SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended MARCH 31, 1997
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or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from __________________ to _________________
Commission file number 1-9917
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CATALINA LIGHTING, INC.
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(Exact name of registrant as specified in its chapter)
FLORIDA
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(State or other jurisdiction of incorporation or organization)
59-1548266
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(I.R.S. Employer Identification Number)
18191 NW 68TH AVENUE, MIAMI, FLORIDA 33015
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(Address of principal executive offices) (Zip Code)
(305) 558-4777
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Registrant's telephone number, including area code
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Former name, former address and former fiscal
year, if changed since last report.
Indicate by check / whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO__
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding
of each of the issuer's classes of common stock, as of the latest practicable
date. OUTSTANDING ON MAY 2, 1997: 7,069,587 SHARES.
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CATALINA LIGHTING, INC. AND SUBSIDIARIES
INDEX
<S> <C> <C>
PART I FINANCIAL INFORMATION PAGE NO.
--------
Condensed consolidated balance sheets -
March 31, 1997 and September 30, 1996...................................................... 3-4
Condensed consolidated statements of operations -
Three and six months ended March 31, 1997 and 1996........................................ 5
Condensed consolidated statements of cash flows -
Six months ended March 31, 1997 and 1996.................................................. 6-7
Notes to condensed consolidated financial statements........................................ 8-10
Management's discussion and analysis of financial
condition and results of operations....................................................... 11-21
PART II OTHER INFORMATION
ITEM 1 Legal Proceedings................................................................... 22
ITEM 4 Submission of Matters to a Vote of Security Holders................................. 22-23
ITEM 6 Exhibits and Reports on Form 8-K.................................................... 23-24
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2
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<CAPTION>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
MARCH 31, SEPTEMBER 30,
ASSETS 1997 1996
---------- ------------
(UNAUDITED) *
<S> <C> <C>
Current assets
Cash and cash equivalents $ - $ 1,766
Restricted cash equivalents and short-term
investments 839 378
Accounts receivable, net of
allowances of $9,268 and $7,313, respectively 23,557 29,644
Inventories 39,169 39,648
Other current assets 7,717 5,009
----------- ------------
Total current assets 71,282 76,445
Property and equipment, net 28,655 26,003
Goodwill, net 11,129 11,344
Other assets 4,997 3,670
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$ 116,063 $ 117,462
=========== ============
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(continued on page 4)
3
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<CAPTION>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
(IN THOUSANDS)
MARCH 31, SEPTEMBER 30,
LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1996
---------- -------------
(UNAUDITED) *
<S> <C> <C>
Current liabilities
Notes payable - credit lines $ 4,667 $ 3,963
Accounts and letters of credit payable 18,365 25,289
Current maturities of bonds payable 970 970
Other current liabilities 6,203 5,884
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Total current liabilities 30,205 36,106
Notes payable - credit lines 22,066 17,044
Convertible subordinated notes 7,600 7,600
Bonds payable 10,095 10,165
Other liabilities 7,084 2,573
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Total liabilities 77,050 73,488
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Commitments and contingencies
Stockholders' equity
Common stock 71 71
Additional paid-in capital 26,140 26,135
Retained earnings 12,802 17,768
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Total stockholders' equity 39,013 43,974
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$ 116,063 $ 117,462
============ =============
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*Condensed from audited financial statements
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
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<CAPTION>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
---------------------------------------- -------------------------------------
1997 1996 1997 1996
------------------ ------------------ ------------------ ----------------
<S> <C> <C> <C> <C>
Net sales $ 44,874 $ 40,921 $ 89,969 $ 91,101
Cost of sales 38,426 33,369 75,564 75,360
-------------- ------------- ------------- -------------
Gross profit 6,448 7,552 14,405 15,741
Selling, general and administrative
expenses 6,287 6,266 12,442 12,829
Plant closing costs 930 - 930 -
Litigation settlements and related
professional fees 6,304 58 7,232 58
-------------- ------------- ------------- -------------
Operating income (loss) (7,073) 1,228 (6,199) 2,854
-------------- ------------- ------------- -------------
Other income (expenses)
Interest expense (978) (745) (1,821) (1,541)
Other income (expenses) (15) 125 (17) 275
-------------- ------------- ------------- -------------
Total other income (expenses) (993) (620) (1,838) (1,266)
-------------- ------------- ------------- -------------
Income (loss) before income taxes (8,066) 608 (8,037) 1,588
Income tax provision (benefit) (3,078) 243 (3,071) 635
-------------- ------------- ------------- -------------
Net income (loss) $ (4,988) $ 365 $ (4,966) $ 953
============== ============= ============= =============
Weighted average number of
shares outstanding
Primary 7,065 7,791 7,065 7,803
Fully diluted 7,065 7,821 7,065 7,803
Earnings (loss) per share
Primary $ (0.71) $ 0.05 $ (0.70) $ 0.13
Fully diluted $ (0.71) $ 0.05 $ (0.70) $ 0.12
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
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<CAPTION>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
SIX MONTHS ENDED
MARCH 31,
--------------------------------------------
1997 1996
--------------------- -------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (4,966) $ 953
Adjustments for non-cash items:
Plant closing costs 930 --
Litigation settlement 4,274 --
Other 3,223 4,539
Change in assets and liabilities (5,254) (222)
-------- --------
Net cash provided by (used in) operating activities (1,793) 5,270
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures, net (4,772) (7,311)
Payments for acquisitions (44) (61)
Decrease (increase) in restricted cash equivalents and
short-term investments (461) 4,303
-------- --------
Net cash provided by (used in) investing activities (5,277) (3,069)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from issuance of common stock 5 31
Payments on other liabilities (357) (268)
Proceeds from issuance of bonds -- 99
Payments on bonds (70) --
Proceeds from notes payable - credit lines 18,700 30,666
Payments on notes payable - credit lines (11,821) (33,200)
Net proceeds from (payments on) notes payable - credit lines
due on demand (1,153) (126)
-------- --------
Net cash provided by (used in) financing activities 5,304 (2,798)
-------- --------
Net increase (decrease) in cash and cash equivalents (1,766) (597)
Cash and cash equivalents at beginning of period 1,766 807
-------- --------
Cash and cash equivalents at end of period $ -- $ 210
======== ========
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(continued on page 7)
6
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CATALINA LIGHTING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
SUPPLEMENTAL CASH FLOW INFORMATION
SIX MONTHS ENDED
MARCH 31,
-----------------------------------------
1997 1996
------------------ -------------------
(IN THOUSANDS)
Cash paid for:
Interest $ 1,833 $ 1,619
Income taxes $ 888 $ 2,183
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
During the six months ended March 31, 1997 and 1996, total capital
lease obligations incurred for new office, machinery and warehouse equipment
aggregated $617,000 and $76,000, respectively.
The accompanying notes are an integral part of these condensed consolidated
financial statements.
7
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CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with the accounting policies described in the Company's
Annual Report for the fiscal year ended September 30, 1996 and should be read in
conjunction with the consolidated financial statements and notes which appear in
that report. These statements do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements.
In the opinion of management, all adjustments (which consist mostly of normal,
recurring accruals) considered necessary for a fair presentation have been
included. The results of operations for the three and six months ended March 31,
1997 may not necessarily be indicative of operating results to be expected for
the full fiscal year due to seasonal fluctuations in the Company's business,
changes in economic conditions and other factors.
Certain amounts previously presented in the financial statements of prior
periods have been reclassified to conform to the current period's presentation.
2. INVENTORIES
Inventories consisted of the following:
MARCH 31, SEPTEMBER 30,
1997 1996
-------------------- ------------------
(IN THOUSANDS)
Raw materials $ 4,299 $ 5,075
Work-in-progress 1,121 1,342
Finished goods 33,749 33,231
---------------- ---------------
Total Inventories $ 39,169 $ 39,648
================ ===============
8
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CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
3. PROPERTY AND EQUIPMENT, NET
Shenzhen Jiadianbao Electrical Products Co., Ltd. ("SJE"), a cooperative joint
venture subsidiary of the Company's wholly-owned subsidiary Go-Gro Industries
Ltd. ("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 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 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, SJE was obligated to construct approximately
917,000 square feet of factory buildings and 275,000 square feet of dormitories
and offices, with 40 percent of the construction required to be completed by
April 1, 1997 and the remainder by December 31, 2000. The total construction
costs for this project were estimated at $11.3 million, and included
approximately $1.6 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 by September 1997.
In the second quarter of fiscal 1997, SJE filed an application with the Bureau
of National Land Planning Bao-An Branch of Shenzhen City to reduce the amount of
square footage required to be constructed by approximately 40% and thereby
proportionately reduce the MCFF. This application was approved in April 1997.
The construction of a 162,000 square foot factory, a 77,000 square foot
warehouse and a 60,000 square foot dormitory was completed during the quarter
ended March 31, 1997 and these facilities are expected to be fully operational
by June 1997.
4. 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. On June 11, 1992, the Court dismissed the
Complaint and on June 17, 1992, the plaintiff filed an amended Complaint
including claims for damages in excess of $5 million against the Company and
declaratory relief as well as claims for damages in excess of $3 million against
the named directors. On November 24, 1992, the Company filed a Counterclaim in
the action. The Counterclaim alleged damages for in excess of $1 million arising
out of actions which the Company alleged constituted violation of federal and
state securities laws, breach of fiduciary duty, breach of contract, breach of
constructive trust, conversion, civil theft, negligence, fraudulent inducement,
fraud and extortion. In June, 1995, the Court granted the Company's Motion for
Summary Judgment on the plaintiff's claims of libel, on January 31, 1997, the
Court granted summary judgment on Count VIII for indemnification and on February
3, 1997, the plaintiff voluntarily dismissed Counts III, IV and VI concerning
defamation against both the Company and
9
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
4. CONTINGENCIES (CONTINUED)
certain directors. The case was tried in February, 1997 and the jury returned a
verdict against the Company and prejudgment interest for total damages of $2.4
million. Plaintiff has also filed a motion for attorney fees and costs of $1.9
million. A provision of $4.3 million for this adverse jury verdict was recorded
by the Company during the quarter ended March 31, 1997. The Company plans on
appealing the result.
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 tortious
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 the Company's motion for
summary judgment and dismissed the claims against the Company regarding
violation of civil RICO, Federal Antitrust and State unfair competition.
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. The Company believes
that the possibility is remote that any significant damages will be paid by the
Company in connection with this litigation. Accordingly, no provision for any
liability that may result from this litigation has been recorded in the
accompanying condensed consolidated financial statements.
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 is also a defendant in other legal proceedings arising in the course
of business. In the opinion of management, based on advice of legal counsel, 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.
10
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
In the following comparison of the results of operations, the three and
six months ended March 31, 1997 and 1996 are referred to as 1997 and 1996,
respectively.
COMPARISON OF THREE MONTHS ENDED MARCH 31, 1997 AND 1996
Net sales and gross profit for 1997 were $44.9 million and $6.4
million, respectively, as compared to $40.9 million and $7.6 million,
respectively, for 1996. The Company incurred a net loss of $5 million ($.71 per
share) in 1997 compared to net income of $365,000 ($.05 per share) in 1996.
In 1997 and 1996, Home Depot accounted for 19.3% and 10.5%,
respectively, of the Company's net sales. In addition, in 1996 Kmart and its
affiliate accounted for 11.4% of net sales.
DISTRIBUTION OPERATIONS
Distribution operations generated a pretax loss of $6.4 million in 1997
as compared to pretax income of $1.2 million in 1996.
Net sales from distribution operations aggregated $36.5 million in
1997, a $1.5 million increase from the prior year reflecting an increase in
units sold. Functional lighting/lamp sales increased by $767,000 while net sales
for the Company's other principal line of products, lighting fixtures, increased
by $723,000. The increase in distribution sales reflects sales to new customers
and increased sales to certain existing customers resulting from expanded
programs. Functional lighting/lamps and lighting fixtures accounted for 59% and
41%, respectively, of distribution sales in 1997 compared to 60% and 40% in
1996, respectively.
Gross profit from distribution operations decreased to $5.1 million in
1997 from $6.3 million in 1996. As a percentage of net sales, gross profit from
distribution operations was 13.8% and 18.1% for 1997 and 1996, respectively. The
$1.2 million decrease in gross profit and the 4.3 point decrease in the gross
profit percentage are primarily attributable to significantly higher
proportionate sales shipped directly from the Orient to customers which
typically earn lower margins than sales made from warehouses and increases in
the price charged for certain products purchased from the Company's
manufacturing subsidiary, Go-Gro. Sales made from warehouses decreased by $5.4
million in 1997 as compared to 1996 and accounted for 52% of sales in 1997
compared to 67% of sales in 1996.
Selling, general and administrative expenses ("SG&A") for distribution
operations amounted to $4.6 million in 1997 and 1996.
Litigation settlements and related professional fees represent the
amounts provided for an adverse jury verdict of $4.3 million on litigation with
the Company's former Chief Executive Officer, a payment of $1,000,000 to settle
patent litigation with Black & Decker, and the related professional fees
incurred for these two matters (see Note 4 to Condensed Consolidated Financial
Statements and Item 1 - Legal Proceedings).
Interest expense on distribution-related financing increased to
$575,000 in 1997 from $522,000 in 1996 due to higher average outstanding
borrowings required to finance the construction of the Company's new warehouse
facility located in Mississippi, which became operational in March 1996.
11
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CATALINA LIGHTING, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
MANUFACTURING OPERATIONS
Excluding certain administrative costs incurred at the corporate
headquarters, in 1997 the Company's manufacturing operations recorded a pretax
loss of $1.7 million as compared to a pretax loss of $638,000 in 1996. An
analysis of the Company's two manufacturing subsidiaries is as follows:
GO-GRO
Go-Gro Industries Limited ("Go-Gro") generated $845,000 in pretax
income in 1997 while reporting a pretax loss of $83,000 in 1996. Sales by Go-Gro
to non-related companies, the majority of which were made in the European
market, increased by approximately $2.2 million, or 41%, in 1997 to $7.5
million, primarily due to increased unit sales. Intercompany sales by Go-Gro to
the Company's subsidiaries (which are eliminated for financial statement
purposes and the profit on such sales deferred until the goods are sold to third
parties) were $15.1 million in 1997 and $4.1 million in 1996 for total sales of
$22.6 million and $9.4 million in 1997 and 1996, respectively. In 1997, $9.5
million of the intercompany sales were contracted to other non-related
manufacturers. Gross profit increased in total dollars in 1996 by $1.4 million
to $2.8 million as a result of the increase in total shipments and a price
increase for certain products sold to other Company subsidiaries.
SG&A expenses increased by $200,000 to $1.6 million to support Go-Gro's
growth. Interest expense increased in 1997 by $136,000 due to higher outstanding
borrowings needed to finance the construction of a factory, warehouse and
dormitory, to purchase equipment and to support increased production.
MERIDIAN
In March 1997, the Company committed to a plan to cease manufacturing
operations and close its Meridian Lamps, Inc. ("Meridian") facility. The pretax
loss for Meridian was $2.5 million for 1997 and $555,000 for 1996. Net sales
increased to $883,000 in 1997 from $611,000 in 1996 resulting from an increase
in unit sales.
Cost of sales in 1997 was $2.3 million and exceeded sales by $1.4
million. The following factors negatively affected gross profit during 1997:
(i) a provision for discontinued inventory amounting to
$870,000 required as a result of management's decision to
cease operations at Meridian;
(ii) sales volume insufficient to avoid significant
underutilization of plant capacity resulting in manufacturing
variances; and
(iii) provisions for sales returns.
Cost of sales exceeded sales by $285,000 in 1996 mainly due to
unplanned manufacturing variances arising principally from underutilization of
plant capacity, a provision for inventory, research and development costs and
additional storage expenses.
12
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
MERIDIAN (CONTINUED)
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 1997 and 1996 were $224,000 and $270,000,
respectively, consisting mostly of administrative payroll and benefits,
marketing and merchandising expenses, and interest expense.
INCOME TAX PROVISION
The effective income tax rates for 1997 and 1996 were 38% and 40%,
respectively. The lower effective tax rate for 1997 reflects the projected
impact for the fiscal year ended September 30, 1997 of high proportionate
foreign income, which is taxed at a significantly lower rate than U.S. income.
COMPARISON OF SIX MONTHS ENDED MARCH 31, 1997 AND 1996
Net sales and gross profit for 1997 were $90 million and $14.4 million,
respectively, as compared to $91.1 million and $15.7 million, respectively, for
1996. The Company incurred a net loss of $5 million ($.70 per share) in 1997
compared to net income of $953,000 ($.12 per share) in 1996.
In 1997 and 1996, Home Depot accounted for 16.5% and 9.5%,
respectively, of the Company's net sales. In addition, in 1996 Kmart and its
affiliate accounted for 12% of net sales.
DISTRIBUTION OPERATIONS
Distribution operations generated a pretax loss of $7.5 million in 1997
as compared to pretax income of $2.8 million in 1996.
Net sales from distribution operations aggregated $69.4 million in
1997, an $8.6 million decrease from the prior year. Functional lighting/lamp
sales decreased by $6.1 million while net sales for the Company's other
principal line of products, lighting fixtures, decreased by $2.5 million. The
decline in distribution sales is attributable to (i) a weakened sales base
arising from the continuing financial difficulties experienced by several
customers; (ii) a decline in sales to Kmart of $2.5 million (consisting
principally of lighting fixtures),which is transitioning its lighting business
to lamps and is ceasing the sale of lighting fixtures and (iii) reduced sales of
$3.6 million to warehouse clubs which purchased several new items in 1996 and
whose business with the Company can fluctuate from period to period as they
typically purchase on an item, not program, basis. Functional lighting/lamps and
lighting fixtures accounted for 63% and 37%, respectively, of distribution sales
in 1997 as compared to 64% and 36%, respectively, in 1996.
Gross profit from distribution operations decreased to $9.9 million in
1997 from $13.3 million in 1996. The $3.4 million decrease in gross profit is
primarily attributable to (1) lost contributions resulting from lower sales and
(2) lower margins earned on sales shipped from the Orient directly to customers
reflecting a less profitable product mix and increases in the price charged for
certain products purchased from the Company's manufacturing subsidiary, Go-Gro.
As a percentage of net sales, gross profit from distribution operations was
14.2% and 17.0% for 1997 and 1996, respectively. The 2.8 point decrease in the
gross profit percentage is due
13
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
to (1) lower margins earned on sales shipped from the Orient directly to
customers reflecting a less profitable product mix and increases in the price
charged for certain products purchased from the Company's manufacturing
subsidiary, Go-Gro, (2) the decline in sales, which increased the impact on the
gross profit percentage of purchasing and warehousing costs as most of such
costs are fixed and (3) a higher proportion of sales shipped from the Orient
directly to customers (such sales typically carry lower margins). The impact
from such decreases in the gross profit percentage was partially offset by lower
provisions for sales incentives as a percentage of net sales, stemming from
favorable incentive experience. Sales made from warehouses decreased by $9.6
million in 1997 as compared to 1996 and accounted for 55% of sales in 1997
compared to 59% of sales in 1996.
Selling, general and administrative expenses ("SG&A") for distribution
operations amounted to $9 million in 1997 and $9.4 million in 1996. The $400,000
decrease reflects lower depreciation expense ($328,000) principally attributable
to the accelerated depreciation of the Company's computer system during the
prior year in connection with the purchase of a new system during fiscal 1997
and lower merchandising and customer display costs ($261,000).
Litigation settlements and related professional fees represent the
amount provided for an adverse jury verdict of $4.3 million on litigation with
the Company's former Chief Executive Officer, a payment of $1,000,000 to settle
patent litigation with Black & Decker, and the related professional fees
incurred for these matters (see Note 4 to Condensed Consolidated Financial
Statements and Item 1 - Legal Proceedings).
Interest expense on distribution-related financing remained
approximately the same at $1.1 million. The impact from higher outstanding
borrowings was offset by a lower weighted interest rate.
MANUFACTURING OPERATIONS
Excluding certain administrative costs incurred at the corporate
headquarters, in 1997 the Company's manufacturing operations recorded a pretax
loss of $561,000 compared to a pretax loss of $1.2 million in 1996. An analysis
of the Company's two manufacturing subsidiaries is as follows:
GO-GRO
Go-Gro Industries Limited ("Go-Gro") generated $2.6 million in pretax
income in 1997 while reporting a pretax loss of $91,000 in 1996. Sales by Go-Gro
to non-related companies, the majority of which were made in the European
market, increased by approximately $7 million, or 58%, in 1997 to $19 million
primarily due to increased unit sales. Intercompany sales by Go-Gro to the
Company's subsidiaries (which are eliminated for financial statement purposes
and the profit on such sales deferred until the goods are sold to third parties)
were $26.1 million in 1997 and $9.4 million in 1996 for total sales of $45.2
million and $21.4 million in 1997 and 1996, respectively. In 1997, $13.5 million
of the intercompany sales were contracted to other non-related manufacturers.
Gross profit increased in total dollars in 1997 by $3.3 million to $6.3 million
as a result of the increase in total shipments and a price increase for certain
products sold to other Company subsidiaries.
SG&A expenses increased by $263,000 to $3.2 million to support the
growth in sales. Interest expense increased in 1997 by $171,000 due to higher
outstanding borrowings needed to finance the construction of a factory,
warehouse and dormitory, to purchase equipment and to support increased
production.
14
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
MERIDIAN
In March 1997, the Company committed to a plan to cease manufacturing
operations and close its Meridian Lamps, Inc. ("Meridian") facility. The pretax
loss for Meridian was $3.1 million for 1997 and $1.1 million for 1996. Net sales
increased to $1.6 million in 1997 from $1.1 million in 1996 resulting from an
increase in unit sales.
Cost of sales in 1997 was $3.3 million and exceeded sales by $1.8
million. The following factors negatively affected gross profit during 1997:
(i) a provision for discontinued inventory amounting to
$870,000 required as a result of management's decision to
cease operations at Meridian;
(ii) a sales volume insufficient to avoid significant
underutilization of plant capacity resulting in manufacturing
variances; and
(iii) provisions for sales returns.
Cost of sales exceeded sales by $632,000 in 1996 mainly due to
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 1997 and 1996 were $434,000 and $484,000,
respectively, consisting mostly of administrative payroll and benefits,
marketing and merchandising expenses, and interest expense.
OTHER INCOME (EXPENSES)
Other income of $275,000 in 1996 consisted primarily of gains on the
sale of intangible assets and investment income.
INCOME TAX PROVISION
The effective income tax rates for 1997 and 1996 were 38% and 40%,
respectively. The lower effective tax rate for 1997 reflects the projected
impact for the fiscal year ended September 30, 1997 of high foreign income,
which is taxed at a significantly lower rate than U.S. income.
15
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
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 import 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 liquidity
requirements for the next year.
CASH FLOWS FOR THE SIX MONTHS ENDED MARCH 31, 1997
The Company's operating, investing and financing activities resulted in
a net decrease in cash and cash equivalents of $1.8 million from September 30,
1996 to March 31, 1997.
Net cash of $1.8 million was used by operating activities. Borrowings
under the Company's credit lines were used primarily to pay for capital
expenditures aggregating $4.8 million. Capital expenditures included $3.8
million in costs incurred by Go-Gro for the construction of a factory, warehouse
and a dormitory and the purchase of machinery, molds and equipment. In addition,
machinery for the Go-Gro factory amounting to $506,000 was acquired and financed
by one of the Company's leasing facilities with a Hong Kong financial
institution.
CREDIT FACILITIES, CONVERTIBLE SUBORDINATED NOTES AND BONDS
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 commencing on June 1, 1997 on the
non-revolving loan. The non-revolving loan bears interest 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. Obligations under this facility are secured by substantially
all of the Company's U.S. assets. The Company is required to comply with various
convenants 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 March
31, 1997, the Company had used $34.8 million under its credit facility.
16
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
CREDIT FACILITIES, CONVERTIBLE SUBORDINATED NOTES AND BONDS (CONTINUED)
The Company's Canadian and Hong Kong subsidiaries have credit
facilities with foreign banks of $2.9 million and $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 up to $1.1 million bear interest at the Canadian prime rate (4.75% at
March 31, 1997) while advances in excess of $1.1 million bear interest at the
Canadian prime rate plus .5%. Borrowings under the Hong Kong facility are
secured by substantially all the assets of Go-Gro. 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% (8.75% at March 31, 1997). Each of these credit facilities are
payable upon demand and are subject to annual reviews by the banks. 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 to 40% of Go-Gro's earnings but does not limit advances or
loans from Go-Gro to the Company. The aggregate amounts available for borrowing
under the Canadian and Hong Kong facilities at March 31, 1997 were $2 million
and $1 million, respectively.
The Company has outstanding $7.6 million of 8% convertible subordinated
notes due on 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.
17
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
CREDIT FACILITIES, CONVERTIBLE SUBORDINATED NOTES AND BONDS (CONTINUED)
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 new 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 (5.6% at March 31, 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 a $10.8
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 6.36% and a contractual maturity
of 15 years. 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.
The Company has a $1 million leasing facility with a financial
institution to finance the purchase of equipment in the United States, of which
$555,000 was available at March 31, 1997. In addition, the Company has leasing
facilities for $9.8 million Hong Kong dollars (U.S. $1.3 million) with Hong Kong
financial institutions to finance the purchase of machinery and equipment for
its China facilities of which U.S. $717,000 was available at March 31, 1997.
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 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 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.
18
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
OTHER (CONTINUED)
Under the terms of this agreement, SJE is obligated to construct
approximately 917,000 square feet of factory buildings and 275,000 square feet
of dormitories and offices, with 40 percent of the construction required to be
completed by April 1, 1997 and the remainder by December 31, 2000. The total
construction costs for this project are estimated at $11.3 million, and include
approximately $1.6 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. In the
second quarter of fiscal 1997, SJE filed an application with the Bureau of
National Land Planning Bao-An Branch of Shenzhen City to reduce the amount of
square footage required to be constructed by approximately 40% and thereby
proportionately reduce the MCFF. This application was approved in April, 1997.
The construction of a 162,000 square foot factory, a 77,000 square foot
warehouse and a 60,000 square foot dormitory was completed during the quarter
ended March 31, 1997, and these facilities are expected to be fully operational
by June, 1997.
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. 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.
On December 17, 1996 White Consolidated Industries, Inc. ("White"),
which has acquired certain limited trademark rights from Westinghouse to market
certain household products under the White-Westinghouse trademark, notified the
Company of a lawsuit against Westinghouse and the Company . The lawsuit
challenges the Company's right to use the Westinghouse trademarks on its
lighting products and alleges trademark infringement. Both the Company and
Westinghouse vigorously dispute White's allegations and 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. alleging that the defendants had violated Westinghouse's
trademark rights, breached the Agreement between Westinghouse and White and
seeking an injunction to enjoin White against interference with their
contractual arrangements. Management does not believe this litigation will have
a material adverse impact on the Company's financial position or annual results
of operations.
19
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
RENEWAL OF CHINA'S MOST FAVORED NATION STATUS
During the fiscal year ended September 30, 1996, approximately 95%
(including purchases from Go-Gro) of the products purchased for sale by the
Company's distribution operations were imported from China. In addition, Go-Gro
sold $28 million in products to unaffiliated entities, of which $3.1 million
were shipped in the U.S. 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. These issues and their
possible effects are summarized below.
On June 19, 1996, 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, 1996.
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.
The Presidential Determination did not recommend subjecting any future renewal
of MFN trade status for China to various conditions, such as China's compliance
with the 1992 bilateral agreement with the United States concerning prison labor
and overall progress with respect to human rights, release and accounting of
Chinese citizens imprisoned or detained for their political and religious
beliefs, humane treatment of prisoners, protecting Tibet's religious and
cultural heritage and permitting international radio and television broadcasts
into China. Congress has passed a resolution instructing certain committees to
investigate China's alleged human rights abuses, illicit arms transfers and
unfair trade practices. 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.
On November 30, 1993, the United States Trade Representative ("USTR")
placed China on the "priority watch list" under the so-called Special 301
provisions of the Trade Act of 1974 dealing with the protection of intellectual
property rights. On June 30, 1994, USTR announced that China had been designated
a "priority foreign country" under the "special 301" provisions of the Trade Act
of 1974. On February 4, 1995, the USTR announced that the United States would
take retaliatory trade action against China if the government did not agree to
address intellectual property rights issues. The USTR also published a final
list of products compromising $1 billion worth of Chinese exports to the United
States which would be subject to increased duties. Products currently
manufactured by and for the Company were excluded from the list. On February 26,
1995 the United States and China resolved this dispute when China agreed to
close down a number of compact disc plants and take enforcement actions against
copyright piracy which was evidenced by the signing of an Intellectual Property
Enforcement Agreement (the "IPR Agreement"). On April 30, 1996 USTR designated
China as a "priority foreign country" because of its failure to implement the
1995 intellectual property enforcement agreement and on June 17, 1996, the
United States and China reached an understanding on the enforcement of the
intellectual property agreement. USTR will continue to monitor China's
implementation of the 1995 agreement and trade sanctions could be imposed for
non-compliance at any time pursuant to a decision by USTR that China is not
satisfactorily implementing the 1995 agreement.
20
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
RENEWAL OF CHINA'S MOST FAVORED NATION STATUS - CONTINUED
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.
21
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 1. 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. On June 11, 1992, the Court dismissed
the Complaint and on June 17, 1992, the plaintiff filed an amended Complaint
including claims for damages in excess of $5 million against the Company and
declaratory relief as well as claims for damages in excess of $3 million against
the named directors. On November 24, 1992, the Company filed a Counterclaim in
the action. The Counterclaim alleged damages for in excess of $1 million arising
out of actions which the Company alleged constituted violation of federal and
state securities laws, breach of fiduciary duty, breach of contract, breach of
constructive trust, conversion, civil theft, negligence, fraudulent inducement,
fraud and extortion. In June, 1995, the Court granted the Company's Motion for
Summary Judgment on the plaintiff's claims of libel, on January 31, 1997, the
Court granted summary judgment on Count VIII for indemnification and on February
3, 1997, the plaintiff voluntarily dismissed Counts III, IV and VI concerning
defamation against both the Company and certain directors. The case was tried in
February, 1997 and the jury returned a verdict against the Company and
prejudgment interest for total damages of $2.4 million. Plaintiff has also filed
a motion for attorney fees and costs of $1.9 million. A provision of $4.3
million for this adverse jury verdict was recorded by the Company during the
quarter ended March 31, 1997. The Company plans on appealing the result.
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. All cases were filed in the United States District Court, Eastern
Division of Virginia. 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 is a defendant in legal proceedings arising in the normal
course of business. In the opinion of management, based upon advice of legal
counsel, their ultimate resolution will not have a material adverse effect on
the Company's financial statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the Company's Annual Meeting of Stockholders, held on April 10,
1997, the stockholders voted on the following matters:
22
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION (CONTINUED)
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(CONTINUED)
(i) to elect eight persons to serve as directors of the Company until
the 1998 Annual Meeting of Stockholders by the following votes:
<TABLE>
<CAPTION>
IN FAVOR AGAINST NOT VOTED
------------------------------ --------------------------- -------------------------------
SHARES % SHARES % SHARES %
---------------- ------------- ------------ ------------ ---------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Robert Hersh 5,468,670 77.4% 58,097 0.8% 1,537,820 21.8%
Dean S. Rappaport 5,468,670 77.4% 58,097 0.8% 1,537,820 21.8%
William Stewart 5,468,670 77.4% 58,097 0.8% 1,537,820 21.8%
Henry Latimer 5,468,670 77.4% 58,097 0.8% 1,537,820 21.8%
Leonard Sokolow 5,468,670 77.4% 58,097 0.8% 1,537,820 21.8%
Robert Wachs 5,468,670 77.4% 58,097 0.8% 1,537,820 21.8%
Ryan Burrow 5,468,670 77.4% 58,097 0.8% 1,537,820 21.8%
Jeffrey Silverman 5,468,670 77.4% 58,097 0.8% 1,537,820 21.8%
</TABLE>
(ii) to ratify the appointment of Deloitte & Touche LLP to serve as the
Company's auditors for the fiscal year ending September 30, 1997
by a vote of 5,455,967 (77.2%) shares cast for the proposal in
favor, 17,850 (.3%) shares against and 1,590,770 (22.5%) shares
abstained.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
10.140 Ninth Amendment to Third Amended and Restated
Credit Agreement dated December 30, 1996 between
Catalina Lighting, Inc. and SunTrust Bank, Central
Florida, National Association.
10.141 Fourth Amendment to Letter of Credit Agreement
dated December 30, 1996 between Catalina Industries,
Inc. and SunTrust Bank, Central Florida, National
Association.
10.142 Tenth Amendment to Third Amended and Restated
Credit Agreement dated March 31, 1997 between Catalina
Lighting, Inc. and SunTrust Bank, Central Florida,
National Association.
10.143 Fifth Amendment to Letter of Credit Agreement
dated March 31, 1997 between Catalina Industries, Inc.
and SunTrust Bank, Central Florida, National
Association.
10.144 Restated Articles of Association for Shenzhen
Jiadianbao Electrical Products Co., Ltd., a
Cooperative Joint Venture Company dated October 18,
1996
10.145 Contract to Amend Cooperative Joint Venture
Contract between Shenzhen Baoanqu Fuda Industries Co.,
and Go-Gro Industries, Ltd. dated October 18, 1996
23
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION (CONTINUED)
(a) EXHIBITS (CONTINUED)
11 Schedule of Computation of Earnings (loss) per Share
(b) REPORTS ON FORM 8-K
None.
24
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
/S/ DEAN S. RAPPAPORT
-------------------------------
Dean S. Rappaport
Executive Vice President, and
Chief Operating Officer
/S/ DAVID W. SASNETT
-------------------------------
David W. Sasnett
Chief Financial Officer
Date: May 14, 1997
25
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
10.140 Ninth Amendment to Third Amended and Restated
Credit Agreement dated December 30, 1996 between
Catalina Lighting, Inc. and SunTrust bank, central
Florida, National Association.
10.141 Fourth Amendment to Letter of Credit Agreement
dated December 30, 1996 between Catalina Industries,
Inc. and SunTrust Bank, Central Florida, National
Association.
10.142 Tenth Amendment to Third Amended and Restated
Credit Agreement dated March 31, 1997 between Catalina
Lighting, Inc. and SunTrust Bank, Central Florida,
National Association.
10.143 Fifth Amendment to Letter of Credit Agreement
dated March 31, 1997 between Catalina Industries, Inc.
and SunTrust Bank, Central Florida, National
Association.
10.144 Restated Articles of Association for Shenzhen
Jiadianbao Electrical Products Co., Ltd., a
Cooperative Joint Venture Company dated October 18,
1996
10.145 Contract to Amend Cooperative Joint Venture
Contract between Shenzhen Baoanqu Fuda Industries Co.,
and Go-Gro Industries, Ltd. dated October 18, 1996
11 Schedule of Computation of Earnings (loss) per Share
27 Financial Data Schedule
EXHIBIT 10.140
NINTH AMENDMENT TO
THIRD AMENDED AND RESTATED CREDIT AGREEMENT
THIS NINTH AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT (the
"Ninth Amendment") dated as of December 30,1996, 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
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, and 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 so amended, the "Credit
Agreement"); and
WHEREAS, the Borrower and the Guarantors have requested that the Credit
Agreement be amended to revise the Interest Coverage Ratio.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of
<PAGE>
which are hereby acknowledged, the parties hereto agree as follows:
1. AMENDMENT TO CREDIT AGREEMENT. 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 September 30, 1996; less than 1.25:1
for the immediately preceding four (4) calendar quarterly period ending
December 31, 1996; less than 1.25:1 for the immediately preceding four (4)
calendar quarterly periods ending March 31, 1997; less than 1.50:1 for the
immediately preceding four (4) calendar quarterly periods ending June 30, 1997;
and less than 2.00:1 for the immediately preceding four (4) calendar quarterly
periods ending September 30, 1997, and for said immediately preceding four (4)
calendar quarterly periods ending on the last day of each calendar quarter
thereafter.
2. COUNTERPARTS. The Ninth 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 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 Credit Agreement as
amended hereby, and all other Loan Documents shall remain in full force and
effect in this Ninth 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
Ninth 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.
2
<PAGE>
5. GOVERNING LAW. THIS NINTH 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.
[BALANCE OF THIS PAGE INTENTIONALLY LEFT BLANK]
3
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Ninth 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
(CORPORATE SEAL)
GUARANTORS:
EACH OF THE CORPORATIONS LISTED
OF 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
4
<PAGE>
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
CATALINA ADMINISTRATIVE CORPORATION
By: /s/ THOMAS M. BLUTH
------------------------------------
Thomas M. Bluth
Secretary, Treasurer
CATALINA MERCHANDISING, INC.
By: /s/ THOMAS M. BLUTH
------------------------------------
Thomas M. Bluth
Secretary, Treasurer
5
EXHIBIT 10.141
FOURTH AMENDMENT TO
LETTER OR CREDIT AGREEMENT
THIS FOURTH AMENDMENT TO LETTER OF CREDIT AGREEMENT (the "Fourth
Amendment") dated as of December 30, 1996, 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
certian 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 and as further amended by that certain Third Amendment to amended, the
"Letter of Credit Agreement dated as of March 27, 1996 (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 a certain financial covenant 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. AMENDMENT TO LETTER OF CREDIT AGREEMENT. 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
<PAGE>
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 that 1.25:1 for the immediately preceding four (4) calendar
quarterly periods ending December 31, 1996; less than 1.25:1 for the immediately
preceding four (4) calendar quarterly periods ending March 31, 1997; less than
1.50:1 for the immediately preceding four (4) calendar quarterly periods ending
June 30, 1997; and less than 2.00:1 for the immediately preceding four (4)
calendar quarterly periods ending September 30, 1997, and for said immediately
preceding four (4) calendar quarterly periods ending on the last day of each
calendar quarter thereafter."
2. COUNTERPARTS. The Fourth 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 Fourth
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 amended
by the Fourth 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 FOURTH 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)
2
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Fourth 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
(CORPORATE SEAL)
GUARANTORS:
CATALINA LIGHTING, INC.
By: /s/ THOMAS M. BLUTH
-----------------------------
Thomas M. Bluth
Vice President,
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
3
<PAGE>
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
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/ LEE W. WRIGHT
--------------------------------
Name: LEE W. WRIGHT
-------------------------
Title: FIRST VICE PRESIDENT
-------------------------
4
EXHIBIT 10.142
TENTH AMENDMENT TO
THIRD AMENDED AND RESTATED CREDIT AGREEMENT
THIS TENTH AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT (the
"Tenth Amendment") dated as of March 31, 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, and as further amended by that Ninth
Amendment to Third Amended and Restated Credit Agreement, dated as of December
30, 1996 (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;
$43,000,000.00 from September 30, 1997 until September 29, 1998; and
$45,000,000.00 thereafter. Notwithstanding the above, in the event the
pretax charge to earnings previously disclosed to the Agent and the
Banks and incurred by the Borrower during the period ending on September
29, 1997 is less than $9,859,826.00, the Minimum Consolidated Tangible
Net Worth Plus Subordinated Debt requirement set forth above for the
period from March 31, 1997 until September 29, 1997 shall be increased
by the amount of the difference between the after tax effect of the
actual pretax charge to earnings incurred during said period and the
after tax effect of a pretax charge to earnings of $9,859,826.00.
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
2
<PAGE>
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 'our (4) calendar
quarterly periods ending December 31, 1996; excluding the effect of the
actual pretax charge to earnings referred to in Section 5.12 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 referred to herein not to exceed
$9,859,826.00 incurred during the quarterly period ending June 30, 1997,
less than 1.50:1 for the one (1) calendar quarterly period ending June
30, 1997; and less than 2.00:1 for the immediately preceding four (4)
calendar quarterly periods ending September 30, 1997, and for said
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."
2. COUNTERPARTS. The Tenth 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 Credit Agreement
3
<PAGE>
unless the context herein otherwise dictates or unless different meanings are
specifically assigned to such terms herein.
4. 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 Tenth 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
Tenth 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.
5. GOVERNING LAW. THIS TENTH 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.
[BALANCE OF THIS PAGE INTENTIONALLY LEFT BLANK]
4
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Tenth Amendment as of
the day and year first above written.
COMPANY:
CATALINA LIGHTING, INC.
By: /s/ THOMAS M. BLUTH
--------------------------------------
Thomas M. Bluth
Vice President, Secretary,
Treasurer
GUARANTORS:
EACH OF THE CORPORATIONS LISTED
ON ANNEX 1 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
5
<PAGE>
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
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
6
<PAGE>
AGENT:
SUNTRUST BANK, CENTRAL FLORIDA
NATIONAL ASSOCIATION
By:
--------------------------------------
Name:
-------------------------------
Title:
-------------------------------
THE BANKS:
SUNTRUST BANK, CENTRAL FLORIDA
NATIONAL ASSOCIATION
By:
--------------------------------------
Name:
-------------------------------
Title:
-------------------------------
FIRST UNION NATIONAL BANK OF FLORIDA
By:
--------------------------------------
Name:
-------------------------------
Title:
-------------------------------
NATIONAL CANADA FINANCE CORP.
By:
--------------------------------------
Michael S. Bloomenfeld
Vice President
7
EXHIBIT 10.143
FIFTH AMENDMENT TO
LETTER OF CREDIT AGREEMENT
THIS FIFTH AMENDMENT TO LETTER OF CREDIT AGREEMENT (the "Fifth Amendment")
dated as of March 31, 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").
WITNESSETH:
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 and as further amended by that certain
Fourth Amendment to Letter of Credit Agreement dated as of December 30, 1996 (as
amended, the "Letter of Credit Agreement"); and
WHEREAS, the Company and the Guarantors have requested that 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:
"Section 5.12. MINIMUM CONSOLIDATED TANGIBLE NET WORTH PLUS SUBORDINATED
DEBT. Permit its
<PAGE>
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; $43,000,000.00 from
September 30, 1997 until September 29, 1998; and $45,000,000.00
thereafter. Notwithstanding the above, in the event the pretax charge to
earnings previously disclosed to the Agent and the banks and incurred by
the Borrower during the period ending on September 29, 1997 is less than
$9,859,826.00, the Minimum Consolidated Tangible Net Worth Plus
Subordinated Debt requirement set forth above for the period from March
31, 1997 until September 29, 1997 shall be increased by the amount of
difference between the after tax effect of the actual pretax charge to
earnings incurred during said period and the after tax effect of a pretax
charge to earnings of $9,859,826.00."
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 periods
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 referred to in Section
5.12 not to exceed 9,859,826 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
2
<PAGE>
to earnings refereed to herein not to exceed $9,859,826.00 incurred
during the quarterly period ending June 30, 1997, less than 1.50:1 for
the one (1) calendar quarterly period ending June 30, 1997; and less than
2.00:1 for the immediately preceding four (4) calendar quarterly periods
ending September 30, 1997, and for said 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."
2. COUNTERPARTS. The Fifth 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 Fifth
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 amended
by the Fifth Amendment. The Company and the Guarantors hereby acknowledges 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 rights of set-offs whatsoever.
3
<PAGE>
5. GOVERNING LAW. THIS FIFTH 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 Fifth 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
Vice President
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:
--------------------------------------
Name:
-------------------------------
Title:
-------------------------------
6
EXHIBIT 10.144
SHENZHEN JIADIANBAO ELECTRICAL PRODUCTS CO., LTD.
A COOPERATIVE JOINT VENTURE COMPANY
RESTATED ARTICLES OF ASSOCIATION
October 18, 1996
<PAGE>
CHAPTER 1 GENERAL PROVISIONS
ARTICLE 1
Pursuant to the "Law of the People's Republic of China on Sino-foreign
Cooperative Enterprises" adopted April 13, 1988, as amended and supplemented as
of the date hereof (hereinafter referred to as the "Cooperative Enterprise
Law"), other relevant promulgated and publicly available laws and regulations of
the People's Republic of China (the "PRC") and the Contract to Change Shenzhen
Jiadianbao Electrical Products Co., Ltd. from an Equity Joint Venture Company to
a Cooperative Joint Venture Company dated September 12, 1994, as amended on
October 18, 1996, (the "Contract") between Shenzhen Baoanqu Fuda Industries Co.
Ltd. (hereinafter referred to as "Party A"), and Go-Gro Industries Ltd., a Hong
Kong corporation (hereinafter referred to as "Party B", and together with Party
A the "Parties"), forming Shenzhen Jiadianbao Electrical Products Co., Ltd. as a
cooperative joint venture company with limited liability (hereinafter referred
to as the "Cooperative Co."), and unanimous resolutions of the Board of
Directors of the Cooperative Co. duly adopted at a duly and validly held meeting
on October 18, 1996 amending and restating the Articles of Association of the
Cooperative Co., these Restated Articles of Association of the Cooperative Co.
are hereby formulated. Capitalized terms set forth herein shall have the same
meanings as defined in the Contract unless otherwise expressly defined herein.
1
<PAGE>
ARTICLE 2
The name of the Cooperative Co. in Chinese is _________________
_________________. The name of the cooperative Co. in English is "Shenzben
Jiadianbao Electrical Products Co., Ltd. The name of the Cooperative Co. shall
be used to identify the Cooperative Co. in connection with any and all of its
affairs. The legal address of the Cooperative Co. shall be Feng Huang Gang
Village, Xin An Zhen, Bao An District, Shenzhen, PRC.
ARTICLE 3
The names and legal addresses of the Parties to the Cooperative Co. are
as follows:
Party A: Shenzhen Baoanqu Fuda Industries Co., is duly registered in
Bao An District, Shenzhen, PRC.
Legal Address: No.26 Xin Cheng, Bao An District, Shenzhen, PRC.
Legal Representative: Zhang Fu Tian
Position: Manager
Nationally: PRC
Party B: Go-Gro Industries Ltd., is duly registered in, Hong Kong.
Legal Address: 6/F., Kenning Ind. Bldg., 19 Wang Hoi Road,
Kowloon Bay, Hong Kong.
2
<PAGE>
Legal Representative: Waicheck Lau
Position: President
Nationality: British
ARTICLE 4
The Cooperative Co. is a limited liability company. The liability of
each Party under any and all circumstances shall be limited to the amount of
registered capital expressly subscribed by such Party as set forth in Article 9,
as such Article may be amended from time to time, of the Contract.
ARTICLE 5
The Cooperative Co. is a legal person under the laws of the PRC and its
legal rights and operational autonomy as well as the rights of the Parties in
and to their respective interests in the Cooperative Co. shall be fully
protected by the relevant laws and regulations of the PRC.
CHAPTER 2. PURPOSES AND BUSINESS SCOPE OF THE COOPERATIVE CO.
ARTICLE 6
The purposes of the Parties in establishing the Cooperative Co. are: to
fully utilize Party B's abundant capital resources, technical strength, advanced
management methods and broad sales network in the international market for
designing, manufacturing and distributing in domestic and international markets
various types of lighting products, flashlights, cordless hand tools, household
electrical
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products and related components and parts (hereinafter referred to as "Contract
Products"); to further strengthen the economic cooperation and technical
exchanges between PRC and the international markets; to import into the PRC
advanced and applicable production technology, key equipment and scientific
management techniques; to build a modern household electrical products
production capability in order to further expand the scale, capacity and product
quality of the Cooperative Co.; to facilitate the development of new products,
so as to strengthen the competitiveness of Chinese lighting products in the
international market and increase exports from the PRC; and to further improve
the economic effectiveness and achieve a satisfactory economic profit for the
Parties.
ARTICLE 7
The business scope of the Cooperative Co. shall include the following:
(1) design, manufacture and distribution of various types of lighting
products, flashlights, cordless hand tools and related components and parts, and
after-sale maintenance and repair services therefor;
(2) construction, ownership and operation of plant and related
facilities needed for the administration of the Cooperative Co., the production
and distribution of its Contract Products and operation of its business; and
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(3) such other activities as may be necessary or advisable, as
permitted under the laws and regulations of the PRC, in furtherance of the
purposes of the Cooperative Co. as set forth in Article 6 of these Articles.
ARTICLE 8
The annual production capacity of the Cooperative Co. at the time of
original adoption of these Articles of Association is to produce Contract
Products with a wholesale value of approximately HK$180,000,000. With the
development of production, the production scale and capacity of the Cooperative
Co. will be increased to an annual production capacity of Contract Products with
a wholesale value of approximately HK$360,000,000.
ARTICLE 9
Contract Products of the Cooperative Co. representing approximately
eighty percent (80%) of the total wholesale value of Contract Products produced
by the Cooperative Co. shall be for export and Contract Products of the
Cooperative Co. representing approximately twenty percent (20%) of the total
wholesale value of such Contract Products shall be for sale on the PRC's
domestic market.
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CHAPTER 3 TOTAL AMOUNT OF INVESTMENT AND REGISTERED CAPITAL
ARTICLE 10
10.1 The original total amount of investment in the Cooperative Co. was
RMB80,000,000. The additional amount of investment is RMB43,317,280.
10.2 The original registered capital of the Cooperative Co. was
RMB32,000,000, which has been fully subscribed by Party B and shall be used
solely for the Production Line.
The additional registered capital is RMB17,526,912, which shall be used
solely for the Construction Line.
10.3 Payment of the additional registered capital shall be as follows:
10.3.1 Of the additional registered capital of RMB17,526,912, 30%
or RMB5,258,074 is subscribed and shall be contributed in cash or in kind by
Party A, and 70% or RMB12,268,838 is subscribed and shall be contributed in cash
or in kind by Party B.
10.3.2 Payment of the additional registered capital of
RMB17,596,912 shall be in three installments, of which 15% of the amount
subscribed by each Party shall be paid within three (3) months after the date of
the approval of the increase in the total amount of investment and increase in
registered capital, 50% of such amount with nine (9) months
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after such approval, and the remaining 35% or such amount within twelve (12)
months after such approval.
10.3.3 All capital payments in cash shall be made, if in RMB, to
the RMB account of the Cooperative Co. at the Bank of China's principal office
in Shenzhen or at such other authorized bank as the Board of Directors (the
"Board") may from time to time designate; or if in foreign currency, to the
respective foreign exchange account of the Cooperative Co. at the Bank of
China's principal office in Shenzhen or at such other authorized bank as the
Board may designate from time to time. All capital payments made in kind shall
be transferred to the Cooperative Co. by appropriate documents of transfer and
assignment. According to the PRC Regulations on the Subscription of Capital by
the Parties to Sino-Foreign Joint Venture Enterprises of December 30, 1987, any
and all capital contributed by the Parties to the Cooperative Co., regardless of
the form of the payment, shall be, when received by the Cooperative Co., free
and clear of all liens, claims and encumbrances whatsoever. All registered
capital received by the Cooperative Co. shall be for the exclusive use of the
Cooperative Co. for implementing the purposes set forth herein for the entire
term of this Contract.
10.3.4 The capital contributed to the Cooperative Co. shall be
verified by a Chinese registered accountant retained by the Cooperative Co. and
such accountant shall issue a capital verification report verifying the paid-
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in capital contributions. Party B has the option to retain, at its own cost, an
international certified public accountant of its choice to assist in the capital
verification of any Party's contribution and in the issuance of any capital
verification report. Upon receipt of a satisfactory capital verification report,
the Cooperative Co. shall issue a certificate of capital contribution in the
verified amount to the Party making such contribution. Such certificate(s) of
capital contribution shall be conclusive evidence of such Party's capital
interest in the Cooperative Co.
10.3.5 Registered capital of the Cooperative Co. may be increased
from time to time but only following adoption of any such increase by unanimous
action by the Board of the Cooperative Co. and approval of the Shenzhen
Municipal Foreign Investment Office (the "Approving Authority"). No Party shall
be required to make any additional contribution of registered capital except as
expressly set forth in this Article, as the same may be amended from time to
time. Registered capital shall not bear interest.
ARTICLE 11
11.1 Capital received by the Cooperative Co. shall be allocated, as
prescribed in the Contract for the registered capital and otherwise as
determined by the Board, between the two primary segments of its business, the
Production Line and the Construction Line, which segments are defined as
follows:
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11.1.1 The Production Line includes all personal property of the
Cooperative Co., including machinery and equipment, raw materials and
components, work-in-progress, finished goods inventory, receivables,
intellectual property, leases, licenses, contract rights and other intangibles,
tenant improvements to any real property leased or used by the Cooperative Co.
and deposits and premiums, used or usable in the production and distribution of
the Contract Products and not included in the Construction Line.
11.1.2 The Construction Line includes all land use rights owned or
used by the Cooperative Co. (other than under the provisions of a lease)
concerning land located in Feng Huang Gang Village, Xin An Town, Bao An
District, Shenzhen, and all of the rights of the Cooperative Co. in all
improvements, both off-site and on-site, and all buildings and other structures,
and other rights related thereto, including contracts for the design,
construction and supervision of construction of buildings and other structures,
located or constructed on such land, and all easements and other rights related
to the foregoing.
11.2 The entire original registered capital in the amount of
RMB32,000,000 subscribed and paid by Party B shall be allocated to and used
solely for the Production Line. The additional registered capital in the amount
of RMB17,526,912 shall be allocated to and used soley for the Construction Line.
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ARTICLE 12
Each party shall contribute its subscribed capital in the amount and
within the time limit as provided in the Contract.
ARTICLE 13
13.1 The effectiveness of any transfer or sale (collectively
"Transfer") of all or any part of its interests in the Cooperative Co. by any
Party shall be subject to the prior written consent of the other Party, which
consent shall not be unreasonably withheld, and approval of the Approving
Authority to the extent required by PRC law and regulations. Should either Party
desire to Transfer all or a portion of its interest, it shall first offer in
writing to Transfer such interest to the other Party at a price and on terms and
conditions set forth in such writing, which writing shall also set forth the
name of the person proposed to be the recipient of such Transfer. Should the
Party receiving such offer not elect to acquire such interest within ninety (90)
days after receiving such offer, the offering Party may thereafter Transfer such
interest to the person named in the written offer at a price and on terms and
conditions no more favorable to the person named in the written offer than had
been set forth in such written offer. Any other Transfer hereunder shall be
void.
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13.2 Any Transfer of any Party's interest under this Article shall not
become effective until all necessary approvals have been obtained and until the
proposed transferee shall have agreed to be subject to the provisions of this
Contract and the Articles of Association of the Cooperative Co. by execution of
the Contract and of the Articles of Association, as amended to the date of such
Transfer. Upon the receipt of such approvals and signed documents, the
Cooperative Co. shall cancel the then outstanding Certificates of Capital
Contribution of the transferor Party and issue new Certificates of Capital
Contribution to the transferee to reflect the new ownership interests, and
commencing from that date the transferee shall become a Party to this Contract
and the Cooperative Co. Should Party B acquire all of the interests of Party A,
it shall be entitled to re-register the Cooperative Co. as a wholly
foreign-owned enterprise.
ARTICLE 14
14.1 Revenues and expenditures of the Cooperative Co. shall be recorded
under such bookkeeping and accounting procedures and standards as shall be
determined by the Board, but such procedures shall not permit expenditure of
registered capital received by the Cooperative Co. except as permitted by
Article 10.2 of the Contract. Further, expenditures which shall be determined by
the Board to be capital expenditures relating to the Construction Line shall be
so recorded in the books and records of the Cooperative Co. that the amount of
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such expenditures, including reasonable depreciation, shall be an appropriate
adjustment to the cost of the Construction Line. Revenues received from the
sale, lease (including any amounts allocated to the Construction Line pursuant
to Article 11.3 of the Contract), or condemnation of assets included in the
Construction Line, or insurance proceeds received under policies owned by the
Cooperative Co. insuring assets in the Construction Line from the dangers of
fire, explosion, theft, earthquake or other natural disaster or like danger
covered in similar policies, shall be recorded as revenues received from the
Construction Line.
14.2 Notwithstanding the foregoing, expenditures for the payment of
compensation to production and assembly workers engaged in the Production Line,
together with payment of a procurement and management fee to Party A of an
aggregate amount to be determined from time to time by the Board based on the
then number of employees so engaged in production and assembly and rent for the
existing factory premises leased from Party A (which amount was RMB3,300,000 per
year as of 12 September 1994) shall be paid or accrued by the Cooperative Co.
and shall be a charge against the revenues from the Production Line when so paid
or accrued.
14.3 The Board may determine a reasonable rental expense (said expense
shall not exceed the fair market rental at the time of determination for the
same or similar assets) of the assets included in the Construction Line and
allocate
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such amount on the books and records of the Cooperative Co. as an expenditure of
the Production Line and revenue to the Construction Line.
14.4 Net Profits and Net Losses shall be determined in accordance with
the accounting procedures and policies established by the Board from time to
time. Party B shall be allocated all net profits and losses from the Production
Line, and Party A shall be allocated 30%, and Party B shall be allocated 70%, of
all profits and losses from the Construction Line.
ARTICLE 15
15.1 The Cooperative Co. shall at all times maintain a capital account
for each Party, showing therein the amount of verified registered capital and
other capital which each such Party has paid in or otherwise deemed received by
the Cooperative Co.
15.2 The Board shall have the discretion to retain all or a portion of
Net Profits from the Production Line or the Construction Line in the Cooperative
Co. or to distribute such Net Profits to the Parties. Should the Board decide to
distribute Net Profits to the Parties, the following distribution principles
shall be followed: Net Profits from the Production Line shall be distributed to
Party B; Net Profits from the Construction Line shall be distributed 30% to
Party A and 70% to Party B as available.
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ARTICLE 16
No Party shall mortgage, pledge or permit liens or other like
encumbrances upon all or any part of its interest in the Cooperative Co. without
the prior express approval of the Cooperative Co., as reflected in a resolution
of its Board.
CHAPTER 4 THE BOARD OF DIRECTORS
ARTICLE 17
The initial Board of the Cooperative Co. shall be constituted in
accordance with Article 19.2 of the Contract, shall be authorized to act without
further action by the Parties upon the issuance of the business license to the
Cooperative Co. and shall hold its first meeting as soon as practicable
thereafter. The Board shall be the highest organ of authority of the Cooperative
Co. and, subject to the limitations, if any, imposed by laws or regulations of
the PRC or the Contract, the business of the Cooperative Co. shall be managed
and all powers of the joint venture shall be exercised by or under the direction
of the Board. Subject to the foregoing, the Board may delegate the management of
the day-to-day operation of the business of the Cooperative Co. to the officers,
agents and employees of the Cooperative Co. acting in accordance with the
Contract and these Articles.
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ARTICLE 18
The functions and powers of the Board shall include the following:
(a) Approving important reports submitted by the General Manager
(including production plan, annual business report, long term and annual sales
plan, annual monetary or loan requirement, etc.)
(b) Approving annual financial reports, income and expenditure budgets
and the annual profit distribution plan;
(c) Adopting and amending the rules and regulations governing the
operation of the Cooperative Co.;
(d) Approving proposals to establish branch offices;
(e) Amending the Articles of Association;
(f) Deciding to terminate production, to terminate, dissolve or
liquidate the Cooperative Co. or to merge the Cooperative Co. with another
economic organization;
(g) Approving increase or transfer of the registered capital of the
Cooperative Co.;
(h) Approving the selection of the General Manager, Vice General
Manager, and any other officer of the Cooperative Co.;
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(i) Liquidating the business of the Cooperative Co. upon the expiration
or sooner termination of the Cooperative Co.; and
(j) Determining the amount and time or any distribution of profits to
the Parties to the Cooperative Co.
ARTICLE 19
As set forth in the Contract, the Board shall be composed of five (5)
Directors of which two (2) shall be appointed by Party A and three (3) shall be
appointed by party B, as evidenced by a written designation by each such Party,
the original of which shall be retained in the Book of Minutes of the
Cooperative Co. The Chairman of the Board shall be similarly nominated by Party
B and the Vice Chairman of the Board shall be similarly nominated by Party A.
The term of office for each Director, and of the Chairman of the Board and the
Vice-Chairman of the Board shall be four years, or until such person's earlier
death, resignation or removal. Any director, and the Chairman of the Board and
the Vice-Chairman of the Board may be re-elected to successive terms.
ARTICLE 20
A vacancy or vacancies on the Board shall be deemed to exist in case of
the death, removal or resignation of any director, or if the authorized number
of directors is increased. Any director shall be deemed removed and his or her
position as director shall be deemed vacated if such
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director has been declared on unsound mind by an order of court or such director
has been convicted of violating the criminal laws of the PRC. In addition, any
director may be removed with or without cause by the Party appointing such
director to the Board, by a written notice delivered to the Cooperative Co.
executed by an authorized officer of the Party stating that such Director has
been removed, the effective date of such removal, and the name of a replacement,
if any. Such removal shall be effective as of the date set forth in such written
notice.
Any director may resign effective upon giving written notice to the
Chairman of the Board or the Vice Chairman of the Board, or at any later time
specified in such notice; and, unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective. If
the resignation is effective at a future time, a successor may be appointed by
the Party which had appointed the resigning director, to take effect when the
resignation becomes effective.
Any vacancy on the Board shall be filled by the Party which had
appointed the director whose resignation, removal, death or expiration of term
has resulted in the vacancy. Such Party shall give a written notice to the
Chairman of the Board and the Vice Chairman of the Board, and to the Cooperative
Co., designating the person to fill such vacancy, and the effective date of the
appointment. Such
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newly appointed director shall serve a term of four years, or for such lesser
term as may be designated by such Party in such written notice.
ARTICLE 21
Directors shall serve without compensation for being a director, or for
being Chairman of the Board or Vice Chairman of the Board, but the directors
shall be compensated for their reasonable expenses in attending meetings of
directors. Nothing herein contained shall be construed to preclude any director
from serving the Cooperative Co. in any other capacity as an officer, agent,
employee or otherwise, and receiving compensation therefor.
ARTICLE 22
Meetings of the Board shall be held at least annually. Meetings shall
be called by a notice in writing signed by the Chairman of the Board or the
Vice-Chairman of the Board, or by any two directors delivered to each of the
other directors and the Cooperative Co. Meetings may be held at any place either
within or without the PRC as may be determined by the Chairman of the Board. In
absence of such designation, meetings shall be held at the principal executive
office of the Cooperative Co. in Shenzhen.
ARTICLE 23
Notice of a meeting need not be given to any director who signs a
waiver of notice or a consent to hold the
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meeting or an approval of the minutes thereof, whether before or after the
meeting, or who attends the meeting without protesting, prior to the meeting or
at its commencement, the lack of notice to such director. All such waivers,
consents and approvals shall be filed with the records of the Cooperative Co. or
made a part of the minutes or the meeting Subject to the preceding sentence,
upon receipt of a proper call of a meeting, the Chairman of the Board shall
give, or cause to be given, notice of the time and place of such meeting of the
Board to each director no less than fourteen (14) calendar days prior to the
date of such meeting. Notice shall be deemed to have been given when deposited
in the mail, properly addressed and postage prepaid, when sent by Fax to the
normal business address of the director or when personally delivered to a
director. Oral notice shall be deemed to have been given at the time it is
communicated, in person or by telephone or wireless, to the recipient or to a
person in the office of the recipient whom the person giving the notice has
reason to believe will promptly communicate it to the recipient.
ARTICLE 24
Presence of a majority of the number of directors authorized by the
Contract at a meeting shall constitute a quorum for the transaction of business;
provided, however, that any action relating to the Construction Line must be
taken at a meeting at which at lease one member is present
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representing each Party. Members of the Board may participate in a meeting
through use of conference telephone or similar communications equipment, so long
as all members particicating in such meeting can hear one another. Further,
members may participate by signed proxy made available at the place of and prior
to the meeting, which proxy shall be affixed to the minutes for such meeting.
The Board meetings shall be called and presided over by the Chairman; should the
Chairman be absent, he may designate the Vice-Chairman or a director to preside
over the Board meeting. Participation in the meeting as permitted in the two
previous sentences constitutes presence in person at such meeting.
Except as provided in the next sentence, every act of decision done or
made by a majority of the directors present at a meeting duly held at which a
quorum is present is the act of the Board; provided, however, that any act or
decision relating to the Production Line must have the approval of two (2)
directors who have been appointed to the Board by Party B, and that any act or
decision relating to the Construction Line must have the unanimous approval of
all Directors participating at the Board meeting at which a quorum is present. A
meeting at which a quorum is initially present may continue to transact business
notwithstanding the withdrawal of directors, provided that any action taken must
be approved by at least a majority of the required quorum for such meeting.
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ARTICLE 25
The Chairman of the Board or a majority of the directors present at any
meeting, whether or not a quorum is present, may adjourn any directors' meeting
to another time and place. If any meeting is adjourned for more than three (3)
business days, notice of any adjournment to another time or place shall be given
at least forty-eight (48) hours prior to the time of the adjourned meeting to
the directors who were not present at the time of adjournment. otherwise notice
of the time and place of holding an adjourned meeting need not be given to
absent directors if the time and place is fixed at the meeting adjourned.
ARTICLE 26
Any action required or permitted to be taken by the Board may be taken
without a meeting if, as to a matter that does not involve the Construction
Line, at least three (3) directors individually or collectively consent in
writing to such action, and as to a matter that does involve the Construction
Line, at least three (3) directors, of which at least one (1) shall have been
appointed as a director by Party A, individually or collectively consent in
writing to such action. Such written consent or consents shall be filed with the
minutes of the proceedings of the Board and shall have the same force and the
effect as a resolution duly adopted at a duly held meeting of the Board at which
a quorum was at all times present and acting.
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ARTICLE 27
The minutes of each meeting of the Board shall be recorded by a
designated person, shall be written in both the English and Chinese languages,
and signed by each of the directors participating and any director not
participating who wishes to waive notice of such meeting. Such minutes shall be
kept on file of the Cooperative Co. for inspection during normal business hours
by any Party. Copies shall be made available to each Party upon request.
ARTICLE 28
By resolution adopted by a majority of the number of directors
authorized by the Contract, the Board may designate such committees as it shall
determine, each consisting of two or more directors, to serve at the pleasure of
the Board, and prescribe the manner in which proceedings of such committees
shall be conducted. The appointment of members or alternate members of a
committee shall be by a majority vote of the number of directors authorized by
the Contract. Notwithstanding the foregoing, any committee with authority to act
with relation to the Construction Line shall have at least one director who has
been appointed by Party A. The provisions of these Articles with respect to
notice and conduct of meetings of the Board shall govern committees of the Board
and action by such committees.
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Any such committee, to the extent provided in a resolution of the
Board, shall have all the authority of the Board, except with respect to
(a) the approval of any action for which the Law or the Contract
requires unanimous approval of the directors;
(b) the filling of vacancies on the Board or on any committee;
(c) the adoption, amendment or repeal of these Articles;
(d) the amendment or repeal of any resolution of the Board which by its
express terms is not so amendable or repealable;
(e) making any distribution to the Parties, except at a rate on in a
periodic amount or as otherwise provided by the Board; and
(f) the appointment of other committees of the Board or the members
thereof.
CHAPTER 5 MANAGEMENT ORGANIZATION
ARTICLE 29
The Cooperative Co. shall establish a Management Organization which,
subject to its overall responsibility to the Board (the highest management organ
of the Cooperative Co.), shall be responsible for day-to-day operations of the
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business of the Cooperative Co. The Management Organization shall have such
departments as shall be determined by the Board from time to time, but initially
such departments shall include production, engineering, personnel, finance and
administration.
ARTICLE 30
The officers of the Cooperative Co. shall be one (1) General Manager,
two (2) Vice General Managers, and such other officers as shall be elected from
time to time by the Board. The General Manager shall be designated by Party B
and one Vice General Manager shall be designated by each Party respectively.
Following such designation, the persons so designated shall be elected to their
respective offices by the Board. One person may hold two or more offices, if so
determined by the Board.
ARTICLE 31
The General Manager, acting under the direction, control and governance
of the Board, shall implement the policies of the Board in carrying out the
day-to-day operations of the Cooperative Co. In the absence of any contrary
determination by the Board, the General Manager shall be the chief executive
officer of the Cooperative Co. and shall, subject to the power and authority of
the Board, have general supervision, direction and control of the officers,
employees, business and affairs of the Cooperative Co. The Vice General
Managers shall act under the direction of the
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General Manager and each shall have the authority to act on behalf and in the
place of the General Manager during his absence or inability to act.
ARTICLE 32
The term of office for the General Manager and for each of the Vice
General Managers shall be four (4) years from the date of election to such
office by the Board, subject to the removal and resignation provisions set forth
below. If re-designated by a party to any such office, such officers may serve
for consecutive terms.
ARTICLE 33
Other officers of the Cooperative Co. shall be chosen by the Board at
its discretion, with such titles and duties as may be determined by the Board,
and each shall hold office at the pleasure of the Board or until such officer
shall resign or be removed, subject, in each case, to the rights, if any, of the
Cooperative Co. and any such officer under any contract of employment.
ARTICLE 34
Any officer may be removed, either with or without cause, as follows
the General Manager, or either vice General Manager, can only be removed by the
Party which has designated such person to serve in such office Such removal
shall be effected by written notice to the Cooperative Co. an.d to each of the
members of the Board stating that the person
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has been removed and the effective date of such removal, and designating a
successor to be elected to such office. Other officers may be removed by a
majority of the Board in office at the time, acting at any meeting or by written
consent, or by any officer upon whom such power of removal may be conferred by
the Board, subject, in each case, to the rights, if any, of such officer and the
Cooperative Co. under any contract of employment.
ARTICLE 35
Any officer may resign at any time by giving written notice to the
Cooperative Co., without prejudice, however, to the rights, if any, of the
Cooperative Co. under any contract of employment to which such officer is a
party. Any such resignation shall take effect at the date of the receipt of such
notice or at any later time specified therein; and unless otherwise specified
therein, the acceptance of such resignation shall not be necessary to make it
effective.
ARTICLE 36
A vacancy in any office shall be filled in the manner prescribed in
these Articles for the designation and election of a person to such office.
ARTICLE 37
The General Manager and each Vice General Manager shall work full time
for the Cooperative Co., shall not concurrently serve as an officer or employee
in any other
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economic organization, and shall not participate as a director, partner,
shareholder or holder of any other equity interest in an entity which is in
commercial or economic competition with the Cooperative Co.; provided, however,
that the officers or Directors nominated by Party B may serve concurrently as
officers or directors of Party B or its parent or any of its subsidiary or
affiliated corporations, and that the officer or Directors nominated by Party A
may serve concurrently as officers or directors of Party A or its parent or any
of its affiliated entities; provided further, that in either case such
concurrent service does not adversely affect such person's ability to serve on a
full-time basis as an officer or director of the Cooperative Co. and to pursue
the best interests of the Cooperative Co.
ARTICLE 38
Officers of the Cooperative Co. shall receive such compensation
therefor as may be specified from time to time by the Board.
CEAPTER 6 FINANCE, ACCOUNTING AND AUDITING
ARTICLE 39
The Cooperatiive Co. shall employ one or more PRC registered public
accountant(s) as determined by the General Manager under supervision by the
Board. The Cooperative Co.'s accounting system shall be organized on an accrual
basis and shall comply with the "Accounting System of the People's
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Republic of China for Foreign Investment Enterprises" and the "Regulations of
the People's Republic of China on Financial Administration of Foreign Investment
Enterprises" promulgated on June 24, 1992, as the same may be amended and
interpreted from time to time, and other relevant promulgated and publicly
available laws and regulations.
ARTICLE 40
The fiscal year of the Cooperative Co. shall commence on January 1st of
each calendar year and conclude on December 31st of such calendar year.
ARTICLE 41
The accounting books of the Cooperative Co. shall be maintained in RMB
as the standard currency. The exchange rates between RMB and other currencies
shall be in accordance with the "managed float rate" announced by the State
Administration of Exchange Control of the PRC on the date of the exchange or
conversion, or on the date as of which any financial statement purports to
apply.
ARTICLE 42
The Cooperative Co. shall open a foreign exchange account and an RMB
account at the Bank of China's principal office in Shenzhen or at such other
authorized bank as may be designated from time to time by the Board.
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ARTICLE 43
Foreign exchange gains or losses shall be recorded in the accounting
period incurred.
ARTICLE 44
The accounting books and records of the Cooperative Co. shall be kept
in the Chinese language; provided, however, that all semi-annual and annual
financial statements shall be prepared in both Chinese and English languages.
The accounting books and records of the Cooperative Co. shall record
the following transactions, in addition to such other information as required by
PRC law and regulation:
(1) Time of contribution and any increase or transfer of the registered
capital of the Cooperative Co.;
(2) All income and expenditures of the Cooperative Co.;
(3) All sales of products and purchases of supplies; and
(4) Assets and liabilities of the Cooperative Co.
ARTICLE 45
Within the first three (3) months of each fiscal year, the accounting
organization of the Cooperative Co. shall prepare the previous fiscal year's
balance sheet, profit and loss statement, and proposed profit distribution plan
and
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submit such financial statements and plan to the Board for examination and
approval, with such modifications and amendments as shall be deemed appropriate
and necessary, and in compliance with laws and regulations governing such
financial statements and profit distributions, as shall be determined by the
Board in its sole discretion.
ARTICLE 46
Each Party shall have right to retain its own accountant, which may
include persons employed by such Party or independent accountants retained by
such Party, at its own cost and expense to examine and review the financial
statements prepared by the Cooperative Co., including the books and records of
the Cooperative Co. The other Party and the Cooperative Co. shall cooperate with
such examination and review.
ARTICLE 47
The depreciation policies for the fixed assets of the Cooperative Co.
shall be determined by the Board with reference to the "Detailed Rules for the
Implementation of the Income Tax Law of the People's Republic of China for
Foreign Investment Enterprises and Foreign Enterprises" promulgated on June 30,
1991, as the same may be amended or supplemented from time to time, and other
relevant promulgated and publicly available laws and regulations.
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ARTICLE 48
All matters concerning the foreign exchange o the Cooperative Co. shall
be handled with reference to the relevant PRC law and regulations on foreign
exchange control as the same may be amenced or supplemented from time to time.
CHAPTER 7 PROFIT DISTRIBUTION
ARTICLE 49
The Cooperative Co. will maintain a reserve fund, an employee bonus and
welfare fund and an expansion fund from its revenues remaining after payment of
all appropriate PRC taxes. The allocation of revenues to such funds, and the
ratio of such allocation to be set aside for each such fund shall be determined
by the Board.
ARTICLE 50
After funds for the payment of all accrued PRC taxes and for
contributions to the three funds pursuant to Article 49 above have been
determined and set aside by the Board, the remaining profits shall be determined
and retained by the Cooperative Co., or distributed in whole or in part to each
Party according to the provisions of Articles 11 and 12 of the Contract.
ARTICLE 51
The Cooperative Co. will distribute profit as determined by the Board,
which may, at its discretion, decide to re-invest such profit or any portion
thereof in the
31
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Cooperative Co. or in other enterprise(s). In case profit is to be distributed,
the distribution plan and the amount of distribution to each Party shall be
determined and implemented by the Board as provided in Articles 11 and 12 of the
Contract.
ARTICLE 52
The Cooperative Co. shall not distribute profits unless the losses of
previous years have been made up. Retained profits from previous years may be
distributed together with those of the current year, at the discretion of the
Board, but to the Party entitled thereto in accordance with Articles 11 and 12
of the Contract.
ARTICLE 53
To the extent available, in the sole discretion of the Board, and
permitted by applicable law and regulations, distributions to Party B shall be
in United States Dollars, and to Party A in RMB.
CHAPTER 8 STAFF AND WORKERS
ARTICLE 54
Recruitment, qualifications testing, employment, dismissal and
resignation, salary, labor insurance, welfare, bonuses, labor discipline,
retirement insurance and other matters concerning the staff and workers of the
Cooperative Co. shall be provided in the employment contract(s) to be
32
<PAGE>
signed according to the internal labor rules formulated by the Board with
reference to the relevant PRC laws and regulations.
ARTICLE 55
The Cooperative Co.'s Chinese workers and staff may be recommended by
the local labor department and may be recruited directly by the Cooperative Co.,
or the Cooperative Co. may engage others, including Party A, to provide
employees on a contract basis. Subject to the overall supervision of the Board,
the General Manager shall be responsible for the employment, training,
assignment and dismissal of employees.
ARTICLE 56
Party A shall assist the Cooperative Co. in recruiting its Chinese
workers and staff. Candidates need not have any past or current relationship
with Party A and, if appropriate technical personnel of the skill level required
are not available in Shenzhen Municipality, Party A shall assist the Cooperative
Co. in recruiting personnel from another locality, and if such recruiting
requires approval of the Shenzhen government, Party A shall assist in securing
such approval.
All workers and staff shall undergo a period or probationary employment
for six (6) months from the date of employment
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ARTICLE 57
The Cooperative Co., acting through its General Manager, shall have the
widest authority consistent with relevant promulgated and publicly available PRC
laws and regulations to implement advanced methods for scientific management and
quality control, including the power, to give disciplinary warning, record a
demerit, reduce salary and dismiss workers and staff members for violation of
the labor contract or of the internal labor rules and procedures of the
Cooperative Co.
ARTICLE 58
The Board shall adopt internal labor rules of the Cooperative Co. from
time to time and may, at its sole discretion, delegate such rule-making
authority to the General Manager.
CHAPTER 9 THE TRADE UNION ORGANIZATION
ARTICLE 59
The staff and workers of the Cooperative Co. may establish a trade
union organization and to participate in its activities with reference to the
stipulations of the the "Trade Union Law of the People's Republic of China."
ARTICLE 60
Any trade union so established shall represent the interests of the
staff and workers. The tasks of any trade union shall be to protect the
democratic rights and material
34
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interests of the staff and workers pursuant to PRC law, and to assist
management of the Cooperative Co. in educating staff and workers to observe
labor discipline and strive to fulfill the economic goals and objectives of
the Cooperative Co.
ARTICLE 61
Workers and staff of the Cooperative Co. may sign labor contracts
directly with the Cooperative Co. or through a trade union on their behalf, in
which case the trade union shall assist in the implementation of any such labor
contract.
Trade union activities shall be conducted outside of Cooperative Co.'s
normal working hours and shall not interfere with the production and operations
of the Cooperative Co.
ARTICLE 62
If a trade union has been formed, the person in charge of the trade
union of the Cooperative Co. or a designated representative thereof shall have
the right to attend that portion of meetings of the Board in which matters
dealing with employment relationships with members of the trade union are being
considered. Such person or representative shall not have any vote on any matter
presented to the Board. Such person or representative shall have the obligation
to report the opinions and demands of staff and workers to meetings of the Board
at which they are in attendance.
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ARTICLE 63
The trade union shall take part in the mediation of disputes arising
between staff and workers and shall support all decisions by the General
Manager, including the dismissal of any staff or workers, once such decisions
have been made by the general manager.
ARTICLE 64
Trade union funds may be allocated and used with reference to the
"Managerial Rules for Trade Union Funds" formulated by the All China Federation
of Trade Unions.
CHAPTER 10 DURATION, TERMINATION AND LIQUIDATION
ARTICLE 65
The duration of the Cooperative Co. shall be fifty (50) years,
starting from the date on which the business license is issued.
ARTICLE 66
If the Parties to the Cooperative Co. agree to extend the duration of
the Cooperative Co., they shall jointly file an application to extend the
duration signed by representatives authorized by the Parties with the original
PRC examination and approving authorities or their successors at least six (6)
months prior to the date of expiration of the Cooperative Co. Upon approval of
such application, the
36
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Cooperative Co. shall institute registration formalities to effect such
extension with the Shenzhen Industrial and Commercial Administration.
ARTICLE 67
The Parties may mutually terminate the Contract prior to its
expiration.
ARTICLE 68
If the Contract is terminated prior to its scheduled expiration by
reason of a breach by any Party or Parties as provided in Articles 49.2 or 49.5
of the Contract, the Cooperative Co. may at the option of the non-breaching
Party be liquidated in accordance with Chapter 15 of the Contract or otherwise
disposed of in accordance with Article 50 of the Contract.
ARTICLE 69
If the Contract is terminated by any Party by reason of the provisions
of Articles 48.2, 48.3, 48.4, 49.1, 49.3 or 49.4 of the Contract, the Parties
shall liquidate the Cooperative Co. pursuant to Chapter 15 of the Contract.
ARTICLE 70
Upon the expiration of the Contract or its earlier termination, and if
neither Party exercises its buy-out option as described in Article 44 of the
Contract, the Board shall function as the Liquidation Committee to liquidate the
assets and liabilities of the Cooperative Co.
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After the Liquidation Committee has paid or otherwise provided for all
the legitimate debts of the Cooperative Co. and paid or provided for the payment
of all liquidation expenses, the remaining assets shall be distributed to the
Parties as follows:
(a) Production Line: All Remaining assets at the time of liquidation
comprising or included within the Production Line shall be returned to Party B.
Party A shall not receive any profits or remaining assets, nor bear any losses,
risks or liabilities on the Production Line.
(b) Construction Line: Remaining assets at the time of liquidation
comprising or included with the Construction Line shall be valued at their then
market value, and shall be apportioned between the Parties such that 30% of such
assets shall be apportioned and distributed to Party A and 70% of such assets
shall be apportioned and distributed to Party B.
(c) Party B shall have first priority with respect to any remaining
foreign exchange assets of the Cooperative Co. to the extent of its allocated
share of all remaining assets as provided in Article 43.1 of the Contract.
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ARTICLE 71
During the process of liquidation, the Liquidation Committee shall
represent the Cooperative Co. in any and all legal proceedings brought by or
against it.
ARTICLE 72
Upon completion of the liquidation, the Cooperative Co. shall submit a
liquidation report to the original PRC examination and approving authorities or
their successors, complete the formalities for canceling the Cooperative Co.'s
registration at the Shenzhen Administration of Industry and Commerce, surrender
its business license and, at that time, make a public announcement of its
liquidation, termination and winding-up.
CHAPTER 11 INTERNAL RULES AND REGULATIONS
ARTICLE 73
The internal rules and regulations to be formulated by the Board shall
include, without limitation:
1. Management regulations defining the roles and functions of senior
management officers and functions of each management office of the Cooperative
Co.;
2. Rules for staff and workers of the Cooperative Co.;
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3. Financial authorizations and salary scales for staff and workers;
and
4. Other rules and regulations deemed necessary or advisable by the
Board.
CHAPTER 12 SUPPLEMENTARY ARTICLES
ARTICLE 74
Any amendment to these Articles of Association shall be subject to the
approval of the Board and approval of the original PRC examination and approving
authorities or their successors.
ARTICLE 75
The Articles of Association are written both in Chinese and English.
Both version shall be equally valid and binding. Any conflict between these
Articles of Association and the Contract shall be settled in favor of the
Contract.
ARTICLE 76
These Articles of Association shall come into effect upon approval of
the Approving Authority or its authorized agency, and upon such approval, the
original cooperative joint venture Articles of Association dated September 13,
1994 shall be repealed in their entirety and replaced hereby, provided, however,
that if the notice of approval indicates any change
40
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or modification to these Restated Articles of Association as submitted to such
authority, these Restated Articles of Association shall not be effective until
such change or modification has been ratified by both Parties.
ARTICLE 77
These Restated Articles of Association are hereby adopted and executed
in ten (10) original copies by the duly authorized representatives of the
Parties on this 18th day of October 1996, in Hong Kong.
Party A: Shenzhen Baoanqu Party B: Go-Gro Industries
Fuda Industries Co.Ltd. Ltd.
By: /s/ ZHANG FU TIAN By: /s/ WIACHECK LAU
- ------------------------ -----------------------
Zhang Fu Tian Waicheck Lau
Legal Representative Legal Representative
[Seal] [Seal]
EXHIBIT 10.145
SHENZHEN JIADIANBAO ELECTRICAL PRODUCTS CO., LTD.
CONTRACT TO AMEND
COOPERATIVE JOINT VENTURE CONTRACT
THIS CONTRACT TO AMEND (the "Amendment") has been entered into this
18th day of October 1996 by and between Shenzhen Baoanqu Fuda Industries Co.,
Ltd. ("Party A") and Go-Gro Industries, Ltd. ("Party B"), each of which is a
party to a Contract to Change Shenzhen Jiadianbao Electrical Products Co., Ltd.
an Equity Joint Venture Using Chinese and Foreign Investment to Shenzhen
Jiadianbao Electrical Products Co., Ltd. a Cooperative Joint Venture Company,
dated 12 September 1994 (the "Contract").
Pursuant to the provisions of Article 7 of the Law of the People's
Republic of China on Sino-foreign Co-operative Enterprises, the undersigned,
being all of the parties to Shenzhen Jiadianbao Electrical Products Co., Ltd., a
cooperative joint venture company with limited liability (the "Cooperative
Co."), the establishment of which was approved in September 1994 by the Shenzhen
Municipal Foreign Investment Office (the "Approving Authority"), do hereby agree
to amend the Contract as follows:
1. Article 5 of the Contract shall be amended by changing the words
"Article 10" in the second sentence to read "Article 9", and the words "Article
10" in the third sentence to read "Article 11".
2. Article 6 of the Contract shall be amended to read in full as
follows:
ARTICLE 6 - PURPOSE
The purposes of the Parties in establishing the Cooperative Co. are: to
fully utilize Party B's abundant capital resources, technical strength, advanced
management methods and broad sales network in the international market for
designing, manufacturing and distributing in the domestic and international
markets various types of lighting products, flashlights, cordless hand tools,
household electrical products and related components and parts (hereinafter
referred to as "Contract Products"); to further strengthen the economic
cooperation and technical exchanges between PRC and the international markets;
to import into the PRC advanced and applicable production technology, key
equipment and scientific management techniques; to build a modern household
electrical products production capability in order to further expand the scale
capacity and product quality of the Cooperative Co.; to facilitate the
development of new
<PAGE>
products, so as to strengthen the competitiveness of Chinese lighting products
in the international market and increase exports from the PRC; and to further
improve the economic effectiveness and achieve a satisfactory economic profit
for the Parties.
3. Article 7 of the Contract shall be amended to read in full as
follows:
ARTICLE 7 - BUSINESS SCOPE
The business scope of the Cooperative Co. shall include the following:
(1) design and manufacture of various types of lighting products,
flashlights, cordless hand tools and related components and parts, and
after-sale maintenance and repair services therefor;
(2) construction, ownership and operation of plant and related
facilities needed for the administration of the Cooperative Co., production and
distribution of its Contract Products and operation of its business; and
(3) such other activities as may be necessary or advisable, as
permitted under the laws and regulations of the People's Republic of China
("PRC"), in furtherance of the purposes of the Cooperative Co. as set forth in
Article 6 of this Contract.
4. Chapter 5 of the Contract shall be amended to read in full as
follows:
CHAPTER 5. TOTAL INVESTMENT AND REGISTERED
CAPITAL; PAYMENT AND USE OF CAPITAL; ALLOCATION AND
DISTRIBUTION OF PROFITS AND LOSSES; TRANSFER OF INTERESTS
ARTICLE 9 - TOTAL AMOUNT OF INVESTMENT: REGISTERED CAPITAL: PAYMENT
OF REGISTERED CAPITAL: VERIFICATION AND CHANGE OF CAPITAL
9.1 The original total amount of investment in the Cooperative Co. was
RMB80,000,000. The additional amount of investment is RMB43,817,280.
9.2 The original registered capital of the Cooperative Co. was
RMB32,000,000, which has been subscribed in full by Party B and will be paid and
used solely for the Production Line.
The additional registered capital is RMB17,526,912, which shall be used
solely for the Construction Line for building production plant and related
facilities.
9.3 Payment of the additional registered capital shall be as follows:
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9.3.1 Of the additional registered capital of RMB17,526,912, thirty
percent (30%) or RMB5,258,074 is subscribed and shall be contributed in cash or
in kind by Party A, and seventy percent (70%) or RMB12,268,838 is subscribed and
shall be contributed in cash or in kind by Party B.
9.3.2 Payment of the additional registered capital of RMB17,526,912
shall be in three installments, of which 15% of the amount subscribed by each
Party shall be paid within three (3) months after the date of the approval of
the increase in the total amount of investment and increase in registered
capital, 50% of such amount within nine (9) months after such approval, and the
remaining 35% of such amount within twelve (12) months after such approval.
9.3.3 All capital payments in cash shall be made, if in RMB, to the RMB
account of the Cooperative Co. at the Bank of China's principal office in
Shenzhen or at such other authorized bank as the Board of Directors (the
"Board") may from time to time designate; or if in foreign currency, to the
respective foreign exchange account of the Cooperative Co. at the Bank of
China's principal office in Shenzhen or at such other authorized bank as the
Board may designate from time to time. All capital payments made in kind shall
be transferred to the Cooperative Co. by appropriate documents of transfer and
assignment. According to the PRC Regulations on the Subscription of Capital by
the Parties to Sino-Foreign Joint Venture Enterprises of December 30, 1987, any
and all capital contributed by the Parties to the Cooperative Co., regardless of
the form of the payment, shall be, when received by the Cooperative Co., free
and clear of all liens, claims and encumbrances whatsoever. All registered
capital received by the Cooperative Co. shall be for the exclusive use of the
Cooperative Co. for implementing the purposes set forth herein for the entire
term of this Contract.
9.3.4 The capital contributed to the Cooperative Co. shall be verified
by a Chinese registered accountant retained by the Cooperative Co. and such
accountant shall issue a capital verification report verifying the paid-in
capital contributions. Party B has the option to retain, at its own cost, an
international certified public accountant of its choice to assist in the capital
verification of any Party's contribution and in the issuance of any capital
verification report. Upon receipt of a satisfactory capital verification report,
the Cooperative Co. shall issue a certificate of capital contribution in the
verified amount to the Party making such contribution. Such certificate(s) of
capital contribution shall be conclusive evidence of such Party's capital
interest in the Cooperative Co.
9.3.5 Registered capital of the Cooperative Co. may be increased from
time to time but only following adoption of any such increase by unanimous
action by the Board of the Cooperative Co. and approval of the Shenzhen
Municipal Foreign Investment Office (the "Approving Authority") Approving
Authority. No Party shall be required to make any additional contribution of
registered capital except as expressly set forth in this Article, as the same
may be amended from time to time Registered capital shall not bear interest.
3
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ARTICLE 10 - USE OF CAPITAL
10.1 Capital received by the Cooperative Co. shall be allocated, as
prescribed in this Contract for the registered capital and otherwise as
determined by the Board, between the two primary segments of its business, the
Production Line and the Construction Line, which segments are defined as
follows:
10.1.1 The Production Line includes all personal property of the
Cooperative Co., including machinery and equipment, raw materials and
components, work-in-progress, finished goods inventory, receivables,
intellectual property, leases, licenses, contract rights and other intangibles,
tenant improvements to any real property leased or used by the Cooperative Co.
and deposits and premiums, used or usable in the production and distribution of
the Contract Products and not included in the Construction Line.
10.1.2 The Construction Line includes all land use rights owned or
used by the Cooperative Co. (other than under the provisions of a lease)
concerning land located in Feng Huang Gang Village, Xin An Town, Bao An
District, Shenzhen, and all of the rights of the Cooperative Co. in all
improvements, both off-site and on-site, and all buildings and other structures,
and other rights related thereto, including contracts for the design,
construction and supervision of construction of buildings and other structures,
located or constructed on such land, and all easements and other rights related
to the foregoing.
10.2 The entire original registered capital in the amount of
RMB32,000,000 subscribed and paid by Party B shall be allocated to and used
solely for the Production Line. The additional registered capital in the amount
of RMB17,526,912 shall be allocated to and used solely for the Construction
Line.
ARTICLE 11- DETERMINATION AND ALLOCATION OF PROFITS AND LOSSES
11.1 Revenues and expenditures of the Cooperative Co. shall be recorded
under such bookkeeping and accounting procedures and standards as shall be
determined by the Board, but such procedures shall not permit expenditure of
registered capital received by the Cooperative Co. except as permitted by
Article 10.2 herein. Further, expenditures which shall be determined by the
Board to be capital expenditures relating to the Construction Line shall be so
recorded in the books and records of the Cooperative Co. that the amount of such
expenditures, including reasonable depreciation, shall be an appropriate
adjustment to the cost of the Construction Line. Revenues received from the
sale, lease (including any amounts allocated to the Construction Line pursuant
to Article 11.3 below), or condemnation of assets included in the Construction
Line, or insurance proceeds received under policies owned by the Cooperative Co.
insuring, assets in the Construction Line from the dangers of fire, explosion,
theft, earthquake or other natural disaster or like danger covered in similar
policies, shall be recorded as revenues received from the Construction Line.
4
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11.2 Notwithstanding the foregoing, expenditures for the payment of
compensation to production and assembly workers engaged in the Production Line,
together with payment of a procurement and supervision fee and management fee to
Party A of an aggregate amount to be determined from time to time by the Board
based on the then number of employees so engaged in production and assembly and
rent for the existing factory premises leased from Party A (which amount was
RMB3,300,000 per year as of 12 September 1994) shall be paid or accrued by the
Cooperative Co. and shall be a charge against the revenues from the Production
Line when so paid or accrued. Such payments to workers and to Party A are hereby
guaranteed by Party B.
11.3 The Board may determine a reasonable rental expense (said expense
shall not exceed the fair market rental at the time of determination for the
same or similar assets) of the assets included in the Construction Line and
allocate such amount on the books and records of the Cooperative Co. as an
expenditure of the Production Line and revenue to the Construction Line.
11.4 Net Profits and Net Losses shall be determined in accordance
with the accounting procedures and standards established by the Board from
time to time. Party B shall be allocated all net profits and losses from the
Production Line. Party A shall neither receive any profits nor bear any
losses, risks or liabilities on the Production Line. Party A shall be
allocated thirty percent (30%), and Party B shall be allocated seventy percent
(70%), of all net profits and losses from the Construction Line.
ARTICLE 12 - DISTRIBUTIONS AND RETENTION OF PROFITS
12.1 The Cooperative Co. shall at all times maintain a capital account
for each Party to this Contract, showing therein the amount of verified
registered capital and other capital which each such Party has paid in or
otherwise received by the Cooperative Co.
12.2 The Board shall have the discretion to retain all or a portion
of Net Profits from the Production Line or the Construction Line in the
Cooperative Co. or to distribute such Net Profits to the Parties. Should the
Board decide to distribute Net Profits to the Parties, the following
distribution principles shall be followed: Net Profits from the Production
Line shall be distributed to Party B; Net Profits from the Construction Line
shall be distributed thirty percent (30%) to Party A and seventy percent (70%)
to Party B as available.
ARTICLE 13 - TRANSFER OF INTERESTS
13.1 The effectiveness of any transfer or sale (collectively
"Transfer") of all or any part of its interests in the Cooperative Co. by any
Party shall be subject to the prior written consent of the other Party, which
consent shall not be unreasonably withheld, and approval of the Approving
Authority to the extent required by PRC law and regulations. Should either
Party desire to Transfer all or a portion of its interest, it shall first
offer in writing to Transfer such interest to the other Party at a price and
on
5
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terms and conditions set forth in such writing, which writing shall also set
forth the name of the person proposed to be the recipient of such Transfer.
Should the Party receiving such offer not elect to acquire such interest within
ninety (90) days after receiving such offer, the offering Party may within
sixty (60) days thereafter Transfer such interest to the person named in the
written offer at a price and on terms and conditions no more favorable to the
person named in the written offer than had been set forth in such written offer.
Any other Transfer hereunder shall be void.
13.2 Any Transfer of any Party's interest under this Article shall not
become effective until all necessary approvals have been obtained and until the
proposed transferee shall have agreed to be subject to the provisions of this
Contract and the Articles of Association of the Cooperative Co. by execution
hereof and of the Articles of Association, as amended to the date of such
Transfer. Upon the receipt of such approvals and signed documents, the
Cooperative Co. shall cancel the then outstanding Certificates of Capital
Contribution of the transferor Party and issue new Certificates of Capital
Contribution to the transferee to reflect the new ownership interests, and
commencing from that date the transferee shall become a Party to this Contract
and the Cooperative Co. Should Party B acquire all of the interests of Party A,
it shall be entitled to re-register the Cooperative Co. as a wholly
foreign-owned enterprise.
5. Article 14.1 shall be amended by deleting the word "and" after
subarticle (h), by adding thereto a revised subarticle (i) as follows, and by
amending the existing subarticle (i) to become subarticle (j):
(i) Contributing its subscribed registered capital under the terms and
conditions as provided in Article 9 of this Contract; and
6. Article 14.2 of the Contract shall be amended by changing the words
"Article 10" in subarticle (a) to Article 9.
7. Chapter 8 of the Contract shall be amended to read in full as
follows:
CHAPTER 8. BOARD OF DIRECTORS
ARTICLE 19 - FORMATION OF THE BOARD AND ITS POWERS
l9.1 The Board of the Cooperative Co. shall be established upon the
issuance of the business license by the Shenzhen Administration of Industry and
Commerce and shall hold its first meeting as soon as practicable thereafter.
19.2 The Board shall be comprised of five (5) Directors, two (2) of
which shall be appointed by Party A and three (3) of which shall be appointed by
Party B. The Chairman shall be appointed by Party B and the Vice Chairman shall
be appointed by Party A.
6
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ARTICLE 20 - QUORUM REQUIRED FOR BOARD MEETINGS
This Article intentionally left blank. Provisions relating to the
number of directors required to constitute a quorum for the conduct of meetings
of the Board, and the number of votes necessary to authorize action by the Board
are set forth in the Articles of Association of the Cooperative Co.
ARTICLE 21 - CHAIRMAN OF THE BOARD OF DIRECTORS
21.1 The Chairman of the Board of Directors shall be the legal
representative of the Cooperative Co., and shall have the authority to act for
the Cooperative Co. as provided by law, by this Contract and by the Articles of
Association of the Cooperative Co.
21.2 If the Chairman of the Board is absent, he may delegate his power
to the Vice Chairman or a Director of the Board to act on his behalf.
ARTICLE 22 - PARTICIPATION OF DIRECTORS
Provisions relating to the participation of directors are set forth in
the Articles of Association of the Cooperative Co.
ARTICLE 23
Intentionally left blank
8. Article 24 of the Contract shall be amended to read in full as
follows:
ARTICLE 24 - MANAGEMENT ORGANIZATION
The Cooperative Co. shall establish a Management Organization which,
subject to its overall responsibility to the Board (the highest management organ
of the Cooperative Co.), shall be responsible for day-to-day operations of the
business of the Cooperative Co. The Management Organization shall have such
departments as shall be determined by the Board from time to time.
9. Article 26 of the Contract shall be amended to read in full as
follows:
ARTICLE 26 - REMOVAL OF MANAGEMENT
Provisions for the removal and replacement of officers of the
Cooperative Co. are set forth in the Restated Articles of Association of the
Cooperative Co.
10. Article 33 of the Contract shall be amended to read in full as
follows:
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ARTICLE 33 - MANAGEMENT
Management personal shall be compensated as provided in the Articles of
Association and in resolutions of the Board adopted from time to time.
11. Article 38 of the Contract shall be amended to read in full as
follows:
ARTICLE 38 - ACCOUNTING AND AUDITING
The fiscal year of the Cooperative Co. shall commence on January 1 of
each calendar year and shall conclude on December 31 of such calendar year. The
details of the accounting and auditing system of the Cooperative Co. shall be
provided in the Restated Articles of Association.
12. Article 43 of the Contract shall be amended to read in full as
follows:
ARTICLE 43 - RESIDUAL ASSETS
43.1 After the Liquidation Committee has paid or otherwise provided for
all the legitimate debts of the Cooperative Co. and paid or provided for the
payment of all liquidation expenses, the remaining assets shall be distributed
to the Parties as follows:
43.1.1 Production Line: Remaining assets at the time of
liquidation comprising or included within the Production Line shall be returned
to Party B.
43.1.2 Construction Line: Remaining assets at the time of
liquidation comprising or included with the Construction Line shall be valued at
their then market value, and shall be apportioned between the Parties such that
thirty percent (30%) of such assets shall be apportioned and distributed to
Party A and seventy percent (70%) of such assets shall be apportioned and
distributed to Party B.
43.2 Party B shall have first priority with respect to any remaining
foreign exchange assets of the Cooperative Co. to the extent of its allocated
share of all remaining assets as provided in Article 43.1.
13. Article 49.5 of the Contract shall be amended as follows:
The reference in Article 49.5 to Article 10 of the Contract shall be
changed to refer to Article 9 of the Contract.
14. Provisions of the Contract not amended by this Amendment shall
continue in full force and effect. Should the provisions of any prior contract,
agreement, or memorandum of understanding conflict with the provisions of the
Contract, as amended, the provisions of the Contract, as amended, shall prevail.
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IN WITNESS WHEREOF, the Parties have caused this Amendment to be
executed by their duly authorized representatives as of the day and year first
above written.
Shenzhen Baoanqu Fuda Industries Co., Ltd. Go-Gro Industries, Ltd.
For and on behalf of
GO-GRO INDUSTRIES, LTD.
/s/ [ILLEGIBLE]
------------------------
[SEAL] DIRECTOR
By: /s/ ZHANG FUTIAN By:
----------------------- --------------------
Zhang Futian Waicheck Lau
Legal Representative Legal Representative
9
<TABLE>
<CAPTION>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
EXHIBIT 11
SCHEDULE OF COMPUTATION OF PRIMARY EARNINGS (LOSS) PER SHARE
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
--------------------------------- -------------------------------
1997 1996 1997 1996
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Net income (loss) $(4,988,000) $ 365,000 $(4,966,000) $ 953,000
Add: Interest on debt assumed to be repaid - 9,000 - 38,000
----------- ---------- ----------- ----------
Net income (loss) for primary earnings
(loss) per common share $(4,988,000) $ 374,000 $(4,966,000) $ 991,000
=========== ========== =========== ==========
Weighted average number of common shares
outstanding during the period 7,065,000 6,995,000 7,065,000 6,995,000
Add: Common equivalent shares determined
using the "Modified Treasury Stock"
method representing shares issuable upon
exercise of stock options and warrants - 796,000 - 808,000
----------- ---------- ----------- ----------
Weighted average number of shares used in
calculation of primary earnings (loss) per share 7,065,000 7,791,000 7,065,000 7,803,000
=========== ========== =========== ==========
Primary earnings (loss) per common share $ (0.71) $ 0.05 $ (0.70) $ 0.13
=========== ========== =========== ==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
EXHIBIT 11
(Continued)
SCHEDULE OF COMPUTATION OF FULLY DILUTED EARNINGS (LOSS) PER SHARE
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
--------------------------------- -------------------------------
1997 1996 1997 1996
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Net income (loss) $(4,988,000) $ 365,000 $(4,966,000) $ 953,000
Add: Interest on debt assumed to be repaid - - - 1,000
----------- ---------- ----------- ----------
Net income (loss) for primary earnings
(loss) per common share $(4,988,000) $ 365,000 $(4,966,000) $ 954,000
=========== ========== =========== ==========
Weighted average number of common shares
outstanding during the period 7,065,000 6,995,000 7,065,000 6,995,000
Add: Common equivalent shares determined
using the "Modified Treasury Stock"
method representing shares issuable upon
exercise of stock options and warrants - 826,000 - 808,000
----------- ---------- ----------- ----------
Weighted average number of shares used in
calculation of primary earnings (loss) per share 7,065,000 7,821,000 7,065,000 7,803,000
=========== ========== =========== ==========
Fully diluted earnings (loss) per common share $ (0.71) $ 0.05 $ (0.70) $ 0.12
=========== ========== =========== ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The Schedule contains summary financial information extracted from 10-Q
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 23,557
<ALLOWANCES> 9,268
<INVENTORY> 39,169
<CURRENT-ASSETS> 71,282
<PP&E> 28,655
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 30,205
<BONDS> 10,095
0
0
<COMMON> 71
<OTHER-SE> 38,942
<TOTAL-LIABILITY-AND-EQUITY> 116,063
<SALES> 89,969
<TOTAL-REVENUES> 89,969
<CGS> 75,564
<TOTAL-COSTS> 75,564
<OTHER-EXPENSES> 20,604
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,821
<INCOME-PRETAX> (8,037)
<INCOME-TAX> (3,071)
<INCOME-CONTINUING> (4,966)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,966)
<EPS-PRIMARY> (.70)
<EPS-DILUTED> (.70)
</TABLE>
