owned domestic subsidiaries file consolidated federal
and state tax returns in the United States. Separate foreign tax returns are
filed for the Company's Hong Kong, Canadian and Mexican subsidiaries and China
joint venture. The Company follows the asset and liability method of accounting
for income taxes prescribed by Statement of Financial Accounting Standards No.
109 "Accounting for Income Taxes". Under the asset and liability method,
deferred income taxes are recognized for the tax consequences of "temporary
differences" by applying enacted statutory tax rates applicable to future years
to differences between the financial statement carrying amounts and the tax
basis of existing assets and liabilities. The effect on deferred taxes of a
change in tax rates is recognized in income in the year that includes the
enactment date.
Page 33
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995 (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND NATURE OF OPERATIONS
(CONTINUED)
(m) Earnings (Loss) Per Share
Primary earnings per share is computed by dividing net income (as adjusted) by
the weighted average number of common shares outstanding during the year
increased by common equivalent shares (stock options, warrants and shares
issuable under contractual agreements) using the modified treasury stock method.
Fully diluted earnings per share is computed by dividing net income (as
adjusted) by the weighted average number of common shares outstanding during the
year, increased by common equivalent shares (stock options, warrants and shares
issuable under contractual agreements) using the modified treasury stock method
and, where dilutive, shares which would be issued upon the conversion of the
convertible subordinated notes. Primary and fully diluted loss per share are
computed by dividing net loss by the weighted average number of common shares
outstanding during the year.
(n) Foreign Currency Translation
The accounts of the Company's foreign subsidiaries are translated into U.S.
dollars in accordance with Statement of Financial Accounting Standards No. 52,
"Foreign Currency Translation". For subsidiaries where the functional currency
is the U.S. dollar, monetary balance sheet accounts are remeasured at the
current exchange rate and nonmonetary balance sheet accounts are remeasured at
historical exchange rates. For subsidiaries where the functional currency is
other than the U.S. dollar, all balance sheet accounts are remeasured at the
current exchange rate. Income and expense accounts are translated at the average
exchange rates in effect during the year. Adjustments resulting from the
translation of these entities are included in the statements of operations.
Gains and losses arising from foreign currency transactions are included in net
income.
(o) Stock-Based Compensation
The Company adopted Statement of Financial Accounting Standards No. 123.
"Accounting for Stock-Based Compensation" ("SFAS 123"), in fiscal 1997. As
permitted by SFAS 123, the Company continues to measure compensation costs in
accordance with Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," but provides pro forma disclosures of net income
(loss) and earnings (loss) per share as if the fair value method (as defined in
SFAS 123) had been applied beginning in fiscal 1996.
(p) Long-Lived Assets
Effective October 1, 1996, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of." This statement
requires companies to write down to estimated fair value long-lived assets that
are impaired. The Company reviews its long-lived assets for impairment whenever
events or changes in circumstances indicate that the carrying value of an asset
may not be recoverable. In performing the review for recoverability the Company
estimates the future cash flows expected to result from the use of the asset and
its eventual disposition. If the sum of the expected future cash flows is less
than the carrying amount of the assets, an impairment loss is recognized. In
1997, in conjunction with the decision to cease Meridian operations, the Company
recorded a $735,000 charge to write down the plant and equipment to fair market
value (less disposition costs). The Company determined that no other impairment
loss needed to be recognized.
(q) Impact of Recently Issued Accounting Standards
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards Number 128 "Earnings per Share" ("SFAS 128")
which changes the method of calculating earnings per share. SFAS 128 requires
the presentation of "basic" earnings per share and "diluted" earnings per share
on the face of the income statement. Basic earnings per share is computed by
dividing the net income or loss attributable to common shareholders by the
weighted average common shares outstanding for the period. Diluted earnings per
share reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock or
resulted in the issuance of common stock that then shared in the earnings of the
entity. Diluted earnings per share is computed similarly to fully diluted
earnings per share under APB Opinion No. 15. SFAS 128 is effective for financial
statements for periods ending after December 15, 1997. The Company will adopt
SFAS 128 in the first quarter of the fiscal year ending September 30, 1998, as
early adoption is not permitted.
Page 34
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995 (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND NATURE OF OPERATIONS
(CONTINUED)
(q) Impact of Recently Issued Accounting Standards (continued)
Upon adoption, earnings per share data for prior periods are required to be
restated. The pro forma basic earnings (loss) per share and diluted earnings
(loss) per share calculated in accordance with SFAS 128 for the years ended
September 30, 1997, 1996 and 1995 are as follows:
YEARS ENDED SEPTEMBER 30,
---------------------------
1997 1996 1995
------- ------ ------
Pro Forma Basic Earnings (loss) per Share $ (0.44) $ 0.23 $ 0.06
Pro Forma Diluted Earnings (loss) per Share $ (0.44) $ 0.21 $ 0.05
In June 1997, SFAS No. 130, "Reporting Comprehensive Income," was issued. SFAS
No. 130 establishes standards for the reporting and display of comprehensive
income and its components (revenues, expenses, gains, and losses) in a full set
of general-purpose financial statements. SFAS No. 130 requires that all items
that are required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. SFAS No. 130 requires that a
company (a) classify items of other comprehensive income by their nature in a
financial statement and (b) display the accumulated balance of other
comprehensive income separately from retained earnings and additional paid-in
capital in the equity section of the balance sheet. SFAS No. 130 is effective
for fiscal years beginning after December 15, 1997. Reclassification of
financial statements for earlier periods provided for comparative purposes is
required. The Company has not determined the effects, if any, that SFAS No. 130
will have on its consolidated financial statements.
In June 1997, SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information," was issued. SFAS No. 131 establishes standards for the way
that public companies report selected information about operating segments in
financial statements and requires that those companies report selected
information about segments in interim and annual financial reports issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas, and major customers. SFAS No. 131,
which supersedes SFAS No. 14, "Financial Reporting for Segments of a Business
Enterprise", but retains the requirement to report information about major
customers, requires that a public company report financial and descriptive
information about its reportable operating segments. Operating segments are
components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing performance. Generally,
financial information is required to be reported on the basis that it is used
internally for evaluating segment performance and deciding how to allocate
resources to segments. SFAS No. 131 requires that a public company report a
measure of segment profit or loss, certain specific revenue and expense items,
and segment assets. However, SFAS No. 131 does not require the reporting of
information that is not prepared for internal use if reporting it would be
impracticable. SFAS No. 131 also requires that a public company report
descriptive information about the way that the operating segments were
determined, the products and services provided by the operating segments,
differences between the measurements used in reporting segment information and
those used in the enterprise's general-purpose financial statements, and changes
in the measurement, of segment amounts from period to period. SFAS No. 131 is
effective for financial statements for periods beginning after December 15,
1997. The Company has not determined the effects, if any, that SFAS No. 131 will
have on the disclosures in its consolidated financial statements.
(r) Reclassifications
Certain amounts presented in the financial statements of prior years have been
reclassified to conform to the current year presentation.
Page 35
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995 (CONTINUED)
2. ACQUISITION
On July 30, 1994, the Company acquired all of the issued and outstanding capital
stock of two Hong Kong companies, Go-Gro Industries Limited ("Go-Gro") and Lamp
Depot Limited ("Lamp Depot"), for an aggregate consideration of $7.5 million and
750,000 shares of the Company's common stock. The stock of Go-Gro was purchased
by the Company from selling stockholders who represented at the closing that
they were, in fact, the actual stockholders of Go-Gro. Subsequent to the date of
the closing, the Company discovered that part of the Go-Gro stock acquired had
been conveyed to one of the selling stockholders prior to closing by a former
officer of a subsidiary of the Company, who ceased employment with such
subsidiary in 1993. The Company made a claim for indemnification and return of
$1,904,000 of the consideration from Go-Gro, such funds were returned to the
Company in November 1994 and the Company filed a lawsuit against the former
officer in May 1995. The purchase price and resulting goodwill recorded for the
Go-Gro acquisition were reduced accordingly for the return of these funds. The
Company settled all litigation relating to this matter in June 1997 by payment
of $600,000 which was recorded as an increase in the purchase price and goodwill
recorded for the Go-Gro acquisition.
3. INVENTORIES
Inventories consisted of the following:
SEPTEMBER 30,
--------------------
1997 1996
-------- --------
(In thousands)
Raw materials $ 3,569 $ 5,075
Work-in-progress 1,006 1,342
Finished goods 30,037 33,231
-------- --------
$ 34,612 $ 39,648
======== ========
The Company capitalizes certain costs in finished goods inventory associated
with acquiring, storing and preparing inventory for distribution. Such costs
aggregated approximately $9.5 million, $9.9 million and $12.1 million for the
years ended September 30, 1997, 1996 and 1995, respectively, of which $2.6
million remained in inventory at September 30, 1997 and 1996.
Inventory allowances amounted to $2.4 million and $1.5 million at September 30,
1997 and 1996, respectively.
Page 36
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995 (CONTINUED)
4. PROPERTY AND EQUIPMENT
Property and equipment and related depreciable lives were as follows:
SEPTEMBER 30,
------------------- DEPRECIABLE
1997 1996 LIVES
-------- -------- -------------
(In thousands)
Land $ 1,354 $ 1,408 -
Land use rights 1,912 1,912 47 years
Buildings and improvements 14,903 10,592 5 to 30 years
Leasehold improvements 1,857 955 lease terms
Furniture and office equipment 1,234 854 5 to 7 years
Computer software and equipment 3,720 2,899 2 to 5 years
Machinery, molds and equipment 12,612 9,915 3 to 7 years
Display fixtures 1,326 1,195 2 years
Other assets 441 721 4 to 7 years
Property held for sale 1,051 - 5 to 30 years
Construction in progress - 2,651
-------- --------
40,410 33,102
Less accumulated depreciation 10,441 7,099
-------- --------
Property and equipment, net $ 29,969 $ 26,003
======== ========
Property held for sale at September 30, 1997 consisted of the Meridian facility.
In conjunction with the decision to cease Meridian's operations, the Company
recorded a $930,000 charge to write down the plant and related equipment to fair
market value (less disposition costs) and to provide for severance payments to
Meridian's employees.
Depreciation expense for the years ended September 30, 1997, 1996 and 1995 was
approximately $4,061,000, $4,045,000 and $3,140,000, respectively.
Interest capitalized during the construction of the manufacturing facilities in
China and Mississippi was $463,000 during the year ended September 30, 1996 and
was included in construction in progress at September 30, 1996.
5. NOTES PAYABLE - CREDIT LINES
The Company has a $65 million credit facility with a group of commercial banks.
This facility provides credit in the form of a $7.6 million non-revolving loan
and $57.4 million in revolving loans, acceptances, and trade and stand-by
letters of credit, matures March 31, 1999 and provides for quarterly principal
payments of $950,000 which commenced on June 1, 1997 on the non-revolving loan.
As the non-revolving loan is reduced, the remaining facility is increased by a
similar amount. The non-revolving loan bears interest, payable monthly, at the
prime rate plus 1% and other borrowings under the facility bear interest,
payable monthly, at the Company's preference of either the prime rate or the
LIBOR rate plus a variable spread based upon earnings, debt and interest expense
levels defined under the credit agreement (LIBOR plus 2.5% at September 30,
1997). The effective rates for the non-revolving loan and the other borrowings
were 9.5% and 8.2%, respectively, at September 30, 1997. Obligations under the
facility are secured by substantially all of the Company's U.S. assets,
including 100% of the common stock of the Company's U.S. subsidiaries and 49% of
the stock of the Company's Canadian subsidiary. The agreement contains covenants
requiring that the Company maintain a minimum level of equity and meet certain
debt to equity and interest coverage ratios and borrowings are subject to a
borrowing base defined as the aggregate of certain percentages of the Company's
U.S. receivables and inventory. The agreement prohibits the payment of
Page 37
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995 (CONTINUED)
5. NOTES PAYABLE - CREDIT LINES (CONTINUED)
cash dividends or other distribution on any shares of the Company's common
stock, other than dividends payable solely in shares of common stock, unless
approval is obtained from the lenders. The Company pays a quarterly commitment
fee of .25% based on the unused portion of the facility. At September 30, 1997,
the Company had used $33.6 million under this credit facility (loans amounted to
$24.8 million of which $3.8 million was included in current notes payable-credit
lines) and $3.5 million was available for additional borrowings under the
borrowing base calculation.
The Company has a credit facility with a Canadian bank which provides four
million Canadian dollars (approximately U.S. $2.9 million) in revolving demand
credit. Advances bear interest at the Canadian prime rate plus .5% (5.25% at
September 30, 1997). The credit facility is secured by substantially all of the
assets of the Company's Canadian subsidiary. The agreement contains certain
minimum covenants to be met by the Canadian subsidiary, prohibits the payment of
dividends, and limits advances by the bank to a borrowing base calculated based
upon receivables and inventory. This facility is payable upon demand and is
subject to an annual review by the bank. The Company pays a monthly commitment
fee of .25% based on the unused portion of the facility. At September 30, 1997,
borrowings amounted to U.S. $1.8 million (included in current notes
payable-credit lines) and U.S. $445,000 was available for additional borrowings
under the borrowing base calculation.
Go-Gro has a $35 million Hong Kong dollars (approximately U.S. $4.5 million)
credit facility with a Hong Kong bank. The facility provides credit in the form
of acceptances, trade and stand-by letters of credit, overdraft protection, and
negotiation of discrepant documents presented under export letters of credit
issued by banks. Advances bear interest at the Hong Kong prime rate plus .25%
(9% at September 30, 1997). The facility is secured by a guarantee issued by the
Company and requires Go-Gro to maintain a minimum level of equity. This
agreement restricts the payment of dividends without the consent of the bank but
does not limit advances or loans from Go-Gro to the Company. This facility is
repayable upon demand and is subject to an annual review by the bank. At
September 30, 1997, there were no borrowings under this facility and U.S. $3.5
million was available for borrowings.
The Company's availability under its credit lines consisted of the following:
SEPTEMBER 30,
--------------------
1997 1996
-------- --------
(In thousands)
Total lines of credit $ 72,419 $ 72,463
Less:
Borrowings (26,574) (21,007)
Acceptances issued and pending issuance
(included in accounts payable) (4,511) (8,639)
Open letters of credit and other (2,453) (3,475)
Stand-by letters of credit (2,913) (2,945)
Amount unavailable under borrowing base (28,540) (20,123)
-------- --------
Lines of credit available $ 7,428 $ 16,274
======== ========
The weighted average interest rate on the current portion of notes payable -
credit lines was 8.0% and 7.6% at September 30, 1997 and 1996, respectively.
Page 38
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995 (CONTINUED)
6. BONDS PAYABLE - REAL ESTATE RELATED
The Company financed the purchase and improvements of its Meridian manufacturing
facility through the issuance of a series of State of Mississippi General
Obligation Bonds (Mississippi Small Enterprise Development Finance Act Issue,
1994 Series GG) with an aggregate available principal balance of $1,605,000, a
weighted average coupon rate of 6.23% and a contractual maturity of November 1,
2009. The bonds are secured by a first mortgage on land, building and
improvements and a $1,713,000 standby letter of credit, which is not part of the
Company's credit lines. Interest on the bonds is payable semiannually and
principal payments are due annually. In June 1997, the Company ceased
manufacturing operations at Meridian and leased the facility to a
non-manufacturing entity. As a result, the Company made a $1.5 million payment
to escrow on the bonds which is included in restricted cash in the September 30,
1997 balance sheet. The Company plans to redeem the bonds at their earliest
redemption date, approximately November 1, 1999.
The Company arranged for the issuance in 1995 of $10.5 million in State of
Mississippi Variable Rate Industrial Revenue Development Bonds to finance (along
with internally generated cash flow and the Company's $1 million leasing
facility) a warehouse located near Tupelo, Mississippi. The bonds have a stated
maturity of May 1, 2010 and require mandatory sinking fund redemption payments,
payable monthly, aggregating $900,000 per year, from 1996 to 2002, $600,000 per
year in 2003 and 2004, and $500,000 per year from 2005 to 2010. The bonds bear
interest at a variable rate (5.7% at September 30, 1997) that is adjustable
weekly to the rate the remarketing agent for the bonds deems to be the market
rate for such bonds. The bonds are secured by a lien on the land, building, and
all other property financed by the bonds. Additional security is provided by an
$8.9 million direct pay letter of credit which is not part the Company's credit
line.
The aggregate maturities and sinking fund requirements of bonds payable at
September 30, 1997, were as follows (in thousands):
1998 $ 970
1999 975
2000 2,220
2001 900
2002 900
Thereafter 4,200
--------
$ 10,165
========
Page 39
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995 (CONTINUED)
7. OTHER LONG-TERM DEBT
Other long-term debt consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------- -- ------------
1997 1996
-------------- ------------
(In thousands)
<S> <C> <C>
Loan payable monthly through 1999 based on a 15 year amortization schedule
with a balloon payment in 1999, bearing interest at 8%, secured by a mortgage
on the land and building with a net book value of $1,442,000 at September 30,
1997. $ 1,064 $ 1,114
Borrowings under a leasing facility with a Hong Kong financial
institution to finance the purchase of equipment for the China facility;
payable monthly, bearing interest at 13.25%, maturing at various dates
through 2002 and secured by a guarantee issued by the Company and
warehouse equipment with a net book value of $577,000 at September 30,
1997; $494,000 was available for future borrowings at September 30, 1997. 602 -
Borrowings under a leasing facility with a U.S. financial institution to
finance the purchase of U.S. assets; payable monthly through maturity in
2001, bearing interest at 8.75%, and secured by warehouse equipment with
a net book value of $342,000 at September 30, 1997; $599,000 was
available for future borrowings at September 30, 1997. 401 424
Borrowings under a leasing facility with a U.S. financial institution to
finance the purchase of U.S. assets; payable quarterly, bearing interest
at rates ranging from 7.12% to 10%, maturing at various dates through
2001 and secured by office and warehouse equipment and computer hardware
and software with a net book value of $231,000 at September 30, 1997; no
funds were available for future borrowings at September 30, 1997. 334 587
Other 17 -
---------- ----------
Subtotal 2,418 2,125
Less current maturities (476) (363)
---------- ----------
$ 1,942 $ 1,762
========== ==========
</TABLE>
The aggregate maturities of other long-term debt at September 30, 1997, were as
follows (in thousands):
1998 $ 476
1999 1,331
2000 288
2001 252
2002 71
-------
$ 2,418
=======
Page 40
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995 (CONTINUED)
8. CONVERTIBLE SUBORDINATED NOTES
The Company has outstanding $7.6 million of 8% convertible subordinated notes
due March 15, 2002. The notes are convertible at the option of the holders into
common shares of the Company's stock at a conversion price of $7.31 per share,
subject to certain anti-dilution adjustments (as defined in the note agreement),
at any time prior to maturity. The notes are subordinated in right of payment to
all existing and future senior indebtedness of the Company. The notes are
callable at the Company's option with certain required premium payments.
Principal payments of approximately $2.5 million are required on March 15 in
each of the years 2000 and 2001. The remaining outstanding principal and
interest is due in full on March 15, 2002. Interest is payable semiannually. The
terms of the note agreement require the Company to maintain specific interest
coverage ratio levels in order to increase its credit facilities or otherwise
incur new debt and to maintain a minimum consolidated net worth. In addition,
the note agreement prohibits the declaration or payment of dividends on any
shares of the Company's capital stock, except dividends or other distributions
payable solely in shares of the Company's common stock, and the purchase or
retirement of any shares of capital stock or other capital distributions.
9. INCOME TAXES
The following table summarizes the differences between the Company's effective
income tax rate and the statutory federal income tax rate:
YEARS ENDED SEPTEMBER 30,
-------------------------
1997 1996 1995
----- ----- ----
Statutory federal income tax rate (34.0)% 34.0 % 34.0 %
Increase (decrease) resulting from:
State income taxes, net of federal
income tax effect (0.5) 8.7 4.5
Foreign tax rate differential (17.3) (18.4) (2.3)
Goodwill amortization 2.6 6.0 19.4
Other 2.3 4.3 (3.7)
----- ----- ----
(46.9)% 34.6 % 51.9 %
===== ===== ====
Page 41
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995 (CONTINUED)
9. INCOME TAXES (CONTINUED)
The income tax provision (benefit) consisted of the following:
CURRENT DEFERRED TOTAL
-------- -------- --------
(In thousands)
Year ended September 30, 1997
Federal (2,894) (1,109) (4,003)
State 15 (333) (318)
Foreign 1,597 (10) 1,587
-------- -------- --------
$ (1,282) $ (1,452) $ (2,734)
======== ======== ========
Year ended September 30, 1996
Federal $ 1,454 $ (1,388) 66
State 531 (207) 324
Foreign 199 260 459
-------- -------- --------
$ 2,184 $ (1,335) $ 849
======== ======== ========
Year ended September 30, 1995
Federal $ 1,443 $ (1,206) $ 237
State 304 (247) 57
Foreign 190 (53) 137
-------- -------- --------
$ 1,937 $ (1,506) $ 431
======== ======== ========
Income (loss) before income taxes by source consisted of the following:
YEARS ENDED SEPTEMBER 30,
-------------------------------
1997 1996 1995
--------- ------- -----
United States $ (13,183) $ (3) $ 574
Foreign 7,356 2,455 257
--------- ------- -----
$ (5,827) $ 2,452 $ 831
========= ======= =====
The tax effects of each type of temporary difference that gave rise to the
Company's current net deferred tax asset included in other current assets are as
follows:
SEPTEMBER 30,
-------------------
1997 1996
------- -------
(In thousands)
Accounts receivable allowances $ 1,731 $ 1,542
Prepaid expenses (171) (130)
Allowances and capitalized costs for inventory 1,122 1,245
Net operating loss carryforwards 167 -
Accrued expenses 92 306
Other 11 25
------- -------
$ 2,952 $ 2,988
======= =======
Page 42
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995 (CONTINUED)
9. INCOME TAXES (CONTINUED)
The tax effects of each type of temporary difference that gave rise to the
Company's net long term deferred tax asset (included in other long term assets)
are as follows:
SEPTEMBER 30,
-----------------
1997 1996
------- -----
(In thousands)
Provision for litigation judgment under appeal $ 1,660 $ -
Net loss on sublease of facility 279 347
Provision for impairment of long-lived assets 192 -
Foreign tax loss carryforward 190 -
Startup costs 88 128
Depreciation:
U.S. assets (379) (103)
Foreign assets (49) (18)
Other (23) (74)
Valuation allowance (190) -
------- -----
$ 1,768 $ 280
======= =====
The Company has not provided for possible U.S. income taxes on $11.4 million in
undistributed earnings of foreign subsidiaries that are considered to be
reinvested indefinitely. Calculation of the unrecognized deferred tax liability
related to these foreign earnings is not practicable.
10. STOCK OPTIONS, WARRANTS AND RIGHTS
STOCK OPTIONS UNDER PLANS
In August 1987, the Company adopted the Stock Option/Stock Appreciation Rights
Plan (Employee Plan), which provides for the granting of options to officers and
other key employees. Under the Employee Plan, the Company and its shareholders
authorized the granting of options for up to 1,750,000 shares of common stock to
be granted as either incentive or nonstatutory options at a price of 100% of the
fair market value of the shares at the date of grant, 110% in the case of a
holder of more than 10% of the Company's stock. As of September 30, 1997,
options for approximately 17,000 shares of common stock remained available for
future grants. Options generally vest ratably over a three-year period
commencing on October 1 following the date of grant and are exercisable with
cash or previously acquired common stock of the Company, no later than 10 years
from the grant date.
In March 1989, the Company adopted the Non-Employee Director Stock Option Plan
(Director Plan), which provides for the granting of options for up to 50,000
shares of common stock to non-employee directors. Under the Directors' Plan,
options to purchase 2,000 common shares are granted to non-employee directors
automatically upon their election to the Board of Directors which vest upon the
serving of a one year term. The exercise price is the fair market value of the
common stock on the date the options are granted. These options are generally
exercisable during the terms of the directors, not to exceed ten years, from the
date of grant.
Page 43
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995 (CONTINUED)
10. STOCK OPTIONS, WARRANTS AND RIGHTS (CONTINUED)
Transactions and related information are summarized as follows:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVERAGE
EMPLOYEE PLAN: OPTIONS PRICE PER SHARE
------------------ ---------------------
<S> <C> <C>
Options outstanding at September 30, 1994 952,690 $3.44
Options granted 371,250 $6.75
Options exercised (70,601) $3.88
Options terminated (32,835) $6.77
--------- -----
Options outstanding at September 30, 1995 1,220,504 $4.34
Options granted 164,750 $4.21
Options exercised (21,834) $3.02
Options terminated (23,119) $5.63
--------- -----
Options outstanding at September 30, 1996 1,340,301 $3.98*
Options granted 25,700 $4.09
Options exercised (17,166) $4.04
Options terminated (22,368) $4.11
--------- -----
Options outstanding at September 30, 1997 1,326,467 $3.98
========= =====
Options exercisable at September 30, 1997 1,093,236 $3.74
========= =====
</TABLE>
*On October 27, 1995, the exercise price of 170,750 outstanding options issued
to non-executive officers was restated to $4.125, the market value on such date.
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVERAGE
DIRECTOR PLAN: OPTIONS PRICE PER SHARE
------------------ ---------------------
<S> <C> <C>
Options outstanding at September 30, 1994 34,000 $7.91
Options granted 8,000 $6.63
------- -----
Options outstanding at September 30, 1995 42,000 $7.51
Options granted 8,000 $6.25
Options exercised (2,000) $3.38
Options terminated (12,000) $8.28
------- -----
Options outstanding at September 30, 1996 36,000 $7.19
Options granted 10,000 $3.75
------- -----
Options outstanding at September 30, 1997 46,000 $6.59
======= =====
Options exercisable at September 30, 1997 36,000 $7.39
======= =====
</TABLE>
OTHER STOCK OPTIONS
The Company has outstanding options for 110,000 shares at an exercise price of
$1.75 per share issued to the former shareholders of a subsidiary in connection
with the acquisition of such subsidiary. The options were fully exercisable at
September 30, 1997 and expire on January 1, 2000.
Page 44
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995 (CONTINUED)
10. STOCK OPTIONS, WARRANTS AND RIGHTS (CONTINUED)
OTHER STOCK OPTIONS (CONTINUED)
In August 1990, the Company issued options outside its Director Plan to its
non-employee directors to purchase an aggregate of 200,000 shares of common
stock, of which 132,000 remained outstanding on September 30, 1997. The options
have an exercise price of $1.75 per share, were fully exercisable at September
30, 1997 and expire August 24, 2000.
On October 1, 1991, the Company issued options to purchase 20,000 shares at
$3.38 to an employee. The options were fully exercisable at September 30, 1997
and expire on October 1, 2001.
On January 3, 1992, the Company issued to certain of its executives and
non-employee directors options to purchase 275,000 shares at $4.88 per share.
The options were fully exercisable at September 30, 1997 and expire January 3,
2002.
On January 15, 1993, the Company issued to one of its executives options to
purchase 50,000 shares of common stock at an exercise price of $5.25 per share.
The options were fully exercisable at September 30, 1997. The options expire on
January 14, 2003.
At various dates during fiscal 1995, the Company granted to certain new
employees options to purchase 91,000 shares of common stock at prices ranging
from $6.75 to $6.875. In most cases, one-third of the options became exercisable
on October 1, 1995, with one-third vesting on October 1 of each of the following
two years. The options expire in 10 years from the grant date. On October 27,
1995, the exercise price of these options was restated to $4.125, the market
value on such date. As of September 30, 1997, 78,500 options remained to be
exercised of which 53,581 were excisable.
On March 4, 1996, the Company issued options to purchase 10,000 shares at $5.38
to a consultant. The options were fully exercisable at September 30, 1997 and
expire on March 4, 2006.
On August 27, 1996, the Company issued to one of its executives options to
purchase 5,000 shares of common stock at $3.75 per share. The options were fully
exercisable at September 30, 1997 and expire on August 26, 2006.
On March 7, 1997, the Company entered into an option agreement with a
consultant. Under the agreement, the Company issued options to purchase 100,000
shares at $3.875. Such options vest upon the consultant meeting certain minimum
sales targets and expire on March 7, 2007. The options had not vested as of
September 30, 1997.
On March 12, 1997, the Company issued options to purchase 20,000 shares of
common stock at $3.75 per share to new members of the Company's Board of
Directors. The options vest on March 12, 1998 and expire on March 11, 2007.
The exercise price of all other stock options discussed above was the fair
market value of the common stock on the date the options were granted.
Transactions and related information relating to other stock options are
summarized as follows:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVERAGE
OPTIONS PRICE PER SHARE
---------------- ---------------------
<S> <C> <C>
Options outstanding at September 30, 1994 615,000 $3.50
Options granted 91,000 $6.78
------- -----
Options outstanding at September 30, 1995 706,000 $3.92
Options granted 15,000 $4.84
Options exercised (40,500) $2.67
------- -----
Options outstanding at September 30, 1996 680,500 $3.63*
Options granted 120,000 $3.85
------- -----
Options outstanding at September 30, 1997 800,500 $3.69
======= =====
Options exercisable at September 30, 1997 655,581 $3.64
======= =====
</TABLE>
*On October 27, 1995, the exercise price of 91,000 outstanding options
issued to non-executive officers was restated to $4.125, the market
value on such date.
Page 45
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995 (CONTINUED)
10. STOCK OPTIONS, WARRANTS AND RIGHTS (CONTINUED)
The following table summarizes information about all stock options outstanding
at September 30, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------- ----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
RANGE OF EXERCISE OPTIONS REMAINING EXERCISE OPTIONS EXERCISE
PRICES OUTSTANDING CONTRACTUAL LIFE PRICE EXERCISABLE PRICE
- ----------------- ----------- ---------------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$1.75 to $2.50 598,600 2.78 years $ 1.86 598,600 $ 1.86
$3.38 to $4.13 935,367 6.43 years $ 3.97 647,221 $ 3.96
$4.69 to $6.63 373,000 4.93 years $ 5.02 356,332 $ 5.02
$6.75 to $12.13 266,000 7.02 years $ 6.90 182,664 $ 6.97
- ----------------- ----------- ---------------- -------- ----------- --------
$1.75 to $12.13 2,172,967 5.24 years $ 3.93 1,784,817 $ 3.78
================= =========== ================ ======== =========== ========
</TABLE>
For purposes of the following proforma disclosures, the weighted-average fair
value of each option has been estimated on the date of grant using the
Black-Scholes options-pricing model with the following weighted-average
assumptions used for grants in 1997 and 1996, respectively: no dividend yield;
expected volatility of 56% and 54%; risk-free interest rate of 6.4% and 5.9%;
and an expected term of six and a half years. The weighted average fair value at
date of grant or repricing of options granted and repriced during 1997 and 1996
was $2.05 and $2.15 per option, respectively. Had compensation cost been
determined based on the fair value at the grant date consistent with the
provisions of SFAS 123, the Company's net income (loss) and earnings (loss) per
share would have been reduced to the pro forma amounts indicated below (in
thousands, except per share amounts):
YEARS ENDED SEPTEMBER 30,
--------------------------
1997 1996
-------- -------
Net income (loss) - as reported $ (3,093) $ 1,603
Net income (loss) - proforma $ (3,392) $ 1,283
Earnings (loss) per share - as reported $ (0.44) $ 0.21
Earnings (loss) per share - proforma $ (0.48) $ 0.16
STOCK RIGHTS
On November 20, 1990, as amended on January 24, 1991, and on March 16, 1992, the
Company adopted a Shareholders' Rights Plan, and 6,002,278 rights were
distributed as a dividend at the rate of one right for each share of the
Company's common stock. Each right entitles the registered holder to purchase
from the Company one share of common stock at a purchase price of $20 per share,
subject to adjustment. The rights may be exercised beginning 10 days after a
person or group acquires 21 percent or more of the Company's common stock or
announces a tender offer that could result in the person or group owning at
least 21 percent of the Company's common stock. Subject to possible extensions,
the rights may be redeemed by the Company at $0.001 per right at any time until
10 days after 21 percent or more of Catalina's stock is acquired by a person or
group. The rights are also redeemable upon a vote by the stockholders of the
Company if the proposed purchase price for the shares is deemed fair by a
recognized investment banker. In the event the Company is acquired in a merger
or other business combination transaction, the holder of each right would be
entitled to receive common stock of the acquiring company having a value equal
to two times the exercise price of the right. Unless redeemed earlier, the
rights expire on November 30, 2000.
STOCK WARRANTS
In connection with the Company's initial public offering of common stock in May
1988, warrants to purchase 92,000 common shares at $4.20 a share were issued.
Warrants to purchase 30,000 common shares are exercisable though December 31,
1997 and warrants to purchase 62,000 common shares are exercisable through
December 31, 1998. The Company registered the shares underlying the warrants
effective May 24, 1995. No common stock has been issued pursuant to these
warrants through September 30, 1997.
Page 46
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995 (CONTINUED)
11. COMMITMENTS
The Company leases offices, warehouse facilities and equipment under
non-cancelable operating leases that expire at various dates through 2001.
Certain leases provide for increases in minimum lease payments based upon
increases in annual real estate taxes and insurance. Future minimum lease
payments under non-cancelable operating leases and minimum rentals to be
received under non-cancelable subleases as of September 30, 1997 by fiscal year,
were as follows (in thousands):
MINIMUM RENTAL MINIMUM
PAYMENTS SUBLEASE RECEIPTS NET
-------------- ----------------- -------
1998 $ 1,794 $ 1,061 $ 733
1999 1,531 1,061 470
2000 1,099 1,061 38
2001 445 454 (9)
------- ------- -------
$ 4,869 $ 3,637 $ 1,232
======= ======= =======
Total rental expense for all operating leases (including month-to-month leases)
amounted to approximately $3.1 million, $3.1 million and $3.9 million for the
years ended September 30, 1997, 1996 and 1995, respectively. In connection with
its warehouse consolidation, the Company subleased its Dallas facility in 1995
for the remainder of the lease term and recognized a pretax loss relating to
this sublease in 1995.
Shenzhen Jiadianbao Electrical Products Co., Ltd. ("SJE"), a cooperative joint
venture subsidiary of Go-Gro, and the Bureau of National Land Planning Bao-An
Branch of Shenzhen City entered into a Land Use Agreement covering approximately
467,300 square feet in Bao-An County, Shenzhen City, People's Republic of China
on April 11, 1995. The agreement provides SJE with the right to use the above
land until January 18, 2042. The land use rights are non-transferable. Under the
terms of the SJE joint venture agreement, ownership of the land and buildings of
SJE is divided 70% to Go-Gro and 30% to the other joint venture partner. Land
costs, including the land use rights, approximated $2.6 million of which Go-Gro
has paid its 70% proportionate share of $1.8 million.
Under the terms of this agreement, as amended, SJE is obligated to construct
approximately 500,000 square feet of factory buildings and 211,000 square feet
of dormitories and offices, with 40 percent of the construction required to be
completed by April 1, 1997 (and was completed) and the remainder by December 31,
1999. The total cost for this project is estimated at $15.5 million (of which
$10.3 million had been expended as of September 30, 1997), and includes
approximately $1 million for a Municipal Coordination Facilities Fee (MCFF). The
MCFF is based upon the square footage to be constructed. The agreement calls for
the MCFF to be paid in installments beginning in January 1997 and continuing
through June 1998, with 46% of the total fee due by September 1997. A 162,000
square foot factory, 77,000 square foot warehouse and 60,000 square foot
dormitory were completed in April 1997 and became fully operational in June
1997.
On April 26, 1996, the Company entered into a license agreement with
Westinghouse Electric Corporation to market and distribute a full range of
lighting fixtures, lamps and other lighting products under the Westinghouse
brand name in exchange for royalty payments. The agreement terminates on
September 30, 2001. The Company has an option to extend the agreement for an
additional ten years. The royalty payments are due quarterly and are based on a
percent of the value of the Company's net shipments of Westinghouse branded
products, subject to annual minimum payments due. Either party has the right to
terminate the agreement during years three through five of the agreement if the
Company does not meet the minimum net shipments required under the agreement.
Net sales of Westinghouse branded products amounted to $9.0 million and $800,000
for the years ended September 30, 1997 and 1996, respectively.
Page 47
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995 (CONTINUED)
12. RELATED PARTY TRANSACTIONS
The Company leased its two facilities located in Massachusetts from entities in
which an officer and a former officer had an ownership interest. One of the
leases expired in 1996 and the other one is on a month-to-month basis. Rent
expense related to these leases was approximately $148,000, $530,000 and
$521,000 for the years ended September 30, 1997, 1996 and 1995, respectively.
The Company leases its Hong Kong office from a company owned by the President
and former majority stockholder of Go-Gro. The lease expires in 1999 but may be
extended for an additional two years. Rent expense related to this lease was
$270,000, $258,000 and $237,000 for the years ended September 30, 1997, 1996 and
1995, respectively.
During the years ended September 30, 1997, 1996 and 1995, Go-Gro purchased $2.1
million, $1.8 million and $1.1 million, respectively, in raw materials from an
affiliate which is fifty percent owned by the Company and which includes the
President of Go-Gro as one of its directors.
Page 48
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995 (CONTINUED)
13. GEOGRAPHIC INFORMATION AND MAJOR CUSTOMERS
The Company operates exclusively in the lighting industry with operations based
in two principal geographic areas, the United States and Asia. Net sales to
unaffiliated customers by U.S.-based operations are made primarily into the
United States. Net sales to unaffiliated customers by Asia-based operations are
made primarily into Europe. Transfers to other geographic areas primarily
represent shipments of finished goods made at prices determined by management.
All transfers have been eliminated from consolidated net sales. Financial
information, summarized by geographic area, is as follows:
<TABLE>
<CAPTION>
UNITED STATES ASIA OTHER ELIMINATIONS CONSOLIDATED
------------- --------- --------- ------------ ------------
(In thousands)
<S> <C> <C> <C> <C> <C>
SEPTEMBER 30, 1997:
Net sales
Unaffiliated customers $ 146,646 $ 33,950 $ 16,359 $ - $ 196,955
Transfers to other
geographic areas 837 80,444 428 (81,709) -
--------- --------- --------- --------- ---------
Total net sales $ 147,483 $ 114,394 $ 16,787 $ (81,709) $ 196,955
========= ========= ========= ========= =========
Operating income (loss) $ (10,496) $ 8,836 $ 337 $ (544) $ (1,867)
========= ========= ========= ========= =========
Identifiable assets $ 73,310 $ 38,078 $ 7,051 $ (1,858) $ 116,581
========= ========= ========= ========= =========
SEPTEMBER 30, 1996:
Net sales
Unaffiliated customers $ 139,521 $ 29,447 $ 15,662 $ - $ 184,630
Transfers to other
geographic areas 979 34,341 370 (35,690) -
--------- --------- --------- --------- ---------
Total net sales $ 140,500 $ 63,788 $ 16,032 $ (35,690) $ 184,630
========= ========= ========= ========= =========
Operating income $ 2,153 $ 2,706 $ 563 $ (101) $ 5,321
========= ========= ========= ========= =========
Identifiable assets $ 79,270 $ 31,956 $ 8,611 $ (2,375) $ 117,462
========= ========= ========= ========= =========
SEPTEMBER 30, 1995:
Net sales
Unaffiliated customers $ 137,763 $ 30,517 $ 8,012 $ - $ 176,292
Transfers to other
geographic areas 870 17,091 219 (18,180) -
--------- --------- --------- --------- ---------
Total net sales $ 138,633 $ 47,608 $ 8,231 $ (18,180) $ 176,292
========= ========= ========= ========= =========
Operating income $ 3,062 $ 941 $ 221 $ (173) $ 4,051
========= ========= ========= ========= =========
Identifiable assets $ 89,966 $ 25,178 $ 7,368 $ (2,461) $ 120,051
========= ========= ========= ========= =========
</TABLE>
MAJOR CUSTOMERS
During the years ended September 30, 1997, 1996 and 1995 one customer (included
in U.S.-based operations) accounted for 22.1%, 9.8% and 7.1%, respectively, of
the Company's net sales. One other customer and its affiliate accounted for 11%
and 12.8% of the Company's net sales during the years ended September 30, 1996
and 1995. In 1997, the respective percentages of net sales represented by this
customer and its affiliate (which were no longer affiliates at September 30,
1997) were 7.1% and 4.6%.
Page 49
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995 (CONTINUED)
14. EMPLOYMENT AGREEMENTS
The Company has employment agreements with five executive officers. The
agreements with four of these officers are for three-year terms renewed each
year on October 1. All such officers receive compensation with minimum annual
cost of living increases of 5% and acceleration of payments due under the
agreements should there be a change in control of the Company. These officers
participate equally in a bonus pool equal to 6.7% of the Company's consolidated
pretax income. The bonuses for fiscal 1996 and 1995 totaled $175,000 and
$59,000. There was no bonus for fiscal 1997 due to a pretax loss. The employment
agreement with the fifth executive officer expires in March 1998 and also
contains provisions concerning acceleration of payments should there be a change
in control of the Company.
In connection with the Company's acquisition of Go-Gro, the Company entered into
an employment and non-compete agreement with the previous majority stockholder
of Go-Gro, under which such individual served as President of Go-Gro. The term
of the agreement was from April 1, 1997 to March 31, 2002. In December 1997,
this individual submitted his resignation from Go-Gro and the Company, effective
January 23, 1998.
Future commitments under employment agreements at September 30, 1997, by fiscal
year, excluding the possible effect of bonuses and renewal periods, are as
follows (in thousands):
1998 $ 1,266
1999 1,162
2000 1,220
-------
$ 3,648
=======
15. CONTINGENCIES
On June 4, 1991, the Company was served with a copy of the Complaint in the
matter of Browder vs. Catalina Lighting, Inc., Robert Hersh, Dean S. Rappaport
and Henry Gayer, Case No. 91-23683, in the Circuit Court of the 11th Judicial
Circuit in and for Dade County, Florida. The plaintiff in the action, the former
President and Chief Executive Officer of the Company, contended that his
employment was wrongfully terminated and as such brought action for breach of
contract, defamation, slander, libel and intentional interference with business
and contractual relationships, including claims for damages in excess of $5
million against the Company and $3 million against the named directors. During
the course of the litigation the Company prevailed on its Motions for Summary
Judgment and the Court dismissed the plaintiff's claims of libel and
indemnification. On February 3, 1997, the plaintiff voluntarily dismissed the
remaining defamation claims against the Company and Directors. The breach of
contract claim was tried in February 1997 and the jury returned a verdict
against the Company for total damages of $2.4 million (including prejudgment
interest). On July 14, 1997, the Court also granted plaintiff's motion for
attorney fees and costs of $1.9 million. A provision of $4.3 million was
recorded by the Company during the quarter ended March 31, 1997 and a $258,000
provision for post-judgment interest was recorded through September 30, 1997.
The Company plans to appeal the verdict and attorney fee award.
Page 50
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995 (CONTINUED)
15. CONTINGENCIES (CONTINUED)
On February 23, 1993, Dana Lighting (now Catalina Industries, Inc.), a
subsidiary of the Company, and Nathan Katz, President of Dana, were served with
a copy of the Complaint in a matter captioned Holmes Products Corp. vs. Dana
Lighting, Inc. and Nathan Katz, Case No. 93-0249 in the Superior Court of the
Commonwealth of Massachusetts, City of Worcester, Massachusetts. The plaintiff
in the action alleges that Dana Lighting engaged in acts constituting tortuous
interference with contractual actions, interference with prospective economic
relationship with plaintiff's supplier and unfair competition. Plaintiff seeks
injunctive relief and damages in excess of $10 million. Dana filed its Answer to
the Complaint on March 15, 1993 denying all allegations, and Plaintiff's request
for a temporary restraining order was denied by the Court. The supplier and
Dana's President have filed affidavits with the Court denying that Dana engaged
in such acts. In July 1994, Holmes Products Corp. amended the Complaint to
include allegations of a violation of civil RICO and a violation of the Federal
Antitrust laws. On July 22, 1994, Dana Lighting removed the case from State
Court to the United States District Court for the District Court of
Massachusetts. On March 19, 1997, the Court granted Dana's motion for summary
judgment and dismissed the claims against the Company regarding violation of
civil RICO, Federal Antitrust and State unfair competition. Subsequently, the
Federal Court remanded the counts alleging interference with contractual
relations and prospective business relations to the Massachusetts Superior
Court, City of Worcester. Plaintiff has filed an appeal of the Federal Court's
dismissal of the state unfair competition and unjust enrichment claims with the
federal appeals court. Management believes that the Complaint is totally without
merit and disputes that any of the alleged acts or damages occurred or that Dana
is liable in any matter. The Company intends to defend this case vigorously and
the outcome of this case cannot presently be determined. No provision for any
liability that may result from this litigation has been recorded in the
accompanying consolidated financial statements.
On December 17, 1996 White Consolidated Industries, Inc. ("White"), which has
acquired certain limited trademark rights from Westinghouse Electric Corp.
("Westinghouse") to market certain household products under the
White-Westinghouse trademark, notified the Company of a lawsuit against
Westinghouse and the Company filed in the United States District Court, for the
Northern District of Ohio. The lawsuit challenged the Company's right to use the
Westinghouse trademarks on its lighting products and alleges trademark
infringement. On December 24, 1996, Westinghouse and the Company served a
Complaint and Motion for Preliminary Injunction against White, AB Electrolux,
Steel City Vacuum Co., Inc., Salton/Maxim Housewares, Inc., Newtech Electronics
Corp., and Windmere Durable Holdings, Inc. in the United States District Court,
Eastern District of Pennsylvania, Case No. 96-2294 alleging that the defendants
had violated Westinghouse's trademark rights, breached the Agreement between
Westinghouse and White and sought an injunction to enjoin White against
interference with their contractual arrangements. In October 1997, the cases
were consolidated in the Pennsylvania case and on November 7, 1997 White filed a
Counterclaim and Third Party Claims against Westinghouse, Catalina and Minami
International Corporation alleging trademark infringement, trademark dilution,
false designation of origin, false advertising and unfair competition and
seeking injunctive relief and damages. Both the Company and Westinghouse
vigorously dispute White's allegations. Pursuant to the License Agreement
between Westinghouse and the Company, Westinghouse is defending and indemnifying
the Company for all costs and expenses for claims, damages and losses, including
the costs of litigation. Discovery is proceeding and the case could be tried in
late 1998.
On August 8, 1996, the Company was served with a copy of the Complaint in the
matter of Black & Decker (U.S.), Inc. vs. Catalina Lighting, Inc., Case No.
96-1042-A, and on October 25, 1996 and December 4, 1996, the Company was served
with a second and third complaint entitled Black & Decker vs. Catalina Lighting
and Westinghouse Electric Corp., Case Nos. 96-1577-A and 96-1707-A,
respectively. During January 1997, a subsidiary of the Company was served with a
Complaint on the same matter in Hong Kong. The plaintiff in these actions
contended that the Company infringed certain of plaintiff's patents in selling
its line of flexible flashlights. In February, 1997 the Company settled all of
these cases by a payment to Black & Decker of $1,000,000.
The Company has recently received a number of claims relating to halogen
torchieres sold by the Company to various retailers. While the Company is still
in the process of evaluating these claims, management does not currently believe
they will result in material uninsured liability to the Company.
The Company is also a defendant in other legal proceedings arising in the course
of business. In the opinion of management, the ultimate resolution of these
other legal proceedings will not have a material adverse effect on the Company's
financial position or annual results of operations.
Page 51
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995 (CONTINUED)
15. CONTINGENCIES (CONTINUED)
The Year 2000 Issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Any of the
Company's programs that have time sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in system
failure or miscalculations. The Company is in the process of identifying and
assessing the systems that could be affected by the Year 2000 Issue and is
developing an implementation plan to resolve the issue. The Company expects to
complete the assessment, formalize its plan for corrective action, and estimate
the potential incremental costs required to address this issue by December 1998.
The Company presently believes that, with modifications to existing software and
conversions to new software, the Year 2000 problem will not pose significant
operational problems for the Company's computer systems as so modified and
converted.
16. DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value:
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH EQUIVALENTS AND SHORT-TERM
INVESTMENTS:
The carrying amount approximates fair value due to the short maturity of those
instruments.
BONDS PAYABLE AND OTHER LONG-TERM DEBT:
The fair value of the Company's bonds payable and other long-term debt is
estimated based on the current rates offered to the Company for borrowings with
similar terms and maturities.
Estimated fair values of the Company's financial instruments are as follows (in
thousands):
SEPTEMBER 30,
-------------------------------------------
1997 1996
------------------- -------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ------- -------- -------
Cash and cash equivalents $ 1,847 $ 1,847 $ 1,766 $ 1,766
Restricted cash equivalents and
short-term investments 1,883 1,883 378 378
Bonds payable 10,165 10,092 11,135 11,079
Other long-term debt 2,418 2,443 2,125 2,118
It is not practicable to estimate the fair value of the Company's $7.6 million
in convertible subordinated notes.
Page 52
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995 (CONTINUED)
17. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE DATA)
1ST QUARTER 2ND QUARTER (A) 3RD QUARTER 4TH QUARTER
- --------------------------------------------------------------------------------
FISCAL 1997
- --------------------------------------------------------------------------------
Net Sales $ 45,095 $ 44,874 $ 56,394 $ 50,592
- --------------------------------------------------------------------------------
Gross Profit $ 7,957 $ 6,448 $ 8,981 $ 9,076
- --------------------------------------------------------------------------------
Operating Income (loss) $ 874 $ (7,073) $ 2,060 $ 2,272
- --------------------------------------------------------------------------------
Net Income (loss) $ 22 $ (4,988) $ 822 $ 1,051
- --------------------------------------------------------------------------------
Earnings (loss) Per Share:
- --------------------------------------------------------------------------------
Primary $ 0.01 $ (0.71) $ 0.11 $ 0.14
- --------------------------------------------------------------------------------
Fully Diluted $ 0.01 $ (0.71) $ 0.11 $ 0.13
================================================================================
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
- --------------------------------------------------------------------------------
FISCAL 1996
- --------------------------------------------------------------------------------
Net Sales $ 50,180 $ 40,921 $ 43,882 $ 49,647
- --------------------------------------------------------------------------------
Gross Profit $ 8,189 $ 7,552 $ 7,218 $ 7,973
- --------------------------------------------------------------------------------
Operating Income $ 1,626 $ 1,228 $ 992 $ 1,475
- --------------------------------------------------------------------------------
Net Income $ 588 $ 365 $ 18 $ 632
- --------------------------------------------------------------------------------
Earnings Per Share:
- --------------------------------------------------------------------------------
Primary $ 0.08 $ 0.05 $ - $ 0.08
- --------------------------------------------------------------------------------
Fully Diluted $ 0.08 $ 0.05 $ - $ 0.08
================================================================================
(A) Includes $930,000 in plant closing costs due to the termination of
manufacturing operations at Meridian and $6.3 million in litigation
costs and related professional fees.
Page 53
<PAGE>
<TABLE>
<CAPTION>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
ADDITIONS
-------------------
BALANCE AT CHARGED TO BALANCE
BEGINNING OF COSTS AND AT END OF
DESCRIPTION YEAR EXPENSES OTHER DEDUCTIONS YEAR
- -------------------------------- ------------ ---------- ----- ---------- ---------
<S> <C> <C> <C> <C> <C>
Accounts receivable allowances
deducted from accounts
receivable in the balance sheet:
Year ended September 30, 1997 $ 7,313 $ 17,357 $ - $ (16,356) $ 8,314
======= ======== === ========= =======
Year ended September 30, 1996 $ 4,934 $ 17,135 $ - $ (14,756) $ 7,313
======= ======== === ========= =======
Year ended September 30, 1995 $ 2,688 $ 15,385 $ - $ (13,139) $ 4,934
======= ======== === ========= =======
Inventory allowances - deducted from
inventory in the balance sheet:
Year ended September 30, 1997 $ 1,533 $ 2,032 $ - $ (1,175) $ 2,390
======= ======== === ========= =======
Year ended September 30, 1996 $ 911 $ 903 $ - $ (281) $ 1,533
======= ======== === ========= =======
Year ended September 30, 1995 $ 352 $ 612 $ - $ (53) $ 911
======= ======== === ========= =======
Allowance for impairment of
long-lived assets - deducted
from property and equipment
in the balance sheet:
Year ended September 30, 1997 $ - $ 735 $ - $ (216) $ 519
======= ======== === ========= =======
</TABLE>
Page 54
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this item is incorporated by reference from
the definitive proxy statement for the Company for its 1998 Annual Meeting of
Stockholders, which will be filed within 120 days of September 30, 1997.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this item is incorporated by reference from
the definitive proxy statement for the Company for its 1998 Annual Meeting of
Stockholders, which will be filed within 120 days of September 30, 1997.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this item is incorporated by reference from
the definitive proxy statement for the Company for its 1998 Annual Meeting of
Stockholders, which will be filed within 120 days of September 30, 1997.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this item is incorporated by reference from
the definitive proxy statement for the Company for its 1998 Annual Meeting of
Stockholders, which will be filed within 120 days of September 30, 1997.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) 1. DOCUMENTS FILED AS PART OF THIS REPORT. The following
consolidated financial statements of the Company and
its subsidiaries are filed as part of this Report:
Independent Auditors' Report
Consolidated Balance Sheets as of
September 30, 1997 and 1996
Consolidated Statements of Operations
for the years ended September 30, 1997, 1996 and
1995
Consolidated Statements of Stockholders' Equity
for the years ended September 30, 1997, 1996 and
1995
Consolidated Statements of Cash Flows
for the years ended September 30, 1997, 1996 and
1995
Notes to Consolidated Financial Statements
2. FINANCIAL STATEMENT SCHEDULES. The following
financial statement schedule is included in this
Report:
Schedule II - Valuation and Qualifying Accounts for
the years ended September 30, 1997, 1996 and 1995
Page 55
<PAGE>
3. EXHIBITS. The following exhibits are filed with this
Report or incorporated by reference:
<TABLE>
<CAPTION>
EXHIBIT FILING IN WHICH EXHIBIT
NUMBER DESCRIPTION IS INCORPORATED BY REFERENCE
- ---------- ----------------------------------------------------------- --------------------------------------------
<S> <C> <C>
3 - Amended and Restated Articles of Incorporated Registration Statement on Form S-1, Number
33-27861
3.3 - By-Laws, as amended Form 10-K dated December 28, 1989
4 - Certificate Common Shares, par value $.01 Registration Statement on Form S-18,
Number 33-17409-A
4.2 - Werbel Roth Warrant Registration Statement on Form S-18,
Number 33-17409-A
4.3 - Convertible Debentures Form 8-K, dated August 31, 1989
4.4 - Convertible Debentures Amendment No. 1 to Registration
Statement No. 33-34444 on Form S-1
4.5 - Shareholders' Rights Plan Form 10-K dated January 14, 1990
4.6 - Second Amendment to Rights Agreement dated as of November Form 10-Q for the Quarter Ended March 31,
20, 1990 1992
10.46 - Employment Agreement between the Company and Robert Hersh, Form 10-K dated December 28, 1989
dated as of October 1, 1989
10.47 - Employment Agreement between the Company and Dean S. Form 10-K dated December 28, 1989
Rappaport, dated as of October 1, 1989
10.48 - Employment Agreement between the Company and William D. Form 10-K dated December 28, 1989
Stewart, dated as of October 1, 1989
10.49 - Leases dated September 27, 1989 between the Company and Form 10-K dated December 28, 1989
MP-1989-1 Ltd. Partnership
10.50 - Promissory Note from Nathan Katz to the Company, dated Form 10-K dated December 28, 1989
November 1989
10.51 - Promissory Note from David Hauser to the Company, dated Form 10-K dated December 28, 1989
November 1989
10.52 - Amendment to Agreement and Option Agreement between the Form 10-K dated December 28, 1989
Company and Windmere dated December 14, 1989
10.53 - Amendment No. 2 to Credit Agreement dated as of January Registration Statement No. 33-34444
31, 1990 on Form S-1
10.54 - Agreement dated as of January 1,1990 between the Company, Registration Statement No. 33-34444
Dana, David Hauser and Nathan Katz on Form S-1
10.55 - Promissory Note executed in favor of Nathan Katz by the Registration Statement No. 33-34444
Company dated as of January 1, 1990 on Form S-1
10.56 - Promissory Note executed in favor of David Hauser by the Registration Statement No. 33-34444
Company dated as of January 1, 1990 on Form S-1
10.57 - Amendment to 1987 Stock Option Plan Registration Statement No. 33-34444 on
Form S-1
10.58 - Amendment No. 1 dated May 7, 1990 to Employment Agreement Form 10-Q dated August 17,1990
between the Company and Robert Hersh
10.59 - Amendment No. 3 to Credit Agreement dated as of March 9, Form 10-Q dated August 17, 1990
1990
10.60 - Amendment No. 4 to Credit Agreement dated as of May 31, Form 10-Q dated August 17, 1990
1990
10.61 - Assignment of Credit Agreement dated as of May 1, 1990; Form 10-Q dated August 17,1990
Credit Facility between the Company and SunTrust
Page 56
<PAGE>
10.62 - Lease between Dana and H & K Realty Trust dated as of Form 10-Q dated August 17, 1990
April 1, 1990
10.63 - Lease between the Company and Paragon regarding the Dallas Form 10-Q dated August 17, 1990
Facility, dated October 16, 1989
10.64 - Amendment dated as of April 1, 1990 to Employment Amendment No. 1 to Registration Statement
Agreement between Dana, the Company and Nathan Katz No. 33-34444 on Form S-1
10.65 - Amendment dated as of April 1, 1990 to Employment Amendment No. 1 to Registration Statement
Agreement between Dana, the Company and David Hauser No. 33-34444 on Form S-1
10.66 - Amendment dated as of August 27, 1990 to Employment Amendment No. 1 to Registration Statement
Agreement between the Company and John H. Browder No. 33-34444 on Form S-1
10.67 - Amendment dated as of August 27, 1990 to Employment Amendment No. 1 to Registration Statement
Agreement between the Company and Robert Hersh No. 33-34444 on Form S-1
10.68 - Amendment dated as of August 27, 1990 to Employment Amendment No. 1 to Registration Statement
Agreement between the Company and Dean S. Rappaport No. 33-34444 on Form S-1
10.69 - Amendment dated as of August 27, 1990 to Employment Amendment No. 1 to Registration Statement
Agreement between the Company and William D. Stewart No. 33-34444 on Form S-1
10.70 - Amendment to 1987 Stock Option and Stock Appreciation Form 10-K dated January 14, 1990
Rights Plan
10.71 - Amendment to dated October 1, 1990 to Employment Agreement Form 10-K dated January 14, 1990
between the Company and Dean S. Rappaport
10.72 - First Amendment to Credit Agreement dated November 1, 1990 Form 10-K dated January 14, 1990
between the Company and Sun Bank
10.73 - Second Amendment to Credit Agreement dated January 11, Form 10-K dated January 14, 1990
1991 between the Company and Sun Bank
10.74 - Third Amendment to Credit Agreement dated March 7, 1991 Form 10-Q for the quarter ended March 31,
between the Company and Sun Bank 1991
10.75 - Amendment to Employment Agreement dated April 8, 1991 Form 10-Q for the quarter ended March 31,
between the Company and Robert Hersh 1991
10.76 - Amended and Restated Credit Agreement dated September 30, Form 8 Amendment No. 2 to Form 10-Q dated
1991 between the Company and Sun Bank June 30, 1991
10.77 - Certain equipment leases between the Company and various Form 10-K dated December 18, 1991
equipment leasing companies
10.78 - First Amendment to Amended and Restated Credit Agreement Form 10-K dated December 18, 1991
dated December 1, 1991
10.79 - Joint Venture Agreement dated as of January 14, 1992 Form 10-Q for the quarter ended March 31,
between Catalina Lighting, Inc. O'Design Ceramics, Inc. 1992
Catalina Canada Lighting Inc. and Danny Lavy, as amended
10.80 - Employment Agreement dated April 1, 1992 between Catalina Form 10-Q for the quarter ended March 31,
Lighting, Inc. and Janet P. Ailstock 1992
10.81 - Second Amended and Restated Credit Agreement among the Form 10-Q for the quarter ended March 31,
Company and Sun Bank, National Association dated as of 1992
June 19, 1992
10.82 - Amendments to Employment Agreements between the Company Form 10-K dated December 10, 1992
and Messrs Hersh, Rappaport and Stewart dated as of
October 1, 1992
10.83 - Amendment, dated January 26, 1993 between the Company and Form 10-Q for the quarter ended December
David Moss 31, 1992
10.84 - First Amendment to Second Amended and Restated Credit Form 10-Q for the quarter ended December
Facility dated as of June 19, 1992 31, 1992
Page 57
<PAGE>
10.85 - Second Amendment to Second Amended and Restated Credit Form 10-Q for the quarter ended
Agreement Among the Company and Sun Bank, National March 31, 1993
Association, dated April 30, 1993
10.86 - Amendment dated as of October 1, 1993 to Employment Form 10-K dated December 28, 1993
Agreement between the Company and Robert Hersh
10.87 - Amendment dated as of October 1, 1993 to Employment Form 10-K dated December 28, 1993
Agreement between the Company and Dean Rappaport
10.88 - Amendment dated as of October 1, 1993 to Employment Form 10-K dated December 28, 1993
Agreement between the Company and William D. Stewart
10.89 - Agreement dated September 29, 1993 between Catalina Form 10-K dated December 28, 1993
Lighting, Inc. and Shunde No. 1 Lamp Factory
10.90 - Agreement dated October 1, 1993 between Dana Lighting, Form 10-Q for the quarter ended December
Inc., Catalina Lighting, Inc., and Nathan Katz terminating 31, 1993
the 1989 Employment Agreement
10.91 - The Employment Agreement dated October 1, 1993 between Form 10-Q for the quarter ended December
Dana Lighting, Inc., Catalina Lighting, Inc., and Nathan 31, 1993
Katz
10.92 - Note Agreement dated March 15, 1994 among the Company and Form 10-Q for the quarter ended March 31,
Massachusetts Mutual Life Insurance Company, MassMutual 1994
Corporate Investors, MassMutual Participation Investors,
S.O. P.A.F. International S.A., Prudential Securities,
Inc. and Jefferies Group, Inc.
10.93 - Second Amended Employment Agreement among the Company and Form 10-Q for the quarter ended March 31,
Janet P. Ailstock dated April 1, 1994. 1994
10.94 - Agreement dated December 30, 1993 among the Company, Danny Form 10-Q for the quarter ended March 31,
Lavy, Susan Lavy and Les Investissements Lavy, Inc. 1994
10.95 - Third amended and restated credit agreement among Catalina Form 10-Q for the quarter ended June 30,
Lighting, Inc. and Sun Bank, National association, dated 1994
May 12, 1994
10.96 - Letter of commitment between Catalina Lighting Canada Form 10-Q for the quarter ended June 30,
(1992), Inc. and National bank of Canada dated May 19, 1994 1994
10.97 - Consulting Agreement between Catalina Lighting, Inc. and Form 10-Q for the quarter ended June 30,
Henry Gayer dated July 6, 1994 1994
10.98 - Purchase Agreement among Catalina Lighting, Inc. and the Form 8-K dated August 9, 1994
Stockholders of Go-Gro Industries, Ltd.
10.99 - Employment Agreement by and among Go-Gro Industries and Form 8-K dated August 9, 1994
Mr. Lau
10.100.1 - Financial statements of Go-Gro Industries Ltd. for the Amendment No.2 to Form 8-K filed December
year ended July 31, 1994 15, 1994
10.100.2 - Financial statements of Go-Gro Industries Ltd. for the Amendment No.1 to Form 8-K filed October
years ended July 31, 1993 and 1992 13, 1994
10.100.3 - Financial statements of CIPEL Development Ltd. for the Amendment No.1 to Form 8-K filed October
year ended July 31, 1994 13, 1994
10.100.4 - Financial Statements of CIPEL Development Limited for the Amendment No.1 to Form 8-K filed October
years ended July 31, 1993 and 1992 13, 1994
10.100.5 - Financial Statements of Lamp Depot Limited for the period Amendment No.1 to Form 8-K filed October
from September 23, 1994 (date of incorporation) to July 13, 1994
31, 1994
10.100.6 - Amended Financial Statements of Go-Gro Industries Limited Amendment No. 2 to Form 8-K/A dated
December 15, 1994
10.101 - First amendment to third amended and restated credit Form 10-K dated December 28, 1994
agreement among Catalina Lighting, Inc. and Sun Bank,
National Association, dated August 12, 1994
Page 58
<PAGE>
10.102 - Contract for the Sale and Purchase of Real Estate by and Form 10-K dated December 28, 1994
between Lauderdale County Economic Development District,
Meridian Lamps, Inc. and Jansko, Inc. dated November 1,
1994
10.103 - Mississippi Small Enterprise Development Finance Act Loan Form 10-K dated December 28, 1994
Agreement among Mississippi Business Finance Corporation
(acting for and on behalf of the State of Mississippi),
Bank of Mississippi (as Servicing Trustee) and Meridian
Lamps, Inc. dated November 1, 1994
10.104 - $1,200,000 Mortgage Deed and Security Agreement and Form 10-K dated December 28, 1994
Mortgage Note issued by the Company in favor of
Mississippi Business Finance Corporation dated September
28, 1994
10.105 - Agreement of Lease by and between Anker Construction Ltd. Form 10-K dated December 28, 1994
and Catalina Lighting Canada (1992), Inc. dated October
20, 1994
10.106 - Sub-Lease Agreement dated September 23, 1994 by and Form 10-K dated December 28, 1994
between the Company and Shippers Warehouse, Inc.
10.107 - Plan Administration Support Services Agreement dated Form 10-K dated December 28, 1994
September 12, 1994 by and between Catalina Lighting, Inc.
and Sun Bank, National Association
10.108 - Amended Complaint in the Matter of Holmes Products Form 10-K dated December 28, 1994
Corporation versus Dana Lighting, Inc. and Nathan Katz
10.109 - Financing agreements between Go-Gro Industries Limited and Form 10-K dated December 28, 1994
Standard Chartered Bank dated May 27, 1994
10.110 - Financing Agreement between Go-Gro Industries Limited and Form 10-K dated December 28, 1994
The Hong Kong and Shanghai Banking Corporation Limited
dated May 31, 1993
10.111 - Letter of Credit Agreement dated as of November 1, 1994 Form 10-K dated December 28, 1994
between Meridian Lamps, Inc., the Company and Sun Bank,
National Association
10.112 - Second Amendment to Third Amended and Restated Credit Form 10-Q for the quarter ended March 31,
Agreement and Third Amended and Restated Stock and Notes 1995
Pledge between Sun Bank National Association and the
Company dated February 23, 1995
10.113 - Financing Agreement between Go-Gro Industries, Ltd. and Form 10-Q for the quarter ended March 31,
Standard Chartered Bank dated October 4, 1994 and 1995
amendment to Financing Agreement dated January 5, 1995
10.114 - Third Amendment to Third Amended and Restated Credit Form 10-Q for the quarter ended June 30,
Agreement and Consent dated May 1, 1995 between Catalina 1995
Lighting and Sun Bank, National Association
10.115 - Fourth Amendment to Third Amended and Restated Credit Form 10-Q for the quarter ended June 30,
Agreement and Consent dated June 30, 1995 between Catalina 1995
Lighting and Sun Bank, National Association
10.116 - First Amendment to Note Agreement between Catalina Form 10-Q for the quarter ended June 30,
Lighting and Massachusetts Mutual Life Insurance Company, 1995
MassMutual Corporate Investors, MassMutual Participation
Investors, MassMutual Corporate Value Partners, Prudential
Securities Inc. and SO. P.A.F. International S.A. dated
June 28, 1995
10.117 - Loan Agreement between Mississippi Business Finance Form 10-Q for the quarter ended June 30,
Corporation and Dana Lighting, dated May 1, 1995 1995
10.118 - Letter of Credit Agreement between Dana Lighting, Inc. and Form 10-Q for the quarter ended June 30,
Sun Bank, National Association dated May 1, 1995, and as 1995
amended on June 30, 1995
10.119 - Shenzhen Municipal Agreement to transfer rights to use Form 10-Q for the quarter ended June 30,
land dated April 11, 1995 1995
Page 59
<PAGE>
10.120 - Construction Loan Agreement between Sun Bank, National Form 10-Q for the quarter ended June 30,
Association and Dana Lighting dated May 1, 1995 1995
10.121 - Indenture of Trust dated May 1, 1995, relating to $10.5 Form 10-Q for the quarter ended June 30,
million Mississippi Business Finance Corporation Taxable 1995
Variable Rate Industrial Development Revenue Bonds Series
1995
10.122 - Shenzhen Municipal Construction Contract dated January 4, Form 10-Q for the quarter ended June 30,
1995 1995
10.123 - Final Design and Construction Contract between Catalina Form 10-Q for the quarter ended June 30,
Industries, Inc., d/b/a Dana Lighting and Jesco, Inc. dated 1995
June 20, 1995
10.124 - Sublease Agreement between Catalina Lighting, Inc. and Form 10-Q for the quarter ended June 30,
Shippers Warehouse and Agreement between Catalina 1995
Lighting, Inc. and Shippers Warehouse, Inc. and S & W
Warehouse, Inc. effective June 15, 1995 as to sell warehouse
equipment.
10.125 - Land purchase Agreement dated March 31, 1995 between Form 10-Q for the quarter ended June 30,
Community Development Foundation and Dana Lighting, Inc. 1995
10.126 - Fifth amendment to Third Amended and Restated Credit Form 10-K dated December 27, 1995
Agreement dated December 4, 1995 between Catalina Lighting
and SunTrust Bank, Central Florida, National Association
f/k/a SunTrust, National Association
10.127 - Contract to amend Cooperative Joint Venture Contract Form 10-K dated December 27, 1995
between Shenzhen Baoanqu Fuda Industries Co. (SJE) and
Go-Gro Industries, Ltd. dated May 27, 1995
10.128 - Second Amendment to Note Agreement between Catalina Form 10-K dated December 27, 1995
Lighting and Massachusetts Mutual Life Insurance Company,
MassMutual Corporate investors, MassMutual Participation
Investors, MassMutual Corporate Value Partners, Ltd.,
Prudential Securities Inc. and SO. P.A.F. International
S.A. dated September 30, 1995
10.129 - Sixth Amendment to third Amended and Restated Credit Form 10-Q for the Quarter ended December
Agreement dated December 28, 1995, between Catalina 31, 1995
Lighting, Inc. and Sun Trust Bank, Central Florida,
National Association f/k/a SunTrust, National Association
10.130 - Second Amendment to Letter of Credit Agreement and First Form 10-Q for the Quarter ended December
Amendment to Security Agreement between Catalina 31, 1995
Industries, Inc. d/b/a Dana Lighting and SunTrust Bank,
Central Florida, National Association f/k/a SunTrust,
National Association
10.131 - Seventh Amendment to third Amended and Restated Credit Form 10-Q for the Quarter ended March 31,
Agreement dated March 18, 1996, between Catalina Lighting, 1996
Inc. and Sun Trust Bank, Central Florida, National
Association
10.132 - Third Amendment to Letter of Credit Agreement dated March Form 10-Q for the Quarter ended March 31,
27, 1996 between Catalina Industries, Inc. d/b/a Dana 1996
Lighting and SunTrust Bank, Central Florida, National
Association f/k/a SunTrust, National Association
10.133 - Third Amendment to Employment Agreement dated April 1, Form 10-Q for the Quarter ended March 31,
1996 between Catalina Lighting, Inc. and Janet P. Ailstock 1996
10.134 - License Agreement dated April 26, 1996 between Form 10-Q for the Quarter ended March 31,
Westinghouse Electric Corporation and Catalina Lighting, 1996
Inc.
10.135 - Press Release dated July 18, 1996 Form 8-K dated July 18, 1996
10.136 - Complaint in the matter of BLACK & DECKER (U.S.), INC., Form 10-Q for the Quarter ended June 30,
BLACK & DECKER INC. VS. CATALINA LIGHTING, INC., Case No. 1996
96-1042-A, in the United States District Court, Eastern
Division of Virginia
10.137 - Financing Agreement between Catalina Lighting Canada Form 10-K dated December 27, 1996
(1992), Inc. and National Bank of Canada dated May 1, 1996
Page 60
<PAGE>
10.138 - Lease Financing Agreement between Go-Gro Industries Ltd. Form 10-K dated December 27, 1996
and The Hong Kong and Shanghai Banking Corporation
Limited dated October 30, 1996
10.139 - Eighth Amendment to Third Amended and Restated Credit Form 10-Q for the Quarter ended December
Agreement, third Amendment to second Amended and Restated 31, 1996
Security Agreement, and Fourth Amendment to Third Amended
and Restated stock and Notes Pledge dated October 4, 1996
between Catalina Lighting, Inc. and SunTrust Bank,
Central Florida, national Association.
10.140 - Ninth Amendment to Third Amended and Restated Credit Form 10-Q for the Quarter ended March 31,
Agreement dated December 30, 1996 between Catalina 1997
Lighting, Inc. and SunTrust Bank, Central Florida,
National Association.
10.141 - Fourth Amendment to Letter of Credit Agreement dated Form 10-Q for the Quarter ended March 31,
December 30, 1996 between Catalina Industries, Inc. and 1997
SunTrust Bank, Central Florida, National Association.
10.142 - Tenth Amendment to Third Amended and Restated Credit Form 10-Q for the Quarter ended March 31,
Agreement dated March 31, 1997 between Catalina Lighting, 1997
Inc. and SunTrust Bank, Central Florida, National
Association.
10.143 - Fifth Amendment to Letter of Credit Agreement dated March Form 10-Q for the Quarter ended March 31,
31, 1997 between Catalina Industries, Inc. and SunTrust 1997
Bank, Central Florida, National Association.
10.144 - Restated Articles of Association for Shenzhen Jiadianbao Form 10-Q for the Quarter ended March 31,
Electrical Products Co., Ltd., a Cooperative Joint 1997
Venture Company dated October 18, 1996
10.145 - Contract to Amend Cooperative Joint Venture Contract Form 10-Q for the Quarter ended March 31,
between Shenzhen Baoanqu Fuda Industries Co., and 1997
Go-Gro Industries, Ltd. dated October 18, 1996
10.146 - Financing Agreement between Go-Gro Industries, Ltd. and Form 10-Q for the Quarter ended June 30,
Standard Chartered Bank dated May 12, 1997. 1997
10.147 - Employment and non-compete agreement dated April 1, 1997 Form 10-Q for the Quarter ended June 30,
between Go-Gro Industries Ltd. and Wai Check Lau. 1997
10.148 - Amendment to Financing Agreement between Catalina Filed herewith
Lighting Canada (1992), Inc. and National Bank of Canada
dated October 17, 1997
10.149 - Eleventh Amendment to Third Amended and Restated Credit Filed herewith
Agreement dated September 30, 1997 between Catalina
Lighting, Inc. and SunTrust bank, Central Florida,
National Association.
10.150 - Sixth Amendment to Letter of Credit Agreement dated Filed herewith
September 30, 1997 between Catalina Industries, Inc. and
SunTrust bank, Central Florida, National Association.
10.151 - First Amendment to Shenzhen Municipal Construction Filed herewith
Contract dated January 30, 1996.
10.152 - First Amendment to the Loan Agreement among Mississippi Filed herewith
Business Finance Corporation, Bank of Mississippi,
SunTrust Bank and Meridian Lamps, Inc. dated August 28,
1997.
10.153 - Escrow Agreement between Mississippi Business Finance Filed herewith
Corporation, Meridian Lamps, Inc. and Bank of Mississippi
dated August 28, 1997.
11 - Computation of Earnings (loss) Per Share Filed herewith
21 - Subsidiaries of the Registrant Filed herewith
23 - Consent of Deloitte & Touche LLP Filed herewith
27 - Financial Data Schedule Filed herewith
</TABLE>
Page 61
<PAGE>
(b) REPORTS ON FORM 8-K:
None.
(c) UNDERTAKING:
For the purposes of complying with the amendments to the rules
governing Form S-8 (effective July 13, 1990) under the Securities Act of 1933
(the "1933 Act"), the undersigned Registrant hereby undertakes as follows, which
understanding shall be incorporated by reference into Registrant's Registration
Statements on Form S-8 Nos. 33-23900, 33-33292, 33-62378 and 33-94016.
Insofar as indemnification for liabilities arising under the 1933 Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the 1933 Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit of proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the 1933 Act and will be governed by the final
adjudication of such issue.
Page 62
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 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.
CATALINA LIGHTING, INC.
By: /s/ROBERT HERSH
--------------------------------
Robert Hersh, Chairman, President,
Chief Executive Officer and Director
December 24, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons of behalf of the
Company and in the capacities and on the dates indicated.
By:/s/ DEAN S. RAPPAPORT December 24, 1997
---------------------------------
Dean S. Rappaport, Director,
Executive Vice President, and
Chief Operating Officer
By:/s/ WILLIAM D. STEWART December 24, 1997
---------------------------------
William D. Stewart, Director,
Executive Vice President
By:/s/ DAVID W SASNETT December 24, 1997
---------------------------------
David W Sasnett,
Chief Financial Officer,
Senior Vice President,
Chief Accounting Officer
By:/s/ RYAN BURROW December 24, 1997
---------------------------------
Ryan Burrow, Director
By:/s/ HENRY LATIMER December 24, 1997
---------------------------------
Henry Latimer, Director
By:/s/ JEFFREY SILVERMAN December 24, 1997
---------------------------------
Jeffrey Silverman, Director
By:/s/ LEONARD SOKOLOW December 24, 1997
---------------------------------
Leonard Sokolow, Director
By:/s/ ROBERT WACHS December 24, 1997
---------------------------------
Robert Wachs, Director
Page 63
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
10.148 - Amendment to Financing Agreement between Catalina
Lighting Canada (1992), Inc. and National Bank of Canada
dated October 17, 1997
10.149 - Eleventh Amendment to Third Amended and Restated Credit
Agreement dated September 30, 1997 between Catalina
Lighting, Inc. and SunTrust bank, Central Florida,
National Association.
10.150 - Sixth Amendment to Letter of Credit Agreement dated
September 30, 1997 between Catalina Industries, Inc. and
SunTrust bank, Central Florida, National Association.
10.151 - First Amendment to Shenzhen Municipal Construction
Contract dated January 30, 1996.
10.152 - First Amendment to the Loan Agreement among Mississippi
Business Finance Corporation, Bank of Mississippi,
SunTrust Bank and Meridian Lamps, Inc. dated August 28,
1997.
10.153 - Escrow Agreement between Mississippi Business Finance
Corporation, Meridian Lamps, Inc. and Bank of Mississippi
dated August 28, 1997.
11 - Computation of Earnings (loss) Per Share
21 - Subsidiaries of the Registrant
23 - Consent of Deloitte & Touche LLP
27 - Financial Data Schedule
Asset Based Lending Division
Exhibit 10.148
[COMPANY LOGO]
NATIONAL
BANK
OF CANADA
October 17,1997
CATALINA LIGHTING CANADA, (1992) INC./
LUMIERES CATALINA CANADA, (1992) INC.
c/o Catalina Lighting, Inc.
18191 N.W. 68th Avenue
Miami, Florida 33015
United States of America
ATTENTION OF MR. THOMAS M. BLUTH, TAX DIRECTOR
Dear Sir:
RE: AMENDMENT TO OFFER OF FINANCING AND BANKING SERVICES
Reference is hereby made to the Offer of financing and banking services dated
April 17, 1996 and accepted May 1, 1996, between Catalina Lighting Canada,
(1992) Inc. (the "Borrower") and National Bank of Canada (the "Bank").
Capitalized terms used herein and not otherwise defined shall have the meanings
specified in the Offer of financing and banking services.
In consideration of the mutual covenants and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
Bank and the Borrower have agreed as follows;
1) The Offer of financing and banking services shall be amended as
follows;
A) The interest rate referenced in section 1.4 shall be replaced
by the following;
1.4 INTEREST RATE
All advances shall bear interest at the Canadian
Prime Rate of the Bank plus 0.50%. Interest shall be
payable monthly on the 26th day of each month.
B) The addition of section 1.4.1 to read as follows;
1.4.1 UNUSED LINE FEE
The Borrower shall pay an unused line fee equal to
0.25% per annum of the unutilized portion of the
Operating Credit Facility calculated and payable on
the first business day of each month.
350 Burnhamthorpe Road West
Suite 305
Mississauga, Ontario L5B 3J1
Telephone: (905) 272-1515
Fax: (905) 272-8522
<PAGE>
AMENDMENT TO OFFER OF FINANCING PAGE 2
===============================================================================
C) The deletion of section 3.1.2 regarding the Irrevocable Letter
of Credit
D) The addition of section 1.7 to read as follows;
1.7 AUDITS AND AUDIT FEES
The Bank or its agents will conduct semi-annual
audits in respect of the Borrower, the Borrower shall
pay a fee of $500.00 Cdn. for each day which such
audit is conducted in addition to any expenses
incurred by the Bank or its agents.
2. The amendments and waivers set forth herein are strictly limited to the
terms, covenants, matters, occasions and times specifically described
above and shall not be deemed to constitute an amendment, consent or
waiver with respect to any other term, covenant, matter, time or
occasion.
3. This letter agreement supersedes and replaces any prior agreements of
understandings with respect to any of the matters provided for herein.
4. This letter agreement shall be deemed to have been made in the Province
of Quebec and governed by the interpreted in accordance with the laws
of such Province and the laws of Canada applicable therein, except that
no doctrine or choice of law shall be used to apply the laws of any
other jurisdiction.
Except to the extent waived or modified herein, the Offer of financing and
banking services remains in full force and effect and is hereby ratified and
confirmed. Please evidence your agreement with the terms of this letter
agreement by signing in the space below. This letter agreement shall become
effective in accordance with its terms upon execution by the Bank and the
Borrower whereupon all references to the Agreement in the Offer of financing and
banking services and in the other credit Documents shall, except where the
context otherwise requires, be deemed to be a reference to the Offer of
financing and banking services as amended by this letter agreement.
Sincerely,
[LOGO]NATIONAL BANK OF CANADA
Per: /s/ TIMOTHY LOHN Per: /s/ ELLIS GASTON
---------------------------------- ----------------------------
Timothy Lohn Ellis Gaston
Divisional Manager Senior Account Manager
===============================================================================
Catalina Lighting Canada, (1992) Inc./Lumieres Catalina Canada, (1992) Inc.
<PAGE>
AMENDMENT TO OFFER OF FINANCING PAGE 3
===============================================================================
ACCEPTANCE
The undersigned hereby accepts the terms and conditions of this Offer dated
October 17, 1997 at the City of _____________________ , Province of Quebec, this
28th day of October, 1997.
CATALINA LIGHTING CANADA, (1992)INC./
LUMIERES CATALINA CANADA, (1992)INC.
Per: /s/ DEAN RAPPAPORT Per:
---------------------------------- ----------------------------
Name: Dean Rappaport Name:
Title: Vice President Title:
===============================================================================
Exhibit 10.149
ELEVENTH AMENDMENT TO
THIRD AMENDED AND RESTATED CREDIT AGREEMENT
THIS ELEVENTH AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT (the
"Eleventh Amendment") dated as of September 30, 1997, by and among CATALINA
LIGHTING, INC., a Florida corporation (the "Borrower"), the corporations listed
on Annex I thereto (the "Guarantors"), the Banks signatories to the Credit
Agreement (as hereinafter defined) (the "Banks") and SUNTRUST BANK, CENTRAL
FLORIDA, NATIONAL ASSOCIATION, a national banking association, as Agent (the
"Agent").
W I T N E S S E T H:
WHEREAS, the Borrower, the Guarantors, the Banks and the Agent have entered
into that certain Third Amended and Restated Credit Agreement dated as of May
12, 1994, as amended by that certain First Amendment to Third Amended and
Restated Credit Agreement, Second Amended and Restated Security Agreement, Third
Amended and Restated Stock and Notes Pledge, Third Amended and Restated
Agreement Regarding Factoring Proceeds, Consent and Waiver dated as of August
12, 1994, as further amended by that Second Amendment to Third Amended and
Restated Credit Agreement and Third Amended and Restated Stock and Notes Pledge,
dated as of February 23, 1995, as further amended by that Third Amendment to
Third Amended and Restated Credit Agreement and Consent, dated as of May 1,
1995, as further amended by that Fourth Amendment to the Third Amended and
Restated Credit Agreement, dated as of June 30, 1995, as further amended by that
Fifth Amendment to Third Amended and Restated Credit Agreement, dated as of
December 4, 1995, as further amended by that Sixth Amendment to Third Amended
and Restated Credit Agreement, Second Amendment to Second Amended and Restated
Security Agreement and Second Amendment to Third Amended and Restated Stock and
Notes Pledge, dated as of December 28, 1995, as further amended by that Seventh
Amendment to Third Amended and Restated Credit Agreement, dated as of March 18,
1996, as further amended by that Eighth Amendment to Third Amended and Restated
Credit Agreement, Third Amendment to Second Amended and Restated Security
Agreement, and Fourth Amendment to Third Amended and Restated Stock and Notes
Pledge, dated as of October 4, 1996, as further amended by that Ninth Amendment
to Third Amended and Restated Credit Agreement, dated as of December 30, 1996,
and as further amended by that Tenth Amendment to Third Amended and Restated
Credit Agreement, dated as of March 31, 1997 (as so amended, the "Credit
Agreement"); and
WHEREAS, the Borrower and the Guarantors have requested that the Credit
Agreement be amended to revise certain financial covenants.
<PAGE>
WHEREAS, the Banks and the Agent have agreed to amend the Credit Agreement
to provide for the foregoing, subject to the terms and conditions set forth
herein.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. AMENDMENTS TO CREDIT AGREEMENT. The Credit Agreement is hereby amended as
follows:
a. Section 5.12 of the Credit Agreement is hereby deleted, and in lieu
thereof, there is substituted the following:
"Section 5.12. MINIMUM CONSOLIDATED TANGIBLE NET WORTH PLUS
SUBORDINATED DEBT. Permit its Minimum Consolidated Tangible Net Worth
Plus Subordinated Debt to be less than $36,000,000.00 from the date
hereof until September 29, 1996; $39,000,000.00 from September 30, 1996
until March 30, 1997; $34,500,000.00 from March 31, 1997 until June 29,
1997; $35,000,000.00 from June 30, 1997 until September 29,
1997; $35,500,000.00 from September 30, 1997 until December 30, 1997;
$35,750,000.00 from December 31, 1997 until March 30, 1997;
$36,250,000.00 from March 31, 1998 until June 29, 1998; $43,000,000.00
from June 30, 1998 until September 29, 1998; and $45,000,000 as at
September 30, 1998 and at all times thereafter.
b. Section 5.14 of the Credit Agreement is hereby deleted, and in lieu
thereof, there is substituted the following:
"Section 5.14. INTEREST COVERAGE RATIO. Permit the ratio of (a) the sum
of (i) Consolidated Pre-tax Income plus (ii) Consolidated Interest
Charges to (b) Consolidated Interest Charges, to be less than 1.0:1 for
the one (1) calendar quarterly period ending December 31, 1995; less
than 0.60:1 for the immediately preceding two (2) calendar quarterly
periods ending March 31, 1996; less than 1.25:1 for the immediately
preceding three (3) calendar quarterly periods ending June 30, 1996;
less than 1.75:1 for the immediately preceding four (4) calendar
quarterly period ending
2
<PAGE>
September 30, 1996; less than 1.25:1 for the immediately preceding four
(4) calendar quarterly periods ending December 31, 1996; excluding the
effect of the actual pretax charge to earnings previously disclosed to
the Agent and the Banks not to exceed $9,859,826.00 incurred during the
quarterly period ending March 31, 1997, less than 1.00:1 for the
immediately preceding four (4) calendar quarterly periods ending March
31, 1997; excluding the effect of the actual pretax charge to earnings
not to exceed $432,000.00 incurred during the quarterly period ending
June 30, 1997 for all calculations for which said quarterly period is
included, less than 1.50:1 for the one (1) calendar quarterly period
ending June 30, 1997; and less than 1.75:1 for (i) the immediately
preceding two ( 2) calendar quarterly periods ending September 30,
1997, (ii) the immediately preceding three (3) calendar quarterly
periods ending December 31, 1997 and (iii) the immediately preceding
four (4) calendar quarterly periods ending March 31, 1998; and 2.00:1
for the immediately preceding four (4) calendar quarterly periods
ending on the last day of each calendar quarter thereafter."
c. Subsection (g) of Section 5.18 of the Credit Agreement is hereby
deleted, and in lieu thereof, there is substituted the following:
"(g). the Borrower and any of its Subsidiaries may make other
investments, loans and advances in addition to those permitted by the
foregoing provisions of this Section 5.18 from time to time, provided
that the aggregate amount of such investments, loans and advances
shall not exceed $21,000,000.00 without the - prior written consent of
all Banks and, further provided that not more than $2,500,000.00 of
said aggregate amount shall represent the aggregate amount of
investments, loans and advances made to Catalina Lighting Mexico, S.A.
DE C.V. For the purpose of this subsection, the $21,000,000.00
limitation referred to above shall not include the net note receivable
from Catalina Asia in the amount not to exceed $1,000,000.00"
d. The signature pages to the Credit Agreement shall be amended as
reflected on the signature pages attached hereto.
3
<PAGE>
2. ASSIGNMENT OF REVOLVING NOTE. Effective September 29, 1997, National Canada
Finance Corp has assigned and transferred, by appropriate endorsement, that
certain Revolving Note dated February 23, 1995 executed by the Borrower payable
to National Canada Finance Corp. in the principle sum of $17,000,000.00 to
National Bank of Canada.
3. AMENDMENT TO LOAN DOCUMENTS. The Loan Documents are hereby amended by
substituting "National Bank of Canada" for "National Canada Finance Corp." in
each instance where these terms appear in all Loan Documents.
4. COUNTERPARTS. The Eleventh Amendment may be executed in any number of
counterparts, each of which shall be deemed to be an original and shall be
binding upon all parties, their successors and permitted assigns.
5. CAPITALIZED TERMS. All capitalized terms contained herein shall have the
meanings assigned to them in the Credit Agreement unless the context herein
otherwise dictates or unless different meanings are specifically assigned to
such terms herein.
6. RATIFICATION OF LOAN DOCUMENTS; MISCELLANEOUS. The Credit Agreement as
amended hereby, and all other Loan Documents shall remain in full force and
effect in this Eleventh Amendment to Credit Agreement shall not be deemed a
novation. Each and every reference to the Credit Agreement and any other Loan
Documents shall be deemed to refer to the Credit Agreement as amended by the
Eleventh Amendment. The Borrower and the Guarantors hereby acknowledge and
represent that the Loan Documents, as amended, are, as of the date hereof, valid
and enforceable in accordance with their respective terms and are not subject to
any defenses, counterclaims or right of set-offs whatsoever.
7. GOVERNING LAW. THIS ELEVENTH AMENDMENT SHALL BE EFFECTIVE UPON ACCEPTANCE BY
THE BANKS IN FLORIDA AND SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY
THE LAWS OF THE STATE OF FLORIDA WITHOUT REGARD TO CONFLICT OF LAW PRINCIPLES.
IN WITNESS WHEREOF, the parties have executed this Eleventh Amendment as of
the day and year first above written.
BORROWER:
CATALINA LIGHTING, INC.
By: /s/ THOMAS M. BLUTH
--------------------------------
Thomas M. Bluth
Vice President, Secretary,
Treasurer
4
<PAGE>
GUARANTORS:
EACH OF THE CORPORATIONS LISTED
ON ANNEX I HERETO
CATALINA INDUSTRIES, INC.,
d/b/a Dana Lighting
By: /s/ THOMAS M. BLUTH
--------------------------------
Thomas M. Bluth
Secretary, Treasurer
CATALINA REAL ESTATE TRUST, INC.
By: /s/ THOMAS M. BLUTH
--------------------------------
Thomas M. Bluth
Secretary, Treasurer
ANGEL STATION, INC.
By: /s/ THOMAS M. BLUTH
--------------------------------
Thomas M. Bluth
Secretary, Treasurer
MERIDIAN LAMPS, INC.
By: /s/ THOMAS M. BLUTH
--------------------------------
Thomas M. Bluth
Secretary, Treasurer
MERIDIAN LAMPS DEVELOPMENT, INC.
By: /s/ THOMAS M. BLUTH
--------------------------------
Thomas M. Bluth
Secretary, Treasurer
5
<PAGE>
CATALINA ADMINISTRATIVE CORPORATION
By: /s/ THOMAS M. BLUTH
--------------------------------
Thomas M. Bluth
Assistant Secretary
CATALINA MERCHANDISING, INC.
By: /s/ THOMAS M. BLUTH
--------------------------------
Thomas M. Bluth
Secretary, Treasurer
AGENT:
SUNTRUST BANK, CENTRAL FLORIDA,
NATIONAL ASSOCIATION
By: /s/ DAVID E. CROW
---------------------------------
Name: David E. Crow
Title: Senior Vice President
6
<PAGE>
"Banks"
SUNTRUST BANK, CENTRAL FLORIDA,
NATIONAL ASSOCIATION f/k/a Sun
Bank, National Association
Amount of
Commitment: $31,000,000 *
By: /s/ DAVID E. CROW
-------------------------------
David E. Crow
Senior Vice President
Lending Office:
200 South Orange Avenue
6th Level, Tower Building
Orlando, FL 32801
Address for purposes of Section 12.1
SunTrust Bank, Central Florida, National Association
200 South Orange Avenue
6th Level, Tower Building
Orlando, FL 32801
Telex No: 4415-11 SunTrust
Telecopier No.: (407) 237-6817
Telephone No.: (407) 237-4088
Attention: Mr. David E. Crow
* ($3,624,592.00 of which shall consist
only of the Non-Revolving Advance)
7
<PAGE>
"Banks"
NATIONAL BANK OF CANADA,
a Canadian chartered bank
Amount of
Commitment: $17,000,000 *
By: /s/ MICHAEL S. BLOOMENFELD
---------------------------------
Michael S. Bloomenfeld
Vice President and Manager
Lending Office:
5100 Town Center Circle
Suite 430
Boca Raton, Florida 33486
Attention: Michael S. Bloomenfeld
Reference: Catalina Lighting, Inc.
Address for purposes of Section 12.1
National Bank of Canada
5100 Town Center Circle
Suite 430
Boca Raton, Florida 33486
Attention: Michael S. Bloomenfeld
Telecopier: (561) 367-1705
Telephone: (561) 367-1700
* ($1,987,704.00 of which shall consist
only of the Non-Revolving Advance)
8
<PAGE>
"Banks"
FIRST UNION NATIONAL BANK f/k/a
First Union National Bank of Florida
Amount of
Commitment: $17,000,000 *
By: /s/ MARY A. MORGAN
------------------------------------
Name: Mary A. Morgan
Title: Senior Vice President
Lending Office:
Corporate Banking, 13th Floor
200 South Biscayne Blvd.
Miami, Florida 33131
Attention: Charles Klenk
Reference: Catalina Lighting, Inc.
Address for purposes of Section 12.1
First Union National Bank
Corporate Banking, 13th Floor
200 South Biscayne Blvd.
Miami, Florida 33131
Attention: Charles Klenk
Telecopier No.: (305) 789-5060
Telephone No.: (305) 789-5061
* ($1,987,704.00 of which shall consist
only of the Non-Revolving Advance)
9
Exhibit 10.150
SIXTH AMENDMENT TO
LETTER OF CREDIT AGREEMENT
THIS SIXTH AMENDMENT TO LETTER OF CREDIT AGREEMENT (the "Sixth Amendment")
dated as of September 30, 1997, by and among CATALINA INDUSTRIES, INC. d/b/a
Dana Lighting, a Florida corporation (the "Company"), the corporations
designated as guarantors (collectively, the "Guarantors") and SUNTRUST BANK,
CENTRAL FLORIDA, NATIONAL ASSOCIATION f/k/a Sun Bank, National Association, a
national banking association (the "Bank").
W I T N E S S E T H:
WHEREAS, the Company, Guarantors and the Bank have entered into that
certain Letter of Credit Agreement dated as of May 1, 1995, as amended by that
certain First Amendment to Letter of Credit Agreement dated as of June 30, 1995,
as further amended by that certain Second Amendment to Letter of Credit
Agreement and First Amendment to Security Agreement dated as of December 28,
1995, as further amended by that certain Third Amendment to Letter of Credit
Agreement dated as of March 27, 1996, as further amended by that certain Fourth
Amendment to Letter of Credit Agreement dated as of December 30, 1996, and as
further amended by that certain Fifth Amendment to Letter of Credit Agreement
dated as of March 31, 1997 (as amended, the "Letter of Credit Agreement"); and
WHEREAS, the Company and the Guarantors have requested that the Letter of
Credit Agreement be amended to revise certain financial covenants contained in
Annex VI attached to said Letter of Credit Agreement and incorporated therein by
reference; and
WHEREAS, the Bank has agreed to amend the Letter of Credit Agreement to
provide for the foregoing, subject to the terms and conditions set forth
herein.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. AMENDMENTS TO LETTER OF CREDIT AGREEMENT. The Letter of Credit Agreement is
hereby amended as follows:
a. Section 5.12, contained in Annex VI attached to the Letter of Credit
Agreement, is hereby deleted and, in lieu thereof, there is substituted therefor
the following new Section 5.12:
<PAGE>
"Section 5.12. MINIMUM CONSOLIDATED TANGIBLE NET WORTH PLUS
SUBORDINATED DEBT. Permit its Minimum Consolidated Tangible Net Worth
Plus Subordinated Debt to be less than $36,000,000.00 from the date
hereof until September 29, 1996; $39,000,000.00 from September 30, 1996
until March 30, 1997; $34,500,000.00 from March 31, 1997 until June 29,
1997; $35,000,000.00 from June 30, 1997 until September 29, 1997;
$35,500,000.00 from September 30, 1997 until December 30, 1997;
$35,750,000.00 from December 31, 1997 until March 30, 1997;
$36,250,000.00 from March 31, 1998 until June 29, 1998; $43,000,000.00
from June 30, 1998 until September 29, 1998; and $45,000,000 as at
September 30, 1998 and at all times thereafter.
b. Section 5.14, contained in Annex VI attached to the Letter of Credit
Agreement, is hereby deleted and, in lieu thereof, there is substituted therefor
the following new Section 5.14:
"Section 5.14. INTEREST COVERAGE RATIO. Permit the ratio of (a) the
sum of (i) Consolidated Pre-tax Income PLUS (ii) Consolidated Interest
Charges to (b) Consolidated Interest Charges, to be less than 1.0:1 for
the one (1) calendar quarterly period ending December 31, 1995; less
than 0.60:1 for the immediately preceding two (2) calendar quarterly
periods ending March 31, 1996; less than 1.25:1 for the immediately
preceding three (3) calendar quarterly periods ending June 30, 1996;
less than 1.75:1 for the immediately preceding four (4) calendar
quarterly period ending September 30, 1996; less than 1.25:1 for the
immediately preceding four (4) calendar quarterly periods ending
December 31, 1996; excluding the effect of the actual pretax charge to
earnings previously disclosed to the Agent and the Banks not to exceed
$9,859,826.00 incurred during the quarterly period ending March 31,
1997, less than l.00:1 for the immediately preceding four (4) calendar
quarterly periods ending March 31, 1997; excluding the effect of the
actual pretax charge to earnings not to exceed $432,000.00 incurred
during the quarterly period ending June 30, 1997 for all
2
<PAGE>
calculations for which said quarterly period is included, less than
1.50:1 for the one (1) calendar quarterly period ending June 30, 1997;
and less than 1.75:1 for (i) the immediately preceding two (2) calendar
quarterly periods ending September 30, 1997, (ii) the immediately
preceding three (3) calendar quarterly periods ending December 3l, 1997
and (iii) the immediately preceding four (4) calendar quarterly periods
ending March 31, 1998; and 2.00:1 for the immediately preceding four
(4) calendar quarterly periods ending on the last day of each calendar
quarter thereafter."
c. Subsection (g) of Section 5.18 contained in Annex VI of the Letter of
Credit Agreement is hereby deleted, and in lieu thereof, there is substituted
the following:
"(g). the Borrower and any of its Subsidiaries may make other
investments, loans and advances in addition to those permitted by the
foregoing provisions of this Section 5.18 from time to time, provided
that the aggregate amount of such investments, loans and advances shall
not exceed $21,000,000.00 without the prior written consent of all
Banks and, further provided that not more than $2,500,000.00 of said
aggregate amount shall represent the aggregate amount of investments,
loans and advances made to Catalina Lighting Mexico, S.A. DE C.V. For
the purpose of this subsection, the $21,000,000.00 limitation referred
to above shall not include the net note receivable from Catalina Asia
in the amount not to exceed $1,000,000.00"
2. COUNTERPARTS. The Sixth Amendment may be executed in any number of
counterparts, each of which shall be deemed to be an original and shall be
binding upon all parties, their successors and permitted assigns.
3. CAPITALIZED TERMS. All capitalized terms contained herein shall have the
meanings assigned to them in the Letter of Credit Agreement unless the context
herein otherwise dictates or unless different meanings are specifically assigned
to such terms herein.
4. RATIFICATION OF LOAN DOCUMENTS, MISCELLANEOUS. The Letter of Credit Agreement
as amended hereby shall remain in full force and effect and this Sixth Amendment
to Letter of Credit Agreement shall not be deemed a novation. Each and every
reference to the Letter of Credit Agreement and any other Operative Documents
shall be deemed to refer to the Letter of Credit Agreement as
3
<PAGE>
amended by the Sixth Amendment. The Company and the Guarantors hereby
acknowledge and represent that the Operative Documents, as amended, are, as of
the date hereof, valid and enforceable in accordance with their respective terms
and are not subject to any defenses, counterclaims or right of set-offs
whatsoever.
5. GOVERNING LAW. THIS SIXTH AMENDMENT SHALL BE EFFECTIVE UPON ACCEPTANCE BY THE
BANK IN FLORIDA AND SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE
LAWS OF THE STATE OF FLORIDA WITHOUT REGARD TO CONFLICT OF LAW PRINCIPLES.
(BALANCE OF THIS PAGE INTENTIONALLY LEFT BLANK)
4
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Sixth Amendment as of
the day and year first above written.
COMPANY:
CATALINA INDUSTRIES, INC.
d/b/a Dana Lighting
By: /s/ THOMAS M. BLUTH
---------------------------
Thomas M. Bluth
Secretary/Treasurer
GUARANTORS:
CATALINA LIGHTING, INC.
By: /s/ THOMAS M. BLUTH
---------------------------
Thomas M. Bluth
Secretary/Treasurer
CATALINA REAL ESTATE TRUST, INC.
By: /s/ THOMAS M. BLUTH
---------------------------
Thomas M. Bluth
Secretary/Treasurer
ANGEL STATION, INC.
By: /s/ THOMAS M. BLUTH
---------------------------
Thomas M. Bluth
Secretary/Treasurer
MERIDIAN LAMPS, INC.
By: /s/ THOMAS M. BLUTH
---------------------------
Thomas M. Bluth
Secretary/Treasurer
5
<PAGE>
MERIDIAN LAMPS DEVELOPMENT, INC.
By: /s/ THOMAS M. BLUTH
---------------------------
Thomas M. Bluth
Secretary/Treasurer
CATALINA ADMINISTRATIVE CORPORATION
By: /s/ THOMAS M. BLUTH
---------------------------
Thomas M. Bluth
Assistant Secretary
BANK:
SUNTRUST BANK, CENTRAL FLORIDA,
NATIONAL ASSOCIATION f/k/a Sun Bank,
National Association
By: /s/ DAVID E. CROW
------------------------------
Name: David E. Crow
Tltle: Senior Vice President
6
State Land Planning Bureau of Shenzben City, Bao-an Branch, Official
Document
Shen-Gui-Tu-Bao-Zi [1996]14 Hao
- ---------------------------------------*----------------------------------------
In Response to your application
for extending the construction time limit
Shenzhen Jiadianbao Electrical Products Co., Ltd.:
We have received your application letter. After study, we approve to extend the
construction time limit on the industrial use land of your company which was
specified on Shen-Di-Ho-Zi [l995] 4-029 Hao Assignment Contract. That means you
must complete 40% of the construction before April, 1997; and all the
construction must be completed in the year 2000.
End of Response
/State Land Planning Bureau of Shenzhen City, Bao-an Branch/
January 30, 1996
Key Words: Urban & Rural Construction Land Approval
- --------------------------------------------------------------------------------
C.C.: Deputy District Manager Ho
C.C.: Land Administration Division, Construction Design Management Division,
Real Estate Rights Division of Bao-an Branch
- --------------------------------------------------------------------------------
(Print 12 copies)
FIRST AMENDMENT TO THE LOAN AGREEMENT
AMONG MISSISSIPPI BUSINESS FINANCE CORPORATION
(ACTING FOR AND ON BEHALF OF THE STATE OF MISSISSIPPI),
BANK OF MISSISSIPPI, AS SERVICING TRUSTEE,
SUNTRUST BANK, CENTRAL FLORIDA, NATIONAL ASSOCIATION AND
MERIDIAN LAMPS, INC.
- --------------------------------------------------------------------------------
THIS FIRST AMENDMENT (the "First Amendment") to that certain Loan
Agreement dated November 1, 1994 (the "Loan Agreement"), among MISSISSIPPI
BUSINESS FINANCE CORPORATION (acting for and on behalf of the State of
Mississippi), BANK OF MISSISSIPPI, as Servicing Trustee, SUNTRUST BANK, CENTRAL,
FLORIDA, NATIONAL ASSOCIATION, formerly as SunBank, National Association, and
MERIDIAN LAMPS, INC., a Florida corporation qualified to do business in
Mississippi, and is effective as of August 28, 1997, by and among all parties
to the Loan Agreement.
Capitalized terms used herein shall have the definitions given them in
the Loan Agreement.
SECTION 4.07 of the Loan Agreement is hereby omitted and the following
is inserted into its place:
SECTION 4.07. OPERATION OF PROJECT. The Company agrees that so long as
any of the Bonds are outstanding it will operate the Project, or cause the
Project to be operated, as an eligible project operated by a "private company"
in accordance with the Act, unless (a) the Project is transferred pursuant
Section 6.01 of the Loan Agreement, or (b) the Loan is prepaid in accordance
with Article 8 hereof, and the Bonds are economically defeased pursuant to
Section 1.142-2 of the Regulations promulgated by the Secretary of the United
States Treasury, or any successor provision, with the prior written consent of
MBFC and the Bank and the prior written opinion of Bond Counsel, at the expense
of the Company, that the Loan has been prepaid in accordance with Article 8
hereof and such prepayment and defeasance will not violate the Act or cause the
interest of the Bonds to become subject to federal income taxation.
ARTICLE VIII of the Loan Agreement is hereby omitted and the following
inserted into its place:
<PAGE>
ARTICLE VIII
OPTION TO PREPAY
SECTION 8.01. PREPAYMENT RIGHTS. The Loan is subject to prepayment at
the option of the Company, in whole or in part, on or after November 1, 1999.
Any prepayment (a) must be approved in writing by the Bank and (2) include
provision for payment Loan Payments, Rebate Requirement payments and any other
amounts payable under the Note and hereunder, in a sum, payable in cash and/or
Government Obligations, sufficient, together with interest earned on such
Government Obligations and other funds held by MBFC and available for such
purpose, (1) to redeem at the earliest redemption date or dates provided in the
Bond Resolution, all or a portion of the Bonds then outstanding under the Bond
Resolution at a redemption price equal to the principal amount thereof and
premium, if any, (2) to pay in accordance with the Bond Resolution the interest
which will become due on all such Bonds to the date fixed for redemption, and
(3) to pay (i) the Rebate Requirement accrued and to accrue through the date
fixed for redemption, and (ii) all Administrative Expenses accrued through the
date fixed for redemption. To the extent monies are used to prepay such amounts
other than from a draw on the Direct Pay Letter of Credit, such monies will have
been deposited with the Trustee or with the Escrow Agent, pursuant to Section 13
of the Bond Resolution, for a period of at least three hundred sixty-six (366)
days prior to the prepayment of such amounts. Subject to the requirements of
this Section 8.01, after such Company monies have been deposited for three
hundred sixty-six (366) days, and upon receipt of an opinion of Bond Counsel
which provides that the Bonds are legally defeased pursuant to this Agreement
and the Bond Resolution, the Trustee and MBFC shall then execute any documents
necessary to release MBFC's security on the Project, including the release
and/or termination of any of the Deed of Trust, Security Agreement, and UCC-1
Financial Statements, if applicable, and terminate the Direct Pay Letter of
Credit, or to take any further action to provide for the termination of the
Direct Pay Letter of Credit, pursuant to such terms as may be agreed upon by
MBFC, the Bank, and the Company.
SECTION 8.02. SURVIVAL OF OBLIGATION. The Company's obligation to pay
the Rebate Requirement due under this Agreement and all of the Company's
representations as stated within Section 2.02 hereof shall survive the payment
(or deemed payment) of all the amounts specified in Section 4.02(a) and (b) and
Section 8.01 hereof.
EXHIBIT C of the Loan Agreement is hereby amended, and the following
Permitted Encumbrance is added thereto:
3. That certain Lease Agreement dated the 6th day of August,
1997, by and between the Company and the Dart Company of
Mississippi, Limited Liability Company, a memorandum of
which is to be filed in the land records of the office of
the Chancery Clerk of Lauderdale County, Mississippi.
-2-
<PAGE>
All other provisions of the Loan Agreement are confirmed in their
entirety, and, in the event of any conflict, inconsistency, or any incongruity
between the provisions of this First Amendment and the Loan Agreement, the
provisions of this First Amendment shall in all respects govern and control. All
notices required by Section 10.01 of the Loan Agreement are waived following
execution of this First Amendment. This First Amendment may be executed in
multiple counterparts, each of which shall constitute one and the same document.
(SEAL) MISSISSIPPI BUSINESS FINANCE
CORPORATION (ACTING
FOR AND ON BEHALF OF THE
STATE OF MISSISSIPPI)
/s/ VERNON SMITH By: /s/ BILL BARRY
- ----------------------- ------------------------------
Vernon Smith, Secretary Bill Barry, Executive Director
(SEAL) BANK OF MISSISSIPPI
AS SERVICING TRUSTEE
ATTEST:
/s/ DOYLE MOORHEAD By: /s/ LISA NEELD
- ----------------------- ------------------------------
Its: Trust Officer
(SEAL) MERIDIAN LAMPS, INC.
ATTEST: By: /s/ THOMAS M. BLUTH
------------------------------
/s/ DEAN RAPPAPORT Thomas M. Bluth, Secretary
- -----------------------
Dean Rappaport, Vice President
(SEAL) SUNTRUST BANK, CENTRAL FLORIDA,
NATIONAL ASSOCIATION
ATTEST: By: /s/ [ILLEGIBLE]
------------------------------
/s/ MURIEL H. HYSONG Its: Senior Vice President
- -----------------------
-3-
<PAGE>
ACKNOWLEDGMENT OF MBFC
STATE OF MISSISSIPPI )
) SS:
COUNTY OF HINDS )
PERSONALLY APPEARED BEFORE ME, the undersigned notary public in and for
the jurisdiction aforesaid, the within named BILL BARRY and VERNON SMITH, to me
known, who acknowledged they are the Executive Director and Secretary,
respectively, of the Mississippi Business Finance Corporation (acting for and on
behalf of the State of Mississippi), a public corporation organized and existing
under the laws of the State of Mississippi, and that for and on behalf of said
corporation and as its act and deed, they signed and delivered the foregoing
First Amendment to Loan Agreement as of the date therein mentioned with actual
execution on the date of this acknowledgment, after having been first duly
authorized so to do.
IN WITNESS WHEREOF, I hereunto set my hand and official seal, this the
25th day of August, 1997.
My Commission Expires: /s/ DIANE B. BOYT
----------------------------------
MISSISSIPPI STATEWIDE NOTARY PUBLIC NOTARY PUBLIC
MY COMMISSION EXPIRES JAN. 23, 2001
BONDED THRU STEBALL NOTARY SERVICE
-4-
<PAGE>
ACKNOWLEDGMENT OF TRUSTEE
STATE OF MISSISSIPPI )
) SS:
COUNTY OF HINDS )
PERSONALLY APPEARED BEFORE ME, the undersigned notary public in and for
the jurisdiction aforesaid, the within named Doyle Moorhead and Lisa Neeld to me
known, who acknowledged they are the V.P. & T.O. and Trust Officer, respectively
of BANK OF MISSISSIPPI, a banking corporation organized and existing under the
laws of Mississippi, and that for and on behalf of said banking corporation and
as its act and deed, they signed and delivered the foregoing First Amendment to
Loan Agreement as of the date therein mentioned with actual execution on the
date of this acknowledgment, after having been first duly authorized so to do.
IN WITNESS WHEREOF, I hereunto set my hand and official seal, this the
28th day of August, 1997.
My Commission Expires: /s/ [ILLEGIBLE]
------------------------------
My Commission Expires February 28, 2000 NOTARY PUBLIC
-5-
<PAGE>
ACKNOWLEDGMENT OF COMPANY
STATE OF FLORIDA )
) SS:
COUNTY OF DADE )
PERSONALLY APPEARED BEFORE ME, the undersigned notary public in and for
the jurisdiction aforesaid, the within named THOMAS M. BLUTH and DEAN RAPPAPORT,
to me known, who acknowledged they are the SECRETARY and VICE PRESIDENT,
respectively, of MERIDIAN LAMPS, INC., a Florida corporation, qualified to do
business under the laws of the State of Mississippi, and that for and on behalf
of said corporation, and as its act and deed, they signed and delivered the
foregoing First Amendment to Loan Agreement as of the date therein mentioned
with actual execution on the date of this acknowledgment, after having been
first duly authorized so to do.
IN WITNESS WHEREOF, I hereunto set my hand and official seal, this the
26 day of August, 1997.
My Commission Expires: /s/ MARIA ISABEL PINERES
--------------------------------------
______________________ NOTARY PUBLIC
MARIA ISABEL PINERES
My Comm Exp. 3/09/2001
Bonded By Service Ins
No. CC628272
[X] Personally Known [ ] Other I.D.
-6-
<PAGE>
ACKNOWLEDGMENT OF SUNTRUST BANK
STATE OF FLORIDA )
) SS:
COUNTY OF ORANGE )
PERSONALLY APPEARED BEFORE ME, the undersigned notary public in and for
the jurisdiction aforesaid, the within named David E. Crow and H. Robert Neinken
to me known, who acknowledged they are the Senior Vice President and Senior Vice
President respectively of SUNTRUST BANK, CENTRAL FLORIDA, NATIONAL ASSOCIATION,
a national banking corporation, and that for and on behalf of said banking
corporation and as its act and deed, they signed and delivered the foregoing
First Amendment to Loan Agreement as of the date therein mentioned with actual
execution on the date of this acknowledgment, after having been first duly
authorized so to do.
IN WITNESS WHEREOF, I hereunto set my hand and official seal, this the
29th day of August, 1997.
My Commission Expires: /s/ MURIEL H. HYSONG
---------------------------------------
MURIEL H. HYSONG NOTARY PUBLIC
COMMISSION # CC 542107
EXPIRES APR 28, 2000
BONDED THRU
ATLANTIC BONDING CO., INC.
-7-
ESCROW AGREEMENT
dated as of August 28, 1997
by and between
MISSISSIPPI BUSINESS FINANCE CORPORATION
(Acting for and on behalf of the State of Mississippi)
and
MERIDIAN LAMPS, INC.
and
BANK OF MISSISSIPPI
Jackson, Mississippi
as Escrow Agent
for
STATE OF MISSISSIPPI
$1,605,000 GENERAL OBLIGATION BONDS
(MISSISSIPPI SMALL ENTERPRISE DEVELOPMENT ACT ISSUE)
1994 SERIES GG
DATED NOVEMBER 1, 1994
<PAGE>
THIS ESCROW AGREEMENT (the "Escrow Agreement") made and entered into as
of August 28, 1997, by and between the MISSISSIPPI BUSINESS FINANCE CORPORATION,
a public corporation of the State of Mississippi (acting for and on behalf of
the State of Mississippi (the "State")) ("MBFC"), MERIDIAN LAMPS, INC., a
Florida corporation qualified to do business in the State (the "Company"), and
BANK OF MISSISSIPPI, Jackson, Mississippi, as Escrow Agent hereunder (the
"Escrow Agent"):
WITNESSETH
WHEREAS, the State did heretofore issue its General Obligation Bonds,
1994 Series GG, in the original principal amount of $1,605,000, dated November
1, 1994 (the "Bonds"), pursuant to resolutions dated September 20, 1994 and
October 25, 1994 (together, the "Bond Resolution"), for the Bonds, and the
proceeds of said Bonds were loaned to the Company pursuant to the terms and
conditions of that certain Loan Agreement dated as of November 1, 1994 by and
between MBFC, acting for and on behalf of the State, the Company and the Bank of
Mississippi, as Servicing Trustee (the "Trustee"); and
WHEREAS, the Company intends to prepay the Note under the Loan
Agreement; and
WHEREAS, the Company intends to deposit in trust with the Escrow Agent
cash and/or Escrowed Securities (as hereinafter defined), the principal of and
the interest on which when due will provide moneys which, together with any cash
deposited in the Escrow Fund (as hereinafter defined), will be sufficient to
prepay the Note in full under the Loan Agreement in an amount necessary to pay
the principal and interest due on the Defeased Bonds from November 1, 1997, to
November 1, 1999, both inclusive, and to redeem on November 1, 1999, the
Defeased Bonds maturing on or after November 1, 1999, at a redemption price of
100% of the principal amount thereof plus accrued interest thereon to such
redemption date; and
WHEREAS, in order to deposit such amount of cash and/or Escrowed
Securities in trust, MBFC has authorized the use of the amount of $1,504,287
received by the Company (the "Defeasance Moneys"); and
WHEREAS, an amount equal to the principal and accrued interest on the
Defeased Bonds coming due on each payment date under the Loan Agreement shall be
paid by the Escrow Agent as directed in this Escrow Agreement to be ultimately
applied to the payment of such principal and interest on the Bonds; and
WHEREAS, following such payment by the Company, the Company hereby
directs the Escrow Agent to apply the Defeasance Moneys in the Escrow Fund to
the purchase of the Escrowed Securities, the principal amount of which will
mature and produce investment income and earnings at such times and in such
amounts, together with certain amounts held as cash in the Escrow Fund, as will
be sufficient to pay all of the principal of and interest on the Defeased Bonds
when due, whether at maturity or upon redemption in accordance with the
provisions of the Loan Agreement; and
<PAGE>
WHEREAS, in order to provide for the proper and timely application of
the moneys and Escrowed Securities deposited in the Escrow Fund to the payment
of the Defeased Bonds, it is necessary to enter into this Escrow Agreement with
the Escrow Agent on behalf of the holders from time to time of the Defeased
Bonds.
NOW, THEREFORE, MBFC and the Company, in consideration of the foregoing
and the mutual covenants herein set forth and in order to secure the payment of
the principal and interest on all of the outstanding Defeased Bonds according to
their tenor and effect, does by these presents hereby grant, warrant, demise,
release, convey, assign, transfer, alienate, pledge, set over and confirm unto
the Escrow Agent, and to its successors in the trusts hereby created, and to it
and its assigns forever, all and singular, the property hereinafter described,
to wit:
DIVISION I.
All right, title and interest of MBFC and the Company in and to the
Defeasance Moneys and all other amounts on deposit from time to time in the
Escrow Fund.
DIVISION II.
All right, title and interest of MBFC and the Company, respectively, in
and to all income, earnings and principal receipts derived from or accruing to
the Escrowed Securities purchased from the money described in Division I hereof
and more particularly described in Schedule A attached hereto and made a part
hereof.
DIVISION III.
Any and all other property which is by the express provisions of this
Escrow Agreement required to be subject to the pledge hereof, and any additional
property of every kind and nature, from time to time hereafter, by delivery or
by writing of any kind, conveyed, pledged, assigned or transferred as and for
additional security hereunder, by MBFC and the Company or by anyone on their
behalf, and the Escrow Agent is hereby authorized to receive the same at any
time as additional security hereunder.
TO HAVE AND TO HOLD, all and singular, the foregoing trust estate,
including all additional property which by the terms hereof has or may become
subject to the terms of this Escrow Agreement, unto the Escrow Agent, and its
successors and assigns, forever in trust, however, for the benefit and security
of the holders from time to time of the Defeased Bonds; but if the Defeased
Bonds shall be fully and promptly paid when due in accordance with the terms
thereof and hereof, then this Escrow Agreement shall be and become void and of
no further force and effect; otherwise the same shall remain in full force and
effect, upon the trusts and subject to the covenants and conditions hereinafter
set forth.
2
<PAGE>
ARTICLE I.
DEFINITIONS
SECTION 1.1. DEFINITION. In addition to words and terms elsewhere
defined in this Escrow Agreement, the following words and terms as used in this
Escrow Agreement shall have the following meanings, unless some other meaning is
plainly intended:
"Act" means the Small Enterprise Development Act appearing as Section
57-71-1, ET SEQ., Mississippi Code of 1972, as from time to time amended.
"Bank" shall mean SunTrust Bank, Central Florida, National Association,
formerly known as SunBank, National Association, which issued the Letter of
Credit.
"Board" shall mean the Board of Directors of the Mississippi Business
Finance Corporation.
"Bond Counsel" shall mean Crosthwait Terney, PLLC, or any other
nationally recognized attorneys on the subject of municipal bonds.
"Bonds" shall mean the State's General Obligation Bonds, 1994 Series
GG, in the original principal amount of $1,605,000 dated November 1, 1994.
"Bond Resolution" shall collectively mean the resolutions adopted on
September 20, 1994 and October 25, 1994, by the State Bond Commission pursuant
to which the Bonds were issued.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Company" shall mean Meridian Lamps, Inc., a Florida corporation
qualified to do business in Mississippi.
"Defeased Bonds" shall mean the Bonds in the aggregate principal amount
of $1,465,000 which constitute Bonds maturing (1) on November 1, 1997, November
1, 1998, and November 1, 1999, and (2) after November 1, 1999, and which shall
be redeemed on the Redemption Date at the Redemption Price.
"Defeasance Moneys" shall mean $1,504,287 received by the Escrow Agent
from the Company which amount is identified by the Company as the amount to be
applied to the defeasance of the Bonds.
"Defeasance Resolution" shall mean the resolution adopted on July 16,
1997, by the Board authorizing and directing, among other things, prepayment of
the Note pursuant to the Loan Agreement and the economic defeasance of the
Defeased Bonds.
3
<PAGE>
"Escrow Agent" shall mean Bank of Mississippi, Jackson, Mississippi as
escrow agent hereunder.
"Escrow Agreement" shall mean this Escrow Agreement dated as of August
28, 1997, by and between MBFC, the Company and the Escrow Agent.
"Escrow Fund" shall mean the escrow fund established pursuant to
Section 2.1 of this Escrow Agreement.
"Escrowed Securities" shall mean the Government Obligations purchased
by the Escrow Agent pursuant to Section 2.1 hereof with moneys on deposit in the
Escrow Fund.
"Government Obligations" shall mean the noncallable direct general
obligations of, or obligations the prompt payment of the principal of and
interest on which are fully and unconditionally guaranteed by, the United States
of America, including, but not limited to, United States Treasury Time Deposit
Securities-State and Local Government Series.
"Letter of Credit" shall mean the irrevocable direct pay Letter of
Credit delivered by the Bank to the Trustee on account of the Company pursuant
to the terms of the Loan Agreement.
"Loan Agreement" shall mean the Loan Agreement dated November 1, 1994,
among MBFC, the Trustee and the Company, as amended through the First Amendment
to the Loan Agreement dated August 28, 1997, and any and all modifications,
alterations, amendments and supplements made thereto.
"MBFC" shall mean the Mississippi Business Finance Corporation, a body
politic and corporate created and existing under and by virtue of the Act, and
its successors and assigns, acting for and on behalf of the State.
"Note" shall mean the Promissory Note of the Company issued by the
Company to MBFC under the terms of the Loan Agreement.
"Paying Agent" shall mean Deposit Guaranty National Bank, Jackson,
Mississippi, in its capacity as paying agent for the Bonds.
"Payment Date" shall mean the first day of May and November each year
commencing November 1, 1997, provided, however, that if any such Payment Date
shall fall on a Saturday, Sunday or other day on which the Trustee and the Bank
are required or authorized by law to be closed, the payment due on such Payment
Date shall be the next succeeding day which is not a Saturday, Sunday or other
day the Trustee and the Bank are not required or authorized by law to be closed.
"Redemption Date" shall mean with respect to the Defeased Bonds to be
called at optional redemption, November 1, 1999.
4
<PAGE>
"Redemption Price" shall mean with respect to the Defeased Bonds
maturing after November 1, 1999, at a redemption price of 100% of the principal
amount thereof plus accrued interest thereon to the Redemption Date.
"Trust Estate," "trust estate" or "pledged property" shall mean the
property, rights and interest of MBFC and the Company which are subject to the
lien of this Escrow Agreement.
"Trustee" shall mean Bank of Mississippi, as Servicing Trustee under
the Loan Agreement.
"Verification Agent" shall mean KPMG Peat Marwick, LLP, Houston, Texas.
"Verification Report" shall mean the report prepared by the
Verification Agent concerning, among other things, the sufficiency of the
Escrowed Securities purchased pursuant to Section 2.1 hereof and the investment
earnings thereon to pay the principal and interest on the Defeased Bonds as the
same came due through and including November 1, 1999, and redeem the Defeased
Bonds maturing on or after November 1, 1999, at the Redemption Price on the
Redemption Date.
"Written Request" with respect to MBFC shall mean a request in writing
signed by the Executive Director or Secretary of MBFC, or by any other member,
officer or employee of the MBFC duly authorized by the Board and satisfactory to
the Escrow Agent.
Words of the masculine gender shall be deemed and construed to include
correlative words of the feminine and neuter genders. Words importing the
singular number shall include the plural number and vice versa unless the
context shall otherwise indicate. The word "person" shall include corporations,
associations, natural persons and public bodies unless the context shall
otherwise indicate. Reference to a person other than a natural person shall
include its successors.
ARTICLE II.
ESTABLISHMENT OF ESCROW FUND; FLOW OF FUNDS
SECTION 2.1. CREATION OF ESCROW FUND: PURCHASE OF ESCROWED SECURITIES.
There is hereby created and established with the Escrow Agent a special and
irrevocable trust fund designated the State of Mississippi General Obligation
Small Enterprise Development Act Escrow Fund (the "Escrow Fund") to be held in
the custody of the Escrow Agent separate and apart from other funds of MBFC and
the Company or the Escrow Agent. The Escrow Fund shall be administered pursuant
to this Escrow Agreement.
As of the date of this Escrow Agreement, the Company shall cause to be
deposited with the Escrow Agent, and the Escrow Agent acknowledges receipt in
the form of immediately available moneys, the Defeasance Moneys, in the amount
to be deposited in the Escrow Fund. The Escrow Agent shall use moneys on deposit
in the Escrow Fund to purchase the Escrowed
5
<PAGE>
Securities described in the schedule attached as Schedule A hereto. The
Verification Report shall show, among other things, that the Escrowed Securities
will mature in principal amounts and earn income and earnings at such times so
that sufficient moneys will be available, together with cash, if any, in the
Escrow Fund, to pay, without reinvestment, the principal of, premium and
interest on the Defeased Bonds as the same comes due under the Loan Agreement,
whether at maturity or upon redemption, in accordance with the debt service
schedule for the Defeased Bonds set forth in Schedule B hereto.
SECTION 2.2. IRREVOCABLE TRUST CREATED. The deposit of moneys and
Escrowed Securities in the Escrow Fund shall constitute an irrevocable deposit
of such moneys and Escrowed Securities for the benefit of the holders of the
Defeased Bonds, except as provided herein with respect to amendments permitted
under Section 4.1 hereof. The holders of the Defeased Bonds shall have an
express lien on all moneys and principal of and earnings on the Escrowed
Securities deposited in the Escrow Fund until applied in accordance with this
Escrow Agreement. The matured principal of the Escrowed Securities and the
interest thereon shall be held in trust by the Escrow Agent for the payment of
the principal of and interest on the Defeased Bonds as the same become due and
payable under the Loan Agreement.
SECTION 2.3. INSUFFICIENT MONEYS; EXCESS DEPOSITS. If the Escrow Agent
determines that the moneys on deposit in the Escrow Fund are insufficient to
purchase the Escrowed Securities, the Escrow Agent shall immediately notify MBFC
and the Company of the amount of such insufficiency, and the Company shall,
within three (3) business days of such notification, deposit into the Escrow
Fund moneys equal to such insufficiency. If, following the acquisition of the
Escrowed Securities, the Escrow Agent determines that there is on deposiit in
the Escrow Fund cash in excess of the amount necessary to pay all of the
principal of and interest on the Defeased Bonds, all as reflected in the
Verification Report, the Escrow Agent shall pay such amount to the Company. The
Escrow Agent shall give MBFC and the Company written notice of the amount of
such excess cash to be paid to the Company.
SECTION 2.4. PURCHASE OF ESCROWED SECURITIES. The Escrow Agent shall
purchase the Escrowed Securities solely from the moneys deposited in the Escrow
Fund. The Escrow Agent shall apply the moneys deposited in the Escrow Fund, and
the Escrowed Securities purchased therewith, together with all income or
earnings thereon, in accordance with the provisions hereof. The Escrow Agent
shall have no power or duty to invest any moneys held hereunder or to make
substitutions of the Escrowed Securities held hereunder or to sell, transfer or
otherwise dispose of the Escrowed Securities acquired hereunder except as
provided in this Escrow Agreement.
SECTION 2.5. SUBSTITUTION OF ESCROWED SECURITIES. Notwithstanding any
other provision of this Escrow Agreement, at the Written Request of MBFC and the
Company and upon compliance with the conditions hereinafter stated, the Escrow
Agent shall have the power to sell, transfer, otherwise dispose of or request
the redemption of the Escrowed Securities held hereunder and to substitute
therefor other Government Obligations; provided, however, the foregoing may be
effected only if, (i) the substitution of the other Government Obligations for
the Escrowed Securities occurs simultaneously; (ii) the amounts of and dates on
which the
6
<PAGE>
anticipated transfers from the Escrow Fund to the Trustee to the Paying Agent
for the payment of principal of, premium and interest on the Defeased Bonds will
not be diminished or postponed thereby; (iii) the Escrow Agent shall receive
from a nationally recognized independent certified public accountant firm a
written certification satisfactory to the Escrow Agent that, immediately after
such substitution, the principal of and the interest on the Government
Obligations in the Escrow fund when due and paid will, together with any other
moneys held for such purpose, be sufficient to pay the principal of, premium and
interest on the Defeased Bonds when due upon maturity or redemption in
accordance with this Escrow Agreement; and (iv) the Escrow Agent shall receive
an opinion from Bond Counsel to the effect that the disposition and substitution
or purchase of such Government Obligations will not, under the statutes, rules,
regulations and court decisions then in force and applicable to the Bonds,
impair the exclusion of the interest on the Bonds from gross income of the
holders thereof for federal income tax purposes and that the conditions of this
Section 2.5 have been satisfied. Any surplus moneys resulting from the sale,
transfer, other disposition or redemption of the Escrowed Securities held
hereunder and the substitution of other Government Obligations therefor, shall
be released from the Trust Estate and shall be transferred to the Company.
MBFC and the Company hereby covenant and agree that it will not request
the Escrow Agent to exercise any of the powers described in the preceding
paragraph in any manner which will cause the Bonds to be or become arbitrage
bonds within the meaning of Section 148(a) of the Code and the regulations
thereunder in effect on the date of such request and applicable to obligations
issued on the issue date of the Bonds. The Escrow Agent shall purchase such
substituted securities with the proceeds derived from the maturity, sale,
transfer, disposition or redemption of the Escrowed Securities held hereunder or
from other moneys available.
SECTION 2.6. TRANSFERS FROM ESCROW FUND. As the principal of the
Escrowed Securities set forth in Schedule A (subject to the reinvestment, if
any, of the principal and interest made pursuant to Section 2.7 and the
application of investment earnings in accordance with Section 2.7), shall mature
and be paid, and the investment income and earnings thereon are paid, the Escrow
Agent shall:
(a) Following the Escrow Agent's receipt of written notice from the
Trustee that the Bank has made any payment to the Trustee under the Letter of
Credit and in accordance with Schedule B attached hereto, the Escrow Agent shall
immediately reimburse the Bank from the Escrow Fund an amount equal to such
payment made by the Bank to the Trustee; or
(b) If written notice from the Trustee under (a) is not provided on or
before the Payment Date, transfer from the Escrow Fund to the Trustee amounts
sufficient to pay the principal of, premium and interest on the Defeased Bonds
as the same shall come due, whether at maturity or upon redemption under the
Loan Agreement. Such amounts shall be paid by the Trustee to MBFC to be paid by
MBFC to the State Treasurer's office to be applied for the payment of the
principal of, premium and interest on the Defeased Bonds for the equal and
ratable benefit of the holders of the Defeased Bonds.
7
<PAGE>
SECTION 2.7. INVESTMENT OF CERTAIN MONEYS ON DEPOSIT IN ESCROW FUND.
Any moneys on deposit from time to time in the Escrow Fund after the initial
purchase of the Escrowed Securities as set forth in Sections 2.1 and 2.4 hereof
until such time that such moneys are needed may be invested and reinvested in
Government Obligations maturing no later than the Redemption Date of the
Defeased Bonds, or for such periods or at such interest rates that the Escrow
Agent shall be directed to invest by a Written Request of MBFC and the Company
which periods or interest rates shall also be set forth in an opinion from Bond
Counsel to the effect that the reinvestment of such moneys and the interest
rates on such moneys will not, under the statutes, rules and regulations then in
force and applicable to obligations issued on the date of issuance of the Bonds,
cause the interest on the Defeased Bonds to be included in the gross income of
the holders thereof for federal income tax purposes. In addition, the Escrow
Agent shall receive from a nationally recognized independent certified public
accounting firm a written certification satisfactory to the Escrow Agent that,
immediately after such transaction, the principal of and the interest on the
Government Obligations in the Escrow Fund when due and paid will, together with
any other moneys held for such purpose, be sufficient to pay the principal of,
premium and interest on the Defeased Bonds. Any surplus interest income,
earnings or gain resulting from such reinvestment of moneys shall be released
from the Trust Estate and transferred to the Company.
SECTION 2.8. SECURITY FOR CASH BALANCES. Cash balances from time to
time on deposit in the Escrow Fund, to the extent not insured by the Federal
Deposit Insurance Corporation or its successor, shall be continuously secured by
a pledge of direct obligation of, or obligations unconditionally guaranteed by,
the United States of America, having a market value at least equal to such cash
balances.
SECTION 2.9. ESCROW FUND CONSTITUTES TRUST FUND. The Escrow Fund
created and established pursuant to this Escrow Agreement shall be and
constitute a trust fund for the purposes provided in this Escrow Agreement and
shall be kept separate and distinct from all other funds of MBFC and the Company
and the Escrow Agent and used only for the purposes and in the manner provided
in this Escrow Agreement.
SECTION 2.10. TRANSFER OF FUNDS AFTER ALL PAYMENTS REQUIRED BY THIS
ESCROW AGREEMENT ARE MADE. After all of the transfers by the Escrow Agent to the
Trustee for payment of the principal of, premium and interest on the Defeased
Bonds have been made, all remaining moneys, Escrowed Securities and/or
Government Obligations, together with any income and interest thereon, in the
Escrow Fund shall be transferred by the Escrow Agent to the Company; provided,
however, that no such transfer shall be made until all of the principal of,
premium and interest on the outstanding series Defeased Bonds have been paid in
full.
SECTION 2.11. DEFEASANCE NOTICE AND ADDITIONAL NOTICES. MBFC will
provide written notice of the prepayment under Section 8.01 of the Loan
Agreement to the State Treasurer of the State and, as provided in Section 8.01
of the Loan Agreement, direct the redemption of the Bonds at the earliest
redemption date, November 1, 1999, at a redemption price of principal plus
accrued interest. MBFC, for and on behalf of the State, and the Company, and in
order to accomplish the redemption of the Bonds at the earliest call date,
8
<PAGE>
hereby authorize and direct the Escrow Agent to provide the notices of optional
redemption for the Bonds to the Paying Agent necessary to redeem the Bonds
callable on November 1, 1999, the first call date as required in the Bond
Resolution, which notices shall include a follow-up notice of optional
redemption of the Bonds to the Paying Agent prior to the Redemption Date.
ARTICLE III.
CONCERNING THE ESCROW AGENT
SECTION 3.1. APPOINTMENT OF THE ESCROW AGENT. MBFC and the Company
hereby appoint Bank of Mississippi, Jackson, Mississippi, as the Escrow Agent
under this Escrow Agreement.
SECTION 3.2. ACCEPTANCE BY ESCROW AGENT. By execution of this Escrow
Agreement, the Escrow Agent accepts the duties and obligations as escrow agent
hereunder. The Escrow Agent further represents that it has all requisite power,
and has taken all corporate actions necessary to execute the trust hereby
created.
SECTION 3.3. LIABILITY OF ESCROW AGENT. The Escrow Agent shall not be
liable in connection with the performance of its duties hereunder except for its
own negligent action, its own negligent failure to act or its own willful
misconduct.
The Escrow Agent shall not be liable for any loss resulting from any
investment made pursuant to the terms and provisions of this Escrow Agreement.
The Escrow Agent shall have no lien, security interest or right of set-off
whatsoever upon any of the moneys or investments in the Escrow Fund for the
payment of fees and expenses for services rendered by the Escrow Agent under
this Escrow Agreement.
The Escrow Agent shall not be liable for the accuracy of the
calculations as to the sufficiency of moneys and of the principal amount of and
earnings on the Escrowed Securities and any other Government Obligations held in
the Escrow Fund to pay the Defeased Bonds. So long as the Escrow Agent applies
any moneys, the Escrowed Securities, any other Government Obligations and the
interest earnings therefrom to pay the Defeased Bonds as provided herein, and
complies fully with the terms of this Escrow Agreement, the Escrow Agent shall
not be liable for any deficiencies in the amounts necessary to pay the Defeased
Bonds caused by such calculations. In the event the amount on deposit in the
Escrow Fund is insufficient to pay the principal of, premium and interest on the
Defeased Bonds at the times required hereunder, MBFC and the Company shall, upon
receipt of notice of the same from the Escrow Agent, promptly provide or cause
to be provided to the Escrow Agent the amount of such deficiency.
In the event of the Escrow Agents failure to account for any of the
Escrowed Securities, other Government Obligations or moneys received by it, such
Escrowed Securities, other Government Obligations or moneys shall be and remain
in trust for the holders of the Defeased Bonds as herein provided.
9
<PAGE>
SECTION 3.4. PERMITTED ACTS. The Escrow Agent and its officers and
directors may acquire and hold, or become the owner or pledgee of or may deal in
the Bonds as fully and with the same rights as if it were not the Escrow Agent.
SECTION 3.5. RESIGNATION OF ESCROW AGENT. The Escrow Agent or any
successor escrow agent at the time acting hereunder, may at any time resign and
be discharged from the duties and obligations of the trust hereby created by
giving 60 days' written notice to MBFC and the Company and to the registered
holders of the Defeased Bonds. Upon receiving such notice of resignation, MBFC
with the consent of the Company shall promptly appoint a successor escrow agent
by an instrument in writing.
SECTION 3.6. REMOVAL OF ESCROW AGENT. Upon the Written Request of MBFC
and the Company, the Escrow Agent may be removed at any time if, (i) the Escrow
Agent shall cease to be an eligible escrow agent in accordance with the
provisions of Section 3.7 hereof and shall fail to resign after Written Request
therefor from the MBFC and the Company or from any registered holder of Defeased
Bonds who has been a bona fide holder of a Defeased Bond for at least six (6)
months, or (ii) the Escrow Agent shall become incapable of acting or shall be
adjudged a bankrupt or insolvent or a receiver of the Escrow Agent or of its
property shall be appointed, or any public officer shall take charge or control
of the Escrow Agent or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation. Such written Request of the MBFC
and the Company shall also appoint a successor escrow agent.
Any removal of the Escrow Agent and appointment of a successor escrow
agent shall become effective upon acceptance of appointment by the successor
escrow agent in the manner provided in Section 3.8 hereof.
SECTION 3.7. APPOINTMENT OF SUCCESSOR ESCROW AGENT: QUALIFICATIONS OF
ESCROW AGENT. If no successor escrow agent shall have been appointed by MBFC and
the Company and shall have accepted such appointment within thirty (30) days
after MBFC and the Company receive written notice of resignation from the Escrow
Agent, the Escrow Agent may petition any court of competent jurisdiction for the
appointment of a successor escrow agent, or any registered holder of the
Defeased Bonds who has been a bona fide holder for at least six (6) months may,
on behalf of himself and others similarly situated, petition any such court for
the appointment of a successor escrow agent. Such court may thereupon, after
such notice, if any, as it may deem proper, appoint a successor escrow agent.
Any resignation by the Escrow Agent and appointment of a successor escrow agent
shall become effective upon acceptance of appointment by the successor escrow
agent in accordance with Section 3.8 hereof.
The Escrow Agent and any successor escrow agent appointed under the
provisions of this Escrow Agreement shall be a corporation or national banking
association organized and doing business under the laws of the United States or
any state authorized under such laws to exercise corporate trust powers, having
its principal office and place of business in any state, having a combined
capital and surplus of at least $50,00O,00O, and subject to supervision or
examination by federal or state authority. If such corporation or national
banking association published reports of condition at least annually pursuant to
law or to the requirements of any supervising
10
<PAGE>
or examining authority above referred to, then the combined capital and surplus
of such corporation or national banking association shall be deemed to be its
combined capital and surplus as set forth in its most recent report of condition
so published. In case at any time the Escrow Agent shall cease to be eligible in
accordance herewith, the Escrow Agent shall resign immediately in the manner and
with the effect specified in Section 3.5.
SECTION 3.8. VESTING OF TRUSTS IN SUCCESSOR ESCROW AGENT. Any successor
escrow agent appointed hereunder shall execute, acknowledge and deliver to its
predecessor, and also to MBFC and the Company, an instrument in writing
accepting such appointment hereunder, and thereupon the resignation or removal
of the predecessor Escrow Agent shall become effective; and such successor
escrow agent, without any further act, deed or conveyance, shall become vested
with all the rights, powers, trusts, duties and obligations of its predecessor
in the trusts hereunder, with like effect as if originally named as Escrow Agent
herein. Upon request of any such successor escrow agent, MBFC and the Company
shall execute any and all instruments in writing for more fully and certainly
vesting in and conforming to such successor escrow agent all such rights, powers
and duties.
Upon acceptance of appointment by a successor escrow agent as
heretofore provided, MBFC shall publish notice of the succession of such escrow
agent to the trust hereunder. Such notice shall be published at least once in a
newspaper or financial journal of general circulation published in Jackson,
Mississippi. If MBFC fails to publish such notice within ten (10) days after
acceptance of appointment by the successor escrow agent, the successor escrow
agent shall cause such notice to be published at the expense of the Company.
Any corporation or national banking association into which the Escrow
Agent may be merged or with which it may consolidate or any corporation or
national banking association resulting from any merger or consolidation to which
the Escrow Agent shall be a party, or any corporation or national banking
association succeeding to the business of the Escrow Agent, shall be the
successor to the Escrow Agent hereunder without the execution or filing of any
paper or any further act on the part of any of the parties hereto, anything
herein to the contrary notwithstanding, provided that such successor escrow
agent shall be eligible under the provisions hereof.
SECTION 3.9. RECEIPT OF PROCEEDINGS. Receipt of a true and correct copy
of the Bond Resolution is hereby acknowledged by the Escrow Agent, and reference
herein to or citation herein of any provision of such document shall be deemed
to incorporate the same as a part hereof in the same manner and with the same of
effect as if it were fully set forth herein.
SECTION 3.10. ARRANGEMENTS FOR PAYMENT OF FEES AND EXPENSES OF ESCROW
AGENT. The Escrow Agent hereby acknowledges that the Company has paid, caused to
be paid or made arrangements satisfactory to the Escrow Agent for payment of all
fees and expenses of the Escrow Agent hereunder until the Defeased Bonds are
paid. If such arrangements for fees and expenses shall include a prepayment of
all or part thereof, then if the Escrow Agent resigns or is removed in
accordance with Section 3.5 or 3.6 hereof, the Escrow Agent agrees to return to
11
<PAGE>
the Company that portion of the prepaid fee which is attributable to that part
of the trust which is then still to be administered.
ARTICLE IV.
MISCELLANEOUS
SECTION 4.1. AMENDMENTS TO THIS ESCROW AGREEMENT. This Escrow Agreement
is made for the benefit of MBFC and the Company and the holders from time to
time of the Defeased Bonds, and it shall not be repealed, revoked, altered or
amended without the written consent of the holders of 100% of the outstanding
Defeased Bonds which have not then been paid in accordance with this Escrow
Agreement. Notwithstanding the foregoing, however, MBFC and the Company and the
Escrow Agent may (upon receipt of an opinion of Bond Counsel satisfactory to
MBFC and the Company that the exclusion of interest on the Bonds from the gross
income of the holders thereof for federal income tax purposes will not be
adversely affected), without the consent of or notice to such holders, enter
into such agreements supplemental to this Escrow Agreement as shall not
adversely affect the rights of such holders and as shall not be inconsistent
with the terms and provisions of this Escrow Agreement, for any one or more of
the following purposes;
(a) to cure any ambiguity or formal defect or omission in this Escrow
Agreement;
(b) to grant to, or confer upon, the Escrow Agent for the benefit of
the holders of the Defeased Bonds, any additional rights, remedies
or powers that may lawfully be granted to, or conferred upon, such
holders or the Escrow Agent; and
(c) to subject to the trust created by this Escrow Agreement additional
funds, securities or properties.
The Escrow Agent shall be entitled to rely exclusively upon an
unqualified opinion of Bond Counsel with respect to compliance with this
Section, including the extent, if any, to which any change, modification,
addition or elimination affects the rights of the holders of the Defeased Bonds,
or that any instrument executed hereunder complies with the conditions and
provisions of this Section.
SECTION 4.2. SEVERABILITY. Any covenant or agreement contained in this
Escrow Agreement which are determined by a court of competent jurisdiction to be
contrary to law shall be deemed and construed to be severable from the remaining
covenants and agreements herein contained and shall in no way affect the
validity of the remaining provisions of this Escrow Agreement.
SECTION 4.3. ESCROW AGREEMENT BINDING. All the covenants, promises and
agreements in this Escrow Agreement contained by or on behalf of MBFC and the
Company or
12
<PAGE>
the Escrow Agent shall bind and inure to the benefit of their respective
successors and assigns, whether so expressed or not.
SECTION 4.4. TERMINATION. This Escrow Agreement shall terminate when
all transfers and payments required to be made by the Escrow Agent under the
provisions hereof shall have been made.
SECTION 4.5. GOVERNING LAW. This Escrow Agreement shall be governed by
the applicable law of the State of Mississippi.
SECTION 4.6. EXECUTION BY COUNTERPARTS. This Escrow Agreement may be
executed in several counterparts, all or any of which shall be regarded for all
purposes as one original and shall constitute and be but one and the same
instrument,
IN WITNESS WHEREOF, each of the parties hereto has caused this Escrow
Agreement to be executed by its duly authorized officers or officials.
(SEAL) MISSISSIPPI BUSINESS FINANCE
CORPORATION (acting for and on behalf
of the State of Mississippi)
By: /s/ [ILLEGIBLE] By: /s/ [ILLEGIBLE]
--------------------- --------------------------
Its:--------------------------
(SEAL) MERIDIAN LAMPS, INC.
ATTEST:
By: /s/ THOMAS M. BLUTH By: /s/ O. RAPPAPORT
--------------------- --------------------------
Its: Vice President
(SEAL) BANK OF MISSISSIPPI
ATTEST:
By: /s/ DOYLE MOORHEAD By: /s/ LISA NEELD
--------------------- --------------------------
Its: Trust Officer
13
<PAGE>
SCHEDULE A
DESCRIPTION OF ESCROWED SECURITIES
United States Treasury Obligations-State and Local Government Series are the
Government Obligations which are listed on Exhibit C to the KPMG Peat Marwick,
LLP Verification Report, which is included in the Transcript for the Defeasance
of the Bonds.
<PAGE>
SCHEDULE B
MATURITY SCHEDULES FOR DEFEASED BONDS
Maturity Schedule for the Defeased Bonds is included as Schedule B-2 to the KPMG
Peat Marwick, LLP Verification Report, which is included in the Transcript for
Defeasance of the Bonds.
<TABLE>
<CAPTION>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
EXHIBIT 11
SCHEDULE OF COMPUTATION OF PRIMARY EARNINGS (LOSS) PER SHARE
YEARS ENDED SEPTEMBER 30,
--------------------------------------------
1997 1996 1995
------------ ----------- -----------
<S> <C> <C> <C>
Net income (loss) $ (3,093,000) $ 1,603,000 $ 400,000
Add: interest on debt assumed to be repaid
(net of income taxes) - 59,000 -
------------ ----------- -----------
Net income (loss) for primary earnings (loss) per
share $ (3,093,000) $ 1,662,000 $ 400,000
============ =========== ===========
Weighted average number of common
shares outstanding during the year 7,071,000 7,016,500 6,960,933
Add: common equivalent shares determined
using the "Modified Treasury Stock" method
representing shares issuable upon exercise
of stock options and warrants and shares
issuable under contractual agreements - 781,000 839,536
------------ ----------- -----------
Weighted average number of shares used in
calculation of primary earnings per share 7,071,000 7,797,500 7,800,469
============ =========== ===========
Primary earnings (loss) per share $ (0.44) $ 0.21 $ 0.05
============ =========== ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
EXHIBIT 11
(CONTINUED)
SCHEDULE OF COMPUTATION OF FULLY DILUTED EARNINGS (LOSS) PER SHARE
YEARS ENDED SEPTEMBER 30,
--------------------------------------------
1997 1996 1995
------------ ----------- -----------
<S> <C> <C> <C>
Net income (loss) $ (3,093,000) $ 1,603,000 $ 400,000
Interest on debt assumed to be repaid
(net of income taxes) - 49,000 -
------------ ----------- -----------
Net income (loss) for fully diluted earnings
per share $ (3,093,000) $ 1,652,000 $ 400,000
============ =========== ===========
Weighted average number of common shares
outstanding during the year 7,071,000 7,016,500 6,960,933
Add: common equivalent shares determined
using the "Modified Treasury Stock" method
representing shares issuable upon exercise
of stock options and warrants and shares
issuable under contractual agreements - 788,000 839,536
Shares issuable upon conversion of
convertible subordinated notes - - -
------------ ----------- -----------
Weighted average number of shares
used in calculation of fully diluted earnings
per share 7,071,000 7,804,500 7,800,469
============ =========== ===========
Fully diluted earnings (loss) per share $ (0.44) $ 0.21 $ 0.05
============ =========== ===========
</TABLE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT*
Catalina Industries, Inc. (formerly Dana Lighting, Inc.), a Florida corporation
Catalina Real Estate Trust, Inc., a Florida corporation
Catalina Merchandising, Inc., a Florida corporation
Catalina Realty Trust, a Hong Kong Trust
Catalina Realty Hong Kong Limited, a Hong Kong company
Catalina Industrial, Ltd., a Hong Kong company
Catalina Lighting Canada (1992), Inc., a Quebec corporation
Trade World Industrial, Ltd., a Hong Kong company
Angel Station, Inc., a Florida corporation
Go-Gro Industries Limited, a Hong Kong company
Lamp Depot Limited, a Hong Kong company
Meridian Lamps, Inc., a Florida corporation
Meridian Lamps Development, Inc., a Florida corporation
Catalina Asia, a Hong Kong partnership
Audiopro Ltd., a Hong Kong company
Catalina Lighting Mexico, S.A. de C.V., a Mexican corporation
Golda Metal Industries Limited, a Hong Kong company
Shenzhen Jiadianbao Electrical Products Company, Limited ("SJE"), a cooperative
joint venture organized under the laws of the People's Republic of China
* All subsidiaries, except for Golda Metal Industries which is 50% owned and the
SJE joint venture which is 100% owned as to production and 70% owned as to real
estate, are wholly-owned by the registrant.
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
Catalina Lighting, Inc.
We consent to the incorporation by reference in Registration Statement Nos.
33-23900, 33-33292, 33-62378 and 33-94016 of Catalina Lighting, Inc. on Form S-8
of our report dated December 2, 1997 appearing in this Annual Report on Form
10-K of Catalina Lighting, Inc. for the year ended September 30, 1997.
/s/ Deloitte & Touche LLP
Miami, Florida
December 24, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 10-K AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1997
<CASH> 1,847
<SECURITIES> 0
<RECEIVABLES> 24,169
<ALLOWANCES> 8,314
<INVENTORY> 34,612
<CURRENT-ASSETS> 68,414
<PP&E> 29,969
<DEPRECIATION> 10,441
<TOTAL-ASSETS> 116,581
<CURRENT-LIABILITIES> 30,705
<BONDS> 9,195
0
0
<COMMON> 71
<OTHER-SE> 40,986
<TOTAL-LIABILITY-AND-EQUITY> 116,581
<SALES> 196,955
<TOTAL-REVENUES> 196,955
<CGS> 164,493
<TOTAL-COSTS> 164,493
<OTHER-EXPENSES> 34,329
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,088
<INCOME-PRETAX> (5,827)
<INCOME-TAX> (2,734)
<INCOME-CONTINUING> (3,093)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,093)
<EPS-PRIMARY> (.44)
<EPS-DILUTED> (.44)
</TABLE>
