FORM 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1998
OR
[ ] TRANSITION PERIOD PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED]
For the transition period from --------------------- to --------------------
COMMISSION FILE NO: 1-9917
CATALINA LIGHTING, INC.
(Exact name of Registrant as specified in its charter)
FLORIDA 59-1548266
State or other jurisdiction of (I.R.S Employer
incorporation or organization Identification Number)
18191 N.W. 68TH AVENUE, MIAMI, FLORIDA 33015
(Address of principal executive offices, including zip code)
(305) 558-4777
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
Common Stock, par value New York Stock Exchange
$.01 per share
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
Indicate by check mark if disclosure of delinquent filers pursuant to
item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in the definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.[ ]
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The aggregate market value of voting stock held by non-affiliates of the
Registrant computed by reference to the closing price of such stock, as reported
by the New York Stock Exchange, on December 14, 1998 was $19.3 million.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Definitive Proxy Statement for the Company for its 1999
Annual Meeting of Stockholders or the Company's Form 10K/A are incorporated by
reference into Part III.
Number of shares outstanding of Registrant's common stock, as of
December 14, 1998: 7,183,869
Exhibit Index at Page 58
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FORM 10-K
CATALINA LIGHTING, INC.
PART I
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Annual Report on Form 10-K (this "Form 10-K"),
including statements under "Item 1. Business" and "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
including without limitation expectations as to future sales and operating
results, constitute "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995 (the "Reform Act"). Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors which may cause the actual results, performance or achievements of
Catalina Lighting, Inc. and its subsidiaries (the "Company") to be materially
different from any future results, performance or achievements expressed or
implied by such forward-looking statements. Such factors include, but are not
limited to, the following: the highly competitive nature of the lighting
industry; reliance on certain key customers; consumer demand for lighting
products; dependence on imports from China; general economic and business
conditions; advertising and promotional efforts; brand awareness; the existence
or absence of adverse publicity; acceptance of new product offerings; changing
trends in customer tastes; availability, terms and deployment of capital;
availability and cost of raw materials and supplies; the costs and other effects
of legal and administrative proceedings; foreign exchange rates; changes in the
Company's effective tax rate (which is dependent on the Company's U.S. and
foreign source income); and other factors referenced in this Form 10-K. The
Company will not undertake and specifically declines any obligation to update or
correct any forward-looking statements to reflect events or circumstances after
the date of such statements or to reflect the occurrence of anticipated or
unanticipated events.
ITEM 1. BUSINESS.
GENERAL
Catalina Lighting, Inc. was incorporated under the laws of the state of
Florida in 1974 and became a public company in 1988. The Company designs,
manufactures, contracts for the manufacture of, imports and distributes a broad
line of lighting fixtures and lamps under the Westinghouse(R) brand, and the
Catalina(R), Dana(R) and Illuminada(R) trade names. The Company also functions
as an original equipment manufacturer, selling goods under its customers'
private labels. The Company sells principally in the United States through a
variety of retailers including home centers, national retail chains, office
superstore chains, mass merchandisers, warehouse clubs, discount department
stores and hardware stores. The Company also sells its products in Europe and
Canada, and, to a lesser extent, in Mexico, Asia, Latin America and Australia.
Currently, its product line is comprised almost entirely of lighting fixtures
and lamps. The Company has supplemented its product lines through acquisitions
but has remained focused on lighting products and has no plans to materially
change its sales focus in the near future.
STRATEGY
In order to expand its retail distribution network and more efficiently
and profitably service its customers, the Company focuses on the following
strategies:
TARGETED DISTRIBUTION. The Company distributes a diverse product line
through multiple retail channels. The Company targets rapidly growing and large
retailers, including leading home centers, office product superstores, mass
merchandisers, warehouse clubs, discount department stores, and hardware stores.
Large retailers assure a broad distribution of a variety of the Company's
products while high-growth retailers provide the Company with rapid penetration
of selected industry segments. Secondarily, the Company targets smaller chains
within the above retail categories. The Company's distribution strategy provides
it with numerous sources of demand and promotes the Company's brand names
broadly throughout the residential and office lighting markets in the United
States, Europe and Canada, and to a lesser extent Asia, Mexico, Latin America
and Australia.
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PROGRAM SELLING. In its primary domestic markets, the Company strives
to be the primary source of lighting products to its retailers by offering a
complete program of lighting products in a variety of categories. The
availability of over 1000 styles of such products as outdoor/security lighting,
table, floor and torchiere lamps, chandeliers, recessed and track lighting and
wall and ceiling lights - the majority of which are available in several colors
or finishes - provides retailers the opportunity to source most of their
lighting products through the Company on a "one stop shopping" basis. The
Company believes that its broad selection of affordable products coupled with
its ability to aid its retail customers in developing a complete lighting
program gives it a competitive advantage.
INTERNATIONAL EXPANSION The Company's Hong Kong based subsidiary,
Go-Gro Industries Limited ("Go-Gro"), sells its products to wholesale
distributors in Europe and, to a lesser extent, various customers in Asia.
Go-Gro is also a major supplier to the Company's U.S. and Canadian subsidiaries.
Management believes the Company's products and services are well suited for
further growth in these and other markets. The Company's current plans include
expansion of Go-Gro's existing sales and marketing operations in Europe,
including the United Kingdom.
TURNKEY DEPARTMENTS. The Company consults with many of its domestic
retail customers to establish departments which allow the Company to display its
products in a customized layout designed to meet each retailer's specific
merchandising and marketing goals. The Company can design, assemble and maintain
these departments and provide the retailer with shelving plan-o-grams, signs,
point-of-purchase promotional strategies and in-store inventory stocking
programs. Turnkey departments ensure the Company's retail customers efficient
and convenient management of the Company's products within their stores and
allow the Company to maintain an attractive and informative presentation of its
products.
WAREHOUSE SUPPLY OF IMPORTED GOODS. The Company's warehouses in the
United States, Canada and Mexico enable it to provide its customers with the
advantage of short delivery time. Warehouse sales allow retailers to receive
products in several days as compared to several months for items shipped
directly to them from Asia. Timely deliveries increase the customer's inventory
turns and profits making the Company a valuable partner in the retailer's
business.
PRODUCTS
The Company markets a diverse product line used primarily in
residential and office settings. The Company's product line is comprised almost
entirely of two main categories: lighting fixtures and lamps. Lighting fixtures
consist of outdoor/security lighting, chandeliers, recessed and track lighting,
and wall and ceiling lights. Lamps sold by the Company include both table and
floor models and may be either functional or decorative. Functional lamps
consist of halogen desk lamps, bankers lamps, swing arm desk lamps, torchiere
lamps, magnifier lamps, and any other lamps generally used for task oriented
functions. Decorative lamps are fashion oriented and made of such materials as
metal, ceramic, stained glass, and crystal glass. The Company also sells other
lighting-related products such as flashlights and ceiling fans. The Company may
continue to expand its product lines internally or through acquisitions.
The Company's products are manufactured and assembled according to the
Company's design specifications. The finished products are packaged and labeled
under one of the Company's brand names: Westinghouse(R), Catalina(R), Dana(R)
and Illuminada(R). The Company also functions as an original equipment
manufacturer, selling goods under its customers' private labels.
CUSTOMERS
The Company distributes its products in North America principally
through major retail outlets, including home centers, office superstore chains,
mass merchandisers, discount department stores, warehouse clubs, furniture and
lighting stores and hardware stores. Products are also sold to a large extent in
Europe to wholesale distributors under their private labels and to selected
retail customers in Europe, Australia and Asia. In fiscal 1998 and 1997, Home
Depot accounted for 27.5% and 22.1%, respectively, of the Company's net sales.
For the fiscal years ended September 30, 1998 and 1997, net sales to the
Company's ten largest customers represented approximately 66% and 63%,
respectively, of the Company's total revenues. The Company believes its
relationships with its customers are good.
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DISTRIBUTION METHODS
The Company utilizes two methods to sell products: warehouse sales and
direct sales. The backlog of unshipped orders at September 30, 1998 and 1997 was
$26.3 million and $19.2 million, respectively, and at November 30, 1998 and 1997
was $27.4 million and $20.0 million, respectively. Although these orders are
subject to cancellation by the customers, the Company believes substantially all
such orders are firm.
The Company purchases products overseas for its own account and
warehouses the products in a 473,000 square foot Company-owned facility in
Tupelo, Mississippi and in leased facilities in Toronto, Canada and in Mexico
City, Mexico. The Company is responsible for costs of shipping, insurance,
customs clearance and duties, storage and distribution related to such warehouse
products and therefore, warehouse sales usually command higher per unit sales
prices than direct sales of the same items. For the fiscal years ended September
30, 1998 and 1997, warehouse sales accounted for 33% and 39%, respectively, of
net sales.
The Company's direct sales are made either by delivering lighting
products to the customers' common carriers at a shipping point in Asia or by
shipping the products from Asia directly to customers' distribution centers,
warehouses or stores. Direct sales are made in large quantities (generally
container-sized lots) to customers, who pay pursuant to their own international,
irrevocable letters of credit (which may or may not be transferable depending on
whether the goods are manufactured by Go-Gro) or on open credit with the
Company. Upon receipt of a customer's transferable letter of credit, the Company
transfers the portion of the letter of credit covering the cost of merchandise
to its supplier. The terms of the transfer provide that draws may not be made by
the supplier until the Company is entitled to be paid pursuant to the terms of
the customer's letter of credit. The Company has the right to draw upon the
customer's letter of credit once the products are inspected by the Company or
its agents, delivered to the port of embarkation and the appropriate
documentation has been presented to the issuing bank within the time periods
established by such letter of credit. For fiscal years ended September 30, 1998
and 1997, 67% and 61%, respectively, of net sales were attributable to direct
sales.
The relative proportion of the Company's sales generated by each method
is dependent upon customer buying preferences and Company sales strategies.
Purchasing on a direct basis allows the customer to generally pay a lower per
unit price than purchasing the same items from the warehouse, but such method
requires the customer to purchase in greater quantities and thus assume the
costs, risks and liquidity requirements associated with holding larger
inventories. Customer buying preferences are influenced by a number of business,
economic and other factors. The underlying factors driving customer buying
preferences often vary from customer to customer and are subject to change, thus
customer buying preferences over time are inherently difficult to predict.
SOURCES OF PRODUCTS
Virtually all of the products sold by the Company are obtained from
factories located in China. The Company manufactures a portion of these products
and purchases the remainder from independent suppliers.
In 1994 the Company purchased Go-Gro, a lighting products manufacturer
with its administrative office located in Hong Kong and production facilities
located in the Guangdong Province of China. Go-Gro's production equipment is
owned by Shenzhen Jiadianbao Electrical Products Co., Ltd. ("SJE"), Go-Gro's
cooperative joint venture subsidiary. Approximately 50% of SJE's factory
buildings are leased from the Company's joint venture partner in SJE, Shenzhen
Baoanqu Fuda Industries Co. Ltd. ("Fuda"), a Chinese company, the remaining 50%
is owned by SJE. Under the terms of the cooperative joint venture agreement with
Fuda, Go-Gro receives 100% of the manufacturing profits and losses of SJE, while
Fuda receives a yearly management fee from SJE of approximately $400,000 in
addition to the rent for the factory buildings. Go-Gro manufactures an extensive
product line which is sold mainly to wholesale distributors and retailers in
Europe, the Company's subsidiaries and to a lesser extent, retailers in Asia and
Australia. Go-Gro and its subsidiaries employ approximately 2,600 people.
SJE leased factory buildings in three separate locations in China.
During 1995, the Company initiated a consolidation of its Go-Gro/SJE
manufacturing facilities into one large compound in order to achieve certain
manufacturing efficiencies and to control its occupancy costs in what management
believes will be an inflationary business environment. In April 1995, SJE and
the Bureau of National Land Planning Bao-An Branch of Shenzhen City entered into
a Land Use Agreement covering approximately 467,300 square feet in Bao-An
County, Shenzhen City, People's Republic of China. The agreement provides SJE
with the right to use this land until January 18, 2042. The land use rights are
non-transferable. Under the terms of the SJE joint venture agreement, ownership
of the land and buildings of SJE is divided 70% to Go-Gro and 30% to Fuda. Land
costs, including the land use rights, approximated $2.6 million of which Go-Gro
has paid its 70% proportionate share of $1.8 million.
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Under the terms of this agreement, as amended, SJE is obligated to
construct approximately 500,000 square feet of factory buildings and 211,000
square feet of dormitories and offices, of which 40 percent was required to be
and was completed by April 1, 1997. The remainder of the construction is
required to be completed by December 31, 1999. The Company plans to file an
application to extend the completion deadline of December 1999. The total cost
for this project is estimated at $15.5 million (of which $9.9 million had been
expended as of September 30, 1998) and includes approximately $1 million for a
Municipal Coordination Facilities Fee (MCFF). The MCFF is based upon the square
footage to be constructed. The agreement calls for the MCFF to be paid in
installments beginning in January 1997. A 162,000 square foot factory, 77,000
square foot warehouse and 60,000 square foot dormitory became fully operational
in June 1997.
Goods produced by Go-Gro constituted approximately 40% in 1998 and 41%
in 1997, of the total products either purchased or manufactured by the Company.
The raw materials and components essential to Go-Gro's manufacturing process are
purchased from distributors and manufacturers located in various countries as
follows: plastic resin (Germany, China, Japan and Taiwan), steel (Korea, Japan,
Taiwan and China), cable (China), light bulbs (China, Taiwan, Indonesia and Hong
Kong), lampholders (Taiwan, Germany, Italy and China) and other various
components (China, Europe, U.S., Taiwan and others).
The Company chooses manufacturers based on price, quality of
merchandise, reliability and ability to meet the Company's timing requirements
for delivery. Manufacturing commitments are made on a purchase order basis. The
Company or its customer is often required to post a letter of credit prior to
shipment.
The Company has employees located in the U.S., Hong Kong and China who
supervise the Company's manufacturing contractors. These employees'
responsibilities include the establishment and ongoing development of close
relationships with the manufacturers, setting product and manufacturing
standards, performing quality assurance functions including inspection at
various stages, tracking costs, performing and/or working with manufacturing
engineering, and oversight of the manufacturing processes. The Company maintains
a quality control and quality assurance program and has established inspection
and test criteria for each of its products. These methods are applied by the
Company or its agents regularly to product samples in each manufacturing
location prior to shipment and each shipment must pass quality control
inspection.
The Company expects to continue to use a limited number of contract
manufacturers and accordingly will continue to be highly dependent upon sources
outside the Company for timely production and quality workmanship.
In fiscal 1998 and 1997, Chinese suppliers, other than Go-Gro,
accounted for approximately 57% and 53%, respectively, of the total products
either purchased or manufactured by the Company. Shunde No. 1 Lamp Factory
("Shunde") accounted for approximately 26% of the total products either
purchased or manufactured by the Company in 1998 and 19% in 1997 and another
supplier accounted for 6% and 13% of the same total in 1998 and 1997,
respectively. Purchases from the top five independent suppliers comprised 47%
and 43%, respectively, of the total of the products either purchased or
manufactured by the Company for fiscal 1998 and 1997. Other than Shunde, no
independent supplier accounted for more than 10% of the total of the products
either purchased or manufactured by the Company in 1998.
On June 21, 1996, the Company entered into an agreement with Shunde
whereby Shunde agreed to manufacture lighting products for the Company to be
sold in North and South America and the European Community on an exclusive basis
for a three year period beginning October 1, 1996 in return for annual minimum
purchase requirements from the Company. The agreement is terminable if the
Company does not meet its minimum purchase requirements, at which time the
exclusivity clause would cease. However, no amounts would be due Shunde for
failure to meet the purchase requirements. To date, the Company has met its
minimum purchase requirements under this agreement.
While the Company purchases its products from a small number of large
suppliers with whom it maintains close alliances, the same products could be
purchased from numerous other suppliers.
The continued importation of products from China and the Company's
business could be affected by any trade issues impacting U.S. - China relations.
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On June 3, 1998, the President of the United States extended to the
People's Republic of China "Most Favored Nation" treatment for the entry of
goods into the United States for an additional year, beginning July 3, 1998. The
trade status has been renamed "Normal Trade Relations" because it applies to all
but a handful of U.S. trading partners. In the context of United States tariff
legislation, such treatment means that products are subject to favorable duty
rates upon entry into the United States. On July 22, 1998 the House of
Representatives supported the President's decision and rejected a bill to impose
trade sanctions against China due to alleged human rights abuses, nuclear
proliferation policies and a growing U.S. trade deficit with China. Members of
Congress and the "human rights community" will continue to monitor the human
rights issues in China and adverse developments in human rights and other trade
issues in China could affect U.S. - China relations. As a result of various
political and trade disagreements between the U.S. Government and China, it is
possible restrictions could be placed on trade with China in the future which
could adversely impact the Company's operations and financial position.
The Company obtained a political risk insurance policy issued by the
Multilateral Investment Guarantee Agency, a member of the World Bank Group, in
the amount of $14.4 million covering its purchase and expansion of SJE in China.
The contract is a long-term non-cancelable guarantee covering the risks of
expropriation and war and civil disturbance. The Company obtained guarantees to
cover existing assets of $11.0 million and stand-by guarantees of $3.4 million
on construction of its SJE facilities.
In June 1997, the Company ceased manufacturing operations at Meridian
Lamps, Inc. ("Meridian"), a wholly-owned subsidiary with a manufacturing
facility located in Meridian, Mississippi, which commenced operations in late
December 1994. Meridian produced decorative table and floor lamps. The Meridian
facility consists of 123,000 square feet. The Company leased the facility in
June 1997. Meridian's operations generated $2.8 million in net sales during both
fiscal 1997 and fiscal 1996.
COMPETITION
The Company's product lines span major segments within the lighting
industry and, accordingly, the Company's products compete in a number of
different markets with a number of different competitors. The Company competes
with other independent distributors, importers, manufacturers, and suppliers of
lighting fixtures and other consumer products. The lighting industry is highly
competitive. Other competitors market similar products that compete with the
Company on the basis of price. Some of these competitors do not maintain
warehouse operations or do not perform some of the services provided by the
Company which require the Company to charge higher prices. The relatively low
barriers to entry into the lighting industry and the limited proprietary nature
of many lighting products also permit new competitors to enter the industry
easily. The ability of the Company to compete successfully in this highly
competitive market depends upon its ability to manufacture and purchase quality
products on favorable terms, ensure its products meet safety standards, deliver
the goods promptly at competitive prices, and provide a wide range of services
such as electronic data interchange and customized products, packaging, and
store displays.
INDEPENDENT SAFETY TESTING
As part of its marketing strategy, the Company voluntarily submits its products
to recognized product safety testing laboratories in countries in which it
markets its products. Such laboratories include Underwriters Laboratories (UL)
in the United States, Canadian Standards Association (CSA) in Canada, British
Standards (BS) in Great Britain, Association Nacional de Normalizacion y
Certification del Sector Electrico (ANCE) in Mexico and various European
electrical testing organizations. If the product is acceptable, the laboratory
issues a report which provides a technical description of the product. It also
provides the Company's suppliers with procedures to follow in producing the
products and periodically conducts inspections at such suppliers' facilities for
compliance. Electrical products which are manufactured in accordance with safety
certification marks are generally recognized by consumers as safe products and
such certification marks are often required by various governmental authorities
to comply with local codes and ordinances. The Company does not anticipate any
difficulty in maintaining the right to use the listing marks of these
laboratories.
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PRODUCT LIABILITY
The Company is engaged in a business which could expose it to possible
claims for injury resulting from the failure of its products. The Company
maintains primary product liability insurance coverage of $1 million per
occurrence, $2 million in the aggregate, as well as a $25 million aggregate
umbrella insurance policy and $75 million excess umbrella insurance. The primary
insurance coverage requires the Company to self insure for a maximum amount of
$10,000 per incident occurring in calendar 1999. No assurance can be given that
the claims will not exceed available insurance coverage or that the Company will
be able to maintain the same level of insurance. See "Legal Proceedings".
TRADEMARKS AND PATENTS
On April 26, 1996, the Company entered into a license agreement with
Westinghouse Electric Corporation to market and distribute a full range of
lighting fixtures, lamps and other lighting products under the Westinghouse
brand name in exchange for royalty payments. The agreement terminates on
September 30, 2001. The Company has an option to extend the agreement for an
additional ten years. The royalty payments are due quarterly and are based on a
percent of the value of the Company's net shipments of Westinghouse branded
products, subject to annual minimum payments due. Commencing September 30, 1999
either party has the right to terminate the agreement during fiscal years 1999
to 2001 if the Company does not meet the minimum net shipments of $25 million
for fiscal 1999, $40 million for fiscal 2000 and $60 million for fiscal 2001.
Net sales of Westinghouse branded products amounted to $10.9 million and $9.0
million for the years ended September 30, 1998 and 1997, respectively.
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 filed in the United
States District Court, for the Northern District of Ohio. The lawsuit challenged
the Company's right to use the Westinghouse trademarks on its lighting products
and alleges trademark infringement. On December 24, 1996, Westinghouse and the
Company served a Complaint and Motion for Preliminary Injunction against White,
AB Electrolux, Steel City Vacuum Co., Inc., Salton/Maxim Housewares, Inc.,
Newtech Electronics Corp., and Windmere Durable Holdings, Inc. in the United
States District Court, Western District of Pennsylvania, Case No. 96-2294
alleging that the defendants had violated Westinghouse's trademark rights,
breached the Agreement between Westinghouse and White and sought an injunction
to enjoin White against interference with their contractual arrangements. In
October 1997, the cases were consolidated in the Pennsylvania case and on
November 7, 1997 White filed a Counterclaim and Third Party Claims against
Westinghouse, Catalina and Minami International Corporation alleging trademark
infringement, trademark dilution, false designation of origin, false advertising
and unfair competition and seeking injunctive relief and damages. Both the
Company and Westinghouse vigorously dispute White's allegations. Pursuant to the
License Agreement between Westinghouse and the Company, Westinghouse is
defending and indemnifying the Company for all costs and expenses for claims,
damages and losses, including the costs of litigation. A trial date of June 21,
1999 has been set by the Court.
The Company's licensed brand, Westinghouse(R) and the Company's own
trademarks, Catalina(R), Dana(R) and Illuminada(R) are registered in the United
States, Canada and Mexico as well as in numerous countries in the European
Community and Asia. The Company is in the process of registering its trademarks
in Central and South America.
EMPLOYEES
As of December 14, 1998 the Company employed approximately 215 people
in the United States, Canada and Mexico. The Hong Kong and China operations,
including Go-Gro's cooperative joint venture, employed approximately 2,600
people. None of the Company's employees are represented by a collective
bargaining unit and the Company believes that its relationships with its
employees are good.
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES
Please see Note 13 of Notes to Consolidated Financial Statements.
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EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information as of December 14,
1998 with respect to the executive officers of the Company:
NAME AGE POSITION WITH THE COMPANY
- ------------------------- ----- -------------------------------------
Robert Hersh 52 Chairman, President,
Chief Executive Officer, Director
Dean S. Rappaport 46 Executive Vice President,
Chief Operating Officer, Director
William D. Stewart 50 Executive Vice President, Director
Nathan Katz 43 Executive Vice President
David W. Sasnett 42 Senior Vice President, Chief Financial
Officer, Chief Accounting Officer
Thomas M. Bluth 41 Vice President, Secretary, Treasurer
None of the Company's officers has any family relationship with any
director or other officer. "Family relationship" for this purpose means any
relationship by blood, marriage, or adoption, not more remote than first cousin.
ROBERT HERSH has been the President and Chief Executive Officer of the
Company since April 1991, Chairman of the Board since June 1991 and a Director
of the Company since April 1988. Mr. Hersh served as the Executive Vice
President of the Company from 1985 to April 1991 and as Secretary from June 1989
until June 1991.
DEAN S. RAPPAPORT has been Executive Vice President of the Company
since January 1988 and a Director of the Company since April 1988. From January
1988 to November 1996 Mr. Rappaport was Chief Financial Officer and Treasurer of
the Company. Mr. Rappaport was promoted to Chief Operating Officer of the
Company in November 1996. From 1984 until he joined the Company, Mr. Rappaport
was a partner with Wachsman & Rappaport, P.A., a public accounting firm located
in Margate, Florida.
WILLIAM D. STEWART has been Executive Vice President of the Company
since 1989, and a Director of the Company since April 1994. From 1985 until he
joined the Company, Mr. Stewart was an Executive Vice President of Crest
Industries, Inc., a distributor of home improvement products.
NATHAN KATZ has been Executive Vice President of the Company since
October 1, 1993 and President of Catalina Industries (formerly known as Dana
Lighting, Inc.), a wholly-owned subsidiary of the Company since August 1989.
From October 1983 to August 1989, Mr. Katz was the Chief Executive Officer of
Dana Imports, Inc., an importer of lamps located in Boston, Massachusetts.
DAVID W. SASNETT has been a Vice President of the Company since
November 1994. In November 1997, Mr. Sasnett became a Senior Vice President of
the Company. In November 1996, Mr. Sasnett became the Chief Financial Officer of
the Company. Prior to that time, he was the Company's Controller. From 1993
until he joined the Company, Mr. Sasnett was the Vice President - Finance and
Controller of Hamilton Bank, N.A. and from 1980 to 1993 was employed by the
international accounting firm of Deloitte & Touche.
THOMAS M. BLUTH has been Vice President since August 1994 and Secretary
of the Company since November 1994. Mr. Bluth became Treasurer of the Company in
November 1996. From 1989 until he joined the Company, Mr. Bluth was Vice
President and General Counsel for Ellis Diversified, Inc. From 1987 to 1989, Mr.
Bluth was the Assistant Tax Director for Southwestern Bell Corporation.
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ITEM 2. PROPERTIES.
The following table sets forth details about the Company's offices,
manufacturing plants and warehouse facilities:
LEASED/
OWNED
LOCATION FACILITY
---------------------- ------------------------ -------------
Miami, FL headquarters/office owned (1)
Dallas, TX office/warehouse leased (2)
Tupelo, MS warehouse owned (1)
warehouse leased
Easton, MA office leased
Meridian, MS manufacturing plant / owned (1) (4)
warehouse
Montreal, Canada office/warehouse leased (2)
Toronto, Canada office/warehouse leased
Mexico office leased
warehouse leased
Hong Kong office leased
China office/manufacturing leased
plants/warehouse
dormitories leased
manufacturing plant/ owned (3)
warehouse/dormitories
Taiwan office leased
---------------------- ----------------------- -------------
(1) Owned subject to a first mortgage.
(2) The Company has subleased all space under this lease to unrelated
parties.
(3) This facility is owned by a joint venture in which the Company has a
70% interest as to ownership of the facility. The joint venture
purchased land use rights which terminate in the year 2042.
(4) The Company has leased this facility to an unrelated party.
All of the Company's properties are fully utilized with the exception of the
Dallas, Montreal and the Meridian facilities, which have been fully subleased or
leased. All of the Company's properties are suitable for its operations, with
the exception of the Meridian facility, which the Company ultimately expects to
sell.
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<PAGE>
ITEM 3. LEGAL PROCEEDINGS.
On June 4, 1991, the Company was served with a copy of the Complaint in the
matter of Browder vs. Catalina Lighting, Inc., Robert Hersh, Dean S. Rappaport
and Henry Gayer, Case No. 91-23683, in the Circuit Court of the 11th Judicial
Circuit in and for Dade County, Florida. The plaintiff in the action, the former
President and Chief Executive Officer of the Company, contended that his
employment was wrongfully terminated and as such brought action for breach of
contract, defamation, slander, libel and intentional interference with business
and contractual relationships, including claims for damages in excess of $5
million against the Company and $3 million against the named directors. During
the course of the litigation the Company prevailed on its Motions for Summary
Judgment and the Court dismissed the plaintiff's claims of libel and
indemnification. On February 3, 1997, the plaintiff voluntarily dismissed the
remaining defamation claims against the Company and directors. The breach of
contract claim was tried in February, 1997 and the jury returned a verdict
against the Company for total damages of $2.4 million (including prejudgment
interest). On July 14, 1997, the Court also granted plaintiff's motion for
attorney fees and costs of $1.9 million. A provision of $4.3 million was
recorded by the Company during the quarter ended March 31, 1997 and a $681,000
provision for post-judgment interest was recorded through September 30, 1998.
The Company is appealing the verdict and attorney fee award and the appeal was
argued before the Third District Court of Appeal on December 18, 1998. The
Company believes its arguments are meritorious as argued. No decision from the
District Court has been received to date.
On December 17, 1996 White Consolidated Industries, Inc. ("White"), which has
acquired certain limited trademark rights from Westinghouse Electric Corp.
("Westinghouse") to market certain household products under the
White-Westinghouse trademark, notified the Company of a lawsuit against
Westinghouse and the Company filed in the United States District Court, for the
Northern District of Ohio. The lawsuit challenged the Company's right to use the
Westinghouse trademarks on its lighting products and alleges trademark
infringement. On December 24, 1996, Westinghouse and the Company served a
Complaint and Motion for Preliminary Injunction against White, AB Electrolux,
Steel City Vacuum Co., Inc., Salton/Maxim Housewares, Inc., Newtech Electronics
Corp., and Windmere Durable Holdings, Inc. in the United States District Court,
Eastern District of Pennsylvania, Case No. 96-2294 alleging that the defendants
had violated Westinghouse's trademark rights, breached the Agreement between
Westinghouse and White and sought an injunction to enjoin White against
interference with their contractual arrangements. In October 1997, the cases
were consolidated in the Pennsylvania case and on November 7, 1997 White filed a
Counterclaim and Third Party Claims against Westinghouse, Catalina and Minami
International Corporation alleging trademark infringement, trademark dilution,
false designation of origin, false advertising and unfair competition and
seeking injunctive relief and damages. Both the Company and Westinghouse
vigorously dispute White's allegations. Pursuant to the License Agreement
between Westinghouse and the Company, Westinghouse is defending and indemnifying
the Company for all costs and expenses for claims, damages and losses, including
the costs of litigation. A trial date of June 21, 1999 has been set by the
Court.
During fiscal 1998 the Company received a number of claims relating to
halogen torchieres sold by the Company to various retailers. Management does not
currently believe these claims will result in a material uninsured liability to
the Company. However, as a result of these claims the Company experienced an
increase in its liability insurance premiums effective for the 1999 calendar
year and will now be self-insuring up to a maximum of $10,000 for each incident
occurring in calendar 1999. It is too early to assess the impact of these
changes on the Company's financial position or annual results of operations
during fiscal 1999. No assurance can be given that the number of claims will not
exceed historical experience or that claims will not exceed available insurance
coverage or that the Company will be able to maintain the same level of
insurance. See "Product Liability."
The Company is also a defendant in other legal proceedings arising in
the course of business. In the opinion of management the ultimate resolution of
these other legal proceedings will not have a material adverse effect on the
financial position or annual results of operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
During the quarter ended September 30, 1998, no matters were submitted
for a vote of the Company's stockholders.
Page 11
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The Company's common stock is traded on the New York Stock Exchange
under the symbol LTG. The following table sets forth, for the periods indicated,
the high and low closing prices of the common stock as reported by the New York
Stock Exchange.
High Low
Fiscal Year Ended September 30, 1997
First Quarter 5 1/4 3 3/4
Second Quarter 5 1/2 3 5/8
Third Quarter 4 1/8 3
Fourth Quarter 6 7/16 3 7/8
Fiscal Year Ended September 30, 1998
First Quarter 6 7/16 3 3/8
Second Quarter 4 3/8 3 1/4
Third Quarter 4 5/8 3 5/8
Fourth Quarter 4 1/8 2 1/16
On December 14, 1998, the closing price of the Company's common stock
as reported on the New York Stock Exchange was $2.69. As of December 28, 1998,
there were approximately 2,700 holders of record of the Company's common stock,
including some brokerage firms which hold shares in street name on behalf of
their clients.
The Company has never paid cash dividends on its common stock. The
Company intends to retain future earnings, if any, to finance the expansion of
its business and does not anticipate that any cash dividends will be paid in the
foreseeable future. In addition, the terms of the Company's domestic credit
facility and convertible subordinated notes prohibit the payment of any cash
dividends or other distribution on any shares of the Company's common stock,
other than dividends payable solely in shares of common stock, unless approval
is obtained from the lenders. Future dividend policy will depend on the
Company's earnings, capital and financing requirements, expansion plans,
financial condition and other relevant factors.
The Company's board of directors has authorized the repurchase of up to
$2 million of Common Shares of the Company from time to time in the open market
or in negotiated purchases.
Under the Company's Amended and Restated Bylaws, a stockholder who
wishes to propose business for consideration at the Annual Meeting or to
nominate persons for election to the Board of Directors must notify the Company
not less than 120 days prior to the first anniversary of the preceding year's
annual meeting (i.e., for the Annual Meeting to be held in 1999, not later than
February 10, 1999). The notice must include information specified in the
Company's Bylaws regarding such proposal or nomination. If the date of the
Annual Meeting is advanced or delayed by more than 40 days from such anniversary
date, a different deadline may apply. Under the SEC's Rule 14a-4, the Company
may exercise discretionary voting authority under proxies it solicits to vote on
any matter that is proposed by a stockholder who does not seek to include the
proposal in the Company's proxy statement, unless the Company is notified about
the proposal by the advance notice deadline date (i.e., for the Annual Meeting
to be held in 1999, not later than February 10, 1999) and the stockholder
satisfies the other requirements of Rule 14a-4(c). Separately, under SEC Rule
14a-8, a stockholder wishing to submit a proposal for inclusion in the Company's
proxy statement must submit his or her proposal to the Company no later than
January 10, 1999 and must satisfy the other requirements of SEC Rule 14a-8.
Page 12
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
(in thousands, except per share data)
<TABLE>
<CAPTION>
AT OR FOR THE YEARS ENDED SEPTEMBER 30,
-----------------------------------------------------------------------------------
1998 1997 (1) 1996 1995 (2) 1994 (3)
-------------- -------------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
Net sales $ 161,860 $ 196,955 $ 184,630 $ 176,292 $ 142,123
Net income (loss) $ 1,102 $ (3,093) $ 1,603 $ 400 $ 5,510
Basic earnings (loss) per share $ 0.15 $ (0.44) $ 0.23 $ 0.06 $ 0.90
Diluted earnings (loss) per share $ 0.15 $ (0.44) $ 0.21 $ 0.05 $ 0.75
Total assets $ 98,960 $ 116,581 $ 117,462 $ 120,051 $ 101,428
Long-term borrowings $ 28,224 $ 39,737 $ 36,571 $ 46,299 $ 30,068
</TABLE>
Certain amounts presented above for prior years have been reclassified to
conform to the current year's presentation. No cash dividends were declared
during the five year period ended September 30, 1998.
(1) Includes $930,000 in plant closing costs due to the termination of
manufacturing operations at Meridian and $7.5 million in litigation
costs and related professional fees.
(2) Includes operating results for Meridian from December 15, 1994 to
September 30, 1995.
(3) Includes assets and liabilities acquired upon the acquisition of Go-Gro
on July 30, 1994 and the operating results for Go-Gro for the period
July 31, 1994 to September 30, 1994.
Page 13
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Certain statements in this Management's Discussion and Analysis of Financial
Condition and Results of Operations, including without limitation expectations
as to future sales and operating results, constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995 (the "Reform Act"). Such forward-looking statements involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Company and its subsidiaries to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
but are not limited to, the following: the highly competitive nature of the
lighting industry; reliance on certain key customers; consumer demand for
lighting products; dependence on imports from China; general economic and
business conditions; advertising and promotional efforts; brand awareness; the
existence or absence of adverse publicity; acceptance of new product offerings;
changing trends in customer tastes; availability, terms and deployment of
capital; availability and cost of raw materials and supplies; the costs and
other effects of legal and administrative proceedings; foreign exchange rates;
changes in the Company's effective tax rate (which is dependent on the
Company's U.S. and foreign source income); and other factors referenced in this
Form 10-K. The Company will not undertake and specifically declines any
obligation to update or correct any forward-looking statements to reflect events
or circumstances after the date of such statements or to reflect the occurrence
of anticipated or unanticipated events.
The Company's fiscal years ended September 30, 1998, 1997 and 1996 are
referred to herein as "1998", "1997" and "1996", respectively.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the percentage
relationship to net sales of amounts presented in the Company's consolidated
statements of operations.
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
----------------------------------------------------
1998 1997 1996
--------------- --------------- ----------------
<S> <C> <C> <C>
Net sales 100.0 % 100.0 % 100.0 %
Cost of sales 80.8 83.5 83.2
--------------- --------------- ----------------
Gross profit 19.2 16.5 16.8
Selling, general and
administrative expenses 16.4 13.1 13.7
Plant closing costs - 0.5 -
Litigation charges and related
professional fees - 3.8 0.2
--------------- --------------- ----------------
Operating income (loss) 2.8 (0.9) 2.9
Interest expense (2.3) (2.1) (1.8)
Other income 0.4 - 0.2
--------------- --------------- ----------------
Income (loss) before income taxes 0.9 (3.0) 1.3
Income tax benefit (provision) (0.2) 1.4 (0.4)
--------------- --------------- ----------------
Net income (loss) 0.7 % (1.6)% 0.9 %
=============== =============== ================
</TABLE>
Page 14
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
COMPARISON OF FISCAL YEARS ENDED SEPTEMBER 30, 1998 AND 1997
Net sales and gross profit for 1998 were $161.9 million and $31.1
million, respectively, as compared to $197 million and $32.5 million,
respectively, for 1997. The Company generated net income of $1.1 million ($.15
per share) in 1998 compared to a net loss of $3.1 million ($.44 per share) in
1997.
The $35.1 million decrease in net sales from the prior year reflects
lower unit sales and is mostly attributable to a $20.1 million decline in sales
of one product class, halogen torchieres, a decrease in European sales of $10.3
million and a decline of $4 million in sales of now discontinued products, the
Meridian lamps and "Hugger" flashlights. The sales decline for the halogen
torchieres continues a trend of declining sales of this product which began in
the first quarter of fiscal 1998 and is attributed in part to media attention
focused on incidents of fire associated with this product. In 1998 halogen
torchiere sales aggregated $14.6 million, as compared to $34.7 million for 1997.
In 1998 sales to European customers were $19.7 million, as compared to $30
million for 1997. Lamp sales decreased by $30.5 million and net sales for the
Company's other principal line of products, lighting fixtures, decreased by $4.6
million. Lamps and lighting fixtures accounted for 63% and 37%, respectively, of
net sales in 1998 compared to 67% and 33%, respectively, in 1997. In 1998 and
1997, Home Depot accounted for 27.5% and 22.1%, respectively, of the Company's
net sales. For the fiscal years ended September 30, 1998 and 1997, net sales to
the Company's ten largest customers represented approximately 66% and 63%,
respectively, of the Company's net sales.
Gross profit decreased by $1.4 million in 1998 due to the decrease in
sales. The gross profit percentage increased to 19.2% in 1998 from 16.5% in
1997. The improvement in the gross profit percentage is attributable to improved
margins earned on direct sales due to a more profitable product mix and
favorable sales returns and incentives experience. The lower gross profit
percentage for 1997 also reflects an $870,000 provision for discontinued
inventory required as a result of management's decision to cease operations at
Meridian.
Many of the Company's major customers (most notably Home Depot)
purchase from the Company primarily on a direct basis, whereby the merchandise
is shipped directly from the factory to the customer, rather than from the
Company's warehouses. Approximately 67% of the Company's sales in 1998 were made
on a direct basis as compared to 61% in 1997. Sales made by the Company on a
direct basis typically generate lower margins per unit than sales from the
Company's warehouses. The amount of the Company's sales made on a direct basis
is dependent upon customer buying preferences, which are influenced by a number
of factors that vary from customer to customer. Sales made from the Company's
U.S. warehouses declined on a quarterly basis and in total from 1997 to 1998 and
continue to decline. The Company is attempting to compensate for this decline by
pursuing new channels of distribution which will be serviced out of the
Company's U.S. warehouse. However, there can be no assurance these efforts will
be successful, and the Company may experience further declines in sales made
from its U.S. warehouse. The Company closed its Los Angeles warehouse during
1998 and consolidated these inventories into its Tupelo warehouse in part due to
declining warehouse sales.
Selling, general and administrative expenses ("SG&A") increased by
$662,000 due to increased costs in the Orient to support the Company's new
factory's operations ($821,000) and an increase in royalties ($353,000). These
increases were partially offset by a $415,000 decrease in SG&A incurred by
Meridian which ceased operations in June 1997. SG&A expenses were 16.4% of sales
in 1998 compared to 13.1% in 1997. The increase in SG&A as a percentage of sales
is attributable to the factors mentioned above and the decline in sales.
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.
Litigation charges and related professional fees in 1997 represented
the amount provided for an adverse jury verdict (currently under appeal) of $4.3
million on litigation with the Company's former Chief Executive Officer, a
payment of $1,000,000 to settle patent litigation with Black & Decker, and the
related professional fees incurred for these two matters.
Interest expense decreased from $4.1 million to $3.8 million. A
decrease in interest expense as a result of lower borrowings was offset by a
$165,000 increase in the provision for interest related to the $4.3 million
adverse jury verdict presently under appeal (the provision was for approximately
7 months in 1997 compared to 12 months in 1998).
Other income for 1998 includes a gain of $164,000 on the sale of
marketable equity securities, with the remainder consisting primarily of rental
income on the Meridian facility, interest and other miscellaneous income,
partially offset by foreign exchange losses.
Page 15
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
COMPARISON OF FISCAL YEARS ENDED SEPTEMBER 30, 1998 AND 1997 (CONTINUED)
The effective income tax rates for 1998 and 1997 were 24.9% and 46.9%,
respectively. The higher effective tax rate for 1997 is attributable to the
combination of (1) foreign pretax income, which is taxed at a significantly
lower rate than U.S. income, and (2) a pretax loss for U.S. operations, on which
the Company recorded a tax benefit at the applicable U.S. rates. The Company's
effective income tax rate is dependent both on the total amount of pretax income
generated and the relative distribution of such total income between domestic
and foreign operations. Consequently, the Company's effective tax rate may vary
in future periods. As a result of recent Internal Revenue Service rulings and
proposed and temporary regulations, the Company is in the process of
restructuring its international operations in order to retain favorable U.S. tax
treatment of foreign source income. The Company believes it should be successful
in this restructuring. However, in the event the Company is unsuccessful in this
effort, the Company will likely experience an increase in its consolidated
effective income tax rate.
MERIDIAN
The Company ceased manufacturing operations and closed its Meridian
Lamps facility in June 1997. Net sales for 1997 were $2.8 million, cost of sales
was $4.7 million and the pretax loss was $3.5 million.
COMPARISON OF FISCAL YEARS ENDED SEPTEMBER 30, 1997 AND 1996
Net sales and gross profit for 1997 were $197 million and $32.5
million, respectively, as compared to $184.6 million and $30.9 million,
respectively, for 1996. The Company incurred a net loss of $3.1 million ($.44
per share) in 1997 due to plant closing costs and litigation costs, as compared
to net income of $1.6 million ($.21 per share) in 1996.
Net sales increased by $12.3 million from the prior year due to an
increase in units sold. The increase in sales reflects the benefits of the
Company's strategy to strengthen its relationships with certain major U.S. and
European retailers. Lamp sales increased by $10.7 million and net sales for the
Company's other principal line of products, lighting fixtures, increased by $1.6
million. Lamps and lighting fixtures accounted for 67% and 33%, respectively, of
net sales in 1997 as compared to 66% and 34%, respectively, in 1996. In 1997 and
1996, Home Depot accounted for 22.1% and 9.8%, respectively, of the Company's
net sales. In 1996, Builders Square and its affiliate Kmart accounted for 11% of
net sales. In 1997, the respective percentages of net sales represented by Kmart
and Builders Square (which were no longer affiliates at September 30, 1997) were
7.1% and 4.6%. For the fiscal years ended September 30, 1997 and 1996, net sales
to the Company's ten largest customers represented approximately 63% and 57%,
respectively, of the Company's total revenues.
Gross profit increased by $1.5 million in 1997 due to added sales
volume but decreased as a percentage of net sales from 16.8% to 16.5%. Certain
major domestic retailers accounted for a larger percentage of the Company's
sales in 1997 than 1996 due to the Company's sales focus on these major
retailers and the consolidation of the customer base. Many of these major
retailers (most notably Home Depot and Kmart) are currently purchasing from the
Company primarily on a direct basis, whereby the merchandise is shipped directly
from the factory to the customer, rather than from the Company's warehouses.
Approximately 61% of the Company's sales in 1997 were made on a direct basis,
whereby the merchandise is shipped directly from the factory to the customer, as
compared to 52% in 1996. Sales made by the Company on a direct basis typically
generate lower margins than sales of the same items from the Company's
warehouses, and the higher relative proportion of direct sales was a
contributing factor to the decline in the gross profit percentage. The relative
proportion of the Company's sales made on a direct basis is dependent upon
customer buying preferences, which are influenced by a number of factors that
vary from customer to customer and are subject to change and thus cause the
Company's gross margin percentage to be inherently difficult to predict. The
lower gross profit percentage for 1997 also reflects an $870,000 provision for
discontinued inventory resulting from management's decision to cease operations
at its Meridian factory (see separate discussion below). The impact of these
factors lowering the gross profit percentage was partially offset by lower
provisions for sales incentives as a percentage of sales, stemming from
favorable incentive experience and a decrease in purchasing and warehousing
costs as a result of the consolidation of the Company's warehousing operations
during fiscal 1996.
Page 16
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
COMPARISON OF FISCAL YEARS ENDED SEPTEMBER 30, 1997 AND 1996 (CONTINUED)
Selling, general and administrative expenses ("SG&A") were 13.1% of
sales in 1997 compared to 13.7% in 1996. The decrease in these expenses as a
percentage of net sales is attributable to higher sales. SG&A increased by
$628,000 from 1996 due to additional costs incurred in the Orient to support the
Company's growth and restructuring of operations ($881,000), U.S. personnel
costs ($644,000) and an increase in consulting and professional fees due to
costs incurred to set up the Company's new computer system and introduce
Westinghouse brand name products ($580,000). These increases were partially
offset by lower depreciation expense ($600,000) principally attributable to the
accelerated depreciation in the prior year of the Company's previous computer
system, lower merchandising and display costs ($268,000), and lower costs
incurred at the Meridian facility ($594,000) as a result of the decision to
cease Meridian's operations.
Litigation charges and related professional fees aggregated $7.5
million and represent the amount provided for an adverse jury verdict (currently
under appeal) of $4.3 million on litigation with the Company's former Chief
Executive Officer, a payment of $1,000,000 to settle patent litigation, and the
related professional fees of $2.2 million incurred for these matters.
Interest expense increased from $3.3 million in 1996 to $4.1 million in
1997 due to increased borrowings to finance capital expenditures and a $258,000
provision for interest related to the $4.3 million adverse jury verdict.
Other income of $385,000 in 1996 consisted primarily of gains on the
sale of intangible assets and investment income.
Effective income tax rates for 1997 and 1996 were 46.9% and 34.6%,
respectively. The higher effective tax rate for 1997 is attributable to the
combination of (1) foreign pretax income, which is taxed at a significantly
lower rate than U.S. income, and (2) a pretax loss for U.S. operations, on which
the Company recorded a tax benefit at the applicable U.S. rates. The Company's
effective income tax rate is dependent both on the total amount of pretax income
generated and the relative distribution of such total income between domestic
and foreign operations. Consequently, the Company's effective tax rate may vary
in future periods.
MERIDIAN
In March 1997, the Company committed to a plan to cease manufacturing
operations and close its Meridian Lamps, Inc. ("Meridian") facility by September
30, 1997. The pretax loss for Meridian was $3.5 million for 1997 and $2.4
million for 1996. Net sales were $2.8 million for both years.
Cost of sales in 1997 was $4.7 million and exceeded sales by $1.9
million. Gross profit during 1997 was adversely affected by a provision for
discontinued inventory amounting to $870,000 as a result of management's
decision to cease operations at Meridian and significant underutilization of
plant capacity due to insufficient sales volume resulting in negative
manufacturing variances.
Cost of sales exceeded sales by $1.2 million in 1996 mainly due to
negative unplanned manufacturing variances arising principally from
underutilization of plant capacity, a provision for inventory, research and
development costs and additional storage expenses.
In 1997, in conjunction with the decision to cease Meridian's
operations, the Company recorded a $930,000 charge to write down the plant and
related equipment to fair market value (less disposition costs) and to provide
for severance payments to Meridian's employees.
Other expenses for Meridian in 1997 and 1996 were $703,000 and
$1,184,000, respectively, consisting mostly of administrative payroll and
benefits, marketing and merchandising expenses, interest expense and the
amortization of start up costs in 1996.
As of June 30, 1997, the Company had ceased operations at Meridian and
subleased the facility.
Page 17
<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 sales activities. Lease obligations, mortgage notes, convertible
subordinated notes, bonds and capital stock are additional sources for the
longer-term liquidity and financing needs of the Company. Management believes
the Company's available sources of cash will enable it to fulfill its known
liquidity requirements for the foreseeable future.
1998 CASH FLOWS
The Company's operating, investing and financing activities resulted in
a net decrease in cash and cash equivalents of $57,000 from September 30, 1997
to September 30, 1998.
The net cash of $15.9 million provided by operating activities was used
primarily to pay for capital expenditures aggregating $1.9 million, to pay down
credit lines and to make sinking fund redemption payments on outstanding bonds.
Such capital expenditures included $607,000 in costs incurred by Go-Gro for the
purchase of machinery, molds and equipment and building improvements.
Management estimates that capital expenditures in fiscal 1999 will
approximate $3 million, representing computer software and hardware, display
fixtures and other miscellaneous capital additions. These capital expenditures
will be financed by leasing facilities with financial institutions and cash
generated from operations.
CREDIT AND LEASING FACILITIES, BONDS, MORTGAGE AND CONVERTIBLE SUBORDINATED
NOTES
The Company has a $35 million credit facility with a group of
commercial banks. This facility provides credit in the form of a $1.9 million
non-revolving loan and $33.1 million in revolving loans, acceptances, and trade
and stand-by letters of credit, matures September 30, 2000 and provides for
quarterly principal payments of $950,000 on the non-revolving loan. The
non-revolving loan bears interest, payable monthly, at prime plus 1% and other
borrowings under the facility bear interest, payable monthly, at the Company's
preference of either the prime rate or the LIBOR rate plus a variable spread
based upon earnings, debt and interest expense levels defined under the credit
agreement (LIBOR plus 2.5% at September 30, 1998, LIBOR + 1.8% effective October
1, 1998). The effective rates for the non-revolving loan and the other
borrowings were 9.25% and 8.12%, respectively, at September 30, 1998.
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 September 30,
1998, the Company had used $13.6 million under this credit facility (loans
amounted to $12.4 million of which $1.9 million was included in current notes
payable-credit lines) and $9.5 million was available for additional borrowings
under the borrowing base calculation.
The Company's Canadian and Hong Kong subsidiaries have credit
facilities with foreign banks of 4 million Canadian dollars (approximately U.S.
$2.6 million) and 35 million Hong Kong dollars (approximately U.S. $4.5
million), respectively. Borrowings under the Canadian facility are secured by
substantially all of the assets of the Canadian subsidiary and are limited under
a borrowing base defined as the aggregate of certain percentages of accounts
receivable and inventory. Canadian dollar advances bear interest at the Canadian
prime rate plus .5% (7.75% at September 30, 1998) and all U.S. dollar advances
bear interest at the U.S. base rate of the bank (9% at September 30, 1998). At
September 30, 1998, $2.1 million in net assets of the Company's Canadian
subsidiary were restricted under the credit facility and could not be
transferred to the parent Company. At September 30, 1998, total Canadian and
U.S. dollar borrowings amounted to U.S. $1.5 million (included in current notes
payable-credit lines) and U.S. $922,000 was available for additional borrowings
under the borrowing base calculation. The Hong Kong facility provides credit in
the form of acceptances, trade and stand-by letters of credit, overdraft
protection and negotiation of discrepant documents presented under export
letters of credit issued by banks. Advances bear interest at the Hong Kong prime
rate plus .25% (10.25% at September 30, 1998). Each of these credit facilities
are payable upon demand and are subject to annual reviews by the banks. At
September 30, 1998, $16.2 million in net assets of Go-Gro were restricted under
the agreement and could not be transferred to the parent Company. At September
30, 1998, there were no borrowings under the Hong Kong facility and U.S. $2.1
million was available for borrowings. With respect to the Canadian facility, the
agreement prohibits the payment of dividends and the Company is required to
comply with various covenants, which effectively restrict the amount
Page 18
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
CREDIT AND LEASING FACILITIES, BONDS, MORTGAGE AND CONVERTIBLE SUBORDINATED
NOTES (CONTINUED)
of funds which may be transferred from the Canadian subsidiary to the Company.
The Hong Kong facility requires Go-Gro to maintain a minimum net worth,
prohibits the payment of dividends by Go-Gro without the prior consent of the
lender, and limits the amount of advances or loans from Go-Gro to the Company at
any time to 50% of Go-Gro's pre-tax profits for the previous 12 months.
The Company has outstanding $7.6 million of 8% convertible subordinated
notes due March 15, 2002. The notes are convertible into common shares of the
Company's stock at a conversion price of $6.57 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 limits the purchase or retirement
of any shares of capital stock or other capital distributions.
The Company arranged for the issuance in 1995 of $10.5 million in State
of Mississippi Variable Rate Industrial Revenue Development Bonds to finance
(along with internally generated cash flow and the Company's $1 million leasing
facility) its warehouse located near Tupelo, Mississippi. The bonds have a
stated maturity of May 1, 2010 and require mandatory sinking fund redemption
payments, payable monthly, of $900,000 per year from 1996 to 2002, $600,000 per
year in 2003 and 2004, and $500,000 per year from 2005 to 2010. The bonds bear
interest at a variable rate (5.6% at September 30, 1998) that is adjustable
weekly to the rate the remarketing agent for the bonds deems to be the market
rate for such bonds. The bonds are secured by a lien on the land, building, and
all other property financed by the bonds. Additional security is provided by an
$8 million direct pay letter of credit which is not part of the Company's credit
line. The unpaid balance of these bonds was $7.8 million at September 30, 1998.
The Company financed the purchase and improvements of its Meridian
manufacturing facility through the issuance of a series of State of Mississippi
General Obligation Bonds (Mississippi Small Enterprise Development Finance Act
Issue, 1994 Series GG) with an aggregate available principal balance of
$1,605,000, a weighted average coupon rate of 6.23% and a contractual maturity
of November 1, 2009. The bonds are secured by a first mortgage on land, building
and improvements and a $1,713,000 standby letter of credit which is not part of
the Company's credit line. Interest on the bonds is payable semiannually and
principal payments are due annually. In June 1997, the Company ceased
manufacturing operations at Meridian and leased the facility to a
non-manufacturing entity and in August 1997 made a $1.5 million payment to
escrow on the bonds. The Company plans to redeem the bonds at their earliest
redemption date, approximately November 1, 1999.
The Company has a $1 million facility with a U.S. financial institution
to finance the purchase of equipment in the United States, of which $409,000 was
available at September 30, 1998. In addition, the Company has a leasing facility
for $9 million Hong Kong dollars (approximately U.S. $1.2 million) with a Hong
Kong financial institution to finance the purchase of equipment for its China
facilities of which $564,000 was available at September 30, 1998.
The Company financed its corporate headquarters in Miami, Florida with
a loan payable monthly through 2004, based on a 15 year amortization schedule,
with a balloon payment in 2004. The loan bears interest at 8% and is secured by
a mortgage on the land and building. The unpaid balance of this loan was $1
million at September 30, 1998.
YEAR 2000
The Year 2000 Issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Any of the
Company's computer programs that have time-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result in
a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities.
Page 19
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
YEAR 2000 (CONTINUED)
The Company has developed and is currently executing a plan to make its
computer systems Year 2000 ready. The plan consists of five phases: (1) an
inventory of all systems and applications, including non-information technology
systems; (2) an assessment of the Year 2000 readiness of these existing systems
and applications; (3) remediation of Year 2000 problems identified in the
assessment phase; (4) testing of all systems and applications to verify the
success of the remediation phase and, if necessary (5) the implementation of
contingency plans for all significant systems and applications.
Phases 1 and 2 of the Company's plan were completed as of September 1,
1998. The Company is presently engaged in phases 3 and 4 and expects to complete
these phases by July 1, 1999.
The Company has determined that its non-information technology systems
are not significantly affected by the Year 2000 Issue. With respect to
information technology systems, in 1997 the Company, during the normal course of
upgrading its systems to address its business needs and add functionality and
efficiency to its business processes, began implementation of a new enterprise
software to replace the business applications supporting sales, distribution,
inventory management, finance and accounting for the Company's North American
businesses. The majority of the remainder of the Company's North American
systems will be made Year 2000 ready through purchased upgrades of commercial
third-party software packages. Go-Gro's systems and applications will be made
Year 2000 ready through a combination of internal reprogramming/modification and
purchased upgrades of commercial third-party software packages. The internal
reprogramming/modifications of Go-Gro's systems and applications are presently
undergoing testing by an independent third party.
The Company has initiated communications with the customers, suppliers
and other companies important to its business to attempt to determine the extent
to which the Company is vulnerable to such parties' failure to resolve their own
Year 2000 issues.
The Company is currently and will continue utilizing both internal and
external resources to implement its Year 2000 plan. The total incremental cost
to the Company for the Year 2000 project (excluding internal resources, the
costs associated with the new enterprise system and scheduled hardware
replacements which would have been incurred regardless of the Year 2000 Issue),
all of which will be expensed as incurred, is approximately $150,000, none of
which has been incurred as of September 30, 1998. The Company plans to fund
these costs with cash flows from operations. The costs of the Year 2000 project
and the timetable in which the Company expects to finish its Year 2000 project
are based on management's best estimates and are dependent on a number of
factors, including the continued availability of personnel and external
resources.
The Company expects to be Year 2000 compliant by October 1, 1999 and
has established contingency plans in the event remediation and testing efforts
indicate any of the Company's planned systems and applications will not be Year
2000 ready. The Company's new enterprise software has been represented as Year
2000 ready by its manufacturer but should such software prove to have Year 2000
problems, the existing legacy systems will be made Year 2000 compliant through
the upgrade of the underlying database product and a limited amount of
additional programming. Contingency plans for the Company's other systems and
applications contemplate additional purchases of third-party software packages
and expanded use of external resources in remediation efforts.
Year 2000 compliance is critical to the Company due to the importance
of its computer systems and applications to its business. The Company may also
be vulnerable to the failure of significant third parties with which the Company
does business to resolve their own Year 2000 issues. The impact on the Company
of failure by either the Company or the significant third parties with which it
does business to achieve Year 2000 compliance is not reasonably estimable,
however, the Year 2000 Issue could have a material impact on the operations of
the Company.
Page 20
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
OTHER
Shenzhen Jiadianbao Electrical Products Co., Ltd. ("SJE"), a
cooperative joint venture subsidiary of Go-Gro, and the Bureau of National Land
Planning Bao-An Branch of Shenzhen City entered into a Land Use Agreement
covering approximately 467,300 square feet in Bao-An County, Shenzhen City,
People's Republic of China on April 11, 1995. The agreement provides SJE with
non-transferable rights to use this land until January 18, 2042. Under the terms
of the SJE joint venture agreement, ownership of the land and buildings of SJE
is divided 70% to Go-Gro and 30% to the other joint venture partner. Land costs,
including the land use rights, approximated $2.6 million of which Go-Gro has
paid its 70% proportionate share of $1.8 million. Under the terms of this
agreement, as amended, SJE is obligated to construct approximately 500,000
square feet of factory buildings and 211,000 square feet of dormitories and
offices, of which 40 percent was required to be and was completed by April 1,
1997. The remainder of the construction is required to be completed by December
31, 1999. The Company plans to file an application to extend the completion
deadline of December 1999. The total cost for this project is estimated at $15.5
million (of which $9.9 million had been expended as of September 30, 1998) and
includes approximately $1 million for a Municipal Coordination Facilities Fee
(MCFF).
The MCFF is based upon the square footage to be constructed. The
agreement calls for the MCFF to be paid in installments beginning in January
1997 of which $163,659 had been paid as of September 30, 1998. A 162,000 square
foot factory, 77,000 square foot warehouse and 60,000 square foot dormitory
became fully operational in June 1997.
On April 26, 1996, the Company entered into a license agreement with
Westinghouse Electric Corporation to market and distribute a full range of
lighting fixtures, lamps and other lighting products under the Westinghouse
brand name in exchange for royalty payments. The agreement terminates on
September 30, 2001. Catalina has an option to extend the agreement for an
additional ten years. The royalty payments are due quarterly and are based on a
percent of the value of the Company's net shipments of Westinghouse branded
products, subject to annual minimum payments due. Commencing September 30, 1999
either party has the right to terminate the agreement during fiscal years 1999
to 2001 if the Company does not meet the minimum net shipments of $25 million
for fiscal 1999, $40 million for fiscal 2000, and $60 million for fiscal 2001.
Net sales of Westinghouse branded products amounted to $10.9 million and $9
million for 1998 and 1997, respectively. The Company's contractual rights to use
the Westinghouse brand name have been challenged by a third party. See also Item
1, "Trademarks and Patents" and Item 3, "Legal Proceedings."
As a result of recent Internal Revenue Service rulings and proposed and
temporary regulations, the Company is in the process of restructuring its
international operations in order to retain favorable U.S. tax treatment of
foreign source income. The Company believes it should be successful in this
restructuring. However, in the event the Company is unsuccessful in this effort,
the Company will likely experience an increase in its consolidated effective
income tax rate
On June 3, 1998, 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, 1998.
The MFN trade status has been renamed "Normal Trade Relations" because it
applies to all but a handful of U.S. trading partners. In the context of United
States tariff legislation, such treatment means that products are subject to
favorable duty rates upon entry into the United States. On July 22, 1998 the
House of Representatives supported the President's decision and rejected a bill
to impose trade sanctions against China due to alleged human rights abuses,
nuclear proliferation policies and a growing U.S. trade deficit with China.
Members of Congress and the "human rights community" will continue to monitor
the human rights issues in China and adverse developments in human rights and
other trade issues in China could affect U.S. - China relations. As a result of
various political and trade disagreements between the U.S. Government and China,
it is possible restrictions could be placed on trade with China in the future
which could adversely impact the Company's operations and financial position.
During fiscal 1998 the Company received a number of claims relating to
halogen torchieres sold by the Company to various retailers. Management does not
currently believe these claims will result in a material uninsured liability to
the Company. However, as a result of these claims the Company experienced an
increase in its liability insurance premiums effective for the 1999 calendar
year and will now be self-insuring up to a maximum of $10,000 for each incident
occurring in calendar 1999. It is too early to assess the impact of these
changes on the Company's financial position or annual results of operations
during fiscal 1999. No assurance can be given that the number of claims will not
exceed historical experience or that claims will not exceed available insurance
coverage or that the Company will be able to maintain the same level of
insurance. See "Legal Proceedings."
The Company's board of directors has authorized the repurchase of up to
$2 million of common shares of the Company from time to time in the open market
or in negotiated purchases.
Page 21
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
FOREIGN EXCHANGE FLUCTUATIONS
The Company expects to continue to obtain most of its products from
China. Large fluctuations in currency exchange rates could have a material
effect on the Company's cost of products, thereby decreasing the Company's
ability to compete. All purchases of finished goods are made in U.S.
dollar-denominated letters of credit which limit the Company's exposure to
foreign currency fluctuations with respect to fluctuations that would impact
existing outstanding purchase commitments. However, the Company is subject to
foreign currency fluctuations to the extent such fluctuations affect the cost of
products purchased (or manufactured) or the Company's ability to sell into
domestic or foreign markets. The Company's Canadian and Mexican subsidiaries are
subject to fluctuations between the U.S. dollar currency in which they purchase
goods and the Canadian dollar and Mexican peso currencies in which they sell
goods.
IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, SFAS No. 130, "Reporting Comprehensive Income," was
issued. SFAS No. 130 establishes standards for the reporting and display of
comprehensive income and its components (revenues, expenses, gains, and losses)
in a full set of general-purpose financial statements. SFAS No. 130 requires
that all items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. SFAS No. 130
requires that a company (a) classify items of other comprehensive income by
their nature in a financial statement and (b) display the accumulated balance of
other comprehensive income separately from retained earnings and additional
paid-in capital in the equity section of the balance sheet. SFAS No. 130 is
effective for fiscal years beginning after December 15, 1997. Reclassification
of financial statements for earlier periods provided for comparative purposes is
required. The Company has not determined the effect, if any, that SFAS No. 130
will have on its consolidated financial statements.
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," was also issued in June 1997. SFAS No. 131 establishes standards
for the way that public companies report selected information about operating
segments in financial statements and requires that those companies report
selected information about segments in interim and annual financial reports
issued to shareholders. It also establishes standards for related disclosures
about products and services, geographic areas, and major customers. SFAS No.
131, which supersedes SFAS No. 14, "Financial Reporting for Segments of a
Business Enterprise", but retains the requirement to report information about
major customers, requires that a public company report financial and descriptive
information about its reportable operating segments. Operating segments are
components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing performance. Generally,
financial information is required to be reported on the basis that it is used
internally for evaluating segment performance and deciding how to allocate
resources to segments. SFAS No. 131 requires that a public company report a
measure of segment profit or loss, certain specific revenue and expense items,
and segment assets. However, SFAS No. 131 does not require the reporting of
information that is not prepared for internal use if reporting it would be
impracticable. SFAS No. 131 also requires that a public company report
descriptive information about the way that the operating segments were
determined, the products and services provided by the operating segments,
differences between the measurements used in reporting segment information and
those used in the enterprise's general-purpose financial statements, and changes
in the measurement, of segment amounts from period to period. SFAS No. 131 is
effective for financial statements for periods beginning after December 15,
1997. The Company has not determined the effects, if any, that SFAS No. 131 will
have on the disclosures in its consolidated financial statements.
Page 22
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
IMPACT OF INFLATION AND ECONOMIC CONDITIONS
In the past Go-Gro experienced price increases in the costs of raw
materials, which reduced Go-Gro's profitability due to an inability to
immediately pass on such price increases to its customers. The Company believes
that increased prices could have an initial adverse impact on the Company's net
sales and income from continuing operations but that, over time, increased
prices can be passed on to its customers.
During late 1997 various countries in Southeast Asia (including
Thailand, South Korea, Malaysia, the Philippines and Indonesia) became involved
in an emerging crisis impacting their economies and characterized by currency
devaluations, rising interest rates, deteriorating economic growth and declining
capital markets. The Company does not conduct business with, or have a
significant investment in, any of these countries. However, this crisis
continued in 1998 and had serious adverse repercussions on the financial
stability of all countries in the region, including Hong Kong and China. In
1998, the economies of Russia and Latin America also experienced serious
difficulties and Japan's economy continued its decline. The Company is presently
unable to determine what impact, this global economic crisis will have on its
business in the future.
Page 23
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENTS SCHEDULE
PAGE
----
Independent Auditors' Report................................................ 25
Consolidated Balance Sheets - September 30, 1998 and 1997................... 26
Consolidated Statements of Operations - Years Ended
September 30, 1998, 1997 and 1996..................................... 27
Consolidated Statements of Stockholders' Equity - Years Ended
September 30, 1998, 1997 and 1996..................................... 28
Consolidated Statements of Cash Flows - Years Ended
September 30, 1998, 1997 and 1996................................. 29-30
Notes to Consolidated Financial Statements............................... 31-55
Schedule II - Valuation and Qualifying Accounts - Years ended
September 30, 1998, 1997 and 1996..................................... 56
(All other schedules have been omitted as the related information is not
required or applicable)
Page 24
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Catalina Lighting, Inc.
Miami, Florida
We have audited the accompanying consolidated balance sheets of Catalina
Lighting, Inc. and its subsidiaries as of September 30, 1998 and 1997, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended September 30, 1998. Our
audits also included the financial statement schedule listed in Item 14 a(2).
These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on the financial statements and financial statement schedule based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Catalina Lighting, Inc. and its
subsidiaries as of September 30, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
September 30, 1998 in conformity with generally accepted accounting principles.
Also, in our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ Deloitte & Touche LLP
Certified Public Accountants
Miami, Florida
December 18, 1998
Page 25
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------------------
1998 1997
--------------- ---------------
ASSETS (IN THOUSANDS)
<S> <C> <C>
Current assets
Cash and cash equivalents $ 1,790 $ 1,847
Accounts receivable, net of allowances
of $8,408,000 and $8,314,000, respectively 18,395 24,169
Inventories 28,257 34,612
Income taxes receivable - 2,380
Deferred tax asset 3,679 2,952
Other current assets 3,218 2,454
--------------- ---------------
Total current assets 55,339 68,414
Property and equipment, net 27,922 29,969
Restricted cash equivalents and short-term investments 1,807 1,883
Goodwill, net 11,017 11,473
Other assets 2,875 4,842
--------------- ---------------
$ 98,960 $ 116,581
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Notes payable - credit lines $ 3,428 $ 5,574
Accounts and letters of credit payable 12,423 18,099
Current maturities of bonds payable-real estate related 975 970
Current maturities of other long-term debt 485 476
Income taxes payable 438 -
Accrued employee compensation and benefits 1,651 1,894
Accrued litigation judgment under appeal 4,909 -
Other current liabilities 3,738 3,692
--------------- ---------------
Total current liabilities 28,047 30,705
Notes payable - credit lines 10,500 21,000
Convertible subordinated notes 7,600 7,600
Bonds payable - real estate related 8,215 9,195
Other long-term debt 1,909 1,942
Accrued litigation judgment under appeal - 4,486
Other liabilities 365 596
--------------- ---------------
Total liabilities 56,636 75,524
--------------- ---------------
Commitments and contingencies
Stockholders' equity
Preferred stock, $.01 par value
authorized 1,000,000 shares; none issued - -
Common stock, $.01 par value
authorized 20,000,000 shares; issued and outstanding
7,174,669 shares and 7,094,569 shares, respectively 72 71
Additional paid-in capital 26,475 26,311
Retained earnings 15,777 14,675
--------------- ---------------
Total stockholders' equity 42,324 41,057
--------------- ---------------
$ 98,960 $ 116,581
=============== ===============
</TABLE>
See accompanying notes to consolidated financial statements.
Page 26
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
------------------------------------------------------
1998 1997 1996
---------------- ----------------- ---------------
<S> <C> <C> <C>
Net sales $ 161,860 $ 196,955 $ 184,630
Cost of sales 130,763 164,493 153,698
---------------- ----------------- ---------------
Gross profit 31,097 32,462 30,932
Selling, general and administrative expenses 26,608 25,946 25,318
Plant closing costs - 930 -
Litigation charges and related professional fees (95) 7,453 293
---------------- ----------------- ---------------
Operating income (loss) 4,584 (1,867) 5,321
---------------- ----------------- ---------------
Other income (expenses)
Interest expense (3,801) (4,088) (3,254)
Other income 684 128 385
---------------- ----------------- ---------------
Total other expenses (3,117) (3,960) (2,869)
---------------- ----------------- ---------------
Income (loss) before income taxes 1,467 (5,827) 2,452
Income tax (provision) benefit (365) 2,734 (849)
---------------- ----------------- ---------------
Net income (loss) $ 1,102 $ (3,093) $ 1,603
================ ================= ===============
Earnings ( loss) per share
Basic
Earnings (loss) per share $ 0.15 $ (0.44) $ 0.23
Weighted average number of shares 7,128 7,071 7,017
Diluted
Earnings (loss) per share $ 0.15 $ (0.44) $ 0.21
Weighted average number of shares 7,477 7,071 7,640
</TABLE>
See accompanying notes to consolidated financial statements.
Page 27
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
------------------------- PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
------------- ---------- ------------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Balance at September 30, 1995 6,994,253 $ 70 $ 25,894 $ 16,165 $ 42,129
Exercise of stock options 64,334 1 226 - 227
Common stock issued under employment agreement 5,000 - 15 - 15
Net income - - - 1,603 1,603
------------- ---------- ------------- ------------ ---------------
Balance at September 30, 1996 7,063,587 71 26,135 17,768 43,974
Exercise of stock options 17,166 - 80 - 80
Common stock issued under employment agreement 5,000 - 9 - 9
Common stock issued in settlement
of litigation 2,566 - 10 - 10
Common stock issued as compensation 6,250 - 19 - 19
Stock options issued under sales agreement - - 58 - 58
Net loss - - - (3,093) (3,093)
------------- ---------- ------------- ------------ ---------------
Balance at September 30, 1997 7,094,569 71 26,311 14,675 41,057
Exercise of stock options 80,100 1 222 - 223
Stock options issued under sales agreement - - 68 - 68
Cancellation of stock options issued under sales agreement - - (126) - (126)
Net income - - - 1,102 1,102
============= ========== ============= ============ ===============
Balance at September 30, 1998 7,174,669 $ 72 $ 26,475 $ 15,777 $ 42,324
============= ========== ============= ============ ===============
</TABLE>
See accompanying notes to consolidated financial statements.
Page 28
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-------------------------------------------
1998 1997 1996
------------ ------------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 1,102 $ (3,093) $ 1,603
------------ ------------- -------------
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Provision for impairment of long-lived assets - 735 -
Provision for litigation judgement under appeal 423 4,487 -
Depreciation and amortization 5,516 5,184 6,266
Deferred income taxes 705 (1,452) (1,335)
(Gain) loss on disposition of property and equipment 38 35 53
Other (59) 92 -
Change in assets and liabilities, net of effects of
acquisitions:
Decrease (increase) in accounts receivable 5,773 5,475 2,103
Decrease (increase) in inventories 6,355 5,036 658
Decrease (increase) in income taxes receivable 2,380 (2,380) -
Decrease (increase) in other current assets (769) (393) 452
Decrease (increase) in other assets (144) (473) (544)
Increase (decrease) in income taxes payable 438 (21) (425)
Increase (decrease) in accounts and letters of credit payable, accrued
employee compensation and benefits and other liabilities (5,873) (7,035) 3,642
------------ ------------- -------------
Total adjustments 14,783 9,290 10,870
------------ ------------- -------------
Net cash provided by operating activities 15,885 6,197 12,473
------------ ------------- -------------
Cash flows from investing activities:
Capital expenditures, net (1,928) (7,955) (9,479)
Payments for Go-Gro acquisition, net of cash acquired - (626) (144)
Decrease (increase) in restricted cash equivalents and
short-term investments 954 878 6,839
------------ ------------- -------------
Net cash provided by (used in) investing activities (974) (7,703) (2,784)
------------ ------------- -------------
</TABLE>
(Continued on page 30)
Page 29
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from financing activities:
Proceeds from notes payable - credit lines 32,900 35,450 43,400
Payments on notes payable - credit lines (45,300) (29,594) (50,556)
Net proceeds from (payments on) notes payable-credit lines due on demand (246) (289) 459
Sinking fund redemption payments on bonds (878) (879) (878)
Payment into escrow on bonds - (1,504) -
Payments on other long-term debt (692) (707) (581)
Proceeds from the issuance of bonds payable - - 99
Payments on bonds payable (975) (970) (900)
Proceeds from issuance of common stock and
related income tax benefit 223 80 227
------------ ------------ ------------
Net cash provided by (used in) financing activities (14,968) 1,587 (8,730)
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents (57) 81 959
Cash and cash equivalents at beginning of year 1,847 1,766 807
============ ============ ============
Cash and cash equivalents at end of year $ 1,790 $ 1,847 $ 1,766
============ ============ ============
</TABLE>
SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
--------------------------------------------
1998 1997 1996
------------- ------------- -----------
<S> <C> <C> <C>
Cash paid (refunded) for:
Interest $ 3,435 $ 3,833 $ 3,457
============= ============= ===========
Income taxes $ (3,210) $ 1,168 $ 2,671
============= ============= ===========
</TABLE>
During the years ended September 30, 1998, 1997 and 1996 capital lease
obligations aggregating approximately $438,000, $781,000 and $573,000,
respectively, were incurred when the Company entered into leases for new
office, computer, machinery and warehouse equipment.
In 1997 and 1996, the Company issued 5,000 common shares to an employee
as salary pursuant to an employment agreement.
See accompanying notes to consolidated financial statements.
Page 30
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND NATURE OF OPERATIONS
(a) The Business
Catalina Lighting, Inc. ("the Company") is a United States-based wholesaler,
distributor and manufacturer of lamps, lighting fixtures and other lighting
related products. The Company sells principally in the U.S. to a variety of
retailers including home centers, national retail chains, office superstore
chains, warehouse clubs, discount department stores and catalog showrooms. The
Company also sells its products in Europe, Canada and other foreign markets.
(b) Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. The consolidated statements include the results
of the wholly-owned subsidiaries Catalina Industries, Inc., Go-Gro Industries
Limited ("Go-Gro"), Meridian Lamps, Inc. ("Meridian"), a subsidiary formed by
the Company that commenced operations in fiscal 1995 and ceased operations in
June 1997, Catalina Canada, Catalina Mexico and other wholly-owned
subsidiaries. All significant intercompany accounts and transactions have been
eliminated in consolidation.
(c) Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
(d) Geographic Risks
Substantially all of the Company's products are obtained from suppliers located
in China. Any inability by the Company to continue to obtain its products from
China could significantly disrupt the Company's business. In addition, in the
Company's consolidated balance sheet at September 30, 1998 are net assets of
$17.3 million of Company subsidiaries located in China and Hong Kong, a
sovereign territory of China. The Company maintains approximately $14 million
in noncancelable political risk insurance.
(e) Cash and Cash Equivalents
Cash on hand and in banks, money market funds and other short-term securities
with maturities of three months or less when purchased are considered cash and
cash equivalents.
(f) Accounts Receivable
Pursuant to an agreement between the Company and a bank, the bank assumes the
credit risk of certain of the Company's U.S. and Canadian receivables. The
Company pays a fee of .50 percent of billings to customers covered by the
arrangement. In addition, the Company insures certain of its foreign
receivables with an insurance company. Gross accounts receivable secured under
such agreements at September 30, 1998 and 1997 amounted to $11.3 million and
$15.3 million, respectively. In addition, certain of the Company's sales are
made to customers who pay pursuant to their own international, irrevocable,
transferable letters of credit. Gross accounts receivable secured by such
letters of credit at September 30, 1998 and 1997 amounted to $12.5 million and
$8.7 million, respectively.
The Company provides allowances against accounts receivable for doubtful
accounts, sales returns and sales incentives.
(g) Inventories
Inventories are stated at the lower of cost or market. Cost is determined using
the first-in, first-out (FIFO) method.
Page 31
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996 (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND NATURE OF OPERATIONS
(CONTINUED)
(h) Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation and
amortization. Interest expense incurred for the construction of facilities is
capitalized until such facilities are ready for use. Depreciation is computed
using the straight-line method over the estimated useful lives of the related
assets. Amortization of leasehold improvements is computed using the
straight-line method over the shorter of the lease term or estimated useful
lives of the related assets.
(i) Restricted Cash Equivalents and Short-Term Investments
The Company's restricted cash equivalents and short term investments at
September 30, 1998 and 1997 represented sinking fund payments on bonds issued
to finance the Company's U.S. warehouse and investment income earned on such
payments and a $1.5 million escrow payment made on the bonds which financed the
Meridian facility.
(j) Goodwill
Goodwill represents the excess of cost over fair value of net assets acquired
and is being amortized on a straight-line basis over periods from twenty to
forty years. The Company periodically evaluates the recoverability of recorded
costs for goodwill based upon estimations of future undiscounted operating
income from the related acquired companies. Should the Company determine it
probable that future estimated undiscounted operating income from any of its
acquired companies will be less than the carrying amount of the associated
goodwill, an impairment of goodwill would be recognized, and goodwill would be
reduced to the amount estimated to be recoverable. Accumulated amortization of
goodwill amounted to $2.4 million and $2 million at September 30, 1998 and
1997, respectively.
(k) Capital Leases
Leases that transfer substantially all of the benefits and risks of ownership
to the Company are accounted for as the acquisition of assets and assumption of
obligations under the capital lease standards issued by the Financial
Accounting Standards Board. Accordingly, capitalized leased assets are recorded
as property and equipment and the present values of the minimum lease payments
are recorded as capital lease obligations under other long-term debt.
Depreciation of such assets is computed using the shorter of the lease terms or
estimated useful lives of the assets and is included in depreciation expense.
(l) Income Taxes
The Company and its wholly-owned domestic subsidiaries file consolidated
federal and state tax returns in the United States. Separate foreign tax
returns are filed for the Company's Hong Kong, Canadian and Mexican
subsidiaries and China joint venture. The Company follows the asset and
liability method of accounting for income taxes prescribed by Statement of
Financial Accounting Standards No. 109 "Accounting for Income Taxes". Under the
asset and liability method, deferred income taxes are recognized for the tax
consequences of "temporary differences" by applying enacted statutory tax rates
applicable to future years to differences between the financial statement
carrying amounts and the tax basis of existing assets and liabilities. The
effect on deferred taxes of a change in tax rates is recognized in income in
the year that includes the enactment date.
(m) Earnings (Loss) Per Share
The Company adopted Statement of Financial Accounting Standards No. 128
"Earnings per Share" ("SFAS 128") during fiscal 1998. SFAS 128 requires the
presentation of "basic" earnings per share and "diluted" earnings per share on
the face of the statement of operations. Basic earnings per share is computed by
dividing net income or loss attributable to common shareholders by the weighted
average number of common shares outstanding during the year. Diluted earnings
per share reflects the potential dilution that could occur if securities or
other contracts to issue common stock were exercised or converted into common
stock or resulted in the issuance of common stock that then shared in the
earnings of the entity. Upon adoption, earnings per share data for prior years
are required to be restated. Earnings per share information presented in the
accompanying financial statements for years ended September 30, 1997 and 1996
have been restated to comply with SFAS No. 128.
Page 32
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996 (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND NATURE OF OPERATIONS
(CONTINUED)
(n) Foreign Currency Translation
The accounts of the Company's foreign subsidiaries are translated into U.S.
dollars in accordance with Statement of Financial Accounting Standards No. 52,
"Foreign Currency Translation". For subsidiaries where the functional currency
is the U.S. dollar, monetary balance sheet accounts are remeasured at the
current exchange rate and nonmonetary balance sheet accounts are remeasured at
historical exchange rates. For subsidiaries where the functional currency is
other than the U.S. dollar, all balance sheet accounts are remeasured at the
current exchange rate. Income and expense accounts are translated at the
average exchange rates in effect during the year. Adjustments resulting from
the translation of these entities are included in the statements of operations.
Gains and losses arising from foreign currency transactions are included in net
income.
(o) Stock-Based Compensation
The Company adopted Statement of Financial Accounting Standards No. 123.
"Accounting for Stock-Based Compensation" ("SFAS 123"), in fiscal 1997. As
permitted by SFAS 123, the Company continues to measure compensation costs in
accordance with Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," but provides pro forma disclosures of net income
(loss) and earnings (loss) per share as if the fair value method (as defined in
SFAS 123) had been applied beginning in fiscal 1996.
(p) Long-Lived Assets
Effective October 1, 1996, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of." This statement
requires companies to write down to estimated fair value long-lived assets that
are impaired. The Company reviews its long-lived assets for impairment whenever
events or changes in circumstances indicate that the carrying value of an asset
may not be recoverable. In performing the review for recoverability the Company
estimates the future cash flows expected to result from the use of the asset
and its eventual disposition. If the sum of the expected future cash flows is
less than the carrying amount of the assets, an impairment loss is recognized.
In 1997, in conjunction with the decision to cease Meridian operations, the
Company recorded a $735,000 charge to write down the plant and equipment to
fair market value (less disposition costs). The Company determined that no
other impairment loss needed to be recognized.
(q) Impact of Recently Issued Accounting Standards
In June 1997, SFAS No. 130, "Reporting Comprehensive Income," was issued. SFAS
No. 130 establishes standards for the reporting and display of comprehensive
income and its components (revenues, expenses, gains, and losses) in a full
set of general-purpose financial statements. SFAS No. 130 requires that all
items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that
is displayed with the same prominence as other financial statements. SFAS No.
130 requires that a company (a) classify items of other comprehensive income
by their nature in a financial statement and (b) display the accumulated
balance of other comprehensive income separately from retained earnings and
additional paid-in capital in the equity section of the balance sheet. SFAS
No. 130 is effective for fiscal years beginning after December 15, 1997.
Reclassification of financial statements for earlier periods provided for
comparative purposes is required. The Company has not determined the effects,
if any, that SFAS No. 130 will have on its consolidated financial statements.
In June 1997, SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information," was issued. SFAS No. 131 establishes standards for the
way that public companies report selected information about operating segments
in financial statements and requires that those companies report selected
information about segments in interim and annual financial reports issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas, and major customers. SFAS No. 131,
which supersedes SFAS No. 14, "Financial Reporting for Segments of a Business
Enterprise", but retains the requirement to report information about major
customers, requires that a public company report financial and descriptive
information about its reportable operating segments. Operating segments are
components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing performance. Generally,
financial information is required to be reported on the basis that it is used
internally for evaluating segment performance and deciding
Page 33
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996 (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND NATURE OF OPERATIONS
(CONTINUED)
(q) Impact of Recently Issued Accounting Standards (continued)
how to allocate resources to segments. SFAS No. 131 requires that a public
company report a measure of segment profit or loss, certain specific revenue and
expense items, and segment assets.
However, SFAS No. 131 does not require the reporting of information that is not
prepared for internal use if reporting it would be impracticable. SFAS No. 131
also requires that a public company report descriptive information about the way
that the operating segments were determined, the products and services provided
by the operating segments, differences between the measurements used in
reporting segment information and those used in the enterprise's general-purpose
financial statements, and changes in the measurement, of segment amounts from
period to period. SFAS No. 131 is effective for financial statements for periods
beginning after December 15, 1997. The Company has not determined the effects,
if any, that SFAS No. 131 will have on the disclosures in its consolidated
financial statements.
(r) Reclassifications
Certain amounts presented in the financial statements of prior years have been
reclassified to conform to the current year presentation.
2. ACQUISITION
On July 30,1994, the Company acquired all of the issued and outstanding capital
stock of two Hong Kong companies, Go-Gro Industries Limited ("Go-Gro") and Lamp
Depot Limited ("Lamp Depot"), for an aggregate consideration of $7.5 million and
750,000 shares of the Company's common stock. The stock of Go-Gro was purchased
by the Company from selling stockholders who represented at the closing that
they were, in fact, the actual stockholders of Go-Gro. Subsequent to the date of
the closing, the Company discovered that part of the Go-Gro stock acquired had
been conveyed to one of the selling stockholders prior to closing by a former
officer of a subsidiary of the Company, who ceased employment with such
subsidiary in 1993. The Company made a claim for indemnification and return of
$1,904,000 of the consideration from Go-Gro, such funds were returned to the
Company in November 1994 and the Company filed a lawsuit against the former
officer in May 1995. The purchase price and resulting goodwill recorded for the
Go-Gro acquisition were reduced accordingly for the return of these funds. The
Company settled all litigation relating to this matter in June 1997 by payment
of $600,000 which was recorded as an increase in the purchase price and goodwill
recorded for the Go-Gro acquisition.
3. INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------------------
1998 1997
---------------- --------------
(IN THOUSANDS)
<S> <C> <C>
Raw materials $ 3,777 $ 3,569
Work-in-progress 713 1,006
Finished goods 23,767 30,037
---------------- --------------
$ 28,257 $ 34,612
================ ==============
</TABLE>
The Company capitalizes certain costs in finished goods inventory associated
with acquiring, storing and preparing inventory for distribution. Such costs
aggregated approximately $8.2 million, $9.5 million and $9.9 million for the
years ended September 30, 1998, 1997 and 1996, respectively, of which $2.2
million and $2.6 million remained in inventory at September 30, 1998 and 1997,
respectively.
Inventory allowances amounted to $1.7 million and $2.4 million at September 30,
1998 and 1997, respectively.
Page 34
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996 (CONTINUED)
4. PROPERTY AND EQUIPMENT
Property and equipment and related depreciable lives were as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DEPRECIABLE
----------------------------------
1998 1997 LIVES
-------------- -------------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C>
Land $ 1,354 $ 1,354 -
Land use rights 1,912 1,912 47 years
Buildings and improvements 15,373 15,269 5 to 30 years
Leasehold improvements 1,551 1,522 lease terms
Furniture and office equipment 1,258 1,203 5 to 7 years
Computer software and equipment 4,480 3,720 2 to 5 years
Machinery, molds and equipment 12,836 12,612 3 to 7 years
Display fixtures 901 1,326 2 years
Other assets 374 441 4 to 7 years
Property held for sale 1,051 1,051 5 to 30 years
-------------- --------------
41,090 40,410
Less accumulated depreciation 13,168 10,441
============== ==============
Property and equipment, net $ 27,922 $ 29,969
============== ==============
</TABLE>
Property held for sale consists of the Meridian facility. In conjunction with
the decision to cease Meridian's operations, the Company recorded a $930,000
charge in 1997 to write down the plant and related equipment to fair market
value (less disposition costs) and to provide for severance payments to
Meridian's employees.
Depreciation expense for the years ended September 30, 1998, 1997 and 1996 was
approximately $4,376,000, $4,061,000 and $4,045,000, respectively.
Interest capitalized during the construction of the manufacturing facilities in
China and Mississippi was $463,000 during the year ended September 30, 1996.
5. NOTES PAYABLE - CREDIT LINES
The Company has a $35 million credit facility with a group of commercial banks.
This facility provides credit in the form of a $1.9 million non-revolving loan
and $33.1 million in revolving loans, acceptances, and trade and stand-by
letters of credit, matures September 30, 2000 and provides for quarterly
principal payments of $950,000 on the non-revolving loan. As the non-revolving
loan is reduced, the remaining facility is increased by a similar amount. The
non-revolving loan bears interest, payable monthly, at the prime rate plus 1%
and other borrowings under the facility bear interest, payable monthly, at the
Company's preference of either the prime rate or the LIBOR rate plus a variable
spread based upon earnings, debt and interest expense levels defined under the
credit agreement (LIBOR plus 2.5% at September 30, 1998 and LIBOR plus 1.8%
effective October 1, 1998). The effective rates for the non-revolving loan and
the other borrowings were 9.25% and 8.12%, respectively, at September 30, 1998.
Obligations under the facility are secured by substantially all of the Company's
U.S. assets, including 100% of the common stock of the Company's U.S.
subsidiaries and 49% of the stock of the Company's Canadian subsidiary. The
agreement contains covenants requiring that the Company maintain a minimum level
of equity and meet certain debt to equity and interest coverage ratios and
borrowings are limited by a borrowing base defined as the aggregate of certain
percentages of the Company's U.S. receivables and inventory. The agreement
prohibits the payment of
Page 35
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996 (CONTINUED)
5. NOTES PAYABLE - CREDIT LINES (CONTINUED)
cash dividends or other distribution on any shares of the Company's common
stock, other than dividends payable solely in shares of common stock, unless
approval is obtained from the lenders. The Company pays a quarterly commitment
fee of .25% based on the unused portion of the facility. At September 30, 1998,
the Company had used $13.6 million under this credit facility (loans amounted to
$12.4 million of which $1.9 million was included in current notes payable-credit
lines) and $9.5 million was available for additional borrowings under the
borrowing base calculation.
The Company has a credit facility with a Canadian bank which provides four
million Canadian dollars or U.S. equivalent (approximately U.S. $2.6 million) in
revolving demand credit. Canadian dollar advances bear interest at the Canadian
prime rate plus .5% (7.75% at September 30, 1998) and U.S. dollar advances bear
interest at the U.S. base rate of the bank (9% at September 30, 1998). The
credit facility is secured by substantially all of the assets of the Company's
Canadian subsidiary. The agreement contains certain minimum covenants to be met
by the Canadian subsidiary, prohibits the payment of dividends, and limits
advances by the bank to a borrowing base calculated based upon receivables and
inventory. At September 30, 1998, $2.1 million in net assets of the Company's
Canadian subsidiary were restricted under the credit facility and could not be
transferred to the parent Company. This facility is payable upon demand and is
subject to an annual review by the bank. The Company pays a monthly commitment
fee of .25% based on the unused portion of the facility. At September 30, 1998,
total Canadian and U.S. dollar borrowings amounted to U.S. $1.5 million
(included in current notes payable-credit lines) and U.S. $922,000 was available
for additional borrowings under the borrowing base calculation.
Go-Gro has a $35 million Hong Kong dollars (approximately U.S. $4.5 million)
credit facility with a Hong Kong bank. The facility provides credit in the form
of acceptances, trade and stand-by letters of credit, overdraft protection, and
negotiation of discrepant documents presented under export letters of credit
issued by banks. Advances bear interest at the Hong Kong prime rate plus .25%
(10.25% at September 30, 1998). The facility is secured by a guarantee issued by
the Company and requires Go-Gro to maintain a minimum level of equity. This
agreement prohibits the payment of dividends without the consent of the bank and
limits the amount of loans or advances from Go-Gro to the Company at any time to
50% of Go-Gro's pre-tax profits for the previous 12 months. At September 30,
1998, $16.2 million in net assets of Go-Gro were restricted under the agreement
and could not be transferred to the parent Company. This facility is repayable
upon demand and is subject to an annual review by the bank. At September 30,
1998, there were no borrowings under this facility and U.S. $2.1 million was
available for borrowings.
The Company's availability under its credit lines consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------------------
1998 1997
-------------- --------------
(IN THOUSANDS)
<S> <C> <C>
Total lines of credit $ 42,128 $ 72,419
Less:
Borrowings (13,928) (26,574)
Acceptances issued and pending issuance
(included in accounts payable) - (4,511)
Stand-by letters of credit (1,213) (2,913)
Open letters of credit and other (2,405) (2,453)
Amount unavailable under borrowing base (12,057) (28,540)
-------------- --------------
Lines of credit available $ 12,525 $ 7,428
============== ==============
</TABLE>
The weighted average interest rate on the current portion of notes payable -
credit lines was 9.1% and 8.0% at September 30, 1998 and 1997, respectively.
Page 36
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996 (CONTINUED)
6. BONDS PAYABLE - REAL ESTATE RELATED
The Company financed the purchase and improvements of its Meridian manufacturing
facility through the issuance of a series of State of Mississippi General
Obligation Bonds (Mississippi Small Enterprise Development Finance Act Issue,
1994 Series GG) with an aggregate available principal balance of $1,605,000, a
weighted average coupon rate of 6.23% and a contractual maturity of November 1,
2009. The bonds are secured by a first mortgage on land, building and
improvements and a $1,713,000 standby letter of credit, which is not part of the
Company's credit lines. Interest on the bonds is payable semiannually and
principal payments are due annually. In June 1997, the Company ceased
manufacturing operations at Meridian and leased the facility to a
non-manufacturing entity. As a result, the Company made a $1.5 million payment
to escrow on the bonds which was included in restricted cash equivalents and
short-term investments in the September 30, 1998 and 1997 balance sheets. The
Company plans to redeem the bonds at their earliest redemption date,
approximately November 1, 1999. The outstanding balance of these bonds was $1.4
million and $1.5 million, at September 30, 1998 and 1997, respectively.
The Company arranged for the issuance in 1995 of $10.5 million in State of
Mississippi Variable Rate Industrial Revenue Development Bonds to finance (along
with internally generated cash flow and the Company's $1 million leasing
facility) a warehouse located near Tupelo, Mississippi. The bonds have a stated
maturity of May 1, 2010 and require mandatory sinking fund redemption payments,
payable monthly, aggregating $900,000 per year, from 1996 to 2002, $600,000 per
year in 2003 and 2004, and $500,000 per year from 2005 to 2010. The bonds bear
interest at a variable rate (5.6% at September 30, 1998) that is adjustable
weekly to the rate the remarketing agent for the bonds deems to be the market
rate for such bonds. The bonds are secured by a lien on the land, building, and
all other property financed by the bonds. Additional security is provided by an
$8.0 million direct pay letter of credit which is not part of the Company's
credit line. The outstanding balance of these bonds was $7.8 million and $8.7
million, at September 30, 1998 and 1997, respectively.
The aggregate maturities and sinking fund requirements of bonds payable at
September 30, 1998, were as follows (in thousands):
<TABLE>
<S> <C>
1999 $ 975
2000 2,215
2001 900
2002 900
2003 600
Thereafter 3,600
==========
$ 9,190
==========
</TABLE>
Page 37
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996 (CONTINUED)
7. OTHER LONG-TERM DEBT
Other long-term debt consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------- ------------
1998 1997
-------------- ------------
(IN THOUSANDS)
<S> <C> <C>
Loan payable monthly through 2004 based on a 15 year amortization schedule
with a balloon payment in 2004, bearing interest at 8%, secured by a mortgage
on the land and building with a net book value of $1,381,000 at September 30,
1998. $ 1,015 $ 1,064
Borrowings under a leasing facility with a Hong Kong financial institution
to finance the purchase of equipment for the China facility; payable
monthly, bearing interest at the HIBOR rate plus 3% (14.75% at September
30, 1998) maturing at various dates through 2003 and secured by a guarantee
issued by the Company and warehouse equipment with a net book value of
$545,000 at September 30, 1998; $564,000 was available for future
borrowings at September 30, 1998. 597 602
Borrowings under a leasing facility with a U.S. financial institution to
finance the purchase of U.S. assets; payable monthly, maturing at various
dates through 2003, bearing interest at 8.75%, and secured by office,
computer and warehouse equipment with a net book value of $433,000 at
September 30, 1998; $409,000 was available for future borrowings at
September 30, 1998. 591 401
Borrowings under a leasing facility with a U.S. financial institution to
finance the purchase of U.S. assets; payable quarterly, bearing interest at
rates ranging from 7.12% to 10%, maturing at various dates through 2001 and
secured by office and warehouse equipment and computer hardware and
software with a net book value of $129,504 at September 30, 1998; no funds
were available for future borrowings at September 30, 1998. 124 334
Other 67 17
-------------- ------------
Subtotal 2,394 2,418
Less current maturities (485) (476)
============== ============
$ 1,909 $ 1,942
============== ============
</TABLE>
The aggregate maturities of other long-term debt at September 30, 1998, were as
follows (in thousands):
1999 $ 485
2000 464
2001 444
2002 234
2003 101
Thereafter 666
========
$ 2,394
========
Page 38
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996 (CONTINUED)
8. CONVERTIBLE SUBORDINATED NOTES
The Company has outstanding $7.6 million of 8% convertible subordinated notes
due March 15, 2002. The notes are convertible at the option of the holders into
common shares of the Company's stock at a conversion price of $6.57 per share
subject to certain anti-dilution adjustments (as defined in the note agreement),
at any time prior to maturity. The notes are subordinated in right of payment to
all existing and future senior indebtedness of the Company. The notes are
callable at the Company's option with certain required premium payments.
Principal payments of approximately $2.5 million are required on March 15 in
each of the years 2000 and 2001. The remaining outstanding principal and
interest is due in full on March 15, 2002. Interest is payable semiannually. The
terms of the note agreement require the Company to maintain specific interest
coverage ratio levels in order to increase its credit facilities or otherwise
incur new debt and to maintain a minimum consolidated net worth. In addition,
the note agreement prohibits the declaration or payment of dividends on any
shares of the Company's capital stock, except dividends or other distributions
payable solely in shares of the Company's common stock, and limits the purchase
or retirement of any shares of capital stock or other capital distributions.
9. INCOME TAXES
The following table summarizes the differences between the Company's effective
income tax rate and the statutory federal income tax rate:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-----------------------------------------------
1998 1997 1996
-------------- ------------- -------------
<S> <C> <C> <C>
Statutory federal income tax rate 34.0 % (34.0)% 34.0 %
Increase (decrease) resulting from:
State income taxes, net of federal
income tax effect 2.8 (0.5) 8.7
Foreign tax rate differential (33.2) (17.3) (18.4)
Goodwill amortization 10.6 2.6 6.0
Adjustment to tax rate applied to U.S.
temporary differences 8.9 - -
Other 1.8 2.3 4.3
============== ============= =============
24.9 % (46.9)% 34.6 %
============== ============= =============
</TABLE>
Page 39
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996 (CONTINUED)
9. INCOME TAXES (CONTINUED)
The income tax provision (benefit) consisted of the following:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
----------------- ---------------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C>
Year ended September 30, 1998
Federal $ (993) $ 453 $ (540)
State 22 341 363
Foreign 631 (89) 542
----------------- ---------------- ---------------
$ (340) $ 705 $ 365
================= ================ ===============
Year ended September 30, 1997
Federal $ (2,894) $ (1,109) $ (4,003)
State 15 (333) (318)
Foreign 1,597 (10) 1,587
----------------- ---------------- ---------------
$ (1,282) $ (1,452) $ (2,734)
================= ================ ===============
Year ended September 30, 1996
Federal $ 1,454 $ (1,388) $ 66
State 531 (207) 324
Foreign 199 260 459
----------------- ---------------- ---------------
$ 2,184 $ (1,335) $ 849
================= ================ ===============
</TABLE>
Income (loss) before income taxes by source consisted of the following:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-----------------------------------------------------------
1998 1997 1996
----------------- ------------------ ----------------
<S> <C> <C> <C>
United States $ (1,265) $ (13,183) $ (3)
Foreign 2,732 7,356 2,455
----------------- ------------------ ----------------
$ 1,467 $ (5,827) $ 2,452
================= ================== ================
</TABLE>
The tax effects of each type of temporary difference that gave rise to the
Company's current net deferred tax asset are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-----------------------------------
1998 1997
--------------- ---------------
(IN THOUSANDS)
<S> <C> <C>
Accounts receivable allowances $ 1,310 $ 1,731
Provision for litigation judgment under appeal 1,767 -
Prepaid expenses (162) (171)
Allowances and capitalized costs for inventory 665 1,122
Net operating loss carryforwards - 167
Accrued expenses 77 92
Other 22 11
--------------- ---------------
$ 3,679 $ 2,952
=============== ===============
</TABLE>
Page 40
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996 (CONTINUED)
9. INCOME TAXES (CONTINUED)
The tax effects of each type of temporary difference that gave rise to the
Company's net long term deferred tax asset (included in other long term assets)
are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-----------------------------------
1998 1997
---------------- ---------------
(IN THOUSANDS)
<S> <C> <C>
Provision for litigation judgment under appeal $ - $ 1,660
Net loss on sublease of facility 200 279
Provision for impairment of long-lived assets 187 192
U.S. tax loss and other carryforwards 393 -
Foreign tax loss carryforward 517 190
Start up costs 47 88
Depreciation:
U.S. assets (467) (379)
Foreign assets (52) (49)
Other 28 (23)
Valuation allowance (517) (190)
---------------- ---------------
$ 336 $ 1,768
================ ===============
</TABLE>
The Company has not provided for possible U.S. income taxes on $14.7 million in
undistributed earnings of foreign subsidiaries that are considered to be
reinvested indefinitely. Calculation of the unrecognized deferred tax liability
related to these foreign earnings is not practicable.
10. COMMON STOCK, STOCK OPTIONS, WARRANTS AND RIGHTS
COMMON STOCK
The Company's board of directors has authorized the repurchase of up to $2
million of common shares of the Company from time to time in the open market or
in negotiated purchases.
STOCK OPTIONS UNDER PLANS
In August 1987, the Company adopted the Stock Option/Stock Appreciation Rights
Plan (Employee Plan), which provides for the granting of options to officers and
other key employees. Under the Employee Plan, the Company and its shareholders
authorized the granting of options for up to 1,750,000 shares of common stock to
be granted as either incentive or nonstatutory options at a price of 100% of the
fair market value of the shares at the date of grant, 110% in the case of a
holder of more than 10% of the Company's stock. As of September 30, 1998,
options for approximately 28,643 shares of common stock remained available for
future grants. Options generally vest ratably over a three-year period
commencing on October 1 following the date of grant and are exercisable with
cash or previously acquired common stock of the Company, no later than 10 years
from the grant date.
In March 1989, the Company adopted the Non-Employee Director Stock Option Plan
(Director Plan), which provides for the granting of options for up to 50,000
shares of common stock to non-employee directors. Under the Director Plan,
options to purchase 2,000 common shares are granted annually to non-employee
directors automatically upon their election to the Board of Directors which vest
upon the serving of a one year term. The exercise price is the fair market value
of the common stock on the date the options are granted. As of September 30,
1998, no shares of common stock remained available for future grants. These
options are generally exercisable no later than ten years from the date of
grant.
Page 41
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996 (CONTINUED)
10. COMMON STOCK, STOCK OPTIONS, WARRANTS AND RIGHTS (CONTINUED)
Transactions and related information for each plan are as follows:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVERAGE
EMPLOYEE PLAN: OPTIONS PRICE PER SHARE
---------------- ----------------
<S> <C> <C>
Options outstanding at September 30, 1995 1,220,504 $4.34
Options granted 164,750 $4.21
Options exercised (21,834) $3.02
Options terminated (23,119) $5.63
---------------- ----------------
Options outstanding at September 30, 1996 1,340,301 $3.98*
Options granted 25,700 $4.09
Options exercised (17,166) $4.04
Options terminated (22,368) $4.11
---------------- ----------------
Options outstanding at September 30, 1997 1,326,467 $3.98
Options granted 5,000 $3.38
Options exercised (25,100) $3.03
Options terminated (16,719) $4.36
---------------- ----------------
Options outstanding at September 30, 1998 1,289,648 $3.99**
================== =====================
Options exercisable at September 30, 1998 1,232,201 $3.98**
================== =====================
</TABLE>
*On October 27, 1995, the exercise price of 170,750 outstanding options issued
to non-executive officers was restated to $4.125, the market value on such date.
**On December 11, 1998, the exercise price of 784,733 outstanding options was
restated to $2.4375, the market value on such date.
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVERAGE
DIRECTOR PLAN: OPTIONS PRICE PER SHARE
---------------- ------------------
<S> <C> <C>
Options outstanding at September 30, 1995 42,000 $7.51
Options granted 8,000 $6.25
Options exercised (2,000) $3.38
Options terminated (12,000) $8.28
---------------- ------------------
Options outstanding at September 30, 1996 36,000 $7.19
Options granted 10,000 $3.75
---------------- ------------------
Options outstanding at September 30, 1997
and 1998 46,000 $6.59
================ ==================
Options exercisable at September 30, 1998 46,000 $6.59
================ ==================
</TABLE>
OTHER STOCK OPTIONS
The exercise price of all other stock options discussed below was the fair
market value of the common stock on the date the options were granted. On
December 11, 1998, the exercise price of 290,000 outstanding options issued to
employees was restated to $2.4375, the market value on such date.
The Company has outstanding options for 55,000 shares at an exercise price of
$1.75 per share issued to one of the former shareholders of a subsidiary in
connection with the acquisition of such subsidiary. The options were fully
exercisable at September 30, 1998 and expire on January 1, 2000.
Page 42
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996 (CONTINUED)
10. COMMON STOCK, STOCK OPTIONS, WARRANTS AND RIGHTS (CONTINUED)
OTHER STOCK OPTIONS (CONTINUED)
In August 1990, the Company issued options outside its Director Plan to its
non-employee directors to purchase an aggregate of 200,000 shares of common
stock, of which 132,000 remained outstanding on September 30, 1998. The options
have an exercise price of $1.75 per share, were fully exercisable at September
30, 1998 and expire August 24, 2000.
On October 1, 1991, the Company issued options to purchase 20,000 shares at
$3.38 to an employee. The options were fully exercisable at September 30, 1998
and expire on October 1, 2001.
On January 3, 1992, the Company issued to certain of its executives and
non-employee directors options to purchase 275,000 shares at $4.88 per share.
The options were fully exercisable at September 30, 1998 and expire January 3,
2002.
On January 15, 1993, the Company issued to one of its executives options to
purchase 50,000 shares of common stock at an exercise price of $5.25 per share.
The options were fully exercisable at September 30, 1998. The options expire on
January 14, 2003.
At various dates during fiscal 1995, the Company granted to certain new
employees options to purchase 91,000 shares of common stock at prices ranging
from $6.75 to $6.875. In most cases, one-third of the options became exercisable
on October 1, 1995, with one-third vesting on October 1 of each of the following
two years. The options expire in 10 years from the grant date. On October 27,
1995, the exercise price of these options was restated to $4.125, the market
value on such date. As of September 30, 1998, 53,500 options remained to be
exercised and all options were excisable.
On March 4, 1996, the Company issued options to purchase 10,000 shares at $5.38
to a consultant. The options were fully exercisable at September 30, 1998 and
expire on March 4, 2006.
On August 27, 1996, the Company issued to one of its executives options to
purchase 5,000 shares of common stock at $3.75 per share. The options were fully
exercisable at September 30, 1998 and expire on August 26, 2006.
On March 7, 1997, the Company entered into an option agreement with a
consultant. Under the agreement, the Company issued options to purchase 100,000
shares at $3.875. Such options were to vest upon the consultant meeting certain
minimum sales targets (which were not met) and expired on March 7, 2007.
This agreement was terminated and the options cancelled effective September 30,
1998.
On March 12, 1997, the Company issued options to purchase 20,000 shares of
common stock at $3.75 per share to new members of the Company's Board of
Directors. The options were fully exercisable at September 30, 1998 and expire
on March 11, 2007.
During fiscal 1998, the Company granted to certain new employees options to
purchases 18,000 shares of common stock at prices ranging from $2.44 to $3.75.
One third of the options becomes exercisable on October 1, 1999 with one-third
vesting on October 1 of each of the following two years. The options expire in
10 years from the grant.
Page 43
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996 (CONTINUED)
10. COMMON STOCK, STOCK OPTIONS, WARRANTS AND RIGHTS (CONTINUED)
OTHER STOCK OPTIONS (CONTINUED)
Transactions and related information relating to other stock options are
summarized as follows:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVERAGE
OPTIONS PRICE PER SHARE
---------------- -----------------
<S> <C> <C>
Options outstanding at September 30, 1995 706,000 $ 3.92
Options granted 15,000 $ 4.84
Options exercised (40,500) $ 2.67
---------------- -----------------
Options outstanding at September 30, 1996 680,500 $ 3.63 *
Options granted 120,000 $ 3.85
---------------- -----------------
Options outstanding at September 30, 1997 800,500 $ 3.69
Options granted 18,000 $ 3.53
Options exercised (55,000) $ 1.75
Options terminated (125,000) $ 3.93
---------------- -----------------
Options outstanding at September 30, 1998 638,500 $ 3.81 **
================ ==================
Options exercisable at September 30, 1998 620,500 $ 3.82 **
================ ==================
</TABLE>
*On October 27, 1995, the exercise price of 91,000 outstanding options issued to
non-executive officers was restated to $4.125, the market value on such date.
**On December 11, 1998, the exercise price of 290,000 outstanding options was
restated to $2.4375, the market value on such date.
The following table summarizes information about all stock options outstanding
at September 30, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------------------------- --------------------------------
Weighted Weighted Weighted
Average Average Average
Range of Exercise Options Remaining Exercise Options Exercise
Prices Outstanding Contractual Life Price Exercisable Price
- -------------------------- ----------------- -------------------- --------------- ---------------- --------------
<S> <C> <C> <C> <C> <C>
$1.75 to $ 2.50 534,400 1.90 $ 1.88 531,400 $ 1.88
$3.38 to $ 4.13 806,582 5.10 $ 3.96 740,803 $ 3.96
$4.69 to $ 6.63 367,166 3.90 $ 5.01 360,498 $ 5.02
$6.75 to $12.13 266,000 6.00 $ 6.90 266,000 $ 6.90
========================== ================= =================== ================ =============== ==============
$1.75 to $12.13 1,974,148 4.10 $ 3.99 1,898,701 $ 3.99
========================== ================= =================== ================ =============== ==============
</TABLE>
For purposes of the following proforma disclosures, the weighted-average fair
value of each option has been estimated on the date of grant using the
Black-Scholes options-pricing model with the following weighted-average
assumptions used for grants in 1998 and 1997, respectively: no dividend yield;
expected volatility of 58% and 56%; risk-free interest rate of 5.4% and 6.4%;
and an expected term of six and a half years. The weighted average fair value at
date of grant of options granted during 1998 and 1997 was $1.89 and $2.05 per
option, respectively. Had the compensation cost been determined based on the
fair value at the grant date consistent with the provisions of SFAS 123, the
Company's net income (loss) and basic and diluted earnings (loss) per share
would have been reduced to the pro forma amounts indicated below (in thousands,
except per share amounts):
Page 44
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996 (CONTINUED)
10. COMMON STOCK, STOCK OPTIONS, WARRANTS AND RIGHTS (CONTINUED)
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
---------------------------------------
1998 1997 1996
---------- --------- --------
<S> <C> <C> <C>
Net income (loss) - as reported $ 1,102 $ (3,093) $ 1,603
Net income (loss) - proforma $ 966 $ (3,392) $ 1,283
Basic earnings (loss) per share - as reported $ 0.15 $ (0.44) $ .23
Basic earnings (loss) per share - proforma $ 0.14 $ (0.48) $ .18
Diluted earnings (loss) per share - as reported $ 0.15 $ (0.44) $ .21
Diluted earnings (loss) per share - proforma $ 0.13 $ (0.48) $ .17
</TABLE>
STOCK RIGHTS
On November 20, 1990, as amended on January 24, 1991, and on March 16, 1992, the
Company adopted a Shareholders' Rights Plan, and 6,002,278 rights were
distributed as a dividend at the rate of one right for each share of the
Company's common stock. Each right entitles the registered holder to purchase
from the Company one share of common stock at a purchase price of $20 per share,
subject to adjustment. The rights may be exercised beginning 10 days after a
person or group acquires 21 percent or more of the Company's common stock or
announces a tender offer that could result in the person or group owning at
least 21 percent of the Company's common stock. Subject to possible extensions,
the rights may be redeemed by the Company at $0.001 per right at any time until
10 days after 21 percent or more of Catalina's stock is acquired by a person or
group. The rights are also redeemable upon a vote by the stockholders of the
Company if the proposed purchase price for the shares is deemed fair by a
recognized investment banker. In the event the Company is acquired in a merger
or other business combination transaction, the holder of each right would be
entitled to receive common stock of the acquiring company having a value equal
to two times the exercise price of the right. Unless redeemed earlier, the
rights expire on November 30, 2000.
STOCK WARRANTS
In connection with the Company's initial public offering of common stock in May
1988, warrants to purchase 92,000 common shares at $4.20 a share were issued.
The warrants are exercisable through December 31, 1999. The Company registered
the shares underlying the warrants effective May 24, 1995. No common stock has
been issued pursuant to these warrants through September 30, 1998.
11. COMMITMENTS
The Company leases offices, warehouse facilities and equipment under
non-cancelable operating leases that expire at various dates through 2008.
Certain leases provide for increases in minimum lease payments based upon
increases in annual real estate taxes and insurance. Future minimum lease
payments under non-cancelable operating leases and minimum rentals to be
received under non-cancelable subleases as of September 30, 1998 by fiscal year,
were as follows (in thousands):
<TABLE>
<CAPTION>
MINIMUM RENTAL MINIMUM
PAYMENTS SUBLEASE RECEIPTS NET
----------------- -------------------- -------------
<S> <C> <C> <C>
1999 $ 2,473 $ 1,220 $ 1,253
2000 2,075 1,085 990
2001 1,093 464 629
2002 231 - 231
2003 196 - 196
Thereafter 1,029 - 1,029
================= ==================== =============
$ 7,097 $ 2,769 $ 4,328
================= ==================== =============
</TABLE>
Page 45
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996 (CONTINUED)
11. COMMITMENTS (CONTINUED)
Total rental expense for all operating leases (including month-to-month leases)
amounted to approximately $1.8 million, $3.1 million and $3.1 million for the
years ended September 30, 1998, 1997 and 1996, respectively. In connection with
its warehouse consolidation, the Company subleased its Dallas facility in 1995
for the remainder of the lease term and recognized a pretax loss relating to
this sublease in 1995.
Shenzhen Jiadianbao Electrical Products Co., Ltd. ("SJE"), a cooperative joint
venture subsidiary of Go-Gro, and the Bureau of National Land Planning Bao-An
Branch of Shenzhen City entered into a Land Use Agreement covering approximately
467,300 square feet in Bao-An County, Shenzhen City, People's Republic of China
on April 11, 1995. The agreement provides SJE with the right to use the above
land until January 18, 2042. The land use rights are non-transferable. Under the
terms of the SJE joint venture agreement, ownership of the land and buildings of
SJE is divided 70% to Go-Gro and 30% to the other joint venture partner. Land
costs, including the land use rights, approximated $2.6 million of which Go-Gro
has paid its 70% proportionate share of $1.8 million. Under the terms of this
agreement, as amended, SJE is obligated to construct approximately 500,000
square feet of factory buildings and 211,000 square feet of dormitories and
offices, of which 40 percent was required to be and was completed by April 1,
1997. The remainder of the construction is required to be completed by December
31, 1999. The Company plans to file an application to extend the completion
deadline of December 1999. The total cost for this project is estimated at $15.5
million (of which $9.9 million had been expended as of September 30, 1998) and
includes approximately $1 million for a Municipal Coordination Facilities Fee
(MCFF). The MCFF is based upon the square footage to be constructed. The
agreement calls for the MCFF to be paid in installments beginning in January
1997 of which $163,659 had been paid as of September 30, 1998. A 162,000 square
foot factory, 77,000 square foot warehouse and 60,000 square foot dormitory
became fully operational in June 1997.
On April 26, 1996, the Company entered into a license agreement with
Westinghouse Electric Corporation to market and distribute a full range of
lighting fixtures, lamps and other lighting products under the Westinghouse
brand name in exchange for royalty payments. The agreement terminates on
September 30, 2001. The Company has an option to extend the agreement for an
additional ten years. The royalty payments are due quarterly and are based on a
percent of the value of the Company's net shipments of Westinghouse branded
products, subject to annual minimum payments due. Commencing September 30, 1999
either party has the right to terminate the agreement during fiscal years 1999
to 2001 if the Company does not meet the minimum net shipments of $25 million
for fiscal 1999, $40 million for fiscal 2000 and $60 million for fiscal 2001.
Net sales of Westinghouse branded products amounted to $10.9 million and $9.0
million for the years ended September 30, 1998 and 1997, respectively. The
Company's contractual rights ro use the Westinghouse brand name have been
challenged by a third party.
In 1998, the Company entered into a consulting agreement with a former employee
for a two-year period ending March 31, 2000, for an annual fee of $140,000,
payable monthly.
12. RELATED PARTY TRANSACTIONS
The Company leased two facilities located in Massachusetts from entities in
which an officer and a former officer had an ownership interest. One of the
leases expired in 1996 and the other one expires in June 1999. Rent expense
related to these leases was approximately $159,000, $164,000 and $540,000 for
the years ended September 30, 1998, 1997 and 1996, respectively.
Notes and advances receivable from Executive Vice Presidents of the Company
aggregated $259,160 and $87,996 at September 30, 1998 and 1997, respectively. At
September 30, 1998 notes and advances included $220,000 in notes bearing
interest at LIBOR plus 250 basis points which were collaterized by stock option
agreements to purchase 195,000 shares of the Company. Notes amounting to
$120,000 mature in January 1999 and the remainder $100,000 note matures in
December 1999.
Page 46
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996 (CONTINUED)
13. GEOGRAPHIC INFORMATION AND MAJOR CUSTOMERS
The Company operates exclusively in the lighting industry with operations based
in three principal geographic areas, the United States, Asia and Canada. Net
sales to unaffiliated customers by U.S.-based operations are made primarily into
the United States. Net sales to unaffiliated customers by Asia-based operations
are made primarily into Europe and net sales to unaffiliated customers by
Canada-based operations are made primarily into Canada. Transfers to other
geographic areas primarily represent shipments of finished goods made at prices
determined by management. All transfers have been eliminated from consolidated
net sales. Financial information, summarized by geographic area, is as follows:
<TABLE>
<CAPTION>
UNITED
STATES ASIA CANADA OTHER ELIMINATIONS CONSOLIDATED
---------------- -------- ------------- -------- ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
SEPTEMBER 30, 1998:
Net sales
Unaffiliated customers $ 122,286 $ 21,309 $ 16,497 $ 1,768 $ - $ 161,860
Transfers to other
geographic areas 1,099 95,149 367 - (96,615) -
---------------- -------- ------------ --------- ----------- ------------
Total net sales $ 123,385 $116,458 $ 16,864 $ 1,768 $ (96,615) $ 161,860
================ ======== ============ ========= =========== ============
Operating income (loss) $ 1,030 $ 3,439 $ 382 $ (231) $ (36) $ 4,584
================ ======== ============ ========= =========== ============
Identifiable assets $ 58,305 $ 41,340 $ 6,733 $ 2,881 $ (10,299) $ 98,960
================ ======== ============ ========= =========== ============
September 30, 1997:
Net sales
Unaffiliated customers $ 146,646 $ 33,950 $ 15,545 $ 814 $ - $ 196,955
Transfers to other
geographic areas 837 80,444 427 1 (81,709) -
---------------- -------- ------------ --------- ----------- ------------
Total net sales $ 147,483 $114,394 $ 15,972 $ 815 $ (81,709) $ 196,955
================ ======== ============ ========= =========== ============
Operating income (loss) $ (10,496) $ 8,836 $ 518 $ (181) $ (544) $ (1,867)
================ ======== ============ ========= =========== ============
Identifiable assets $ 73,310 $ 38,078 $ 5,686 $ 1,365 $ (1,858) $ 116,581
================ ======== ============ ========= =========== ============
September 30, 1996:
Net sales
Unaffiliated customers $ 139,521 $ 29,447 $ 15,012 $ 650 $ - $ 184,630
Transfers to other
geographic areas 979 34,341 370 - (35,690) -
---------------- -------- ------------ --------- ----------- ------------
Total net sales $ 140,500 $ 63,788 $ 15,382 $ 650 $ (35,690) $ 184,630
================ ======== ============ ========= =========== ============
Operating income $ 2,153 $ 2,706 $ 721 $ (158) $ (101) $ 5,321
================ ======== ============ ========= =========== ============
Identifiable assets $ 79,270 $ 31,956 $ 7,712 $ 899 $ (2,375) $ 117,462
================ ======== ============ ========= =========== ============
</TABLE>
MAJOR CUSTOMERS
During the years ended September 30, 1998, 1997 and 1996 one customer (included
in U.S.-based operations) accounted for 27.5%, 22.1% and 9.8%, respectively, of
the Company's net sales. One other customer and its affiliate accounted for 11%
of the Company's net sales during the year ended September 30, 1996.
Page 47
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996 (CONTINUED)
14. EMPLOYMENT AGREEMENTS
The Company has employment agreements with four executive officers. The
agreements expire on September 30, 2001. All such officers receive compensation
with minimum annual cost of living increases of 5% and acceleration of payments
due under the agreements should there be a change in control of the Company.
These officers participate equally in a bonus pool equal to 6.7% of the
Company's consolidated pretax income. These bonuses for fiscal 1998 and 1996
totaled $105,000, and $175,000, respectively. There was no bonus for fiscal 1997
due to a pretax loss.
Future commitments under employment agreements at September 30, 1998, by fiscal
year, excluding the possible effect of bonuses are as follows (in thousands):
1999 1,162
2000 1,220
2001 1,281
=========
$ 3,663
=========
15. CONTINGENCIES
LITIGATION
On June 4, 1991, the Company was served with a copy of the Complaint in the
matter of Browder vs. Catalina Lighting, Inc., Robert Hersh, Dean S. Rappaport
and Henry Gayer, Case No. 91-23683, in the Circuit Court of the 11th Judicial
Circuit in and for Dade County, Florida. The plaintiff in the action, the former
President and Chief Executive Officer of the Company, contended that his
employment was wrongfully terminated and as such brought action for breach of
contract, defamation, slander, libel and intentional interference with business
and contractual relationships, including claims for damages in excess of $5
million against the Company and $3 million against the named directors. During
the course of the litigation the Company prevailed on its Motions for Summary
Judgment and the Court dismissed the plaintiff's claims of libel and
indemnification. On February 3, 1997, the plaintiff voluntarily dismissed the
remaining defamation claims against the Company and Directors. The breach of
contract claim was tried in February 1997 and the jury returned a verdict
against the Company for total damages of $2.4 million (including prejudgment
interest). On July 14, 1997, the Court also granted plaintiff's motion for
attorney fees and costs of $1.9 million. A provision of $4.3 million was
recorded by the Company during the quarter ended March 31, 1997 and a $681,000
provision for post-judgment interest was recorded through September 30, 1998.
The Company is appealing the verdict and attorney fee award and the appeal was
argued before the Third District Court of Appeal on December 18, 1998. The
Company believes its arguments are meritorious as argued. No decision from the
District Court has been received to date.
On December 17, 1996 White Consolidated Industries, Inc. ("White"), which has
acquired certain limited trademark rights from Westinghouse Electric Corp.
("Westinghouse") to market certain household products under the
White-Westinghouse trademark, notified the Company of a lawsuit against
Westinghouse and the Company filed in the United States District Court, for the
Northern District of Ohio. The lawsuit challenged the Company's right to use the
Westinghouse trademarks on its lighting products and alleges trademark
infringement. On December 24, 1996, Westinghouse and the Company served a
Complaint and Motion for Preliminary Injunction against White, AB Electrolux,
Steel City Vacuum Co., Inc., Salton/Maxim Housewares, Inc., Newtech Electronics
Corp., and Windmere Durable Holdings, Inc. in the United States District Court,
Eastern District of Pennsylvania, Case No. 96-2294 alleging that the defendants
had violated Westinghouse's trademark rights, breached the Agreement between
Westinghouse and White and sought an injunction to enjoin White against
interference with their contractual arrangements. In October 1997, the cases
were consolidated in the Pennsylvania case and on November 7, 1997 White filed a
Counterclaim and Third Party Claims against Westinghouse, Catalina and Minami
International Corporation alleging trademark infringement, trademark dilution,
false designation of origin, false advertising and unfair competition and
seeking injunctive relief and damages. Both the Company and Westinghouse
vigorously dispute White's allegations. Pursuant to the License Agreement
between Westinghouse and the Company, Westinghouse is defending and indemnifying
the Company for all costs and expenses for claims, damages and losses,
including the costs of litigation. A trial date of June 21, 1999 has been set
by the Court.
Page 48
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996 (CONTINUED)
15. CONTINGENCIES (CONTINUED)
During fiscal 1998 the Company received a number of claims relating to
halogen torchieres sold by the Company to various retailers. Management does not
currently believe these claims will result in a material uninsured liability to
the Company. However, as a result of these claims the Company experienced an
increase in its liability insurance premiums effective for the 1999 calendar
year and will now be self-insuring up to a maximum of $10,000 for each incident
occurring in calendar 1999. It is too early to assess the impact of these
changes on the Company's financial position or annual results of operations
during fiscal 1999. No assurance can be given that the number of claims will not
exceed historial experience or that claims will not exceed available insurance
coverage or that the Company will be able to maintain the same level of
insurance.
The Company is also a defendant in other legal proceedings arising in the course
of business. In the opinion of management, the ultimate resolution of these
other legal proceedings will not have a material adverse effect on the Company's
financial position or annual results of operations.
YEAR 2000
The Year 2000 Issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
computer programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities.
The Company has developed and is currently executing a plan to make its computer
systems Year 2000 ready. The plan consists of five phases: (1) an inventory of
all systems and applications, including non-information technology systems; (2)
an assessment of the Year 2000 readiness of these existing systems and
applications; (3) remediation of Year 2000 problems identified in the assessment
phase; (4) testing of all systems and applications to verify the success of the
remediation phase and, if necessary (5) the implementation of contingency plans
for all significant systems and applications.
Phases 1 and 2 of the Company's plan were completed as of September 1, 1998. The
Company is presently engaged in phases 3 and 4 and expects to complete these
phases by July 1, 1999.
The Company has determined that its non-information technology systems are not
significantly affected by the Year 2000 Issue. With respect to information
technology systems, in 1997 the Company, during the normal course of upgrading
its systems to address its business needs and add functionality and efficiency
to its business processes, began implementation of a new enterprise software to
replace the business applications supporting sales, distribution, inventory
management, finance and accounting for the Company's North American businesses.
The majority of the remainder of the Company's North American systems will be
made Year 2000 ready through purchased upgrades of commercial third-party
software packages. Go-Gro's systems and applications will be made Year 2000
ready through a combination of internal reprogramming/modification and purchased
upgrades of commercial third-party software packages. The internal
reprogramming/modifications of Go-Gro's systems and applications are presently
undergoing testing by an independent third party.
The Company has initiated communications with the customers, suppliers and other
companies important to its business to attempt to determine the extent to which
the Company is vulnerable to such parties' failure to resolve their own Year
2000 issues.
The Company is currently and will continue to utilize both internal and external
resources to implement its Year 2000 plan. The total incremental cost to the
Company for the Year 2000 project (excluding internal resources, the costs
associated with the new enterprise system and scheduled hardware replacements
which would have been incurred regardless of the Year 2000 Issue), all of which
will be expensed as incurred, is approximately $150,000, none of which has been
incurred as of September 30, 1998. The Company plans to fund these costs with
cash flows from operations. The costs of the Year 2000 project and the timetable
in which the Company expects to finish its Year 2000 project are based on
management's best estimates and are dependent on a number of factors, including
the continued availability of personnel and external resources.
Page 49
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996 (CONTINUED)
15. CONTINGENCIES (CONTINUED)
Year 2000 compliance is critical to the Company due to the importance of its
computer systems and applications to its business. The Company may also be
vulnerable to the failure of significant third parties with which the Company
does business to resolve their own Year 2000 issues. The impact on the Company
of failure by either the Company or the significant third parties with which it
does business to achieve Year 2000 compliance is not reasonably estimable,
however, the Year 2000 issue could have a material impact on the operations of
the Company.
OTHER
As a result of recent Internal Revenue Service rulings and proposed and
temporary regulations, the Company is in the process of restructuring its
international operations in order to retain favorable U.S. tax treatment of
foreign source income. The Company believes it should be successful in this
restructuring. However, in the event the Company is unsuccessful in this effort,
the Company will likely experience an increase in its consolidated effective
income tax rate.
16. DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value:
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH EQUIVALENTS AND SHORT-TERM
INVESTMENTS:
The carrying amount approximates fair value due to the short maturity of those
instruments.
BONDS PAYABLE AND OTHER LONG-TERM DEBT:
The fair value of the Company's bonds payable and other long-term debt is
estimated based on the current rates offered to the Company for borrowings with
similar terms and maturities.
Estimated fair values of the Company's financial instruments are as follows (in
thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------------------------------------------------------------
1998 1997
--------------------------------- ------------------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 1,790 $ 1,790 $ 1,847 $ 1,847
Restricted cash equivalents and
short-term investments $ 1,807 $ 1,807 $ 1,883 $ 1,883
Bonds payable $ 9,190 $ 9,142 $ 10,165 $ 10,092
Other long-term debt $ 2,394 $ 2,454 $ 2,418 $ 2,443
</TABLE>
It is not practicable to estimate the fair value of the Company's $7.6 million
in convertible subordinated notes.
Page 50
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996 (CONTINUED)
17. CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY
<TABLE>
<CAPTION>
Balance Sheets SEPTEMBER 30,
--------------------------------
1998 1997
--------------- ---------------
ASSETS (IN THOUSANDS)
<S> <C> <C>
Current assets
Cash and cash equivalents $ 124 $ 1,627
Accounts receivable, net of allowances
of $7,863,000 and $7,783,000, respectively 10,619 12,458
Inventories 20,318 25,770
Income taxes receivable 1,148 3,372
Deferred tax asset 3,661 2,946
Other current assets 2,638 1,857
--------------- ---------------
Total current assets 38,508 48,030
Property and equipment, net 14,475 15,147
Restricted cash equivalents and short-term investments 1,807 1,883
Investment in and net advances to/from Asian and Canadian subsidiaries 21,319 26,220
Goodwill, net 5,000 5,162
Other assets 2,544 4,714
--------------- ---------------
$ 83,653 $ 101,156
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Notes payable - credit lines $ 1,900 $ 3,800
Accounts and letters of credit payable 2,005 6,688
Current maturities of bonds payable-real estate related 975 970
Current maturities of other long-term debt 325 362
Accrued litigation judgment under appeal 4,909 -
Other current liabilities 3,121 3,952
--------------- ---------------
Total current liabilities 13,235 15,772
Notes payable - credit lines 10,500 21,000
Convertible subordinated notes 7,600 7,600
Bonds payable - real estate related 8,215 9,195
Other long-term debt 1,414 1,500
Accrued litigation judgment under appeal - 4,486
Other liabilities 365 546
--------------- ---------------
Total liabilities 41,329 60,099
Stockholders' equity
Common stock 72 71
Additional paid-in capital 26,475 26,311
Retained earnings 15,777 14,675
--------------- ---------------
Total stockholders' equity 42,324 41,057
--------------- ---------------
$ 83,653 $ 101,156
=============== ===============
</TABLE>
Page 51
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996 (CONTINUED)
17. CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY (CONTINUED)
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
YEARS ENDED SEPTEMBER 30,
----------------------------------------
1998 1997 1996
------------ ------------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Net sales $ 124,054 $ 147,460 $ 140,171
Cost of sales 106,524 130,597 118,519
------------ ------------- ---------
Gross profit 17,530 16,863 21,652
Selling, general and administrative expenses 17,080 17,474 17,687
Plant closing costs - 930 -
Litigation charges and related professional fees (95) 7,453 293
----------- ------------ ---------
OPERATING INCOME (LOSS) 545 (8,994) 3,672
----------- ------------ ---------
Other income (expenses)
Interest expense (3,622) (3,738) (3,115)
Equity income in Asian and Canadian Subsidiaries 3,679 5,200 1,400
Other income 323 118 36
----------- ------------ ---------
Total other expenses 380 1,580 (1,679)
----------- ------------ ---------
INCOME (LOSS) BEFORE INCOME TAXES 925 (7,414) 1,993
Income tax (provision) benefit 177 4,321 (390)
----------- ------------ ---------
NET INCOME (LOSS) $ 1,102 $ (3,093) $ 1,603
=========== ============ =========
</TABLE>
Page 52
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996 (CONTINUED)
17. CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY (CONTINUED)
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30,
-----------------------------------
1998 1997 1996
---------- ---------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 1,102 $ (3,093) $ 1,603
---------- ---------- ---------
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Provision for impairment of long-lived assets - 735 -
Provision for litigation judgement under appeal 423 4,487 -
Equity income in Asian and Canadian subsidiaries (3,679) (5,200) (1,400)
Depreciation and amortization 2,463 2,698 4,367
Deferred income taxes 794 (1,442) (1,595)
(Gain) loss on disposition of property and equipment (5) 1 33
Other (58) 159 -
Change in assets and liabilities:
Decrease (increase) in accounts receivable 1,839 8,657 5,914
Decrease (increase) in inventories 5,452 3,838 929
Decrease (increase) in income taxes receivable 2,224 (3,271) -
Decrease (increase) in other current assets (619) (388) 176
Decrease (increase) in other assets 20 (511) (306)
Increase (decrease) in income taxes payable - - (116)
Increase (decrease) in accounts and letters of credit
payable and other liabilities (5,551) (3,515) (355)
---------- ---------- ---------
Total adjustments 3,303 6,248 7,647
---------- ---------- ---------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 4,405 3,155 9,250
---------- ---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, net (831) (1,425) (5,913)
Investment in and net advances to/from Asian and Canadian subsidiaries 8,580 (2,723) (1,483)
Decrease (increase) in restricted cash equivalents and
short-term investments 954 878 6,839
---------- ---------- ---------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 8,703 (3,270) (557)
---------- ---------- ---------
</TABLE>
(Continued on page 54)
Page 53
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996 (CONTINUED)
17. CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY (CONTINUED)
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30,
-----------------------------------------
1998 1997 1996
----------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable - credit lines 32,900 35,450 43,400
Payments on notes payable - credit lines (45,300) (29,550) (50,600)
Sinking fund redemption payments on bonds (878) (879) (878)
Payment into escrow on bonds - (1,504) -
Payments on other long-term debt (581) (703) (573)
Proceeds from the issuance of bonds payable - - 99
Payments on bonds payable (975) (970) (900)
Proceeds from issuance of common stock and
related income tax benefit 223 80 227
----------- ---------- ----------
Net cash provided by (used in) financing activities (14,611) 1,924 (9,225)
----------- ---------- ----------
Net increase (decrease) in cash and cash equivalents (1,503) 1,809 (532)
Cash and cash equivalents at beginning of year 1,627 (182) 350
----------- ---------- ----------
Cash and cash equivalents at end of year $ 124 $ 1,627 $ (182)
=========== ========== ==========
<CAPTION>
SUPPLEMENTAL CASH FLOW INFORMATION
YEARS ENDED SEPTEMBER 30,
---------------------------------------------
1998 1997 1996
------------- ------------ ------------
<S> <C> <C> <C>
CASH PAID (REFUNDED) FOR (IN THOUSANDS):
Interest $ 3,251 $ 3,451 $ 3,124
============= ============ ============
Income taxes $ (3,512) $ 636 $ 2,044
============= ============ ============
</TABLE>
During the years ended September 30, 1998, 1997 and 1996 capital lease
obligations aggregating approximately $314,000, $111,000 and $573,000,
respectively, were incurred when the Company entered into leases for new office,
computer, machinery and warehouse equipment.
In 1997 and 1996, the Company issued 5,000 common shares to an employee
as salary pursuant to an employment agreement.
Page 54
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996 (CONTINUED)
18. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FISCAL 1998
- -------------------------------------------------------------------------------------------------------------
Net Sales $ 36,983 $ 40,246 $ 45,037 $ 39,594
- -------------------------------------------------------------------------------------------------------------
Gross Profit $ 6,575 $ 8,287 $ 8,780 $ 7,455
- -------------------------------------------------------------------------------------------------------------
Operating Income (loss) $ 242 $ 1,622 $ 1,977 $ 743
- -------------------------------------------------------------------------------------------------------------
Net Income (loss) $ (381) $ 536 $ 833 $ 114
- -------------------------------------------------------------------------------------------------------------
Earnings (loss) Per Share:
- -------------------------------------------------------------------------------------------------------------
Basic $ (0.05) $ 0.08 $ 0.12 $ 0.02
- -------------------------------------------------------------------------------------------------------------
Diluted $ (0.05) $ 0.07 $ 0.11 $ 0.02
- -------------------------------------------------------------------------------------------------------------
1st Quarter 2nd Quarter (A) 3rd Quarter 4th Quarter
Fiscal 1997
- -------------------------------------------------------------------------------------------------------------
Net Sales $ 45,095 $ 44,874 $ 56,394 $ 50,592
- -------------------------------------------------------------------------------------------------------------
Gross Profit $ 7,957 $ 6,448 $ 8,981 $ 9,076
- -------------------------------------------------------------------------------------------------------------
Operating Income (loss) $ 874 $ (7,073) $ 2,060 $ 2,272
- -------------------------------------------------------------------------------------------------------------
Net Income (loss) $ 22 $ (4,988) $ 822 $ 1,051
- -------------------------------------------------------------------------------------------------------------
Earnings (loss) Per Share:
Basic $ - $ (0.71) $ 0.12 $ 0.14
- -------------------------------------------------------------------------------------------------------------
Diluted $ - $ (0.71) $ 0.11 $ 0.13
- -------------------------------------------------------------------------------------------------------------
</TABLE>
(A) Includes $930,000 in plant closing costs due to the termination of
manufacturing operations at Meridian and $6.3 million in litigation costs
and related professional fees.
Page 55
<PAGE>
<TABLE>
<CAPTION>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
ADDITIONS
--------------------
Balance at Charged to Balance
beginning of costs and at end of
Description year expenses Other Deductions year
- ---------------------------------- ------------ ---------- ----- ---------- ---------
<S> <C> <C> <C> <C> <C>
Accounts receivable allowances -
deducted from accounts
receivable in the balance sheet:
Year ended September 30, 1998 $ 8,314 $ 10,327 $ - $ (10,233) $ 8,408
======== ======== === ========== =======
Year ended September 30, 1997 $ 7,313 $ 17,357 $ - $ (16,356) $ 8,314
======== ======== === ========== =======
Year ended September 30, 1996 $ 4,934 $ 17,135 $ - $ (14,756) $ 7,313
======== ======== === ========== =======
Inventory allowances - deducted from
inventory in the balance sheet:
Year ended September 30, 1998 $ 2,390 $ 193 $ - $ (927) $ 1,656
======== ======== === ========== =======
Year ended September 30, 1997 $ 1,533 $ 2,032 $ - $ (1,175) $ 2,390
======== ======== === ========== =======
Year ended September 30, 1996 $ 911 $ 903 $ - $ (281) $ 1,533
======== ======== === ========== =======
Allowances for impairment of
long-lived assets - deducted
from property and equipment
in the balance sheet:
Year ended September 30, 1998 $ 519 $ - $ - $ - $ 519
======== ======== === ========== =======
Year ended September 30, 1997 $ - $ 735 $ - $ (216) $ 519
======== ======== === ========== =======
</TABLE>
Page 56
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this item is incorporated by reference from
the definitive proxy statement for the Company for its 1999 Annual Meeting of
Stockholders or the Company's Form 10K/A, which will be filed within 120 days of
September 30, 1998.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this item is incorporated by reference from
the definitive proxy statement for the Company for its 1999 Annual Meeting of
Stockholders or the Company's Form 10K/A, which will be filed within 120 days of
September 30, 1998.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this item is incorporated by reference from
the definitive proxy statement for the Company for its 1999 Annual Meeting of
Stockholders or the Company's Form 10K/A, which will be filed within 120 days of
September 30, 1998.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this item is incorporated by reference from
the definitive proxy statement for the Company for its 1999 Annual Meeting of
Stockholders or the Company's Form 10K/A, which will be filed within 120 days of
September 30, 1998.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) 1. DOCUMENTS FILED AS PART OF THIS REPORT. The following
consolidated financial statements of the Company
and its subsidiaries are filed as part of this
Report:
Independent Auditors' Report
Consolidated Balance Sheets as of
September 30, 1998 and 1997
Consolidated Statements of Operations
for the years ended September 30, 1998, 1997
and 1996
Consolidated Statements of Stockholders' Equity
for the years ended September 30, 1998, 1997
and 1996
Consolidated Statements of Cash Flows
for the years ended September 30, 1998, 1997
and 1996
Notes to Consolidated Financial Statements
2. FINANCIAL STATEMENT SCHEDULES. The following
financial statement schedule is included in this
Report:
Schedule II - Valuation and Qualifying Accounts for
the years ended September 30, 1998, 1997 and 1996
Page 57
<PAGE>
<TABLE>
<CAPTION>
3. EXHIBITS. The following exhibits are filed with this
Report or incorporated by reference:
Exhibit Filing In Which Exhibit
Number Description Is Incorporated By Reference
- ------------ ----------------------------------------------------------- -------------------------------------------------
<S> <C> <C>
3 - Amended and Restated Articles of Incorporated Registration Statement on Form S-1, Number
33-27861
3.3 - By-Laws, as amended Filed herewith
4 - Certificate Common Shares, par value $.01 Registration Statement on Form S-18, Number
33-17409-A
4.2 - Werbel Roth Warrant Registration Statement on Form S-18, Number
33-17409-A
4.3 - Convertible Debentures Form 8-K, dated August 31, 1989
4.4 - Convertible Debentures Amendment No. 1 to Registration
Statement No. 33-34444 on Form S-1
4.5 - Shareholders' Rights Plan Form 10-K dated January 14, 1990
4.6 - Second Amendment to Rights Agreement dated as of November Form 10-Q for the Quarter Ended March 31, 1992
20, 1990
10.46 - Employment Agreement between the Company and Robert Hersh, Form 10-K dated December 28, 1989
dated as of October 1, 1989
10.47 - Employment Agreement between the Company and Dean S. Form 10-K dated December 28, 1989
Rappaport, dated as of October 1, 1989
10.48 - Employment Agreement between the Company and William D. Form 10-K dated December 28, 1989
Stewart, dated as of October 1, 1989
10.49 - Leases dated September 27, 1989 between the Company and Form 10-K dated December 28, 1989
MP-1989-1 Ltd. Partnership
10.50 - Promissory Note from Nathan Katz to the Company, dated Form 10-K dated December 28, 1989
November 1989
10.51 - Promissory Note from David Hauser to the Company, dated Form 10-K dated December 28, 1989
November 1989
10.52 - Amendment to Agreement and Option Agreement between the Form 10-K dated December 28, 1989
Company and Windmere dated December 14, 1989
10.53 - Amendment No. 2 to Credit Agreement dated as of January Registration Statement No. 33-34444
31, 1990 on Form S-1
10.54 - Agreement dated as of January 1,1990 between the Company, Registration Statement No. 33-34444
Dana, David Hauser and Nathan Katz on Form S-1
10.55 - Promissory Note executed in favor of Nathan Katz by the Registration Statement No. 33-34444
Company dated as of January 1, 1990 on Form S-1
10.56 - Promissory Note executed in favor of David Hauser by the Registration Statement No. 33-34444
Company dated as of January 1, 1990 on Form S-1
10.57 - Amendment to 1987 Stock Option Plan Registration Statement No. 33-34444 on
Form S-1
10.58 - Amendment No. 1 dated May 7, 1990 to Employment Agreement Form 10-Q dated August 17,1990
between the Company and Robert Hersh
10.59 - Amendment No. 3 to Credit Agreement dated as of March 9, Form 10-Q dated August 17, 1990
1990
10.60 - Amendment No. 4 to Credit Agreement dated as of May 31, Form 10-Q dated August 17, 1990
1990
10.61 - Assignment of Credit Agreement dated as of May 1, 1990; Form 10-Q dated August 17,1990
Credit Facility between the Company and SunTrust
</TABLE>
Page 58
<PAGE>
<TABLE>
<S> <C> <C>
10.62 - Lease between Dana and H & K Realty Trust dated as of Form 10-Q dated August 17, 1990
April 1, 1990
10.63 - Lease between the Company and Paragon regarding the Dallas Form 10-Q dated August 17, 1990
Facility, dated October 16, 1989
10.64 - Amendment dated as of April 1, 1990 to Employment Amendment No. 1 to Registration Statement No.
Agreement between Dana, the Company and Nathan Katz 33-34444 on Form S-1
10.65 - Amendment dated as of April 1, 1990 to Employment Amendment No. 1 to Registration Statement No.
Agreement between Dana, the Company and David Hauser 33-34444 on Form S-1
10.66 - Amendment dated as of August 27, 1990 to Employment Amendment No. 1 to Registration Statement No.
Agreement between the Company and John H. Browder 33-34444 on Form S-1
10.67 - Amendment dated as of August 27, 1990 to Employment Amendment No. 1 to Registration Statement No.
Agreement between the Company and Robert Hersh 33-34444 on Form S-1
10.68 - Amendment dated as of August 27, 1990 to Employment Amendment No. 1 to Registration Statement No.
Agreement between the Company and Dean S. Rappaport 33-34444 on Form S-1
10.69 - Amendment dated as of August 27, 1990 to Employment Amendment No. 1 to Registration Statement No.
Agreement between the Company and William D. Stewart 33-34444 on Form S-1
10.70 - Amendment to 1987 Stock Option and Stock Appreciation Form 10-K dated January 14, 1990
Rights Plan
10.71 - Amendment to dated October 1, 1990 to Employment Agreement Form 10-K dated January 14, 1990
between the Company and Dean S. Rappaport
10.72 - First Amendment to Credit Agreement dated November 1, 1990 Form 10-K dated January 14, 1990
between the Company and Sun Bank
10.73 - Second Amendment to Credit Agreement dated January 11, Form 10-K dated January 14, 1990
1991 between the Company and Sun Bank
10.74 - Third Amendment to Credit Agreement dated March 7, 1991 Form 10-Q for the quarter ended March 31, 1991
between the Company and Sun Bank
10.75 - Amendment to Employment Agreement dated April 8, 1991 Form 10-Q for the quarter ended March 31, 1991
between the Company and Robert Hersh
10.76 - Amended and Restated Credit Agreement dated September 30, Form 8 Amendment No. 2 to Form 10-Q dated June
1991 between the Company and Sun Bank 30, 1991
10.77 - Certain equipment leases between the Company and various Form 10-K dated December 18, 1991
equipment leasing companies
10.78 - First Amendment to Amended and Restated Credit Agreement Form 10-K dated December 18, 1991
dated December 1, 1991
10.79 - Joint Venture Agreement dated as of January 14, 1992 Form 10-Q for the quarter ended March 31, 1992
between Catalina Lighting, Inc. O'Design Ceramics, Inc.
Catalina Canada Lighting Inc. and Danny Lavy, as amended
10.80 - Employment Agreement dated April 1, 1992 between Catalina Form 10-Q for the quarter ended March 31, 1992
Lighting, Inc. and Janet P. Ailstock
10.81 - Second Amended and Restated Credit Agreement among the Form 10-Q for the quarter ended March 31, 1992
Company and Sun Bank, National Association dated as of
June 19, 1992
10.82 - Amendments to Employment Agreements between the Company Form 10-K dated December 10, 1992
and Messrs Hersh, Rappaport and Stewart dated as of
October 1, 1992
10.83 - Amendment, dated January 26, 1993 between the Company and Form 10-Q for the quarter ended December 31,
David Moss 1992
10.84 - First Amendment to Second Amended and Restated Credit Form 10-Q for the quarter ended December 31,
Facility dated as of June 19, 1992 1992
</TABLE>
Page 59
<PAGE>
<TABLE>
<S> <C> <C>
10.85 - Second Amendment to Second Amended and Restated Credit Form 10-Q for the quarter ended
Agreement Among the Company and Sun Bank, National March 31, 1993
Association, dated April 30, 1993
10.86 - Amendment dated as of October 1, 1993 to Employment Form 10-K dated December 28, 1993
Agreement between the Company and Robert Hersh
10.87 - Amendment dated as of October 1, 1993 to Employment Form 10-K dated December 28, 1993
Agreement between the Company and Dean Rappaport
10.88 - Amendment dated as of October 1, 1993 to Employment Form 10-K dated December 28, 1993
Agreement between the Company and William D. Stewart
10.89 - Agreement dated September 29, 1993 between Catalina Form 10-K dated December 28, 1993
Lighting, Inc. and Shunde No. 1 Lamp Factory
10.90 - Agreement dated October 1, 1993 between Dana Lighting, Form 10-Q for the quarter ended December 31,
Inc., Catalina Lighting, Inc., and Nathan Katz terminating 1993
the 1989 Employment Agreement
10.91 - The Employment Agreement dated October 1, 1993 between Form 10-Q for the quarter ended December 31,
Dana Lighting, Inc., Catalina Lighting, Inc., and Nathan 1993
Katz
10.92 - Note Agreement dated March 15, 1994 among the Company and Form 10-Q for the quarter ended March 31, 1994
Massachusetts Mutual Life Insurance Company, MassMutual
Corporate Investors, MassMutual Participation Investors,
S.O. P.A.F. International S.A., Prudential Securities,
Inc. and Jefferies Group, Inc.
10.93 - Second Amended Employment Agreement among the Company and Form 10-Q for the quarter ended March 31, 1994
Janet P. Ailstock dated April 1, 1994.
10.94 - Agreement dated December 30, 1993 among the Company, Danny Form 10-Q for the quarter ended March 31, 1994
Lavy, Susan Lavy and Les Investissements Lavy, Inc.
10.95 - Third amended and restated credit agreement among Catalina Form 10-Q for the quarter ended June 30, 1994
Lighting, Inc. and Sun Bank, National association, dated
May 12, 1994
10.96 - Letter of commitment between Catalina Lighting Canada Form 10-Q for the quarter ended June 30, 1994
(1992), Inc. and National bank of Canada dated May 19, 1994
10.97 - Consulting Agreement between Catalina Lighting, Inc. and Form 10-Q for the quarter ended June 30, 1994
Henry Gayer dated July 6, 1994
10.98 - Purchase Agreement among Catalina Lighting, Inc. and the Form 8-K dated August 9, 1994
Stockholders of Go-Gro Industries, Ltd.
10.99 - Employment Agreement by and among Go-Gro Industries and Form 8-K dated August 9, 1994
Mr. Lau
10.100.1 - Financial statements of Go-Gro Industries Ltd. for the Amendment No.2 to Form 8-K filed December 15,
year ended July 31, 1994 1994
10.100.2 - Financial statements of Go-Gro Industries Ltd. for the Amendment No.1 to Form 8-K filed October 13,
years ended July 31, 1993 and 1992 1994
10.100.3 - Financial statements of CIPEL Development Ltd. for the Amendment No.1 to Form 8-K filed October 13,
year ended July 31, 1994 1994
10.100.4 - Financial Statements of CIPEL Development Limited for the Amendment No.1 to Form 8-K filed October 13,
years ended July 31, 1993 and 1992 1994
10.100.5 - Financial Statements of Lamp Depot Limited for the period Amendment No.1 to Form 8-K filed October 13,
from September 23, 1994 (date of incorporation) to July 1994
31, 1994
10.100.6 - Amended Financial Statements of Go-Gro Industries Limited Amendment No. 2 to Form 8-K/A dated December
15, 1994
</TABLE>
Page 60
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<TABLE>
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10.101 - First amendment to third amended and restated credit Form 10-K dated December 28, 1994
agreement among Catalina Lighting, Inc. and Sun Bank,
National Association, dated August 12, 1994
10.102 - Contract for the Sale and Purchase of Real Estate by and Form 10-K dated December 28, 1994
between Lauderdale County Economic Development District,
Meridian Lamps, Inc. and Jansko, Inc. dated November 1,
1994
10.103 - Mississippi Small Enterprise Development Finance Act Loan Form 10-K dated December 28, 1994
Agreement among Mississippi Business Finance Corporation
(acting for and on behalf of the State of Mississippi),
Bank of Mississippi (as Servicing Trustee) and Meridian
Lamps, Inc. dated November 1, 1994
10.104 - $1,200,000 Mortgage Deed and Security Agreement and Form 10-K dated December 28, 1994
Mortgage Note issued by the Company in favor of
Mississippi Business Finance Corporation dated September
28, 1994
10.105 - Agreement of Lease by and between Anker Construction Ltd. Form 10-K dated December 28, 1994
and Catalina Lighting Canada (1992), Inc. dated October
20, 1994
10.106 - Sub-Lease Agreement dated September 23, 1994 by and Form 10-K dated December 28, 1994
between the Company and Shippers Warehouse, Inc.
10.107 - Plan Administration Support Services Agreement dated Form 10-K dated December 28, 1994
September 12, 1994 by and between Catalina Lighting, Inc.
and Sun Bank, National Association
10.108 - Amended Complaint in the Matter of Holmes Products Form 10-K dated December 28, 1994
Corporation versus Dana Lighting, Inc. and Nathan Katz
10.109 - Financing agreements between Go-Gro Industries Limited and Form 10-K dated December 28, 1994
Standard Chartered Bank dated May 27, 1994
10.110 - Financing Agreement between Go-Gro Industries Limited and Form 10-K dated December 28, 1994
The Hong Kong and Shanghai Banking Corporation Limited
dated May 31, 1993
10.111 - Letter of Credit Agreement dated as of November 1, 1994 Form 10-K dated December 28, 1994
between Meridian Lamps, Inc., the Company and Sun Bank,
National Association
10.112 - Second Amendment to Third Amended and Restated Credit Form 10-Q for the quarter ended March 31, 1995
Agreement and Third Amended and Restated Stock and Notes
Pledge between Sun Bank National Association and the
Company dated February 23, 1995
10.113 - Financing Agreement between Go-Gro Industries, Ltd. and Form 10-Q for the quarter ended March 31, 1995
Standard Chartered Bank dated October 4, 1994 and amendment to
Financing Agreement dated January 5, 1995
10.114 - Third Amendment to Third Amended and Restated Credit Form 10-Q for the quarter ended June 30, 1995
Agreement and Consent dated May 1, 1995 between Catalina
Lighting and Sun Bank, National Association
10.115 - Fourth Amendment to Third Amended and Restated Credit Form 10-Q for the quarter ended June 30, 1995
Agreement and Consent dated June 30, 1995 between Catalina
Lighting and Sun Bank, National Association
10.116 - First Amendment to Note Agreement between Catalina Form 10-Q for the quarter ended June 30, 1995
Lighting and Massachusetts Mutual Life Insurance Company,
MassMutual Corporate Investors, MassMutual Participation
Investors, MassMutual Corporate Value Partners, Prudential
Securities Inc. and SO. P.A.F. International S.A. dated
June 28, 1995
10.117 - Loan Agreement between Mississippi Business Finance Form 10-Q for the quarter ended June 30, 1995
Corporation and Dana Lighting, dated May 1, 1995
10.118 - Letter of Credit Agreement between Dana Lighting, Inc. and Form 10-Q for the quarter ended June 30, 1995
Sun Bank, National Association dated May 1, 1995, and as
amended on June 30, 1995
</TABLE>
Page 61
<PAGE>
<TABLE>
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10.119 - Shenzhen Municipal Agreement to transfer rights to use Form 10-Q for the quarter ended June 30, 1995
land dated April 11, 1995
10.120 - Construction Loan Agreement between Sun Bank, National Form 10-Q for the quarter ended June 30, 1995
Association and Dana Lighting dated May 1, 1995
10.121 - Indenture of Trust dated May 1, 1995, relating to $10.5 Form 10-Q for the quarter ended June 30, 1995
million Mississippi Business Finance Corporation Taxable
Variable Rate Industrial Development Revenue Bonds Series
1995
10.122 - Shenzhen Municipal Construction Contract dated January 4, Form 10-Q for the quarter ended June 30, 1995
1995
10.123 - Final Design and Construction Contract between Catalina Form 10-Q for the quarter ended June 30, 1995
Industries, Inc., d/b/a Dana Lighting and Jesco, Inc. dated
June 20, 1995
10.124 - Sublease Agreement between Catalina Lighting, Inc. and Form 10-Q for the quarter ended June 30, 1995
Shippers Warehouse and Agreement between Catalina
Lighting, Inc. and Shippers Warehouse, Inc. and S & W
Warehouse, Inc. effective June 15, 1995 as to sell warehouse
equipment.
10.125 - Land purchase Agreement dated March 31, 1995 between Form 10-Q for the quarter ended June 30, 1995
Community Development Foundation and Dana Lighting, Inc.
10.126 - Fifth amendment to Third Amended and Restated Credit Form 10-K dated December 27, 1995
Agreement dated December 4, 1995 between Catalina Lighting
and SunTrust Bank, Central Florida, National Association
f/k/a SunTrust, National Association
10.127 - Contract to amend Cooperative Joint Venture Contract Form 10-K dated December 27, 1995
between Shenzhen Baoanqu Fuda Industries Co. (SJE) and
Go-Gro Industries, Ltd. dated May 27, 1995
10.128 - Second Amendment to Note Agreement between Catalina Form 10-K dated December 27, 1995
Lighting and Massachusetts Mutual Life Insurance Company,
MassMutual Corporate investors, MassMutual Participation
Investors, MassMutual Corporate Value Partners, Ltd.,
Prudential Securities Inc. and SO. P.A.F. International
S.A. dated September 30, 1995
10.129 - Sixth Amendment to third Amended and Restated Credit Form 10-Q for the Quarter ended December 31,
Agreement dated December 28, 1995, between Catalina 1995
Lighting, Inc. and Sun Trust Bank, Central Florida,
National Association f/k/a SunTrust, National Association
10.130 - Second Amendment to Letter of Credit Agreement and First Form 10-Q for the Quarter ended December 31,
Amendment to Security Agreement between Catalina 1995
Industries, Inc. d/b/a Dana Lighting and SunTrust Bank,
Central Florida, National Association f/k/a SunTrust,
National Association
10.131 - Seventh Amendment to third Amended and Restated Credit Form 10-Q for the Quarter ended March 31, 1996
Agreement dated March 18, 1996, between Catalina Lighting,
Inc. and Sun Trust Bank, Central Florida, National
Association
10.132 - Third Amendment to Letter of Credit greement dated March Form 10-Q for the Quarter ended March 31, 1996
27, 1996 between Catalina Industries, Inc. d/b/a Dana
Lighting and SunTrust Bank, Central Florida, National
Association f/k/a SunTrust, National Association
10.133 - Third Amendment to Employment Agreement dated April 1, Form 10-Q for the Quarter ended March 31, 1996
1996 between Catalina Lighting, Inc. and Janet P. Ailstock
10.134 - License Agreement dated April 26, 1996 between Form 10-Q for the Quarter ended March 31, 1996
Westinghouse Electric Corporation and Catalina Lighting,
Inc.
10.135 - Press Release dated July 18, 1996 Form 8-K dated July 18, 1996
10.136 - Complaint in the matter of BLACK & DECKER (U.S.), INC., Form 10-Q for the Quarter ended June 30, 1996
BLACK & DECKER INC. VS. CATALINA LIGHTING, INC., Case No.
96-1042-A, in the United States District Court, Eastern
Division of Virginia
</TABLE>
Page 62
<PAGE>
<TABLE>
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10.137 - Financing Agreement between Catalina Lighting Canada Form 10-K dated December 27, 1996
(1992), Inc. and National Bank of Canada dated May 1, 1996
10.138 - Lease Financing Agreement between Go-Gro Industries Ltd. Form 10-K dated December 27, 1996
and The Hong Kong and Shanghai Banking Corporation
Limited dated October 30, 1996
10.139 - Eighth Amendment to Third Amended and Restated Credit Form 10-Q for the Quarter ended December 31,
Agreement, third Amendment to second Amended and Restated 1996
Security Agreement, and Fourth Amendment to Third Amended
and Restated stock and Notes Pledge dated October 4, 1996
between Catalina Lighting, Inc. and SunTrust Bank,
Central Florida, national Association.
10.140 - Ninth Amendment to Third Amended and Restated Credit Form 10-Q for the Quarter ended March 31, 1997
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 Form 10-Q for the Quarter ended March 31, 1997
December 30, 1996 between Catalina Industries, Inc. and
SunTrust Bank, Central Florida, National Association.
10.142 - Tenth Amendment to Third Amended and Restated Credit Form 10-Q for the Quarter ended March 31, 1997
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 Form 10-Q for the Quarter ended March 31, 1997
31, 1997 between Catalina Industries, Inc. and SunTrust
Bank, Central Florida, National Association.
10.144 - Restated Articles of Association for Shenzhen Jiadianbao Form 10-Q for the Quarter ended March 31, 1997
Electrical Products Co., Ltd., a Cooperative Joint
Venture Company dated October 18, 1996
10.145 - Contract to Amend Cooperative Joint Venture Contract Form 10-Q for the Quarter ended March 31, 1997
between Shenzhen Baoanqu Fuda Industries Co., and
Go-Gro Industries, Ltd. dated October 18, 1996
10.146 - Financing Agreement between Go-Gro Industries, Ltd. and Form 10-Q for the Quarter ended June 30, 1997
Standard Chartered Bank dated May 12, 1997.
10.147 - Employment and non-compete agreement dated April 1, 1997 Form 10-Q for the Quarter ended June 30, 1997
between Go-Gro Industries Ltd. and Wai Check Lau.
10.148 - Amendment to Financing Agreement between Catalina Form 10-K dated December 24, 1997
Lighting Canada (1992), Inc. and National Bank of Canada
dated October 17, 1997
10.149 - Eleventh Amendment to Third Amended and Restated Credit Form 10-K dated December 24, 1997
Agreement dated September 30, 1997 between Catalina
Lighting, Inc. and SunTrust bank, Central Florida,
National Association.
10.150 - Sixth Amendment to Letter of Credit Agreement dated Form 10-K dated December 24, 1997
September 30, 1997 between Catalina Industries, Inc. and
SunTrust bank, Central Florida, National Association.
10.151 - First Amendment to Shenzhen Municipal Construction Form 10-K dated December 24, 1997
Contract dated January 30, 1996.
10.152 - First Amendment to the Loan Agreement among Mississippi Form 10-K dated December 24, 1997
Business Finance Corporation, Bank of Mississippi,
SunTrust Bank and Meridian Lamps, Inc. dated August 28,
1997.
10.153 - Escrow Agreement between Mississippi Business Finance Form 10-K dated December 24, 1997
Corporation, Meridian Lamps, Inc. and Bank of Mississippi
dated August 28, 1997.
10.154 - Seventh Amendment to Letter of Credit Agreement between Form 10-Q for the Quarter ended March 31, 1998
Catalina Industries, Inc. and SunTrust Bank, Central
Florida, N.A. dated December 31, 1997.
</TABLE>
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<TABLE>
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10.155 - Twelfth Amendment to Third Amended and Restated Credit Form 10-Q for the Quarter ended March 31, 1998
Agreement between Catalina Lighting, Inc. and SunTrust
Bank, Central Florida, N.A. dated December 31, 1997.
10.156 - Second Amendment to Financing Agreement between Catalina Form 10-Q for the Quarter ended March 31, 1998
Lighting Canada (1992), Inc. and National Bank of Canada
dated December 19, 1997.
10.157 - Eighth Amendment to Letter of Credit Agreement between Form 10-Q for the Quarter ended March 31, 1998
Catalina Industries, Inc. and SunTrust Bank, Central
Florida, N.A. dated March 31, 1998.
10.158 - Thirteenth Amendment to Third Amended and Restated Credit Form 10-Q for the Quarter ended March 31, 1998
Agreement between Catalina Lighting, Inc. and SunTrust
Bank, Central Florida, N.A. dated March 31, 1998.
10.159 - Lease Agreement between Dana Realty Trust and Catalina Form 10-Q for the Quarter ended June 30, 1998
Industries dated July 23, 1998.
10.160 - Offer to Lease from Catalina Lighting Canada, Inc. to TAG Form 10-Q for the Quarter ended June 30, 1998
Quattro Inc dated March 12, 1998.
10.161 - Change in Control Agreement between Thomas M. Bluth and Form 10-Q for the Quarter ended June 30, 1998
Catalina Lighting dated May 7, 1998.
10.162 - Change in Control Agreement between David W. Sasnett and Form 10-Q for the Quarter ended June 30, 1998
Catalina Lighting dated May 7, 1998.
10.163 - Ninth Amendment to Letter of Credit Agreement between Filed herewith
Catalina Industries, Inc. and SunTrust Bank, Central
Florida, N.A. dated September 30, 1998.
10.164 - Fourteenth Amendment to Third Amended and Restated Credit Filed herewith
Agreement between Catalina Lighting, Inc. and SunTrust
Bank, Central Florida, N.A. dated September 30, 1998.
11 - Computation of Diluted Earnings (loss) Per Share Filed herewith
21 - Subsidiaries of the Registrant Filed herewith
23 - Consent of Deloitte & Touche LLP Filed herewith
27.1 - Financial data schedule Filed herewith
27.2 - Financial data schedule Filed herewith
</TABLE>
Page 64
<PAGE>
(b) REPORTS ON FORM 8-K:
None.
(c) UNDERTAKING:
For the purposes of complying with the amendments to the rules
governing Form S-8 (effective July 13, 1990) under the Securities Act of 1933
(the "1933 Act"), the undersigned Registrant hereby undertakes as follows, which
understanding shall be incorporated by reference into Registrant's Registration
Statements on Form S-8 Nos. 33-23900, 33-33292, 33-62378 and 33-94016.
Insofar as indemnification for liabilities arising under the 1933 Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the 1933 Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit of proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the 1933 Act and will be governed by the final
adjudication of such issue.
Page 65
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
CATALINA LIGHTING, INC.
By: /S/ ROBERT HERSH
---------------------------------
Robert Hersh, Chairman, President,
Chief Executive Officer and Director
December 24, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons of behalf of the
Company and in the capacities and on the dates indicated.
By:/S/ DEAN S. RAPPAPORT December 24, 1998
---------------------------------
Dean S. Rappaport, Director,
Executive Vice President, and
Chief Operating Officer
By:/S/ WILLIAM D. STEWART December 24, 1998
---------------------------------
William D. Stewart, Director,
Executive Vice President
By:/S/ DAVID W. SASNETT December 24, 1998
---------------------------------
David W. Sasnett,
Chief Financial Officer,
Senior Vice President,
Chief Accounting Officer
By:/S/ RYAN BURROW December 24, 1998
---------------------------------
Ryan Burrow, Director
By:/S/ HENRY LATIMER December 24, 1998
---------------------------------
Henry Latimer, Director
By:/S/ JEFFREY SILVERMAN December 24, 1998
---------------------------------
Jeffrey Silverman, Director
By:/S/ LEONARD SOKOLOW December 24, 1998
---------------------------------
Leonard Sokolow, Director
Page 66
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<TABLE>
<CAPTION>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
<S> <C> <C>
3.3 - Amended and Restated By-Laws Filed herewith
10.163 - Ninth Amendment to Letter of Credit Agreement between Filed herewith
Catalina Industries, Inc. and SunTrust Bank, Central
Florida, N.A. dated September 30, 1998.
10.164 - Fourteenth Amendment to Third Amended and Restated Credit Filed herewith
Agreement between Catalina Lighting, Inc. and SunTrust
Bank, Central Florida, N.A. dated September 30, 1998.
11 - Computation of Diluted Earnings (loss) Per Share Filed herewith
21 - Subsidiaries of the Registrant Filed herewith
23 - Consent of Deloitte & Touche LLP Filed herewith
27.1 - Financial data schedule Filed herewith
27.2 - Financial data schedule Filed herewith
</TABLE>
EXHIBIT 3.3
AMENDED AND RESTATED
BY-LAWS
OF
CATALINA LIGHTING, INC.
(A Florida Corporation)
ARTICLE 1
DEFINITIONS
As used in these by-laws, unless the context otherwise requires, the
term:
1.1. Assistant Secretary" means an Assistant Secretary of the
Corporation.
l.2. "Assistant Treasurer" means an Assistant Treasurer of the
Corporation,
l.3. "Board" means the Board of Directors of the Corporation.
1.4. "By-laws" means the initial by-laws of the Corporation, as amended
from time to time.
1.5. "Certificate of the Incorporation" means the initial certificate
of incorporation of the Corporation, as amended, supplemented or restated from
time to time.
l.6. "Corporation" means CATALINA LIGHTING, INC.
1.7. "Directors" means directors of the Corporation.
1.8. "General Corporation Act" means the Florida General Corporation
Act of the State of Florida, as amended from time.
<PAGE>
1.9. "Office of the Corporation" means the executive office of the
Corporation.
1.10. "President" means the President of the Corporation.
1.11. "Secretary" means the Secretary of the Corporation.
1.12. "Stockholders" means stockholders of the Corporation.
1.13. "Tota1 number of directors" means the total number of directors
determined in accordance with Section 607.114 of the General Corporation Act and
Section 3.2 of the By-laws.
1.14. "Treasurer" means the Treasurer of the Corporation.
1.15. "Vice President" means Vice President of the Corporation.
1.16. "Whole Board" means the total number of Directors of the
Corporation.
ARTICLE 2
STOCKHOLDERS
2.1. PLACE OF MEETINGS. Every meeting of stockholders shall be held at
the office of the Corporation or at such other place within or without the state
of Florida as shall be specified or fixed in the notice of such meeting or in
the waiver of notice thereof.
-2-
<PAGE>
2.2. ANNUAL MEETING. A meeting of stockholders shall be held annua1ly
for the election of directors and the transaction of other business at such hour
and on such business day as may be determined by the Board and designated in the
notice of meeting.
2.3. DEFERRED MEETING FOR ELECTION OF DIRECTORS, ETC. If the annual
meeting of stockholders of the election of directors and the transaction of
other business is not held within the months specified in Section 2.2, the Board
shall call a meeting of stockholders for the election of directors and the
transaction of other business as soon thereafter as convenient.
2.4. OTHER SPECIAL MEETINGS. A special meeting of stockholders (other
than a special meeting for the election of directors), unless otherwise
prescribed by statute, may be called at any time by the Board or by the
President or by the Secretary. At any special meeting of stockholders only such
business may be transacted as is related to the purpose or purposes of such
meeting set forth in the notice thereof given pursuant to Section 2.6 of the
By-laws or in any waiver of notice thereof giver pursuant to Section 2.7 of the
By-laws.
2.5. FIXING RECORD DATE. For the purpose of determining the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or for the purpose of determining stockholders entitled to
-3-
<PAGE>
receive payment of any dividend or other distribution or allotment of any
rights, or entitled to exercise any rights in respect of any change, conversion
or exchange of stock, or for the purpose of any other lawful action, the Board
may fix, in advance, a date as the record date for any such determination of
stockholders. Such date shall not be more than sixty nor less than ten days
before the date of such meeting, nor more than sixty days prior to any other
action. If no such record date is fixed:
2.5.1 The record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be at the close
of business on the day next preceding the day on which notice is given,
or, if notice is waived, at the close of business on the day next
preceding the day on which the meeting is held;
2.5.2 The record date for determining stockholders entitled to
express consent to corporate action in writing without a meeting, when
no prior action by the Board is necessary, shall be the day on which
the first written consent is expressed;
2.5.3 The record sate for determining stockholders for any
purpose other than those specified in Sections 2.5.1 and 2.5.2 shall be
at the close of
-4-
<PAGE>
business on the day on which the Board adopts the resolution relating
thereto.
When determination of stockholders entitled to notice of or to vote at any
meeting of stockholders has been made as provided in this Section 2.5 such
determination shall apply to any adjournment thereof, unless the Board fixes a
new record date for the adjourned meeting.
2.6. NOTICE OF MEETINGS OF STOCKHOLDERS. Except as otherwise provided
in Sections 2.5 and 2.7 of the By-laws, whenever under the General Corporation
Act or the Certificate of Incorporation or the By-laws, stockholders are
required or permitted to take any action at a meeting, written notice shall be
given stating the place, date and hour of the meeting and, in the case of a
special meeting, the purpose or purposes which which the meeting is called. A
Copy of the notice of any meeting shall be given, personally or by mail, not
less than ten nor mor than sixty days before the date of the meeting, to each
stockholder entitled to notice of or to vote at such meeting. If mailed, such
notice shall be deemed to be given when deposited in the United States mail,
with postage prepaid, directed to the stockholder at his address as it appears
on the records of the Corporation. An affidavit of the Secretary or an Assistant
Secretary or of the transfer agent of the Corporation that the notice required
by this section has been given shall, in the absence of fraud, be prima facie
evidence of the facts stated
-5-
<PAGE>
therein. When a meeting is adjourned to another time or place, notice need not
be given of the adjourned meeting if the time and place thereof are announced at
the meeting at which the adjournment is taken, and at the adjourned meeting any
business may be transacted that might have been transacted at the meeting as
originally called. If, however, after the adjournment a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote at the meeting.
2.7. WAIVERS OF NOTICE. Whenever notice is required to be given to any
stockholder under any provision of the General Corporation Act or the
Certificate of Incorporation or the By-laws, a written waiver thereof, signed by
the stockholder entitled to notice, whether before or after the time stated
therein, shall be deemed equivalent to notice, Attendance of a stockholder at a
meeting shall constitute a waiver of notice of such meeting, except when the
stockholder attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. Neither the business to be transacted at,
nor the purpose of, any regular or special meeting of the stockholders need be
specified in any written waiver of notice.
2.8. LIST OF STOCKHOLDERS. The Secretary shall prepare and make, or
cause to be prepared and made, at least ten
-6-
<PAGE>
days before every meeting of stockholders, a complete list of the stockholders
entitled to vote at the meeting, arranged in alphabetical order, and showing the
address of each stockholder and the number of shares registered in the name of
each stockholder. Such list shall be open to the examination of any stockholder,
for any purpose germane to the meeting, during ordinary business hours, for a
period of at least ten days prior to the meeting, either at a place within the
city where the meeting is to be held, which place shall be specified in the
notice of the meeting, or, if not so specified, at the place where the meeting
is to be held. The list shall also be produced and kept at the time and place of
the meeting during the whole time thereof, and may be inspected by any
stockholder who is present.
2.9. QUORUM OF STOCKHOLDERS; ADJOURNMENT. The holders of one-third of
the shares of stock entitled to vote at any meeting of stockholders, present in
person or represented by proxy, shall constitute a quorum for the transaction of
any business at such meeting. When a quorum is once present to organize a
meeting of stockholders, it is not broken by the subsequent withdrawal of any
stockholders. The holders of a majority of the shares of stock present in person
or represented by the proxy at any meeting of stockholders, including an
adjourned meeting, whether or not a quorum is present, may adjourn such meeting
to another time and place.
-7-
<PAGE>
2.10. VOTING; PROXIES. Unless otherwise provided in the Certificate of
Incorporation every stockholder of record shall be entitled at every meeting of
stockholders to one vote for each share of capital stock standing in his name on
the record of stockholders determined in accordance with Section 2.5 of the
By-laws. If the Certificate of Incorporation provides for more or less than one
vote for any shares, on any matter, every reference in the By-laws or the
General Corporation Act to a majority or other proportion of stock shall refer
to such majority or other proportion of the votes of such stock. The provisions
of Section 607.097 of the General Corporation Act shall apply in determining
whether any shares of capital stock may be voted and the persons, if any,
entitled to vote such shares; but the Corporation shall be protected in treating
the persons in whose names shares of capital stock stand on the record of
stockholders as owners thereof for all purposes. At any meeting of stockholders
(at which a quorum was present to organize the meeting), all matters, except as
otherwise provided by law or by the Certificate of Incorporation or by the
By-laws, shall be decided by a majority of the votes cast at such meeting by the
holders of shares present in person or represented by proxy and entitled to vote
thereon, whether or not a quorum is present when the vote is taken. All
elections of directors shall by by written ballot unless otherwise provided in
the Certificate of Incorporation. In voting on any other question on which a
-8-
<PAGE>
vote by ballot is required by law or is demanded by any stockholder entitled to
vote, the voting shall be by ballot. Bach ballot shall be signed by the
stockholder voting or by his proxy, and shall state the number of shares voted.
On all other questions, the voting may be VIVA VOCE. Every stockholder entitled
to vote at a meeting of stockholders or to express consent or dissent to
corporate action in writing without a meeting may authorize another person or
persons to act for him by proxy. The validity and enforceability of any proxy
shall be determined in accordance with Section 607.101 of the General
Corporation Act.
2.11. SELECTION AND DUTIES OF INSPECTORS AT MEETINGS OF STOCKHOLDERS.
The Board, in advance of any meeting of stockholders, may appoint one or more
inspectors to act at the meeting or any adjournment thereof. If inspectors are
not so appointed, the person presiding at such meeting may, and on the request
of any stockholder entitled to vote thereat shall, appoint one or more
inspectors. In case any person appointed fails to appear or act, the vacancy may
be filled by appointment made by the Board in advance of the meeting or at the
meeting by the person presiding thereat. Each inspector, before entering upon
the discharge of his duties, shall take and sign an oath faithfully to execute
the duties of inspector at such meeting with strict impartiality and according
to the best of his ability. The inspector or inspectors shall determine the
number
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of shares outstanding and the voting power of each, the shares represented at
the meeting, the existence of a quorum, the validity and effect of proxies, and
shall receive votes, ballots or consents, hear and determine all challenges and
questions arising in connection with the right to vote, count and tabulate all
votes, ballots or consents, determine the result, and do such acts as are proper
to conduct the election or vote with fairness to all stockholders. On request of
the person presiding at the meeting or any stockholder entitled to vote thereat,
the inspector or inspectors shall make a report in writing of any challenge,
question or matter determining by him or them and execute a certificate of any
fact found by him or them. Any report or certificate made by the inspector or
inspectors shall be prima facie evidence of the facts stated and of the vote as
certified by him or them.
2.12. ORGANIZATION. At every meeting of stockholders, the Chairman of
the Board, or in the absence of the Chairman of the Board the President, or in
the absence of the President and the Chairman of the Board a Vice President, and
in case more than one Vice President shall be present, the Vice President
designated by the Board (or in the absence of any such designation, the most
senior Vice President, based on age, present), shall act as chairman of the
meeting. The Secretary, or in his absence one of the Assistant Secretaries,
shall act as secretary of the meeting. In case one of the officers above
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designated lot act as chairman or secretary of the meeting, respectively, shall
not be present, a chairman or secretary of the meeting, as the case may be,
shall be chosen by a majority of the votes cast at such meting by the holders of
shares of capital stock present in person or represented by proxy and entitled
to vote at the meeting.
2.13. ORDER OF BUSINESS. The order of business at all meetings of
stockholders shall be as determined by the chairman of the meeting, but the
order of business to be followed at any meeting at which a quorum is presently
may be changed by a majority of the votes cast at such meeting by the holders of
shares of capital stock present in person or represented by proxy and entitled
to vote at the meeting.
2.14. WRITTEN CONSENT OF STOCKHOLDERS WITHOUT A MEETING. Unless
otherwise provided in the Certificate of Incorporation, any action required by
the General Corporation Act to be taken at any annual or special meeting of
stockholders of the Corporation, or any action which may be taken at any annual
or special meeting of such stockholders, may be taken without a meeting, without
prior notice and without a vote, if a consent in writing, setting forth the
action so taken, shall be signed by the holders of outstanding stock having not
less than the minimum number of votes that would be necessary to authorize or
take such action at a meeting at which all shares entitled to vote thereon were
present and voted. Prompt notice of the taking of the
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corporate action without a meeting by less than unanimous written consent shall
be given to those stockholders who have consented in writing.
ARTICLE 3
DIRECTORS
3.1. GENERAL POWERS. Except as otherwise provided in the Certificate of
Incorporation, the business and affairs of the Corporation shall be managed by
or under the direction of the Board. The Board may adopt such rules and
regulations, not inconsistent with the Certificate of Incorporation or the
By-laws or applicable laws, as it may deem proper for the conduct of its
meetings and the management of the Corporation. In addition to the powers
expressly conferred by the By-laws, the Board may exercise all powers and
perform all acts which are not required, by the By-laws or the Certificate of
Incorporation or by law, to be exercised and performed by the stockholders.
3.2. NUMBER; QUALIFICATION; TERM OF OFFICER. The Board shall consist of
one or more members. The total number of directors shall be fixed initially by
the incorporator and may thereafter be changed from time to time by action of
the stockholders or by action of the Board. Directors need not be stockholders.
Each director shall hold office until successor is elected and qualified or
until his earlier death, resignation or removal.
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3.3. ELECTION. Directors shall, except as otherwise required by law or
by the Certificate of Incorporation, be elected by a plurality of the votes cast
at a meeting of stockholders by the holders of shares entitled to vote in the
election.
3.4. NEWLY CREATED DIRECTORSHIPS AND VACANCIES. Unless otherwise
provided in the Certificate of Incorporation, created directorships resulting
from an increase in the number of directors and vacancies occurring in the Board
for any other reason, including the removal of directors without cause, may be
filled by vote of a majority of the directors then in office, although less than
a quorum, or by a sole remaining director, or may be elected by a plurality of
the votes cast by the holders of shares of capital stock entitled to vote in the
election at a special meeting of stockholders called for that purpose. A
director elected to fill a vacancy shall be elected to hold office until his
successor is elected and qualified, or until his earlier death, resignation or
removal.
3.5. RESIGNATIONS. Any director may resign at any time by written
notice to the Corporation. Such resignation shall take effect at the time
therein specified, and, unless otherwise specified, the acceptance of such
resignation shall not be necessary to make it effective.
3.6. REMOVAL OF DIRECTORS. Subject to the provisions of Section 607.117
of the General Corporation Act, any or all of
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the directors may be removed with or without cause, by the holders of a majority
of the shares then entitled to vote at an election of directors.
3.7. COMPENSATION. Each director, In consideration of his service as
such, shall be entitled to receive from the Corporation such amount per annum or
such fees for attendance at directors' meetings, or both, as the Board may from
time to time determine, together with reimbursement for the reasonable expenses
incurred by him in connection with the performance of his duties. Each director
who shall serve as a member of any committee of directors in consideration of
his serving as such shall be entitled to such additional amount per annum or
such fees for attendance at committee meetings, or both, as the Board may from
time to time determine, together with reimbursement for the reasonable expenses
incurred by him in the performance of his duties. Nothing contained in this
section shall preclude any director from serving the Corporation or its
subsidiaries in any other capacity and receiving proper compensation therefor.
3.8. PLACE AND TIME OF MEETINGS OF THE BOARD. Meetings of the Board,
regular or special, may be held at any place within or without the State of
Florida. The times and places for holding meetings of the Board may be fixed
from time to time by resolution of the Board or (unless contrary to resolution
of the Board) in the notice of the meeting.
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3.9. ANNUAL MEETINGS. On the day when and at the place where the annual
meeting of stockholders for the election of directors is held, and as soon as
practicable thereafter, the Board may hold its annual meeting, without notice of
such meeting, for the purposes of organization, the election of officers and the
transaction of other business. The annual meeting of the Board may be held at
any other time and place specified in a notice given as provided in Section 3.11
of the By-laws for special meetings of the Board or in a waiver of notice
thereof.
3.10. REGULAR MEETINGS. Regular meetings of the Board may be held at
such times and places as may be fixed from time to time by the Board. Unless
otherwise required by the Board, regular meetings of the Board may be held
without notice. If any day fixed for a regular meeting of the Board shall be a
Saturday or Sunday or a legal holiday at the place where such meeting is to be
held, then such meeting shall be held at the same hour at the same place on the
first business day thereafter which is not a Saturday, Sunday or legal holiday.
3.11. SPECIAL MEETINGS. Special meetings of the Board shall he held
whenever called by the Chairman of the Board, the President or the Secretary or
by any two or more directors. Notice of each special meeting of the Board shall,
if mailed, be addressed to each director at the address designated by him for
that purpose or, if none is designated, his last known address at
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least two (2) days before the date on which the meeting is to held; or such
notice shall be sent to each director at such address by telecopy, telegraph,
cable or wireless, or be delivered to him personally, not later than the date on
which such meeting is to be held. Every such notice shall state the time and
place of the meeting but need not state the purpose of the meeting, except to
the extent required by law. If mailed, each notice shall be deemed given when
deposited with postage thereon prepaid, in a post office or official depository
under the exclusive care and custody of the United States Post Office
Department. Such mailing shall be by first class mail.
3.12. ADJOURNED MEETINGS. A majority of the directors present at any
meeting of the Board, including an adjourned meeting, whether or not a quorum is
present, may adjourn such meeting to another time and place. Notice of any
adjourned meeting of the Board need not be given to any director whether or not
present at the time of the adjournment. Any business may be transacted at any
adjourned meeting that might have been transacted at the meeting as originally
called.
3.13. WAIVER OF NOTICE. Whenever notice is required to be given to any
director or member of a committee of directors under any provision of the
General Corporation Act or of the Certificate of Incorporation or By-laws, a
written waiver thereof, signed by the person entitled to notice, whether before
or after the time stated therein, shall be deemed equivalent to
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notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the directors, or members of a committee of directors, need be specified in
any written waiver of notice.
3.14. ORGANIZATION. At each meeting of the Board, the Chairman of the
Board, or in the absence of the Chairman the President, or in the absence of
both the Chairman and the President, a chairman chosen by a majority of the
directors present, shall preside. The Secretary shall act as secretary at each
meeting of the Board. In case the Secretary shall be absent from any meeting of
the Board, an Assistant Secretary shall perform the duties of secretary at such
meeting; and in the absence from any such meeting of the Secretary and Assistant
Secretaries, the person presiding at the meeting may appoint any person to act
as secretary of the meeting.
3.15. QUORUM OF DIRECTORS. A majority of the total number of directors
shall constitute a quorum for the transaction of business or any specified item
of business at any meeting of the Board.
3.16. ACTION BY THE BOARD. All corporate action taken by the Board or
any committee thereof shall be taken at a meeting
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of the Board, or of such committee, as the case may be, except that any action
required or permitted to be taken at any meeting of the Board, or of any
committee thereof, may be taken without a meeting if all members of the Board or
committee, as the case may be, consent thereto in writing, and the writing or
writings or filed with the minutes of proceedings of the Board or committee,
Members of the Board, or any committee designated by the Board, may participate
in a meeting of the Board, or of such committee, as the case may be, by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and participation in a
meeting pursuant to this Section 3.16 shall constitute presence in person at
such meeting. Except as otherwise provided by the Certificate of Incorporation
or by law, the vote of a majority of the directors present (including those who
participate by means of conference telephone or similar communications
equipment) at the time of the vote, if a quorum is present at such time, shall
be the act of the Board.
ARTICLE 4
COMMITTEES OF THE BOARD
The Board may, by resolution passed by a majority of the whole Board,
designate one or more committees, each committee to consist of one or more of
the directors of the Corporation. The Board may designate one or more directors
as alternate members of any committee, who may replace any absent or
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disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum may unanimously appoint another member of the Board to
act at the meeting in the place of any such absent or disqualified member. Any
such committee, to the extent provided in the resolution of the Board, shall
have and may exercise all the powers and authority of the Board in the
management of the business and affairs of the Corporation, and may authorize the
seal of the Corporation to be affixed to all papers which may require it; but no
such committee shall have the power or authority in reference to amending the
Certificate of Incorporation, adopting an agreement of merger or consolidation,
recommending to the stockholders the sale, lease or exchange of all or
substantially all of the Corporation's property and assets, recommending to the
stockholders a dissolution of the Corporation or a revocation of a dissolution,
or amending the By-laws of the Corporation; and, unless the resolution
designating it expressly so provides, no such committee shall have the power or
authority to declare a dividend or to authorize the issuance of stock.
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ARTICLE 5
OFFICERS
5.1. OFFICERS. The Board shall elect a Chairman of the Board, a
President, a Secretary and a Treasurer, and may elect or appoint one or more
Vice Presidents and such other officers as it may determine. The Board may
designate one or more Vice Presidents as Executive or Senior vice President.
Such other officers and assistant officers and agents as may be deemed necessary
may be elected or appointed by the Board of Directors from time to time.
5.2. VACANCIES. A vacancy in an office because of death, resignation,
removal, disqualification or any other cause shall be filled for the unexpired
portion of the term in the manner prescribed in the By-laws for the regular
election or appointment to such office.
5.3. COMPENSATION. Salaries or other compensation of the officers may
be fixed from time to time by the Board. No officer shall be prevented from
receiving a salary or other compensation by reason of the fact that he is also a
director.
5.4. CHAIRMAN OF THE BOARD. The Chairman of the Board shall, if
present, preside at all meetings of the stockholders and at all meetings of the
Board.
5.5. PRESIDENT. The President shall be the chief executive officer of
the Corporation and shall have general supervision over the business of the
Corporation, subject,
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however, to the control of the Board and of any duly authorized committee of
directors. He may, with the Secretary or the Treasurer or an Assistant Secretary
or Assistant Treasurer, sign certificates for shares of capital stock of the
Corporation. He may sign and execute in the name of the Corporation deeds,
mortgages, bonds, contracts and other instruments, except in cases where the
signing and execution thereof shall be expressly delegated by the Board or by
the By-laws to some other officer or agent of the Corporation, or shall be
required by law otherwise to be signed or executed; and in general, he shall
perform all duties incident to the office of President and such other duties as
from time may be assigned to him by the Board.
5.6. VICE PRESIDENTS. At the request of the President or, in his
absence, at the request of the Board, the Vice President shall (in such order as
may be designated by the Board or, in the absence of any such designation, in
order of seniority based on age) perform all of the powers of and by subject to
all restrictions upon the President. Any vice President may also, with the
Secretary or the Treasurer or an Assistant Secretary or an Assistant Treasurer,
sign certificates for shares of capital stock of the Corporation; may sign and
execute in the name of the Corporation deeds, mortgages, bonds, contracts or
other instruments authorized by the Board, except in cases where the signing and
execution thereof shall be expressly delegated by the Board or by the By-laws to
some other officer or agent of the
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Corporation, or shall be required by law otherwise to be signed or executed; and
shall perform such other duties as from time to time may be assigned to him by
the Board or by the President.
5.7. SECRETARY. The Secretary, if present, shall act as secretary of
all meetings of the stockholders and of the award, and shall keep the minutes
thereof in the proper book or books to be provided for that purpose; he shall
see that all notices required to be given by the Corporation are duly given and
served; he may, with the President or a Vice President, sign certificates for
shares of capital stock of the Corporation; he shall be custodian of the seal of
the Corporation and may seal with the seal of the Corporation, or a facsimile
thereof, all certificates for shares of capital stock of the Corporation and all
documents the execution of which on behalf of the Corporation under its
corporate seal is authorized in accordance with the provisions of the By-laws;
he shall have charge of the stock ledger and also of the other books, records
and papers of the Corporation, and shall see that the reports, statements and
other documents required by law are properly kept and filed; and shall, in
general, perform all the duties incident to the office of Secretary and such
other duties as from time to time may be assigned to him by the Board or by the
President.
5.8. TREASURER. The Treasurer shall have charge and custody of, and be
responsible for, all funds, securities and notes of the Corporation; receive and
give receipts for moneys
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due and payable to the Corporation from any sources whatsoever; deposit all such
moneys in the name of the Corporation in such banks, trust companies or other
depositories as shall be selected in accordance with these By-laws; against
proper vouchers, cause such funds to be disbursed by checks or drafts on the
authorized depositories of the Corporation signed in such manner as shall be
determined in accordance with any provisions of the By-laws, and be responsible
for the accuracy of the amounts of all moneys to disbursed; regularly enter or
cause to be entered in books to be kept by him or under his supervision a record
of moneys paid by him for the account of the Corporation; have the right to
require, from time to time, reports or statements giving such information as he
may desire with respect to any and all financial transactions of the Corporation
from officers or agents transacting the same; render to the President or the
Board, whenever the President or the Board, respectively, shall require him so
to do, an account of the financial condition of the Corporation and of all his
transactions as Treasurer; exhibit at all reasonable times his books of account
and other records to any of the directors upon application at the office of the
Corporation where such books and records are kept; in general, perform all the
duties incident to the office of Treasurer and such other duties as from time to
time may be assigned to him by the Board or by the President; and have the power
to sign, with
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the President or a Vice President, certificates for shares of capital stock of
the Corporation.
5.9. ASSISTANT SECRETARIES AND ASSISTANT TREASURERS. Assistant
Secretaries and Assistant Treasurers shall perform such duties as shall be
assigned to them by the Secretary or by the Treasurer, respectively, or by the
Board or by the President. Assistant Secretaries and Assistant Treasurers may,
with the President or a Vice President, sign certificates for shares of capital
stock of the Corporation.
ARTICLE 6
CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC.
6.1. EXECUTION OF CONTRACTS. The Board may authorize any officer,
employee or agent, in the name and on behalf of the Corporation, to enter into
any contract or execute and satisfy any instrument, and any such authority may
be general or confined to specific instances, or otherwise limited.
6.2. LOANS. The President or any other officer, employee or agent
authorized by the By-laws or by the Board may effect loans and advances at any
time for the Corporation from any bank, trust company or other institutions or
from any firm, corporation or individual and for such loans and advances may
make, execute and deliver promissory notes, bonds or other certificates or
evidences of indebtedness of the Corporation and, when authorized by the Board
so to do, may pledge and hypothecate or transfer any securities or other
property of the Corporation
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as security for any such loans or advances. Such authority conferred by the
Board may be general or confined to specific instances or otherwise limited.
6.3. CHECKS, DRAFTS, ETC. All checks, drafts and other orders for the
payment of money out of the funds of the Corporation and all notes or other
evidences of indebtedness of the Corporation shall be signed on behalf of the
Corporation in such manner as shall from time to time be determined by
resolution of the Board.
6.4. DEPOSITS. The funds of the corporation not otherwise employed
shall be deposited from time to time to the order of the Corporation in such
banks, trust companies or other depositories as the Board may select or as may
be selected by an officer, employee or agent of the Corporation to whom such
power may from time to time be delegated by the Board.
ARTICLE 7
STOCKS AND DIVIDENDS
7.1. CERTIFICATES REPRESENTING SHARES. The shares of capital stock of
the Corporation shall be represented by certificates in such form (consistent
with the provisions of section 158 of the General corporation Act) as shall be
approved by the Board, Such certificates shall be signed by the President or a
Vice President and by the Secretary or an Assistant Secretary and may be sealed
with the seal of the Corporation or a facsimile thereof. The signatures of the
officer upon a
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certificate may be facsimiles, if the Certificate is countersigned by a transfer
agent or registrar other than the Corporation itself or its employee. In case
any officer, transfer agent or registrar who has signed or whose facsimile
signature has been placed upon any certificate shall have ceased to be such
officer, transfer agent or registrar before such certificate is issued, such
certificate may, unless otherwise ordered by the Board, be issued by the
Corporation with the same effect as if such person were such officer, transfer
agent or registrar at the date of issue.
7.2. TRANSFER OF SHARES. Transfers of shares of capital stock of the
Corporation shall be made only on the books of the Corporation by the holder
thereof or by his duly authorized attorney appointed by a power of attorney duly
executed and filed with the Secretary or a transfer agent of the Corporation,
and on surrender of the certificate or certificates representing such shares of
capital stock property endorsed for transfer and upon payment of all necessary
transfer taxes. Every certificate exchanged, returned or surrendered to the
Corporation shall be marked "Cancelled", with the date of cancellation, by the
Secretary or an Assistant Secretary or the transfer agent of the Corporation. A
person in whose name shares of capital stock shall stand on the books of the
Corporation shall be deemed the owner thereof to receive dividends, to vote as
such owner and for all other purposes as respects the Corporation. No transfer
of
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shares of capital stock shall be valid as against the Corporation, its
stockholders and creditors for any purpose, except to render the transferee
liable for the debts of the Corporation to the extent provided by law, until
such transfer shall have been entered on the books of the Corporation by an
entry showing from and to whom transferred.
7.3. TRANSFER AND REGISTRY AGENTS. The Corporation may from time to
time maintain one or more transfer offices or agents and registry offices or
agents at such place or places as may be determined from time to time by the
Board.
7.4. LOST, DESTROYED, STOLEN AND MUTILATED CERTIFICATES. The holder of
any shares of capital stock of the Corporation shall immediately notify the
Corporation of any loss, destruction, theft or mutilation of the certificate
representing such shares, and the Corporation may issue a new certificate to
replace the certificate alleged to have been lost, destroyed, stolen or
mutilated. The Board may, in its discretion, as a condition to the issue of any
such new certificate, require the owner of the lost, destroyed, stolen or
mutilated certificate, or his legal representatives, to make proof satisfactory
to the Board of such loss, destruction, theft or mutilation and to advertise
such fact in such manner as the Board may require, and to give the Corporation
and its transfer agents and registrars, or such of them as the award may
require, and to give the Corporation and its transfer agents and registrars, or
such of
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them as the Board may require, a bond in such form, in such sums and with such
surety or sureties as the Board may direct, to indemnify the Corporation and its
transfer agents and registrars against any claim that may be made against any of
them on account of the continued existence of any such certificate so alleged to
have been lost, destroyed, stolen or mutilated and against any expense in
connection with such claim.
7.5. REGULATIONS. The Board may make such rules and regulations as it
may deem expedient, not inconsistent with the By-laws or with the Certificate of
Incorporation, concerning the issue, transfer and registration of certificates
representing shares of its capital stock.
7.6. RESTRICTION ON TRANSFER OF STOCK. A written restriction on the
transfer or registration of transfer of capital stock of the Corporation, if
permitted by Section 607.067 of the General Corporation Act and noted
conspicuously on the certificate representing such capital stock, may be
enforced against the holder of the restricted capital stock or any successor or
transferee of the holder including an executor, administrator, trustee, guardian
or other fiduciary entrusted with like responsibility for the person or estate
of the holder. Unless noted conspicuously on the certificate representing such
capital stock, a restriction even though permitted by section 601.067 of the
General Corporation Act, shall be ineffective except against a person with
actual knowledge of the restriction.
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A restriction on the transfer or registration of transfer of capital stock of
the Corporation may be imposed either by the Certificate of Incorporation or by
an agreement among any number of stockholders or among such stockholders and the
Corporation.
No restriction imposed shall be binding with respect to capital stock
issued prior to the adoption of the restriction unless the holders of such
capital stock are parties to an agreement or voted in favor of the restriction.
7.7. DIVIDENDS, SURPLUS, ETC. Subject to the provisions of the
Certificate of Incorporation and of the law, the Board:
7.7.1 May declare and pay dividends or make other
distributions on the outstanding shares of capital stock in such
amounts and at such time or times as, in its discretion, the condition
of the affairs of the Corporation shall render advisable;
7.7.2 May use and apply, in its discretion any of the surplus
of the Corporation in purchasing or acquiring any shares of capital
stock of the Corporation, or purchase warrants therefor, in accordance
with law, or any of its bonds, debentures, notes, script or other
securities or evidences of indebtedness;
7.7.3 May set aside from time to time out of such surplus or
net profits such sum or sums as, in its
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discretion, it may think proper, as a reserve fund to meet
contingencies, or for equalizing dividends or for the purpose of
maintaining or increasing the property or business of the Corporation,
or for any purpose it may think conducive to the best interests of the
Corporation.
ARTICLE 8
INDEMNIFICATION
8.1. INDEMNIFICATION OF OFFICERS AND DIRECTORS. The Corporation shall
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative, by reason of the fact that he
is or was a director or an officer of the Corporation, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding to the fullest extent and in the manner set forth in and permitted by
the General Corporation Act, and any other applicable law, as from time to time
in effect. Such right of indemnification shall not be deemed exclusive of any
other rights to which such director or officer may be entitled apart from the
foregoing provisions. The foregoing provisions of this Section 8.1 shall be
deemed to be a contract between the Corporation and each director and officer
who serves in such capacity at any time
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while this Article 8 and the relevant provisions of the General Corporation Act
and other applicable laws if any, are in effect, and any repeal or modification
thereof shall not affect any rights or obligations then existing with respect to
any state of facts then or theretofore existing or any action, suit or
proceeding theretofore or thereafter brought or threatened based in whole or in
part upon any such state of facts.
8.2. INDEMNIFICATION OF OTHER PERSONS. The Corporation may indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative by reason of the fact that he is or
was an employee or agent of the Corporation, or is or was serving at the request
of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding to the extent and in the manner set forth in and
permitted by the General Corporation Act, and any other applicable law, as from
time to time in effect. Such right of indemnification shall not be deemed
exclusive of any other rights to which any such person may be entitled apart
from the foregoing provisions.
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8.3. INSURANCE. The Corporation shall have the power to purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against him and incurred by him in any such capacity, or arising out of
his status as such, whether or not the Corporation would have the power to
indemnify him against such liability under the provisions of Section 8.1 and 8.2
of the By-laws or under Section 607.014 of the General Corporation Act or any
other provision of law.
ARTICLE 9
BOOKS AND RECORDS
9.1. BOOKS AND RECORDS. The Corporation shall keep correct and complete
books and records of account and shall keep minutes of the proceedings of the
stockholders, the Board and any committee of the Board. The Corporation shall
keep at the office designated in the Certificate of Incorporation or at the
office of the transfer agent or registrar of the Corporation, a record
containing the names and addresses of all stockholders, the number and class of
shares held by each and the dates when they respectively became the owners of
record thereof.
9.2. FORM OF RECORDS. Any records maintained by the Corporation in the
regular course of its business, including its
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<PAGE>
stock ledger, books of account, and minute books, may be kept on, or be in the
form of, punch cards, magnetic tape, photographs, microphotographs, or any other
information storage device, provided that the records so kept can be converted
into clearly legible written form within a reasonable time. The Corporation
shall so convert any records so kept upon the request of any person entitled to
inspect the same.
9.3. INSPECTION OF BOOKS AND RECORDS. Except as otherwise provided by
law, the Board shall determine from time to time whether, and, if allowed, when
and under what conditions and regulations, the accounts, books, minutes and
other records of the Corporation, or any of them, shall be open to the
inspection of the stockholders.
ARTICLE 10
SEAL
The Board may adopt a corporate seal which shall be in the form of a
circle and shall bear the full name of the Corporation, the year of its
incorporation and the word "Florida".
ARTICLE 11
FISCAL YEAR
The fiscal year of the Corporation shall be determined, and may be
changed, by resolution of the Board.
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<PAGE>
ARTICLE 12
VOTING OF SHARES HELD
Unless otherwise provided by resolution of the Board, the President
may, from time to time, appoint one or more attorneys or agents of the
Corporation, in the name and on behalf of the Corporation, to cast the votes
which the Corporation may be entitled to cast as a stockholder or otherwise in
any other corporation, any of whose shares or securities may be held by the
Corporation, at meetings of the holders of stock or other securities of such
other corporation, or to consent in writing to any action by any such other
corporation, and may instruct the person or persons so appointed as to the
manner of casting such votes or giving such consent, and may execute or cause to
be executed on behalf of the Corporation and under its corporate seal, or
otherwise, such written proxies, consent, waiver or other instruments as he may
deem necessary or proper in the premises or the President may himself attend any
meeting of the holders of the stock or other securities of any such other
corporation and thereat vote or exercise any or all other powers of the
Corporation as the holder of such stock or other securities of such other
corporation.
ARTICLE 13
AMENDMENTS
The By-laws may be altered, amended, supplemented or repealed, or new
By-laws may be adopted, by vote of the holders
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<PAGE>
of the shares entitled to vote in the election of directors. The By-laws may be
altered, amended, supplemented or repealed, or new By-laws may be adopted, by
the Board. Any By-laws adopted, altered, amended, or supplemented by the Board
may be altered, amended, or supplemented or repealed by the stockholders
entitled to vote thereon.
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<PAGE>
AMENDMENT NO. 2
TO
THE AMENDED AND RESTATED BY-LAWS OF CATALINA LIGHTING, INC.
1. The By-laws of Catalina Lighting, Inc. are hereby amended by the
deletion in its entirety of section 2.5.2 and the addition of the
following section 2.5.2:
SECTION 2.5. FIXING RECORD DATE
2.5.2 The record date for determining stockholders entitled
to express consent to corporate action in writing without a meeting
shall not be more than ten days from the date upon which the resolution
fixing the record date is adopted by the Board of Directors; provided
that any stockholder of record seeking to have the stockholders
authorize or take corporate action by written consent shall deliver
to the Secretary of the Corporation a notice setting forth the
information required under Section 2.15 of these By-Laws respecting
such proposed corporate action and requesting the Board of Directors to
fix a record date for purposes of determining stockholders entitled to
express consent to corporate action in writing, and the Board of
Directors shall promptly, but in all events within 10 days after the
days after the date on which such a request is received, adopt a
resolution fixing the record date; provided, further, that if no record
date is set by the Board within 10 days of the date on which a notice
and request meeting the requirements of this Section 2.5.2 is received,
the record date for determining stockholders entitled to express
consent to corporate action in writing without a meeting, when no prior
action of the Board of Directors is required by law, shall be the first
date on which a signed written consent setting forth the action taken
or proposed to be taken is delivered to the Corporation in accordance
with applicable law, or, if prior action by the Board of Directors is
required by law, shall be at the close of business on the day on which
the Board of Directors adopts the resolution taking such prior action.
2. The By-Laws of Catalina Lighting, Inc. are further amended by
the addition of the following section 2.15:
SECTION 2.15. NOMINATIONS AND STOCKHOLDER BUSINESS.
(a) To be properly brought before an annual meeting of stochholders,
nominations of persons for election to the Board of Directors of the Corporation
and the proposal of business to be considered by the stockholders at an annual
meeting of stockholders must be either (i) specified in the notice of meeting
(or any supplement thereto) given by or at the direction of the Board of
Directors (or any duly authorized committee thereof), (ii) otherwise properly
brought before the annual meeting by or at the direction of the President, the
Chairman of the Board of Directors or by vote of a majority of the full Board of
Directors, or (iii) otherwise brought before the annual meeting by any
stockholder of the Corporation who is a stockholder of record on the date of
the giving of the notice provided for in Section 2.5. who is entitled to vote at
the meeting and who complied with the notice procedures set forth in this
Section 2.15.
<PAGE>
(b) For nominations or other business to be properly brought before an
annual meeting by a stockholder under this Section 2.15, the stockholder must
have given timely notice thereof in writing to the Secretary of the Corporation
and such business must be a proper subject for stockholder action under the
Florida Business Corporation Act ("FBCA"). To be timely, a stockholder's notice
must be delivered to the Secretary at the principal executive offices of the
Corporation not less than 120 days prior to the first anniversary of the
preceding year's annual meeting; provided, however, that if the date of the
annual meeting is advanced by more than 40 days or delayed by more than 40 days
from such anniversary date, then notice by the stockholder to be timely must be
delivered not later than the close of business on the later of the 120th day
prior to the annual meeting or the 10th day following the day on which the date
of the meeting is publicly announced. Such stockholder's notice must set
forth (i) as to each person whom the stockholder proposes to nominate for
election or reelection as a director all information relating to such person
that is required to be disclosed in solicitations of proxies for election of
directors, or is otherwise required, in each case pursuant to Regulation 14A
under the Securities Exchange Act of 1934, as amended (the "Exchange Act")
(including such person's written consent to being named in the proxy statement
as a nominee and to serving as a director if elected); (ii) as to any other
business that the stockholder proposes to bring before the meeting, a brief
description of the business desired to be brought before the meeting, the
reasons for conducting such business at the meeting and any material interest in
such business of such stockholder and the beneficial owner, if any, on whose
behalf the proposal is made; and (iii) as to the stockholder giving the notice
and the beneficial owners, if any, on whose behalf the nomination or proposal is
made (A) the name and address of such stockholder, as they appear on the
Corporation's books, and of such beneficial owner, (B) the number of shares of
the Corporation which are owned (beneficially or of record) by such stockholder
and such beneficial owner, (C) a description of all arrangements or
understandings between such stockholder and such beneficial owner and any other
person or persons (including their names) in connection with the proposal of
such business by such stockholder and any material interest of such stockholder
and of such beneficial owner in such business, and (D) a representation that
such stockholder or its agent or designee intends to appear in person or by
proxy at the annual meeting to bring such business before the meeting.
(c) Notwithstanding anything in this Section 2.15 to the contrary, if
the number of directors to be elected to the Board of Directors of the
Corporation is increased and there is no public announcement specifying the size
of the increased Board of Directors made by the Corporation at least 120 days
prior to the first anniversary of the preceding year's annual meeting, than a
stockholder's notice required by this Section 2.15 will also be considered
timely, but only with respect to nominees for any new positions created by such
increase, if it is delivered to the Secretary at the principal executive offices
of the Corporation not later than the close of business on the 10th day
following the day on which such public announcement is first made by the
Corporation.
(d) Only such business may be conducted at a special meeting of
stockholders as has been brought before the meeting pursuant to the
Corporation's notice of meeting. Nominations of persons for election to the
Board of Directors may be made at a special meeting of stockholders at which
directors are to be elected pursuant to the Corporation's notice of meeting (i)
by or at the direction of the Board of Directors or (ii) by any stockholder of
the Corporation who is a stockholder of record at the time of giving the notice
required by this Section 2.15, who is entitled to vote at the meeting and who
complies with the notice procedures set forth in this Section 2.15. Nominations
by stockholders of persons for election to the Board of Directors may be made at
such a
<PAGE>
special meeting of Stockholders if the stockholder's notice required by this
Section 2.15 is delivered to the Secretary at the principal executive offices of
the Corporation not later than the close of business on the later of the 120th
day prior to such special meeting or the 10th day following the day on which
public announcement is first made of the date of the special meeting and of the
nominees proposed by the Board of Directors to be elected at such meeting.
(e) Only those persons who are nominated in accordance with the
procedures set forth in this section 2.15 will be eligible for election as
directors at any meeting of stockholders. Only business brought before the
meeting in accordance with the procedures set forth in this Section 2.15 may be
conducted at a meeting of stockholders. The chairman of the meeting has the
power and duty to determine whether a nomination or any business proposed to be
brought before the meeting was made in accordance with the procedures set forth
in this Section 2.15 and, if any proposed nomination or business is not in
compliance with this Section 2.15, to declare that such defective proposal shall
be disregarded.
(f) For purposes of this Section 2.15, "public announcement" shall
include disclosure in a press release reported by the Dow Jones News Service,
Associated Press, Business Wire, PR Newswire or comparable national news service
or in a document publicly filed by the Corporation with the Securities and
Exchange Commission pursuant to the Exchange Act.
(g) Notwithstanding the foregoing provisions of this Section 2.15,
a stockholder shall also comply with all applicable
requirements of the Exchange Act and the rules and regulations
thereunder with respect to the matters set forth in this
Section 2.15. Nothing in this Section 2.15 shall be deemed to
remove any obligation of stockholders to comply with the
requirements of Rule 14a-8 under the Exchange Act with respect
to proposals requested to be included in the Corporation's
proxy statement pursuant to said Rule 14a-8.
3. This amendment is effective December 28, 1998.
EXHIBIT 10.163
NINTH AMENDMENT TO
LETTER OF CREDIT AGREEMENT
THIS NINTH AMENDMENT TO LETTER OF CREDIT AGREEMENT (the "Ninth
Amendment") dated as of September 30, 1998 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, as further amended by that certain Fourth
Amendment to Letter of Credit Agreement dated as of December 30, 1996, as
further amended bY that certain Fifth Amendment to Letter of Credit Agreement
dated as of March 31, 1997, as further amended by that certain Sixth Amendment
to Letter of Credit Agreement dated as of September 30, 1997, as further amended
by that certain Seventh Amendment to Letter of Credit Agreement dated as of
December 31, 1997, and as further amended by that certain Eighth Amendment to
Letter of Credit Agreement dated as of March 31, 1998 (as amended, the "Letter
of Credit Agreement"); and
WHEREAS, the Company and the Guarantors have requested that the Letter
of Credit Agreement be amended to revise certain financial covenants contained
in Annex VI attached to said Letter of Credit Agreement and incorporated therein
by reference; and
WHEREAS, the Bank has agreed to amend the Letter of Credit Agreement to
provide for the foregoing, subject to the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. AMENDMENTS TO LETTER OF CREDIT AGREEMENT. The Letter of Credit
Agreement is amended as follows:
<PAGE>
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
the following:
"Section 5.12. MINIMUM CONSOLIDATED TANGIBLE NET WORTH PLUS
SUBORDINATED DEBT. Permit its Minimum Consolidated tangible net worth
plus Subordinated Debt to be less than $36,000,000.00 from the date
hereof until September 29, 1996; $39,000,000.00 from September 30, 1996
until March 30, 1997; $34,500,000.00 from March 31, 1997 until June 29,
1997; $35,000,000.00 from June 30, 1997 until September 29, 1997;
$35,500,000.00 from September 30, 1997 until December 30, 1997;
$35,750,000.00 from December 31, 1997 until March 30, 1997;
$36,250,000.00 from March 31, 1998 until June 29, 1998; $37,250,000.00
from June 30, 1998 until September 29, 1998; $38,250,000 from September
30, 1998 until December 30, 1998; $38,750,000.00 from December 31, 1998
until March 30, 1999; $39,250,000.00 from March 31, 1999 until June 29,
1999; $40,250,000.00 from June 30, 1999 until September 29,1999;
$41,250,000.00 from September 30, 1999 until December 30, 1999;
$41,750,000.00 from December 31, 1999 until March 30, 2000; and
$42,250,000.00 as at March 31, 2000 and at all times thereafter
provided, however, in the event Catalina Lighting, Inc. purchases up to
$2,000,000.00 worth of its issued and outstanding publicly traded
common stock and at the time of said purchase there is no default under
any other provision of the Credit Agreement, then the Minimum
Consolidated Tangible Net Worth Plus Subordinated Debt covenant amounts
provided above shall be reduced by the amount of said stock purchases
up to, but not to exceed, $2,000,000.00.
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 the
following:
"Section 5.14. INTEREST COVERAGE RATIO. Permit the ratio of (a) the sum
of (i) Consolidated Pre-tax Income PLUS
2
<PAGE>
(ii) Consolidated Interest Charges to (b) Consolidated Interest
Charges, to be less than 1.0:1 for the one (1) calendar quarterly
period ending December 31, 1995; less than 0.60:1 for the immediately
preceding two (2) calendar quarterly periods ending March 31, 1996;
less than 1.25:1 for the immediately preceding three ( 3) calendar
quarterly periods ending June 30, 1996; less than 1.75:1 for the
immediately preceding four (4) calendar quarterly period ending
September 30, 1996; less than 1.25:1 for the immediately preceding four
(4) calendar quarterly periods ending December 31, 1996; excluding the
effect of the actual pretax charge to earnings previously disclosed to
the Agent and the Banks not to exceed $9,859,826.00 incurred during the
quarterly period ending March 31, 1997, less than 1.00:1 for the
immediately preceding four (4) calendar quarterly periods ending March
31, 1997; excluding the effect of the actual pretax charge to earnings
not to exceed $432,000.00 incurred during the quarterly period ending
June 30, 1997 for all calculations for which said quarterly period is
included, less than 1.50:1 for the one (1) calendar quarterly period
ending June 30, 1997; less than 1.75:1 for the immediately preceding
two (2) calendar quarterly periods ending September 30, 1997; less than
1.40:1 for the immediately preceding three (3) calendar quarterly
periods ending December 31, 1997; less than 1.30:1 for the immediately
preceding four (4) calendar quarterly periods ending March 31, 1998;
less than 1.35:1 for the immediately preceding four (4) calendar
quarterly periods ending June 30, 1998; less tha 1.35:1 for the
immediately proceeding four (4) calander quarterly periods ending
September 30, 1998; less than 1.35:1 for the immediately preceeding
four (4) calander quarterly periods ending December 31, 1998; and less
than 2.00:1 for the immediately preceeding four (4) calander quarterly
3
<PAGE>
periods ending on the last day of each calendar quarter thereafter."
c. Section 5.18(g), contained in Annex VI attached to the Letter of
Credit Agreement, is hereby deleted and, in lieu thereof, there is substituted
the following:
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 $3,250,000.00 of said
aggregate amount shall represent the aggregate amount of investments,
loans and advances made to Catalina Lighting Mexico, S.A. DE C.V. For
the purpose of this subsection, the $21,000,000.00 limitation referred
to above shall not include the net note receivable from Catalina Asia
in the amount not to exceed $1,000,000.00.
2. COUNTERPARTS. The 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 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 Ninth 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
Ninth 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 NINTH AMENDMENT SHALL BE EFFECTIVE UPON ACCEPTANCE BY THE
BANK IN FLORIDA AND SHALL BE CONSTRUED IN
4
<PAGE>
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)
5
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Ninth 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
6
<PAGE>
MERIDIAN LAMPS DEVELOPMENT, INC.
By: /s/ THOMAS M. BLUTH
----------------------------------
Thomas M. Bluth
Secretary/Treasurer
CATALINA ADMINISTRATIVE CORPORATION
By: /s/ THOMAS M. BLUTH
----------------------------------
Thomas M. Bluth
Assistant Secretary
BANK:
SUNTRUST BANK, CENTRAL FLORIDA,
NATIONAL ASSOCIATION F/K/A SUN BANK,
NATIONAL ASSOCIATION
By: /s/ DAVID E. CROW
----------------------------------
David E. Crow,
Senior Vice President
7
EXHIBIT 10.164
FOURTEENTH AMENDMENT TO
THIRD AMENDED AND RESTATED CREDIT AGREEMENT
THIS FOURTEENTH AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT
AGREEMENT (the "Fourteenth Amendment") dated as of September 30, 1998, 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").
WITNESSETH:
WHEREAS, the Borrower, the Guarantors, the Banks and the Agent have
entered into that certain Third Amended and Restated Credit Agreement dated as
of May 12, 1994, as amended by that certain First Amendment to Third Amended and
Restated Credit Agreement, Second Amended and Restated Security Agreement, Third
Amended and Restated Stock and Notes Pledge, Third Amended and Restated
Agreement Regarding Factoring Proceeds, Consent and Waiver dated as of August
12, 1994, as further amended by that Second Amendment to Third Amended and
Restated Credit Agreement and Third Amended and Restated Stock and Notes Pledge,
dated as of February 23, 1995, as further amended by that Third Amendment to
Third Amended and Restated Credit Agreement and Consent, dated as of May 1,
1995, as further amended by that Fourth Amendment to the Third Amended and
Restated Credit Agreement, dated as of June 30, 1995, as further amended by that
Fifth Amendment to Third Amended and Restated Credit Agreement, dated as of
December 4, 1995, as further amended by that Sixth Amendment to Third Amended
and Restated Credit Agreement, Second Amendment to Second Amended and Restated
Security Agreement and Second Amendment to Third Amended and Restated Stock and
Notes Pledge, dated as of December 28, 1995, as further amended by that Seventh
Amendment to Third Amended and Restated Credit Agreement, dated as of March 18,
1996, as further amended by that Eighth Amendment to Third Amended and Restated
Credit Agreement, Third Amendment to Second Amended and Restated Security
Agreement, and Fourth Amendment to Third Amended and Restated Stock and Notes
Pledge, dated as of October 4, 1996, as further amended by that Ninth Amendment
to Third Amended and Restated Credit Agreement, dated as of December 30, 1996,
as further amended by that Tenth Amendment to Third Amended and Restated Credit
Agreement, dated as of March 31, 1997, as further amended by that Eleventh
Amendment to Third Amended and Restated Credit Agreement, dated as of September
30, 1997, as further amended by that Twelfth
<PAGE>
Amendment to Third Amended and Restated Credit Agreement, dated as of December
31, 1997, and as farther amended by that Thirteenth Amendment to Third Amended
and Restated Credit Agreement, dated as of March 31, 1998 (as so amended, the
"Credit Agreement"); and
WHEREAS, the Borrower and the Guarantors have requested that the Credit
Agreement be amended to extend and reduce the Total Commitment under the Credit
Agreement and to revise certain financial and other covenants; and
WHEREAS, the principal amount of the Non-Revolving Advance has been
reduced to $1,900,000.00.
WHEREAS, First Union National Bank has requested that it be removed as
a Bank under the Credit Agreement; and
WHEREAS, the Banks (other than First Union National Bank) and the Agent
have agreed to amend the Credit Agreement to remove First Union National Bank
and 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 l.l(c) of the Credit Agreement is hereby deleted, and in
lieu thereof, there is substituted the following:
The sum of (i) the aggregate unpaid principal amount of all Revolving
Borrowings, plus (ii) one hundred percent (100%) of the principal
amount of the Non-Revolving Advance remaining outstanding, plus (iii)
the aggregate amount of all Acceptance Obligations, plus (iv) the
aggregate amount of all Standby Letter of Credit Obligations and Trade
Letter of Credit Obligations shall not exceed at any time
$35,000,000.00 (such amount as reduced from time to time pursuant to
the terms hereof, the "Total Commitment").
b. 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.
2
<PAGE>
Permit its Minimum Consolidated Tangible Net Worth Plus Subordinated
Debt to be less than $36,000,000.00 from the date hereof until
September 29, 1996; $39,000,000.00 from September 30, 1996 until March
30, 1997; $34,500,000.00 from March 31, 1997 until June 29, 1997;
$35,000,000.00 from June 30, 1997 until September 29, 1997;
$35,500,000.00 from September 30, 1997 until December 30, 1997;
$35,750,000.00 from December 31, 1997 until March 30, 1997;
$36,250,000.00 from March 31, 1998 until June 29, 1998; $37,250,000.00
from June 30, 1998 until September 29, 1998; $38,250,000 from September
30, 1998 until December 30, 1998; $38,750,000.00 from December 31, 1998
until March 30, 1999; $39,250,000.00 from March 31, 1999 until June 29,
1999; $40,250,000.00 from June 30, 1999 until September 29,1999;
$41,250,000.00 from September 30, 1999 until December 30, 1999;
$41,750,000.00 from December 31, 1999 until March 30, 2000; and
$42,250,000.00 as at March 31, 2000 and at all times thereafter
provided, however, in the event Catalina Lighting, Inc. purchases up to
$2,000,000.00 worth of its issued and outstanding publicly traded
common stock and at the time of said purchase there is no default under
any other provision of the Credit Agreement, then the Minimum
Consolidated Tangible Net Worth Plus Subordinated Debt covenant amounts
provided above shall be reduced by the amount of said stock purchases
up to, but not to exceed, $2,000,000.00.
c. 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)
3
<PAGE>
calendar quarterly period ending September 30, 1996; less than 1.25:1
for the immediately preceding four (4) calendar quarterly periods
ending December 31, 1996; excluding the effect of the actual pretax
charge to earnings previously disclosed to the Agent and the Banks not
to exceed $9,859,826.00 incurred during the quarterly period ending
March 31, 1997, less than 1.00:1 for the immediately preceding four (4)
calendar quarterly periods ending March 31, 1997; excluding the effect
of the actual pretax charge to earnings not to exceed $432,000.00
incurred during the quarterly period ending June 30, 1997 for all
calculations for which said quarterly period is included, less than
1.50:1 for the one (1) calendar quarterly period ending June 30, 1997;
less than 1.75:1 for the immediately preceding two (2) calendar
quarterly periods ending September 30, 1997; less than 1.40:1 for the
immediately preceding three (3) calendar quarterly periods ending
December 31, 1997; less than 1.30:1 for the immediately preceding four
(4) calendar quarterly periods ending March 31, 1998; less than 1.35:1
for the immediately preceding four (4) calendar quarterly periods
ending June 30, 1998; less than 1.35:1 for the immediately preceding
four (4) calendar quarterly periods ending September 30, 1998; less
than 1.35:1 for the immediately preceding four (4) calendar quarterly
periods ending December 31, 1998; and less than 2.00:1 for the
immediately preceding four (4) calendar quarterly periods ending on the
last day of each calendar quarter thereafter."
d. Section 5.18(g) of the Credit Agreement is hereby deleted, and in
lieu thereof, there is substituted the following:
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 $3,250,000.00 of said
aggregate amount
4
<PAGE>
shall represent the aggregate amount of investments, loans and advances
made to Catalina Lighting Mexico, S.A. DE C.V. For the purpose of this
subsection, the $21,000,000.00 limitation referred to above shall not
include the net note receivable from Catalina Asia in the amount not to
exceed $1,000,000.00.
e. The definition of "Permitted Guaranty" as defined in Section ll.l(a)
of the Credit Agreement is hereby deleted and, in lieu thereof, there is
substituted the following:
"PERMITTED GUARANTY" means a Guaranty that is (i) an endorsement of a
negotiable instrument for collection in the ordinary course of
business, (ii) subject to the limitations contained in Section 5.11, a
Guaranty of any Debt of any Guarantor, (iii) a Guaranty by the Borrower
of Operating Leases of any Guarantor reasonably required in its
ordinary operations, (iv) a Guaranty of the Debt of Go-Gro Industries
Limited, a Hong Kong corporation, for loans not in excess of Twelve
Million Dollars ($12,000,000.00), to primarily fund its working capital
needs, (v) a Guaranty of the Debt of Go-Gro Industries Limited, or the
debt of a Chinese cooperative joint venture controlled by Go-Gro
Industries Limited, for loans not in excess of S1,200,000.00 to fund
equipment purchases, or (vi) a Guaranty of the Debt of Foreign
Subsidiaries (other than Catalina Canada and Go-Gro Industries Limited)
provided that such Debt of said Foreign Subsidiaries shall not exceed
at any time the total amount of $1,000,000 and further provided that
Borrower shall notify the Agent in writing prior to guaranteeing any
Debt of said Foreign Subsidiaries.
f. The definition of "Termination Date" as defined in Section ll.l(a)
of the Credit Agreement is hereby deleted and, in lieu thereof, there is
substituted the following:
"'TERMINATION DATE' means the earlier of (i) September 30, 2000, as
extended from time to time pursuant to Section 1.4, and (ii) the date
of termination in
5
<PAGE>
whole of the Bank's Commitments pursuant to Section 1.2 or 7.2."
g. The signature pages to the Credit Agreement shall be amended as
reflected on the signature pages attached hereto.
2. AMENDMENT TO LOAN DOCUMENTS. Effective the date hereof, First Union
National Bank shall no longer be a party to the Credit Agreement and the loan
documents are hereby amended by deleting any reference to "First Union National
Bank" in each occurrence where this term appears in all loan documents.
3. COUNTERPARTS. The Fourteenth 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.
4. 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.
5. 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 Fourteenth 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
Fourteenth 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.
6. GOVERNING LAW. THIS FOURTEENTH AMENDMENT SHALL BE EFFECTIVE UPON ACCEPTANCE
BY THE BANKS IN FLORIDA AND SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED
BY THE LAWS OF THE STATE OF FLORIDA WITHOUT REGARD TO CONFLICT OF LAW
PRINCIPLES.
IN WITNESS WHEREOF, the parties have executed this Fourteenth Amendment
as of the day and year first above written.
(BALANCE OF THIS PAGE INTENTIONALLY LEFT BLANK)
6
<PAGE>
SIGNATURE PAGE TO FOURTEENTH AMENDMENT
TO THIRD AMENDED AND RESTATED CREDIT
AGREEMENT BY AND BETWEEN SUNTRUST,
AS AGENT, THE CATALINA ENTITIES
AND THE BANKS
BORROWER:
CATALINA LIGHTING, INC.
By: /s/ THOMAS M. BLUTH
----------------------------------
Thomas M. Bluth
Vice President, Secretary,
Treasurer
GUARANTORS:
EACH OF THE CORPORATIONS LISTED
ON ANNEX I HERETO
CATALINA INDUSTRIES, INC.,
D/B/A DANA LIGHTING
By: /s/ THOMAS M. BLUTH
----------------------------------
Thomas M. Bluth
Secretary, Treasurer
CATALINA REAL ESTATE TRUST, INC.
By: /s/ THOMAS M. BLUTH
----------------------------------
Thomas M. Bluth
Secretary, Treasurer
ANGEL STATION, INC.
By: /s/ THOMAS M. BLUTH
----------------------------------
Thomas M. Bluth
Secretary, Treasurer
MERIDIAN LAMPS, INC.
By: /s/ THOMAS M. BLUTH
----------------------------------
Thomas M. Bluth
Secretary, Treasurer
MERIDIAN LAMPS DEVELOPMENT, INC.
By: /s/ THOMAS M. BLUTH
----------------------------------
Thomas M. Bluth
Secretary, Treasurer
7
<PAGE>
SIGNATURE PAGE TO FOURTEENTH AMENDMENT
TO THIRD AMENDED AND RESTATED CREDIT
AGREEMENT BY AND BETWEEN SUNTRUST,
AS AGENT, THE CATALINA ENTITIES
AND THE BANKS
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
8
<PAGE>
ACKNOWLEDGMENT
STATE OF GEORGIA
COUNTY OF FULTON
On this the 28th day of September, 1998, personally appeared Thomas M.
Bluth, a Vice President of Catalina Lighting, Inc., and the Secretary-Treasurer
of Catalina Industries, Inc., Catalina Real Estate Trust, Inc., Angel Station,
Inc., Meridian Lamps, Inc., Meridian Lamps Development, Inc., Catalina
Administrative Corporation and Catalina Merchandising, Inc., and before me,
executed this Fourteenth Amendment to Third Amended and Restated Credit
Agreement dated as of September 30, 1998.
In witness whereof, I have hereunto set my hand and official seal.
/s/ CHRISTINE B. ALFORD
----------------------------------
NOTARY PUBLIC - STATE OF GEORGIA
Christine B. Alford
--------------------------------------
(Type name of notary public)
Personally known: ____________________
or produced identification: ____X_____
Type of identification produced: _____
/s/ Illegible
----------------------------------
My commission expires: _______________
Notary Public, Dekalb county, Georgia (NOTARIAL SEAL)
My Commission Expires June 29, 2001
9
<PAGE>
SIGNATURE PAGE TO FOURTEENTH AMENDMENT
TO THIRD AMENDED AND RESTATED CREDIT
AGREEMENT BY AND BETWEEN SUNTRUST,
AS AGENT, THE CATALINA ENTITIES
AND THE BANKS
AGENT:
SUNTRUST BANK, CENTRAL FLORIDA,
NATIONAL ASSOCIATION
By:
----------------------------------
David E. Crow
Senior Vice President
BANK
Amount of SUNTRUST BANK, CENTRAL FLORIDA,
Commitment: $22,000,000* NATIONAL ASSOCIATION, F/K/A SUN BANK,
NATIONAL ASSOCIATION
By:
----------------------------------
David E. Crow
Senior Vice President
Lending Office:
200 South Orange Avenue
4th Level, Tower Building
Orlando, Florida 32801
Address for purposes of Section 12.1:
SunTrust Bank, Central Florida,
National Association
200 South Orange Avenue
4th Level, Tower Building
Orlando, Florida 32801
Telex No.: 4415-11 SunBank
Telecopier No.: (407) 237-6704
Telephone No.: (407) 237-5752
Attention: Mr. David E. Crow
*($1,194,340.00 of which shall consist
only of the Non-Revolving Advance)
10
<PAGE>
ACKNOWLEDGMENT
STATE OF GEORGIA
COUNTY OF ____________
On this the _____ day of September, 1998, personally appeared
___________, a ___________________ of SunTrust Bank, Central Florida, National
Association, a national banking association, and before me, executed this
Fourteenth Amendment to Third Amended and Restated Credit Agreement as Agent and
as a Bank.
In witness whereof, I have hereunto set my hand and official seal.
_______________________________________
NOTARY PUBLIC - STATE OF GEORGIA
_______________________________________
(Type name of notary public)
Personally known: _____________________
or produced identification: ___________
Type of identification produced:_______
_______________________________________
My commission expires: ________________
(NOTARIAL SEAL)
11
<PAGE>
SIGNATURE PAGE TO FOURTEENTH AMENDMENT
TO THIRD AMENDED AND RESTATED CREDIT
AGREEMENT BY AND BETWEEN SUNTRUST,
AS AGENT, THE CATALINA ENTITIES
AND THE BANKS
BANK:
NATIONAL BANK OF CANADA,
a Canadian chartered bank
Amount of By:
Commitment: $13,000,000* ----------------------------------
Michael S. Bloomenfeld
Vice President and Manager
Lending Office:
5100 Town Center Circle
Suite 430
Boca Raton, Florida 33486
Attention: Michael S. Bloomenfeld
Reference: Catalina Lighting, Inc.
Address for purposes of Section 12.1:
National Bank of Canada
5100 Town Center Circle
Suite 430
Boca Raton, Florida 33486
Attention: Michael S. Bloomenfeld
Telecopier: (407) 367-1705
Telephone: (407) 367-1700
*($705,660.00 of which shall consist
only of the Non-Revolving Advance)
12
<PAGE>
ACKNOWLEDGMENT
STATE OF _______
COUNTY OF ______
On this the ____ day of September, 1998, personally appeared Michael S.
Bloomenfeld, a Vice President and Manager of National Bank of Canada, a Canadian
Charter Bank, and before me, executed this Fourteenth Amendment to Third Amended
and Restated Credit Agreement as a Bank.
In witness whereof, I have hereunto set my hand and official seal.
_______________________________________
NOTARY PUBLIC - STATE OF GEORGIA
______________________________________
(Type name of notary public)
Personally known: _____________________
or produced identification: ___________
Type of identification produced:_______
_______________________________________
My commission expires: ________________
(NOTARIAL SEAL)
13
CATALINA LIGHTING, INC. AND SUBSIDIARIES
EXHIBIT 11
SCHEDULE OF COMPUTATION OF DILUTED EARNINGS (LOSS) PER SHARE
<TABLE>
<CAPTION>
Years ended September 30,
-------------------------------------------
1998 1997 1996
----------- ------------- -----------
<S> <C> <C> <C>
Net income (loss) for diluted earnings
per share $ 1,102,000 $ (3,093,000) $ 1,603,000
=========== ============= ===========
Weighted average number of common shares
outstanding during the year 7,128,000 7,071,000 7,017,000
Add: common equivalent shares determined
using the "Treasury Stock" method
representing shares issuable upon exercise
of stock options and warrants and shares
issuable under contractual agreements 349,000 - 623,000
----------- ------------- -----------
Weighted average number of shares
used in calculation of diluted earnings
per share 7,477,000 7,071,000 7,640,000
=========== ============= ===========
Diluted earnings (loss) per share $ 0.15 $ (0.44) $ 0.21
=========== ============= ===========
</TABLE>
NOTE
Subordinated notes convertible into 1,040,000 common shares were not included
for all years because their effect is anti-dilutive.
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT*
Catalina Industries, Inc. (formerly Dana Lighting, Inc.), a Florida corporation
Catalina Real Estate Trust, Inc., a Florida corporation
Catalina Merchandising, Inc., a Florida corporation
Catalina Realty Trust, a Hong Kong Trust
Catalina Realty Hong Kong Limited, a Hong Kong company
Catalina Industrial, Ltd., a Hong Kong company
Catalina Lighting Canada (1992), Inc., a Quebec corporation
Trade World Industrial, Ltd., a Hong Kong company
Angel Station, Inc., a Florida corporation
Go-Gro Industries Limited, a Hong Kong company
Lamp Depot Limited, a Hong Kong company
Meridian Lamps, Inc., a Florida corporation
Meridian Lamps Development, Inc., a Florida corporation
Catalina Asia, a Hong Kong partnership
Audiopro Ltd., a Hong Kong company
Catalina Lighting Mexico, S.A. de C.V., a Mexican corporation
Golda Metal Industries Limited, a Hong Kong company
Shenzhen Jiadianbao Electrical Products Company, Limited ("SJE"),
a cooperative joint venture organized under the laws of the
People's Republic of China
* All subsidiaries, except for Golda Metal Industries which is 50% owned and the
SJE joint venture which is 100% owned as to production and 70% owned as to real
estate, are wholly-owned by the registrant.
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
Catalina Lighting, Inc.
We consent to the incorporation by reference in Registration Statement Nos.
33-23900, 33-33292, 33-62378 and 33-94016 of Catalina Lighting, Inc. on Form S-8
of our report dated December 18, 1998 appearing in this Annual Report on Form
10-K of Catalina Lighting, Inc. for the year ended September 30, 1998.
/s/ Deloitte & Touche LLP
Miami, Florida
December 28, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from 10-K and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<CASH> 1,790
<SECURITIES> 0
<RECEIVABLES> 18,395
<ALLOWANCES> 8,408
<INVENTORY> 28,257
<CURRENT-ASSETS> 55,339
<PP&E> 27,922
<DEPRECIATION> 13,168
<TOTAL-ASSETS> 98,960
<CURRENT-LIABILITIES> 28,047
<BONDS> 8,215
0
0
<COMMON> 72
<OTHER-SE> 42,252
<TOTAL-LIABILITY-AND-EQUITY> 98,960
<SALES> 161,860
<TOTAL-REVENUES> 161,860
<CGS> 130,763
<TOTAL-COSTS> 130,763
<OTHER-EXPENSES> 26,513
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,801
<INCOME-PRETAX> 1,467
<INCOME-TAX> 365
<INCOME-CONTINUING> 1,102
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,102
<EPS-PRIMARY> .15
<EPS-DILUTED> .15
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from 10-K and is
qualified in its entirety by reference to such financial statements.
Restated Yes
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> SEP-30-1996
<CASH> 1,766
<SECURITIES> 0
<RECEIVABLES> 29,644
<ALLOWANCES> 7,313
<INVENTORY> 39,648
<CURRENT-ASSETS> 76,067
<PP&E> 26,033
<DEPRECIATION> 7,099
<TOTAL-ASSETS> 117,462
<CURRENT-LIABILITIES> 36,106
<BONDS> 10,165
0
0
<COMMON> 71
<OTHER-SE> 43,903
<TOTAL-LIABILITY-AND-EQUITY> 117,462
<SALES> 184,630
<TOTAL-REVENUES> 184,630
<CGS> 153,698
<TOTAL-COSTS> 153,698
<OTHER-EXPENSES> 25,611
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,254
<INCOME-PRETAX> 2,452
<INCOME-TAX> 849
<INCOME-CONTINUING> 1,603
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,603
<EPS-PRIMARY> .23
<EPS-DILUTED> .21
</TABLE>
